The subcommittee met, pursuant to recess, in room 4232, New Senate Office Building, Hon. Harrison A. Williams, Jr., chairman, presiding. Present: Senators Williams, Javits, Schweiker, and Taft. Subcommittee staff present: Mario T. Noto, special counsel; Michael R. Schoenenberger, assistant special counsel; Frank Cummings, minority general counsel; and Michael Gordon, minority counsel. The CHAIRMAN. We will resume our hearings on S. 3598, and the other pension legislation before the Subcommittee on Labor. This morning we have Mr. E. S. Willis, manager, employee benefits, General Electric Co., also speaking as representative for the U.S. Chamber of Commerce. STATEMENT OF E. S. WILLIS, MANAGER, EMPLOYEE BENEFITS, GENERAL ELECTRIC CO., ON BEHALF OF THE U.S. CHAMBER OF COMMERCE, ACCOMPANIED BY ANDREW A. MELGARD, U.S. CHAMBER OF COMMERCE COMMITTEE EXECUTIVE Mr. WILLIS. Thank you very much. We appreciate this opportunity to present our views to the committee and to preserve the time of the committee I would like to follow, but not read all parts of, our testimony. I would appreciate it if we could have the full testimony made a part of the record. The CHAIRMAN. It will be included at the end of your testimony. Mr. WILLIS. As you have indicated, sir; my name is E. S. Willis. I am manager of employee benefits for the General Electric Co. My associate on my left is Mr. Andrew Melgard, the Committee executive of the chamber's private pension social security committee. We are speaking today on behalf of the Chamber of Commerce of the United States, representing more than 40,000 business enterprises and 3,600 trade and professional associations, local and State chambers of commerce. The underlying membership is more than 5 million individuals and firms. In general, we support amendments to strengthen and improve the protection of participants in and beneficiaries of employee welfare and pension benefit plans under the Welfare and Pension Plans Disclosure Act. We also support reasonable minimum Federal standards or regulations governing the vesting of private pensions. We support bills that would encourage individuals to save for retirement, and that would increase the present tax deferral available to the self-employed who have or establish pension plans for themselves and their employees. The growth of private pension plans is one of America's most recent success stories. Huge social and economic dividends are beginning to flow from these plans. Retirees are enjoying more economic freedom and independence as private retirement income increases. In addition, our economy has benefited from the current $150 billion in assets that are held in trust for present and future retirees. Income and continuing additions to these funds help provide this Nation with the new capital that is vital for economic growth and high employ ment. Overall, the business community has an obvious and continuing interest in all legislative proposals that would affect private pension plans and their growth. Furthermore, we are vitally concerned with any proposal that would mandate, through new Federal legislation, any burdensome and unnecessary increase in private pension costs. The national chamber takes a positive, clear-cut approach on private pension plans-one which calls for maximum encouragement of continued growth and expansion of private pension plans. At the same time, we believe that every effort should be made to prevent needless governmental restrictions on private pension growth. In short, the business community wants to see private pension plans improved and their benefits spread to more employers and employees. Employers and employees should remain free to work out pension plan arrangements best suited to their own needs and requirements. To accomplish these ends, basic principles applicable to the establishment and administration of private pension plans include: 1. A clear explanation to employees of the pension plan provisions, employee rights thereunder, and the extent of employer obligations and responsibilities. 2. The highest standards of fiduciary responsibility and effective and meaningful disclosure. 3. Provisions for vesting that will afford to a plan participant, who meets specified age and/or length of service conditions, a right to an accrued pension benefit based on his service to date of termination of employment, payable when he reaches the plan's normal retire ment age. 4. In addition, all individuals should be encouraged during their lives to build private retirement income out of earnings either on an individual or group basis. Furthermore, individuals should be permitted to exercise maximum freedom of choice in the selection of savings and investment media for personal or group retirement planning. We are concerned about the economic impact of increasing costs of doing business and shrinking profits. The long-term trend, over the last five business cycles, has been downward for after tax profits as a percent of corporate wages and salaries, and upward for supplements as a percent of such wages and salaries. We have two exhibits covering that. Our membership, therefore, is vitally concerned with any legislation that would increase employer costs for private pension plans. A futher fact of major importance is the growth of private pension plans. While pension plans were first adopted by industry as early as 1875, they began their major growth in the 1940's and 1950's. As the tabulation indicates, they are now making a significant and major contribution not only to retirement security, but to the capital market. Moving down the page a bit, you see that another table shows there are over 237,000 qualified plans, a truly astounding