Staff study of the severance pay-life insurance plan of Teamsters Local 295

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Title:
Staff study of the severance pay-life insurance plan of Teamsters Local 295
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viii, 173 p. : ; 23 cm.
Language:
English
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United States -- Congress. -- Senate. -- Committee on Government Operations. -- Permanent Subcommittee on Investigations
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Subjects / Keywords:
Insurance -- New York (State) -- New York   ( lcsh )
Severance pay -- New York (State) -- New York   ( lcsh )
Insurance -- New York (N.Y.)   ( lcsh )
Wages -- Dismissal wage -- New York (N.Y.)   ( lcsh )
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bibliography   ( marcgt )
federal government publication   ( marcgt )
non-fiction   ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
General Note:
CIS Microfiche Accession Numbers: CIS 76 S402-13
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At head of title: 94th Congress, 2d session. Committee print.
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Reuse of record except for individual research requires license from LexisNexis Academic & Library Solutions.
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S/N 052-070-03465-3
Statement of Responsibility:
Permanent Subcommittee on Investigations of the Committee on Government Operations, United States Senate, 1976.

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University of Florida
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Table of Contents
    Front Cover
        Page i
        Page ii
    Memorandum
        Page iii
        Page iv
    Table of Contents
        Page v
        Page vi
        Page vii
        Page viii
    I. Introduction
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
    II. History of Teamsters Local 295
        Page 6
        Page 7
        Page 8
    III. Criminal backgrounds of Harry Davidoff and Louis Ostrer
        Page 9
        Page 10
        Page 11
        Page 12
    IV. Local 295 severance trust fund
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
    V. Commissions on the insurance policies
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
    VI. Evaluations of the severance pay-insurance plan
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
    VII. Corrective actions and related events
        Page 32
        Page 33
        Page 34
    VIII. Findings and conclusions
        Page 35
        Page 36
    Appendixes I to XXXV
        Page 37
        Page 38
        Page 39
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    Back Cover
        Page 175
        Page 176
Full Text
\


94th Congress P
2d Session COMMITTEE PRINT






STAFF STUDY

OF THE

SEVERANCE PAY-LIFE INSURANCE PLAN
OF TEAMSTERS LOCAL 295





PERMANENT SUBCOMMITTEE ON
INVESTIGATIONS

OF THE

COMMITTEE ON GOVERNMENT OPERATIONS
UNITED STATES SENATE ,
,! Lu^ir4,


1976


Printed for the use of the Committee on Government Operations


U.S. GOVERNMENT PRINTING OFFICE


71-542


WASHINGTON : 1976


For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 Price $1.85
Stock Number 052-070-03465-3


/




























COMMITTEE ON GOVERNMENT OPERATIONS

ABRAHAM RIBICOFF, Connecticut, Chairman


JOHN L. McCLELLAN, Arkansas
HENRY M. JACKSON, Washington
EDMUND S. MUSKIE, Maine
LEE METCALF, Montana
JAMES B. ALLEN, Alabama
LAWTON CHILES, Florida
SAM NUNN, Georgia
JOHN GLENN, Ohio


CHARLES H. PERCY, Illinois
JACOB K. JAVITS, New York
WILLIAM V. ROTH, JR., Delaware
BILL BROCK, Tennessee
LOWELL P. WEICKER, JR., Connecticut


RICHARD A. WEGMAN, Chief Counsel and Staff Director


PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

HENRY M. JACKSON, Washington, Chairman


JOHN L. McC
JAMES .a
SAM WTUNNl .


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N, Arkansas


CHARLES H. PERC1


WN Aeojama JACOB K. JAVITS, N(
!4a I .o.. WILLIAM V. ROTH, J
BS,,F1)orida ",. BILL BROCK, Tennes
Ohio -
0, -HQWARD J. FELDMAN, Chief Counsel
`DbooT oY FOSDICK, Professional Staff Director
STUAAXT M. STATLER, Chief Counsel to the Minority
SItUtlH YOUNG WATT, Chief Clerk
': -,Rf"OLAND L. CRANDALL, StaffEditor


r, Illinois
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MEMORANDUM


U.S. SENATE,
COMMITTEE ON GOVERNMENT OPERATIONS,
SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
Washington, D.C., May 10, 1976.
To: All Members of the Permanent Subcommittee on Investigations.
From: Senator Sam Nunn, Acting Chairman.
This staff study deals with the manner in which the severance trust
fund and the fund's life insurance benefit were designed and managed
for the Teamsters Local 295 in New York.
Information developed by the Subcommittee staff indicated that the
severance trust fund and the fund's life insurance benefits were ius-ed
by persons of questionable background to extract large amounts of
money, contributed by management, that rightfully belonged to
union members.
The life insurance purchased under the terms of the plan was
individual whole life on each member. The whole life concept resulted
in excessively high premiums and agent commissions. Administrative
and legal fees were also excessively high. A more conventional group
life insurance plan would have been far less expensive and the overall
benefits to workers and their families far greater.
While this staff study concerns itself solely with the severance trust
fund-life insurance benefit of Local 295, independent inquiry by the
Subcommittee staff has revealed that similar fringe benefit plans have
been designed for other union locals.
It is my view that the potential for abuse in the severance fund
area is a subject requiring further examination by the Congress and
the Department of Labor. Accordingly, as part of this Subcommittee's
jurisdiction to make inquiry into alleged irregular practices in the
labor or management field, the staff is continuing its investigation of
severance trust funds and related fringe benefit programs in other
union locals.
Copies of this staff study are being referred to the Departments of
Labor and Justice, the Internal Revenue Service, and the Headquar-
ters of the International Brotherhood of Teamsters, Chauffeurs, Ware-
housemen and Helpers of America.


(IM)


















Digitized by the Internet Archive
in 2013












http://archive.org/details/fseve00unit













CONTENTS

Page
I. Introduction----------------------------------------------- 1
An agreement is reached ------------------------------ 1
Origin of investigation and subcommittee's jurisdiction---- 1
Definition of severance trust funds------------------------- 2
Brief history of severance pay plans------------------------ 2
1974 legislation----------------------------------------- 4
The potential for rapid growth of severance funds------------ 5
II. History of Teamsters Local 295 ------------------------------- 6
Senate committee investigates Teamsters in 1950's----------- 6
The importance of Joint Council 16 ----------------------- 6
Formation of the "Paper" Locals-------------------------- 7
The union philosophy of the racketeers--------------------- 7
The seven "paper" locals and their leaders------------------ 8
III. Criminal backgrounds of Harry Davidoff and Louis Ostrer-------- 9
Harry Davidoff's police record----------------------------- 9
Harry Davidoff appears before the Select Committee- -------- 9
The testimony of James A. Landry------------------------- 10
The criminal record of Louis C. Ostrer ---------------------- 10
Ostrer's link with organized crime -------------------------- 11
IV. Local 295 severance trust fund-------------------------------- 13
The airfreight industry in New York---------------------- 13
Davidoff controls local 295-------------------------------- 13
The Local 295 contract proposal--------------------------- 13
Louis Ostrer promotes severance pay plan------------------- 14
Fund grows, its purpose expands---------- ----------------- 14
Severance fund gets off to rocky start---------------------- 15
Details of the severance plan-insurance benefit-------------- 16
V. Commissions on the insurance policies-------------------------- 18
Without agent's license, Ostrer relied on others -------------- 18
Two insurance companies provide coverage------------------ 18
Fringe Programs, Inc------------------------------------ 18
Executive Life Insurance pays advance commissions ---------- 19
Interview with Cy Reeves Snyder-------------------------- 19
The loans are guaranteed------ ------------------------ 20
Forst, Lochner sign checks-------------------------------- 20
Trans World takes over the 295 account--------------------- 21
Trans World pays commission advances -------------------- 22
Henry Brown cashes checks for Ostrer ---------------------- 22
The Kings Lafayette Bank check is explained--------------- 23
Third-year advances are returned-------------------------- 24
VI. Evaluations of the severance pay-insurance plan----------------- 25
Subcommittee asks actuaries to examine fund---------------- 25
New York insurance department examines fund- ----------- 25
The GAO studies fund--------------------- -------------- 26
A critique of the Ostrer concept ---------------------------- 28
Ostrer misled Local 295 members -------------------------- 28
Letters are not answered--------------------------------- 29
The Belmont stock case----------------------------------- 29
VII. Corrective actions and related events --------------------------- 32
Reforms are implemented in fund-------------------------- 32
James Hoffa's book------------------------------------- 32
Reader's Digest article- -------------------------------- 32
April 18, 1974 citation ----------------------------------- 33
VIII. Findings and conclusions-------------------------------------- 35








APPENDIXES
I. New York Post article headlined, "The Life & Times of Harry Page
Davidoff," December 15, 1972_--------------------------- 37
II. New York Daily News article headlined, "Swindler Makes
250G Bail But Still Winds Up in Jail," February 25, 1973 -..-- 39
III. U.S. General Accounting Office document of April 13, 1973
entitled, "Review of Plans, Programs and Financial Transac-
tions Relating to the Severance Benefit Trust Fund of Local
295" --------------.-- = - --------------------------- 39
IV. Affidavit of Otto Forst, May 31, 1972---------------------- 44
V. U.S. General Accounting Office study of Local 295 severance
trust fund, dated May 21, 1973--------------------- 49
VI. Report on Local 295 severance trust fund, dated June 25, 1971,
prepared for the Senate Permanent Subcommittee on Investi-
gations by Lawrence M. Hyman, Supervising Examiner, New
York State Insurance Department; George Perla, Senior
Examiner, New York State Insurance Department; and
Herbert L. Feay, Assistant Director and Actuary, U.S.
General Accounting Office------------ -------------------- 98
VII. Findings of Fact, Conclusions and Decision by the New York
State Insurance Department, dated October 4, 1967, regard-
ing Louis Ostrer, Samuel Schienhaus and Seymour Greenfield;
press release, dated December 22, 1967, issued by New York
State Insurance Department concerning Louis Ostrer------ 106
VIII. New York Insurance Department Report of Examination of
Local 295 Severance Trust Fund as of June 30, 1971, No.
0-232-0295------------------------ -------------------- 108
IX. Subcommittee memorandum of November 23, 1971 entitled,
"Interview of Cy Reeves Snyder re Louis Ostrer and Sever-
ance Benefit Fund of Local 295, IBT," from Stephen B. King
and William F. Gibney to John P. Constandy, and memoran-
dum of February 22, 1972 from King and Robert Dunne to
Constandy-------------------------------------------- 117
X. Check No. 6592, dated December 17, 1970 drawn on the account
of the Executive Life Insurance Company of New York,
payable to Cy Reeves Snyder, in the amount of $25,000;
Check No. 6593, dated December 17, 1970, drawn on the
account of Executive Life, payable to Cy Reeves Snyder, in the
amount of $50,000; Check No. 6651, dated December 21,1970,
drawn on the account of Executive Life, payable to Cy Reeves
Snyder, in the amount of $25,000, Check No. 6945, dated
January 25, 1971 drawn on the account of Executive Life,
payable to Cy R. Snyder Agency, Inc., in the amount of
$3.3,000; Check No. 6944 dated January 25, 1971, drawn on
the account of Executive Life, payable to Cy R. Snyder, in
the amount of $50,000; and Check No. 6946, dated January 28,
1971, drawn on the account of Executive Life, payable to
Cy R. Snyder Agency in the amount of $150,000_ ------ 119
XI. Memorandum, dated December 10, 1970, from Harry 0. Miller
to Otto Forst---- ----------------- 122
XII. Norbert F. Lochner affidavit, June 12, 1972- ------- 122
XIII. Check No. 610, dated March 4, 1971, drawn on the account of
Executive Life Insurance Company of New York, payable
to Dina Gelman, in the amount of $2,232.47; Check No.
1063, dated April 5, 1971, drawn on the account of Executive
Life, payable to Dina Gelman, in the amount of $22,129.87;
Check No. 1148, dated April 9, 1971, drawn on the account
of Executive Life, payable to Dina Gelman, in the amount
of $22,154.09; and Check No. 1155, dated April 12, 1971,
drawn on the account of Executive Life, payable to Dina
Gelinan, in the amount of $50,000--------------------- 124






VII


XIV. Check No. 443, dated February 22, 1971, drawn on the account
of Executive Life Insurance Company of New York, payable
to Dina Gelman, in the amount of $25,000; Check No. 1466,
dated May 14, 1971, drawn on the account of Executive Life,
payable to Dina Gelman, in the amount of $5,671.88; and
cashier's Check No. 2610093, paybale to Dina Gelman pur-
suant to instructions of Executive Life, in the amount of Page
$20,000------------------------------------------------ 126
X., Affidavit of Russell J. Lasher, August 30, 1972-------------- 128
XVI. Affidavit of Joseph J. Warren, June 19, 1972---------------- 129
XVII. Check No. 20522, dated September 22, 1971, drawn on the
account of Trans World Life Insurance Company, payable
to Viscount Agency, Inc., in the amount of $25,000; Check
No. 20523, dated September 22, 1971, drawn on the account of
Trans World Life, payable to Viscount Agency, in the amount
of $25,000; Check No. 20919, dated October 8, 1971, drawn on
the account of Trans World Life, payable to Viscount Agency,
in the amount of $15,000, Check No. 20920, dated October 8,
1971, drawn on the account of Trans World Life, payable to
Viscount Agency, in the amount of $15,000; Check No. 21145
dated October 18, 1971, drawn on the account of Trans World
Life, payable to Viscount Agency, in the amount of $20,000;
Check No. 22152, dated November 29, 1971, drawn on the
account of Trans World Life, payable to Viscount Agency, in
the amount of $10,000; and Check No. 22169, dated November
30, 1971, drawn on the account of Trans World Life, payable
to Viscount Agency, in the amount of $30,000-------------- 133
XVIII. Check No. 22191, dated December 1, 1971, drawn on the account
of Trans World Life Insurance Company, payable to Dina
Gelman Agency, in the amount of $100,000; Check No. 22253,
dated December 3, 1971, drawn on the account of Trans
World Life, payable to Dina Gelman Agency, in the amount
of $60,000; Check No. 22709, dated December 17, 1971, drawn
on the account of Trans World Life, payable to Dina Gelman
Agency, in the amount of $40,000; Check No. 22969, dated
January 4, 1972, drawn on the account of Trans World Life,
payable to Dina Gelman Agency, in the amount of $30,000:
Check No. 23072, dated January 6, 1972, drawn on the account
of Trans World Life, payable to Dina Gelman Agency, in the
amount of $70,000; and Check No. 23144, dated January 10,
1972, drawn on the account of Trans World Life, payable to
Dina Gelman Agency, in the amount of $20,000------------ 135
XIX. Separate affidavits of Henry Brown, dated December 9, 1971;
June 16, 1972; July 28, 1972; and September 8, 1972-------- 138
XX. Affidavit of Michael McEnroe, July 14, 1972----------------- 146
XXI. Statement of Kings Lafayette Bank, New York, in which
Seymour Greenfield was certified as secretary of the Modern
Agency, Inc., and its sole signator- ----------------------- 147
XXII. Statement of Kings Lafayette Bank in which Seymour Greenfield
of Viscount Agency opened a personal checking account------- 150
XXIII. Check No. 6946, dated January 25, 1971, drawn on the account
of the Executive Life Insurance Company of New York,
payable to Cy R. Snyder Agency, in the amount of $150,000- 150
XXIV. Cashier's Check No. 103-001916, dated January 27, 1971,
drawn by Michael McEnroe, payable to S. Greenfield, in the
amount of $25,000; cashier's check No. 103-001917, dated
January 27, 1971, drawn by Michael McEnroe, payable to
D. Gelman, in the amount of $25,000; and Check No. 103-
001918, dated January 27, 1971, drawn by Michael McEnroe,
payable to H. Brown------------------------- ---------- 151
XXV. Separate Kings Lafayette Bank statements closing out the
account of the Modern Agency, Inc., care of Seymour Green-
field; and the personal account of Seymour Greenfield, both
closings dated February 22, 1971-------------------------- 154





VIII


XXVI. Check No. 23345, dated January 14, 1972, drawn on the account
of Trans WVorld Life Insurance Company, payable to Dina
Gelman Agency, in the amount of $50,000; and Check No.
23709, dated January 27, 1972, drawn on the account of
Trans World Life, payable to Dina Gelman Agency, in the Page
amount of $25,000-------------------------------- 156
XXVII. Letter of April 24, 1972 from Joseph J. Warren to Dina Gelman 157
XXVIII. Check No. 124, dated April 26, 1972, drawn on the account of
Dina Gelman Agency, payable to Trans World Life, in the
amount of $25,000; and Check No. 125, dated April 26, 1972,
drawn on the account of Dina Gelman, payable to Trans
World Life, in the amount of $50,000------------------ 158
XXIX. Separate letters each dated March 30, 1973, from Howard J.
Feldman to Harry Davidoff and Louis Ostrer----- --------- 159
XXX. Letter of January 16, 1973, from Michael Hunt to Fringe
Programs, Inc ------------------_--------------------- 159
XXXI. Subcommittee memorandum of February 21, 1973, entitled,
"Local 295 Severance Trust Fund, Selection of Insurance
Carrier by Trustees of Fund," from Maurice Frame to John P.
Constandy------ ------------------------------------ 160
XXXII. Amendment to Local 295 Severance Trust Fund, effective
February 1, 1973 -------------- --------------------- 160
XXXIII. "The Mafia Tightens Its Grip on the Teamsters" by Lester
Velie, Reader's Digest, August 1974-_ --- -- .- ..----- 161
XXXIV. State of New York Insurance Department Citation regarding
Local 295 Severance Trust Fund, April 18, 1974----- ------- 165
XXXV News release of the State of New York Insurance Department
issued March 4, 1976 ----- ------- -- ---., 173









I. INTRODUCTION


AN AGREEMENT IS REACHED
Harry Davidoff and Louis Cuple Ostrer were men with different
backgrounds. Davidoff was a tough, plain spoken labor leader who had
grown up on the streets of New York. Ostrer, who had come to the
United States from his native Rumania, was an insurance executive
with a penchant for abstract thought and for making complicated
actuarial theories easy to understand. But in the fall of 1970 these
two men who seemed to have so little in common came together and
made an agreement.
Their plan was simple enough. Davidoff would use his considerable
influence as secretary-treasurer of Teamsters Local 295 to persuade
his membership to adopt Ostrer's new concept of severance pay and
life insurance for workers.
The plan was accepted. In December of 1970, the union contract
contained a severance fund provision and Louis Ostrer was put in
charge of managing the fund as well as overseeing the insurance
feature.
However, the agreement between Davidoff and Ostrer-and the
severance fund-life insurance program that resulted from it-set off
controversy and raised serious questions. Soon the severance fund-life
insurance plan became the subject of inquiry by the Senate Permanent
Subcommittee on Investigations.
In addition, Harry Davidoff and Louis Ostrer themselves became
subjects of Subcommittee inquiry. For, in spite of their differing
backgrounds, they did have some things in common. They were both
felons. They both had ties with organized crime. And neither of them
should ever have been entrusted with responsibility for millions of
dollars in labor-management trust funds.
Although no hearings were held, the staff completed its investigation
and compiled its case. What follows is the study by the staff of the
Senate Permanent Subcommittee on Investigations of the severance
trust fund and its life insurance benefit of New York Local 295 of the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen
and Helpers of America.

ORIGIN OF INVESTIGATION AND SUBCOMMITTEE'S JURISDICTION
The Senate Permanent Subcommittee on Investigations of the
Committee on Government Operations is, by present and past Senate
resolutions, authorized to examine alleged criminal activity in labor-
management relations.
In February of 1971, the Subcommittee began a preliminary inquiry
into the severance fund of Teamsters Local 295.
The Subcommittee's interest in Teamsters Local 295 was prompted
by information which alleged that the local's severance trust fund
was being managed with questionable p)roced(lurcs and policies.
(1)







It was alleged that because of these questionable practices the
members of Local 295 were being deprived of benefits due them. It
was further alleged that certain leaders of the local and certain of
the leaders' business associates were profiting illegally or unethically
from severance fund operations.

DEFINITION OF SEVERANCE TRUST FUNDS
A severance trust fund is a fund of money usually created as the
result of a labor agreement, from which cash payments or other
benefits are provided qualified employees upon termination of their
employment with a covered employer, in accordance with a severance
pay plan. In most cases, the plans are jointly administered.
The payments, usually in lump sum, are made to employees when
they quit their jobs or are fired or laid off. In the event of death, the
employees' beneficiaries receive the severance fund payment.
Severance funds are financed by contributions from management
alone or from management together with union members. The funds
are controlled by trustees who represent both management and labor,
or management alone.
Payment to employees from the severance trust fund is commonly
referred to as "severance pay." Severance pay is usually a "fringe
benefit;" that is, it is a benefit unions win for their members in
addition to higher wages. Examples of other major fringe benefits are
retirement pensions, health and life insurance programs, vacations,
annuities and savings programs and apprenticeship training.

BRIEF HISTORY OF SEVERANCE PAY PLANS
At the Subcommittee's request, the Economics Division of the Con-
gressional Research Service of the Library of Congress prepared a
brief history of union severance trust funds in the United States.1
The first severance pay plans were started in the early 1920's
when a form of lay-off notice payments were made to employees by
certain companies. The companies implementing these plans were
large, had mostly white collar employees, had small labor costs and
did business for the most part in noncompetitive markets.
In the mid-1920's, several unions began to include severance pay
provisions in their negotiated contracts. In 1925, for example, the
International Ladies Garment Workers Union reached an agreement
with the New York Dress Manufacturers Association in which at least
two weeks' wages were paid to workers displaced by labor-saving
devices. Employees laid off because of shop reorganization were to be
paid from one to four weeks' wages depending on their length of
s service.
In 1926, the Amalgamated Clothing Workers negotiated a plan with
Hart, Schaffner and Marx to pay 236 displaced cutters $500 each. The
money was paid from funds contributed by the company and by
cutters remaining on the job.
In May of 1936, railroad unions and the railroad industry signed the
Washington Job Protection Agreement in which it was stipulated that
I Me.morandum of August 27, 1975 entitled, "Information relating to severance pay fund," prepared by
Charles V. Ciccone, Specialist, Labor Economics and Relations, Congressional Research Service, Library of
Congress, for the Senate Permanent Subcommittee on Investigations.






workers laid off because of consolidations would receive 60 percent of
their average monthly pay for periods varying according to their
length of service.
In 1940, the Congress amended the Interstate Commerce Act to
provide pay protection to workers let go because of mergers. In 1944,
the policy was extended to workers displaced because of abandonment
of railroad lines.
The Communications Act of 1934 was amended in 1943 so that
workers fired due to mergers of telegraph companies would receive one
month's pay for each year of seniority.
During World War II, controls on wages triggered new efforts
toward better employee benefits. Moreover, workers and union
leaders feared that mass layoffs would occur when the war ended.
These factors led to demands for severance pay benefits.
Accordingly, the War Labor Board ordered adoption of a plan giving
employees displaced by post-War plant shutdowns at least four weeks'
pay for workers with 10 or more years of service.
Since 1944, there has been a slow but steady rise in the number of
negotiated severance pay plans. Government figures, compiled by the
Bureau of Labor Statistics, show that in 1944 only 5 percent of the
agreements studied contained severance pay provisions. Only a few
industries, notably the newspaper publishing and railroad industries,
had adopted the principle of severance pay to any considerable extent.
By 1949, 168-or 8 percent-of the 2,137 agreements studied
provided for severance pay. These contract provisions tended to be in
the communications, rubber, printing and publishing industries.
Some 266-or 16 percent-of 1,693 labor-management agreements
covering 1.75 million workers contained severance pay benefits in the
period of 1955 to 1956. Half of these agreements were in the com-
munications, primary metals and electrical machinery industries.
While the severance pay contract provisions went from 5 percent
to 16 percent from 1944 to 1956, this was a relatively slow pace when
compared to the spread of pension plans and health and insurance
programs built into collective bargaining pacts of the same period.
However, the need for severance pay plans had been lessened some-
what by the post-War increases in supplementary unemployment
programs and the enactment of unemployment compensation laws.
But severance plans did continue to grow.
In the 1958 auto workers negotiations, severance pay arrangements
were integrated into the supplementary unemployment benefit pro-
gram. The International Ladies Garment Workers Union won accept-
ance of a widely praised severance pay plan in their 1958 negotiations.
And other unions, especially in the electrical and maritime industries,
also included some form of severance pay protection in their contracts.
By 1971, severance pay plans were found to be in use in 237-or 38
percent-of the 620 selected labor contracts examined by the Bureau
of Labor Statistics.
Several factors have contributed to the growth of severance pay
plans.
First, union leaders consider the severance issue of special signifi-
cance to older workers who feel that it would be more difficult for
them to find new employment should they lose their jobs.







