be vested in a plan participant upon completion of 15 years of service, with rights to full vesting of accrued pension credits to occur after 20 years of service. In general, although there has been some discernible progress to permit early vesting of benefits to employees, some employers incline to defer such vesting until the employee reaches a normal or early retirement eligibility formula. This is essentially based upon the belief that it will discourage and deter such employee from leaving the job before reaching retirement age.

Despite claims by opponents that progress made in pension plan provisions to provide vesting manifest an eventual voluntary vesting system, plans involving substantial numbers of workers which contain no vesting are still not uncommon. The Senate Labor Subcommittee's statistical analysis of data furnished by 1,493 private pension plans has concluded that approximately 13 percent of private pension plans in the United States do not contain provisions which require vesting of benefits to employees prior to retirement. Opponents of mandatory vesting believe that compulsory vesting provisions will discourage development of new plans and impede flexibility and latitude in formulating employee benefits because of excessive costs that are certain to result. However, in face of Subcommittee findings relative to projected costs to plans for imposed vesting, indications are that the resistance of opponents to universal vesting is essentially structured upon extreme reluctance to submit to governmental regulatory measures concerning pension plan administration and operations. In its final analysis, the issue basically resolves itself into whether workers, after many years of labor, whose jobs terminate voluntarily or otherwise, should be denied benefits they have earned as deferred compensation and which have been placed for them in a fund for retirement purposes.

b. Funding

Another major issue in private pension plans relates to the adequacy of plan funding. "Funding" refers to the accumulation of sufficient assets in a pension plan to assure the availability of funds for payment of benefits due to the employees as such obligations arise. Today, funding of pension plans for the limited and specific purpose of qualifying for tax benefits permitted by law for contributions made is governed by statutory and regulatory requirements which are under the jurisdiction of the Internal Revenue Service (I.R.S. Code of 1954, Sections 401-404). The minimum funding rules (Treasury Regulations, Sections 1.401-404 (c) (1963)) require an employer to make contributions to a pension fund, qualified by the Internal Revenue Service, of amounts at least equal to the pension liabilities being created currently, and the interest due upon those amounts of monies which reflect unfunded accrued liabilities. The inherent weakness of this required minimum funding is that the employer is not required under law to make payments toward the principal of the unfunded accrued liabilities. Without mandatory funding of past service liabilities, a pension plan may never be in financial posture to meet its pension obligations to its employees.

The pension plan which offers full protection to its employees is one which is funded with accumulated assets which at least are equal to the accrued liabilities, and with a contribution rate sufficient to

maintain that status at a times. However, since plans are rensei and amended to provide new benefits which rate few and fres liabilities for the plan, opponents of compulsory finding argie mas it is unrealisite to expect that plans mamam & fill finding sams at all times. The same opposation is voiced for new plans, which nvariably assume a large nded liability at the outset of the pan. due to the granting of credit for pass service by employees to the employer.

The ineffectiveness of funding requirements were acknowledged in the President's Cabinet Committee Report of 1965, when is tornier that "... the minimum standards for finding mder presen: TAX AV do not assure adequate funding. The sening of standaris fæ adequate funding therefore becomes an important publie coccer Fidlic Policy and Private Pension Programi. 1965, pp. 50-51. The Promise and commitment of a pension can be filed only when finds are available to pay the employee participent what is owed to him. Winnout adequate funding, a promise of a pension which may be sory and empty.

c. Reinsurance

One of the more dramatic evidences of the deficiencies of pension plans, illustrated by the Studebaker case in 1964 and more recenty in over 100 cases of pension plan termination covered by the Subcommittee during its inquiry into plan termination, is the failure of employees to receive ail of the pension benefits to which they are entitled, when a company shuts down, relocates or merges with another corporate entity. Some critics have proposed that corporate assets be committed to guarantee any pension obligations which exsi så termination.

Another suggestion is that a federal insurance program should be instituted to guarantee the payment of these obligations. Under this program, specified premiums would be paid by pension plan administrators, and, in the event that a plan is forced to terminate, with insufficient assets to pay vested employee benefits funds from the guaranty fund would become available for this purpose. The adverse impact upon workers of terminated underfunded plans was effectively shown in the Subcommittee report on plan terminations issued September 11, 1972.

