S. 209, the ERISA improvements act of 1979 : summary and analysis of consideration

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Title:
S. 209, the ERISA improvements act of 1979 : summary and analysis of consideration
Added title page title:
ERISA improvements act of 1979
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v, 186 p. : ; 24 cm.
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English
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United States -- Congress. -- Senate. -- Committee on Labor and Human Resources
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Washington
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Subjects / Keywords:
Pension trusts -- United States   ( lcsh )
Individual retirement accounts -- United States   ( lcsh )
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federal government publication   ( marcgt )
non-fiction   ( marcgt )

Notes

Bibliography:
Includes bibliographical references.
General Note:
CIS Microfiche Accession Numbers: CIS 79 S542-9
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At head of title: 96th Congress, 1st session. Committee print.
General Note:
Nov. 1979.
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Reuse of record except for individual research requires license from LexisNexis Academic & Library Solutions.
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prepared by the Committee on Labor and Human Resources, United States Senate.

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University of Florida
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All applicable rights reserved by the source institution and holding location.
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aleph - 024975582
oclc - 06198455
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lcc - KF49
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Full Text


96th Congress coXXIrTTEE PRINT
1st Session}







S. 209

THE ERISA IMPROVEMENTS ACT OF 1979: SUMMARY AND ANALYSIS OF

CONSIDERATION





PREPARED BY THE

COMMITTEE ON LABOR AND HUMAN

RESOURCES

UNITED STATES SENATE












*LI S DE~ NOVEMBER 1979






Printed for the use of the
Committee on Labor and Human Resources


U.S. GOVERNMENT PRINTING OFFICE 53-0180 WASHINGTON : 1979

































COMMITTEE ON LABOR AND HUMAN RESOURCES
HARRISON A. WILLIAMS, JR., New Jersey, Chairman
JENNINGS RANDOLPH, West Virginia RICHARD S. SCHWEIKER, Pennsylvania
CLAIBORNE PELL, Rhode Island JACOB K. JAVITS, New York
EDWARD M. KENNEDY, Massachusetts ROBERT T. STAFFORD, Vermont
GAYLORD NELSON, Wisconsin ORRIN G. HATCH, Utah
THOMAS F. EAGLETON, Missouri WILLIAM L. ARMSTRONG, Colorado
ALAN CRANSTON, California GORDON J. HUMPHREY, New Hampshire
DONALD W. RIEGLE, JR., Michigan HOWARD M. METZENBAUM, Ohio
STEPHEN J. PARADISE, General Counsel and Staff Director MARJORIE M. WHITTAKER, Chief Clerk STEVEN J. SACHER, Special Counsel DAVID A. WINSTON, Minority Staff Director
PETER H. TURZA, Special Counsel to Senator Javiots

(a)










FOREWORD
The "ERISA Improvements Act of 1979" contains amendments to the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1954 which, in the view of the Committee on Labor and Human Resources, are necessary and desirable in light of five years' experience since ERISA was enacted.
S. 209 represents a balanced legislative approach in furtherance of national policy respecting retirement income-it is designed to encourage and stimulate private sector retirement and welfare plans while continuing ERISA's thrust towards improving plans from the standpoint of the workers and retirees for whom the plans have been established. It is also forward-looking legislation that takes into account the likely results of present demographic, economic, and social trends.
Under the Senate rules, legislation which is jointly referred to two or more committees may be reported only by such committees jointly, accompanied by only one report. S. 209 is such a bill, and this summary and analysis of consideration is being made available as a Committee Print in the belief that it will be helpful to the Committee on Finance and others in their consideration of the "ERISA Improvements Act of 1979." I am pleased to include in this print the views of the Committee as well as additional views, background and legislative history, the complete text of the bill as amended and approved by the Committee, and other pertinent material.
HAmuSON A. WILLTAmS, Jr.,
Chainan,
Committee on Labor and Human Resources.
(llI )























Digitized by the Internet Archive in 2013

















http://archive.org/details/s209erisaimproveOOunit













CONTENTS

'Page
1. S. 209: Summary ------------------------------------------------ 1
11. History of legislation ------------------------------------------- 5
ITT. Committee views and analysis ---------------------------------- 1()
IV. Additional views of (1) Senator Javits and (2) Senator Hatch ---- (.1 V. Tabulation of votes cast in committee ---------------------------- GG,
VT. Congressional Budget Office-cost estimate ----------------------- 67
VIL Changes in title I of ERISA -------------------------------------- 68
V111. S. 209, as amended and approved by the Committee on Labor and
Human Resources -------------------------------------------- 90
IX. Pertinent correspondence ---------------------------------------- 184
(V)















1. SUMMARY oF THE BILL
The bill is divided into four titles, as follows:
1. General Amendments to ERISA.
II. Amendments to the Internal Revenue Code of 1954.
III. Special Master and Prototype Plans. IV. Employee Benefits Commission. The bill is intended to achieve the following major objectives: A. Strengthen and increase coverage of private sector retirement income and welfare benefit arrangements;
B. Provide greater assurance that employees and their families
will receive benefits from such arrangements;
C. Clarify and simplify the Federal laws under which employee
benefit plans operate and are regulated, and reduce paperwork burdens of plan sponsors, administrators and service providers:
D. Adjust the applicability of certain Federal and state laws as
they relate to plans which are subject to ERISA; and
E. Streamline the administration and enforcement of ERISA
and the Internal Revenue Code, insofar as it relates to employee
'benefit plans which are subject to ERISA.

TITLE 1--GENERAL ERISA AMENDMENTS
The amendments in title I of 5. 209 change many provisions of title I of ERISA.
The ERISA declaration of policy is amended to state explicitly Congress' policy that private sector employee benefit plans are to be encouraged and fostered. Also, the definition of "pension plan" is changed to give the Secretary of Labor explicit authority to treat legitimate severance pay or supplemental retirement income arrangements as welfare plans rather than pension plans.
The reporting and disclosure rules are changed to provide an alternative method of document distribution for multiemplover plans, to eliminate the requirement that plans must annually furnish participants with summary annual reports, to provide greater flexibility for the Secretary of Labor to grant variances and exceptions f romn the statutory rules, to consolidate and simplify in one section the presently scattered rules relating to participants' status reports, and to clarifyv the roles of accountants and actuaries who perform services for plans.
The minimum standards provisions of title I are revised to make clear that certain types of reciprocity arrangements between collectively bargained plans are permissible. Other changes are made in the participation, vesting. accrual, and funding rules, primarily in recognition of the unique circumstances under which multiemplover plans operate. The permissibility of reducing- welfare plan disability payinents due to Social Security disability payment increases and reducing of pension plan retirement payments dime to workers' compensation payments is clarified. Protection' is provided for surviving spouses
(1)




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of deceased participants who completed substantial service under a plan before death. ERISA's rule prohibiting assignments or alienations of benefit rights is clarified to ensure that it will not be interpreted to preclude a plan's honoring certain property settlements, alimony or child support orders of state courts. The elapsed time method of measuring service for purposes of ERISA's minimum standards, already approved by Labor Department proposed regulations, is codified.
Regarding ERISA's fiduciary responsibility provisions, the rule governing the extent to which an insurance company's general account shall be deemed to hold assets of a plan which is signatory to a contract or policy issued by the insurer is clarified, as is the general cofiduciary responsibility rule as it relates to fiduciaries which conduct business in corporate, partnership or association form. The rule governing refunds of contributions made to collectively bargained plans is relaxed slightly. The prohibited transaction and related rules are changed in three respects: the ERISA definition of "party in interest" is narrowed to exclude persons who, as a practical matter, do not occupy positions in which they can exert influence over a plan; a new statutory exemption is provided for transfers of assets between plans which have entered into reciprocity arrangements; and the Secretary of Labor will be required to report to the Congress and to the President respecting those applications for administrative exemptions as to which final agency determinations have not been made expeditiously.
In the areas of administration and enforcement, the bill requires that one member of the Secretary of Labor's ERISA Advisory Council must be representative of small employers and directs the Secretary to study and report to the Congress on the feasibility and ramifications of mandatory cost of living increases for pension plans. Also, rules are established prohibiting misrepresentations to employees about plans subject to ERISA and requiring employers to make periodic contributions to collectively bargained plans.
ERTSA's preemption rules are changed in several respects. Application of the antifraud provisions of the federal securities law to the relationship between an employee and an ERISA plan (or officials of the plan or plan sponsor) is nullified, and application of State securities laws to an ERISA plan is preempted. Preemption will not apply to certain State laws dealing with health care plans (although States will be preempted from specifying in insurance laws or regulations the typl)es of benefits, other than conversion rights, which must be made available in policies or contracts issued by insurers to plans). Also, a c-mforming change is made to foreclose arguments that ERTSA preempts state court orders dealing with property settlement, alimony, or child support payments described in the new explicit exception to the rule proibitin assignments and alienations.
Numerous changes are made in ERTSA's enforcement and federal court jurisdiction provisions to conform to substantive changes made elsewhere in ERIStA by the bill.

TITLE II- I N-NT'ERNAL REVENUE (OI)E A TENDMEN TS
Chall(es are 111a(le ill provisios of the Internal Revenue Code of 1954 which are analo rous to the ERTSA title T provisions amended by S. 209 and describedd s1or-.




3

In addition, four other amendments to the Code arc made. The iirt two (sections 201 and 202) deal with rollover or ot her favorable tax treatment for lump sum distributions iniade by tax- qualiie plans. The bill amends the aggregation of plan rules to provide that, as respects multiemployer plans and plans for employees of organization described in Code section 501(c) (3) or (5) (charitable, religioui etc., and labor, agricultural or horticultural associations) all dehijied benefit plans of an employer are to be treated as a single plan and all defined contribution plans are to be treated as a single plan. Also, an employee receiving a lump sumt distribution front a multieonployer plan after not working in service covered under the plan for a period of six months wouldbe eligible for rollover or other favorable tax treatment.
Section 203 of S. 209 amends the code to permit employees who are active participants in most tax-qualified plans to claim a de(luction for certain contributions made to the plan in which they are participating or to an Individual Retirement Account. The deduction is limited to the lesser of $1,000 per year or 10 percent of annual compensation, and rules are included to prohibit discrimination in favor of the highly compensated.
To stimulate the creation of more private sector plans, section 204 of the bill includes a limited tax credit for small employers who establish or commence contributions to tax qualified plans. The credit is designed to offset the initial costs of plan design and implementation. Accordingly, the credit is a phased-down incentive of five years' duration, based on a percentage of allowable deductions for contribRtions made by the employer to the plan. In the year of the plan's establishment, the credit is five percent of allowable deductions. For each of the second and third years after establishment, it is three percent. For each of the next two years, it is one percent. The credit is not available for the sixth and subsequent years after the plan's establishment.
The staff of the Joint Committee on Taxation has estimated the revenue costs of sections 201-204 of S. 209, as follows:
It is estimated that section 201 of the bill would reduce
budget receipts by less than $5 million annually.
It is estimated that section 202 of the bill would reduce
budget receipts by less than $5 million annually.
It is estimated that section 203 of the bill would reduce
budget receipts by $480 million in fiscal year 1980, by $1,025 million in fiscal year 1981, by $1,145 million in fiscal year
1982, and by $1,330 million in fiscal year 1984.
It is estimated that section 204 of the bill would reduce
budget receipts by $5 million in fiscal year 1980, by $25 million in fiscal year 1981, by $50 million in fiscal year 1982, and
by $90 million in fiscal year 1984.'
TITLE III-SPECIAL MASTER AND PROTOTYPE PLANS
Under title III of the bill, a 4 master sponsor," such as a bank, insurer, mutual fund, or savings and loan association, would develop one or more special master pension plans and would seek approval, at
'Staff of the Joint Committee on Taxation, "Description of S. 75. S. 94, S. 209 and S. 557" (Comm. Print 1979) (Hereinafter "Joint Committee Print").




