addition, such a program will simplify and relieve many employers of recordkeeping problems which add administrative expense to their plans. The Committee is aware of the arguments of those who have opposed legislative efforts to initiate portability. However, the Committee is persuaded that such a program is feasible and that the successful implementation of a system of tax-free transfer of vested credits in Canada without the "clearinghouse" format created by this Section is proof of its feasibility. Obviously, if present tax laws could be modified to permit the tax-free transfer of vested credits by employees from job to job, then the "clearinghouse" system established by this Title might not be indispensable. However, in the absence of such far-reaching tax changes, the voluntary program established herein can prove to be of inestimable value to many participants.

There are a number of important elements of this voluntary pro

gram:

First, it is purely voluntary on the part of employers to enlist their plans in the portability system.

Second, it is purely voluntary on the part of the employee as to whether he wishes to transfer his vested credits from one member plan to another member plan through the clearinghouse mechanism.

Third, the Secretary is empowered to protect the employee's vested interest from his initial plan by assuring that the credits purchased from the new plan have equivalent actuarial value.

Fourth, amounts deposited in the "clearinghouse" fund may be channeled into socially desirable and productive investments, such as housing, since surplus amounts may be deposited in interest-bearing accounts of banks or savings and loan associations insured by the FDIC or the FSLIC.

Fifth, the Secretary is authorized to provide technical assistance to plans wishing to enter into reciprocal arrangements which will facilitate the free transfer of all pension credits, vested or not. In this connection, it is not intended that the Secretary actually establish such arrangements on behalf of the requesting parties but that he provide appropriate assistance.

The Committee does not believe that the portability program established by this Title is a substitute or replacement for adequate minimum vesting standards. It is, instead, an extension of the vesting concept which permits the employee to capture the value of his vested interest at a particular point in time and exchange that value for credits which will mature into an ultimately greater vested benefit than he might otherwise obtain.

TITLE IV.-PLAN TERMINATION INSURANCE

SECTION 401.-ESTABLISHMENT AND APPLICABILITY OF PROGRAM

The bill reported by the Committee requires plan termination insurance to cover unfunded vested liabilities incurred prior to as well as subsequent to enactment of the Act, in order to prevent employees from being deprived from insurance protection for retirement credits earned before enactment.

The Secretary may provide insurance to plans to cover unfunded. vested liabilities of a plan not subject to the Act so long as there is compliance with the vesting, funding and other requirements of the

Act and the plan pays the requisite assessments and premiums. This is intended to make insurance coverage under the Act available on a voluntary basis to plans not subject to the Act.

SECTION 403.-ASSESSMENTS AND PREMIUMS

The Committee adopted a provision which requires initial threeyear premium to be paid by plan, as follows:

(a) For funded vested liabilities incurred after enactment-0.2 percentum of unfunded vested liabilities;

(b) For unfunded vested liabilities incurred prior to enactment-0.2 percentum of unfunded vested liabilities provided plan was 75 percent funded during five-year period preceding Act, or if plan less than five years old on date of enactment, if it was reducing unfunded vested liabilities at rate of five percent each

year;

(c) For unfunded vested liabilities incurred prior to Act, but funding tests above in (b) not met-not more than .4 percentum and not less than 0.2 percentum of such unfunded vested liabilities; (d) As to multi-employer plans, both as to unfunded vested liabilities incurred before or after Act-not to exceed 0.2 percentum of all such unfunded vested liabilities.

In order to minimize the risk of shifting to the reinsurance program substantially unfunded liabilities created prior to enactment, it was believed essential to create two classes of risks for purposes of setting the premium rate. If the plan was being funded in an adequate fashion, i.e., was 75 percent funded or was amortizing unfunded vested liabilities at the rate of five percent each year, it was believed that such a plan was an acceptable risk and the .2 percentum premium rate was appropriate. In the event the plan did not meet the test of funding adequacy, as indicated, it falls in the category of being a higher risk, and therefore, can be charged up to twice the amount of normal premium, but no more. Since multi-employer plans, as defined in the bill, have a much lower risk of plan termination, it was believed appropriate to continue charging the .2 percent premium regardless of when the unfunded vested liabilities were incurred.