In his message to Congress of December 8, 1971 on the subject of pension reform the President directed the Departments of Labor and Treasury to undertake a one-year study of pension plan terminations. To date, an interim report has been published. It reports 683 pension plan terminations during the first seven months of 1972 afecting approximately 20,700 pension participants.

d. Portability

Portability refers to the process by which an employee is permitted to transfer his earned vested pension rights from job to job and at the end of his career be able to convert all such credits into a final benefit amount reflecting all of his prior service. Such a process would require a centralized control or clearinghouse through which the earned credits could be channeled. The interchangeability of earned vested pension credits would require regulatory and administrative ms

chinery in a federal agency to make it function properly. An effective system which permits the transferability of earned vested pension credits is certain to facilitate the mobility of labor.

e. Fiduciary responsibility and disclosure

Another area of concern of the Subcommittee has involved the conduct of administration and operations of pension plans. Of particular interest has been the course of conduct in fund transactions, the degree of responsibility required of the fiduciaries, the types of persons who should be deemed pension "fiduciaries," and the standards of accountability they shall be governed by in the management and disposition of pension funds. The only current federal requirement is that the Secretary of Labor require fiduciaries, trustees, etc., to make disclosure of the provisions and financial operations of the pension. plan under the Welfare and Pension Plans Disclosure Act.

An important issue relates to the effectiveness of communication of plan contents to employees. Descriptions of plans furnished to employees should be presented in a manner that an average and reasonable worker participant can understand intelligently. It is grossly unfair to hold an employee accountable for acts which disqualify him from benefits, if he had no knowledge of these acts, or if these conditions were stated in a misleading or incomprehensible manner in plan booklets. Subcommittee findings were abundant in establishing that an average plan participant, even where he has been furnished an explanation of his plan provisions, often cannot comprehend them because of the technicalities and complexities of the language used.

IV. Committee Studies and Activities

The Subcommittee on Labor, pursuant to Senate Resolution 235, 92nd Congress, March 6, 1972, and prior resolutions from the 91st Congress, has conducted a comprehensive and exhaustive study of the private pension plan system in the United States, with particular emphasis upon the impact which such plans have upon the workers covered. The Subcommittee's implementation of the Senate resolutions has been a methodical collection and analysis of vital statistics and pertinent detailed data from individual and group cases reflecting the internal administration and operations of private pension and welfare plans. Invaluable data was furnished by 1,493 selected pension plans in response to a comprehensive questionnaire prepared by the Subcommittee in the spring of 1970. The data was analyzed in the Senate computer to extract information for evaluation by the Subcommittee staff to ascertain the weaknesses and effectiveness of the provisions of such plans. A preliminary staff report was issued on March 31, 1971, which contained findings by the Subcommittee relative to 87 pension plans covering approximately 10 million workers. Staff studies were also conducted of numerous individual pension plans in different industries and geographical locations in the United States. An additional study of 764 pension plans was made by the staff and its findings published on November 7, 1971, which, among other findings, determined that the median monthly income being received by retired pension plan participants in the United States was approximately $99.00.

In September 1972, the final statistical analysis of the 1,493 plans was prepared and a report issued. It focused on the several characteristics of private pension plans, eligibility requirements, retirement provisions, vesting, funding, disclosure and fiduciary standards. In general, it demonstrated that a substantial number of plans do not meet the obligation promised of retirement with dignity after many years of service.