Additionally, the rise in plant closures and relocations, coupled with
increasing company mergers, has given severance pay a higher priority
in the list of fringe benefits.
Finally, union negotiators are focusing more attention on winning
fringe benefit increases in contracts because, in the better salaried
industries, pay raises are often offset by higher taxes and are, there-
fore, less meaningful than in previous years,
From a management point of view, a benefit like a severance fund
contribution satisfies a union's demand for increased compensation
without raising other costs such as the hourly overtime wage. Sev-
erance fund contributions are also tax deductible.
Prior to enactment of the Employee Retirement Income Security
Act of 1974, the federal government d(lid not regulate union severance
trust funds and pay plans to any significant extent. However, a few
federal laws in effect prior to 1974 did relate to severance pay plans.
A 1959 amendment to section 302(c) of the Taft-Hartley Act, as
amended, allows employers to contribute to jointly-administered sev-
erance trust funds if the severance pay plans meet certain stated
requirements. For example, the kind of benefits provided must be
spelled out in a written agreement and there must be an annual audit
of the fund, the results' of which must be made available to inter-
ested parties.
Section 302 of Taft-Hartley also states that the severance fund
must be administered equally by management and the union. There
must be a provision for recourse to a third party in cases of disagree-
ment.2
Another federal law-the Labor-Management Reporting and Dis-
closure Act of 1959, as amended-provides for more specific avail-
ability of information about benefit plans. Section 201 of the Act
requires the filing of financial reports by labor organizations with
the Department of Labor. The report is to include information with
respect to insurance and other benefits as well as all relevant data
about union operations, including assessments, disbursements, annual
financial reports, assets, liabilities and receipts.3
In addition, the Internal Revenue Service (IRS) of the Treasury
Department examines tax exempt trusts (severance pay plans) to
determine if employer contributions are legitimate business expenses
and are, therefore, tax deductible. IRS says that employers may
deduct severance fund contributions if more than half of the money
in the fund is for severance pay. This IRS provision enables severance
fund money-as much as 49.9 percent of it-to be used for fringe
benefits other than severance pay.4

1974 LEGISLATION
On September 2, 1974, the Employee Retirement Income Security
Act (ERISA) became law. ERISA, public law 93-406, includes in
its coverage any benefit described in section 302(c) of the Labor
Management Relations Act of 1947 (Taft-Hartley). Section 302(c)
covers "a trust fund established . for the purpose of pooled
vacation, holiday, severance or similar benefits." Severance pay plans
2 Text of Labor Management Relations Act, 1947, as amended by Public Law 86-257,1959.
s Labor Management Reporting and Disclosure Act of 1959, as amended.
4 Memorandum of August 17, 1973 entitled, "Information relating to severance pay fund."







are now under the jurisdiction of the U.S. Department of Labor and
the Internal Revenue Service.
While the new law does not mandate pension or welfare benefit
plans, it does protect participants and beneficiaries of existing plans
against mismanagement and misrepresentation. The law is designed
to require adequate public, disclosure of the administrative and
financial affairs of employee pension and welfare benefit plans; estab-
lish minimum standards of fiduciary conduct for trustees, adminis-
trators and others dealing with plans; provide for appropriate remedies,
sanctions and ready access to the federal courts; establish standards
for vesting and funding; and provide for adequacy of plan assets by
insuring unfunded portions of promised benefits.
ERISA covers employee pension and welfare benefit plans falling
under the Commerce Clause jurisdiction but does contain certain
specific exemptions. Among the exemptions are plans established by
unions which do not provide for employer contributions after the
date of enactment of the law; and church and governmental plans.
The Act sets forth a number of criminal violations including willfully
violating reporting and disclosure provisions, embezzlement, kick-
backs, false statements, concealment of facts, intentional violation of
the office-holding prohibitions and willfully interfering with benefit
rights through fraud or coercion. In addition, the law provides for civil
equitable or remedial relief.
Various effective dates of coverage are set in the law depending on
the nature of the matter to be covered. For example, participation and
vesting for new plans became effective on the date of enactment,
September 2, 1974; for existing plans on December 31, 1975; while
collectively bargained plans will come under the law on the date of
expiration of the contract or December 31, 1980. Other effective dates
(but none before July 1, 1974) are set for termination insurance and
fiduciary liability; the latter became effective January 1, 1975.
Under the law, employee pension and welfare plan administrators
must file with the U.S. Department of Labor certain plan descriptions,
annual reports, termination reports and other plan documents as
required by the Secretary of Labor. Additional reports are required to
be filed with the Pension Benefit Guarantee Corporation and with the
IRS.
THE POTENTIAL FOR RAPID GROWTH OF SEVERANCE FUNDS
There is considerable potential for quick accumulation of large
amounts of money in severance trust funds. For example, it is possible
that if a union local with 5,000 members negotiates a collective bargain-
ing agreement that includes a severance trust fund, the employer
might agree to contribute $1 an hour for each of his workers. Comput-
ing on the basis of a 40-hour week, the trust fund would receive
$200,000 each week. Annual revenues, before interest and excluding
pay-outs, would be $10.4 million.












II. HISTORY OF TEAMSTERS LOCAL 295


SENATE COMMITTEE INVESTIGATES TEAMSTERS IN 1950'S
The Senate created the Select Committee on Improper Activities in
the Labor or Management Field in March of 1957. The Select Com-
mittee was, in effect, an arm of the Senate Permanent Subcommittee
on Investigations. The Select Committee Chairman, Senator John L.
McClellan of Arkansas, was also Chairman of the Investigations
Subcommittee. Three of the other Senators on the Select Committee
also served on the Investigations Subcommittee. The Select Com-
mittee's staff included men and women assigned from the Investiga-
tions Subcommittee. And the Select Committee's rules and procedures
were those of the Investigations Subcommittee.5
The Select Committee focused considerable attention on the activi-
ties of the Teamsters Union and its executives, including Dave Beck,
the president, and James R. Hoffa, a vice president who later became
president.
The Select Committee issued interim reports in 1958 and 1959 and a
four-part final report in 1960. It is from these reports and from the
two and a half years of public hearings held by the Select Committee
that this staff study gathered information on the creation of Local
295.6
THE IMPORTANCE OF JOINT COUNCIL 16
In the mid-1950's, James Hoffa was trying to unseat Dave Beck as
president of the Teamsters International. One move Hoffa made was
to try to take control of the powerful Teamsters Joint Council No. 16
in New York City.7
Joint Council 16 was important to Hoffa's ambitions because it
controlled the flow of goods and'services in and out of and within
New York City. Council 16 had the authority to approve Teamsters
strikes and to grant or withhold Teamsters support for strikes staged
by other unions.8
In addition, New York, as much as any other city in the United
States, is dependent on services for its economic life. And in providing
these services, the Teamsters Union plays a key role. Teamsters
deliver food, pick up garbage, transport freight. Few aspects of New
York commerce are not affected by the Teamsters. New York would
quite literally close down if the men who drive its trucks stayed
home.
5 Hearings before the Senate Select Committee on Improper Practices in the Labor or Management Field
85th Congress, First Session, pursuant to Senate Resolution 74, 85th Congress, Parts 1-58, February 26
1957-September 9, 1959; First Interim Report March 1958; Second Interim Report, part 1, August 1959;
Second Interim Report, part 2, October 1959; Final Report, part 1, February 1960; Final Report, part 2,
March 1960; Final Report, part 3, March 1960; Final Report, part 4, March 1960.
6 Ibid.
7 Interim Report of the Select Committee on Improper Activities in the Labor or Management Field,
March 17, 1958, pp. 198-199.
* Ibid.
(6)







By controlling Council 16, then, Hoffa could have exercised signifi-
cant influence over the course of organized labor in the New York area.
Hoffa would also have become pre-eminent in the ability of New York,
America's biggest city, to survive.9

FORMATION OF THE "PAPER" LOCALS
Hoffa, who was a vice president of the Teamsters International
wished to take over Joint Council 16 at the same time labor racketeers
and organized crime figures had designs on the Council.10
The two groups-the Hoffa loyalists and mobsters-entered into an
alliance. Together they formed seven locals. With these new locals,
Hoffa and his allies hoped to outnumber-and out vote-existing
locals in Joint Council 16.11
The new locals-Nos. 295, 275, 651, 258, 269, 284 and 362-were
"paper" organizations at the start since they lacked members.'2

THE UNION PHILOSOPHY OF THE RACKETEERS
The racketeers whom James Hoffa allied with in the mid-1950's
were not newcomers to the labor movement. Two of them, in fact-
Anthony (Tony Ducks) Corallo and John (Johnny Dio) Dioguardi-
were well established labor racketeers.
Corallo had long been considered by law enforcement authorities
to be one of the most powerful underworld figures in New York. His
principal pursuits were in illicit narcotics and labor rackets.
Corallo acquired the nickname of "Tony Ducks" because of his
ability to escape convictions when arrested. His police file showed 12
arrests but only one conviction, a six months sentence in 1941 for un-
lawful possession of drugs.'3
Dioguardi, or Johnny Dio, had 12 arrests and three convictions-for
extortion, for extortion and conspiracy, and for tax evasion-and, like
Corallo, was also active in the labor movement. He was a regional
director of the United Auto Workers-American Federation of Labor
(UAW-AFL) locals in New York.14
Corallo and Dioguardi and their associates eagerly betrayed the
interests of union members in return for money and power for them-
selves.'5
The Select Committee exposed many instances when Corallo and
Dioguardi unions entered into collusive contracts which called for wage
rates lower than the national minimum wage enacted by Congress.
In other instances, workers were forced to join unions not of their
own choosing or made to work in sweatshop conditions in bitter cold
or extreme heat. They were often passed around from one union to
another.
Witnesses from both labor and management testified about illegal
and strongarm tactics used by unions controlled by Corallo, Johnny
Dio and their criminal associates. Workers told Senators how they
were ordered to join corrupt locals or face the threat of being fired.
' Ibid.
10 Ibid.
I Ihid., p. 163.
12 Ibid., p. 199.
1 Ibid., p. 173.
14 Ibid., pp. 167, 170.
1is Ibid., pp. 162-221.







They told of union contracts negotiated in secret, contracts that gave
them miniscule raises and no vacations, no seniority rights, no welfare
benefits and only two, three or four holidays a year.
Workers found themselves afraid of their own union. They were not
given copies of the contracts they worked under. Their business agents
were not known to them. Union meetings were rarely held. Elections
were unheard of.16

THE SEVEN "PAPER" LOCALS AND THEIR LEADERS
The plan to take over Council 16 was implemented. The five UAW-
AFL locals controlled by Johnny Dio were transferred into the
Teamsters November 8, 1955. The same day two existing Teamsters
locals were split up and two new locals were created."7 The seven new
locals had seven votes each for a total of 49, margin enough, Hoffa
hoped, to elect a Council president of his choosing.
Although the subsequent election was later voided in court, 42 of
49 new votes were cast for Hoffa's candidate.18
The Select Committee on labor-mnanagement rackets found that the
Corallo-Dio labor mob the Teamsters now housed included 40 men in
positions of trust who, among them, had been arrested a total of 178
times and convicted 77 times for crimes such as theft, violations of
narcotics laws, extortion, conspiracy, bookmaking, use of stench
bombs, felonious assault, robbery, possession of unregistered stills,
burglary, violation of gun laws, being an accessory to murder, forgery,
possession of stolen mail and disorderly conduct.'9
One of these men was Harry Davidoff, a convicted felon with a
record of 12 arrests going back to 1936.20 Davidoff had been an officer
in the UAW-AFL Local 649, an organization Johnny Dio used as his
headquarters. With the changeover to the Teamsters, Dio named
Harry Davidoff head of Teamsters Local 258.21 Davidoff later was
reassigned to run the affairs of the newly created Teamsters Local 295.
It was as secretary-treasurer and principal leader of Local 295 that
Davidoff, in 1970, got into the severance fund business with Louis
Cuple Ostrer.
16 Ibid.
17 Ibid.
18 Ibid., pp. 210, 211.
19 Ibid., p. 167.
20 Ibid., p. 170.
21 Ibid., p. 199; exhibit facing p. 202.









III. CRIMINAL BACKGROUNDS OF HARRY DAVIDOFF AND
Louis OSTRER

HARRY DAVIDOFF' S POLICE RECORD
A New York newspaper once described Harry Davidoff as a "tough
looking, tough talking man with a sixth grade education" who had
been "shot, arrested, questioned by Congressional panels and investi-
gated by the FBI." 22
Similarly, the Subcommittee found Davidoff to be a ruthless New
York thug, a gangster who gravitated to the labor movement for no
other reason than to steal from it.
Harry Davidoff's crime career began in 1933 when, at the age of 15,
he was arrested for burglary. He was sentenced to three years proba-
tion. 23
From 1934 to 1939, Davidoff was arrested-but not convicted-for
felonious assault with a knife, possession of a gun, grand larceny and
robbery.
In 1940, Davidoff received a suspended sentence for attempted
extortion. He was convicted and fined $25 for bookmaking in 1943.
It was also in the 1940's that Davidoff moved into the leadership
of organized labor as he went from positions of responsibility in one
local to another in the New York area.
In one of his jobs-as president of the AFL Local 130, Toy and Doll
Workers-Davidoff became a trustee of the welfare fund. The New
York Insurance Department found that Davidoff had siphoned off
$4,000 from the fund for a new car for himself and was paying himself
$225 a week from the fund as well as taking $75 a week from it for
expenses.
When his payments from the welfare fund came to light, Davidoff
left the Toy and Doll union and went to other unions and other posi-
tions of trust, eventually finding his way into Johnny Dio's UAW-
AFL Local 649 and then into the Teamsters' "paper" locals November
8, 1955.

HARRY DAVIDOFF APPEARS BEFORE THE SELECT COMMITTEE
On August 14, 1957, Harry Davidoff, under subpoena, appeared
before the Select Committee on labor-management rackets.
The Chairman, Senator John L. McClellan of Arkansas, and his
Chief Counsel, Robert F. Kennedy, questioned Davidoff extensively
about his activities in the labor movement.
To each question, Davidoff refused to respond, invoking 45 times
his 5th Amendment right not to testify because his answers might
have incriminated him.24
22 New York Post article headlined, "The Life & Times of Harry Davidoff," December 15, 1972, p. 2.
(See Appendix I.)
23 Interim Report of the Select Committee, March 17, 1958, p. 170.
24 Hearings before the Senate Select Committee, part 12, August 14, 1957, pp. 4523-4532.
(9)
71-542-76---2







THE TESTIMONY OF JAMES A. LANDRY
James A. Landry, the general counsel of the Air Transport Associa-
tion of America, testified before the Senate Permanent Subcommittee
on Investigations June 24, 1971 on the subject of airport security.25
The hearings at which Landry testified were in connection with
the Subcommittee's investigation of the role of organized crime in
the worldwide traffic in stolen securities. Many of these securities
are stolen from mail bags at major airports.
Landry said the airlines, deeply troubled by airport thievery, had
formed an Airport Security Council in 1968 and that, due to the
Council's efforts, some progress had been made in controlling the
number of thefts.
Landry said thievery at the John F. Kennedy International Airport
was still very high but that statistics showed the crime rate to be
declining. Thefts and losses in 1969 at JFK were $3.4 million, Landry
said, but in 1970 they dropped to $1.4 million.
In addition, Landry said an Airport Security Council study found
that the major gangsters involved in thievery from New York air-
ports were out of circulation now, having been convicted of federal
crimes. All the "principal hoodlums" in airport thievery had been
caught, Landry said-except one, Harry Davidoff. Landry's Airport
Security Council concluded that "Harry Davidoff is the only re-
maining key organized crime figure associated with JFK Airport who
has not been arrested as a result of investigations conducted by
federal and local law enforcement authorities with the cooperation
of the air cargo industry." 26

THE CRIMINAL RECORD OF LOUIS C. OSTRER
Louis Cuple Ostrer had come to Harry Davidoff with the idea for
the severance pay-life insurance plan in 1970. In the 1960's, Ostrer
was alleged to have stolen several hundred thousand dollars from the
Canada Life Assurance Company. He was caught, charged with grand
larceny, found guilty and given a five-year suspended sentence. His
license to sell insurance would have been revoked but the State of
New York had already done that.
As an agent for the Canada Life Assurance Company, Louis Ostrer
sold to the Allmetal Screw Products, Inc., Garden City, New York,
insurance policies on the lives of several of the firm's executives.
In 1964, Ostrer convinced the corporation's officials that it would
be to their advantage to prepay for several years the future premiums
on 12 policies. As a result, Allmetal drew 12 checks on March 10,
1964, all to the order of Canada Life Assurance Company. Two of
these checks were for $60,810.28 and the other 10 were for $25,772.13
each.
The 12 checks, which totalled $379,341.86, were delivered to
Ostrer.
It was alleged that Ostr'er altered the checks by adding the phrase
"Louis C. Ostrer Associates Agents for" just before the words "Canada
Life Assurance Co."
25 Hearings before the Senate Permanent Subcommittee on Investigations entitled "Organized Crime-
Stolen Securities," part 2, June 24, 1971, pp. 376-420.
26 Ibid., pp. 378, 379.







Ostrer took six of the checks which were for $25,772.13 each to
Henry Brown, a broker who operated the midtown Commercial
Corporation at 301 West 39th Street in New York. Brown cashed the
checks for Ostrer.
Some three years later-in February and March of 1967-Ostrer
advised Canada Life that Allmetal wanted to take out loans on the
policies it held on its executives. Canada Life recieved formal requests
from Ostrer which bore the forged corporate seal of Allmetal and the
forged signature of Allmetal officers.
The Canada Life Assurance Company forwarded to Ostrer checks
totalling $396,000. Ostrer was found out but not before he had cashed
eight checks worth $338,000.27
Charged with grand larceny of some $300,000, Ostrer pled guilty
and received a suspended sentence.28
Canada Life Assurance conducted an investigation into Ostrer's
activities while he represented the insurance company. The investiga-
tion showed that Ostrer's larcenies from Canada Life were not limited
to the approximately $700,000 from the 1964 and 1967 thefts. It was
asserted that Ostrer's larcenies from the Canadian firm actually were
more than $1.2 million.29
As for the $300,000 which Ostrer pled guilty to having stolen, the
sentencing judge-Manhattan Supreme Court Justice Xavier C.
Riccobono-gave Ostrer five years' probation and ordered him to
make restitution. Then the judge explained why he was not sending
Louis Ostrer to jail.
Justice Riccobono said to Ostrer:
It would appear that almost any venture you undertake, obviously because of
those talents and gifts that have been given to you by the Almighty Himself,
seems to enable you to convert almost anything into a very successful enterprise.
It is inadvisable, under these circumstances, for the court to take these God-
given talents and incarcerate them by incarcerating you.30
In addition to the Allmetal case, Ostrer was arrested July 6, 1967
by New York police for possession of $20,000 in stolen municipal bonds.
No conviction resulted from this arrest.31
On January 4, 1973, trial was held in federal court in the Southern
District of New York in which Ostrer and John Dioguardi were
charged with conspiracy and stock fraud in connection with the
manipulation of stock of the Belmont Franchising Corp. The case
was prosecuted by Assistant U.S. Attorney Harold McGuire, Jr.
Ostrer and Johnny Dio were convicted. More details of this case are
presented later in this staff study, beginning on page 29.

OSTRER'S LINK WITH ORGANIZED CRIME
Harry Davidoff's association with organized crime was a long
established fact. He was Johnny Dio's man in labor rackets and law
enforcement agents had so identified him for many years.
27 Investigation Report concerning Louis Ostrer prepared by the Probation Department, New York
County, Case No. 5333/68.
,, Ibid.
2 Ibid.
30 New York Daily News article headlined, "Swindler Makes 250G Bail But Still Winds Up in Jail,"
February 25,1973. (See Appendix II.)
31 Investigation Report, New York County.





12
By contrast, until the 1970's Louis Ostrer's link with organized
crime was not obvious. Insurance was his line and he had a reputation
for knowing the business very well, both in theory and in practice.
Nonetheless, Ostrer had ties with organized crime figures.
Ostrer's associates included Anthony (Tony Ducks) Corallo, Johnny
Dio, Anthony (Hickey) DiLorenzo, Ruby Stein, Nicholas (Jiggs)
Forlane, Milton Holt and John Masiello, all of whom are well known
organized crime figures.












IV.-LOCAL 295 SEVERANCE TRUST FUND


THE AIR FREIGHT INDUSTRY IX NEW YORK
The truck drivers who deliver air cargo to and from and around
the New York airports belong to Teamsters Local 295. There were
about 1,400 members of Local 295. Its offices are located on the out-
skirts of the John F. Kennedy International Airport at 179-30 149th
Avenue, Jamaica, New York. 32
The air freight industry in the New York area was comprised of
one very large company-Emery Air Freight-and about 35 smaller
firms, some of which had only two or three trucks.

DAVIDOFF CONTROLS LOCAL 295
In 1971, when Subcommittee Investigators began this inquiry,
they found Harry Davidoff to be in firm control of Local 295. Davidoff
was being paid an annual salary of $57,000 and had the use of a
Lincoln Continental provided by the union. In addition, Davidoff,
then 56, could look forward to a comfortable retirement of $20,000
a year and a severance payment from the local. Davidoff had also
formed a new Teamsters local-No. 851-and had transferred to it
all non-freight shops previously covered by Local 295. Housed in the
same offices as Local 295, Local 851-the Miscellaneous Production
and Industrial Workers Union-used the same phone and its secretary-
treasurer was the same Harry Davidoff.

THE LOCAL 295 CONTRACT PROPOSAL
The air freight industry and Local 295 negotiated their labor
contracts on a three-year basis. The contract entered into December 1,
1967 was to expire November 30, 1970. A new three-year contract was
anticipated.
Accordingly, in 1970, Davidoff was putting together a wide ranging
contract proposal that included demands for sizable wage hikes and
new comprehensive work rules. Ultimately, Davidoff's demands were
assembled in a huge document 50 legal size pages long.
Section 26 of the Davidoff document was entitled, "Severance
Pay," and stated:
The parties agree to establish a severance bonus plan, which will provide a
schedule of benefits of no less than one (1) week's pay for each year of employment.
Said plan shall be based upon length of employment and will further provide for
vesting of the employee's benefits in the event of termination for any reason pro-
vided said employee meets the eligibility requirements of the plan.
The Employer will contribute to the severance bonus plan, which is to be
administered jointly by the parties, the sum of twenty-five (250) cents per hour
for each employee covered by this agreement.3
32 U.S. General Accounting Office document of April 13, 1973 entitled, "Review of Plans, Programs and
Financial Transactions Relating to the Severance Benefit Trust Fund of Local 295." (See Appendix III.)
3 Local 295 wage and benefit demands, 1970.
(13)






At 25 cents an hour, computing onii the basis of a 40-hour week, the
employers were being asked to contribute a minimum of $10 a week.
However, Davidoff altered that initial proposal considerably. He
won from the trucking firms a promise to contribute $15 a week for
each driver the first year of the contract; $30 a week for each driver the
second year; and $40 a week the third year.

