1st Session RETIREMENT INCOME SECURITY FOR EMPLOYEES ACT OF 1973 APRIL 18, 1973.-Ordered to be printed Mr. WILLIAMS, from the Committee on Labor and Public Welfare, submitted the following REPORT [To accompany S. 4] The Committee on Labor and Public Welfare, to which was referred the bill (S. 4) to strengthen and improve the protections and interests of participants and beneficiaries of employee pension and welfare. benefit plans, having considered the same, reports favorably thereon with an amendment and recommends that the bill as amended do pass. I. Synopsis The provisions of S. 4 are addressed to the issue of whether American working men and women shall receive private pension plan benefits which they have been led to believe would be theirs upon retirement from working lives. It responds by mandating protective measures, and prescribing minimum standards for promised benefits. The purpose of S. 4 is to prescribe legislative remedies for the various deficiencies existing in the private pension plan systems which have been determined by the Senate Subcommittee's comprehensive study of such plans. This legislation would authorize the establishment within the Department of Labor of an Office of Pension and Welfare Plan Administration which would implement specified and required standards of vesting, funding, reinsurance, disclosure and fiduciary standards, and a voluntary program of portability of vested pension credits. That office would also be charged with enforcement of the provisions of the Act. The Act imposes minimum vesting requirements in pension plans, whereby employees, after eight years of service, will be entitled to a vested nonforfeitable right to 30% of their accrued pension benefits, and, thereafter, each year will acquire an additional 10% to such right 1 The page numbers in this volume are the same as the page numbers in the official publication of this report. until, at the end of 15 years' service, they will be entitled to 100% vested benefits. Where plans are determined by the Secretary of Labor to contain vesting formulas which provide a degree of vesting protection as equitable as the vesting schedule in the bill, compliance with the statutory vesting schedule may be waived by the Secretary. Pension plan participants would be vested in the accrued pension benefits attributable to service with their employer performed both before and after the effective date of the Act. Under specified circumstances, where the vesting requirements would increase costs or contributions to an extent that "substantial economic injury" would result to the employer and to the participants' interests, the Secretary may defer compliance with the vesting provisions for a period not to exceed five years. The Act establishes minimum funding requirements for pension plans to assure that all unfunded pension liabilities of the plan will be funded over a 30-year period. However, the Secretary of Labor is authorized to permit variances from such funding requirements to plans which qualify under appropriate conditions. It establishes a voluntary program for portability of pension credits through a central fund, whereby employees of participating employers may transfer vested credits from one employer to another upon change of employment. A plan termination insurance program is established to guarantee that vested pension credits of employees will be paid upon termination of a pension plan when there are not sufficient assets to pay the workers' vested benefits. It insures benefits already earned and vested under the terms of the pension plan, prior to the date of enactment. The bill prescribes new and stringent rules of conduct required for trustees and fiduciaries administering employee benefit funds, and prohibits conflicts of interest and various specific parctices to prevent actual or potential misuse of such funds. It requires additional and comprehensive disclosure of vital data in reports to be filed with the Federal Government, and understandable explanations to workers of their rights and obligations under their pension plans. The bill makes it unlawful for any person to discharge, suspend, expel, fine, discipline or discriminate against participants in order to interfere with their rights under the plan or the Act or for the purpose of preventing the attainment of their rights under the plan or the Act. It is made a criminal offense to use fraud, force or violence, or threats thereof, in this connection. Finally, it establishes federal jurisdiction and adequate remedies to both the Government and individual worker for judicial and administrative enforcement of the bill's provisions, including recovery of pension benefits due. II. Background HISTORY OF PENSION PLAN REGULATION The growth of the private pension industry in the United States, which began before the turn of tle century, had been gradual until the years preceding World War II. By 1925, there were about 400 private pension plans in operation. However, as time progressed and American attitudes and beliefs regarding retirement security changed, as a result of the Depression, and the subsequent passage in 1935 of the Social Security Act and the Railroad Retirement Act, a steady increase in the growth of the private pension plan system began. The wage freezes, imposed during World War II and the Korean conflict, contributed to the acceleration of this growth. Increases in fringe and retirement benefits during these crucial periods became a means of compensating workers in lieu of increased wages, thus making pension benefits a form of deferred wages. In 1947, stemming from a suit filed with the National Labor Relations Board, the U.S. District Court decided that pensions were a form of remuneration for labor within the terms of the National Labor Relations Act (1935) and, accordingly, they were recognized as mandatory subjects of the collective bargaining process. This decision was upheld by the Seventh Circuit Court of Appeals in 1948 and paved the way for the rapid growth of collectively-bargained pension plans and the expansion of pension benefits to union members. (Inland Steel Company v. NLRB, 170 F. 2d 247 (7th Cir. 1948), cert. denied, 336 U.S. 960 (1949).) In 1940, an estimated four million employees were covered by private pensions; in 1950, the figure had more than doubled to 9.8 million; in 1960, over 21 million employees were covered; and in 1973, approximately 30 million workers participated. Currently, about one-half of our industrial work force in the United States are members and participants of private pension plans. It is projected that by 1980, 42.3 million workers will be covered by private pension plans. The growth of the assets owned or controlled by pension funds has closely paralleled this expansive growth. Total estimated assets of pension plans have accelerated from $2.4 billion in 1940 to $150 billion in 1973 and are increasing at a rate projected to exceed $250 billion by 1980. This rapid growth has constituted the basis for legislative efforts by both the federal and various state governments to gain some regulatory jurisdiction over private pension plans to assure effective and equitable performance. Various aspects of pension plans have been affected to some degree by most of the major labor legislation of the twentieth century, including the National Labor Relations Act (1935), the Labor-Management Relations Act (1947), and the Labor-Management Reporting and Disclosure Act (1959). However, not until 1958, with the enactment of the Welfare and Pension Plans Disclosure Act, was legislation effected which was specifically designed to exercise regulatory controls over pension and welfare funds. Based upon disclosure of malfeasance and improper activities by pension administrators, trustees, or fiduciaries, the Act was amended in 1962 to designate certain acts of conduct as federal crimes when they occurred in connection with welfare and pension plans. The amendments also conferred investigatory and various regulatory powers upon the Secretary over pension and welfare funds. In the decade since the amendments were enacted, experience has shown that, despite intermittent enforcement of the reporting requirements and the criminal provisions, the protection accomplished by statute has not been sufficient to accomplish Congressional intent. |