[156] much simpler and more reasonable that the Secretary of Labor alone be the managing trustee of the fund. C. THE HARTKE APPROACH I will propose the establishment of a compulsory portability fund into which an employee's vested benefits would automatically be transferred. The employer would have a maximum of 5 years to pay these vested benefits into the portability fund. The private sector should be given an initial opportunity of at least 18 months to develop plans for the organization of a portability fund. If they fail to act, the Secretary of Labor would establish the plans for portability funds. I strongly believe that these efforts should be made to keep pension monies within the private sector. The central portability fund should also have the option of offering basic plans of pension coverage to companies that do not have any. Such plans would be limited to employers with 300 employees or less. This service would be particularly beneficial to smaller companies who cannot afford the high costs of establishing and operating pension programs. We must make a strong effort to expand the private pension industry to cover the millions of Americans not presently enrolled. VII. CONCLUSION These are among the changes to the committee's proposal which I propose to bring real reform to the private pension system in this Nation. I emphasize that we should not accept any illusions of reform but rather we should have the courage to help the 34 million working men and women who are enrolled in pension plans. When the Senate begins debate on pension reform, I intend to initiate a full discussion of the issues which I have raised in this statement. VANCE HARTKE. [157] IX. SUPPLEMENTAL VIEWS OF MR. CURTIS This legislation is important to our private pension programs in the United States. It carries many provisions which I advocate and endorse. I am especially interested in the provisions which make it possible for an individual not covered by a company pension or an H.R. 10 pension to set aside for his own retirement and have the tax advantages that other plans have. This is a matter that I have worked for for many years. In general, I would have preferred to have had the enactment of my own bill, S. 1631, which was supported by the Administration. The provisions of that bill are more acceptable in several respects including the issue of professional corporations. CARL T. CURTIS. 2d Session [Bracketed numerals indicate official report page numbers.] FEBRUARY 21, 1974.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed Mr. Ullman, from the Committee on Ways and Means, submitted the following REPORT together with SUPPLEMENTAL VIEWS [To accompany H.R. 12855] The Committee on Ways and Means, to whom was referred the bill (H.R. 12855), to amend the Internal Revenue Code of 1954 to provide pension reform, having considered the same, report favorably thereon without amendment and recommend that the bill do pass. I. INTRODUCTION AND SUMMARY H.R. 12855, as reported by the Committee on Ways and Means, deals with the tax aspects of making pension, profit sharing, and stock bonus plans fairer and more effective in providing retirement income for employees who have spent their careers in useful and socially productive work. Your committee, in reporting this bill, anticipates that it will, in the House action, become a part of a broader bill dealing with retirement plans generally. It is expected that this bill will be combined with H.R. 12906, to be reported by the Committee on Education and Labor. This bill and the bill reported by the Committee on Education and Labor, are expected to jointly deal with participation, vesting, and funding with respect to pension plans. In these areas, this bill has been worked out in close coordination with the version of the bill expected from the Committee on Education and Labor to be sure that the general standards provided in these three areas are the same. Because of the expected coordination between your committee's bill and that of the Education and Labor Committee, no action is taken in this bill to deal with the general subjects of fiduciary standards, plan termination insurance, and reporting and disclosure, which are dealt with in H.R. 12906. This bill deals only with qualified plans and provides for enforcement with respect to retirement plans through the Internal Revenue 1 This House Report supersedes House Report 93-779 published in Cumu lative Bulletin 1974-3. [2] Service, while the bill from the Committee on Education and Labor is expected to deal with both qualified and nonqualified plans and provide for enforcement through the Department of Labor. Because of the coordination and effort involved, it is not expected that this dual jurisdiction in these three areas will present problems. Not only have the standards in the two bills been coordinated, but also provisions. have been made for joint regulations in areas where problems might otherwise arise. In the areas of participation, vesting, and funding it is important for the Committee on Ways and Means to have a part in setting the standards involved since for plans qualifying under these standards there are significant tax advantages. At the same time, guidelines established for retirement plans also are of significance to a committee charged with the jurisdiction of labor laws. Although provision is made for dual enforcement in