[151] VIII. ADDITIONAL VIEWS OF MR. HARTKE Today over 34 million working men and women are subject to great inequities in the private pension system. These inequities cause the intolerable situation in which only one out of ten employees enrolled in pension plans will ever receive benefits. It is fortunate that the Senate Finance Committee has reported out a bill on the private pension system. It is unfortunate that their proposal falls short of a viable and comprehensive reform. The committee is taking steps in the right direction at a time when large strides are necessary. Over the past 9 years, I have introduced a number of proposals aimed at providing a degree of security for the millions of workers enrolled in pension plans. Beginning with termination insurance legislation and now with the inclusive Federal Pension Plans Protection Act (S. 1858), which I introduced this year. I have been motivated by the conviction that every working man and woman in this country deserves the dignity and security of adequate means of support for his or her retirement years. I am greatly distressed that so many people still consider pensions a form of insurance in which most must lose so that some may gain. The committee proposal seems based on this concept. In rejecting this notion, I maintain that a pension should not be a game of chance. Some may be satisfied with the committee's minimal proposals on vesting, funding, portability and termination insurance. I am not content. The committee solutions aid only a few, leaving millions who need adequate and secure pension coverage wanting. Let me specifically explain my points of difference with the committee. I. ADMINISTRATION AND ENFORCEMENT A. THE COMMITTEE PROPOSAL Principle responsibility would be placed in the Treasury Department. The Secretaries of Labor, Treasury and Commerce would be the trustees of the termination insurance program and the voluntary central portability program, and the Secretary of Treasury would be the managing trustee. B. OBJECTIONS While I agree that the Treasury Department should be responsible for enforcement of the provisions of the bill, I believe that the Labor Department should be the principle agency for administration. Rather than playing political games over questions of committee jurisdiction, our principle concern should be safeguarding the rights of workers. I do not believe that the principal administration of this bill should be given to an agency whose primary interest is tax collection. [152] C. THE HARTKE APPROACH Under my proposal, the Secretary of Labor would administer the vesting standards and termination insurance program. The Treasury Department would administer funding standards and would be responsible for the enforcement of the bill. The Labor Department is charged historically with the protection of workers' rights and collects and analyzes annual information on assets, costs, and actuarial liabilities under the Pension and Welfare Plans Disclosure Act. II. PARTICIPATION A. THE COMMITTEE'S PROPOSAL A qualified pension plan would require, as a condition of eligibility, service of no more than 1 year, or attainment of age 30, whichever occurs later. B. OBJECTIONS Most workers begin their jobs in their late teen years or early twenties. A fair and equitable reform should not exclude these early years of service. Age 30 is too late a date for participation because it delays the acquisition of vesting rights. In many cases the committee's proposal is only slightly more progressive than the administration's vesting standards-the so-called "rule of 50," i.e. a worker gains 50 percent vesting when his age and years of participation equal 50, and 10 percent additional each year thereafter. (See table below under vesting.) Under the committee proposal a worker who started at age 20 would have to work 15 years until age 35 before he attained his full vested rights. The committee proposal would make attainment of full vested rights difficult or impossible for millions of part-time and part-year workers. Examples of these groups of workers excluded by the committee bill are given below under vesting. C. THE HARTKE APPROACH Pension benefits should not be considered an exclusive privilege of the fortunate few; rather they should be made a right for all. My reasonable approach provides for a more quickly attainable eligibility; participation would commence after a period of service no longer than 2 years or age 25, whichever occurs later. III. VESTING A. THE COMMITTEE'S PROPOSAL A qualified plan must provide at least 25 percent vesting after 5 years participation, 5 percent additional vesting for each of the next 5 years, and 10 percent each year for the next 5 years thereafter. This formula would provide for at least 25 percent vesting after 5 years participation, 50 percent after 10 years and 100 percent after 15 years. [153] B. OBJECTIONS Progressive vesting rights are the heart of pension reform. Weak vesting clauses make for ineffectual and superficial pension legislation. The committee's proposal gives the illusion of reform without the substance. The vesting provisions are extremely weak and inadequate. Such a scheme would discriminate against women, seasonal workers, and workers in mobile or faltering industries. A recent Senate Labor Subcommittee study found that, for plans requiring 10 years participation or less for vesting, 78 percent of those separated did not qualify for benefits. Under these same conditions, the committee proposal would provide 50 percent vesting after 10 years participation for only 22 percent of those who separate. I do not consider such an approach acceptable. Achieving vested rights for women is also difficult under the committee's proposal. Most women work at a job for shorter periods than men, and often work part-time or part-year. The committee has made no provision for part-time or part-year