4

the national office level, f rom. the Secretary of Labor. The terms of approval may be conditioned by the Secretary, and the Secretary of the Treasury has an opportunity to add conditions related to applicable Internal Revenue Code provisions.
Once approval is obtained, the master sponsor makes the special master plan available to employers, subject to any conditions stipulated by the government. An adopting employers' may establish and implement the plan without further determinations by the governmuent. The master sponsor is the administrator and fiduciary of each adopting employer's plan, and the responsibilities of each adopting employer under ERISA and complementary provisions of the tax code are limited to complying with the terms of the plan, paying the costs of funding the plan (as to which the present tax code deductibility rules would apply), paying a servicing fee to the master sponsor, and furnishing the master sponsor with timely and accurate workforce data. Numerous safeguards are included to prevent abuse 'by either adopting employers or master sponsors.

TITLE IV-EMPLOYEE BENEFITS COMMISSION
Title IV of S. 209 consolidates in a single agency, the new "Employee Benefits Commission," the functions related to administration and enforcement of ERISA and complementary tax code provisions that are now scattered in three separate agencies: the Labor Departmient, the Treasury's Internal Revenue Service, and the Pension Benefit Guaranty Corporation.
The Employee Benefits Commission is composed of five members, including a chairman who is a special liaison for the Secretary of Labor and a vice-chairmian who is a special liaison for the Secretary of the Treasury. All five members are Presidential appointments, subject to Senate confirmation, and serve six year, staggered terms. The chairman and vice chairman are nominated by the President from lists of candidates submitted, respectively, by the Secretary of Labor and the Secretary of the Treasury. The other three members are nominated by the President f rom a list of candidates submitted jointly by the two secretaries.
In addition to administering and enforcing ERISA and complementary tax code provisions, the Commission is to formulate policy respecting federal laws which relate to employee 'benefit plans.
The Commnission is an on-budget agency; however, the portion of the Commission's activities attributable to title IV of ERISA1 (plani ter-mination insurance) would continue to 'be financed by plan-paid preiumfllfs.
T1he Commission will commence its work, and the transfers of funcetion and staff identified by title IV of S. 209 shall be completed by, the (late which is two years a fter the enactment of S. 209. At that time, subtitle A of title III of ERISA (jurisdiction, administration, and enforcement) is repealed.












II. HISTORY OF LEGISLATION
During October of 1977, the Labor Subcommittee of the Coilinittee on Human Resources held ERISA oversight hearings, during whielt many issues addressed in S. 209 were discussed.1 On May 1. 1978, S. 3017, the direct predecessor to S. 209, was introduced an(l referred to the Committee on Human Resources and the Committee on iance jointly, by unanimous consent. Hearings on S. 3017 and other bills to amend ERISA and the Internal Revenue Code were conducted jointly by the Labor Subcommittee and the Finance Committee' Subcoinmittee on Private Pension Plans and Employee Fringe Benefits during August of that year.2
S. 209 was introduced on January 24, 1979 and was referred to t1, Committee on Labor and Human Resources and the Committee on Finance jointly, by unanimous consent. Hearings were conducted in February by the Committee on Labor and Human Resources) On May 16, 1979 the Committee amended the bill in certain respects and approved it unanimously, with three abstensions.4
In the course of these hearings, testimony was heard and written comments received from a wide range of persons, including representatives of the Labor Department, the Treasury, the Pension Benefit Guaranty Corporation, and the Securities and Exchange Commission. Witnesses included the following:
Members of Congress
Senators
Dewey F. Bartlett, Oklahoma.
Lloyd Bentsen, Texas.
Daniel K. Inouye, Hawaii.
Spark M. Matsunaga, Hawaii.
Executive branch o~fcials
Department of Labor, Secretary of Labor Ray Marshall, et al.
Department of the Treasury, Assistant Secretary for Tax Policy, Donald C. Lubick, et al.
Pension Benefit Guaranty Corporation, Director Matthew Lind, et al.
Securities and Exchange Commission, Chairman Harold Williams, et al.
I "Oversight of ERISA. 1977: Hearings before the Subcommittee on Labor of the Senate Committee on Human Resources," 95th Congress, 1st session (1977).
2 ERISA Improvements Act of 1978: Joint hearings on S. 3017, S. 901. S. 2992. S. 3193, S. 1745, S. 1383 and S. 250 before the Subcommittee on Labor, Committee on Human Resources and Subcommittee on Private Pension Plans and Employee Fringe Benefits, Committee on Finance, 95th Congress. 2d session (1978).
3 ERISA Improvements Act of 1979: Hearings on S. 209 before the Committee on Labor and Human Resources, 96th Congress, 1st session (1979). [Hereinafter cited as 1979 Hearings.]
4 See V, Tabualtion of Votes Cast in Committee, p. 66. Pursuant to Rule XXVI of the Standing Rules of the Senate, legislation which Is referred to two or more committees jointly may be reported by those committees only with a joint report. Accordingly, the Committee action taken on May 16 constitutes an approval of the bill, as amended, in the nature of a favorable report and indicates the Committee's readiness to report the bill favorably as soon as possible.
(5)





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Utllcl pclrsow ,
Dona ld C. A lexander-Forne r Commissioner, Internal Revenue Service, Olw-ine, Connelly, Chase, O'Donnell and Weyher.
American Academy of Actuaries-Stephen G. Kellison, et al. Americanm Bankers Association-Charles A. Moran, et al. Ame rican Bar Association-Frank Cummingfs, et al. Amiierican Council of Life Insurance-William Gibb, et al.
Amierican Federation of Labor/Congress of Industrial Organizations-Bert Seidnman, et al.
AmIerican Institute of Certified Public Accountants-Andrew J. C"apelli. et al.
Amilerican Society for Personnel Administration-James H. Fer-guson.
American Society of Pension Actuaries-J. William Cloer, et al.
Association of Private Pension and Welfare Plans-William Bret, et al.
\Villiam- Chadwick,, Former Administrator, Office of Pension and Welfare Benefit Programs, t .S. Department of Ljabor-Paul. Hast ings)-. J anofskv & Walker.
Chamber of Commierce-Ernest U riffes, et al1.
Church lliance for the Clarification of ERISA-Charles Cowsert, et al.
Council of Construction Empiloyers, Inc.-Harry P. Taylor, et alI.
ER ISA Industry Commnittee/Business Roundtable-Boris Auerbach, et al.
.John Finnel 1-retiree.
Hawaii State Federation of Labor, AXFL-CIO-A. Van Horn D iamiond.
Roderick Hills-Form-er chairmn, Securities and Exchange Coiniiiissioii, Latham., Watkins & IHills.
Ini-estm nent ( onpanv Inst ituite-IDavid Silver, et al.
National A ssociation of Pension Consultants and Administrators, I ne.-I la rriy La non.I Jr..I et al.
National Coordinating Committee for Mfultiemployer Plans-Rol)ert G'eopogin(' et, al.
National Em ployee Becnefits Institute-Steven Schianes.
Nat jonal Federation of Independent Business-Jaiiies "Alike"

_XNat ioint 1Womien's 1Pol it ical Caucus-Aknita Nelan.
Pension Righlts Center-Ku ienl Fergiisofl et al.
I ~iiademnt j I usnra nee Comipany of Ainer-ica, EquitablIe Life Assura11(TP Societv of the U7.S., Johin ha~rncoCk Mutual Life Insunmce Conmpu)v :1r)Aetllmm I I fe am1id ( 1astalt Comipany and Mutual Life Insurance ( Cmpan v of New YorV-Theodore U roomn, Groomn & Nordberg.
Ro Io bind(--(W~wonret own Vi mu ersity Law Center.

St ater- ()1 of it-1I I ):I I I )r woshu (1:11l PAousalud. et al.
1 m jed uW(11101 Ico.w-( Aeopc M.JlDanAmcitrIfnie

~\el eti( 'onferelice od, Teamiuters IPensin Trtist Fund-T. Neal \h' Na inr~ ii. I il IsiJ111, \lal --o)i & ~ItIOTheodlore ( 'oom011. (1room1 &

Iiia((1ii101.stat('i (115for -te record N-i v W 1' 1iihii ittedlby:




7

Members of Congress and state legislators
Senators
Frank Church, Idaho. Robert Packwood, Oregon. Ted Stevens, Alaska. Orrin Hatch, Utah. Dennis DeConcini, Arizona.
Representatives
Carl Perkins, Kentucky. Al Ullman, Oregon. ,John Seiberling, Ohio. Patricia Schroeder, Colorado.
State legislators
Donald Ching, Majority Leader, Hawaii State Senate. Other persons
Alder, Jonathan; Boothroyd, Herbert; Fleming, Donald-New England Life.
Anderson, Herbert; Hudson, H. P.; Kinder, Wesley-National Association of Insurance Commissioners.
Armand, John-Red Crown Federal Credit Union.
Asling, John.
Barnes, Willie-Commissioner of Corporations, State of California.
Bateman, Ben Carlyle-Vice President, Thompson & Green Machinery Company, Inc.
Berin, Barnet-Director, Professional Standards, William M. Mercer, Inc.
Bradley, Howard-Wholesale, Inc.
Budek-Kielski, Ewa-Chairman, Committee for ERISA Working Action.
Clarke, Weston-Vice President, American Telephone and Telegraph Company, Human Resources Division.
Conte, Michael.
Damaso, Carl-President, International Longshoremen's and Warehousemen's Union, Local 142.
Davis, Hilton-U.S. Chamber of Commerce, Vice President for Legislative Action.
Diamond, J. C.-National Association of Small Retirement Plans.
Drake-Johnson, Craig-Deferred Compensation Administrators, Inc.
Driesen, George-Van Arkel, Kaiser, Gressman, Rosenberg and Driesen.
Dudovits, Neal; Miller, Bruce-National Senior Citizens Law Center.
Ellingsen, Rudolph.
Faber, Peter-Harter, Secrest and Emery.
Fox, Dougl as, Esq.
George, Ralph-President, IPCO, Inc.
Gordon. Michael-Mittleman & Gordon.
Gray, William-Financial Analysts Federation.