these two areas by the Internal Revenue Service and the Department of Labor, it is anticipated that these agencies will coordinate their efforts so as not to duplicate enforcement efforts. This bill encourages provisions for the retirement needs of many millions of individuals. At the same time, the committee recognizes that private retirement plans are voluntary on the part of employers, and, therefore, it has weighed carefully the additional costs to the employers and minimized these costs to the extent consistent with minimum standards for retirement benefits. In broad outline. the bill is designed (1) to increase the number of individuals participating in retirement plans: (2) to make sure that those who do participate in such plans do not lose their benefits as a result of unduly restrictive forfeiture provisions or failure of the plan to accumulate and retain sufficient funds to meet its obligations; and (3) to make the tax laws relating to such plans fairer by providing greater equality of treatment under such plans for the different taxpaying groups involved. This bill also goes a long way toward equalizing the tax treatment of those in different lines of work. In the case of the self-employed, it makes a threefold increase in the deductible amount which can be set aside for retirement. At the same time, it provides limits on the contributions or benefits for individuals covered by qualified plans. The bill also provides deductions for a modest retirement savings set-aside for those who are not covered by any existing plans. The bill continues to rely primarily on the tax laws to secure needed improvements in pension and related plans. In general, it retains the tax incentives granted under present law for the purpose of encouraging the establishment of plans which contain socially desirable provisions. However, it also improves the effectiveness of these tax incentives by extending or increasing them in certain cases where this is warranted and by pruning them where they have given rise to problems. Present tax treatment of qualified plans Present law encourages employers to establish retirement plans for their employees by granting favorable tax treatment where plans qual [3] ify by meeting nondiscrimination and other rules set forth in the Internal Revenue Code. Such qualified plans must cover a specified percentage of employees or cover employees under a classification found by the Internal Revenue Service not to discriminate in favor of employees who are officers, shareholders, supervisory employees, or highly compensated employees. Similarly, the contributions to such plans or the benefits paid out by them cannot discriminate in favor of such employees. The favorable tax treatment granted qualified plans is substantial. Employers, within certain limits, are permitted to deduct contributions made to these plans for covered employees whether or not their interests are vested; earnings on the plan's assets are exempt from tax; and covered employees defer payment of tax on employer contributions made on their behalf until they actually receive the benefits, generally after retirement when their incomes and hence applicable tax rates tend to be lower. The private pension system has shown substantial development under the present tax rules. Estimates of the coverage of private pension plans range from 23 million to 30 million employees for 1972 and 42 million employees are expected to be covered by 1980 without any change in law. Similarly, in 1970 about $14 billion was contributed to pension plans by employees and employers and 4.7 million beneficiaries received $7.4 billion in pension payments. Moreover, pension plan assets amounted to $150 billion (book value) in 1972 and are expected to reach $225 billion by 1980. Problem areas While the achievements of private retirement plans are substantial, a number of serious problems have become apparent. Those dealt with by this bill can be briefly outlined as follows: Inadequate coverage.-Despite the rapid growth in pension coverage, about one-half of all employees in private nonagricultural employment are still not covered. Moreover, many plans have overly restrictive age and service requirements for participation, resulting in the exclusion of many employees. Inadequate vesting.-Present law generally does not require an employee plan to give a covered employee vested rights to benefits-that is, the right to receive benefits if he leaves or loses his job before retirement age. Many private pension plans do provide vested rights to benefits before retirement, but as a general rule, employees do not acquire vested rights until they have served a fairly long time with the firm and/or are relatively mature. As a result, even employees with substantial periods of service may not acquire rights to pension benefits upon separation from employment. Inadequate funding.-A significant number of pension plans are not adequately funded-that is, they are not accumulating sufficient assets to pay benefits in the future to covered employees. Under the present minimum funding requirements, contributions to qualified plans must be at least large enough to pay the normal costs (the pension liabilities created in the current year) plus the interest on unfunded accrued liabilities attributable to the past service of the covered employees. However, this minimum funding requirement is |