LOUIS OSTRER PROMOTES SEVERANCE PAY PLAN
While Harry Davidoff was planning his new contract demands,
Louis Ostrer was in California seeking backing for his severance pay-
life insurance plan from insurance executives.
Ostrer went to the office of Otto Forst at 9777 Wilshire Boulevard
in Beverly Hills March 25, 1970. Forst was chairman of the board of
the First Executive Corporation, a holding company for several
insurance companies, including Executive Life of New York.
Basically, the Ostrer idea called for severance pay trust funds to be
formed exclusively from the contributions of management. About half
the money in the fund would then be used to buy life insurance for
the union members.
In a Subcommittee affidavit, sworn to May 31,1972 in Baden Baden,
Federal Republic of Germany,34 Otto Forst recalled the Beverly Hills
meeting and Ostrer's enthusiasm for the severance pay-life insurance
plan, a concept, Ostrer insisted, that would "revolutionize benefit
practices under collective bargaining."
Forst, who was in business to sell insurance, was impressed. Ostrer
spoke "in terms of hundreds of millions of dollars of face value in-
surance" and was so convincing that Forst agreed to have his Execu-
tive Life Insurance Company of New York provide the coverage for
the kind of severance pay-insurance program Ostrer was promoting.
Some seven months after the Beverly Hills meeting-in the fall of
1970-Ostrer had apparently persuaded Teamsters Local 295 to
adopt his severance pay-life insurance concept. Forst said that he
met with Ostrer on two visits to New York-on October 21 and 22
and November 17 and 18-and that Ostrer was now saying Local
295 was ready to start buying coverage.
Forst added that Ostrer, in both October and November, spoke
precisely of what the terms of the employers' contributions would
be-$15 per worker per week for the first year; $30 per week for the
second year and $40 per week for the third year. These were the
exact contributions the employers agreed to in December of 1970.
Forst said that Ostrer explained to him that slightly less than half
of the employers' contributions would be available for the purchase
of life insurance. On the basis of this assurance, Forst promised to
advance Ostrer the first year's commissions as soon as the case was
written.
FUND GROWS, ITS PURPOSE EXPANDS
Things were moving quickly. Section 26, the "Severance Pay"
provision, of the original Davidoff proposal grew from 25 cents an
hour per employee to $15 per week per worker, and then to $30 and
$40 a week in the second and third years, respectively. The purpose
of the fund was also expanded and a life insurance feature was added
34 Affidavit of Otto Forst, May 31, 1972. (See Appendix IV.)







that provided for 49.9 percent of the fund's money to be spent on
insurance coverage for workers.
Soon Louis Ostrer was explaining to union and management
representatives not only how the Ostrer concept of severance pay
worked-but also how his concept of life insurance would go into
effect. The truck drivers of Local 295 would have a severance pay
plan that would return to them should they quit or retire or be laid
off all the money contributed on each man's behalf by management.
Next, at no extra cost, they would also have life insurance protection.35

SEVERANCE FUND GETS OFF TO ROCKY START
Payments of $15 per man per week were due and payable starting
December 1, 1970. The various collective bargaining agreements
were signed between the trucking firms and Local 295 from Decem-
ber 6 to December 16. Money for the severance fund was pouring
in at the rate of $18,000 to $20,000 a week.
Harry Davidoff appointed five union members to the board of
trustees of the new trust fund. A meeting was called. Representatives
from several of the trucking firms attended. They designated five
trustees to represent management on the board.
At the first few meetings, minutes were not adequately kept. So
it is uncertain as to all that actually transpired. But the minute-
do show there was considerable confusion as to how to proceed.36
Strong disagreements broke out. Two trustees of management-one
from Emery Air Freight-resigned.
Through this rocky period, Louis Ostrer was a source of strength
as he attended most of the meetings of the trustees and was helpful
and ready to provide guidance. His advice was particularly well
received as none of the trustees knew very much about managing a
severance fund or setting up a life insurance program.
Ostrer was already a familiar figure to the Teamsters and to manage-
ment. He had spoken to both groups previously about the severance
fund. Now, the trustees, faced with the troublesome burden of having
an on-going fund of their own, turned to Louis Ostrer to manage it,
and help them make vital decisions.
The trustees of the fund seemed relieved to have Ostrer assume the
responsibility of drawing up trust indentures,- modifying the collective
bargaining agreement when needed, seeking an insurance agency,
using part of the severance fund money to buy life insurance, obtain-
ing actuarial studies and, in general, just getting things moving.
Emery Air Freight, the largest by far of all the trucking firms, did
have misgivings about the fund and Louis Ostrer. In fact, after their
representative on the board of trustees resigned, Emery officials
made a brief but futile effort to set up a separate trust for their own
employees.
36 Rules and Regulations of Local 295 Severance Trust Fuid; Agreement and Declaration of Trust Estab-
lishing the Local 295 Severance Trust Fund.
36 Minu es of meeting of trustees of severance trust fund, Local 295, March 17 and 31. 1971, Subcommittee
memorandum of March 1, 1972 entitled, "Local 295 Severance Trust Fund, review of minutes of trustees
meetings for October and November of 1971," from Jack Balaban to John P. Constandy; Subcommittee
memorandum ol July 5,1972 entitled, "Reviewof minutes oft rusl ees meetings, January, February and April
1972," from Jack Balaban to Jonn P. Constandy; Subcommiilte mpmorandum of November 6, 1972 en-
titled. "Review of minutes of trustees meeting of September 25, 1972," from Jack Balaban to John P.
Constandy.





16


The union objected, saying it was bad precedent, might require
several other separate trusts and would be foolish for the smaller
companies to have individual funds. Emery gave up the effort.
Nonetheless, Emery Air Freight refused to participate in manage-
ment's membership on the board of trustees and began making its
contributions to the trust fund "under protest."

DETAILS OF THE SEVERANCE PLAN-INSURANCE BENEFIT
Examination of the severance fund's procedures showed that
workers enrolled at the start of the fund qualified immediately for the
full payment of whatever money had been contributed on their
behalf by management. Noninception members qualified gradually
over a five-year period.37
Nearly half--49.98 percent-of the employer contributions was
used to buy life insurance for the members of Local 295.
The life insurance purchased for each member was ordinary level-
premium whole life insurance. It was provided in separate individual
policies-not group.38 The individual policy feature of the insurance
program was to be one of the most controversial aspects of the plan.
Considerable criticism was lodged against Ostrer, the architect of the
system, for not having selected the more conventional group plan
coverage. This criticism is noted in some detail later in this staff
study.
Commissions for the agent were quite high. The total agent com-
missions were set at 50 percent for the first year; 25 percent for the
second, third and fourth years, respectively; and 15 percent each for
the fifth through 10th years.39 Critics of the Ostrer plan also raised
questions about the propriety of the commission rates as will be noted
later in this study.
Insurance coverage for workers was determined by a formula. The
first step was to multiply the employer's weekly contribution by 50.
Next, that figure was multiplied by the number of years between the
insured members' age and age 65.
For example, if a 40 year old man died in the second year of the plan
when employer contributions were $30 per week, the dead man's
policy was worth $37,500. By the same formula and with the same
circumstances, a 25 year old man would have $60,000 coverage while
a 56 year old man would have $15,000 coverage.40
Unfortunately, however, the dead man's widow could not collect
the full face value of her husband's policy unless she waited 10 years to
do it. That was another feature of Louis Ostrer's concept of life insur-
ance which was a target of criticism.
This Ostrer innovation began on the premise that the beneficiary of
all the insurance policies was not the families of the deceased but the
severance fund itself.
Accordingly, after the death of the insured, the dead man's own
named beneficiary did not receive cash from the trust fund according
to the face value of the policy.
7 U.S. General Accounting Office study of Local 295 severance trust fund, dated May 21,1973. (See Appen-
dixV.)
38 Ibid.
Report on Local 295 severance trust fund, dated June 25, 1971, prepared for the Senate Permanent
Subcommittee on Investigations by Lawrence M. Hyman, Supervising Examiner, New York State Insur-
ance Department; George Perla; Senior Examiner, New York State Insurance Department; and Herbert L.
Fray. Assistant Director and Actuary, U.S. General Accounting Office. (See Appendix VI.)
4 Ibid.







Instead, the named beneficiary had a choice of receiving either a
lump sum payment with a considerable discount; or receiving the full
face value of the policy in equal increments once a year for 10 years.
The discount reduced the face amounts of insurance payable by
26.4 percent if death occurred on or before age 55 and by 15.8 percent
if death occurred after age 55.41
For example, Subcommittee investigators learned of the widow of
one deceased union member who had the option of receiving the
$12,000 face value of the policy in yearly payments over a 10-year
period or $8,800 in an immediate lump sum. She took the lump
sum-minus $3,200 of what she should have been entitled to. The
money discounted from the lump sum remained in the trust fund.
In addition, Section 3.17 of the rules and regulations of the fund
stipulated that money was to be paid to a dead man's beneficiaries
only after the cost of his insurance premium and his allocated share of
administrative fees were deducted.42
41 Ibid.
" Ibid.












V. Co.WMISSIONS ON THE INSURANCE POLICIES


WITHOUT AGENT'S LICENSE, OSTRER RELIED ON OTHERS
Because his agent's license had been revoked by the New York State
Insurance Department, Louis Ostrer could not actually write insurance
policies as an agent in New York.43 However, Ostrer did design in-
surance programs. He was associated with Fringe Programs, Inc.,
a New York City enterprise owned by Ostrer's sister, Mrs. Dina
Gelman. Fringe Programs managed the severance trust fund under
contract to Local 295.
In addition, Ostrer had a special relationship with three agents who
were licensed by the State of New York and who wrote insurance for
him in the Local 295 severance fund program. These agents were Mrs.
Gelman, Cy Reeves Snyder and Seymour Greenfield.
The Subcommittee staff inquiry showed that when Mrs. Gelman,
Snyder and Greenfield were paid commissions in connection with the
Local 295 life insurance coverage, they were, in fact, serving as fronts
for Louis Ostrer.

TWO INSURANCE COMPANIES PROVIDE COVERAGE
In his affidavit,44 Otto Forst said that in mid-1971 he and his
associates at the Executive Life Insurance Company of New York
decided that the Local 295 policies were not profitable enough. Death
claims and commissions were running too high.
Forst said he informed Ostrer that either he reduce the face value of
the policies or cut the agent's commission. If he did neither, Executive
Life did not wish to continue the agreement. Ostrer did neither. Forst
said Executive Life did not renew and that the Trans World Life
Insurance Company of New York took over the account.

FRINGE PROGRAMS, INC.
Fringe Programs, Inc., administered the severance pay plan from
December 1, 1970 through November 30, 1972 at a cost of $148,198.20.
In addition, Fringe was paid a subsequent amount of $10,718.92 on
January 16, 1973 for services rendered in December of 1972 and
January of 1973.45
Fringe Programs, Inc., was located in a small office building in
mid-town Manhattan at 377 Fifth Avenue across the street from the
Empire State Building. Fringe Programs had also used office space at
384 Fifth Avenue.
3 Findings of Fact, Conclusions and Decision by the New York State Insurance Department, dated
October 4, 1967, requiring Louis Ostrer, Samuel Schienhaus and Seymour Greenfield; press release, dated
December 22,1967, issued by New York State Insurance Department concerning Louis Ostrer. (See Appen-
dix VII.)
44 Otto Forst affidavit.
45 U.S. General Accounting Office study of Local 295 severance fund; Report on Local 295 severance fund
by Lawrence Hyman, George Perla and Herbert L. Feay; New York State Insurance Department Report
of Examination of Local 295 Severance Trust Fund as of June 30,1971, No. 0-232-0295. (See Appendices V,
VI, and VIII.)
(18)





19


The president of Fringe Programs was Julius November, a New
York attorney with offices in Manhattan. The personal lawyer for
Louis Ostrer, November told Subcommittee investigators that he knew
almost nothing about the day-to-day operations of Fringe Programs.
The sole stockholder in Fringe was Dina Gelman, Ostrer's sister.
Mrs. Gelman, besides being the only stockholder, was also office
manager. Her salary was $18,000 to $25,000.
Subcommittee investigators found Fringe Programs to be an
efficiently run administrative organization routinely involved in
keeping track of the individual payments made on behalf of each of
the members of Local 295. Fringe also provided a similar service for
about 12 other union severance funds.
Tabulating equipment was used extensively. Computer time was
rented from an outside company. Desk space was crowded.
Mrs. Gelman, the supposed owner of the enterprise, shared a small
partitioned office with several secretaries and clerks and filing cabinets.
By contrast, Mrs. Gelman's brother, Louis Ostrer, who was not on
the payroll but was listed as a "consultant," enjoyed a well appointed,
wood panelled suite, conference room and library. Appearances sug-
gested that Ostrer was in charge and that Mrs. Gelman worked for
him.

EXECUTIVE LIFE INSURANCE PAYS ADVANCE COMMISSIONS
In his affidavit,46 Otto Forst, president of the holding company that
owned Executive Life, said he had expected the first year's premiums
to be received in one lump sum. But he learned the premiums were to
be paid in monthly installments.
At Ostrer's recommendation, Forst agreed to lend-or advance-
the agent an amount equal to the first year's commissions, using as
collateral a series of promissory notes.
Forst said Ostrer assured him that the trustees of the severance fund
would accept Ostrer's advice as to the selection of an insurance
company.
Forst was certain that Ostrer could prevail as to which company the
trustees would select and that Ostrer would have his way on all other
details of the insurance coverage. Forst put it this way:
I would like to make it clear that as far as this company was concerned, Louis
Ostrer controlled the placing of the severance fund business with us. He had
designed the plan and the trustees would rely upon him for advice as to which
insurance company should be selected and it was my policy to take those steps
which he proposed in order to accomplish the writing of the case.
Forst said the Local 295 insurance policies were written through
Ostrer's associate, Cy Reeves Snyder. Then, Forst said, a change was
made as Dina Gelman, Ostrer's sister, took over the account and all
of the promissory notes, guarantees, commission agreements and other
papers connected with the plan were transferred to her in care of her
Dina Gelman Agency. She was now the writing agent.

INTERVIEW WITH CY REEVES SNYDER
Cy Reeves Snyder, a retired 63 year old comedian and (lancer, was
interviewed by Subcommittee Investigators November 23, 1971 and
SForst affidavit.





20


February 22, 1972 in his apartment, No. 312, at 1652 N.E. 191st
Street, North Miami Beach, Florida.47
Snyder said that he had gone in insurance sales at Louis Ostrer's
suggestion. He obtained licenses in New York, New Jersey, Pennsyl-
vania, California and Florida.
As for his association with the severance trust fund of Local 295,
Snyder said he had allowed Dina Gelman and Fringe Programs, Inc.,
to use his name in that he, Snyder, was licensed in New York.
Snyder insisted, however, that any commissions paid in connection
with the Local 295 insurance policies were not to him. He said he had
received $3,000 from Fringe Programs but that this money was pay-
ment for his unsuccessful efforts to sell the Ostrer severance fund
concept to some union locals in Florida.
Subcommittee investigators established that from December 17,
1970 to January 25, 1971 six commission checks totalling $335,000
from Executive Life payable to Cy Reeves Snyder were endorsed by a
person who signed the name of Cy Reeves Snyder.48
Subcommittee investigators sought to discuss this apparent dis-
crepancy with Snyder. But Snyder did not wish to discuss it and even
refused to examine photostatic copies of the checks and the endorse-
ments on the back sides.
Snyder would say only that it was his understanding that any in-
come derived from the Local 295 insurance commissions went to Dina
Gelman or Fringe Programs, Inc., or Seymour Greenfield.

THE LOANS ARE GUARANTEED
On December 10, 1970, Harry 0. Miller, general counsel for the
Executive Life Insurance Company, wrote a memorandum to Otto
Forst on the subject of the agent's commissions for the policies of the
Local 295 severance fund.49
Miller informed Forst that the advance on the commissions-that is,
Miller said, "the loan to be made to Cy Reeves Snyder"-was to be
paid back over four years and was "to be guaranteed by Viscount
Agency, Inc., Fringe Programs, Inc., Louis Ostrer and Seymour
Greenfield."
Greenfield was a close business associate of Ostrer. Viscount Agency,
Inc., was an enterprise headed by Greenfield.

FORST, LOCHNER SIGN CHECKS
The Executive Life Insurance Company of New York had offices
at 540 Madison Avenue in New York City. The president of the firm
was Norbert F. Lochner.
47 Subcommittee memorandum of November 23,1971 entitled, "Interview of Cy Reeves Snyder re Louis
Ostrer and Severance Benefit Fund of Local 295, IBT." from Stephen B. King and William F. Gibney to
John P. Constandy, and memorandum of February 22,1972 from King and Robert Dunne to Constandy.
(See Appendix IX.)
4 Check No. 6592, dated December 17, 1970, drawn on the account of the Executive Life Insurance Com-
pany of New York, payable to Cy Reeves Snyder, in the amount of $25,000; check No. 6593, dated December
17, 1970, drawn on the account of Executive Life, payable to Cy Reeves Snyder, in the amount of $50,000;
check No. 6651, dated December 21, 1970, drawn on the account of Executive Life, payable to Cy Reeves
Snyder, in the amount of $25,000; check No. 6945, dated January 25,1971, drawn on the account of Executive
Life, payable to Cy R. Snyder Agency, Inc., in the amount of $35,000; check No. 6944 dated January 25,1971,
drawn on the account of Executive Life, payable to Cy R. Snyder, in the amount of $50,000; and check No.
6946, dated January 28,1971, drawn on the account of Executive Life, payable to Cy R. Snyder Agency in the
amount of $150,000. (See Appendix X.)
49 Memorandum, dated December 10, 1970, from Harry 0. Miller to Otto Forst. (See Appendix XI.)





21

Lochner told Subcommittee investigators in a June 12, 1972
affidavit 50 that he was informed by Otto Forst that Executive Life
would be handling coverage for the members of Local 295 under the
new severance pay-life insurance program.
Lochner said that Forst informed him that advance commissions
were to be paid on the union policies. Lochner said that he and Forst
co-signed checks totalling $431,516 to Cy Reeves Snyder and Dina
Gelman, the agents for the Local 295 policies.
Lochner said that from December 17, 1970 to January 25, 1971,
six checks totalling $335,000 were paid to Cy Reeves Snyder or the
Cy R. Snyder Agency.
Lochner said that from March 4, 1971, to April 12, 1971, four
checks with a combined value of $96,516.43 were paid as commisions
to Dina Gelman.
The Investigations Subcommittee obtained photostatic copies of
these checks.51 The Subcommittee also obtained copies of three addi-
tional checks from Executive Life to Dina Gelman. These checks,
for commission advances on the Local 295 policies, totalled $51,671
and were issued on February 22, 1971, and June 22, 1971.52
Russell J. Lasher, the financial vice president and treasurer of First
Executive Corporation, the holding company for Executive Life, gave
the Subcommittee an affidavit August 30, 1972 in which he swore to
the authenticity of all 13 checks and to the fact that all of them were
issued in connection with the insurance coverage given by Executive
Life to the members of Local 295.5

TRANS WORLD TAKES OVER THE 295 ACCOUNT
Otto Forst, speaking for Executive Life, said the company dropped
its policies with the Local 295 severance fund because the death
claims were too high and the agent's commissions were too expensive.,"
So, for the second tier of insurance for the Teamsters local, Louis
Ostrer turned to the Trans World Life Insurance Company of New
York.
Again, advance commissions were paid out. And, again, commission
rates were quite high. Trans World Life Insurance policies provided
for an aggregated first year commission of 90 percent.56 The first agent
for Trans World was Seymour Greenfield of 32-16 Healey Avenue,
Far Rockaway, New York. Greenfield, a close associate of Ostrer,
was president of the Viscount Agency, Inc., and secretary of the
Modern Agency, Inc., both of which sold insurance.
0 Norbert F. Lochner affidavit, June 12,1972. (See Appendix XrT.)
1 Check No. 610. dated March 4,1971, drawn on the account of Executive Life Insurance Company of
New York, payable to Dina Gelman, in the amount of $2,232.47; Check No. 1063, dated April 5, 1971, drawn
on the account of Executive Life, payable to Dina Gelman, in the amount of $22,129.87; Check No. 1148.
dated April 9, 1971, drawn on the account of Executive Life, payable to Dina Gelman, in the amount of
?22,154.09; and Check No. 1155, dated April 12, 1971, drawn on the account of Executive Life, payable to
Dina Gelman, in the amount of $50.000. (See Appendix XIII.)
SCheck No. 443, dated February 22, 1971, drawn on the account of Executive Life Insurance Company
of New York, payable to Dia Gelman, in the amount of $25,000; Check No. 1466, dated May 14, 1971,
drawn on the account of Executive Life, payable ta Dina Gelman, in the amount of $5,671.88: and cashier's
check No. 2610093, payable toDina Gelman pursuant to instructions of Executive Life, in the amount of
$20,000. (See Appendix XIV.)
3 Affidavit of Russell J. Lasher, August 30,1972. (See Appendix XV.)
1 Forst affidavit.
5 New York State Insurance Department Report of Examination of the Local 295 Severance Trust Fund
as of June 30,1971, No. 0-232-0295. (See Appendix VIII.)





22


TRANS WORLD PAYS COMMISSION ADVANCES

Joseph J. Warren was the president of the Trans World Life In-
surance Company of New York. In a June 19, 1972 Subcommittee
affidavit, Warren said he wrote checks to advance-or loan-money
equal to the size of the commissions for the agents on the Local 295
life insurance policies.56
From September 22, 1971 to November 30, 1971, Warren wrote
seven checks totalling $140,000 payable to the Viscount Agency,
Inc.57
Warren wrote six more checks, totalling $320,000, from December
1, 1971 to January 10, 1972 payable to the Dina Gelman Agency.58
The total commissions on the second tier of insurance, then, came to
$460,000. The Subcommittee obtained photostatic copies of these
checks.
HENRY BROWN CASHES CHECKS FOR OSTRER

Henry Brown, a New York City broker, had the financial resources
to cash large checks for Louis Ostrer and for persons who were asso-
ciated with Ostrer. Brown described these transactions in four affida-
vits he gave the Subcommittee December 9, 1971, June 16, 1972,
July 28, 1972 and September 8, 1972.59
Brown said he had known Ostrer for 15 years, trusted him and had
cashed checks worth $1 million for him since 1968. Brown said Ostrer
owed him $260,000 but he was confident he would be paid back.
Until Ostrer "got in trouble" with Canada Life Assurance Com-
pany, Brown said, Ostrer was "an outstanding insurance salesman."
But when he lost his license, Ostrer became "associated with" or
employed Dina Gelman, Seymour Greenfield, Cy Reeves Snyder and
William Kilroy and such businesses as Fringe Programs, Viscount
Agency, Modern Agency, Sutter Agency, Cy Reeves Snyder Agency
and Dina Gelman Agency.
Brown said:
Because I keep no records, I cannot recall the details of specific transactions I
have had with Mr. Ostrer. However, in general, Mr. Ostrer or Mr. Seymour
Greenfield would contact me concerning the cashing of a check they had in their
possession or the advancing of funds on a check which they expected to receive
in the near future. I would cash the check in question or advance the money
on the expected check, giving the money to Mr. Ostrer or Mr. Greenfield or one
of their associates-either a Mr. William Kilroy, Mr. William Felner or Mr.
6 Affidavit of Joseph J. Warren, June 19,1972 (See Appendix XVI.)
67 Check No. 20522, dated September 22,1971, drawn on the account of the Trans World Life Insurance
Company, payabletoViscount Agency, Inc.,inthe amount of$25,000; Check No. 20523, dated September 22,
1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of $25,000; Check
No. 20919, dated October 8,1971, drawn on the account of Trans World Life, payable to Viscount Agency, in
the amount of $15,000; Check No. 20920, dated October 8,1971, drawn on the account of Trans World Life,
payable to Viscount Agency, in the amount of $15,000; Check No. 21145 dated October 18, 1971, drawn on the
account of Trans World Life, payable to Viscount Agency, in the amount of $20,000; Check No. 22152, dated
November 29, 1971, drawn on the account of Trans World Life, payable to Viscount Agency, in the amount of
$10,000; and Check No. 22169, dated November 30,1971, drawn on the account of Trans World Life, payable
to Viscount Agency, in the amount of $30,000. (See Appendix XVII.)
N Check No. 22191, dated December 1,1971, drawn on the account of Trans World Life Insurance Company
payable to Dina Gelman Agency, in the amount of $100,000; Check No. 22253, dated December 3,1971, drawn
on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $60,000; Check No.
22709, dated December 17,1971, drawn on the account of Trans World Life, payable to Dina Gelman Agency,
in the amount of $40,000; Check No. 22969, dated January 4, 1972, drawn on the account of Trans World Life,
payable to Dina Gelman Agency, in the amount of $30,000; Check No. 23072, dated January 6, 1972 drawn
on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $70,000; and Check
No. 23144, dated January 10, 1972, drawn on the account of Trans World Life, payable to Dina Gelman
Agency, in the amount of $20.000. (See Appendix XVIII.)
69 Separate affidavits of Henry Brown, dated December 9, 1971; June 16, 1972; July 28, 1972; and Sep-
tember 8, 1972. (See Appendix XIX.)