8

Girier, W1. E .-St anda rd Oil Company of California.
Grohine, Jack-Corporate Fiduciaries Association.
Guarrera, John; Weinschel, Bruno-Institute of Electrical and Electronics Engineers, Inc.
Hassen, Joel; Singer, Thomias-Kaiser Aluminum and Chemical Corp.
Henrickson, Warner-St anda rd Oil Company of Indiana.
Horn bostel, Clia les-President, Financial Executives Institute.
Jackson, Pa ni-The Wyatt Company.
K irk, Donald-Finiancial A-ccounting Standards Board.
Kluw in, John-Amierican Bar Retirement Association.
Kneen, H. P.-Internationial Business Machines.
Lewis, Stuart; Sherman, Gerald-Association of Advanced Life Uinde rwrit ers.
Lidsay, IDenn is-M1aster Contracting Stev-edore Association of the Pacific Coast, Inc.
Marinich,.1,M. GIeorgye-Director, Pension and Insurance Departmlent, United Rubber, Cork, Linoleum and Plastic Workers of Ame rica.
McDonald, J. I ougl as-Treasurer, Planning Counselors, Inc.
Middleton, H1. W oodlward-Middleton, McMillan, Architects, Inc.
M.Noore andl Associates, Charles P.
MI-utschiler and Associates, #John G.
Na varre, R. W.-President, Simpson Industries Association.
O'Brien, Edward-Securities Industries Association.
Pavlo, Andrew-Presidlent, Oil, Chemical and Atomic Workers International LUnion.
Perkins, Richard-Society of Professional Benefit, Administrators.
Quil len, WillIiam-Senior Vice President, Wilmington Trust (Company.
Sacll.s, Theodore-M\arstoii, Saclhs, Nunn, Kates, Kadushin & 0Ol11a I e.
Shockley, WV. Ray-Executive Vice President, American Textile Maini factu rers Inist itude, Inc.
Sieg(e1, M~ayer-Attorney.
Sikil litian, Ricliard-Caplin and Drysdale.
spi-myte, Ired-Orrin A. Sprague Agency.
(mats, F iime -( ompt rol ler G'eueral of tlhe Uni'ited States.
-Svet an ics, MNi lton-( ~eneral American Life Insuranice Company.
laniieiibauum, Arnold.
TIrver r.)ian.
luass iw. I )iiit iios-I )epa rtient of Chemical Engineering, New Jer*sey I 114' it ide of Tecehuology.
*Iemiaiit. ( tto-( iatirinan, National Society of Professional En(111- 111s1a(lI hleleicn Societ v of Mlechianical Engineers.
Ihotisoi. biiie--( general \ic-e 1Presidleit, Association of W'estern 1) 1111) a n (1 ta 1)eri WX o -kers.
IIioiiierr -.- ( uriv--( 'o)1uibia11i leauut. (Company.

'Fuly Iiear-IizanPimluction C orporationi.
lii te~~A~ I iiii--Iitt e.1!Loris Iarrick & Iiigraiii.






American Paper Institute. Arthur Young and Company. Associated General Contractors of America, Inc. Health Insurance Association of America. Merrill Lynch, Pierce, Fenner, and Smith, Inc. National Association of Manufacturers. National Automobile and Associates Retirement Trust. Price Waterhouse and Company. Printing Industries of America, Inc. U.S. League of Savings Associations.











III. (COM3IITrEE VIEWS AND ANALYSIS
It is the view of the Committee on Labor and Human Resources that the Employee Retirement Income Security Act of 1974 is extremely important legislation which, in the main, has already proven its value for the retirement income and welfare benefit security of the roughly 55 million American workers and their families who are covered by private sector plans. Further, it is the view of the Committee that, especially as regards retirement income, ERISA's value and importance in the future will be even greater, as present demographic trends indicate that the proportion of retirees in our society is likely to grow significantly larger during the coming years.
Hence, the changes in ERISA and the tax code which are contained in S. 209, while comprehensive in the sense that all five parts of title I, subtitle B of ERISA (and complementary provisions of the Internal Revenue Code) are in some way affected, do not disturb any of its fundamental, underlying, substantive concepts.1 Based on almost 5 years' experience since enactment, the Committee strongly approves and endorses these basic tenets, which are presently reflected in ERISA's provisions:
Voluntary private sector arrangements can and should play a
vital role in assuring retirement income and welfare (health care, disability, accident, supplemental unemployment, etc.) benefits
for American workers and their families.
The national interest in these arrangements is significant and is
appropriately reflected in Federal law, both in terms of incentives which are made available for persons who maintain or contribute to the arrangements, and in terms of rules under which such arrangements are regulated, including reporting and disclosure
requirements to assist in the regulation.
Covered employees must be fairly informed as to their plans'
terms and financial condition and as to their rights and obligations
under the plans.
Standards respecting the terms of retirement income and other
deferred compensation arrangements (e.g., participation, vesting,
accrual, and related matters) are necessary and appropriate.
The economic and social ramifications of private plan assets are
great, and standards respecting the funding of certain retirement income arangInlents and thlie conduct of fiduciaries and parties in
interest of all su(lcl plans are necessary and appropriate.
fThe Federal courts and, in certain cases, the state courts and
the U.S. Tax Court, are appropriate forums for the redress of complaints alleging violations of federal law relating to private sector retirement income and welfare benefit programs, and access
to the courts should be readily available to complainants.
i )e to tihe piIdency of separate legislation (S. 1076) concerning problems of plan terrmi ttion insurantce under title IV of ERIA, S 200 does not address title IV issues ind the em1li4 liter expresv~e 11 view l t this time regarding the problems addressed by 5. 107(.
( 10)




11

Accordingly, S. 209 does not change any of the fundamental substantive concepts involved in the treatment of private sector plans under ERISA and the tax code. Rather, the ERISA Improvements Act of 1979 is properly viewed as remedial legislation; the changes it makes do have long-term significance in terms of the underlying goals described in the summary section of this analysis, but the changes also address many specific problems which have arisen or been highlighted in the years since ERISA's enactment. Policy of Encouraging Private Plans-Section 101
Section 101 of the bill amends ERISA's declaration of policy to make explicit Congress' policy that the establishment and maintenance of private sector plans should be encouraged and fostered. In the Committee's view, this policy has been implicit and reflected in a variety of federal laws, including the tax code, the Taft-Hartley Act, ERISA, and most recently, in the 1978 amendments to the Age Discrimination in Employment Act. But given the ever-increasing social and economic importance of private retirement income arrangements and the inevitable tension between the equally important goals of fostering voluntary employee benefit plans and at the same time regulating such plans to assure equity and fairness, the Committee believes that an explicit statement of the former is desirable and necessary. Deflnitions-Section 102
Section 102 of the bill amends several of the key ERISA definitions. The changes in the definitions of "party in interest" and "relative" (ERISA sections 3(14) and (15)) are discussed below in connection with changes in ERISA's fiduciary responsibility provisions.
The definition of "multiemployer plan" (ERISA section 3(37)) is simplified under bill section 102(4) by eliminating the 50/75 percent aggregate amount of contributions tests. It is the view of the Committee that these tests are difficult to administer and enforce, and are based on a premise which has proven faulty. At the time of ERISA's enactment, there was concern that the special treatment accorded to multiemployer plans in certain instances (e.g., the 40-year amortization rule for unfunded past service liabilities rather than the 30-year rule applicable to single employer plans) would serve as an incentive for plans which were not true multiemployer plans to characterize themselves as multiemployer plans for the purpose of taking advantage of these special rules. In fact, experience has shown that the disincentives to being characterized as a multiemployer plan are more than strong enough to counterbalance the incentives. Indeed, while the Committee is aware of numerous instances in which multiemployer plans have sought to be characterized as single employer plans, the Committee is unaware of any case in which a single employer plan has sought to be characterized as a multiemployer plan.
In lieu of the 50/75 percent tests, the amended definition provides that a collectively bargained plan to which ten or more employers contribute and which meets the "benefits payable without regard to the cessation of contributions" test of the present definition will be a multiemployer plan for all ERISA purposes. Also, the Secretary of Labor may afford multiemployer plan treatment to a collectively bargained plan in which more than one and less than 10 employer's contribute and which meets the "benefits payable" test if he finds that doing so

53-018 0 79 2





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would be consistent with ERISA's purposes. The Committee expects that such a finding will normally be made respecting such plans, but that extra scrutiny will be applied in cases involving an unusually high proportion of total contributions by a single contributing employer. Since the amended definition retains the Secretary's existing power to prescribe other requirements for any multiemployer plan, ample authority exists to prevent any unforeseen abuse. Severance Pay and Supplenwntal Retirement Income ArrangementsSection 102 (5)
The amendment to the definition of "pension plan" (section 102(5)) is designed to provide statutory flexibility to foster the creation and continued operation of severance pay arrangements and supplemental retirement income arrangements which are not subterfuges to evade the purposes of ERISA.
Although the Conmlittee is not dissatisfied with the Secretary's past efforts to delineate the types of severance pay arrangements which are not pension plans, the Committee believes that the rigidity of the
present definition of "pension plan" has unnecessarily circumscribed the permissible ambit of the Secretary's regulatory authority. Under the amendment, for example, the Committee would expect the Secretary to provide greater flexibility for severance pay arrangements covering true reduction-in-force situations so as to permit severance payments in excess of two year's compensation in such situations.
The onset of persistent high rates of inflation has made supplemental retirement income arrangements all the more valuable to retirees. Her.,, even more than in the case of severance pay arrangements, the establishment and maintenance of such supplemental retirement income arrangements has been hampered by the rigidity of the "pension plan" definition and by the fact that there is some doubt under present law as to whether a supplemental mitirement income arrangement which is not a "pension plan" is a "welfare plan." The amendiiient will permit the Secretary to adopt regulations which will foster legitimate supplemental arrangements.
In establishing the categories of plans referred to in the amendment, the ( 1oimilttee expects the Secretary to include rules which will prevent abuse of ERISA's funding and other rules which are applicable to pension plans but inapplicable to welfare plans.
In addition, the "subterfuge" sentence at the end of new section 3(2) (B) provides another safeguard under which the Secretary may remove any arrangement or type of arrangement previously included in one of the exempted categories if he finds it to be a pension plan inasquerading as a severance pay or supplemental retirement Ieoii1e arrangement.
AMENDIMENTS TO PART 1 OF TITLE I OF ERISA
Sections 111-118 of the bill make changes in ERISA's reporting and disclosure rules. All of the changes are designed to simplify these rules and reduce paperwork for plan administrators, plan sponsors and Se"VICe providers.
fDiclosure of ,Statu Under Penson Plans--Section 111
Section 111 consoIidates existing ERISA sections 105 and 209 and nIakes several clarifying changes. As regards penalties imposed under





