[S 4750]

SENATE

Retirement Income Security for Employees Act.

Generally, most of the titles of the Act would be jointly administered by the Labor and Treasury Departments although the roles would vary. The Labor Department would have the principal role in administering reporting, disclosure, and fiduciary standards as well as the plan termination insurance and portability programs. The Treasury Department, on the other hand, would be largely responsible for vesting and funding. The Treasury Department would exclusively administer the tax provisions relating to retirement savings, increases in the present deductions under plans for the self-employed (Keogh plans), and limitations on benefits and contributions.

All private pension plans regardless of their tax qualification status and size. (sec. 201, 221).

Plan may not require as a condition to be eligible to participate, a period of service of more than one year, or the attainment of age 30, whichever occurs later. (sec. 201).

Regulations concerning the definition of year of service are to be promulgated by the Secretary of Treasury after consultation with the Secretary of Labor. Beginning with 1982, would include any year in which an employee worked at least 5 months with at least 80 hours of work each month. (sec. 221).

Employees must be vested in at least 25 percent of his accumulated benefits, by the end of the fifth year of service. This minimum percentage would then increase 5 percentage points in each of the next five years (at least 50 percent vested by the end of the tenth year of service) and by 10 percentage points in each of the following 5 years (so that the employee must be fully vested not later than the completion of his 15th year of service). Once an employee becomes eligible to participate, up to five years of participation service are to be credited to years of service for vesting eligibility. (sec. 221).

With certain exceptions, service prior to effective date is included, both for calculating the years of service required to qualify for vesting and for determining the years of accumulated benefits to be vested. (sec 221).

Participation and vesting
Coverage

All private pension plans established or maintained by employers or employee organizations affecting or engaged in commerce. However, all government and church plans are exempt. (sec. 201).

Participation Requirement

Plan may not require as a condition to be eligible to participate, a period of service of more than three years, or the attainment of age 25 and one year of service, whichever comes first. However, a defined benefit plan may exclude any employee who commences employment at an age within 5 years of the normal retirement age under the plan. (sec. 202).

Definition of Year of Service

To be defined primarily by regulations developed jointly by Secretaries of Labor and Treasury but subject to guidelines set forth in the bill-including guidelines for seasonal employees. Year of service to take into account the customary working period (such as hours, days, weeks, months, or years) in any industry where, by the nature of the employment, the work period is substantially different from industry generally. (sec. 206). Vesting Requirement

These alternatives are provided: (1) Employee must be vested in at least 25 percent of his accumulated benefits by the end of the fifth year of service; the minimum percentage to increase 5 percentage points in each of the next 5 years (at least 50 percent vested by the end of the tenth year of service) and by 10 percentage points in each of the following 5 years (so that the employee must be fully vested not later than the completion of his 15th year of service).

(2) Fully vested (100 percent) by the end of the 10th year of service.

(3) Rule of 45-that is, at least 50 percent vested when age plus service equal 45 years (provided that there is at least 5 years of service); the minimum percentage to increase by 10 percentage points in each of the following 5 years. (sec. 203). Application of vesting requirement to service prior to effective date of Act With certain exceptions, service prior to the effective date is included, both for calculating the years of service required to qualify for vesting and for determining the years of accumulated benefits to be vested. However, service by an employee prior to January 1, 1969, is required to be taken into account only if the employee has served at least 5 years with that employer (or under a multiemployer plan) after December 31, 1968. (sec. 203).

All private plans seeking to obtain or retain their tax qualification status. However, all government and church plans are exempt. (sec. 1011).

Same as Title I. (sec. 1011).

Essentially the same as Title I. (sec. 1011).

Same as Title I. (sec. 1012).

Same as title I. (sec. 1012).

SENATE

In computing years of service to apply une vesting standard, only three of the five years of service need be consecutive. Generally service before and after breaks are to be aggregated for vesting and participation. (sec. 221).

No provision.

Vesting requirement does not apply to benefits arising from employer contributions if employee withdraws his contributions upon termination of employment or active partic!pation in plan. (sec. 221).

No provision.