23


Sonny Ratoff, who is my nephew. However, I would only cash checks or advance
money at either Mr. Ostrer's or Mr. Greenfield's direction. For these services I
would charge only a nominal fee-such as $50 or $100 depending upon the amount
of the check.60
While he kept no records and could not recall every check he had
cashed for Ostrer, Brown did remember circumstances surrounding
some of the checks when Subcommittee investigators showed him
photostatic copies.
For example, Brown remembered cashing a January 25, 1971 check
from Executive Life Insurance Company payable to Cy R. Snyder for
$50,000. But, Brown said, it wasn't Cy R. Snyder who cashed it. "I
cashed this check for either Mr. Ostrer or M.r. Greenfield and deposited
the check in my account," Brown said, adding:
I did not give the cash to Mr. Cy Reeves Snyder, the payee of the check. From
previous conversation I had with Mr. Snyder, however, I know he approved of
the transactions. In fact, he told me that Messrs. Ostrer or Greenfield had a
power of attorney to use his signature.61
Another January 25, 1971 Executive Life check payable to Snyder-
this one for $35,000-was cashed by Brown. He said he remembered
giving the money to Ostrer or Greenfield or one of their associates,
and, again, Snyder approved of the transaction.62
Brown said one check-a $25,000 cashier's check drawn January 27,
1971 by the Kings Lafayette Bank-was payable to Henry Brown.
Brown explained:
Mr. Ostrer or Mr. Greenfield contacted me concerning the cashing of this
check. Mr. Michael McEnroe signed this check on behalf of the Kings Lafayette
Bank. At Ostrer's or Greenfield's direction, I cashed the check, giving the money
to them or one of their associates.63
THE KINGS LAFAYETTE BANK CHECK IS EXPLAINED
The Kings Lafayette Bank, 200 Montague Street, Brooklyn,
New York, was the site of a meeting December 30, 1970. The subject
of the meeting was the severance fund-life insurance program of
Local 295. In attendance were Louis Ostrer, Seymour Greenfield and
several bank officials including Mlilton Vanderveer, the chairman of the
board of the bank, and Turn Sudin, Richard Arkwright and Michael
McEnroe, all vice presidents.
McEnroe discussed the meetinop-and subsequent events related
to it-in a July 14, 1972 Subcommittee affidavit.64
He recalled that Ostrer described the severance trust fund to the
bank officers. Ostrer said certain trust fund deposits would be made
in the bank as part of its investments portfolio.
"It was apparent from the beginning that Ostrer was in charge,"
McEnroe added, concluding his recollection of the meeting.
Shortly thereafter-on January 6, 1971-McEnroe said, an account
for the Modemrn Agency, Inc., was opened and Seymour Greenfield,
secretary of the firm, was authorized to be its sole signator.65 On
January 27, 1971, Greenfield opened a personal account, again with
himself the sole signator.66
0 Henry Brown affidavit, June 16,1973.
61 Ibid.
62 Ibid.
U Henry Brown affidavit. September 8, 1972.
Affidavit of Michael McEnroe. July 14,1973. (See Appendix XX.)
65 Statement of Kings Lafayette Bank, New York. in which Seymnour Greenfield was certified as secretary
of the Modern Agency, Inc., and its sole signator. (See Appendix XX I.)
6 Statementof Kings Lafayette Bank in which Seymour Greentield of Viscount Agency opened a personal
checking account. (See Appendix XXII.)





24


Greenfield took part in another transaction at the bank January 27.
He and Louis Ostrer and a third man McEnroe did not know asked
him to cash a $150,000 check from the Executive Life Insurance
Company. The check was payable to the Cy R. Snyder Agency and
had already been endorsed, McEnroe said. Greenfield then counter-
signed for it for the Modern Agency, Inc., McEnroe said."7
McEnroe said the bank didn't have sufficient cash on hand so he
gave them what he could-$60,000 in bills, some of them as large as
$100 denominations. McEnroe said Ostrer and Greenfield "promptly
stuffed [the cash] into their pockets."
Next, McEnroe said, Ostrer asked for three cashier's checks for
$25,000 each to be drawn, one made out to Greenfield, one to Dina
Gelman, the third to Henry Brown.68 The remaining $15,000 was
deposited in the Modern Agency's account, McEnroe said.
Thus, Michael McEnroe explained how it was that Louis Ostrer got
Henry Brown to cash a $25,000 check payable to Henry Brown.
Sometime after the January 27 encounter McEnroe read a magazine
article about cargo thefts at the John F. Kennedy International
Airport. The article portrayed Local 295, Louis Ostrer and Anthony
(Hickey) DiLorenzo in a not very favorable light.
McEnroe said he brought the article to the attention of the bank
president, John DePalma, who ordered that Greenfield's Modern
Agency account and his personal account be closed out.69
On February 22, McEnroe told Greenfield that his accounts were
to be closed. "Greenfield did not object," McEnroe said, "nor did he
seem too upset ."

THIRD YEAR ADVANCES ARE RETURNED

The Trans World Life Insurance Company paid advance com-
missions of $75,000 to Mrs. Gelman for the start of the third year of
insurance under the Local 295 plan. Payment was made by a $50,000
check January 14, 1972 and a $25,000 check January 27, 1972.70
On April 24, 1972, Joseph J. Warren, president of Trans World,
asked Mrs. Gelman to return the money because the severance fund
trustees had not yet ratified the additional coverage.71 Mrs. Gelman
returned the money.72
7 Check No. 6946, dated January 25, 1971, drawn onthe account of the Executive Life Insurance Company
of New York, payable to Cy R. Snyder Agency, in the amount of $150,000. (See Appendix XXIII.)
68 Cashier's check No. 103-001916. dated January 27, 1971, drawn by Michael McEnroe, payable to S.
Greenfield, in the amount of $25,000; cashier's check No. 103-001917, dated January 27, 1971, drawn by
Michael McEnroe, payable to D. Gelman, in the amount of $25,000; and Check No. 103-001918, dated January
27, 1971, drawn by Michael McEnroe, payable to H. Brown. (See Appendix XXIV.)
69 Separate Kings Lafayette Bank statements closing out the account of the Modern Agency, Inc., care
of Seymour Greenfield; and the personal account of Seymour Greenfield, both closings dated February 22,
1971. (See Appendix XXV.)
70 Check No. 23345 dated January 14,1972, drawn on the account of Trans World Life Insurance Company,
payable to Dina Gelman Agency, in the amount of $50,000; and Check No. 23709, dated January 27, 1972,
drawn on the account of Trans World Life, payable to Dina Gelman Agency, in the amount of $25,000.
(See Appendix XXVI.)
71 Letter of April 24,1972 from Joseph J. Warren to Dina Gelman. (See Appendix XXVII.)
72 Check No. 124, dated April 26,1972, drawn on the account of Dina Gelman Agency, payable to Trans
World Life, in the amount of $25,000: and Check No. 125, dated April 26,1972, drawn on the account of Dina
Gelman, payable to Trans World Life, in the amount of $50,000. (See Appendix XXVIII.)












VI. EVALUATIONS OF THE SEVERANCE PAY-INSURANCE PLAN
SUBCOMMITTEE ASKS ACTUARIES TO EXAMINE FUND
In May of 1971, at the request of the Senate Permanent Subcom-
mittee on Investigations, three insurance experts examined the
procedures and policies of the Local 295 severance trust fund and its
life insurance benefit.
The insurance experts were Lawrence M. Hyman, supervising
examiner of the State of New York Insurance Department; George
Perla, senior examiner of the Department; and Herbert L. Feay,
Assistant Director of the United States General Accounting Office.
On June 30, 1971, the conclusions of these men were given to the
Investigations Subcommittee.73 The three insurance experts were
critical of the life insurance features of the severance fund.
They said the insurance coverage aspects of the fund were incomplete
in describing procedures and benefits.74
They said the agent writing the coverage would benefit excessively
from the high commission rates of the fund. They said that one of the
agent's commissions-the persistency bonus-was probably illegal in
the State of New York.75
The three insurance experts estimated that agent commissions would
total $1 million in the first three years of the plan. They contrasted
the million dollar commission fee of the Ostrer system with the
$75,250 commissions due on a comparable group plan set up in ac-
cordance with the Code of Ethical Practices of the National Associa-
tion of Insurance Commissioners.76
The insurance experts were also critical of the insurance for being
designed "without regard to the individual needs of each member."
People's insurance requirements change as their lives change, they said,
and their insurance coverage should be responsive to new situations.
But instead of responding to worker's needs, the insurance experts
said, the Ostrer policy was structured according to the "apparent
desire to pay the maximum amount possible as life insurance pre-
miums on which the agent will collect commissions." 77

NEW YORK INSURANCE DEPARTMENT EXAMINES FUND
On September 8, 1972, the State of New York Insurance Depart-
ment completed a study entitled "Report on Examination of the
Local 295 Severance Trust Fund." The report was forwarded to the
Subcommittee on October 18, 1972.78
73 Letter of June 30, 1971 from Lawrence M. Hyman and Gporgp Perla to Robert E. Dunne. transmitiiig
the report of the actuaries on the Local 295 Severance Trust Fund to the Senate Permanent Subcomnuittee
on Investigations. (See Footnote 39.)
4 Ibid.
75 Ibid.
7 Ibid.
7 Ibid.
78 New York State Insurance Department Report on Local 295 Severance Trust Fund. (See footnote 55.)
(25)
71-542-76----3





26


Prepared by Department examiner Murray Zaroff, the report was
critical of the severance trust fund, particularly its life insurance
provisions.
Excessive commissions to the agent were sharply questioned as
the report asserted:
The scale of payments to the insurance agent is unconscionably high and in
the gross contravention of the Code of Ethical Practices.79
The report added:
If commission has been made payable not at the unbelievably high rates
currently in effect but at the range of rates contemplated in the Code of Ethical
Practices, the savings in commissions would have been of great financial benefit
to the trust fund. Such savings could have been passed on [to] the fund in the
form of lower premiums or the contracts could have been rewritten on a partici-
pating basis so the fund could receive the savings as dividends.80
New York's Insurance Department charged that Louis Ostrer
had deliberately misled the severance trust fund trustees and termed
"seriously questionable" the use of ordinary whole life insurance
instead of implementing a group plan.81
Fringe Programs, Inc., the administrator of the severance fund,
came under fire for the excessively high fees it charged. The New
York State Insurance Department noted that Fringe was paid first
year administrator's fees of $86,877. This figure was contrasted with
an avowal made by Louis Ostrer January 21, 1971 in a meeting of the
trustees that annual administrator's fees would be 94 cents per
member per month-or $15,000.82
It was further asserted that, as of July 1, 1972, overall adminis-
trative charges-$124,077-were four and one-half times higher than
those of the average fund of similar size.83
The Insurance Department report cited another item in the overall
cost of managing the fund-the legal fees-which seemed to be too
high. The severance fund had paid $18,000 to two lawyers-Haskell
Wolf and Herbert Simon-and the report observed that the "fund's
high administrative costs" could be reduced by $9,000 by retaining
only one attorney, rather than two.84
Finally, the Insurance Department referred to its own previous
announcement-of December 22, 1967-when it revoked Louis
Ostrer's license as an insurance agent. The Department asserted that
Ostrer had, in fact, solicited the insurance arrangement with Local
295 at a time when he was not licensed as an agent by the State of
New York.85
THE GAO STUDIES FUND
The Senate Permanent Subcommittee on Investigations on Decem-
ber 28, 1971 asked the United States General Accounting Office
(GAO) to examine the severance pay-life insurance plan of Local
295. The GAO submitted its report to the Subcommittee May 21,
1973.86
Like the New York State Insurance Department report, the GAO
study was critical of the high commission rates and the decision to
have individual policies rather than a comprehensive group plan.
7 Ibid.
80 Ibid.
81 Ibid.
" Ibid.
88 Ibid.
84 Ibid. ;
85 Ibid.
80 GAO study of Local 295 Severance Trust Fund. (See Footnote 37.)





27


The GAO said the use of individual policies-rather than the less
expensive group plan-cost the fund an additional $790,000 in com-
missions over what a group plan commission fee would have been.
The GAO analyzed the fund's finances from December 1, 1970
through November 30, 1972 and found that the fund had receipts
totalling $3,304,336 for this two-year period. During the same period,
$2,156,171 was spent, resulting in a net cash balance of $1,148,165.
The major source of cash for the fund was employer contributions.
They came to $2,966,220. The largest use of this cash was to buy
insurance. Premiums cost $1,531,234.
Of the money spent on insurance, $1,014,571 was paid to the
Executive Life Insurance Company of New York. The Trans World
Life Insurance Company of New York received $516,663.
Of the $1,531,234 of the fund's money that was spent on life in-
surance about $800,000 was for commissions that were paid to Dina
Gelman, Cy Reeves Snyde'r and Seymour Greenfield or their respec-
tive businesses, the Dina Gelman Agency, the Cy R. Snyder Agency,
the Modem Agency and the Viscount Agency.
GAO estimated that the commission costs would have been
$10,000-not $800,000-if the coverage had been group rather than
individual whole life.
The GAO said the life insurance coverage itself was "much more
costly" than other insurance programs of similar size. Administrative
costs were found to be "considerably greater" than those charged
in other benefit plans in New York.87
GAO pointed out that Local 295 members already had a life in-
surance program under their Group Welfare Fund. "It would seem,"
the GAO reported, "that, if additional insurance coverage were
considered desirable, it would have been more logical to provide it
through the Group Welfare Fund." 88
The GAO said that other insurance programs would have given
Local 295 members better protection at cheaper costs. In short, the
GAO said, "The plan was not formulated or administered in the best
interests of the members." 89
The GAO also studied the issue of funding. Was the severance fund
properly funded? GAO's answer was, no, it was not properly funded.
The severance trust, because of its huge life insurance liabilities and
excessive administrative costs, never did live up to its first require-
ment-that is, to have adequate resources to pay back to workers at
severance all the employer contributions made on their behalf plus
interest earned on the contributions.90
The GAO said:
A test commonly used for determining soundness of an employee benefit plan
(such as the Local 295 plan) is simply to determine whether the plan will be
able to pay benefits provided under its terms.91
But the Local 295 severance plan could not pass this test, GAO
found, concluding:
It [the fund] could not have been expected to be able to pay such benefits
immediately because its earnings would not have been sufficient to offset expendi-
tures made for insurance premiums, administrative expenses and benefit pay-
ments.92
SIbid.
U Ibid.
$9 Ibid.
w Ibid.
91 Ibid.
SIbid.





28


This last GAO finding-on funding and the financial soundness of
the plan-was also noted by Subcommittee investigators as they
sought to evaluate the Louis Ostrer concept of severance pay and life
insurance.
A CRITIQUE OF THE OSTRER CONCEPT
Subcommittee investigators found incomplete records of what
Louis Ostrer actually said as he briefed union officials and manage-
ment on his severance pay plan and the life insurance coverage.
But available records and interviews conducted with persons who
heard Ostrer's briefings indicate that Ostrer gave the impression that
the insurance protection would be "free." That is to say, the fund
could buy the insurance yet still be able to guarantee the return of
every dollar contributed by management on behalf of every member.
This claim by Ostrer was misleading. Initially, the severance fund
was not able to guarantee severance payments for all its members-
for nearly one-half its revenues were spent on life insurance protection.
The GAO estimated that it would be 15 to 20 years before the fund
would have been 100 percent funded.
In promoting his concept of severance pay plans, Ostrer was relying
on a principle that bankers, money managers and insurance men
know very well. That principle has to do with the incremental value
of compounded interest on a large fund of money, particularly one-
like this severance fund-which has a steady, fixed guaranteed income.
In its most approximate terms, a set amount of money will double,
even though not added to, in about 10 years at a reasonably obtainable
rate of interest.
Compound interest allows insurance companies to collect low
monthly premiums during a man's life span and pay out many
thousands of dollars upon his death. Beneficiaries, in fact, may
receive more than the total amount collected from the deceased but
the insurance company will still show a profit.
In insurance, then, as in banking, what makes the venture profitable
is the interest and particularly the compounding of interest.
Louis Ostrer knew this principle well. Using even conservative
actuarial considerations and cautious interest projections, the cost of
the Ostrer insurance program could be paid back to the severance fund
in a period of time. Ostrer claimed seven years. GAO said 15 to 20
years.
Ostrer's system counted on money coming from the weekly employer
contributions being supplemented by (1) forfeitures from partially
vested newer employees who leave before they have the full five years
of employment needed to qualify; (2) the interest earned on that half of
the severance fund not used to buy life insurance; (3) paying out
death claims over a 10-year period or paying the claim in one lump
sum minus a substantial discount; and (4) the cash surrender value of
the insurance policies as they begin to mature and which are, in the
Ostrer plan, the property of the trustees, not the insured truckers.

OSTRER MISLED LOCAL 295 MEMBERS
The life insurance program, purchased at high prices with high
commissions and managed with high administrative costs, rendered
the severance fund technically bankrupt the day it began. At that
moment, the fund's assets were 50 percent of its liabilities.





29


A severance pay plan, by definition, must at. all times be fully
funded. Ostrer obscured that fact by encouraging his audiences to
confuse severance pay with pension plans. The two are not comparable.
A severance pay plan has no "past service obligation." It is-as
asserted in the Local 295 contract and in other similar arrangements-
a fund obligated to pay the entire amount contributed by management
to each employee upon severance. It is similar to the keeping of a
separate bank account for every member.
On the other hand, a pension plan often does not reach full funding
for many years because it assumes obligations which extend back in
time before its creation and relies on the fact that most participants
will not be vested or retire for many years. Therefore, the Ostrer
severance system-as portrayed by Louis Ostrer-compared favor-
ably with pension funds; his fund was to be fully paid up in some
10 years.
But severance funds are not pension funds. If, for example, the
trustees of a comparable welfare benefit such as health care are to
expend $500,000 for medical expenses for the membership for the year,
funds available should be approximately $500,000.
What Ostrer promised, in reality, was to achieve a return of the
money he planned to lavish on excesivelvy costly life insurance. He
was promising to pay back to the truck drivers in 10 years what was
theirs from the beginning. Louis Osterer's proud claim that it would
be fully funded in a decade had a hollow ring.

LETTERS ARE NOT ANSWERED
It was the Subcommittee's hope that persons involved in the
creation and management of the Local 295 severance trust fund would
contribute their own views in this staff study. Consequently, the
staff asked Louis Ostrer and Harry Davidoff to give final interviews
at which time the most serious questions about the fund could be
raised and Ostrer and Davidoff would have a chance to give their
side of the severance fund story.
Certified letters from Subcommittee Chief Counsel Howard J.
Feldman were sent -Iarch 30, 1973 requesting these meetings. Neither
of the letters was answered.93

THE BELMONT STOCK CASE
Louis C. Ostrer and John (Johnny Dio) Dioguardi were engaged
in questionable stock transactions at the approximate -aine time
that the Local 295 severance fund-life insurance program was being
implemented.
Ostrer and Dioguardi were charged in a 40-count indictment May
27, 1971 in which it was asserted that they had violated federal
securities laws and federal mail and wire fraud statutes. Seven other
persons were also charged.
On January 26, 1973, a jury found Ostrer guilty on 11 counts and
Dioguardi guilty on four counts (361 F. Supp 954). On April 12, 1973,
Judge David N. Edelstein of the United States District Court for the
Southern District of New York sentenced John Dioguardi to nine
SSeparate letters each dated March 30, 1973 from Howard J. Feldman to Harry Davidoff and Louis
Ostirer. (See Appendix XXIX.)





30


yearn-' imprisonment and a $30,000 fine and Ostrer to three years'
imprisonment and a $55,000 fine.
On January 4, 1974, the convictions of Dioguardi and Ostrer
were sustained by the United States Court of Appeals, Second Circuit.
Ostrer still remains free pending further appeal of his conviction.
Dioguardi is presently incarcerated at the Federal penitentiary at
Lewisburg, Pa.
Details of the scheme of Ostrer and Dioguardi in the Belmont
stock case are reported in the opinion of the United States Court of
Appeals, Second Circuit in U.S. v. Diogiuardi (492 F. 2d (1974)).
Evidence in the case revealed a plan to manipulate the price of the
stock of the Belmont Franchi-ing Corporation, a substantially worth-
less over-the-counter security; the book value of the stock was almost
negligible. Belmont's assets were essentially paper holdings in other
concerns. The stock had been traded for only a short time for at
most a few dollars a share.
In January of 1970, Michael Hellerman, who pleaded guilty and
te-tified for the government, began steps to drive up the price of Bel-
mont stock, first to $5 or $6 a share and then to nearly $50 a share.
At that time, two alleged stock manipulators, Anthony Soldano and
Fred Goodman, together with Hellernman, began to buy virtually
all of the 28,720 known publicly tradeable shares of Belmont.
Goodman and Soldano executed their purchases ostensibly through
the open market, using brokers who quoted prices for Belmont through
the National Quotation Bureau's pink sheets for over-the-counter
securities. These purchases created the appearance of an active public
market in the stock.
By early March of 1970, Goodman and Soldano allegedly had
caused the market price of Belmont as quoted in the pink sheets to
reach $15 a share. They did this primarily through directions to their
brokers, who traded small quantities of the stock among themselves.
In the meantime, Goodman and Soldano had acquired, they believed,
control of all the outstanding stock.
At this point Hellerman's role became more important. According
to his testimony, he already had an understanding with John Dioguardi
that "whatever I did in the future . he would have 25 percent."
It had also been agreed between Hellerman, on one side, and Goodman
and Soldano on the other that once the price of Belmont stock reached
$15 Hellerman and his associates would purchase all the stock at the
$15 level, with a $5 per share kickback, prior to further manipulation
upwards.
In confirming this arrangement with Goodman and Soldano,
Hellerman took Soldano to Dioguardi's office "to make sure it was on
the record."
According to Hellerman, it was at this time in early March that he
brought Ostrer into the scheme, although the two had only known
each other a short time. Ostrer agreed to commit himself to buy 14,000
shares of Belmont at $15 a share, for a total of $210,000, with the
understanding that he would split any future profits with Hellerman,
that IHellerman would guarantee him against loss and that a loan of the
purchase money would be arranged so that he would not have to "lay
out a quarter" of the $210,000.
Purchase orders in Ostrer's name or in his behalf were to be made
through various New York Stock Exchange firms.







Ostrer then placed orders in his own name and in the name of his
sister, Mrs. Dina Gelman, for 14,000 shares of Belmont. However,
most exchange firms which Ostrer approached refused to accept his
orders and he was forced to place relatively large block orders through
firms where brokers were already in league with Hellerman.
Meanwhile, Hellerman made arrangements with other persons to
purchase the remaining 14,000 shares of Belmont. These persons were
able to pay the selling brokers at the $15 a share price. But Ostrer was
unable to raise the $210,000 needed to "hold up" his end of the deal.
This development left. his brokers unpaid. According to Hellerman,
he then obtained a loan for Ostrer through Dioguardi. These funds,
totalling $60,000, came from Anthony (Hickey) DiLorenzo, at an
interest rate of 1.; percent a week. DiLorenzo also demanded and
received. $24,000 from Hellerman. In addition Hellerman also advanced
Ostrer $52,500 and Ostrer obtained the balance he needed from other
sources.
From the end of March through late April of 1970, Hellerman
directed purchases and sales of Belmont stock at ever-increasing prices
among the individuals and brokers he controlled. He kept Dioguardi,
Ostrer and DiLorenzo informed as the price rose. He also arranged for
Ostrer to sell off enough stock, through a nominee, to repay the
$60,000 loan from DiLorenzo-with a $1,700 profit left over which he
split with Ostrer.
By the end of April of 1970, Hellerlnan had received about $140,000
in kickbacks from Goodman and Soldano. He gave $30,000 to Dio-
guardi and invested $9,000 more in a business in which Johnny Dio
had an interest.
In early May of 1970, the scheme failed. The president of Belmont,
through a broker unknown to the manipulators, began to sell heavily
his own "investment" stock in the corporation. The market was
unable to absorb the sales. Hellerman was unwilling to buy the stock
and could not find other purchasers. The market for Belmont collapsed,
leaving Ostrer and others with large quantities of unsold stock. Ostrer
then tried to hold Hellerman responsible for his losses. Hellerman
became worried because Dioguardi took Ostrer's side. Dioguardi
arbitrated the dispute to some extent and arranged for partial com-
pensation to Ostrer in the sum of $25,000.
At the trial, Dioguardi called no witnesses. He based his defense
primarily on cross-examination going to the lack of credibility of the
government's major witnesse-, all of whom were accomplices. Ostrer
did not testify but he did call two witnes,-es whose testimony indicated
that Ostrer had been a "victim" of Hellerman's manipulations.











VII. CORRECTIVE ACTIONS AND RELATED EVENTS


REFORMS ARE IMPLEMENTED IN FUND
Early in 1973 the board of trustees of the Local 295 severance fund
took steps to improve the fund's procedures and insurance benefit.
Fringe Programs, Inc., was dropped as administrator of the fund
January 16, 1973.94
The trustees voted to end the practice of buying individual life
insurance policies for the union's members on February 20, 1973. A
single group term insurance contract, effective March 1, 1973, was
purchased with the Prudential Life Insurance Company.95
Accordingly, no agent or broker was involved in the purchase of the
group term policy, thereby eliminating the high commissions paid
under previous policies.
Under the new group plan, each member, regardless of age, was
insured for $30,000.
The trustees also amended the rules and regulations of the severance
fund so that payment of the death benefit would be made in lump sum
and in full.96
JAMES HOFFA'S BOOK
Before his disappearance July 30, 1975, James R. Hoffa, the Inter-
national Brotherhood of Teamsters former president, wrote a book
entitled, Hoffa: The Real Story.97 The book was written in collabora-
tion with Oscar Fraley, a former sportswriter who also wrote The
Untouchables and other books.
In his book, Hoffa was critical of his successor, Frank Fitzsimmons,
and charged that Fitzsimmons, as Teamsters president, allowed
organized crime figures to bilk Teamsters of large amounts of money.
Hoffa asserted that Fitzsimmons had been guilty of "selling out to
mobsters and letting known racketeers into the Teamsters."
Citing the Local 295 severance fund, Hoffa called attention to
Louis C. Ostrer's role in an insurance plan that resulted in a $1.1
million "rip-off" of Teamsters members in the local which was "domi-
nated by labor racketeer Harry Davidoff."