13

amended ERISA section 105 (c) (3), it is the view of the Committee that any such penalties are to be paid to the plan, and this view is reflected in subsection (c) (3). Further, as stated in that subsection, the payment of any such penalty to the plan may not be used as an off set against required contributions.
Exempt wn,8 and Modifications From Part 1 Requirem~ents-Section8
112 and 114
Under present law the Secretary of Labor has plenary authority to exempt any welfare plan from any ERISA title I reporting or disclosure requirement. However, as regards pension plans, the Secretary's flexibility is limited to providing an "alternative method," under rather strict limitations.
As amended by section 112 of S. 209, EIRISA section 110 consolidates in one place the Secretary's authority to exempt any plan or class of plans from any Part 1 (reporting and disclosure) requirement or to modify. any such requirement if he finds that the exemption or modification is appropriate and necessary in the public interest and is consistent with the purposes of title I of ERISA.
Concern has been expressed that the Secretary, pressured by pension plans seeking special treatment under this new, more liberal standard, will proceed to grant exemptions and modifications on a wholesale basis, severely diluting EIRISA's disclosure provisions. The Committee neither expects nor will tolerate this result. In the reporting and disclosure area, as elsewhere under ERISA, uniform principles and rules are set forth which must be applied, in a common sense fashion, to an almost infinite variety of types of plans, plan sponsors, and service providers. The intent of the change made by section 112 of the bill is to provide the Secretary with sufficient flexibility to tailor these principles and rules by type of plan; to enable the Secretary to utilize the regulatory process in the public interest to recognize that a particular reporting or disclosure rule which makes perfectly good sense in the context of one type of plan makes less sense or no sense at all in the context of another plan or type of plan.
Section 114 of the bill mandates that this recognition be fully explored by both the Secretary of Labor and the Secretary of the Treasury.
More generally, the Committee expects that the Secretaries will find numerous ways in which ERISA's (and the tax code's) reporting or disclosure rules can be adjusted for various types of plans to ease reporting and disclosure paperwork and cost burdens without depriving participants, beneficiaries or the government of in form at ion needed understand plan trsand conditions, totrmrights and obligations, and plan finances, and without any measurable adverse impact on enforcement activities or on the government's need to catalogue and understand the identity and types of plans in the regulated universe.
In this regard, the -Committee recognizes that both Secretaries have already gone to considerable lengths to reduce unnecessarypaewr and plan administration costs, and the Commiittee encourages the Secretaries to continue those efforts, mindful of the cardinal prncpl that such endeavors must not result in a material lowering of ERISA's essential levels of protection. The changes made by sections 1112 and 114 of the bill are intended to effectuate this important goal.





14

limination of Summ ya Annual Report-Section( 11J
Section 113 of S. 209 abolishes the requirement that plans must annually furnish each participant with a summary of the plan's annual report. The Committee is of the view that the summary -annual report presently required by ERISA seciton 104(b) (3), as interpreted by Labor Department regulations,2 is of questionable value to the vast majority of participants and is a relatively costly item for plans to prepare and distribute. Relatively few employees can utilize the information shown on these records, and the Committee believes that there is a measure of validity to the comment that some participants are unnecessarily confused and alarmed due to misunderstandings of material contained in the summary annual report.
On the other hand, the Committee strongly believes that information respecting a plan's financial condition should be fully available to those participants or beneficiaries who seek it, and notes that, under other provisions of ERISA, each participant or beneficiary has a right to request from the plan administrator a complete copy of the plan's most recent annual financial report. A reasonable copying charge, based on the number of pages copied, may be made for the document, but section 113 of the bill provides that the total charge may in no event exceed $10. Also, of course, participants or beneficiaries may exercise their right as members of the public to request copies of current and former annual reports from the Labor Department files. Opinions of Actuaries and Accountants; Scope of Accountants
Opinion-Sections 115 and 116
Sections 115 and 116 of the bill clarify the respective responsibilities of accountants and actuaries who perform services for plans. To ensure that plan annual financial reports adhere to professional accounting standards, ERISA requires that each such report be accompanied by an opinion of an independent public accountant. For certain types of plans (e.g., defined benefit pension plans), the report must also include an actuarial statement prepared and certified to by an actuary enrolled by the Joint Board for the Enrollment of Actuaries.
Under present law, each of these professionals may rely on the correctness of any matter certified to by the other, but they are not required to do so. The Committee recognizes that the permissive reliance language was deliberate on the part of ERISA's draftsman, and was premlise(d oni the assumption that the tension thereby created betweeni the plan's actuary and the plan's accountant would result in a form of private sector self-policing. It is the view of the Committee, however, that in fact this statutorily created tension is on balance counterproductive ; that whatever value has resulted from the tension is substantially outweighed by the confusion, delay, and cost to plans th at have arisen due to what is perceived as "second guessing"' of one professionall s work by another.
The (ommittee is aware that there is at least a potential overlap, in some respects, 1)et Ween the two areas. of professional expertise an, fuilrtlher, that b)othll professions have been working together with the government to more clearly define their respective areas of ERISA expertise. Ilowever, whatever the eventual outcome of those efforts, the ('onlllittee believes that the statutory scope of each profession's
-29 CFiR Sec. 2520.104b-10, 44 F.R. 19400, Apr. 3, 1979.





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ERISA-related responsibility must be clarified now to put a stop to the confusion and cost resulting from disagreements between actuaries and accountants in preparation of plan annual linancial rel)orts. Th1w change made by section 115-requiring reliance )y the accountant on matters certified to by actuary, and vice versa-accomplishes this result.
If, during the course of further Congressional consideration of this legislation, the two professions reach an agreement respecting tleir roles in connection with ERISA plans that differs from the rule embodied in section 115, and if the agreement reached is consistent witl the goals of the amendment made by section 115, the 'Committee stands ready to consider such a substitution.
Section 116 addresses a similar problem involving the plan accountant's auditing of plan assets held by Federally or state regulated banks and insurers. ERISA presently states that the plan's accountant niay rely on the correctness of statements which have been prepared and certified as to accuracy by the bank or insurer, but need not do so. Hence, some plan accountants have insisted on auditing all of the assets held in a pooled trust or account.
Again, the Committee believes that whatever marginal degree of protection for the plan and its participants and beneficiaries may be theoretically achieved by these audits is far outweighed by the costs involved. Accordingly, section 116 requires the plan accountant to rely on certified statements furnished by the bank or insurer. Alternative Docament Distribution Method for Multiernployci.
Plans-Sections 117 and 153(7)
Section 117 of S. 209 provides an alternative method of distribution for documents and notices, which, under the provisions of ERISA, the Internal Revenue Code, or other applicable law, must be furnished directly to plan participants. In the case of a multiemployer plan. direct furnishing by the plan requires that the plan compile and maintain an up-to-date list of the home addresses of participants. For many multiemployer plans this task has proven to be expensive and, in some cases, simply impossible. During hearings on S. 209, a witness 3 representing a very large multiemployer plan stated:
When it first became apparent that the Labor Department
would require delivery through the mails, the administrative offices of the WCT Plan began efforts to accumulate home address records for its approximately 600,000 participants.
These efforts were undertaken at an estimated initial cost of $2.5 million. A number of approaches to gathering this information have been taken. For example, an address information card, which participants have been asked to complete and return, has been inserted in the summary plan description and summary annual report which have been distributed to participants. We have asked that notices soliciting home address information be placed in union periodicals. To date, these and other efforts have generated only a 50 percent rate of response.
We believe it is likely that a very substantial portion of participants will never respond at all.
a Theodore R. Groom, co-counsel for the Western Conference of Teamsters Pension Trust Fund, 1979 Hearing8, supra.





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The problems of establishing initial home address records
have been substantial and quite discouraging. However, the difficulty and expense of maintaining current address information is even more staggering. Some of the reasons are as
follows:
If only one of every five plan participants moves each
year, more than 100,000 home addresses will need to be
updated annually.
Scores of thousands of persons join or leave the plan
each year so that, as a practical matter, the number of persons for whom home address records must be maintained is far in excess of 600,000 and will continually
increase.
A substantial segment of the WCT Plan population is
employed in the food processing industry where multiple address changes in a year are common, and many persons may not actually have a "home address". In fact, we believe that the Plan has correct addresses for less than 40
percent of this large group of participants.
In view of these and other problems, the annual maintenance cost of the "home address" file is estimated at $1 million.
The ability of the WCT Plan to comply with the current
distribution-by-mail requirements is really only one aspect of the problem. Assuming that the Plan could maintain current home address records for all participants, the cost of postage alone for mailing summary plan descriptions could easily approach several hundred thousand dollars. The annual cost of mailing summary annual reports could involve another $100,000 yearly expenditure, excluding the costs of envelopes and handling. The imposition of such substantial costs (which, no doubt, will steadily increase) seems inconsistent with the purpose of ERISA-more and more of each $1 in contributions must be used to pay costs of administration instead of
paying benefits to participants and beneficiaries.
Admittedly, the magnitude of the figures presented by the Western Conference Plan, the largest of all multiemployer plans, is not representative in an absolute sense for all such plans. In proportionate terms, however, the figures may serve as a reliable benchmark.
Accordingly, new section 112 of ERISA provides that, if certain strict procedures are followed and safeguards are observed, a multieml')loyer plan may provide for the distribution of documents by the employers who contribute to the plan. If the alternative is adopted, and if the plan furnishes the documents to each employer in timely faiion and with proper instructions, each employer would become legally responsible for furnishing the documents, by hand delivery or nmail, to his employees who are participants in the plan. To assure th at contrilbting ( eq1plovyers are not forced against their will to undertake this res)onsil i lit,- the alternative can be use(l only where the ilan's board of trustees (which, under section 302(c) (5) of the LaborManagelmnt Relations Act, 1947, must be equally representative of labor and management) authorizes adoption of the alternative by a ii11ufanitiomis vote.