SECTION 404.-PAYMENT OF INSURANCE

There are a variety of circumstances under which pension plans terminate. In some cases, the termination proceeds by stages. In other cases, it may happen fairly rapidly. In order to carry out the purpose of the reinsurance program while at the same time protecting the program from undue exposure owing to delays, manipulation, or unforeseen economic hazards following plan termination, the Secretary is provided with sufficient flexibility to determine the most appropriate procedure for winding up terminated plans and assuring effective implementation of the insurance program.

It is also required that plans furnish to the Secretary adequate prior notice of intent to terminate the plan. Persons responsible for giving such notice who fail to do so, or who terminate plans in order to circumvent or avoid the Act or the WPPDA, are held personally liable for losses sustained by the insurance program. The Committee

believes this approach to be more practical and less time-consuming than requiring a plan to obtain the approval of the Secretary before the plan can be terminated, which was the approach employed in the prior version of S. 4.

SECTION 405.-RECOVERY

The Committee recognizes that in order to provide adequate protection to employees against loss of vested benefits owing to premature plan termination, it is necessary for the insurance program to cover all forms of plan termination regardless of the circumstances giving rise to the termination. The Committee also recognzed that some degree of employer liability was essential where the employer was not insolvent at the point of plan termination in order to preclude abuse by shifting the financial burden to the plan termination insurance program despite the fact that the employer had avaiable funds to continue funding the plan.

One approach to this problem would be to require financially responsible employer to, in effect, act as self-insurers for the unfunded vested liabilities and those who are not financially responsible to obtain plan termination insurance. This approach, which is supported by precdent in the field of workmen's compensation, for example, was considered and rejected becuase of the potentially enormous liabilities invoved. To require the Secretary to evaluate the financial capabilities of ticular employers to assume such potentially enormous liabilities might have an adverse effect on the employer's competitive position and on his continued healthy growth.

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Having determined that participation in the plan termination insurance program was essential for all plans, and that some degree of employer liability was necessary, the question of the degree of such liability becomes important. The Committee had concern that if the degree of liability was absolute to the extent of the employer's assets, it might drive some employers to the brink of bankruptcy, impose substantial economic hardship, or discourage the establishment of plans or the reasonable liberalization of benefits.

Accordingly, the Committee endorsed a formula of employer liability which requires the employer to reimburse the plan termination insurance program for the total amount of insurance paid, but in no event greater than 50% of employer's net worth at time of plan termination.

In addition, as a result of plan termination field hearings held by the Labor Subcommittee, numerous instances were disclosed where acquiring companies that terminated pension plans failed to take over the liability for vested benefits owed to the employees of the predecessor company. Since this circumstance could also arise in connection with the reinsurance provision, it is necessary to strengthen the reinsurance provisions by requiring successors-in-interest to be liable for reimbursements owed by predecessor companies.

In order to make liability of employer for reimbursement of insurance paid meaningful, it was considered essential to provide a mechanism for enforcement of such liability through giving the government a lien on employer property for unpaid amounts due.

With respect to the Secretary's authority to treat portions of multiemployer plans as terminated for purposes of applying the plan termination insurance provisions, it should be noted that the contributing

employers in such arrangements are free to arrange indemnification agreements among themselves in connection with the plan's application for insurance coverage under Title IV, so that employer liability for reimbursement of insurance paid under Title IV can be allocated under terms that the parties themselves have agreed to as equitable.

TITLE V.-DISCLOSURE AND FIDUCIARY STANDARDS

Title V amends the Welfare and Pension Plans Disclosure Act in two significant ways. First, by additions to and changes in the reporting requirements designed to disclose more significant information about plans and the transactions engaged in by those controlling plan operations and to provide specific data to participants and beneficiaries concerning the rights and benefits they are entitled to under the plans and the circumstances which may result in their not being entitled to benefits. Second, by the addition of a new section setting forth responsibilities and proscriptions applicable to persons occupying a fiduciary relationship to employee benefit plans, including a "prudent man' standard for evaluating the conduct of all fiduciaries, and by barring from responsible fiduciary positions in such plans for a period of five years all persons convicted of certain listed criminal offenses.

