[S 4754]

SENATE

The Corp. would be authorized to prescribe insurance premium rates sufficient to fund any guaranteed payments. Separate rate schedules would be maintained for single employer and multi-employer plans. Initially, the premiums (to be collected as a "head tax") would be $1 a year for each individual covered by the plan. For plan years ending after 1976, however, the premium rate would be set by the Corporation according to the cost experience of the program. Congress would have to approve any revised rate schedule. Special provisions are included for multi-employer plans. (sec. 403, 463).

HOUSE: TITLE I Premium Rates

Separate rates to be set by the Corporation for single employer plans and multi-employer plans. Initially, the premium would consist of two parts: 1) a rate of not more than 0.1 percent for single employer (0.025 percent for multi-employer plans) on the excess of insured benefits over plan assets and 2) an additional rate levied (separately for single and multi-employer plans) on all Insured benefits to yield an amount equal to the revenue raised by (1).

Plans in effect less than six years not required to pay full premium, but in accordance with following schedule:

HOUSE: TITLE H

No provision.

The Pension Benefit Guaranty Corporation is directed to administer a program designed to facilitate the voluntary transfer of vested pension benefits between participating plans when an individual changes jobs. A Pension Benefit Portability Fund is established. The program will be entirely voluntary requiring the consent of both the employers who have established the plans to or from which pension monies are to be transferred and the employees who have to request such transfers. Workers who change jobs may have their vested retirement credits transferred to the Portability Fund. The worker may maintain these credits in the Fund or alternatively have the amount in his account transferred to a retirement plan of a new employer. (secs. 301-305.)

Corporation may issue revised premium rate schedule but such schedule can only be effective thirty days after Congressional aprpoval. (sec. 405, 406).

Portability

No provision (other than to study the existing degree of reciprocity and portability among plans).

No special provision. (However, bill contains a provision which is designed to achieve certain advantages of portability. Under a 90called "rollover" provision, individuals will have the right to roll over into individual retirement accounts-without the payment of current tax-complete distributions of amounts contributed under the plan by his employer.)

The reporting and disclosure requirements apply to all employee benefit plans (regardless of size) although the Secretary of Labor may grant an exemption or provide a variance in the form or manner of reporting or disclosure. However, exempt plans of taxexempt religious organizations described in section 501(c) of the Internal Revenue Code and plans outside the U.S. for the benefit of non-citizens. Continues the present Welfare and Pension Plan Disclosure Act exemptions of all governmental plans, and plans required under Workmen's Compensation and unemployment compensation disability insurance laws. (sec. 502, 503).

The plan administrator shall furnish (or make available) to every participant upon his enrollment in the plan (and after each major amendment), a summary of the plan's important provisions written in a manner calculated to be understood by the average participant; a description of the benefits, and the circumstances which may result in disqualification or ineligibility. A revised upto-date summary is to be furnished the participants every three years. The plan administrator is also required to furnish each participant or beneficiary requesting in writing, a complete copy of the plan description or a complete copy of the latest annual report, or both. (sec. 503).

Disclosure to Plan Participants

The plan administrator shall make copies of the latest annual report available for examination in the principal office of the administrator. Once each year the plan administrator shall furnish each participant and beneficiary with a description of the plan and a statement of assets and liabilities, receipts and disbursements, the ratio of a assets to liabilities, and such other material as is necessary to summarize annual report. Upon written request, the plan administrator must furnish participants with a complete copy of the latest annual report. (sec. 102, 105, 106).

No provision.

SENATE

The plan administrator is further required to furnish any participant or beneficiary requesting in writing a statement indicating (1) whether or not he has a nonforfeitable right to a pension benefit, (2) the nonforfeitable benefits which have accrued, or the earliest date they will become nonforfeitable, and (3) the total pension benefits accrued. (sec. 503).

The description of a plan shall be comprehensive and written in a manner calculated to be understood by the average participant. Also calls for plan description to include a description of the provisions providing for vested benefits. (sec. 502).

Annual report must include:
Statement of assets and liabilities;

The aggregate cost and value of each security, by issuer;

The aggregate cost and value of all other investments separately identifying each investment which exceeds 3 percent of the value of the fund; and each investment in securities or property of any party in interest;

The aggregate amount by type of security, of all purchases, sales, redemptions, and exchanges of securities made during the reporting period including a list showing separately for each security the issuer, type and class of security, quantity, and information on price, gain, or loss (similar information also required for investment assets other than securities);

A detailed list of and information on each transaction with any party in interest;

A list and specific information on each lease with any party in interest or with an individual in default;

The ratio of market value of the reserves and assets to the present value of all liabilities for nonforfeitable benefits; and

A copy of the most recent actuarial report together with the assumptions used. (sec. 502, 503).

Annual report would include the opinion of an independent certified or licensed public accountant based upon an annual audit. (sec. 502).

HOUSE: TITLE I

The Secretary may by regulation require that the plan administrator furnish each participant or his surviving beneficiary a statement of the rights of participants and beneficiaries under Title I. (sec. 102).