17

Moreover, the alternative may not be effectuated unless the adiniistrator of the plan makes an initial finding that use of the alternative will be less costly to the plan than direct distribution and will result in distribution which is at least as comprehensive as would result through direct distribution. Further, the plan administrator must periodica lIly assess the efficacy of the alternative, and use of the alternative miay not be continued unless, after each such assessment, the administrator makes the same findings regarding cost and comprehensiveness of distribution. If, for example, an administrator were to become aware of facts indicating that some participants were not receiving the documents under the alternative method, these facts would have to be taken into account in the administrator's next periodic assessment. Similarly, the alternative may not be continued unless it is periodically reauthorized by unanimous vote of the trustees.
As regards cost, the Committee contemplates that many employers will agree to furnish the documents at no charge to the plan. However, the plan is not to be precluded from reimbursing employers for actual costs incurred in furnishing documents, if such costs are reasonable and if, despite such reimbursement, ttme administrator nevertheless can make the cost-savings finding described above.
As regards the application of ERISA's fiduciary responsibility provisions to the parties involved in a plan's adoption and implementation of the alternative method of document distribution, the trustees and plan administrator are of course fiduciaries and their conduct in connection with the authorizations and determinations described al)ove would have to satisfy the standards of section 404 and other provisions of part 4 of title I. So, for example, the trustees' actions under the requirements of new section 117 (e) would be tested against the standards of part 4, as would the action of the plan administrator and trustees under subsections (a) and (b) of that new section.
As is indicated by the language of subsection (d) of new section 112, the Committee is of the view that an employer required to distribute documents under the alternative shall be deemed to be a plan administrator solely for purposes of those provisions of law which relate specifically to the obligation to furnish plan documents under ERISA or other applicable law and for enforcement purposes related to that obligation, and shall not be deemed a fiduciary merely because the furnishing obligation has been imposed pursuant to the plant's adoption of the alternative method.
Thus, for example, if the plan administrator were to furnish a contributing employer with copies of the summary plan description for distribution to that employer's employees who were plan participants and the documents were subsequently found to be inaccurate or otherwise substantively insufficient, the employer would not be liable.
Moreover, if the employer were named as a defendant in a suit by a participant or the Secretary alleging only the substantive insufficiency of the summary plan description, the employer's motion to dismiss himself as a party-defendant would be appropriately granted by the court. This is because the complaint in such a case would not relate to the obligation to furnish the documents, but rather to their content.





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The Committee contemplates that the "necessary services" statutory exemption (section 408(b) (2) of ERISA and section 4975(d) (2) of the Internal Revenue Code) from the party in interest prohibited transactions (section 406(a) (1) (A)-(D) of ERISA and section 497(c) (1) (A)-(4) of the Code) would be applicable to reasonable arran geme nts by which plans reimburse employers for actual and reasonable costs of document distribution and further, that the Secretary of Labor will expeditiously grant an appropriately structured administrative class exemption, with such conditions as the Secretary deems necessary under section 408 (a), for reimbursement situations involving employers who are plan fiduciaries.
New ERISA section 502 (m), added by bill section 153(7), amends ERISA's enforcement provisions to conform to new ERISA section 112. New subsection (m) assumes that there will be situations in which a plan has used the alternative method but that a plaintiff participant who has not received a plan document nevertheless sues the plan officials because, e.g., the participant does not know that the alternative has been used and assumes that the plan officials are responsible. The first sentence contemplates that where the alternative method has been properly authorized and implemented as far as the plan is concerned, and the only allegations made -by the plaintiff involve a failure of timely receipt, the plan officials should not be liable. However, the Committee is of the view that in such situations, the court, before dismissing the action as to the plan and its officials, shall satisfy itself that the requirements of section 112 (a), (b), and (e) have been satisfied by those parties.
The second sentence assumes that in the situation described above, the plan officials, or perhaps the plaintiff, would move to join the responsible employer as the person responsible for the distribution failure, and contemplates that such a motion would be granted expeditiously under applicable rules of Federal civil procedure.

AMENI)IENTS TO PARTS 2 AND 3 OF TITLE I OF ERISA
Sections 121-129 and 131 of S. 209 contain amendments to provisions of parts 2 and 3 of ERISA's title I. With the exception of sections 126-129, these provisions of the bill deal largely with ERISA problems which are unique to, or exacerbated under, collectively bargained multieniployer plans. It is the view of the Committeee that some of the dificidhties which miultiemployer plans have encountered in attempting to comply with ERISA can and should be overcome by statutory adjust ients. Just as the provisions of S. 209's sections 111-118, which are generally applicable to all plans, are expected to be most helpful reswecting plans of small employers, so the Committee expects that most o f the ERISA part 2 and 3 amendments will 'be of greatest value respecting multiemployer plans.
Ieipocit A rrnf/ement-8cct ion 121
Bill section 121 entirely amends ERISA section 209 (the present su)stance of which has been incorporated in section 105 of the Act by section 111 of the bill) to encourage collectively bargained plans, par-





19

ticularly inultiemployer plans, to establish and maintain reciprocity arrangements which protect an employee's vest ing and benefit accrualI despite shifts from the employment covered by one plan to employment covered by another.
Every multiemployer plan offers built-in, intralplan portability. a feature which is of great value to employees. But this intraplan po*rtability applies only as regards work that is performed for an employer who, under applicable collective bargaining a agreements, is required to contribute to the plan. Reciprocity arrangements provide, in effect, a further measure of portability to plan participants, protecting workers from the loss of pension credits when a shortage of jobs in one geographic area forces them to seek work in a different area.
One particular type of reciprocal arranged ent, commonly referred to as "money- follow s-the-m an", involves a transfer of contributions on the employee's work when hie or she is employed outside the jurisdliction of the "home plan." On receipt of the transferred contributions, the home plan credits the employee with that service, even through it was outside its own covered employment. Plan trustees and counsel have in some cases been reluctant, to establish new reciprocity arrangements of this type or expand existing ones because of uncertainties about certain FJRJSA provisions.
it is the view of the Committee that voluntary reciprocity arrangements should be, facilitated because of their obvious value to employees. In some industries and in some geographic areas, there is little assur'ance that a particular employee will always be able to find work in a location that is within the geographic area covered by the plan and there is a, corresponding likelihood that work under a different plan will be available in a location which is outside that geographic area. In such situations, reciprocity arrangements make a great deal of sense from the standpoint of employees, employers and unions alike and, in terms of S. 209's goal of enhancing the retirement income potentials of the priv-ate sector, are extremely important from the standpoint of national interest and policy.
Concern has been expressed by the Treasury Department that, in extreme situations, section 121 of the bill could undermine the principles which underlie the ERISA and tax code rules relating to the funding of plans and mergers and consolidations of plans. However. no case involving this potential cause, either pre- or post-ERISA. has been brought to the, attention of the Committee, and new ERISA section 209 gives the Secretary full power, by regulation, to impose additional conditions to protect pension and welfare benefits of employees working under these arrangements.
Section 144 of the bill complements section 121 by adding a new, statutory exemption f romn the prLohibited transaction rules for transfers of contributions between plans. The exemption permits the payment, of reasonable charges by the transferee plan for administrative expenses reasonably incurred by the transferor plan.
Certain plans, such as plans which are maintained by universities connection with the Teachers Insurance and Annuity AssociationCollege Retirement Equities Fund and which are f unded by fully portable annuity contracts without cash surrender values, althoug h collectively bargained in some cases, are not included under new section 209. The TIAA-CREF arrangement. for example. offers full




20

portability on a national basis, and application of section 209 would involve redundancy and confusion.
Although section 121 is limited by its terms to collectively bargained plans in which contributions are made on behalf of employees pursuant to applicable bargaining agreements, the Committee has become aware that proposed regulations 4 promulgated by the Internal Revenue Service under sections 401(a) (12) and 414(1) of the Internal Revenue Code face affiliated companies which have long-established beneficial reciprocity and portability arrangements for their employees with a Hobson's Choice. Under these proposed regulations, such companies, if they wish to continue a decades-long practice of transferring assets and liabilities attributable to pension rights of employees moving, from company to company, will have to comply with expensive and burdensome rules requiring actuarial calculations, recordkeeping, disclosure and reporting. Or, these requirements can be avoided, but only by ending the practice of transferring assets and liabilities, "freezing", an employee's accrued benefit at the time of his or her move from one company to another, and paying multiple, separate pensions upon retirement. This course of action would mean confusion for employees, receipt of multiple benefit status reports, multiple modifications in summary plan descriptions, multiple notifications from the Social Security Administration at retirement time, multiple tax filing requirements, etc.
The Committee understands that despite the fact that there has been no known instance of abuse in over 40 years during which a reciprocity and portability arrangement has been in effect respecting one group of affiliated companies, the Internal Revenue Service has indicated a reluctance to provide a modification of its proposed regulations for this or similar arrangements which will permit the continued transfer of assets and liabilities without imposition of all of the burdensome requirements previously noted.
Because the Committee's focus on reciprocity in connection with S. 209 has been confined to situations that arise, most typically, in mnultiemployer plans and because the Internal Revenue Service's regulations have not been finalized as of the date the Committee met to mark up the bill, no amendment to ameliorate, the disruptive effect of Code sections 401(a) (12) and 414(1) (analogous to ERISA section 208) has been considered by the Commnittee. If, however, the final regulations of the IRS regarding these Code sections do not satisfactorily resolve the dilemma created by the proposal, the Committee stands ready to consider such an amendment at the earliest appropriate t111e.
JlIarit~ime IndJlstry Plans Techni(al Correction-Sectionl 122
The technical correction made by bill section 122 clarifies the application of ElHISA's accrual rules in maritime industry plans, and codiies existing Labor I Department regulations. The amendment makes it (lear t hat if a mlaritime industry plan provides the maximum accrual for, e.g. 200 days of service in year, the participant who completes 125 12 I. t :8: 70,. July 1, 1977.