record of voluntary growth. In addition to private pensions, the benefits from Government administered plans to Federal civilian employees, State and local employees, and railroad employees have been increasing. In 1970, some 2,266,000 pensions totaling $6.4 billion annually were being paid to retired public and railroad employees. We believe the statistics on private pension growth show the concern of employers with helping to provide adequate retirement income and their willingness up to now to assume the heavy and long-range financial burdens that are involved. This growth has occurred voluntarily, not by compulsion. Any action that would curtail growth would be highly undesirable. While there have been statements recently suggesting that there is little Government regulation in the private pension area, the record indicates otherwise. The present rules and regulations are found principally in the Internal Revenue Code and under the Federal Welfare and Pension Plan Disclosure Act. The Internal Revenue Service provisions help assure that bona fide, definite, and essentially nondiscriminatory plans are established. The Federal Disclosure Act, passed in 1958 and amended in 1962, was initially passed on the theory of self-enforcement through public disclosure of a plan's operation. The 1962 amendments to the act gave the Secretary of Labor enforcement authority, required bonding of administrators and added criminal provisions against embezzlement, bribery, kickbacks, et cetera. The required annual report (D-2 form) has been considerably broadened into a most comprehensive and detailed 15-page document. There are, however, areas where some additional disclosure may be helpful as outlined later. Turning to the middle of page 5. The chamber seeks the highest standards of honesty in the administration of employee benefit plans. Also, we believe that employees need to better understand the values of private pension and other employee benefits. We, therefore, support suitable amendments to the Disclosure Act. Specifically, we: 1. Support the concept that administrators of pension funds should observe the highest standards of fiduciary responsibility, and favor the concept of a Federal fiduciary responsibility act for pension plan administrators and trustees. 2. Support an amendment which would bar persons convicted of certain crimes from serving as a fiduciary or consultant to a welfare or pension fund. 3. Support an amendment requiring annual audits of funds, with appropriate exceptions for those plans already subject to adequate audits by various Federal or State insurance or banking regulatory agencies. Actuarial certifications would be of value. SF → 4. Support the principle of applying a prudent man rule as the standard for the investment of employee benefit funds, and oppose any attempt to limit its effectiveness or flexibility. 5. Support adequate investigatory powers for the Secretary of Labor where he has reasonable cause to believe a violation of the act has occurred or is about to occur, but oppose giving the Secretary of Labor added powers to regulate or interfere in the management of plans in the absence of a proven need for such additional powers. 6. Support certain improved meaningful disclosure amendments, but oppose additional unnecessary disclosure requirements. For example, the requirement that calls for the details of all transactions of $100,000 or 3 percent of the fund, whichever is smaller, should be revised to eliminate the $100,000 minimum. These amendments of the Disclosure Act should have a first priority of attention in Congress. We testified in support of such legislation before the House General Subcommittee on Labor in both the 90th and 91st Congress, and we look forward to working with the members and the staff of this subcommittee. The bill does present a number of difficult matters, often of a highly technical nature, and we are concerned with excessive disclosure requirements that would serve no purpose, or perhaps be of marginal value. However, these problems can be resolved. Vesting is a right given a plan participant who meets specified age and/or length of service conditions to receive, when he reaches normal retirement age, a proportionate pension benefit based upon his service to date of termination-and that right is not dependent upon his continued employment. We support sound programs of vesting. The majority of plans do have some form of early vesting, and vesting periods are becoming shorter. During the past few years, various proposals have been made for a vesting standard for all qualified plans. There have been proposals for a "Rule-of-50", 10- or 15-year vesting, graded vesting of 10 percent a year from the sixth to 15th years of participation in a plan, or 30 percent after 8 years and 10 percent a year thereafter. We support reasonable minimum Federal standards or regulation 2. The reasonable minimum vesting standards should apply to all 3. It should allow employers a reasonable time, including the duration of existing collective bargaining agreements, to comply with the act from the date of its enactment. This is important because of the additional cost which vesting imposes on new plans, or existing plans that do not have adequate vesting provisions. Now on other issues: first, the President's message to Congress on private pensions stated that there was insufficient information "to determine what Federal policy should be on questions such as funding, the nature of the employer's liability, and termination insurance. The Departments of Labor and Treasury have been directed to undertake a study to determine the extent of benefit losses under pension plans that are terminated. |