READER'S DIGEST ARTICLE
In the August 1974 issue of Reader's Digest, longtime labor rackets
investigative reporter Lester Velie reported on the severance fund-life
insurance benefit scheme which Louis Ostrer devised.98
'4 Letter of January 16,1973 from Michael Hunt to Fringe Programs, Inc. (See Appendix XXX.)
95 Subcommittee memorandum of February 21,1973 entitled, "Local 295 Severance Trust Fund, Selection
of Insurance Carrier by Trustees of Fund," from Maurice Frame to John P. Constandy. (See Appendix
XXXI.)
9 Amendment to Local 295 Severance Trust Fund, effective February 1, 1973. (See Appendix XXXII.)
7 Hoffa: The Real Story, by James R. Hoffa, as told to Oscar Fraley.
** "The Mafia Tighten Its Grip on the Teamsters" by Lester Velie, Readers Digest, August 1974, p. 99.
(See Appendix XXX III.)
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33


Velie reported that the scheme first employed at Local 295 in New
York was then put into practice in 60 or 70 Teamsters locals in Michi-
gan, California, Nevada, New Jersey, Illinois and Florida.
Velie said Ostrer got the go-ahead to promote his severance fund-
insurance plan from Frank Fitzsimmons. Velie said Ostrer hired
Fitzsimmons' son, Don Fitzsimmons, as a "consultant and public
relations man."
APRIL 18, 1974 CITATION
On April 18, 1974, the New York State Insurance Department
issued a citation charging that the Local 295 Severance Trust Fund
had been improperly structured and managed. Named in the action
were 10 trustees of the fund and Louis C. Ostrer, Dina Gelman, Cy
Reeves Snyder, Seymour Greenfield, Viscount Agency, Inc., Fringe
Programs, Inc., Executive Life Insurance Company of New York and
Trans World Life Insurance Company of New York.99 The state
insurance department citation was authorized by Superintendent of
Insurance Benjamin R. Schenck and signed by Sidney B. Glaser,
Associate Counsel for Welfare Funds.
Ostrer and the others were charged with having "willfully and/or
wrongfully and/or negligently failed to comply with" New York State
insurance laws, the result of which was the depletion of the assets of the
severance trust fund in the amount of $1,185,728.
Among the charges levelled by the insurance department were
assertions that the whole life policies were "excessively costly," that
no accredited actuarial consultant was brought in to evaluate the
severance trust fund's life insurance benefit, that Louis C. Ostrer lost
his license to sell insurance due to questionable practice; in the 1960's,
that the trustees should have checked into Ostrer's past and learned
of his felonious background.
In addition, the insurance department's citation alleged that Cy
Reeves Snyder, Dina Gelman, Louis Ostrer, Executive Life, and
Trans World Life were involved in transactions they knew to be
improper in connection with the purchase of the whole life policies;
and that they, in fact, fronted for Ostrer in the solicitation and sale
of the severance fund insurance program.
The state insurance department charged that Louis Ostrer and the
others named in the citation had, by their actions in the Local 295
Severance Trust Fund, showed a "pattern of gross neglect, incom-
petence, mismanagement and imprudence" and were guilty of "willful
violations of the insurance law."
Louis C. Ostrer and the others were ordered to appear at proceed(lings
of the New York State Insurance Department beginning May 21,
1974.
Nearly two years later-on March 4, 1976-the New York State
Insurance Department announced it had recovered $200,000 to be
returned to the Local 295 severance trust fund.100
Superintendent of Insurance Thomas A. Hartnett said the recovery
was made according to an agreement entered into by the department
with 10 trustees of the fund and the two insurers, the Executive Life
" State of New York Insurance Department Citation regarding Local 295 Severance Trust Fund, April 18,
1974. (See Appendix XXXIV.)
100 News release of the State of New York Insurance Department issued March 4, 1976. (See Appendix
XXXV.)





34


Insurance Company of New York and the Trans World Life Insur-
ance Company of New York.
The trustees and the insurance companies agreed, "without con-
ceding liability," to pay the $200,000 to the insurance department,
Superintendent Hartnett said. The department was then to transmit
the money to the local's severance fund.
According to Insurance Superintendent Hartnett, the recovery
was in response to the department's charges that, first, the trustees
had imprudently bought excessively costly whole life insurance
policies for severance fund members; second, the trustees had made
these purchases upon the advice of Louis C. Ostrer but they had not
bothered to check out his felonious past; third, the insurance com-
panies had violated the insurance law by issuing individual policies
without obtaining the individual member's written consent to having
his life insured; and fourth, the commissions paid on the policies were
"grossly in excess" of those permitted under the Code of Ethical
Practices of the National Association of Insurance Commissioners.
The March 4, 1976 action ended the insurance department's pro-
ceedings against the 10 severance fund trustees and the two life
insurance companies, Executive and Trans World.
However, the department noted, its proceedings against Louis
Ostrer, Dina Gelman, Cy Reeves Snyder, Seymour Greenfield,
Viscount Agency, Inc., and Fringe Programs, Inc., would continue,
resuming March 15, 1976 in the department's offices in the World
Trade Center Building No. 2 in New York City. These hearings were
still in progress at this writing. The department hoped to be awarded
the remaining $900,000 of the original $1.1 million it charged had
been depleted from the Local 295 severance fund.











VIII. FINDINGS AND CONCLUSIONS


Investigation by the Subcommittee staff into the severance trust
fund of Teamsters Local 295 showed that the fund and its life insurance
feature were established and operated more to benefit the creator of
the system-Louis C. Ostrer-and his associates than the workers.
The workers could have had cheaper and more practical insurance
coverage and their severance trust fund could have been built and
operated on a much sounder footing.
The two major drains on the severance fund were the huge com-
missions on the individual policies and the exorbitant administrative
fees. Both of these resulted in handsome profits for Ostrer and his
associates such as Mrs. Dina Gelman, Cy Reeves Snyder and Seymour
Greenfield. These profits were gained at the expense of workers.
One example of how workers ultimately suffered was the Ostrer
system of paying insurance benefits to beneficiaries. A worker's
widow was given the choice of receiving one lump sum payment with
a significant discount; or she could take the entire endowment in 10
equal payments across 10 years. Either way, the widow lost and the
severance fund gained. But the fund required profitable procedures
like this to compensate for the depletions caused by the high insurance
commissions and administrative fees.
Another example of how Ostrer designed the severance pay-life
insurance plan to benefit himself was seen in his arranging whole life
policies for each of the 1,400 workers, rather than negotiating a more
conventional-and much less expensive-group plan.
The General Accounting Office estimated that commission costs
would have been approximately $10,000-not $800,000-if the cover-
age had been group rather than individual whole life. Thus, the use of
individual policies rather than the less expensive group plan cost the
fund approximately an additional $790,000 in commissions.
Ostrer's intention was clear. Individual policies also meant many
individual commissions for the agents and the agents were Mrs. Gelman,
Ostrer's sister, and his close associates, Snyder and Greenfield.
Similarly, Ostrer saw to it that the same Mrs. Gelman was also
awarded the job of administering the severance fund. Again, the re-
turns were lucrative. Ostrer benefited from administrative fee profits,
just as he profited from the insurance commissions.
It is apparent, then, that instead of being primarily increased conm-
pensation for workers, the fund served as a means for improperly
obtaining monies from the severance trust fund. The excessive agents'
commissions and the administrative costs-and the very concept of
whole life policies-were the avenues through which Ostrer, with
Davidoff's concurrence, was able to extract hundreds of thousands of
dollars from management at the expense of the workers.
A severance pay-insurance plan provides a wide variety of probably
legal but certainly questionable methods for mobsters to obtain huge
amounts of funds. A mobster who can speak for organized labor in
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36


pursuit of an apparent legitimate union demand-such as a severance
fund-enjoys considerable protection against detection and prosecu-
tion. That is one reason why organized crime has been attracted to
the union movement for many years.
Accordingly, the investigation by the Subcommittee staff into the
severance trust fund and life insurance benefit of Local 295 showed
that the local's leadership continued to be infiltrated by persons as-
sociated with organized crime.
In the late 1950's and in 1960, the Select Committee on Improper
Activities in the Labor or Management Field cited Local 295 as being
run by racketeers. The Select Committee was, in effect, an arm of the
Senate Permanent Subcommittee on Investigations. Some 16 years
have gone by since the Select Committee examined Local 295. There
was more than enough time for the Teamsters International to demand
that Local 295 be cleaned up.
The mere fact that Harry Davidoff was able to stay on for so long a
time as secretary-treasurer and principal leader of the local is sufficient
evidence on its face to demonstrate that the corruption that was
rampant more than a decade ago was not eliminated.
The Teamsters Union has never lived down the bad reputation it
received in the public mind as a result of the activities of Dave Beck,
James Hoffa and their associates. The International should be deter-
mined that each of its local chapters is run for the benefit of its
members and certainly not be led by persons who are associated
with organized crime. Hundreds of thousands of men and women
who are law abiding members of the Teamsters throughout the nation
deserve no less.
With specific reference to the severance pay-life insurance program
of Local 295, the Subcommittee staff finds that:
(1) Louis C. Ostrer designed and managed the severance pay-
insurance program to make a lot of money for himself at the expense
of workers and management.
(2) Ostrer should never have been allowed to participate in Local
295 affairs. Conscientious labor leaders would have noted his ties
with organized crime and the fact that he had lost his agent's license
in a criminal matter.
(3) The Executive Life Insurance Company of New York and the
Trans World Life Insurance Company of New York, which provided
coverage for Local 295 under the severance pay-life insurance program,
should have refused to have any dealings with Ostrer because his
license had been revoked in a criminal matter. A review of the charges
levelled against Ostrer would have revealed his criminal past. By
doing business with Ostrer, the two insurance companies showed that
selling 1,400 insurance policies was more important to them than
the ethical considerations of how the policies were being sold and
who, in reality, was selling them.
(4) Abuses of the severance fund were of such consequence that the
Permanent Subcommittee on Investigations is referring this staff
study to the Senate Committee on Labor and Public Welfare. The
potential for other abuses of severance funds may be seen in the Local
295 experience and this staff study may be helpful in citing the need
for new legislation. Copies of this study are also being referred to the
Internal Revenue Service, the Department of Labor, the Department
of Justice and the headquarters of the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America.













APPENDIX I


[From the New York Post, Dec. 15, 1972]
THE LIFE & TIMES OF HARRY DAVIDOFF
(By Robert Garrett)
The court-ordered gags on Harry Davidoff's past have been lifted, following the
latest of his many confrontations with law-enforcement agencies. The story of the
secretary-treasurer of Teamsters Local 295 can now be told.
The labor boss of Kennedy Airport was convicted last night of 21 separate
violations of the Taft-Hartley labor relations law involving the use of his union
position to get free airplane tickets. Each count carries a maximum one-year
sentence.
Hlie was acquitted of two more counts and an extortion charge was thrown out
before the case went to the jury.
Davidoff, 55, a tough-looking, tough-talking man with a sixth-grade education,
has been shot, arrested, questioned by Congressional panels and investigated by
the FBI. His convictions, dating from the 1930s, include burglary, extortion and
gambling. Numerous arrests for felonious assault with a knife, possession of a gun,
grand larceny and extortion are listed on his record.
Only last year, Davidoff is said to have threatened a magazine photographer-
telling him: "I could have you killed."
The photographer took his picture anyway, perhaps not realizing that the union
boss-in charge of hundreds of men handling cargo at Kennedy Airport-was
once closely linked to Murder Incorporated, the syndicate's killer squad.
Harry (Duff) Davidoff's crime career began in 1933, when he was 15. By 1943,
when he and a brother were shot in a Brooklyn bar and grill, he had gained a
fearful reputation and been arrested nearly a dozen times.
The first arrest resulted in a three-year suspended sentence for burglary. In
1940, Davidoff received a suspended sentence for attempted extortion and in the
summer of 1943 he was picked up for policy and bookmaking.
The bar shooting, police said at the time, was the result of a gang war in the
Brownsville-Canarsie area over control of rackets. Davidoff and his brother,
William, were said to be targets of a hired gunman. But Davidoff-who got one
slug in his belly-survived.
In the early 1940s, when Davidoff was awaiting trial on charges of conspiracy
to violate state banking laws, a madam to whom he had loaned $100 charged
him with threatening her with death. Davidoff was sent off to jail for the madam's
protection. The next day he was convicted on the conspiracy charge.
The burly gangster eventually found his niche. He moved from one union to the
next in a variety of positions: once as secretary, another time as treasurer, then
for a short period as president of Toy and Doll International, AFL, Local 130.
As the Toy and Doll boss, Davidoff was namrned a "trustee" of the union's
welfare fund-until the State Insurance Dept. got wind of some expensive hanky-
panky with the fund's $58,344. In 1953, Davidoff quietly siphoned off $4600 for
a new car and $225-a-week "salary," plus a weekly expense account of $75.
The SID investigation, which stemmed from the murder a year earlier of
Thomas Lewis, labor czar at Yonkers Raceway, resulted in rapid union statements
denying anything was wrong.
They also resulted in Davidoff's quick switch to another union.
JOINED TEAMSTERS IN 1960
In 1960 Davidoff made it into Teamsters Local 295, a union representing cargo
handlers, truck drivers and other ground workers at Kennedy, the world's largest
cargo terminal.
When he arrived, mob chieftains Vito Genovese and John (Johnny Dio)
Dioguardi were said to be in direct charge of the lucrative air freight business at
Kennedy.
(87)






38


Davidoff quickly gained control of the union and in 1966, when an investigation
into cargo thefts forced president John McNamara to quit, Davidoff became its
boss.
Davidoff once boasted he could close the airport down "with a word."
But under oath he was always very sparing with words taking the Fifth
Amendment instead.
NO TESTIMONY
During one such episode, late in 1967, Davidoff faced the State Investigation
Commission-probing charges of sabotage, bribery levied against the union-
without a lawyer. "I'm not ready to give no testimony," he said. "Without an
attorney, I will give no testimony."
When he did appear with an attorney a week later, he took the Fifth Amendment
scores of times, as did other mob bigwigs.
Last year, Davidoff was termed a "key organized crime figure" in testimony
before a Senate rackets panel. The testimony, given in June, 1971, by James
Landry, general counsel of the Air Transport Assn. of America, said:
"Harry Davidoff is the only remaining key organized crime figure associated
with JFK Airport who has not been arrested as a result of investigations conducted
by federal and local law enforcement authorities . ."
But Davidoff's time had come: In November, a sealed indictment charged him
with extorting nearly $10,000 worth of tickets from Trans-Caribbean Airways
over a period of five years, beginning in 1966.

SAID HE MADE THREATS
The 25-count indictment said Davidoff had threatened the airline with a multi-
tude of labor troubles-including strikes-if they didn't give him free tickets,
some of which he could pass on to family members. All but one count named
specific instances of ticket use, each representing one year and/or a $10,000 fine.
The main charge-extortion-carried a penalty of 20 years and a $10,000 fine.
The week-long trial, began Dec. 5 with defense attorney Michael Gillen showing
a clipping from that day's Daily News to Brooklyn Federal Court Judge John
Bartels.
The News story said Davidoff had long been "a target of local and federal
law enforcement authorities" and linked the union boss to "the incursions by
organized crime at JFK."
The lawyer said the statements were "prejudicial" to his client.
Judge Bartels agreed. Calling the reporter, Robert Kappstatter, before the
bench, the judge threatened him and the News' editors with contempt, and said he
would oust him from the trial if such stories continued.

CAN'T BE TRUSTED
The next morning, after only one witness was heard, the judge again criticized
the press. To Kappstatter he said: "I see you can't be trusted."
Other newspapers, including The Post, had noted Judge Bartels' earlier ad-
monitions and had run articles mentioning Davidoff's tarnished background.
The Post, the News and the New York Times were asked to promise not to
publish any more information not brought out during the trial itself.
The Post, while declining to submit to any pre-censorship, agreed to abide by
the state's voluntary Fair Trial-Free Press code and limit its coverage of the
trial to the testimony alone. The Times, through counsel, argued that Davidoff's
background was essential to its coverage of the trial. The News, also represented
by an attorney, assured the court that Davidoff would get a "fair shake" in its
stories.
Judge Bartels, meanwhile, listened to motions for a mistrial, a change of venue
and sequestering of the jury. All were denied.
The jurors, polled by the court, all said they had not read any account of the
trial in the papers.
Last Monday, when the trial resumed after a three-day adjournment, Judge
Bartels again criticized the media for its coverage. He said an article in Newsday,
which included Davidoff's arrest record along with other background information,
was "prejudicial" to the defendant, and could result in a mistrial.
A mistrial, said Judge Bartels, would be "directly attributable to the prejudicial
statements which might be made in the media"-newspapers, radio or television-
" that would interfere with the administration of justice."






39


APPENDIX II
[From the Sunday News, Feb. 25, 1973]
SWINDLER MAKES 250G BAIL BUT STILL WINDS UP IN JAIL
(By Paul Meskil)
For financial finagler Louis C. Ostrer, it was a case of out of the frying pan,
into the fire. Or, more specifically, out of Civil Jail and into the Tomb..
Ostrer, a convicted swindler whose pals include underworld bosses, wanted his
freedom so much he put up $250,000 bail to get it. But it lasted only a few minutes.
Rearrested for alleged violation of probation, he spent the weekend behind bars
in the Tombs, Manhattan's House of Detention for Men.
His latest bout with the law began Thursday when he appeared in Manhattan
Supreme Court as a material witness in a grand jury probe of organized crime.
Assistant District Attorney John Fine asked Justice Jacob Grumet to hold
Ostrer in $10 million bail because "his life is in danger."
"If this man is at large," Fine added, "I have no doubt that he will be killed."
He said the roly-poly Ostrer "has important information" about a mob plot
"to assault and murder a certain person." Ostrer denied this.
"To say I have any knowledge of any wrongdoing is absurd," he insisted. "To
say that my life is in danger is absurd."
Grumet set bail at $250,000 and sent Ostrer to Civil Jail until he could post
the bond, which he did Friday. As he left the jail on W. 37th St., preparing to go
home to 181 Kings Point Road in Great Neck, L.I., he was rearrested by officers
bearing a warrant charging him with violating the terms of a 1969 probation
agreement.
WAS "THE GREATEST"
In June 1969, Ostrer pleaded guilty of stealing, forging and cashing 8338,370
worth of checks belonging to his employer, Canada Life Assurance Association of
Toronto, which had once called him "the greatest insurance salesman on the
continent."
Placing Ostrer on five years' probation, Manhattan Supreme Court Justice
Xavier Riccobono had said: "It would appear that almost any venture you
undertake, obviously because of those talents and gifts that have been given to
you by the Almighty Himself, seems to enable you to convert almost anything
into a very successful enterprise. It is inadvisable, under these circumstances, for
the court to take these talents, these God-given talents, and incarcerate them by
incarcerating you."
Last month, Ostrer and Mafia Mobster John (Johnny Dio) Dioguardi were
convicted in Federal Court of conspiring to manipulate stocks. They were accused
of plotting a $1 million stock swindle. They are to be sentenced March 13 and
could get up to five years in prison.
At Thursday's court hearing, prosecutor Fine said Ostrer had information on
big-time loan-sharking and was "indebted to known criminals" who run loan-
shark operations and have more than $75 million "out on the street" on any
given day.

APPENDIX III
U.S. GENERAL ACCOUNTING OFFICE, APRIL 13, 1973
OFFICE OF LEGISLATIVE LIAISON-ROGER SPERRY
REGIONAL MANAGER, NEW YORK-ALFONSO J. STRAZZULLO
(Review of Plans, Programs and Financial Transactions Relating to the Severance
Benefit Trust Fund of Local 295 (Code 97518))
We have completed the additional work requested by the Permanent Senate
Subcommittee on Investigations and the results are included in the attached
workpaper summary.
To recap, our review was primarily concerned with determining whether the
plan is adequately funded to protect the rank and file of the Local's membership.
We have satisfied ourselves that the severance benefits paid were in accordance
with the rules and regulations of the fund. In addition, we have also reviewed the
life insurance benefits paid for deceased employees and again are satisfied that
the rules and regulations of the fund were compiled with.





40

Other matters that came to our attention concerning the administration of the
fund have been enumerated in the attached workpaper summary.
If we can be of any further assistance to the Subcommittee on this matter,
please let us know. The workpapers on this assignment are being retained in this
office.
Attachment.

SUMMARY ON THE REVIEW OF THE SEVERANCE TRUST FUND OF LOCAL 295 INTER-
NATIONAL BROTHERHOOD OF TEAMSTERS
BACKGROUND
At the request of the Senate Permanent Subcommittee on Investigations, the
GAO reviewed the Severance Trust Fund of Local 295, International Brother-
hood of Teamsters. The review which was performed at the local's office near
John F. Kennedy Airport consisted of an analysis of receipts and disbursements
for the trust fund during the period December 1, 1970 through November 30,1972.
Local 295 has a membership of 1300-1400 individuals who are engaged in the
trucking of air freight at John F. Kennedy Airport, New York, N.Y. The current
union agreement which was negotiated for the three year period effective Decem-
ber 1, 1970 provides for the establishment of a Severance Trust Fund for the
employees.
The agreement called for a contribution by the employees of $15 per employee
per week during the first year of the contract with successive increases during the
second and third year to $30 and $40, respectively. Upon severance, regardless
of the reason, the employee shall receive what has been contributed in his behalf
plus any increments that may have accrued on his behalf less his applicable por-
tion of fund expenses and insurance premiums. However, the member is guar-
anteed that as a minimum he will receive what his employer contributed for him.
For those employees who entered the program after December, 1970 and who
subsequently terminated, the amount received would only represent a percentage
of the amount contributed.
An insurance provision was added to the Severance Trust Fund which provided
death benefits to the survivors of employees vested in the program. The program
provides the beneficiary with the option of receiving the proceeds of the program
over a stipulated period or taking the proceeds in a lump sum. The latter method
considers certain downward adjustments to the face value of the policy.
Fringe Programs, Inc. was selected to be the administrator of the Local 295
STF. In addition to its function as administrator, it was authorized to negotiate
the proposed life insurance with a duly licensed agent and to obtain the best
terms and conditions available for the STF. Fringe Programs selected Cy Reeves
Snyder to be the agent; subsequently, he was replaced by Dina Gelman.
Local 295 STF purchased insurance for its members from the first year contri-
butions from Executive Life Insurance Co. of New York. This insurance was in-
creased with the increase in contributions during the second year (beginning
12/1/71) by purchasing additional insurance from Transworld Life Insurance Co.
These insurance policies were individual whole-life policies with the fund as
beneficiary.
RESULTS OF REVIEW
Cash Receipts and Disbursements
Local 295 STF had receipts totalling $3,304,336 for the two-year period De-
cember 1, 1970-November 30, 1972. During the same period $2,156,171 was
disbursed (not including interbank disbursements), resulting in a net cash balance
of $1,148,165 at November 30, 1972.
Local 295 STF has had four checking accounts during the two-year period:

Bank Account No. Period

Kings Lafayette.......---------------------...........--................---------------- 010031839 January to April 1971.
Central State (regular account)--...----...----------------------- 1-22953-6 April 1971 to September 1972.
Central State (disbursement account)------.--------------------. 1-22967-7 Do.
Chemical Bank ------.- ----------------------------------- 125007205 June 1972 to present.

When there were two Central State accounts, one was used for normal receipts
and disbursements and another ("disbursement account") was used to disburse
payments to severed and deceased union members.