Plan Description

Same as Senate-passed bill. (sec. 103).

Annual Report to the Department of Labor Annual report must include:

Statement of assets and liabilities;

A schedule containing specific information on assets held for investment aggregated and identified by issuer, borrower, or lessor;

Detailed list and information on each transaction with a party in interest;

A list of all leases which are in default or are uncollectible;

The ratio of the current value of assets to liabilities allocated to each termination priority category;

A statement of the amount, if any, by which the assets exceed or fall below the funding requirement;

A copy of the applicable actuarial report together with the assumptions used. (sec. 104).

Annual Audit

Fiduciary requirements apply to all employee benefit plans (regardless of size). However, exempts plans of tax-exempt rellglous organizations described in section 501 (c) of the Internal Revenue Code and plans outside the U.S. for the benefit of noncitizens. Continues the present Welfare and Pension Plans Disclosure Act exemptions of all governmental plans, and plans required under workmen's compensation and unemployment compensation disability insurance laws. (sec. 501, 511).

A fiduciary shall discharge his duties solely in the interest of the plan participants, and for the exclusive purpose of providing benefits and defraying reasonable administrative expenses. (sec. 511).

Any fiduciary who breaches any of the responsibilities, obligations, or duties imposed by this act is personally liable to the fund for any losses resulting from such breach. (sec. 511).

SENATE

Under the amendments to the Internal Revenue Code and the Welfare and Pension Plans Disclosure Act, a fiduciary would be prohibited from dealing in his own interest, or engaging in a transaction with a party in interest which constitutes a (1) sale or exchange, or leasing, of any property, (2) lending of money or other extension of credit, (3) furnishing of goods, services, or facilities, or (4) transfer to or use of any assets of the trust. (sec. 511).

The prohibitions would not apply to any loan to parties in interest who are participants or beneficiaries of the plan if such loans (1) are available to all participants on a nondiscriminatory basis, (2) are not made available to highly compensated employees in an amount greater than that made available to other employees, (3) bear a reasonable rate of interest, and (4) are adequately secured. Similarly, a fiduciary would not be prohibited from receiving any reasonable compensation for services rendered. Several other exemptions would be provided from the list of prohibited transactions. For instance, loans and the leasing of property to a party-in-interest under a binding contract in effect on August 21, 1973 would be permitted for ten years if it remains at least as favorable to the trust as an arms-length transaction. The sale disposition, or acquisition of this property during the ten year period must be for fair market value. Secretaries of Labor and Treasury given joint rulemaking authority regarding exemptions and administration of certain prohibited transaction provisions, sec. 511, 521, 522).

Fiduciaries must act as a prudent man would in a like capacity and familiar with such matters. (sec. 511).

No more than 7 percent of a pension fund could be invested in employer securities. Plans would have to divest themselves of any excess within ten years. This limitation, however generally would not apply to profitsharing and stock bonus plans. (sec. 511).

The Secretary of Labor would have primary responsibility for enforcing rules with respect to fiduciaries. Where fiduciaries breach these standards of conduct, the Secretary of Labor (and participants and beneficiaries of the plan) may bring civil actions to impose 11ability on the fiduciaries for losses incurred by the plan or profits which they have gained as a result of the breach. Civil actions would also be available to enjoin fiduciaries or otherwise remedy a breach of conduct. (sec. 692).

The Internal Revenue Service would have primary responsibility for enforcing prohibited transactions with respect to parties-ininterest through an excise tax. The excise tax is at two levels. Initially, parties in interest who participate in a prohibited transaction would be subject to a tax of 5 percent of the amount involved in the transaction per year. A second tax of 100 percent would be imposed if the transaction was not corrected after notice from the Internal Revenue Service that the 5 percent tax was due. (sec. 522).

HOUSE: TITLE I
Prohibited Transactions

A fiduciary would be prohibited from dealing with the assets for his own account, acting in the adverse interests of the plan participants, or receiving any consideration for his own personal account. The transfer or use of any property by a party in interest (except for no less than adequate consideration) would be prohibited. The acquisition of any property from a party in interest for no more than adequate consideration also would be prohibited. (sec. 111).

The prohibitions would not apply to (1) receiving any benefit to which he may be entitled as a participant or beneficiary, (2) receiving any reasonable compensation for services rendered, or for the reimbursement of expenses properly incurred, or (3) serving as a fiduciary in addition to being an officer, employee, or other representative of a party in interest. (sec. 111).

Prudent Man Rule

Fiduciary must use the same care, skill and prudence as a prudent man acting in a like capacity and familiar with such matters. (sec. 111).

Limitation on Investments in Employer
Securities

Fiduciaries must diversify the investments so as to minimize the risk of large losses, unless under the circumstances it is prudent not to do so. This generally does not apply to profit-sharing, stock bonus, or thrift and savings plans. In order to provide for an orderly disposition of investments, a fiduciary may in his discretion effect the disposition of such investments within three years of enactment. (sec. 111 and 115).