21

of accrual for maritime industry plans to the treatment specified for plans in general and corrects a drafting error in ERISA. Measuring Participation on a Plan-Year Iasis-AS'ecloi 12."
Under present law, a plan may use its bookkeeping year ("plani year") for measuring employees' service for all purposes (e.g. vesting. accrual) except for the purpose of measuring whether an eitiployee has completed a sufficient length of covered service to be eligible to participate in the plan. For participation purposes, the plan in most cases must measure from the date on which the employee commenced service under the plan. The use of the employment commencement date is supported by the rationale that since under ERISA eligibility to participate must generally precede entitlement to all other rights under the Act, measurement of service for that purpose should conmmence at the earliest possible time, a rationale with which the (olimittee does not find fault.
However, the statutory mandate that the date employment commenced must be used for participation purposes creates complication (and consequent costs) in plan recordkeeping because records for all other purposes may be-and usually are-kept on a plan year basis.
To deal in an equitable fashion with this disparity, section 123 of S. 209 permits a plan to measure service for participation purposes on a plan-year basis, commencing with the first plan year during which the employee is engaged in covered employment. However, in order to insure that use of the plan year for this purpose does not delay the commencement of benefit accrual, section 123 permits such use only if the plan does not impose a waiting period for vesting or benefit accrual purposes. Thus, a plan which chooses to use the planyear basis for calculating eligibility to participate must, under the bill's amendment to ERISA section 202 (a) (3) (A), provide that an employee receives credit for vesting and accrual purposes based on all covered service beginning with service during the plan year in which the employee first entered covered service following the employer's participation in the plan.
For example, a 25-year old employee whose service began on April 1, 1979 must, under present law, be permitted to begin participation (and benefit accrual) in a plan which uses a calendar year as its plan year sometime during 1980 if he or she had completed 1000 hours of service by April 1980. If 1000 hours of service are not completed during the period April 1, 1979 to April 1, 1980, but are completed during the 1980 plan year, participation and benefit accrual must commence not later than January 1, 1981. Thus, in order to determine the required date for participation, a calendar-year plan must compute hours of service during the 12-month period April 1, 1979 to April 1, 1980 in addition to computing hours of service during the 1979 plan year and the 1980 plan-calendar year.
Under the change made by section 123 of S. 209,, participation for the same employee under the same plan would not have to begin until January 1, 1981 (assuming the employee did not complete 1000 hours
5 Conference Report to Accompany H.R. 2. H.R. Rep. No. 93-1280. 93d Congress. 2d session. pp. 263. 269 (1974). reprinted in Subcommittee on Labor. Senate Committee on Labor and Public Welfare. 94th Congress. 2d session, Legislative History of the Employee Retirement Income Security Act of 1974. at 4530, 4536 (1976) [Hereinafter ERISA Legislative History].





22

of service prior to December 31, 1979, but did complete at least 1000 hours of service during the 1980 plan year) and irrespective of whether the employee completed 1000 hours of service during the period April 1, 1979 to April 1, 1980 (of course, if the employee completed 1000 hours of service during the period April 1, 1979 to December 31, 1979, participation would have to commence on January 1, 1980). In any event, as of the date participation commences, the participant would be entitled to vesting and benefit accrual credit measured on the basis of hours of service completed by the employee in each plan year during which the employee worked in covered service (i.e., 1979 and all subsequent plan years). Thus, if the employee did not complete 1000 hours of service during the 1980 plan year, participation would not be required until the employee did complete 1000 hours of service in a. plan year, but vesting and benefit accrual credit would still be granted retroactively on the basis of all service completed during 1979 and all subsequent plan years.
Sum nation of Different Benefit Accrual Rates-Section 124
Bill section 124 amends ERISA section 210 to clarify the manner in which the generally applicable accrual rules (ERISA section 204(b)
(1)) are applied to multiemployer plans. Two distinct types of problems are addressed.
The first relates to a "multilevel" multiemployer plan. Many of the largest multicmployer plans are multilevel plans, in which employees in each of two or more different collective bargaining units participate in the plan under a benefit accrual formula based on the level of employer contributions negotiated in the bargaining agreement for each particular bargaining unit. For example, the agreement negotiated for one init of employees (Unit A) may call for employer contributions of $0.2, per hour worked and provide that a paiticipant in Unit A will be entitled to a pension commencing at normal retirement age of $10 per month for each year of service. Another bargaining unit (Unit B) participating in the same plan may negotiate an employer contribution rate of $0.50 per hour and the benefit for ,covered employees of that unit at normal retirement age will be $20 per month per year of service. Under present law, it is unclear how the benefit accrual requirements of section 204 (b) apply to a multilevel plan of the type described above, particularly in cases where an employee transfers between units.
It is the Committee's view that the correct approach to be taken in cases of this type is to separately compute, the benefit accrual for the eilmlovee's )erio(l of service in 1nit A and for his period of service in Unit B. The sum of these different rates of benefit accrual as defined by employment ill different bargaining units should then be combined to compute the minimum benefit required under section 204(b) for a vested participant.. In cases where section 204(b) (1) requires a projection of the normal retirement benefit to which an employee would be (nt itled at his normal retirement age (subparagraphs (A) and (C)), thle )rojection should be made on the basis of the average of the rates appi cable to the employee in each of the units in which he has worked, weighted to reflect the number of years in each unit during which he was covered.
'The -ibove method as applied to a multilevel plan under bill section 124 is illustrated by the following exalplee: In a multilevel, multi-





23

employer plan, the normal retirement benefit, for Unit A members is a pension for life beginning at normal retirement age of $10 per month for each year of service. The normal retirement benefit for Unlit B1 employees is a pension for a life of $20 per months f or each Yea r of Ise rx-ice. After accumulating five years of benefit accrual c-redlit inl Unit A, an employee transfers to Unit B and thereafter accrues an additional five years of credit. At this point,~ his five years of service in Ujnit A gives rise to a normal retirement benefit of $150 per month and his five years of service in Unit B gives rise to a normal retirement benefit of $100 per month. His total accrual toward the normal retirement benefit is $150 and the weighted average of the benefit accrual rates attributable to his ten years of service is $15 per month for each year of serivce. A benefit accrual rate of $15 per month should therefore, be used in projecting the normal retirement benefit of this employee, for purposes of the three percent formula of section 204 (b) (1) (A) and the fractional formula. of sect ion 204 (b) (1) (C). If the employee re turns to employment in group A for an additional five years of service, the employee's total accrual toward a normal retirement benefit after the additional five years would be $200 and the weighted average of the different benefit accrual rates applicable to his 15 years of service would be $13.33 per month per year of service. Accordingly, at this point, an accrual rate of $13.33 per month per year would be used to make the projection required under the subparaLraph (A) and (C) formulas.
The second problem to which bill section 124 is addressed arises in cases where, generally as a result of a collectively bargained increase in the rate of employer contributions to a multiemiployer plan, the benefit accrual rate is increased for all service after a future fixed calendar date. For example, suppose the employers which contribute to a multiemployer plan agree to increase the contribution rate from $0.25 per hour to $0.50 per hour as of January 1, 1980. The credit earned toward a normal retirement benefit for service under the plani is correspondingly increased from $10 per year of service to a $20 per year of service for service after January 1, 1980. Under the amendment to section 210 (a), cases of this type would be treated in the same manner as though all of the workers covered under the plan transferred on January 1, 1980 from a bargaining unit with a $10 per month per year of service formula to a bargaining unit with a $20 per month per year of service formula.
Sw9pension of Benefits Due to Reemployment-Section -125
Section 203 (a) (3) (B) of ERISA permits pension plans to temporarily suspend benefit payments, in certain cases, for periods during which a retiree is reemployed. As respects multiemployer plans, the exception presently in the law applies only when three distinct criteria are satisfied. The reemployment must be (1) in the same industry, (2) in the same trade or craft, and (3) in the same geographic area covered by the plan when benefit payments commenced.
The purpose of the suspension rules is to remove incentives that would encourage and permit a form of "double dipping." Annuitants who, while continuing to draw benefits, return to work of a type which competes with employees of preretirement age who are participants in the same plan defeat the purposes of the pension plan and create





24

labor relations instabilities. However, where the work engaged in bears no relationship to the employment nexus which is covered by the plan, these side effects are non-existent or greatly minimized.
For multiemployer plans, the present three-pronged test does not conform to the intended policy because a former employee drawing pension benefits may return to work without triggering suspension if e.g., he is reemployed in the same industry and geographic area as that covered by the plan but in a different trade than the one he had practiced before retirement. Yet where the reemployed annuitant is engaged in work covered by the plan, both deleterious effects described above are present. The plan is paying retirement benefits to an individual who is not retired, and plan participants of pre-retirement age are denied work opportunities they would otherwise have.
Section 125 of the bill remedies this problem by permitting a multiemployer plan to suspend benefits if a retiree goes back to work which is in the same industry or trade (or craft) and the same geographic area as when benefits commenced. This change will permit multiemployer plans to protect themselves against destructive "double dipping," while not penalizing annuitants who are reemployed in work which has no relationship to work covered by the plan.
The Committee's amendment also codifies a portion of proposed Labor Department regulations stating that, in the context of a multiemployer plan, the term "employed" includes self-employment. In some industries, self-employed persons and employees compete for work in the same industry, trade or craft, and geographic area. A retiree who returns to work as a self-employed person should have no greater claim to receive pension benefits than a retiree who returns to work as an employee. In the case of a multiemployer plan, suspension of benefits properly is based upon the type of post-retirement work engaged in, not on whether a participant's post-retirement earnings are derived from employment or self-employment.
A third change in the suspension rules under section 125 relates to the period of suspension. The change is intended to avoid the conversion of pensions into a form of supplementary unemployment comp)ensation. Some plans cover employment that is sporadic or irregular. In such situations an employee who has attained normal retirement age may draw pension benefits for the months when he is not working (either because work is not available or because he chooses not to work), but he may be employed during the rest of the year, either at the same job, or another job covered by the plan, or in the same craft or industry, and area covered by the plan. In such instances, the employee may not, in any real sense, be retired.
If the pension may be suspended only for the months of employIIInIt, mIIIlt Iiployer p lans will be obligated to pay benefits for particular months to an employee who has attained normal retirement age and is eligible for a pension, notwithstanding his work during other months in ml)loyment of a type and in an area covered by the han \\ here employment is characteristically irregular, this may re(filP a P1 lan to divert resources to non-retired participants who are teimporarily unemployed at the expense of fuller benefits for those who have sub)stantially retired from the type of employment covered by t he plan. The (omuittee is of the view that a plan should be permnitted to deal with this problem by a suspension period which is