41

Sources and Applications of Cash
The major source of cash for the STF was employer contributions. These
totalled $2,966,220 for the two year period December 1, 1970-November 30,
1972. The largest use of this cash was for insurance premium payments which
totalled $1,531,234.
The following schedule shows the major sources and applications of cash:

Total Percent of total

Sources:
Employer contributions........--------------...........---. ----------------- 2,SG6,220 89.8
Life insurance proceeds-------..........-----....--.--------------------------- 312,500 9.5
Interest income-------------------------------... ------------------- 11,876( 7
Other........-----------...-..----.------------------------------------- 13, 740)
Total sources.....--------------...............--.-------------.--------------- 3,304,336 1C0.0
Applications:
Premiums-Executive Life of New York------------------------------- 1, 01 571 47.1
Premiums-Transworld Life Insurance Co-------------- ------------------ r. 663 23.9
Life insurance benefits paid ---------------------------------------12. 244 8.9
Severance benefits paid -------------------------------------------- 175,764 8.1
Administrative fees-fringe programs----------- ----------------------- 148. 133 6.9
Legal fees ------. -------------------------------------------------- 010 1.7
Audit fees ....--------..----. ---------------.-------....---------------- 12, SCO .6
Wages (gross) ...................................................-------------------------------------------------- 15, 900 .8
Rent...............---------------------------------------------------------..... 196 3
Other-------..........---.-..----.---...--.--------...---------------.--------- 36, 63 1.7


Total applications-------------....................------------------------------ 2,156. 171 ':0.0


Cash-as at Nov. 30, 1972.-- ------------------------------------ 1,148,165 -------

Significant receipts
(A) Employer contributions.-Employer contributions totalled "2.966,220 for
the two-year period. Local 295 contributed $11,940 itself; local 295 STF as an
employer contributed $1,815; and local 295 group welfare and pension fund
contributed $12,950.
(B) Life insurance proceeds.-For the period December 1, 1970-November 30,
1972, the STF received life insurance proceeds totalling S312,500 representing
the collection of the face amount of policies on fifteen eniployees who died. As
of November 30, 1972 benefits on twelve of these ca-es had been settled. These
settled cases had face amounts totalling S250,750 and benefits of $192,244 were
paid on them to beneficiaries. The difference of S5S,505.55 was incorporated into
the fund as income due to beneficiaries electing to take the life insurance in a
lump sum (and, hence, receiving only a commuted or discounted value) instead
of taking the full amount over a ten year period.
(C) Interest income.-Interest income totalled $11,876 for the two year period.
This consisted of interest received on cash deposited in savings accounts and
invested in certificates of deposit.
Cash disbursements
(a) Premiums-Executive Life of A.Y. and Transworld Life Insurance Co.
The local 295 STF disbursed a total of $1,531,234 for premiums on insurance
policies to Executive Life of N.Y. and Tr;insworld Life Insurance Co. Premiumi
were paid to these insurance carriers (in a monthly ha-;i.
A total of 27 checks were written to Executive Life of N.Y. tot:illiruir ,1,014,571.
A total of 13 checks were written to Transvworld Life totalling $516,6663.
(b) Life insurance benefits paid
The local 295 STF paid 8192,244 in life insurance benefit. to beneficiaries ,f
twelve union members who died. All ot)f those payments were taken in a lump
sum known as commuted valh, with the exception of (one death claim.
(c) Sererance beiicfil. paid
During the two year period ending Novtmlncr 30, 1972, the STF dilaur-ed
$175,764 in severance benefits to a t)tal of 242 eml9 1-e,, of Local 295 %wh,
terminated their employment. These members received a' their severance benefit
the amount of money contributed for then into the severance fund by their
employers.


71-542-76-----4





42


(d) Adm inistrative fees
Fringe Programs, Inc. was paid a total of $148,198 for administration of the
Local 295 STF through November 30, 1972. A total of six checks were paid to
Fringe as follows:

Explanation Date Amount

Advance on administrative fees--------------------------------------------....... Aug. 26,1971 S50.000 .CO
Balance for 1st yr of administrative fee-Dec. 1, 1970 to Nov. 30, 1971------ ------- Feb. 10, 1972 36, 877.90
Services Dec. 1, 1971 to Apr. 30, 1972 ---............----------------------------------................ May 8,1972 20,000.00
Services May and June 1972 --------------------------------------------- June 22,1972 19,305.85
Services July to September 1972.................................................. -------------------------------------Sept. 15, 1972 13,39'1.05
Services October and November 1972--------...-----.----------.-----------. Nov. 21,1972 8,620. d0
Total.---------------------------------------------------------------------.. 148,198.20

In addition, Fringe was paid a subsequent amount of $10,718.92 on January 16,
1973 for services rendered December, 1972-January 1973. This is probably the
last payment to Fringe as it was terminated as administrator of the fund by the
Trustees as of January 31, 1973.
(e) Rent
The Local 295 STF paid a total of $6.196.00 for rent to the landlord of the
building at 179-30 149th Avenue, the 146th Drive Property Corporation which
in turn is owned by the Local 295 Employees Group Welfare Fund. A total of
15 checks were paid, the monthly rent being $359.80. The rent for the building is
allocated among the five tenants of the building on a square footage basis. These
five tenants are Local 295, Local 295 Group Welfare, Local 295 Pension Fund,
Local 295 Severance Trust Fund, and Local 851. The Severance Trust Fund
actually began paying rent in April, 1971, as it was only then that the above
allocation was made.
(f) Legal
The Severance Trust Fund has hired two attorneys, one representing the union
trustees, Herbert Simon, and one representing the management trustees, Haskell
Wolf. It pays each of them $750 a month. Through Novenmber 30, 1972 it has
disbursed $18.017.50 to Herbert Simon (20 checks) and $18,000 to 1In-kdl Wolf
(20 checks). The extra $17.50 paid to Simon was for expenses incurred in serving
a subpoena.
(g) Audit fees
The STF's accountants, Finklestein, Goldstein and Rick were paid a total of
$12,900 through Novenmber 30, 1972 (16 checks). They were paid $450 a month
through April, 1972, at which time their retainer was increased to $750 a month.
(h) Wages
A total of $15,990 was paid in gross wages to the one bookkeeper the fund
employs. Until July 1, 1972 Pat Barnett was the bookkeeper and she received
$12,075 in wages (.q9,540.30 in net salary paid in 69 weekly checks). She was
succ'-eded by Marilyn Fr:iichi whose grcs. salary totaled $1,575 paid over a
nine week period through September 1, 1972 ($1,198.80 in net salary paid in nine
weekly checc.l0 From Sep'tember 4, 1972 until Otober 4, 1972, tho STF did not
employ a boo!:,. r,!',r. However, an employee of the Local 215 Group Welfare
and Pension Fund, Di:nii Norto)n, worked her linclh hours and evenings to keep
the STF r. ".ord.s in ordcr. 'he was s.!olequently reimbur--t.d for thrc.- services by
being paid a gros. salirv of $1,05,0 (net salary S725.40) (.ni October 26, 1972.
On Ocob' r 4, 1972, R,..lyi e-Oi'v w:v-, hired "na boo,' deeperr for the STY. She
r'in:in -; at prea, in this po,:iti i. Thn.ligh Novc(niber 30, 1972 her gross salary
w."s $1,29U '' 1,0-45.42 inn''t n," ry L l~pid in nine chlecks for i.ine week. eniployr,-.it)
(?') T ,'i.',l. :.c^? / -'(.. ', '/',/** sten <.;rt, .Ji/. r
Ar.o,,i Levy, stenOT ,r: i her for I he Local 20.5 STF Board of Trustees iceetings,
wNv:s p:id ,,7b0.25 for r1' ;rdi', g and Irn'ai s(cri)ing the minutes of 16 Truste-es
meetit r- Tn.;s awion t v.i- paid in *-ixteen ch c!:--, or'e ,fter (eich meeting.
The iii( n trunto,.s' tItt.,'rn v for the STF int'ormned s thlint. there was no con-
traet with Arnold Levy. Ither, the Fund pays Levy for his services provided
his bills are eonwid.rcd normal and rca.-:,na ale in his profcsain. Yet this criteria ia
h:i. resulted in the fund p)iyi;ng ,Levy ?140 for 10 e,,'pic; of 50 pages of mminles,
while for lh, next i.,(,l ig thl fund p'id K')25 for 10 copies of 65 pages of minutes.






43


Cash balance
The Local 295 STF had cash totalling $1,148,165 at November 30, 1972. The
following is a schedule of the cash items as of this date:
Checking account (Chemical Bank)----------------------------- $148, 165
Savings account:
Inter-County Savings Bank -------------------------------- 10, 000
Cohoes Savings Bank--------------------------------------- 20, 000
Roosevelt Savings Bank------------------------------------ 20, 000
Erie County Savings Bank---------------------------------- 20, 000
The Dime Savings Bank of Williamsburg--------------------- 20, 000
Rochester Savings Bank------------------------------------- 20, 000
Monroe Savings Banil------------------------------------- 20, 000
Albany Savings Bank-----_--------------------------------- 20, 000
City and County Savings Bank----------------------------- 20, 000
Home Savings Bank--------------------------------------- 20, 000
The Western New York Savings Bank----------------------- 20, 000
The Seaman's Bank for Saving----------------------------- 20, 000
Goshen Savings Bank------------- ------------------------ 20, 000
Total-------------------------------------------------- 250, 000
Certificates of deposit:
Banco Popular-------------------------------------------- 150, 000
Chemical Bank -------------------------------------------- 100, 000
Bank of Tokyo ------------------------------------------- 100, 000
Dollar Savings Bank--------------------------------------- 400, 000
Total-------------------------------------------------- 750,000

Grand total-------------------------------------------1, 1148, 165
The $150,000 certificate of deposit (CD) issued by Banco Popular on April 28,
1972 was sent by the bank to the STF on May 1, 1972. Shortly thereafter, the
custodian claims to have mirtplaced the CD. At this time the STF notified Banco
Popular who assured them that. they would honor the CD on its maturity date
(April 23, 1973) by paying the proceeds only to STF. We have not been able to
obtain any written confirmation of this statement.
A Banco Popular official told ui that the CD is negotiable and that. should
someone acquire it with the rights of a holder in due course, the bank might be
forced to pay that person. The pon-iility that, such a situation may occur casts
considerable diubt on the value of the verbal assurance given to the STF.
The board of Tru'tpc; of the STF has not been informed of thle loss of the CD.
All the remaining certificatr-; of deposit and savings account bookl:s are merely
kept in a draw of a file cabinet which is locked at night.
Severa ace Benefits Paid
During the two year period ending 11/30/72, the STF disbursed $175,767 in
severance benefits to 272 member,.
According to the SIF accountant and in accordance with the fund's c;-i-ting
rules and regulations, an employee upon severance receives as his benefit, the
amount actually contributed by his enml.ployer. Should the employer be deficit in
his contribution the benefits, realized by the employee are adjusted ac'-ordingly.
In order to determine whether the severence benefits paid were co'nputed in
accordance with the rules and regulations of the fund, we review,-d severance
benefits paid to a random number of separated employees. In addition, we re-
viewed the severance benefits paid to certain deceased employees. The discre-pancy
noted consisted of overpayments in sonic of the cases examined. In total the over-
payments did not exceed $750.
Life Insurance PcRncfils Paid
As at, March 1, 1973 one death claim remained unsctle'd as a result of a dispute
concerning the legal beneficiary.
As regards thos2 claiii,.i that ha.d lhen paid our tests revealed that the fund was
paying the proper anLo:Lits to bLpaeficiariLs uling correct cominiut:ttiOn rate(-,
and maintaining adequate documentation concerning these claims. The unly






44


exception noted resulted from the fund's failure to obtain a signed acknowledge-
ment of a widow accepting the lump sum amount in lieu of payment over a five
year period.
Add (ndu in,
Subsequent to the period under review, the Board of Trustees of the Local 295
Severance Trust Fund elected to terminate the individual whole life policies they
had purchased during the first 2 years of their 3 year contract. The face value of
these individual policies was deterliliii-d 1.y the oiiemb(--rs ase at the time he
became a member of the Fund, with the youn,, _.er members receiving much greater
coverage than the older members. For this type of coverage the STF had paid
$1,531,234 during this 2 year period, with $1,029,457 (if this amount being dis-
bursed during the year which end('.J Xovwi., r 30, 1972.
After re-evaluation (.f the type of insurance cov\ei;o:e v.-hlich had been provided,
the Board of Trustees substituted gunIp term insurance v.-ith constant coverage of
$30,00 for each ninember, regardless of age. The yearly premium cost under this
new coverage is to be $240,428 and is almost $7'.0,000 less than what was d--
bursed in the form of premiums for the preceding year.


APPENDIX IV
AFFIDAVIT
STATE OF CALIFORNIA
County of Los Angeles, ss:
OTTO FOrTST, being duly sworn, deposes and savz:
First, that I make this affidavit at the reque,-t <.f Pobert I)unne, A-qistant
Counsel of the United States Senate Committee on Governnment Operations,
Permanent Subcommittee on Investi-., tions. after a -orie, of c,,nferencp,. Harry 0.
Miller, Esq., General Counsel of Fir-t E',!iti.'e Corporation and Executive
Life Insurance Company of New York., b:I-; blt-n giveri the opportunity of review-
ing this affidavit prior to my signatimirr of it. I understand that this affidavit may
be used in lieu of my testimony in an executive session or public hearing of the
Subcommittee. I have been given a copy of the current rules and resolutions. I
understand that the Subcommittee's inquiry i- concerned with the propriety of the
insurance aspects of labor/manag,-.'m.-t sevrance pl:ns involving Louis Ostrer.
Second, I am Chairman of the Board of Fir.-.t Executive Corporation, a Cali-
fornia corporation which is a holding comIl)any for several insurance c.,mpanies,
one of which is Executive Life In-irance Company of Nqew York.
Third, First Executive Corporai'mn owns apprnximately 94 )percent of the
outstanding shares of common st,,c! of Executive Life Insurance Company of
New York.
Fourth, I personally and/or members of mv family own or control less than
5 percent of the outstanding shares of t'ir-t. Executive Corporation.
Fifth, Louis Ostrer's name was known in the insurance industry, and he had
the reputation of being an excellent producer. For a number of years-possibly
six or seven or eight-I had been attempting to get him to write business through
the subsidiary companies of First Executive Corporation. I would drop in to see
him at his offices in New York City from time to time. He possibly wrote one
small case, as he was a licensed agent with our company in 1967. The small com-
mis-ions still payable on this case are not being paid because of the revocation of
his license. His attempt to designate another payee was rejected by the company.
We rejected several proposed cases he brought to us because they appeared to be
bad medical risks. Since I was unsucce}sful in getting any substantial volume of
business, I stopped seeing him sometime before September 31, 1968.
Sixth, on December 31, 1968, First Executive Corporation acquired 74 percent
of the outstanding stock of Citizens Life Insurance Company of New York, and
on January 1, 1969, the name of Citizens Life Insurance Company of New York
was changed to Executive Life Insurance Company of New York. Two of Ostrer's
associates, Cy Reeves Snyder and Seymour Greenfield, had written business for
Citizens Life Insurance Company of New York before the acquisition, and Cy
Ree.es Snydcr continued writing a small volume of business with Executive
Life Insurance Company of New York.
Seventh, I do not recall seeing Louis Ostrer between December 31, 1968 and
MarIch 25, 1970, when Ostrer appeared at my office in Beverly Hills, California,
and described to me the concept of labor/management severance funds. Mr. Ostrer






45


described the concept to me, and emphasized the advantages over pension plans
currently being offered to union employees. He was particularly enthusiastic
about the appeal of the early vesting and the cash option to younger union
members, and the social desirability of making the benefits easily portable. He
described how most qualified retirement plans locked employees in and interfered
with job mobility, and then failed to deliver benefits for a substantial percentage
at retirement because of the lack of portability and reasonable vesting. He was
certain that his severance plan concept, which he had already had approved by
the Internal Revenue Service as a qualified retirement program under Section 401
of the Internal Revenue Code, would revolutionize benefit practices under collec-
tive bargaining. I am not sur-e whether he spoke specifically of Teamsters' Local
295, but he did speak in terms of hundreds of millions of dollars of face value
insurance. I know he spol:e of a group of Pan American employees at that time.
He told me he had already written severance plans with a number of insurance
companies including Manhatt:n Life Insurance Company, Beneficial National
Life Insurance Company, and Transworld Life Insurance Company.
Mr. Ostrer said that he had designed the severance plans, and was acting as
consultant to a number of trusts. He told me that as consultant, the trustees
would accept his advice as to the insurance agent to be selected. He :wanted my
assurance that the company would pay commissions on substantially the same
ba~is as Transworld Life Insurance Company paid for its severance insurance
programs. He showed me his agre-.ment with Transworld Life Insurance Company,
and I advised him that if the arrangement were lawful we would be willing to pay
the commission at that level. I understood that the policies applied for would be
on a guaranteed i-s.ue basi-, and that Executive Life Insurance Company of
New York would not be ablle to do individual risk selection. We reached an
agreement then, in principle, that Executive Life Insurance Company of New
York would advance the entire first year's premium to the writing agent upon
production of any such severance fund case. Until six (6) weeks ago, that was the
only appearance Louis Ostrer ever made at our California offices, to the best of
my recollection.
Eighth, I was in New York City on October 21 and 22, 1970, and again on
November 17 and 18, 1970, and saw Ostrer on both occasions. I am absolutely
certain that by the November trip we were speaking specifically of Teamsters'
Local 295, and specifically of a severance fund contribution by management of
$15.00 the first year, $30.00 the second year, and $40.00 the third year, slightly
less than half of which %.-as to be available for the purchase of life insurance.
Ninth, I agreed then to advance the first year's commissions in cash as soon
as the caqe waq written. I had expected that the first year's premium would be
received in one lump sum, but as it developed, the premiums were to be paid to
the company in monthly installments. Consequently, I agreed to loan the writing
agent an amount equal to the first year's commissions by taking back a series of
promi.;sory notes which were non-interest bearing, and which were repayable
)over the next four (4) years.
Tenth, I understood from my general association with people in the industry
that Ostrer had had some difficulty with Canada Life Assurance Company.
Ostrer sloughed off the importance of this, but we did discuss the fact that he was
the consultant of the fund .nd had no current New York license, ind that the
insurance would have to be written through the agent and/or broker de.ipnated
by the trustees. He indicated that the trustees would accept his advice a-. to the
:agent. I understand that it is customary for a consultant and administrator to be
consulted concerning appointment of an insurance agent. Additionally, Ostrer
had produced data to me showing that he had similar arrangements with Founida-
tion Life Insurance Company of America, Beneficial National Life Insurance
Company, Transworld Life Insurance Company of New York, and MaInhattan
Life Insurance Company. The New York Insurance Department routinely
allows first-year sales compensation of up to 96 percent, and we were only paying
50 percent. The severance program of Local 295 was split funded with only one-
half of the contribution applied to the purchase of insurance. This meant that
first year sales compensation was approximately 25 percent of firet rear contri-
butions. It is customary in the industry to split fund qualified retirement plans
where individual life insurance policies are going to be used to fund part of the
benefits.
Eleventh, I want to make it clear that as far as this company was concerned,
Louis Ostrer controlled the placing of the severance fund business with us. He
had designed the plan and the trustees would rely upon him for advice as to which
insurance company should be selected, and it was my policy to take those -teps






46

which he proposed in order to accomplish the writing of the case. I do not recall
meeting either Dina Gelman or Cy Reeves Snyder before they were selected as
writinur agents. This is not unusual. In response to your specific question. I do
not believe that the company in any way violated any law of the State of New
York, and a number of reputable New York insurers obviously came to the same
conclusion as attested to by the fact that they wrote identical programs before
Executive Life Insurance Company of New York was selected as the carrier for
Local 295's -everance program.
Twelfth, the actual case was originally written through an agent, Cy Reeves
Snyder. I have never met Mr. Snyder in my life. Some weeks or months later,
the paperwork on the obtaining of a general agent's license in New York for
0-;Otrer's siter, Dina Gelman, were completed, and all of the promissory notes,
,t~i'r:intfr-. commission agreements and other papers connected with the case,
which were originally written under Cy Reeves Snyder, were routinely transferred
to Dina Gelman and her agency. At the same time that commissions were assigned
to Dina Gelman, she assumed tho promissory notes evidencing the loans which
had origin:)lly been made to Cy Peeves Snyder.
Thirteenth, although many of the documents in connection with the Local 295
;everance program were ,e'.itd on behalf of the company by Norbert F. Loch-
ner, its basic negotiations were carried on by me, and the legal documents were
drafted by Harry 0. Miller. Mr. Lochner executed documents confirming agree-
ments which I had made, aind, I believe, relying on the advice of Harry 0. Miller.
Fourteenth, in about the mi)'le of 1971, we made a determination, based on our
experience in this case, that from tin actuarial point of view, it was a bad case
from flbe company's point of view. Death claims were considerably higher than
anticipated. We informed O.-tr:,r that if the company was to take on the second
year's buinness-which was (c:ual in premium dollars to the first year's business-
there would either have to be a reduction in the face value of the insurance written
approximating 15% for the s;rim, premium, or else a renegotiation of the com-
mi.-ion r'.tfe which in substance w",.uld amount to dropping the persistency bonus.
Ostrer complained that he v",.s not in a position to reduce the face amount of the
policy for the second year, and refused to take a reduction in the commissions
payable to the agent, since other companies were willing to take the business at the
old premium rate, and at the old commission level. Consequently, we were no
longer interested in writing the second year increment. Notwithstanding, at his
request, we prepared a letter to the trustees asking for a $50,000.00 advance in
premiums for this second year. This letter was dictated in substance by Ostrer.
At the time the letter was sent, there appeared to be a possibility that commission
levels could be renegotiated.
Fiftee(nth, between the time that the letter referred to in the preceding paragraph
was written, and the time that the decision was made as to who the carrier would
be, the actuaries of Ex:ecutive Life Inurance Cc.mpany of New York were in
contact v.ith Manhattan Life Insurance Company, Transworld Life Insurance
Conimpany of New York, and Beneficial National Life Insurance Company.
Execi'tive Life Insurance Company of New York pooled all raw data as to pre-
mium, clims, and commissions for all cases, and reached a determination that the
peve.r:nce progrn-ims were not profitable for us. The companies cannot make
money unless there is a tremendous improvement in the mortality rate. which does
not seem likely. I understand that the second year's insurance was written through
Tr:cin-world, Life Insurance Company of New York, who advanced 90 percent of
the first yf-,ir's premiums to the writing agent.
Sixt(.enth, the only other time that Ostrer was in our California offices was
March 31, 1972. He stated he had just arrived from Las Vegas and had a very
large seven. rance fund case involving the culinary workers there, which would
involve some $2,000,000.00 per year in premiums. He asked for $100,000.60
advanc- to the writing agent, Seymour Greenfield, against future commissions,
although the case had not been written. I refused.
SevenOPenth, the type of insurance written is actually known in the trade as
"group ordinary life," and the premiums paid are routine for this type of in-
surrince. The New York Insurance Department has advised the trustees of Local
295 that the commissions paid in connection with their severance program exceed
the c.)inis-iPn rate in the NAIC Code of conventional practices. The New York
Department co. cedes that the NAIC Code of conventional practices does not
have the force of law in New York.
In addition, we are convinced that the commission rates set in the Code were
mneint to apply to group term insurance. No substantial amount of group term





47


was sold at the time the Code was adopted, and commission levels p-Lid by E?:ecu-
tive Life Insurance Company of Newv York in connection with the n.-.e,.rnce
programs are similar to coininis.-;sion levels paid in connection with group pl ima-
nent ordinary life by other New York insurers. The MIanhattan Life II.-lir.Lice
Company, for instance, pays up to 96 percent of first year's commission, on ordi-
nary group life, and total commissions of about 165 percent over the fii'-t t,.n (10)
years. There is nothing thalt would prevent the trustees of the severzince fund in
dealing directly with us. The-re is no need for the intervention of a broker aiid/or
agent in an insurance matter, but it would be illegal for us to quote a lower rate in
dealing directly. It would be technically and legally feasible to expvricnce rate
the ordinary life policies written in connection with severance programs, and
give experience rating credits if justified by earnings. However, this w( ild require
a different premium rating structure similar to the rating structure for participating
business, and with the bad mortality experience involved, I do not know whether
it would have been advantageous for the trustees of Local 295. Such an experience
rating approach would probably require approval of the New York II:,urance
Department, and in the past they have consistently exercised th;. ir p',,er of
approval to prevent the smaller New York life insurance companies fir, com-
peting with the large eastern mutual. A relatively new insurance company
Congressional Life of California, has no agents, and conducts all its bu-in .- by
mail. Although I am not intimately acquainted with its operations. I don't believe
that its product is any chenapr than products sold by companies which do business
through agents.
Eighteenth, I have been deeply concerned about the aspects of the -cvecancc
fund insurance currently being written, and believe the federal government should
consider the passage of legi-Iation which would permit insurance companies to
deal competitively-with or without agents/brokers-for this new type of business.
Possibly, the companies could be permitted to quote a standard rate and c0 mnipete
on the basis of an "experience refund" as the actuLarial experience d<-,,'hpcd over
the years. I strongly support the idea that qualified retirement plans should be
changed to provide for earlier vesting and p,:rtability of benefits. A man should
not be tied to a particular location or a particular company, and it is v. lu og for a
substantial percentage of the people covered under pension plans to filni-h their
careers with no pension benefits.
Nineteenth, in June, 1971, Ostrer requested that an additional loan of : 2 ),000.00
be made to Seymour Greenfield. I agreed because premiums on the Loctl 295
case were coming in somewhat higher than expected originally.
OTTO FORST.
On this 31st May, 1972, before me, the undersigned, a Notary Public in and for
Baden-Baden personally appeared Otto For4t., known to me to be the 1)rison
whose name is subscribed to the within affidavit, and acknowledged to me that
he executed the same.
Witness my hand and official seal:
Notariat II Bade n-Baden.











