of size, to the standards of this Act could have an inhibiting effect on future private pension expansion. In addition, the Committee recognized that small plans established for the self-employed and their employees meet adequate vesting standards under other laws. Finally, the bill does require the Secretary to study the need for expanding coverage of this Act to those plans which are not made subject to this Act. The Committee believes that this study will provide useful data which can serve as the basis for further policy in connection with expanding the Act's scope of coverage to smaller plans.

SECTION 108. CERTIFICATE OF RIGHTS

The Committee intends that the phrase "furnish or make available, whichever is most practicable" be construed to assure that plan participants obtain a copy of vested right certificates without imposing impractical burdens on plan administrators. In the case of large multiemployer plans, for example, arrangements made to delegate the certificate function to the participating employers or to require the participant to apply for his certificate upon his severance from employment may be necessary. Wherever possible, preference should be given to requiring the administrator to furnish the certificate to the participant.

Copies of vested right certificates are also required to be filed with the Secretary so that in the event a participant loses or misplaces his certificate or the certificate is accidentally destroyed, a record copy is availabe with the Secretary. It is the view of the Committee that the Secretary should explore the feasibility of coordinating his record keeping responsibilities in connection with this provision with the Social Security Administration so that the most efficient mechanism for maintaining records of vested interests can be developed.

TITLE II.-VESTING AND FUNDING REQUIREMENTS

PART A. VESTING

SECTION 201. ELIGIBILITY

Section 201 provides that no pension plan shall require, as a condition for eligibility to participate, a period of service longer than one year or an age greater than 25, whichever occurs later; however, a plan which provides 100% immediate vesting upon entry into plan, may restrict participation to those who are 30 years of age or have three years of service, whichever occurs later.

Earlier eligibility standards were considered and appeared to impose an unwarranted additional cost on plans. Additionally, the Committee believes on the basis of substantial evidence presented that until age 25 a large portion of the work force is still transient and accounting for such employees would impose unduly burdensome and costly record-keeping requirements on plan administrators. The Committee believes that an age 25 entry standard approaches the norm for the majority of plans today.

The exception for plans which provide 100% full vesting upon plan entry is based on the fact that such plans, like the TIAA-CREF plan for college teachers, provide earlier vesting in larger amounts

than provided under the bill, and requiring such plans to install earlier membership requirements would impose burdens well beyond the minimum standards approach intended by the Committee, and might compel such plans to sacrifice immediate full vesting on plan entry.

SECTION 202. VESTING SCHEDULE

The Committee has endorsed a major innovation which provides for retrospective credit in accured benefits attributable to service rendered prior to the effective date of the vesting provisions. The prior version of S. 4 limited such retrospective vested benefit credit to workers age 45 or older on the effective date of the vesting provisions.

The prior version of S. 4 was predicated on the theory that older workers were most in need of retrospective vesting credit and that younger workers would have, in most instances, ample opportunity to attain adequate amounts of vested credits under the bill on the basis of their opportunity for service after the effective date of the vesting provisions.

Testimony in the February 15 and 16 hearings of the Labor Subcommittee indicated, however, that restricting retrospective vesting to workers age 45 tended to be arbitrary. In addition, actuarial cost data prepared for the Subcommittee in February, 1973, (See Appendix disclosed that the additional incremental cost associated with eliminating the age 45 cut-off was no more than 2 percent of payroll or an additional 9 percent of present plan cost. This additional increment of cost appears, therefore, to be tolerable by the vast majority of plans that would be subject to the vesting provisions of S. 4 and is greatly outweighed by the much larger number of workers who will be rewarded for their labors by retrospective vesting. Accordingly, in the interests of complete equity, as a means of strengthening worker's incentives based on private retirement arrangements, and to promote simplicity in the understanding and application of the vesting requirements of the bill, total retrospective vesting credit, regardless of age, was adopted.

It is to be understood that in the event the plan is provided a 5-year deferral from compliance with vesting in accordance with section 216, active participants at the time vesting compliance commences are to be provided credit for service performed during the 5-year period of deferral. It should also be made clear, that the vesting benefits provided by this title are applicable only to those active employees who are covered by the plan on the effective date of the title, or, in the event of a 5-year deferral, on the date statutory vesting compliance commences.

Section 202 requires that three of the eight years of service required to qualify for an initial vested right be continuous. In order to assist. participants to know whether they have met this requirement, it is contemplated that the Secretary will prescribe appropriate notification procedures which avoid impractical burdens on plan administrators.

In addition, Section 202(b)(3) recognizes that while, in general, aggregate service rather than continuous service requirements will more nearly meet the needs of most employees in a mobile industrial

society, such a standard if applied to an employee permanently separated from employment with 100% vested rights might militate against his subsequent rehire. Accordingly, Section 202(b) (3) permits an employer to ignore such an employee's prior service if he is rehired. This exception is not intended to apply to employees who are separated with less than 100% vested rights.

Under section 202(e), the Secretary is authorized to approve a vesting schedule, in lieu of that mandated by the bill, which provides a degree of vesting protection as equitable as that contained in the bill. For example, for most participants, vesting schedules in the so-called "pattern plans" negotiated in the auto industry, which provide 100 percent full vesting upon completion of 10 years of service, would appear to provide as equitable a degree of vesting protection as that in the bill. In no event, should the Secretary approve an alternate vesting schedule which provides for 100% vesting upon the completion of more than 15 years of service.

The Committee believes further that there is no reasonable justification for depriving employees in multiemployer plans of the vesting protection mandated by the Bill. Section 202 subjects such plans to its requirements.