work. While men in manufacturing have a median of 14.3 years of service, women in their later years, have only 8.3 years of service. And in retailing, women over 45 had an average of 4.9 years. As a result, a woman would achieve only 40 percent of her vested rights. This is not a decent retirement benefit. A moderately good benefit will give $5 a month for each year of credited service. A normal retirement for a woman would be 8 years of credited service or $40 a month. But the committee's proposal would provide only 40 percent of this or $16 a month-less than $4 a week. And that benefit is subject to erosion by inflation between the time it vests and the time it becomes payable. Aerospace is an example of a faltering industry in which many plants have shut down and many more will shut down in the future. A recent study found that 80 percent of the employees in this industry had completed fewer than 10 years of service. At the very best, the committee's proposal would provide 50 percent vesting for these workerstoo minimal a standard. With no provision for part-year work, it will be virtually impossible for the seasonal worker to attain vested rights. Many cumulative years of service will add up to nothing in retirement. The committee vesting proposal would provide for little or no benefits for the majority of workers in this country. It ignores the overwhelming evidence which demonstrates that the weaker the vesting requirements, the less likely it is that the participant will ever receive his needed pension benefits. C. THE HARTKE APPROACH I propose that 100 percent vesting be achieved after only 5 years of service. These more progressive rules on vesting will open the way for more frequent job changes, increases in work satisfaction, a more mobile and a more effective labor force. We owe this to the working [154] men and women of this country. In order to demonstrate graphically the superiority of the Hartke approach, I submit the following table: The table shows what would happen to a worker beginning his job at age 20. Under the committee proposal, this worker would not qualify for participation until the age of 30. After 10 years of work he would be only 50 percent vested. This worker would be 35 before he was fully vested under the committee bill, 45 under the Administration's bill; but only 25 under the Hartke proposal. IV. FUNDING A. THE COMMITTEE'S PROPOSAL The committee agreed to a minimum funding standard which requires the payment of current or normal pension costs and the level payment, or amortization, over a 30 year period of unfunded accrued liabilities, without regard to whether such past service liabilities are vested or unvested. A plan amendment resulting in a 5 percent increase in unfunded past service cost existing at the time of the amendment is to be regarded as a "substantial" increase in unfunded past service costs which may be treated as a new plan and funded over 30 years. B. OBJECTIONS Inadequate funding is the primary reason that thousands of workers yearly lose their benefits when a plan terminates. In 1964, when the Studebaker plant in South Bend, Indiana, shut down, over 8,500 employees lost their pensions because there was not enough money to fund them. The Committee's bill would not have prevented this tragedy. Studebaker had a 30 year funding schedule. Tragedies like the Studebaker case occur every year and in all parts of the country. Only strong funding requirements will prevent them from occurring. C. THE HARTKE APPROACH My proposal would require past service liabilities to be funded over a 25 year period, and substantial increases in liabilities due to amendments would also be funded over 25 years. [155] V. TERMINATION INSURANCE A. THE COMMITTEE'S PROPOSAL Vested rights of participants would be insured up to a maximum of 50 percent of the average monthly wage over the past 5 years and not to exceed $750 a month. For the first 3 years, the termination insurance would be financed by a 50 cents per capita payment for each participant in the pension plan. After such time, premiums would be set at a level based on cost experience. B. OBJECTIONS On the average, 20,000 workers a year are affected by pension failures. The participants hit hardest by these closeouts are those between the ages of 40 and 60. This group is usually paid little or nothing in pension benefits for many years of service. I am gratified that the Committee's proposal would establish an insurance program to protect these thousands of workers, but I am disappointed that the proposal would provide such inadequate benefits. Fifty percent of expected benefits is simply not an adequate support for the average worker. When a worker enrolls in a pension plan he has the right to expect adequate benefits regardless of whether the plan folds, whether his department is phased out, whether his company goes out of business or merges with a larger unit. C. THE HARTKE APPROACH My plan would insure vested benefits to a maximum of 80 percent of the highest average wage over a 5 year period or $500 a month, whichever is less. The insurance premium rate would be no higher than 0.5 percent of unfunded liabilities. VI. PORTABILITY A. THE COMMITTEE'S PROPOSAL A voluntary central portability fund would be established as a private corporation under the trusteeship of the Secretaries of Labor, Commerce and Treasury, with the Secretary of Treasury being the managing trustee. If the employer and employee both agree, the departing employee could transfer his vested benefits to the fund. B. OBJECTIONS Voluntary portability will do very little for the employee. There is little reason to expect that an employer would give away dollars to a departing employee which he could give to a retiring employee who remains with his company. The trusteeship of the fund by three Secretaries causes needless confusion and duplication of effort. It is |