APPENDIX V


REPORT TO THE PERMANENT
SUBCOMMITTEE ON INVESTIGATIONS,
COMMITTEE ON GOVERNMENT
OPERATIONS, UNITED STATES SENATE


Study Of The Local


295 Severance


Trust Fund Of The International
Brotherhood Of Teamsters,
Chauffeurs, Warehousemen


And Helpers


BY
OF


THE
THE


Of America


COMPTROLLER GENERAL
UNITED STATES


(49)


71-542 0 76 5


B-.175012
















COMPTROLLER GENERAL OP THE UNITED STATES
WASHINGTON. D.C. UM


B-175012

The Honorable Henry M. Jackson, Chairman,
Permanent Subcommittee on Investigations
Committee on Government Operations
United States Senate
Dear Mr. Chairman:
In response to your request of December 28, 1971, this is our
report on our study of the Local 295 Severance Trust Fund of the Inter-
national Brotherhood of Teamsters (the Plan).
Please note that our study is not based on an audit of the financial
records of the Fund but largely on information extracted from the min-
utes of the meetings of the Plants board of trustees and on data fur-
nished by the former Plan administrator and by representatives of the
Executive Life Insurance Company of New York.
Also, the study is based on the Plan as it was structured during
its first 2 years of operations. Substantial changes have been made in
the Plan's provisions during the past 2 months, but we understand that
you are primarily interested in the type of plan initially adopted by the
trustees.
Supporting and supplementary data developed by our actuarial
staff will be made available to your staff if you so desire.
As you requested, we have not obtained comments on the report
from the former administrator or the trustees of the Fund, the union,
employers, the insurance agent, or companies involved. Our findings
have been discussed with representatives of the New York State Depart-
ment of Insurance.
We will not distribute this report further unless you agree or pub-
licly announce its contents.
Sincerely yours,

A6.


Comptroller General
of the United States


(51)










COMPTROLLER GENERAL'S REPORT TO
THE PERMANENT SUBCOMMITTEE
ON INVESTIGATIONS, COMMITTEE
ON GOVERNMENT OPERATIONS
UNITED STATES SENATE


STUDY OF THE LOCAL 295 SEVERANCE
TRUST FUND OF THE INTERNATIONAL
BROTHERHOOD OF TEAMSTERS,
CHAUFFEURS, WAREHOUSEMEN AND
HELPERS OF AMERICA B-175012


DIGEST


WHY THE STUDY WAS M4DE


The Chairman of the Senate's Per-
manent Subcommittee on Investiga-
tions asked GAO to assist in the
investigation of the Teamsters Local
295 Severance Trust Fund (the Plan).

The Subcommittee, concerned with
some insurance practices being used
in the Plan, asked GAO to make an
actuarial study to determine whether
the Plan (1) was properly funded and
(2) adequately inured to the mem-
bers' benefit.

The GAO study was made in close co-
operation with the Subcommittee
staff and was designed to supple-
ment the staff's work.

Background

The Plan was established to pay
severance benefits to Local 295 mem-
bers upon termination of employment.
It resulted from collective bargain-
ing agreements between Local 295 and
the employers of union members, ef-
fective for the 3-year period end-
ing November 30. 1973.

Membership in the Plan averaged
about 1,300 during the first year.
Members are engaged in the truck-
ing of air freight at the Kennedy
Airport in New York City.

Each employer agreed to pay into the
trust fund the following amounts per
member for each week the member is on


the payroll: $15 during the first
year of the Plan; $30 during the
second year; and $40 during the
third year.

Under Plan provisions in effect
during the first 16 months, sev-
erance benefits were paid when a
member's employment was terminated.
In event of a member's death, his
beneficiary received an additional
death payment funded from the pro-
ceeds of life insurance policies
purchased by the Plan.

A 10-member board of trustees ad-
ministers the Plan; 5 representing
employers and 5 representing the
union.

FINDINGS AND CONCLUSIONS

Insurance aspects of the Plan

Trustees purchased individual level-
premium insurance policies on the
life of each member during the first
and second years of the Plan. The
decision to provide insurance as a
severance benefit was significant
because almost half of the employ-
ers' contributions were applied to
that purpose during the Plan's first
2 years.

The following aspects of the insur-
ance coverage may interest the Sub-
committee:

--Using individual insurance poli-
cies rather than a less expensive

MAY 21.19 7 3


(5S)






54


group policy was of questionable
benefit to members, considering the
substantially greater premium costs
to the Plan.

Individual policies also resulted in
much greater commissions being paid
to the insurance agency. Compensa-
tion to the insurance agency on in-
dividual policies purchased by the
Plan during the first 2 years is
estimated at about $800,000. GAO
estimates compensation to the
agency would have been about $10,000
for the same amount of group term
insurance. (See p. 12.)

--Aside from the form of insurance
provided, including life insur-
ance of any type as a part of the
benefit structure of a severance
plan is of interest.

Insurance protection was not spe-
cifically required by the agree-
ment between the union and the
employers. Local 295 members had
already been provided life insur-
ance coverage under the Group Wel-
fare Fund.

It would seem that, if additional
insurance coverage were desirable,
it would have been more logical to
provide it through the Group Wel-
fare Fund.

--The Plan, itself, was named as
beneficiary of policies purchased
during the first 2 years. Cer-
tain policies were issued without
a consent agreement or an applica-
tion signed by the insured per-
sons. (See p. 17.)

--Trustees were not paying members'
beneficiaries full proceeds of
the life insurance policies pur-
chased on members' lives. If a
member died before age 55, his
beneficiary received about


74 percent of the face value.
(See p. 18.)

Was the Plan Property Funded?


A test commonly used for determin-
ing soundness of financing of an
employee benefit plan (such as the
Local 295 Plan) is simply to deter-
mine whether the plan will be able
to pay benefits provided under its
terms.

To pass this test, the plan's pres-
ent value of expected future re-
ceipts together with its assets must
be equal to or greater than the
present value of benefit payments and
expenses expected to be paid in the
future. In addition, at no point in
the future should the fund's cash
position be projected as negative.

By applying the above criteria to
the Plan, as it operated during the
first 16 months, GAO calculations
show that, if the Plan were ter-
minated on November 30, 1973, the
expiration date of the present
union-management agreements:

--It could not have been expected
to have sufficient assets to pay
benefits as they were determined
during the first 16 months.

It could not have been expected
to be able to pay such benefits
immediately because its earnings
would not have been sufficient
to offset expenditures made for
insurance premiums, administra-
tive expenses, and benefit pay-
ments.

--It would have taken from 15 to
20 years before its earnings
would have put it, if terminated,
in a position to immediately pay
termination benefits (contribu-
tions made on member's behalf,





55


subject to forfeiture provisions
for noninception members).

Although GAO projections, based on
the assumptions on pages 21 to 22,
indicate that the Plan--if it had
been continued--should have been in
position to pay benefits (as deter-
mined during the first 16 months
of the Plan) as members terminated,
GAO feels constrained to point out
the following reservations.

--The soundness of projections is
dependent on how closely the as-
sumptions predict future expe-
rience. GAO assumptions regard-
ing termination rates were based
on data covering a relatively
short period--about 7 months--and
therefore would have been subject
to greater uncertainty than usual
for such projections.

--Plan documents were loosely worded
and contradictory in some aspects
and GAO's interpretations of Plan
provisions were based largely on
trustees actions during the Plan's
first year.

--Future economic conditions can
strongly affect the Plan's fi-
nancial condition. For example,
employers may not be able to
continue the work force at the
present level or to continue to
make contributions at the speci-
fied rate.

Did the Plan adequately inure to the
benefit of the members?

GAO believes benefits provided to the
members would not have been commensu-
rate with costs of the Plan. GAO
concluded that a plan the size of
Local 295 should return, in terms of
present values, benefits to employ-


ees of about 95 percent of the con-
tributions made to the plan. This
was based on data published by the
New York Insurance Department on
jointly administered welfare and
pension plans.

By contrast, GAO's analysis showed
that the Plan would have returned--
in terms of present values--only
between 72 and 83 percent of em-
ployer contributions. (See p. 29.)

Trustees provided a form of life
insurance, as part of the benefit
package, which was much more costly
than normal for a plan of this size.
As a result, substantial portions of
employers' contributions were applied
to insurance commissions that could
have been applied to employee bene-
fits if group insurance had been
obtained.

Administrative costs incurred by
trustees and the Plan administrator
were considerably greater than the
average costs for other employee
benefit plans in New York.


Conclusion

The Plan was not formulated or
administered in the best interests
of members. The Plan would have
returned to the members too small
a proportion of the fund's income.
Other media would have enabled the
Plan to provide greater benefits to
members or would have required
smaller employer contributions.

In early 1973 the Trustees made a
number of changes which GAO be-
lieves will improve the soundness
of the fund, and in the long run,
result in greater benefits to the
total membership of the Plan.
















CHAPTER 1

INTRODUCTION

The Teamsters Local 295 Severance Trust Fund (the Plan)
was established to provide benefit payments to eligible mem-
bers of Teamsters Local 295 upon termination of employment.
The basis for determining benefit amounts for which members
are eligible was not clearly and consistently described in
the Plan's formal documents. Therefore, this report is based
on (1) our review of the minutes of the board of trustees
meetings, (2) explanation of the Plan by a representative of
the former Plan administrator, and (3) formal documents.

The collective bargaining agreements covering members
of Local 295 established a severance trust fund in to which
employers would pay specified contributions. These agree-
ments contain no details about the benefits to be paid from
the trust fund, but use of the word "severance" indicates
,that the Plan's primary purpose is to make benefit payments
upon termination of membership in the Plan. Actually almost
half of the contributions were used to purchase individual
life insurance policies with high initial expenses.

The discussion of member benefits in the Plan documents
includes frequent references to the member's share account
and net account. According to Plan rules and regulations,
a member's account is to be credited with (1) the contribu-
tions made by the employers) on behalf of the member and
(2) increments representing his share of other earnings of
the Plan, as determined by the trustees. A member's account
is to be reduced by (1) the premiums for the insurance policy
(or policies) on his life, (2) his share of the Plan's admin-
istrative expenses, and (3) certain other charges, as deter-
mined by the trustees.

According to Plan documents, the balance in a member's
account primarily determines the member's benefits.

PAYMENTS UPON TERMINATION OF EMPLOYMENT
FOR REASONS OTHER THAN DEATH

Plan rules and regulations (section 3.06) provided that
a member, whose employment was terminated for reasons other
than death and who was a member of the Plan on



5


(57)






58


December 1, 1970, (inception member),1 would be entitled to
the amount standing to his share account as of the date of
termination.

However, section 4.05 provided that any member

"i * who retires or terminates other than by
reason of death shall receive as a minimum the
benefit provided by the total amount of Employer
contributions to the Trust Fund on his behalf."

The phrase, "the benefit provided by the total amount of
Employer contributions," was not defined or further explained
in the Plan Rules and Regulations.

The severance payments made to inception members be-
tween December 1, 1970, and March 31, 1972, were equal to
the total contributions made on the members' behalf without
any additions or deductions.

According to the minutes of a board of trustees meet-
ing, members who entered the Plan after December 1, 1970
(noninception members), and subsequently terminated with
less than 5 years in the Plan, received only a portion of
the contributions made on their behalf. Noninception mem-
bers were to be paid the following percentages of contribu-
tions credited to their accounts.

Years of membership Percentage of
in Plan employer contributions

Less than 1
At least 1 year but less than 2 20
At least 2 years but less than 3 40
At least 3 years but less than 4 60
At least 4 years but less than 5 80
At least 5 full years 100




'Certain groups of employees were considered inception mem-
bers even though they entered the Plan after December 1,
1970.





59


Benefits payable to persons terminating or retiring at
age 65 or more were essentially the same as those payable to
other persons terminating for reasons other than death, ex-
cept that noninception members were apparently not required
to forfeit any portion of the contributions made on their
behalf.

The termination benefits have not been substantially
changed by the revisions to the Plan documents and adminis-
trative procedures which have taken place during the first
quarter of 1973.

PAYMENTS UPON TERMINATION OF EMPLOYMENT
BECAUSE OF DEATH

The beneficiary of a member whose employment terminated
because of death received, in addition to the severance
benefit, a death benefit which was funded by the proceeds of
life insurance purchased by the Plan on the member's life.
Section 3.17 of the rules and regulations prescribed the
following basis for determining amounts payable to the bene-
ficiary in such cases:

"Payment of the Member's net account shall be
made in full to the Beneficiary after due proof
of death has been received by the Trustees. The
Member's net account shall be equal to the Em-
ployer contributions credited to such account
plus increment or decrement as of the last evalua-
tion date, less insurance premiums paid on the
Contracts on such Member's life and less his allo-
cated share of charges and expenses of the Trust
Fund. Payment of the proceeds of Contracts issued
on his life as a death benefit shall be made in
equal monthly, quarterly, semiannually or annual
installments, in the sole discretion of the Trust-
ees, over a period of ten (10) years after the
death of a Member who died on or prior to his
fifty-fifth (55th) birthday, or over a period
of five (5) years after the death of a Member who
died after his fifty-fifth (55th) birthday, pro-
vided that the amount of each such payment is at
least Twenty-Five ($25.00) Dollars."





60


Minutes of the trustees' meetings show, however, that
payments were not actually made on the above basis. Although
section 3.17 indicated that the benefit, exclusive of the
benefit stemming from the insurance contract, was to be based
on the member's net account, the Plan actually made such
payments during the first 16 months at amounts equal to the
contributions made on the member's behalf.

Furthermore, the trustees allowed beneficiaries to
elect to receive the death benefits in single-sum payments
instead of installment payments. In such cases, the trustees
paid only the discounted value of the installments, although
the rules and regulations did not specifically authorize
this practice. (See p. 18.)

PAYMENTS TO MEMBERS UPON TERMINATION OF PLAN

Section 6.02 of the rules and regulations indicated
that, upon termination of the Plan (or complete discontinu-
ance of contributions), the members would receive their share
accounts and the insurance policies on their lives. There
was no guarantee that the members would receive at least
the return of contributions on their behalf if the Plan were
terminated.

AMOUNTS OF LIFE INSURANCE PURCHASED BY PLAN

The face amounts of the insurance policies purchased on
the life of a member during the first and second Plan years
were determined (subject to specified minimums) by multiply-
ing the employer's weekly contribution by 50 and then by the
number of years between the member's age and age 65. Under
this formula, the following amounts of insurance were pur-
chased for members of the ages indicated who entered the
Plan during the second Plan year when the contribution rate
was $30 per week.

Face-amount
Employee of insurance

A (age 25) $60,000
B (age 40) 37,500
C (age 55) 15,000






61


If insurance were to have been purchased on the same
basis during the third Plan year, the insurance amounts for
a member entering the Plan then would have been as follows:


Employee

A (age 25)
B (age 40)
C (age 55)


Face amount
of insurance

$80,000
50,000
20,000


The premiums for the insurance purchased during the
first 2 Plan years were slightly less than one-half of the
contributions made to the Plan by the employers.






62


CHAPTER 2

INSURANCE ASPECTS OF THE PLAN

The Plan, as initially adopted by the trustees,
provided that a life insurance policy (or policies) was to
be purchased on the life of each member. Ordinary level-
premium life insurance policies were purchased during the
first Plan year (December 1, 1970, through November 30,
1971) from The Executive Life Insurance Company of New York
and during the second year (December 1, 1971, through
November 30, 1972) from Trans World Life Insurance Company
of New York. As of March 1973, trustees had decided not to
continue these insurance arrangements for the third and sub-
sequent years. (See ch. 5.)

Aspects of the insurance coverage purchased by the
trustees during the first 2 years which may interest the
Subcommittee in its investigation are

--the Plan's use of individual insurance policies
rather than a less expensive group policy,

--the Plan's naming itself as beneficiary of the
policies, and

--the trustees' practice of not paying members'
beneficiaries the full proceeds of the poli-
cies purchased on members' lives.

PURCHASE OF INDIVIDUAL INSURANCE POLICIES--
OF QUESTIONABLE BENEFIT TO MEMBERS

The policies purchased during the first 2 years of the
Plan were treated as ordinary or individual insurance to
determine commissions payable to insurance agents and to
comply with State regulations; however, many characteristics
of the insurance and its handling resembled group insurance.

According to officials of the New York Insurance Depart-
ment, using individual policies instead of a group policy
for a union-management welfare or pension fund the size of
Local 295 is unusual and results in substantially higher
insurance costs.





63


Group insurance is more
appropriate for Plan

The Plan had the following characteristics which
generally indicate situations where group insurance princi-
ples would apply instead of individual insurance.

--Insurance coverage was purchased on a mass basis
for a group of persons with common characteristics
(Local 295 group).

--Insurance coverage was provided without the usual
evidence of individual insurability (such as med-
ical examinations).

--The amount of insurance available to a member
was determined by a formula which applied to all
members of the group and precluded individual
selection.

--The Plan trustees, rather than the insured per-
sons, were the owners of the policies.

--The insurance companies handled sales and bill-
ings on a bulk basis.

--The trustees paid premiums from funds contrib-
uted by the employers of the insured persons.

Although individual whole-life policies generally pro-
vide several advantages to the insured which are not pro-
vided by group insurance, it is significant to note that
the major advantages discussed below had little relevance
to the Plan in which the policies were held by the trustees
rather than the insured.

Plan members had no freedom to choose the plan or in-
surance amount or to tailor the coverage to their specific
needs. Premiums were paid from employers' contributions for
a large group of members; therefore, the level-premium fea-
ture provided no significant advantage for the individuals.

The cash-value feature of whole-life policies provided
no advantage to a member. He could only use the cash value
when he terminated, and if he chose to continue the policy
he would have to purchase the policy from the trustees.





64


Furthermore, the policies had little or no cash value during
the early years, depending on the member's age at issue.
For example, the policies for an inception member, aged 24,
who terminates 3 years later, would have no cash value even
though the Plan would have expended about $2,000 in premiums
for the policies.

The net result is that, as far as the Plan and its mem-
bers are concerned, the ordinary whole-life policies pur-
chased by the Plan had the disadvantage of higher cost but
not the advantages which usually accrue to these policies.

Comparison of commission rates of
individual and group policies

The Planis use of ordinary level-premium life insurance
policies provided the basis for the payment by the insurance
companies of much higher agents' commissions than would have
been paid if group life insurance had been used.

We estimate that, during the Plan's first 2 years, com-
pensation payable to the insurance agents on the ordinary
life insurance policies purchased by the Plan was about
$800,000. In comparison, we estimate that commissions would
have been only about $10,000 if the same amount of insurance
had been provided under a group term policy and the commis-
sions had been based on the high scale of the range of the
National Association of Insurance Commissioners' (NAIC) Code
of Ethical Practices with Respect to the Insuring of the
Benefits of Union or Union-Management Welfare and Pension
Funds (the Code of Ethical Practices).

NAIC adopted the Code of Ethical Practices in December
1957. It was intended to complement State insurance laws
and to be a declaration of applicable principles in the
proper conduct of insuring benefits of welfare and pension
funds. The code includes a range of insurance commission
rates which are considered reasonable for specified volumes
of premiums.

As shown in the table below, the rates of commissions
payable to agents on individual policies by Executive Life
and Trans World Life are substantially greater than the
high scale of the acceptable range adopted for group insur-
ance commissions by the NAIC in its Code of Ethical Practices.





65


The rates are also significantly higher than the rates of
Trans World Life for group policies.

Commission Rates--Percent of Premiums

Years of insurance
1 2 3 to 4 5 to 10

Individual policies:
Executive Life 50.0 12.5 7.5 7.5
Trans World Life 89.9 10.0 10.0 7.5
Group polices (note a):
Trans World Life 5.26 1.81 1.81 1.81
Code of Ethical
Practices (high) 1.49 1.49 1.49 1.49
aBased on Plan's premium level of $10,000 during first Plan
year.

The rates shown include commissions and other compensa-
tion for both agents and general agents. Because the com-
mission scale in the Code of Ethical Practices provides
only for agents' commission, we increased the commission
rate by 25 percent, an estimate of the compensation usually
received by general agents. The Trans World Life rate for
the first year for individual policies includes an agency
development allowance of 34.9 percent of the first year's
premium.

On the basis of a similar comparsion, the Welfare Bu-
reau of the New York Insurance Department criticized the
commissions payable on the insurance purchased by the Plan
as being unconscionable.

The Code of Ethical Practices commission scale covers
the the sale of group contracts, the form of coverage com-
monly used by union-management welfare and pension funds.
Although Executive Life resisted the applicability of the
commission scale of the Code of Ethical Practices to individ-
ual policies purchased by the Plan, the New York State Insur-
ance Department officials believed that individual policy
commission rates were not applicable to a pension or welfare
plan which involved the sale of several thousands of poli-
cies through an agreement with a group of trustees and that
group commission rates should have applied. As of December
1972, this matter was still being disputed.


13


71-542 0 76 6





66


To illustrate the relative levels of agency compensation
on the sale of individual policies versus group term polices,
we estimated the commissions which would have been payable
during a 10-year period on two blocks of insurance purchased
during the first 2 years of the Plan. A block of insurance,
for this illustration, is the insurance purchased in either
of the first 2 years of the Plan plus replacements after
issue sufficient to maintain a constant total amount of
insurance in force. In other words, for each termination
or death there is a corresponding new entrant.

We considered the first year of each block to be newly
issued in calculating group commissions. Estimates were
developed as though each of the particular companies involved
were actually providing the entire insurance coverage for
the Plan.

We estimated the commissions payable based on two as-
sumptions regarding member turnover.

--There would be no terminations. This assumption
is unrealistic but illustrates, simply, the dif-
ferences in the amount of commissions payable on
individual and group insurance.

--Ten percent of the members would terminate each
year and be replaced by new members.

The premium level used in the first illustration of the
table (two blocks of $510,000) is approximately the amount
of premiums which the plan paid on the individual policies
purchased during the 2 years. The lower premium level is an
estimate of what the premiums on the same amount of insur-
ance coverage would have been during the first policy year
if a group term insurance policy had been purchased. Our
estimate of $125,000 is based on the statutory minimum first-
year premium for companies doing business in New York State.
The minimum, prescribed by law, is designed to sufficiently
cover most groups.






67


Estimates of Commissions Payable to Insurance Agency
During First 10 Years of Plan


Individual
policies
rates


Executive
Life


Trans
World
Life


Group
insurance
rates
Trans Code of
World Ethical
Life Practices


(000 omitted)


On two blocks of in-
surance involving
premiums of
$510,000 each:

Assuming no em-
ployee termina-
tion
Assuming 10% em-
ployee sev-
erance and re-
placement by
new employees

On two blocks of in-
surance involving
premiums of
$125,000 each


$1,211




1,609


$1,644 $211


2,385


211


The above table shows the difference between insurance
commissions payable on group and individual policies gener-
ally. It should be noted that group insurance commissions
are not affected by member turnover.


$144




144






68


Investigations of agency compensation rates
by New York Insurance Department

New York Insurance Department officials said the
Department investigated rates of compensation payable by
Executive Life and by Trans World Life on Plan policies
in December 1972.

Executive Life

The master general agents agreement of Executive Life
provides for a persistency bonus in addition to its regular
scale of commissions payable to general agents for renewal
policies. The persistency bonus was to be a payment of
12.5 percent of the premium for the second year of insur-
ance, 17.5 percent for the third and fourth years, and
7.5 percent for the fifth through tenth years.

The Assistant Chief of the Life Bureau of the New York
Insurance Department notified Executive Life on November 16,
1971, that the renewal commissions plus the persistency
bonus were in excess of the section 213 maximum, that the
company should be guided by that opinion, and that any pay-
ments made not in accordance with the opinion would consti-
tute willful violations of the insurance law of the State of
New York.

New York Insurance Department. officials in December 1972
said they understood that Executive Life was not paying the
persistency bonus.

Trans World Life

The New York Insurance Department was investigating
whether the insurance agency qualifies for the agency devel-
opment allowance paid by Trans World Life to supplement its
commission scale. The allowance is 63.5 percent of the
first-year commission which, in turn, is 55 percent of the
first-year premium; therefore, the combined first-year com-
mission and agency development allowance is almost 90 percent
of the first-year premium.

New York law allows such an agency development allowance
to supplement the maximum scale prescribed in section 213 in
the case of new general agents who are establishing and devel-
oping an agency organization. A general agent with prior






service as a general agent or agency manager with any life
insurance company or companies must have less than 5 years of
total service to be considered a new general agent.

The New York Insurance Department was also investigating
why the regular commission scale of Trans World Life was used
on Plan policies even though the guaranteed-issue principle
was used for these policies. The general agent's contract
with Trans World Life provides for paying a commission scale
lower than the regular scale when policies are issued on the
guaranteed-issue basis. Such policies are issued regardless
of the applicant's state of health and therefore are subject
to a higher rate of mortality than regularly underwritten
policies. One way the companies have to offset this extra
mortality is to pay the agent a lower amount of commission
for guaranteed-issue policies.

PLAN WAS NAMED AS BENEFICIARY OF INSURANCE POLICIES

The insurance policies purchased front both Trans World
Life and Executive Life on the life of each member were
issued to Plan trustees, and named the Plan as the benefici-
ary and owner. The trustees therefore received the proceeds
from the insurance upon a member's death. Furthermore, the
trustees required that, if a member terminated for reasons
other than death and chose to own the policy, he would have
to purchase the policy from the trustees for the cash value.

