The point I am trying to make is, we have had long experience in the pension consulting field, with large and small companies, colleges, universities, hospitals, schools, charitable organizations, law firms, accounting firms, local and State governments.

We are testifying second as a corporate employer with our own benefit program, and a darned good one, if I say so myself, which we owe primarily to the wisdom of one of our founders, H. Walter Forster, who decided at the outset that if we were to sell pension consulting advice, we should darned well know whereof we spoke, by having one of the best overall programs in the Nation ourselves.

Now, about 40 years later, our plans have undergone many revisions, our retirement plans and our death benefit plans and we still do have one of the best benefit programs around.

Our vesting in our pension plans, for example: A person is essentially 100 percent vested after 10 years of service or 5 years of service if he is age 40 or over.

Our pension plan, if we went out of business today, could finance all of the benefits that have been accrued by all of our people up to today. All employees are eligible for our pension plan. We have a compulsory retirement age of 60. The company pays the full cost of all of our plans. Liberal survivor benefits, death benefits, and disability benefits are also included.

The market value of our pension fund is considerably in excess of the net worth of our company. Mr. Forster, I should add, testified at least twice in the 1930's and early 1940's before Senate committees. One I remember particularly with both Senators Vandenburg and Taft, Forster had gone to Washington a Vandenburg man and came back a Taft booster, saying that man had done his homework.

Finally, to complete the background picture of T.P.F. & C. so you can better weigh the impact of our testimony-as a firm, we survive solely by the fees generated in selling our consulting and actuarial advice.

Our basic consulting philosophy is very simple: Good benefit plans are profit producing, not profit reducing. Corporations are not eleemosynary institutions giving away their shareholders' money.

They have got to get value back for dollars spent. Therefore, they should expect better profits for the shareholders in the presence of a good benefit program than they would have had without that program. How does this work?

First, by attracting, retaining, and motivating good employees and by providing financial security to those employees, thus enabling older workers to retire and be retired, thus opening promotional channels and opportunities for the younger workers, thus keeping an organization young, vigorous, active, and competitive.

One company, for example, with 33 retirees, had 220 promotions. up and down the line behind those retirements. The new payroll and the pensions being paid to those retirees was still less than the old payroll.

Designing the best program to produce these desired results, more profitability for shareholders, is not easy. It varies by industry and business. Who is to be eligible for these plans and when?

How much, if any, encouragement to retire early?

Whether the company would pay all or partially employees contributory?

How much total retirement income?

Integrated or nonintegrated with social security?

What kinds and how much ancillary benefits, death, disability, survivor income-how to be financed and funded?

And vesting-what arrangement makes the most sense for that company, in that industry, in that geographical location?

Our second basic guiding principle is to keep the plan simple. They get complex so fast.

I would like to suggest the merits of simplicity to this committee. and I hope the Congress will have that also as one of its legislative goals. Simplicity, simple to understand, simple to explain, simple to apply, and most of all, simple to administer.

We have admittedly a select group of clients. We have not seen any dishonesty in administration or funding. Most if not all of our clients have vesting: some good, some more liberal than others. Nevertheless, Senator Javits, in reply to your question, we do support, as a consulting firm, legislation in this area, and I think most of our corporate clients would join us.

In fact, we testified in a similar vein last month before the House Committee on Ways and Means and attached to our written testimony there were 50 letters from clients supporting our position, plus a few suggested modifications, major and minor, to our position.

All were voluntarily offered on very short notice. Other letters have arrived since, and I think we have attached 65 letters to the written testimony we submitted last week.

I would like to quote from just one of those letters. This is written by Tom Gosnell, president of the Lawyers Cooperative Publishing Co., in Rochester, N. Y., and Tom was writing to me and he said:

DEAR CHUCK: After reviewing your comments with regard to proposed legislation in the area of fiduciary responsibility and disclosure, vesting and portability, minimum funding standards and insurance for unfunded liability, and deductability of employee contributions, we find that we share the basic thrust of your position.