25

longer than the months of employment, pursuant to regulations of the Secretary of Labor, as provided by bill section 12 -0(3).
A fourth change in the suspension of ,benefit rules applicable to multiemployer plans is necessary because such plans find it (ifictilt to enforce their rules concerning suspension of benefits. A nmltiernplover plan is a distinct entity from the employers maintaining the plan andl does not necessarily have access to tie employment records of participating employees sufficient to detect forbidden reemn1ploymi en t. Moreover, the reemployment may be with 'an employer who does not contribute to the plan and with whom the, plan has no connection. In order to provide a basis for securing compliance, with their suspension rules, multiemployer plans generally provide that a retired worker must notify the plan if he returns to work after retirement in the same industry, trade or craft, and geographic area. The purpose of this rule is to protect the job opportunities of active workers and preserve the assets of the pension fund for the benefit of persons who tire truly retired and therefore have the greatest need for retirement income.
Although the.Committee believes most retirees are conscientious in complying with plan rules of this type, a few may attempt to obtain a personal financial. advantage at the expense of the plan by deliberately not reporting their reemployment. In order to insure that these few do not obtain a financial benefit at the expense of the majority who abide by the rules, plans should be permitted to impose reasonable sanctions on those who flout plan reporting rules.
In connection with the enforcement of these plan reporting rules, the Committee expects that the Secretary's regulations will provide that plans may impose a penalty in an amount not exceeding one year's benefit where a plan obtains evidence that a "retiree" engaged in employment in the same industry or trade or craft, and geographical ar'ea covered under the plan and failed to report it to the plan within a reasonable time. It should not be necessary for the plan to establish the exact number of hours of proscribed employment, but the penalty must bear a reasonable relationship to the gravity of the violation of the plan's rules.
More generally, the Secretary's regulations must assure fairness for both plans and their participants and retirees. Plan rules on suspension under these regulations must embody basic elements of due process. At the same time, the regulations must provide -sufficient flexibility and latitude so that plans can protect their integrity and the retirement income interests of their participants and retirees. Reductions in Retirement or Disability Benefits-Section -126
Section 126 of the bill deals with two distinct matters. The first of these is the relat' 9nship between disability payments under ERISA plans and disability payments under Social Security. Under present law it is clear that retirement or disability benefits (oir vested rights in such benefits) under a pension plan may not be decreased by reason of an increase in retirement or disability benefit levels or in thme wage base under title II of the Social Security Act or by reason of an increase in benefit levels under the Railroad Retirement Act. This rule embodies the Congressional policy that beneficiaries should not -be deprived of, e.g., cost of living increases under Social Security, by a





26

consequent reduction in benefits to which the individual is entitled under a private plan. The present statutory prohibition against reductions (section 206(b)), however, is limited to pension plans. Yet in some cases, private sector disability protection is furnished not as a component of a pension plan but' through a separate arrangement which falls within the title I definition of "welfare plan."
The Committee is of the view that there is no rational basis for a distinction in treatment based upon the happenstance of plan design, and section 126 clarifies the applicability of the prohibition against decreases whether the disability benefits are provided as a componeht of a pension plan or separately as a welfare plan or part of such a plan.
The other portion of section 126 involves the relationship between benefits under an ERISA plan and worker's compensation. As is evidenced by recent decisions in the Federal courts," there is some uncertainty as to whether it is permissible for an ERISA pension plan to reduce or suspend benefits respecting persons who are receiving worker's compensation payments.
The Committee is of the view that a retirement pension is different than a worker's compensation award. The former represents a component of a worker's earnings which has been deferred. It has been earned by a period of service for an employer which is at least long enough to satisfy the plan's vesting standards. Generally speaking, whether or not a pension will be paid to an individual is a matter that, if not wholly within the individual's control, can at least be the subject of planning and influence of the individual.
Workers' compensation, by contrast, is paid when an employee is injured or becomes ill in the course of or as a result of his or her employment and is disabled. Workers' compensation payments are not "earned" in the sense pensions are earned, but rather are paid in accordance with state law as compensation for a disability sustained in the course of employment.
Without expressing a general view on the desirability of offsetting the cost of one form of benefit by reducing payments under another form of the same type of benefit, the Committee believes that offsetting the cost of workers' compensation payments by reducing a different type of benefit-retirement pensions-is unsound as a matter of public policy and counterproductive as a matter of labor relations. It is also an aberration from ERISA's vesting policy which is not sup ported by any countervailing public policy.
Section 126(a) (3) of the bill, accordingly, would make explicit in ERISA a principle that some courts have already found to be implied in ERISA's vesting rules by clearly stating that the reduction of Vetoed retirement pension benefits due to workers' compensation payments is prohibited.
'his provision is not intended to prohibit an ERISA welfare disahility plan from reducing the benefits otherwise payable to a disabled participant by an amount not in excess of workers' compensation payments made to the pamticipant by the employer maintaining the welfare plan. Nor is it intended to prohibit an ERISA pension plan which
See, v-9., Buezynski v. General Motors, 456 P. Supp. 867 D.N.J. 1978) ; Utility Workers I nion v. ColNsumers Power Co., 453 F. Supp. 447 (E.D. Mich. 1978) ; contra Pavlovic v. Chrysler Corp., (E.I). Mich., Jan. 10, 1978) : Bordine v. Evans Products Co., 453 F. Supp. 19 (E'.D. Mich. 1978) ; Carlson v. Bundy, (E.D. Mich., Aug. 18, 1977).





27

provides disability benefits from providing for a reduction in plan benefits otherwise payable to a disabled retiree by an amount not exceeding the workers' compensation payments made by the employer maintaining the plan (or made by an insurer on behalf of the emnployer), but only to the extent that the value of plan disability payments exceeds the value of the participant's accrued, vested retirement pension.
The, extent to which pension plan disability payments exceed the value of a participant's accrued, vested -retirement pension will be dependent on the terms of the plan. For example, a pension plan provides for the commencement of disability benefit payments six months after the date on which a participant is permanently disabled, and provides that a non-vested participant is deemed vested at that time. The plan also provides that, commencing at the time when the disabled participant reaches the plan's normal retirement age, the disability pension converts to a retirement pension based upon actual accrued benefits. At the normal retirement age, the disabled employee, is also receiving workers' compensation. Under the clarification made by section 126 (a.) (3) of the bill, the plan could not reduce its payments to the disabled retiree because such payments do not exceed his vested accrued benefits.
However, if in the above example the plan provides that the disability pension continues to be paid even after the. disabled participant reaches the plan's normal retirement age, or provides that the disability pension converts to a retirement pension based on accruals that would have been credited if the participant, had not been disabled, the plan's payments to the disabled retiree who is receiving workers' compensation after normal retirement age may be. reduced to the extent that they exceed the amount to which the retiree would be entitled based on accual accruals.
Of course, there may be no reduction in pension plan payments based on workers' compensation received before the disabled participant reaches the plans normal retirement age. Also, the amendment is not intended to disturb existing rules regarding integration between private plans and Social Security benefits. Finally, the amendment applies to all cases in which workers" compensation (including, e.g., benefits paid under the Black Lung Benefits Act of 1972) is paid, inclu ding cases where liability is conceded or undisputed. Suvviv~or Protect ion Sectioan 127
Section 127 of the bill makes two major changes in ERISA's "joint and survivor" rules. First, section 127 provides clearly that a pension plan (as defined in section ;3(2) of ERISA) inay provide for one or more annuity forms of benefit as options. One such option would have to be the qualified joint and1 survivor annuity described in section 127. However, under the amendment, plans would not h)e faced with the choice, presently imposed by Internal Revenue Service rules, of either providing the joint and survivor annuity as the normal form of benefit or having no annuity form of benefit whatsoever.
Second, all pension plans would have to provide a benefit for the surviving spouse of a participant who dies at any time after achieving 10 years of vesting service. 17ndler -the amendment, the amount of tihe survivor's benefit and the terms of its payment wvill dlepend on the terms of the plan.

53-018 0 79 3





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In a plan which provides an annuity as the normal form of benefit, the surviving spouse of a participant who d(lies after attaining 10 years of vesting service will receive a benefit unless an election to the contrary has been made and not subsequently revoked by the participant prior to death. The benefit will be in the form of an annuity. The value of the annuity will be based upon accruals to the date of the participant's death, adjusted to take account of the joint characteristic of the annuity. Payments of the annuity to the spouse will begin on the annuity starting date, which is determined as of the date of the participant's death if death occurs after the date on which the participant attains the earliest retirement age under the plan, or as of the date that the participant would have attained the earliest retirement age under the plan if death occurs before that date.
Where the actuarial equivalent of the surviving spouse's annuity does not exceed $2,000 on the date of the participant's death, the plan may distribute the benefit in the form of a lump sum or in installinents, with payout taking place (or in the case of installments, beginning) not later than the annuity starting date described above.
In a plan which provides a normal form of benefit other than an annuity, the surviving spouse of a participant who dies after achieving 10 years of vesting service and before receiving nonforfeitable benefits will also receive a benefit from the plan. The benefit will be in luimp sum or installment payment form, in an amount equal to the value of the participant's benefit at the time of death, with payment taking place (or beginning) not later than 60 days after the end of the plan year during which the participant died. A different payment (or payment conmencement) time and a different method of distribution, agreed to in writing by the plan and the surviving spouse, will also be acceptable under the amendment.
The provisions described above reflect several policy judgments of the Committee. First, the Committee is of the view that death of a married participant after a substantial term of covered service should not defeat the right to vested benefits. As noted above, the Committee views pension benefits as a form of deferred compensation, and the amendment made by section 127, without disturbing the 1974 Congressional judgment that the right to receipt of deferred income may be conditioned upon completion of a period of relatively continuous service, more fully perfects the concept of nonforfeitability that is so central to ERISA's underlying purposes.
Second, the amendment reflects the Conmmnittee's view that plans which are designed to provide retirement income, e.g., plans offering an annuity as the normal form of benefit-most typically, defined Benefit plans, and which are described to employees as retirement income vehicles, ought to provide retirement income to surviving spouses except in cases where the value of the spouse's benefit is de minimis. Accordingly, the amendment provides that in such plans the surviving spouse's benefit shall be an annuity commencing at the time when the annuity would have begun' if the participant had lived until attaining the earliest retirement age under the plan (or, if death occurs after the attainment of such age, at the time of actual death). This type of plan covers the majority of employees covered under private sector pension plans. Under such plans, employees' expectations for retirement income are greatest, most readily ascertainable, and most. consonant with sound retirement planning.