In addition to the staff studies of plans, investigatory hearings were held in Washington, D.C. during July and October 1971, at which time workers, employers and affected sectors testified with respect to various inequities and hardships resulting to the plan participants from the non-existent or defective provisions of such plans with respect to vesting, funding, portability and insurance issues. During these hearings, 14 employer organizations and more than 25 individual plan participants were heard during a total of five days of hearings. Additionally, during 1972, the Subcommittee conducted field hearings on plan terminations in five major cities throughout the United States. These hearings, in St. Louis, Newark, Minneapolis, Cleveland and Philadelphia, publicly disclosed the adverse effects resulting to workers from the inadequate funding of pension plans which covered them. The problems surfaced were representative of those which exist in other cities throughout the country. These selective hearings in the five cities encompassed several different industry pension plans covering over 22,500 employees. Investigation preceding the hearings encompassed more than 115 other companies which had terminated their pension plans with similar disastrous effects upon their employees. On May 11, 1972, S. 3598, the predecessor bill to S. 4, was introduced in the U.S. Senate. This legislative proposal, as its successor, S. 4, embodies remedies specifically designed to correct the deficiencies uncovered and would provide adequate protection to pension plan participants. In June 1972, the Subcommittee held six days of legislative hearings on S. 3598, at which time the Subcommittee heard testimony of not only experts in the pension field, but representatives and organizations vitally affected by the legislation.

After S. 4 was introduced in the Senate, similar legislative hearings were held on February 15 and 16 in the 93rd Congress, First Session, relative to S. 4 which incorporated all the provisions of its prececessor, S. 3598.

These hearings exemplified the purpose of underlying the Subcommittee's entire study, in that all affected sectors, within the limits of time available, were afforded ample opportunity to present their views with respect to proposed legislation. Additionally, those whose requests to testify could not be honored due to limitations of time, were encouraged to submit statements and views for consideration by the staff. Many of these resulted in subsequent conferences to discuss the merits of objections and suggestions. A number of suggestions were meritorious and constructive and were subsequently incorporated into the bill.

Because of the Subcommittee's concern with the effects which the projected costs of mandatory vesting might impose upon pension plans, the Subcommittee, through the actuarial firm of Grubbs & Company, Baltimore, Maryland, conducted its own actuarial study and evaluation of estimated increases in pension plan costs resulting from vesting provisions. This study, conducted by a recognized and qualified actu

arial firm, permitted the Subcommittee to assess the range of increased costs to private pension plans which might be anticipated as a result of enactment of S. 3598. A summary of the Subcommittee cost study is attached as Appendix.

The Subcommittee's implementation of its study, as mandated by Senate resolution, was methodical and analytical. It undertook initially, through its inquiries and fact-finding, to define the specific problems of private pension plans in the United States. When the problems were sufficiently identified, a comprehensive analysis of each was made by the Subcommittee staff. The analysis was essential in order to determine the need and extent of reform essential to meet the deficiencies and problems surfaced.

In considering S. 4 and other legislation, the Subcommittee was of the opinion that, based upon its findings, it would be unwise and impractical to propose either revisions or new provisions of law in patchwork fashion. It was convinced that the nature and extent of the problems determined to exist required one omnibus legislative proposal which would embody essential and indispensable reforms.

V. Committee Action and Explanation of Amendments The Committee enthusiastically endorses the concept of a comprehensive private pension reform program. It believes that expeditious enactment of S. 4 will institute a program which will achieve a stengthening of the role played by private retirement plans within the fabric of our economic and social structures. Its most important purpose will be to assure American workers that they may look forward with anticipation to a retirement with financial security and dignity, and without fear that this period of life will be lacking in the necessities to sustain them as human beings within our society. The enactment of progressive and effective pension legislation is also certain to increase stability within the framework of our nation's economy, since the tremendous resources and assets of the private pension plan system are an integral part of our economy. It will also serve to restore credibility and faith in the private pension plans designed for American working men and women, and this should serve to encourage rather than diminish efforts by management and industry to expand pension plan coverage and to improve benefits for workers.

The Committee believes that the legislative approach of establishing minimum standards and safeguards for private pensions is not only consistent with retention of the freedom of decision-making vital to pension plans, but in furtherance of the growth and development of the private pension system. At the same time, the Committee recognizes the absolute need that safeguards for plan participants be sufficiently adequate and effective to prevent the numerous inequities to workers under plans which have resulted in tragic hardship to so many. The Committee has vividly demonstrated this need in public hearings.

The Bill reported by the Committee represents an effort to strike an appropriate balance between the interests of employers and labor organizations in maintaining flexibility in the design and operation of their pension programs, and the need of the workers for a level of protection which will adequately protect their rights and just expectations. In adopting this approach, the Committee believes it has