Secretary of Labor is to develop modifications of Federal Procurement Regulations to insure that such employees under Federal contracts will be protected against forfeiture of their retirement benefits. In addition, the antidiscrimination provisions of the tax law are modified to allow an employer to establish a separate plan for highly mobile employees with lower benefits but with more liberal vesting than under his plan for other employees. (sec. 282).

Upon enactment for new plans; for existing plans, beginning with plan years commencing after December 31, 1975. If, on request, the Secretary of Labor determines that the vesting requirement would impose "substantial economic hardship" on individual plans, the effective date may be postponed up to six years. (sec. 221).

All private pension plans regardless of tax qualification status and size. Excludes all government and church plans. Special rules provide an exemption for certain insured plans, and for profit-sharing, stock bonus, nd money purchase plans. (sec. 241).

HOUSE: TITLE I

Treatment of Breaks-in-Service

In determining an individual's participation and vesting status after a break in service, a plan may exclude prior service of an employee who has a break in service of 1 or more years until the individual completes up to 1 year of work upon returning. However, where a rehired employee had completed at least 4 consecutive years of service before the break, his prior years of service must be taken into consideration for purposes of computing his years of service unless the break is for 6 years or more.

However, if a rehired employee acquired a nonforfeitable right to at least 50 percent of his accrued benefits prior to the break in service, all his prior service must be taken into consideration in computing his years of service, regardless of the duration of the break. (sec. 206).

Transition Rules for Existing Plans Plans in effect on January 1, 1974 would be required to provide only 50 percent of the otherwise applicable vesting requirement during the first year that the bill's vesting standards become effective, with this percentage rising by 10 percent annually until the full requirement has to be provided after five years. (sec. 203).

Vesting of Employer Contributions in
Contributory Plans

No pension plan to which employees contribute shall provide for forfeiture of a participant's accrued benefit derived from employer contributions (whether or not otherwise forfeitable), solely because the employee withdraws his own contributions. (sec. 203). Social Security Offset

Social security offset plans are not prohibited if (1) in the case of individuals currently receiving benefits, the pension benefit is not decreased by any subsequent increase in social security benefits or (2) in the case of a participant terminating with a vested benefit, such benefit is not decreased by subsequent increases in social security benefits. (sec. 204). "Highly Mobile" Employees such as Engineers or Scientists

No provision.

Effective Date

Upon enactment for new plans; for plans in existence on January 1, 1974 beginning with plan years after December 31, 1975. For plans maintained under collective bargaining agreements, the vesting requirements take effect with plan year beginning with termination of existing collective bargaining agreement or December 31, 1980, whichever occurs first (but in no event earlier than December 31, 1976). (sec. 207).

Funding Coverage

All private pension plans except governmental or church plans, a plan of a fraternal association, profit-sharing or savings plans, plans funded through insurance contracts, plus certain others. (sec. 301).

HOUSE: TITLE II

Same as title I. (sec. 1011).

The same as Title I but applies to plans in effect on December 31, 1973. (sec. 1012).

Same as Title I. (sec. 1021).

Same as Title I. (sec. 1021).

Essentially the same as Senate-passed bill, except that either House of Congress may disapprove proposed changes in procurement regulations. (sec. 1012, 1024).

Essentially the same as Title I. (sec. 1017).

All tax-qualified plans with essentially the same exceptions as Title I. However, government and church plans must meet requirements of present law.

SENATE

Annual contributions to pension fund must be sufficient to 1) equal each year's "current service costs", and 2) amortize "past service costs" in no less than equal payments over no more than 30 years. The funding requirement does not apply merely to vested benefits, but to all accrued plan benefits. (sec. 241).

Plan amendments which increase past service costs by as much as 5% may be treated as a separate plan for purposes of the funding requirement and amortized within 30 years. Benefits created by other plan amendments must be amortized over 15 years or the average remaining service life of the covered participants, whichever is shorter. (sec. 241).

Experience losses or gains resulting from changes in asset valuation or other developments not foreseen in advance must be amortized over 15 years or the average remaining service life of the covered participants, whichever is shorter. (sec. 241).