Enforcement

Civil actions to enforce the fiduciary responsibility provisions may be brought by the Secretary of Labor, or by a participant, beneficiary, or fiduciary for appropriate relief. (sec. 503).

No provision.

Excise Tax

[S 4757]

SENATE

Persons convicted of certain crimes could not serve as an administrator, trustee, or officer of the plan. (sec. 511).

All rules governing fiduciary standards except prohibited transactions would be effective on January 1, 1974. The prohibited transaction rules would be effective one year later on January 1, 1975 (sec. 521).

Repeals present tax treatment of qualified pension plans for shareholder-employees of subchapter S corporations. Shareholderemployees of subchapter 8 corporations are subject to the same limitations as corporate employees. (sec. 702.)

Imposes limitations on contributions which may be made or the benefits which may be paid under qualified corporate plans for all employees.

No deduction is allowable for contributions in excess of those necessary to fund a basic benefit in the form of a straight life annuity commincing at age 65 in excess of 75 percent of the participant's average high-three year compensation from the employer, not in excess of the first $100,000 a year. (sec. 702, 706.)

Employees who are not covered under a qualified plan (including an H.R. 10 plan), a government plan, or a tax exempt organization annuity plan are allowed to establish their own qualified retirement accounts and take an annual income tax deduction for contributions for an amount up to the greater of $1,000 (not in excess of earned income), or 15 percent of earned income, up to $1,500 (sec. 701).

Allows a self-employed individual to take an annual income tax deduction on his own behalf for contributions to a qualified retirement plan (H.R. 10 plan) equal to an amount which is the greater of $750 (but not in excess of earned income) or 15 percent of earned income up to $7,500. A $100,000 limitation is provided for the portion of earned income which may be taken into account in determining contributions or benefits. Also, a formula is provided which would allow the self-employed, in effect, to translate the 15 percent-$7,500 limitation on contributions into limitations on benefits which they could receive under a defined benefit plan. (sec. 704).

The corporation is permitted to make deductible contributions sufficient to fund a pension for the employee on this same 75 percent of average high-three year compensation basis. Procedures to be followed in this situation take into account contributions accumulated in prior years, and provide that contributions made in current and subsequent years can provide any additional amounts necessary (together with earnings on those amounts at a standard 6 percent interest rate) to bring the pension benefits up to the level referred to above. (sec. 702, 706).

To assist employees in keeping track of any vested retirement credits, each plan (including Federal, state and local government plans) is required to report annually to the Secretary of Treasury the names of individuals who leave the plan with vested benefits and the amount of such vested benefits. (A statement setting forth this information would also have to be furnished to the individual.) This information would then be transmitted to and maintained by the Social Security Administration. Upon an individual's application for social security retirement benefits, the Social Security Administration is to furnish him with information regarding any vested pension benefits that he may have accumulated over his working career. (sec. 151, 152)

The provisions of this Act or the WPPDA supersede all state law as they relate to the subject matters covered by these two acts (1.e., vesting, funding, termination insurance, portability, reporting and fiduciary standards). (sec. 699)

Departments of Treasury and Labor both given responsibility for enforcement. Responsibility varies with different titles of the bill. Treasury Department enforcement authority includes the power to compel payment of taxes, already contained in the Tax Code, as well as new authority for an excise tax on any employer failing to fund the plan at minimum required amounts.

General

Joint and Survivor Option Essentially the same as Senate-passed bill, but requirement for joint and survivor annuity applies only when participant and spouse have been married throughout the five years prior to annuity starting date. (sec. 204)

Recordkeeping for Vested Benefits Essentially the same as Senate-passed bill excent that 1) government and church plans are covered only on a voluntary basis, 2) information is to be furnished to Secretary of Labor and then transmitted to the Social Security Administration, and 3) regulations to carry out this provision may be prescribed by the Secretary of Labor with approval of Secretary of Treasury. (sec. 106)

Preemption of State Law

The Act supersedes all state and local laws relating to fiduciary standards, reporting, disclosure, vesting, and funding (except for civil action by a participant or beneficiary to recover benefits due or to clarify rights to future benefits). No employee benefit plan subject to Title I (except plans primarily providing death benefits) can be considered an insurance company for purposes of State regulation. (sec. 514)

Enforcement

Department of Labor given responsibility for enforcement authority. Enforcement authority is exercised through the certification of a registration statement which each plan subject to the vesting and funding provisions must file. If the Secretary determines that a plan is not qualified (or no longer qualified), he is required to notify the administrator of the deficiency. If not correct

Same as Title I.

Essentially the same as Senate-passed b except that 1) government and church plans are covered only on a voluntary basis, and â' regulations to carry out this provision may be prescribed by the Secretary of Treasury with approval of Secretary of Labor. (sec 1031, 1032)

No provision.

Department of Treasury given responsti ity for enforcement. Enforcement authority includes power to compel payment of taxes already contained in the Tax Code, as VIC as new authority for an excise tax on sy employer falling to fund the plan at minimum required amounts (sec. 1013)