We strongly urge you to impress on the Committee that pension expense is for most employers the largest single expense other than payroll. That is the case with this company.

Therefore, we feel that the private sector should be heard carefully and should be convinced that all areas of pension proposed legislation have been researched and researched exhaustively prior to passage of any current proposed bills.

Therefore, I can say that we do support your objectives. The growth of the private pension system in this country has been phenomenal by any yardstick. That great success should not be tarred by the few unfortunate failures in the system. But if there is any abuse or dishonest administration, however small, if not punishable or controllable under current law, we should have laws that do insure honest compliance and see to it that employees do receive their just due.

We would be happy also to offer our services to this committee if there is any way we could be helpful. Mario and I would be glad to comply with any requests that come from this committee.

Mario Leo is now going to detail, as the additional part of our oral testimony, some specific comments and stress the various parts of our written testimony on S. 3598.

Mr. LEO. Thank you, Chuck.

To save the committee's time, I will not spend a lot of time on the rationale for our recommendation because that is included in our written testimony.

But there are certain points that I would like to reiterate orally before the committee.

I would like to cover the areas of exclusion for any legislation which is enacted by Congress, eligibility requirements, vesting, portability, plan termination insurance, disclosure, fiduciary standards, and State laws.

First, in the area of exclusions, our feeling is that any pension legislation which is enacted should apply broadly to all pension plans. We particularly see no reason why employers with fewer than 25 employees should be excluded from pension legislation.

In many instances, these are the very plans and these are the very employers who are in most need of, particularly, the vesting requirement and fiduciary standards and some of the other disclosure requirements which we will be recommending before this committee, and the committee is recommending in its legislation.

In the area of eligibility, we feel the committee's bill pays too much attention to eligibility at very early stages.

Employees at age 21 and after 6 months of employment are not particularly concerned about pensions, and we are not either at those early ages. We think if eligibility requirements are to be mandated by Congress, they should be something realistic, like the eligibility requirement included in the individual Retirement Benefits Act, S. 3012, which is 3 years of service, or age 30. This still gives the employee some 35 years of future employment opportunities and future opportunities to accrue additional pension credits.

This seems a sufficient time for most employees to accrue adequate pensions under an adequate pension scheme.

In the area of vesting, as Chuck has mentioned, we support legislative vesting. We think legislative vesting should be based on a rule of 50, combination of age and service equal to 50.

We think it should be subject to a minimum of five years of service to avoid vesting to nominal benefits.

We stress the importance of including age as a condition for vesting, because again we say that the younger employee has far greater opportunities for reemployment and for the accrual of future pension credits than older employees.

Since we are dealing with a limited amount of moneys, we prefer to see the moneys concentrated at older ages where vesting is far more sorely needed than at the younger ages. We think vesting schedules should start at 50 percent, so at the point at which the employee has vested, he has vested half the benefit. We suggest he vest at 10 percent a year thereafter so that the employee is fully vested after an additional 5 years.

We urge that vesting be based on all years of service with an employer, not simply years of service after the effective date of legislation. Under the proposals in S. 3598, it is possible for an employee to work for an additional 8, or under certain exceptional circumstances, as many as 1112 or 141⁄2 years before he is entitled to a vested benefit under a private pension plan. We feel this would be a serious dis

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illusionment to employees looking toward the committee to come out with effective vesting provisions which would apply to their benefits. We feel any vesting schedule should be applied to all credited pensions, not simply pensions credited after the effective date of legislation. So older employees, who are most seriously concerned about vesting, are covered by this legislation.

We recommend a 5-year transition period, so employers can adjust to accommodate themselves to higher costs involved in any mandated vesting. We strongly urge that vesting be limited to lifetime pensions.

Definition 30 in S. 3598, implies mandatory vesting of death as well as pension benefits. We urge the committee to concentrate on the pension an employee accrues to age 65, and not apply vesting costs to death and other supplemental benefits.