Employer may obtain a waiver for his required annual contribution from the Secretary of the Treasury. Any amounts waived must be amortized over no more than ten years and no more than 5 waivers may be granted in any ten-year period. The plan may not be amended to increase benefits as long as any waived amounts remain unpaid. (sec. 241).

Multi-employer plans permitted a longer funding period of forty years. Moreover, with respect to any multi-employer plan for which the Secretary of Labor finds that even this requirement would impose "substantial economic hardship" on the plan, the 40-year period may be extended to as much as 50 years. (sec. 241).

For new plans, the funding requirement would take effect on enactment. For existing plans, the requirement would take effect beginning with plan years after December 31, 1975. For plans for which implementation of the funding requirement would impose "substantial economic hardship", as determined by the Secretary of Labor, the effective date may be postponed for a period of up to six additional years. (sec. 241).

A Pension Benefit Guaranty Corporation would be established as a government corporation within the Department of Labor. It would be administered by a three-member board of directors, with the Secretary of Labor as Chairman. Other board members would be the Secretaries of Treasury and Commerce. The Corporation is permitted to borrow up to $100 million from the Treasury. (sec. 402-403)

All qualified plans regardless of size except money-purchase, profit sharing, stock bonus, governmental, fraternal society and church plans. (sec. 421)

HOUSE: TITLE I Basic Requirement

Annual contributions to pension fund must be sufficient to equal "current service costs", and to amortize the "past service costs" over no more than 30 years (existing plans given 40 years). The funding requirement applies to all accrued plan benefits (both vested and nonvested unfunded past service liabilities). (sec. 302).

Treatment of Plan Amendments Plan amendments must be amortized within 30 years. (sec. 302).

Treatment of Experience Gains and Losses Experience losses must be amortized within 15 years. (sec. 302).

Special Hardship Provisions

When a plan fails to meet the funding requirements for five consecutive plan years, the administrator shall amend the benefit schedule to reduce the value of the accrued liabilities to such an extent as is necessary to bring the plan's funding schedule into conformity with the funding requirements. (sec. 303).

Treatment of Multi-Employer Plans Multi-employer plans permitted a longer funding period of forty years for past service costs and increases caused by plan amendments. Moreover, they may be given an additional 10 years to fund past service liabilities if the plan would experience a "substantial hardship". Further, experience losses may be amortized within 20 years. (sec. 302). Effective Date

For new plans, the funding requirement would take effect on enactment. For plans in existence on January 1, 1974, funding requirements take effect with plan years beginning after December 31, 1975. In the case of a plan maintained pursuant to a collective bargaining agreement, funding requirement takes effect on the earlier of (a) the date on which the collective bargaining agreement terminates or (b) December 31, 1980-but in no event earlier than December 31, 1976. (sec. 305).

Plan termination insurance
Administering Agency

Essentially the same as Senate-passed bill except that board of directors would be comprised of Secretary of Labor as Chairman and two other officers or employees of the Labor Department. The Corporation is directed to establish two trust funds, a Single Employer Primary Trust Fund and a Multiemployer Trust Fund. The Corporation may also establishing an Optional Trust Fund for single employers. The Corporation is permitted to borrow up to $100 million from the Treasury. (sec. 401, 404)

Coverage

Mandatory coverage-all plans subject to the funding requirement with more than 25 participants (of whom at least ten have acquired vested benefits).

Voluntary coverage may be obtained by plans subject to the funding requirement, but which are not subject to mandatory coverage. However, they must meet underwriting standards set by the Corporation. (sec. 409)

HOUSE: TITLE I

Same as Title 1. (sec. 1013).

Same as Title I. (sec. 1013).

Same as Title I. (sec. 1013).

If an employer is unable to satisfy the minimum funding standard without substantial business hardship and if the application of the funding standard would be adverse to the interests of plan participants, the Secretary may waive the funding require ments. However, the minimum funding standard may not be waived more than five of any 15 consecutive years. (sec. 1013).

Same as title I. (sec. 1013).

Same as Title I. (sec. 1017).