Executive Life Policies were issued on the basis of an
application for each policy signed by an agent of the trust-
ees. The policies were issued without a consent agreement or
an application signed by the insured persons.

The New York Insurance Department questioned the legal-
ity of this procedure. The Department cited Executive Life
on February 9, 1972, for violating section 146(3) of New York
Insurance Law because the applications did not contain the
signed consent of the insured. New York Insurance Department
officials advised us in December 1972 that hearings had been
held on this citation but that the Department had made no
decision.





70


DISCOUNTING PRACTICE

The administrator discounted the proceeds on life
insurance policies when a member's beneficiary elected to
receive a lump-sum payment rather than installment payments,
and the trustees accepted this practice. The rules and regu-
lations did not specifically authorize this practice. Fur-
thermore, insurance notices issued to members did not state
that the face amount of insurance would be paid in install-
ments over a period of years or that the amount payable to
the member's beneficiary at death would be the discounted
value of such installments.

A list of death-claim payments made by the Plan from its
inception through March 31, 1972, shows that each beneficiary
elected to receive a lump-sum payment and that the payments
were discounted.

The discount was computed on the basis of interest at
the rate of 6 percent per year, compounded annually, -with the
first payment becoming due 1 year after death and with annual
payments thereafter. This rate reduced the face amounts of
insurance payable by 26.4 percent if death occurred on or
before age 55 and by 15.8 percent if death occurred after
age 55.

In monetary terms, for each $1,000 'of death benefits the
life insurance company paid to the'Plan when a member died on
or before age 55, the member's beneficiary was paid $736 and
the Plan retained $264. If death occurred after age 55,
$842 was paid to the member's beneficiary and $158 was
retained by the Plan.

The booklet titled, "Your Severance Bonus Plan," which
was intended to advise members of the benefits to which they
were entitled, did not disclose that insurance proceeds were
supposed to be paid in installments and that part of the pro-
ceeds would be retained by the Plan if a single-sum payment
was made. The booklet states that certificates would be
issued to members telling them what their insurance benefits
would be in each case. As indicated above, however, the
amount shown on the insurance certificate was the face amount
of the insurance which was paid to the Plan rather than the
amount payable to the member's beneficiary when a single-sum
payment was elected.









The trustees of an employee welfare fund are responsible
in a fiduciary capacity for all money, property, or other
assets which they receive, manage, disburse, or direct
according to section 37-L of the New York Insurance Law. We
question how effectively the trustees have carried out their
fiduciary responsibilities.






72


CHAPTER 3

WAS TIHE PLAN'PROPERLY FUNDED?

A test commonly used for determining the soundness of
the financing of an employee benefit plan (such as the
Local 295 Plan), is simply to determine whether the plan
will be able to pay the benefits, provided under its terms
in the future, assuming that the plan will not be modified.
To pass this test, the plan's present value of expected fu-
ture receipts, together with its existing assets, must equal
or exceed the present value of benefits and expenses ex-
pected to be paid in the future. In addition, at no point
in the future should the fund's cash position be projected
as negative..

Applying the above criteria to the Plan, as it operated
during the first 16 months, our calculations show that if
the Plan were to have been terminated at November 30, 1973,
the expiration date of the present union-management agree-
ments:

--The Plan could not have been expected to have suffi-
cient assets to pay benefits as they were determined
during the first 16 months or to pay such benefits
immediately upon its termination because earnings
during the first 3 years would not have been suffi-
ciant to offset the expenditures made for insurance
premiums, administrative expenses and benefit pay-
ments.

--It would have taken from 15 to 20 years before the
Plan's earnings would have put it, if terminated, in
the position to immediately pay termination benefits
(contributions made on member's behalf, subject to
forfeiture conditions for noninception members).

Although our projections based on the assumptions
stated on pages 21 to 22 indicate that, if the Plan had
been continued, it should have been in a position to pay
benefits (as determined during the first 16 months of the
Plan) as members terminated, we feel constrained to point
out the following reservations.





73


--The soundness of projections is dependent on how
closely the assumptions predict future experience.
Our assumptions regarding termination rates are based
on data covering a relatively short period--about
7 months--and therefore would have been subject to
greater uncertainty than usual for such projections.

--Plan documents were loosely worded and contradictory
in some respects and our interpretations of Plan pro-
visions were based largely on the actions of the
trustees during the first year of the Plan's opera-
tion.

--Future economic conditions can strongly affect the
Plan's financial condition. For example, employers
may not be able to continue the work force at the
present level or to continue to make contributions
at the specified rate.

Our projections and comments should be considered in
the light of these reservations.

ASSUMPTIONS UNDERLYING OUR PROJECTIONS

To project the monetary effect of transactions which
could have been expected to take place in the future, it
was necessary to make the following assumptions about the
Plan's operations.

Date of valuation--December 1, 1970, the date the Plan
became operational.

Number of members--An estimated 1,332, inception members.
It was assumed that Plan membership would be maintained
at this level.

Ages of members--The age distribution of new members
is assumed to be identical to the distribution of ages
of inception members.

Employer contribution (per member)--$15 per week during
the first Plan year, $30 per week during the second
year, and $40 per week during the third and subsequent
years.






74


Mortality rate--1960 Commissioners Standard Group Mor-
tality Table.

Interest earnings--5 percent per annum.

Insurance premium rates--Rates charged the Plan by Ex-
ecutive Life.

Cash value of policies--Estimates based on whole life
policies issued on Plan members by Executive Life.

Face amounts of insurance policies--Based on the cover-
age described on pages 8 to 9.

Administrative expenses--Estimates were developed based
on the-actual expenses incurred by the'Plan during its
first year of operation. (See pages 37 to 38.)

Rates of terminations--On the basis of experience dur-
ing the first 7 months of operation, estimates were
developed of the rate at which members would terminate
from the Plan. Because the data available on the Plan's
termination experience was extremely limited, we devel-
oped two sets of termination rates. Scale A assumes a
higher rate of termination which would be unfavorable
to the Plan because early terminations of inception
members (except perhaps by death) will result in Plan
losses. Scale B assumes a lower rate of terminations
and therefore presents a less conservative view of the
Plan's financial position. (Termination rates used are
detailed in Appendix II.)

Benefits--Our projections assume that payments will con-
tinue to be made on the same basis as during the first
16 months of the Plan.






75


FINANCIAL PROJECTIONS

The following aspects of the Plan's benefit structure
are significant in understanding the results of our finan-
cial projections.

--The Plan would have incurred a loss when an inception
member terminated (for reasons other than death),
during its first few years because the member would
have received a return of gross contributions made on
his behalf even though about half of these contribu-
tions would have been applied to insurance premiums
and administrative costs. This deficit would even-
tually have been negated in later years when the
Plan's earnings on investments plus the cash value of
the insurance policies and the discount on death
claims were built to an amount sufficient to offset
the insurance and administrative costs.

--The Plan would have gained when noninception members
terminated during the first few years of membership
in the Plan because the vesting provisions did not
provide the member a full return of the employers'
contributions until the member had been covered by
the Plan for 5 years or more. Also, contributions
began at least 6 months before an insurance policy
was issued on a member's life.

Projection of assets and liabilities

The following tabulation compares the liabilities and
assets projected for the Plan through November 30, 1989.
This projection was based on the assumption that member
terminations would be at the rate envisioned in scale A, and
therefore the projection was conservative.






76


Projected Assets and Liabilities


As of
November 30,


Assets Liabilities


Percent of
liabilities
funded


(000 omitted)


$ 400
1,300
2,600
4,000
5,500
6,900
8,200
9,400
10,500
11,400
12,300
13,200
14,000
14,800
15,600
16,400
17,300
18,300
19,400


$ 900
2,400
4,200
5,800
7,300
8,800
10,100
11,300
12,300
13,300
14,100
14,900
15,600
16,200
16,700
17,300
17,800
18,300
18,900


Assets are comprised of cash, investments, and cash
values of the life insurance policies. The liabilities are
equal to the gross contributions made on behalf of active
members (with the appropriate vesting percentages applied
to the contributions for noninception members).

As shown above, the Plan's liabilities could not have
been considered fully funded until after the Plan had
operated for about 20 years. Had it been terminated before
that time, the Plan probably would not have had assets
sufficient to immediately pay the termination benefits as
they were determined during the first 16 months of the Plan.

Projections of contributions and expenses


the estimates of net gains
for the two classes of


1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989


44
54
62
69
75
79
81
83
85
86
87
89
90
92
93
95
97
100
103


The following table shows
or losses from Plan operations






77


benefits with the two termination scales. The present value
of contributions, benefit payments, and other costs are
shown here as percentages of employer contributions.

If members were to receive
Inception Noninception
benefits and benefits and
terminate as in terminate as in
Scale A Scale B Scale A Scale B

Employer contributions 100% 100% 100% 100%

Expenses:
Benefit payments
to members 83 79 73 72
Insurance costs
(premiums less
benefits) 12 13 13 13
Administrative 5 5 5 5
Other 2 2 2 2

Total expenses 102 99 93 92

Net gain or loss -2 1 7 8

The first 2 columns in the table show the projected
results as if only the 1,332 members included in the
November 1971 census were to be covered by the Plan. They
assume that no new members would be brought into the Plan
and therefore that contributions would not be forfeited,
which would happen if noninception members would terminate
during the first 5 years of coverage. Therefore, the results
shown in the first two columns represent the most conserva-
tive estimate of the Plan's operations.

In actual practice, it would have been expected that
as inception members terminated, new members would have been
brought into the Plan. As new members were admitted, of
whom a portion could have been expected to terminate with
little coverage, the Plan would have gained financially.
The bottom line of the table indicates the effect on the
financial position of the Plan if allowance is made for some
of the members to have terminated before completing 5 years
of membership thereby forfeiting all or a portion of the
contributions made on their behalf.






78


From the analysis presented above it appears that, if
inception members who would have terminated were replaced
by new members, the ultimate gain to the Plan should have
more than offset losses from terminating inception members.

Cash-flow projections

The cash-flow analysis shown below was made to
determine if the Plan would have had enough cash to pay
benefits as members terminated. Cash-flow projections over
the first 11 years indicated that the Plan should have had
a sufficient cash flow.


Year ending
November 30


Contributions
and earnings


Benefit payments,
insurance premiums,
and other expenses


Balance--cash
and invested
assets (note a)


(000 omitted)


$1,100
2,200
2,900
3,000
3,100
3,200
3,300
3,400
3,400
3,500
3,500


$ 700
1,300
1,800
2,000
2,200
2,400
2,600
2,700
2,900
3,000
3,100


$ 400
1,300
2,400
3,300
4,200
5,000
5,700
6,300
6,900
7,400
7,800


aExcludes cash values of insurance policies.


1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981






79


ACTUARIAL STUDY BY LAWRENCE R. SCHIFF ASSOCIATES

In June 1971, Lawrence R. Schiff Associates submitted
to Fringe Programs, Inc., an actuarial study of the Plan's
operation which projected (1) the Plan's income, expenses,
and cash position for each year through November 30, 1981,
and (2) the Plan's assets and liabilities as of December 1,
for each year through 1981. The Schiff study showed that

--the Plan could have maintained a satisfactory cash-
flow position through November 1981 and

--the Plan's assets would have become equal to its
liabilities during the year beginning December 1,
1979.

The results of the Schiff projections presented a somewhat
more favorable picture of the Plan than our study did. The
actual experience of the Plan during its first year of
operation had a significant impact on the assumptions made
for our projections. Some of the significant differences
in assumptions follow.

1. Schiff assumed that death benefits would be paid
in annual installments over a 10-year period as
provided for in Plan documents. Because all
claims during the first Plan year were actually
being paid on a lump-sum basis (discounted at
6 percent per year), our projections are based on
the assumption that this practice would have
continued.

2. Schiff assumed that death-benefit payments would
include gross contributions made on behalf of the
member, less the cost of his insurance policy.
During the first year of the Plan, this was not
the practice. Our computations assumed that the
practice of returning gross contributions would
be continued.

3. Schiff apparently did not include any expenses for
rent and for legal, auditing, or clerical services.
Our projections are based on the assumption that
such expenses would have been about 2 percent of
the employers' contributions as was the case during
the first Plan year.






80


4. Schiff assumed a 6-percent return on the Plan's
investments. Our projection anticipates a
5-percent return. The only interest-bearing assets
held by the Plan during the first year were savings
accounts.

5. Schiff used termination rates of 15 percent for
members below age 35 and 10 percent for members
aged 35 and above. Our projections used graduated
rates varying by attained ages.






81


CHAPTER 4

DID THE PLAN ADEQUATELY INURE

TO THE BENEFIT OF THE MEMBERS?

In our opinion, the benefits provided to the members
would not have been commensurate with the costs of the Plan.
Using data published by the New York Insurance Department on
jointly administered welfare and pension plans, we conclude
that a plan the size of the Local 295 should return--in terms
of present values--benefits to employees of about 95 percent
of the contributions made to the Plan. By contrast, our
analysis showed that the Plan would have returned only between
72 and 83 percent of the employer contributions based on
present values.

In our opinion, Plan trustees made a number of highly
questionable decisions regarding the Plan and its administra-
tion. The trustees provided a form of life insurance as part
of the benefit package which was much more costly than that
normally obtained for a plan of this size. As a result, sub-
stantial portions of the funds contributed to the Plan by the
employers were applied to insurance commissions that could
have been applied to employee benefits if group insurance
had been obtained.

Also, the administrative costs incurred by the trustees
and the contractor employed to administer the Plan were con-
siderably above the average costs for a plan of this type.

COMPARATIVE FINANCIAL RESULTS
FOR TERMINATING MEMBERS

The table below compares the present values of the con-
tributions made by employers with the benefit payments that
were expected to have been made to members under the Plan.
The results are stated as percentages of the contributions
and are based on the assumptions described on pages 21
and 22.

Using these assumptions, the present values of future
benefits and future contributions were calculated (as of the
valuation date) for the inception members. In determining
the present values the assumption was made that no member



29


71-542 0 76 7






82


would continue employment after age 65. The same procedures
were followed in securing figures for noninception members.
However, the inception members were assumed to receive the
some benefits as noninception members.

If inception members were to receive
Inception Noninception
benefits and benefits and
terminate as in terminate as in
Scale A Scale B Scale A Scale B

Contributions 100% 100% 100% 100%

Member benefits 83 79 73 72

Loss to members 17 21 27 28

The loss to members is merely the difference in the
present value of what is paid on their behalf and what they
receive. The difference is the result of (1) the insurance
premiums having a greater present value than expected insur-
ance benefits and (2) the administrative expenses incurred
by the Plan.

The comparison in the table below is made as if (1)
employer contributions continued at $40 per week and (2) the
employee benefit structure were not changed. While this
comparison shows that benefits to members vary between 72
and 83 percent of employer contributions, consideration must
also be given to the ultimate gain or loss to the Plan.

Our projections of contributions and expenses showed
that the ultimate effect on the Plan--stated as percentages
of contributions--would be as follows:

If inception members were to receive
Inception Noninception
benefits and benefits and
terminate as in terminate as in
Scale A Scale B Scale A Scale B

Net gain or loss
from operations -2% 1% 7% 8%





83


In the normal plan it would be expected that, in the
long run, either the benefit structure or the employer con-
tribution rate would be adjusted to compensate for the gains
or losses from operations,





84


ALTERNATIVE METHODS OF FINANCING PLAN

As previously discussed in Chapter 2, the trustees
purchased individual whole-life insurance policies for Local
295 members. For a plan this size, we believe that other less
expensive methods of providing benefits to members would
have been more appropriate. Although it is not feasible to
show a full cost-benefit analysis of alternative financing
procedures which could have been used by the Plan, a brief
discussion of the following alternative methods is presented.

--Retention of all contributions for severance benefits.

--Group term insurance with a separate investment fund.

--Self-insurance.

--Group permanent insurance with a separate investment
fund.

Retention of all contributions
for severance benefits

The collective bargaining agreement provides for a
severance trust fund but does not require that any form of
life insurance coverage be provided. All contributions,
after deducting expenses, could have been retained and in-
vested by the trustees, and eventually used to pay severance
benefits.

The following table demonstrates the benefits that
could be provided by such a plan for a 25-year-old inception
employee and compares those benefits with the value of bene-
fits provided under the original plan. The mortality rate
and interest assumptions are the same as those of our pre-
vious calculations--1960 Commissioners Standard Group
Mortality Table and 5-percent interest compounded annually.
The table shows that retaining all contributions for sever-
ance benefits would produce greater termination benefits to
a terminating member than the original benefit structure,
if he remained in the Plan for more, than 4 years.






85


Accumulated
contributions
with interest
less expenses
(note a)


Accumulated
contributions
without interest
plus insurance
coverage value


$ 773
2,382
4,603
6,935
9,384
11,955
14,655
17,490
20,467
23,592
26,873
30,318
33,936
37,735
41,724
45,913


$ 830
2,492
4,712
6,941
9,179
11,427
13,686
15,958
18,245
20,548
22,870
25,214
27,583
29,980
32,408
34,871


aIncludes an allowance for administrative expenses of $25 per
year which is the average for plans in New York.

Although the table only compares the benefits for an
inception member who joined the Plan at age 25, it would
also apply to other age groups. Generally, the member would
get greater benefits under the original plan during the
first few years but as time would pass the benefits under
the noninsurance plan would become better.

We noted that Local 295 members had already been
provided life insurance coverage under their Group Welfare
Plan. In our opinion, if additional life insurance were
considered desirable, it would have been more logical to
provide it through the Group Welfare Plan.

Group term insurance with a
separate investment fund

Another alternative to the original funding would be to
separate the insurance element from the benefits payable
upon severance for a reason other than death. This basic


End of
year






86


alternative has several variations, but one method would
be to approximate the benefits offered by the Plan with a
combination of group term life insurance and a money pur-
chase pension plan (i.e., a pension in which employer con-
tributions were allocated with respect to specific members
and the benefits are the amounts which can be provided by
these allocated contributions).

The beneficiary named by the member would receive a
death benefit directly from the insurance company. This
arrangement would be a distinct improvement over the original
procedure whereby the Plan was named as beneficiary of the
insurance policies and the trustees retained a portion of
the death claim proceeds. Under new arrangements, the
member's beneficiary would receive the benefit of the total
insurance for which premiums had been paid rather than a
discounted value, as was the original policy. (See p. 18.)

Premiums on group term insurance would be considerably
less expensive and therefore a considerably larger amount
could be put in the member's share accounts. The accounts
should be considerably larger than the current share accounts
and insurance cash values, and should eventually exceed the
contributions for an individual. How long it would take
for an account to exceed the contributions depends on
actuarial experience and the member's age.

Adjustments to the benefit structure for combining
group term insurance and a separate pension plan could be
made which might further improve the plan. The current
practice of paying terminating inception members a refund
of contributions made on their behalf, could be changed
thereby assuring solvency (i.e., assets sufficient to pay
all termination benefits). Therefore, payments to terminat-
ing members would not be detrimental to the share accounts
of other members.

Under this alternative, individual whole-life policies
on which the member can continue premiums would not be
provided. However, New York Insurance Law guarantees him
the right to convert his group term insurance to a whole-life
policy. Our analyses show that, continuing a policy by buy-
ing it for the cash value or getting a new policy for the
regular premium, are both about equal in value.






87


The amount of insurance coverage could be set on a more
logical basis (e.g., fixed amounts for all members).

Self-insurance

If the Plan were self-insured, the trustees would pay
no premiums to insurance companies, but they would be re-
sponsible for paying claims directly from Plan moneys. It
would be necessary for the Plan to make an actuarial analysis
to determine the level of benefits that could be paid. Since
contributions are much greater than expected death benefits,
the Plan appears to be in an excellent position to withstand
possible variations in mortality rates.

Our analyses show that the Plan's financial position
would be substantially improved if self-insurance procedures
were adopted. Working from the same set of assumptions as
those presented on pages 21 and 22 with one exception--the
administrative cost of self-insurance is assumed to be
$25 per member per year--we projected the results of the
Plan's operations under self-insurance, as follows.

If members were to receive
Inception Noninception
benefits and benefits and
terminate as in terminate as in
Scale A Scale B Scale A Scale B

Employer contributions 100% 100% 100% 100%
Benefits to members 83 79 73 72
Administrative expenses 1 1 1 1
Net gain from operations 16 20 26 27

These gains under self-insurance would save the Plan
about 18 percent of contributions with which to increase
benefits, reduce contributions, or both. In addition to
the greater risk involved under self-insurance, the main
disadvantage would be the difficulty in permitting members
to continue insurance after severance.





88


Group permanent insurance with
separate investment fund

Another modification that is possible which would not
change the Plan as radically as some of the other alterna-
tives would be to use a level-premium group permanent
contract with a separate investment fund. Under level-
premium group permanent plans, a level premium is determined
for each participant using such forms of insurance as life
paid up at 65, endowment, or whole life. Therefore, sub-
stituting a group permanent contract for individual whole-
life policies would not affect many features of the Plan.
The same form of insurance (whole life) could be provided,
and the trustees could return contributions without interest
in accordance with current practice. The size of the
separate investment fund would be increased if the insurance
premiums are reduced. A reduction in insurance premiums is
likely because expenses (commission and other) would be
substantially reduced, and mortality rates would be unaf-
fected. The larger the membership turnover of Local 295,
the larger would be the expense savings. Even a small sav-
ings in premium could have had a far-reaching effect on the
status of the fund.






89


HIGH ADMINISTRATIVE COSTS INCURRED BY PLAN

The Plan's administrative costs for the first Plan year
(December 1, 1970, through November 30, 1971) were $125,381,
of which $86,877 represented charges of the former Plan ad-
ministrator.

The $86,877 fee payable to the former administrator
represented an annual cost of about $65 per member. This
cost was substantially greater than the estimate of $0.94 per
member a month ($11.28 per year) made by a representative of
the former administrator during the January 21, 1971, Board
of Trustees meeting.

Although there was no formal agreement between the
trustees and former administrator, the invoice from the former
administrator dated January 10, 1972, addressed to the trustees,
attached a memorandum which gave the following formula for de-
termining the fee payable to the administrator, based on em-
ployer contributions:

Fee Employer
(percentage) contributions

10 First $ 100,000
9 next 150,000
8 next 250,000
7 next 500,000
6 next 1,000,000
5 all above 2,000,000


In addition to the fee determined through this formula,
a charge of $0.40 was made for each item of mail out, re-
turned mail, termination, beneficiary change, employer change,
address change, name change, and etc. The total charge of
$86,877 was made up of $80,893, determined on the percentage-
fee basis, and $5,984, determined on the per item charge.

The Plan's financial report shows that other operating
costs of $38,504 were incurred in the first year, in addition
to the costs paid to the former administrator. These costs
increased the Plan's total administrative costs to $125,381
and the costs per member to about $94.






90


Information provided by the New York State Insurance
Department for expenses incurred by New York welfare and
pension funds jointly administered by union and management
show that administrative costs in 1970 averaged about $25
per member for welfare plans and about $20 per member for
pension plans. Comparing these average costs with the
Plan's cost shows that the Plan was subject to very heavy
administrative charges with costs per member being about
four times as great as costs for other funds in New York.









CHAPTER 5

CONCLUSIONS AND CO1LMENTS ON CHANGES MADE TO

THE PLAN IN 1973

The Plan was not originally formulated or administered
in the best interest of the members.

--Too small a proportion of the Plan's income was
being returned to the members.

--Other funding media existed which would have enabled
the trustees to reduce expenses and therefore either
pay higher benefits to the members or reduce con-
tributions required from the employers.

It appears that it is the trustees' primary responsi-
bility to insure the interests of the employees and that
.the trustees did not have sufficient knowledge to design
their own plan or to effectively evaluate the plan which
was developed for them. In early 1973 the trustees dis-
missed the administrator and made the following changes in
the Plan.

--Of the $40 weekly contributions to be made by the
employers for each member, only $4 will be applied
to life insurance. A separate insurance fund was
established. The balance, or $36, will go into a
fund for paying severance benefits. The severance
benefits are basically unchanged although the more
economical funding medium will presumably allow
larger severance benefits based on the share accounts
in the future.

--A single group term insurance contract, effective
March 1, 1973, was purchased and the individual
whole-life policies were dropped.

--Under the group insurance policy, each member is
covered for $30,000 plus accidental death and
dismemberment.

--No agent or broker was involved in the purchase of
the group term insurance policy, thereby eliminating





92


the large-scale commissions of individual whole
life policies.

--The proceeds of the insurance will go directly to
the deceased member's beneficiary without discounting.

We believe that these changes improve the Plan.
Although we have not made financial projections of the
effects of these recent changes, we believe that they will
improve the soundness of the fund and, in the long run,
will result in greater benefits to the total membership of
the Plan.