Additionally, where pension plans require employee contribution, we feel vesting under those plans should be conditional upon the employee's agreement to leave his own money under the plan. If the employee is not sufficiently concerned about his future plan credits under the private pension plan to leave his own money under the plan to preserve his own pension, the portion of benefits purchased by his own contribution, we see no reason why the employer should be so concerned on his behalf.

In the area of funding, Mr. Willis has mentioned the IRS requirement in this area, and Iwill not reiterate those. We do feel very definitely that more study is required.

We think the specific questions which require answers are those related to the extent of the plan terminations, the number of employees adversely affected by those terminations, and the effect legislated yesting would have had in such situations.

There are many plan terminations which result from plan mergers, from discontinuance of profit-sharing plans, and substitution of a pension plan, for the discontinued profit-sharing plan, which do not result in loss of accrued benefits.

We believe there are unanswered questions with respect to the amounts of lost benefits, and the ages of employees who lose such benefits. If the employee loses benefits at a very early age, like 20 and 22 or 25, well, he still has a long period of time in which to recuperate, to accrue future credits. When a plan is terminated and some benefits are not paid under the plan because of fund inadequacy, allocation of a set schedule in the plan typically provides benefits for retired people first, and people eligible to retire and then vested and younger people.

Of the employees who have been adversely affected-I do not think the number is that great-most are generally at earlier rather than later ages.

This is something that should be covered in a study in this area. We also feel a study should be made as to whether or not funding requirements are desirable and specifically what kind of funding requirements would have had a significant effect on the results which are uncovered in the study of funding and plan termination.

If legislation is enacted in the funding area, we suggest such legislation be limited to cost and liabilities which are legislatively vested. We think if substantial funding requirements are applied to full accrued pension credits, it would have serious disruptive effects on

many smaller employers. It would not affect most of our clients, because most of our clients are soundly financed, firmly financed plans. We do know of situations however where this would have a seriously disruptive effect.

In the area of portability, we feel that the machinery which is being proposed is very complicated and administratively expensive and provides something of really minimal value.

Canada has had legislation authorizing the establishment of portability schemes for a number of years. Because of massive apathy by unions and industry, Canadians do not have an effective portability scheme in effect now.

Portability is subject to certain antiselection. For example, if you want to provide portability with respect to vested pension credits, and vested death benefits, presumably many employers who have employees in poor health would terminate their employment and transfer liabilities to the portability scheme rather than have death benefits paid from the employer's plan.

My point here is that portability as envisioned would be of minimal value. It is a question of who pays benefits, not whether benefits will ultimately be paid.

In the area of plan termination insurance, we pointed out in our written testimony that the fact that the assessment under such a scheme would be uniform really does not say very much. It does not give any employer any protection that the assessments themselves will be unreasonably determined or arbitrarily large. We also believe that the concept that recovery by the insurer from the employer based on the relationship between unfunded vested liability and employer's net worth is irrelevant because there is no causal relationship between

these two amounts.

It is unfair, since a uniform assessment is not predicated by its nature on potential claim probabilities, and it is unrealistic because it penalizes high net worth industries, such as steel, auto, and so on, when compared with low net worth industries, such as service industries.

We support the statements made by Secretary Hodgson before this committee on June 20. The Treasury and the Labor Department are making extensive studies in this area. These studies are to be completed in December 1972.

It seems to me that careful analysis of both studies is a prerequisite to formulation of sound Federal policy in this and in funding and in the plan termination insurance areas.

In the areas of fiduciary standards and disclosure, we support the comments made by the Chamber on fiduciary standards: the use of the prudent man rule.

We support increased and adequate disclosure to employees. We support legislation which would require employers to give employees full and clear information about eligibility requirements for participation. in the employer's pension plans, vesting provisions, the calculation of benefits, plan administration, filing for claims, and related matters of importance to employees.

But we do not support additional voluminous information being submitted to Federal agencies. There is a proliferation of forms being filed with the Internal Revenue Service and the Department of Labor now, and we see no reason to increase those forms.