No provision. [Ways and Means Committee Report No. 93-807 on H.R. 12855 states that although the Committee regards the development of an adequate program of plan termination insurance as essential to protect the rights of covered employees, the bill makes no provision for such termination insurance since provision is included in the Education and Labor Committee bill.].

No provision.

SENATE

Insurance of all vested benefits, including vested ancillary benefits in the event of plan termination; includes vested benefits acquired both before and after enactment. (sec. 422).

The monthly benefits guaranteed to any beneficiary could not exceed the lesser of 50 percent of the participant's average monthly earnings during the participant's highestpaid five years, or $750. The $750 is to be adjusted by changes in Social Security Administration wage base and contribution.

No benefits would be guaranteed for a plan in effect less than three years, nor would benefits resulting from any plan amendment be guaranteed until the amendment had been in effect for three years. If plan loses its tax-qualified status, no benefits accrued after disqualification shall be guaranteed. (sec. 422).

No provision.

Employers would have limited liability for any loss of covered benefits resulting from their plan's termination. This liability would also extend to successor employers as a result of reorganizations liquidations, mergers, and consolidations; and would be limited to 30 percent of net worth. However, employers (except those remaining in business) would be able to avoid any liability by paying a higher premium to be set by the Corp. In lieu of such a surcharge, employers could elect to gain protection against such liability through a private insurance carrier. The amount of any unpaid liability owed by an employer shall constitute a lien in favor of the government, but junior to any llen for unpaid taxes owed to the government. (sec. 461, 462).

HOUSE: TITLE I

Basic Protection

Insurance of benefits which are nonforfeitable according to the minimum vesting schedule in section 203 in effect for such plan termination date; and any contingent rights to ancillary benefits if all contingencies (other than the passage of time) have been satisfied. Includes vested benefits acquired both before and after enactment. (sec. 403).

Limitations on Amount of Insured Benefit

Insures only minimum required vested benefits which may not exceed the actuarial value of a monthly benefit in the form of a single life annuity commencing at age 65 equal to $20 a month per year of credited service. This maximum would be raised annually in accordance with changes in the average taxable wage of all employees, as reported to H.E.W. The Corporation is directed to undertake a study to determine under what conditions it can insure losses of plan benefits over and above those provided in the Act. To the extent that the Corporation determines that losses of the plan, or additional benefits are insurable, the Corporation shall prescribe the terms and conditions of insurance and the premiums to be charged. Other Limitations

No benefits would be insured unless the plan had been a member of the Corporation more than five years, although the board of directors may authorize payments for plans terminated with less than five years' membership although in such cases the maximum benefit for plans in existence less than five years would be reduced in accordance with a sliding scale based on years of existence.

No benefits resulting from a plan amendment would be insured until the amendment had been in effect for five years. If plan loses its tax-qualified status, no benefits accrued after disqualification shall be guaranteed. (sec. 409).

Alternate Insurance

The Corporation may establish a Single Employer Optional Trust Fund. Each single employer plan is required to choose whether insurance of its benefits is to be covered by this fund or the Single Employer Primary Trust Fund. Premiums to the Optional Fund will be set by the Corporation and based on the individual plan's insured benefits and any excess of insured benefits over plan assets; premiums shall be based on actual and projected experience. Employers electing coverage under the Single Employer Optional Trust Fund are not subject to any employer liability. (sec. 404, 405, 414).

Employer Liability

Where employers in terminated plans are not so insolvent, they or their successors-ininterest may be liable for reimbursement of a portion of insurance benefits paid. The liability of employers is to pay 100% of the present value of employer underfunding of the terminated plan (defined to take into account any expected employer contributions) but not more than 50% of the employer's net worth. The Secretary shall make arrangements with employers on equitable terms for the reimbursement of insurance paid. The amount of any unpaid liability owed by an employer shall constitute a llen in favor of the government, but junior to any llen for unpaid taxes owed to the government. (sec. 405).

Employers covered by the Single Employer Optional Trust Fund are not subject to liability. (sec. 414).

No employer shall be liable by reason of his contributions to or sponsorship of a multiemployer plan. (sec. 414).