REPORTING AND DISCLOSURE

The underlying theory of the Welfare and Pension Plans Disclosure Act to date has been that reporting of generalized information concerning plan operations to plan participants and beneficiaries and to the public in general would, by subjecting the dealings of persons controlling employee benefit plans to the light of public scrutiny, insure that the plan would be operated according to instructions and in the best interests of participants and beneficiaries. The Secretary's role in this scheme was minimal. Disclosure has been seen as a device to impart to employees sufficient information and data to enable them to know whether the plan was financially sound and being administered as intended. It was expected that the information disclosed would enable employees to police their plans. But experience has shown that the limited data available under the present Act is insufficient. Changes are therefore required to increase the information and data required in the reports both in scope and detail. Experience has also demonstrated a need for a more particularized form of reporting so that the individual participant knows exactly where he stands with respect to the plan-what benefits he may be entitled to, what circumstances may preclude him from obtaining benefits, what procedures he must follow to obtain benefits, and who are the persons to whom the management and investment of his plan funds have been entrusted. At the same time, the safeguarding effect of the fiduciary responsibility section will operate efficiently only if fiduciaries are aware that the details of their dealings will be open to inspection, and that individual participants and beneficiaries will be armed with enough information to enforce their own rights as well as the obligations owed by the fiduciary to the plan in general.

The Committee regards the following changes in the reporting and disclosure provisions as most significant.

First, the general exemption in Section 4(b) (3) of the Act for plans of certain non-profit organizations such as hospitals, universities, foundations, etc. has been revised to exempt only plans of religious. organizations. There is no substantial reason why employees covered by plans of non-profit organizations should be entitled to less protection or less disclosure than employees covered by plans of profitmaking organizations.

Second, the annual report must include the opinion of an independent auditor based upon the results of a required annual audit. Such information will allow better assessment of the plan's financial soundness by administrators and participants alike (the exemption for the books of institutions providing investment, insurance, and related functions and subject to periodic examination by a government agency will prevent duplicative audit examinations of these institutions). In light of this change, the provision requiring the Secretary to obtain certification of the report by an independent accountant prior to making an investigation of plan books and records has been eliminated as superfluous.

Third, funded plans must include in their reports particularized information pertaining to leases, party-in-interest transactions, and investments in assets other than securities, in addition to information about securities, investments, and loans. With respect to transactions other than those involving parties-in-interest, particularized information is to be provided, in general, if the transaction exceeded three percent of fund value. Also, actuarial information is now required so that participants and beneficiaries and the Secretary can evaluate the funding of the plan.

Amendments to provide detailed information to individual participants are found in Section 8 of the Welfare and Pension Plans Disclosure Act. In addition to the current obligation to make available copies of the plan description and latest annnal report, the administrator will be required to furnish or make available, whichever is most practicable, to every participant upon enrollment in the plan a summary of the plan's important provisions, an explanation of the benefits, and the circumstances which may disqualify a participant from securing benefits, as well as the availability of the underlying plan documents, such as bargaining agreements, trust agreements. The participant may obtain from the administrator a copy of any or all underlying documents relating to the plan upon the payment of a reasonable charge (as determined by the Secretary).

Finally, in view of the significantly expanded functions, given to the Secretary under the Retirement Income Security for Employees Act and the Welfare and Pension Plans Disclosure Act, the membership of the Advisory Council to the Secretary found in Section 14 is amended to create new permanent categories of membership, including investment counselors, actuarial consultants, and accountants, and the composition of the Advisory Council is increased to 21 members to take account of these functions.

FIDUCIARY RESPONSIBILITY

A fiduciary is one who occupies a position of confidence or trust. As defined by the amendments, a fiduciary is a person who exercises any power of control, management or disposition with respect to