PART B. FUNDING

SECTION 210.-FUNDING REQUIREMENTS

The Committee believes that actuarially sound funding procedures are indispensable to effective implementation of the purposes of the Act. If employers never went out of business or terminated pension plans before they were completely funded, there would, no doubt, be no persuasive justification for funding standards aside from whatever tax considerations might be applicable. Nevertheless, employers do experience financial or economic difficulties or they undergo varying degrees of corporate reorganization, all of which can lead to premature termination of underfunded plans. A plan termination insurance program provides the essential safeguard to the rights of workers who are trapped by these unforseen economic hazards but such a program cannot be made practical without being coupled to required standards of funding. To create a plan termination insurance program without appropriate funding standards would permit those who present the greatest risk in terms of exposure to benefit at the expense of employers who have developed conscientious funding programs. The funding standards contained in Section 210 are designed to lessen that unnecessary exposure by requiring every plan to be funded in a manner which will fully amortize unfunded liabilities in 30 years. 30 years was selected as representing more closely the funding period norm for most private plans. It is within the contemplation of the Committee that so-called "pay-as-you-go" or "terminal funded" plans are precluded under the requirements of this section.

It should be noted that the unfunded liabilities are to be amortized in no less than equal annual payments over a 30-year period. This will permit the unfunded liabilities to be funded faster in the earlier years of the plan and more slowly in the later years, as long as the cumulative funding status of the plan is always where it would have been if the unfunded liabilities had been amortized by precisely equal annual payments.

SECTION 211.-DISCONTINUANCE OF PLANS

One of the most unregulated features of the private pension plans is their bewildering array of inconsistent provisions governing the priority of distribution of plan assets in the event of plan termination. Section 211 is intended to rectify this matter and should be construed in an integral fashion with the plan termination insurance provisions. The Secretary has been given discretion to determine what constitutes "a substantial termination". In making his determination of a "substantial termination" the Secretary should be guided primarily by the interests of plan participants and beneficiaries and the capability of the insurance program to adequately and equitably underwrite plan termination losses.

PART C. VARIANCES

SECTION 216.-DEFERRED APPLICABILITY OF VESTING STANDARDS

The Committee recognizes that despite a three-year delayed effective date for compliance with vesting standards, there still may be some plans which will experience a cost burden that would result in substantial economic injury to the interests of employers and their employees.

As to these plans, provision is made that if they can demonstrate "substantial economic injury" as defined and intended by the Act, they may be eligible for an additional period not to exceed 5 years. within which to commence compliance.

The requirement that in collectively-bargained plans both parties must join in requesting the variance is believed necessary since in such cases both parties involved have a vital and intrinsic interest. Both will serve as a check and balance on the other, and by virtue of this check and balance, a joint application from the parties is to be accorded due weight.

SECTION 217.-VARIANCES FROM FUNDING REQUIREMENTS

Under this section, the Secretary is directed to prescribe a period of time in excess of 30 years for multiemployer plans to fund their unfunded benefit liabilities. In prescribing such additional periods, it is the Committee's intention that the Secretary may proceed by promulgating specific periods for specific multiemployer plans or for specific classes of multiemployer plans where characteristics are substantially identical. In promulgating such additional periods the Secretary need not be bound by actuarial standards more appropriate in application to single employer plans, but should formulate a standard of funding adequacy which reflects the plan's experience and gives reasonable assurance that the plan's benefit commitments will be met. While no specific upper limit on the funding period is expressed in this section, no additional period should be prescribed which would be manifestly inconsistent with the underlying purposes of this Act.

In considering the experience of multi-employer plans for establishment of new premium rates, the Secretary shall take into account for prescribing lower rates, the withdrawal of employers from such plans, although the withdrawal did not result in significant reductions of

contributions to the plan. The purpose of this provision is to direct the Secretary to assure that multi-employer plans are not inequitably treated by prescribing premium rates which do not take into account or are not consonant with the low incidents of termination experience of such plans.

In all proceedings under Part C, the Committee intends that the Secretary afford interested parties, including plan participants and beneficiaries, the opportunity to present their views.

PART D. PROTECTION OF PENSION RIGHTS

Because of rapid and frequent changes in Federal procurement objectives and policies, professional, teaching, scientific and technical personnel suffer a uniquely high rate of forfeiture under private pension plans. Last year, in connection with the National Science Policy and Priorities Act of 1972 (S. 32), the Committee adopted as a Title IV to that bill, requirements that would cause the Director of the National Science Foundation to investigate the matter and attempt to develop new procurement standards which would provide adequate protection of these mobile personnel who because of Federal procurement contract terminations and changes in procurement objectives rarely work long enough for a single employer so that the vesting standards contained in Title II of this bill would provide sufficient protection to them.

Upon review of this matter, the Committee concluded that it would be more appropriate to lodge this authority in the Secretary of Labor, who has overall supervisory authority of private pension plans under this bill, and to expand coverage of his authority to encompass other professional personnel, such as teachers, architects, medical technicians, etc., working on government contracts, in addition to engineers and scientists. This is accomplished in Part D of Title II.

Section 221 states that the Secretary of Labor shall develop his recommendations for changes in federal procurement regulations "in consultation with appropriate professional societies". The Committee considers this phrase to include unions of professional personnel. Section 221 also requires that changes in procurement contracts should be developed "to the extent feasible", and this element compels the Secretary of Labor to take account of the existing provisions of law affecting private pension plans, the circumstances surrounding the establishment and operation of such plans by government contractors, the impact of plan revisions on existing industrial relations in aerospace, defense, and similar industries, as well as the economic consequences of any specific approach or series of approaches to securing greater pension protection through governmentally-imposed standards.

TITLE III.-VOLUNTARY PORTABILITY PROGRAM FOR VESTED PENSIONS

It is the belief of the Committee that the voluntary portability program created by this Title will stimulate and lead to enhanced vested benefits under the Act and will pave the way for providing vested benefits more closely related to all of a worker's productive years. In