29
On the other hand, for those plans which provide for a itormai form of benefit other than all annuity-most typically, (lefined contribution plans providing a lump sum as the normal form, the Committee is of the view that the enhanced survivor's right is approximatelv fillfilled by a full payout (or payout commencing) at the athial tille of the participant's death, even if that event occurs well before tie plall's earliest retirement age. Further, without expressing a normative jil(lment about the relative merits of one foriii of benefits as coiipared to another, the Committee is of the view that plan sponlsors who wvisl to pIrovide, e.g., a lump sum as the normal form of benefit 1)Ilt who also wish to offer an annuity as an optional form ought to be allowed to do so. Accordingly, the amendment expressly reverses .I.teral Revenue Service rules to the contrary.
Under the amendment, for plans providing an annuity as the normal form of benefit, the joint and survivor form of annuity is the form in which benefits will be paid unless an election to the contrary is made by the participant. In the absence of affirmative action by the participant, vested benefits will be paid to a surviving spouse where the participant's death occurs after completion of 10 years of vesting service and before the plan's earliest retirement age and, in those cases in which a participant survives until actual retirement, a joint and survivor annuity will be paid.
Because there will 'be situations in which a joint and survivor annuity is not the most advantageous form of benefit from the participant's standpoint, the amendment requires that participants in such plans be given the right to elect another available form of benefit. But no such election should be irrevocable prior to death or retirement because the participant's situation may change over the span of years between the point of achieving 10 years of vesting service and the point of death or retirement. Important choices such as these must be made with full knowledge of their consequences. Therefore, subsection (e) of the amendment requires that such plans must provide an appropriate and timely notice fully explaining the terms and conditions of the joint and survivor annuity and the rights, effects and procedures pertaining to elections, revocations and reelections. If the summary plan description of the plan is sufficiently comprehensive on the subject of the joint and survivor annuity and if the notice itself highlights its own importance. the notice need be furnished only once.
To minimize the costs of plan amendments conforming to the changes mandated by section 127, the Secretary of the Treasury is directed to develop versions of model language which tax-qualified plans can adopt. The amendment made by section 127 will be effective as to active participants and terminated service, vested participants during plan years beginning on or after one year from the date the bill is enacted. Alinony and Support Payments-Section 128
Section 206(d) of ERISA generally prohibits the alienation or assignment of pension plan benefits. The prohibition embodies the policy judgment that benefits intended to be used as retirement income ought to be preserved for that purpose and, more particularly, that in the absence of the prohibition benefits intended for retirement income could easily be diverted for other purposes.7
See Internal Revenue Code section 401(a) (13) and regulations thereunder, 26 C.F.R. See. 1.401(a)-13 (1978).





30

Recent litigation 8 has raised the issue of whether this prohibition was intended to permit a plan to refuse to honor a State court order directing the payment of all or part of a participant's benefit to a divorced spouse for alimony (or, in community property states, as a portion of the divorced spouse's marital property share) or child support. It is the view of the Committee that, generally, the prohibition was not intended and should not be interpreted to permit a plan to refuse to honor such an order, and sections 128 and 155(3) of the bill a re designed to clarify the law in this respect, both as to the scope of the prohibition and as to ERISA's preemption of state domestic relations law.
This amendment, in effect, replaces the implied exception to the prohibition which has been judicially approved in some cases with an explicit and carefully delineated statutory exception. Accordingly, section 128 requires that state court orders be specific enough so that the plan will know who and how much to pay but does not require a plan to distribute a benefit prior to the time stated in the plan or to pay in a different form or for a different duration than is called for by the terms of the plan. For example, if a plan were served with an order stating that part or all of a participant's benefit must be distributed to a divorced spouse prior to the time when a distribution to the participant would be permitted under the terms of the plan, the plan would not violate section 206 of ERISA, as amended by bill section 128, if it refused to make the distribution. In such a case, the order would not be in compliance with new section 206 (d) (3) and would be expressly preempted pursuant to ERISA section 514(b) (6), added by bill sect ion 155 (3). However, the ,mere fact that an order which complies with new section 206 (d) (3) is served on a plan prior to the time specified in the plan for distribution of benefits does not mean the order is preenipted. In this case, the plan would have to retain the order and would have to make the distribution in accordance with the order at the time stated in the plan.
Elapsed Time-Section 129
Prior to ERISA's enactment many plans measured service by the elapsed time method, which has the virtue of great simplicity from the standpoint of both plan recordkeeping and employee comprehension. ERISA's present rules explicitly authorize the counting-ofhours method of measuring service for purposes of the participation, vesting, and accrual rules. Generally, these ERISA minimum standar'ds re(luire that an employee be credited with a year of service for participation and vesting puiposes upon completion of 1000 hours of service during a measuring period of 12 continuous months with the employer v'ho maintains the plan (or, in the case of a multiemployer plan,' with an employer who is required to,contribute to the plan under appliical)le coll tle e l)argaling agreements)
During its development of the extensive regulations necessary to implement these rules, the Labor Department recognized the desirability of the elapsed time method of measuring service, under which it is not necessary to count hours. Instead, the entire period of time
E.g.. to v. Stoic, 450 F. Supp. 919 (N.D. Cal. 1978), appeal docketed, No. 78-2313
9 ith (ir. June 21, 1978) ; Franrs v. United Tech. Corp., 458 F. Supp. 84 (N.D. Cal.
1 7o.





31

which elapses while the employee is employed with the employer maintaining the plan (or with employers required to contribute to the plan) is taken into account, without regard to the actual number of hours completed during the period.
In the introduction to its temporary regulation, the Labor Department stated:(t) he alternative [elapsed time] method set forth in this
section is designed to enable a plan to lessen the administrative burdens associated with the maintenance of records of an employee's hours of service by permitting each employee to be credited with his or her total period 'of service with the employer or employers maintaining the plan, irrespective of the actual hours of service completed in any 12-consecutivemonth period.9
Section 129 is intended to provide a more secure statutory base for the elapsed time concept. The only concern that has been expressed about use of elapsed time systems is the theoretical possibility that a particular participant could have a pattern of service that would be treated less favorably under an elapsed time method than under the counting-of-hours method. The Committee recognizes this possibility; and recognizes also that the obverse is even more likely-that, on the whole, employees and participants are more likely to benefit from the type of elapsed time method authorized in the Labor Department's temporary regulations than to be disadvantaged by it, as compared to the counting-of-hours method. And, of course, the lower administrative costs associated with the elapsed time method will also inure to the benefit of the participants.
To be sure that any such system authorized by the Secretary of Labor pursuant to this amendment is in fact not disadvantageous to participants in the aggregate, the second sentence of section 129 has been included. It is the Committee's expectation that the Secretary will continuously review operations of plans which use an elapsed timie method authorized by the regulations, and will make any adjustments found to be necessary to assure compliance with this directive. Funding to Takce Account of Future Amendments-Section 131
Section 131 clarifies the maner in which the funding rules should be applied in the case of a collectively bargained plan which adopts an increase or decrease in benefit accrual to take place in some subsequent year. In general, the amendment provides that once the change in benefit accrual rates has been adopted and is no longer contingent upon some future event, it must be taken into account for p irpo Ises of applying the funding rules to the plan in the case of any plan year begining after December 31, 1980. Use of this same method would be permitted for plan years beginning before December 31, 1980.
In some cases the change described above will be helpful to plans in dealing with an actual or prospective funding deficiency. For example, a plan faced with a funding deficiency must generally either obtain increased contributions f rom employers or decrease future benefit accruals. If a multiemployer plan were f aced with an anticipated funding deficiency at a time when renegotiation of contribution rates
9 29 CER See. 2530.200b9





32

was not permitted under the collective bargaining agreement, it might be forced to decrease the benefit accrual rates applicable to active employees.
The Committee considers it preferable that a drastic change of this kind, if necessary, should not be implemented without notice to employees. The need for adequate notification may require that the change only become effective in a subsequent plan year. Moreover, a postponed effective date may allow sufficient time for contract expiration, negotiation of greater contributions, and cancellation of the planned reduction in benefits.
Under the amendment approved by the Committee, it will not be necessary for plans to accelerate unduly the effectiveness of a benefit decrease in order to have an impact on the application of the funding standard for the year the decrease is adopted. Under bill section 131, once the decrease in benefit accrual rates has been formally adopted, the plan would be entitled to adjust its funding account to reflect the change, even if the decrease does not become effective until a subsequent plan year.
Similarly, under the amendment, an increase in benefits would have to be reflected in the funding of the plan, even if the benefits are not actually increased until a year later.
It is not the Committee's intention to weaken funding standards by affording the device of repeatedly postponed reductions. In order to avoid that possibility, this section provides that if a reduction is not implemented, regulations are to provide for an appropriate adjustment to the plan's funding standard account.

AMENDMENTS TO PART 4 OF TITLE I OF ERISA
Irn-,ura n ce Company General A count A sse ts-Sectian 141
ERISA presently provides that to the extent a plan is funded through insurance, the assets of the plan shall be deemed to include the policy but not, solely by reason of the policy's issuance, the underlying assets of the insurer. This rule, similar to a rule that applies where a plan holds shares of a mutual fund, constitutes statutory recognition of the difficulties and complications that would arise if the plan's assets, merely by virtue of the issuance of a policy to the plan by the insurer, were deemed to include all of the insurer's assets.
The present ERISA rule, however, is not applicable unless two con(litions are imet. First, the policy must be a "guaranteed benefit policy," defined in ERISA section 401 (b) (2) (B) as "an insurance policy or contract to the extent that [it] provides for benefits the amount of which is guaranteed by the insurer." Second, by definition, a "guaranteed benefit policy" does not include any portion of an insurer's separate account other than surplus in that account. Taken together, these two conditions mean, generally, that "RI-A's special rule on plan assets appl)ies only to those types of policies or contracts which lit within the "guaranteed benefit policy" definition, and only where tihey are written on the insurer's general account.
EaIl y oil, the Labor Department recognized that a literal interprefation of ERISA sect ion 401(b) (2) would place both insurers and insured plans iii untenable positions. Tlie basic problem is that the definition of "guaranteed benefit policy" is unduly restrictive. The




t'l
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Department addressed this problem in Interpretive Bulletin 75-2 10 in which a general interpretation was applied specifically to insurance companies.
As a general proposition, the Department said that investment by a plan in securities of a corporation or partnership would not, for that reason alone, convert the underlying assets of the corporation or partnership into plan assets, thereby making a subsequent transaction between the corporation or partnership and a person who is a party in interest to the plan a prohibited transaction.
Applying this general interpretation to insurance companies, the Department said:
* if an insurance company issues a contract or policy
of insurance to a plan and places the consideration for such contract or policy in its general asset account, the assets in such account shall not be considered to be plan assets. Therefore, a subsequent transaction involving the general asset account between a party in interest and the insurance company will not, solely because the plan has been issued such a contract or policy of insurance, be a prohibited transaction.
The Committee basically agrees with the position in the Interpretive Bulletin, and is of the view that as far as insurance companies are concerned, the decision as to whether or not insurer assets should be treated as plan assets should turn primarily on the nature of the insurer's account in which the plan's premiums are held. An insurer's general account contains commingled assets of, typically, thousands or millions of policy holders. The manner in which these assets may be invested under state law is heavily regulated and generally restricted to relatively safe and conservative debt instrument investments emphasizing low-risk, long-term appreciation, and security of principal. Insurance company separate accounts, by contrast, are permitted under state law to invest heavily in equity securities.
To meet the needs of their plan sponsor customers, insurers, like other financial institutions offering investment management and administrative services to employee benefit plans, are constantly developing new products. A competitive and innovative environment for these institutions can be most beneficial. for the plans and their participants. Accordingly, it is the view of the Committee that expansion of the present ERISA section 401 (b) (2) rule from the "guaranteed benefit policy" terminology to any "policy or contract of insurance" is warranted and desir able.
Conceptually, the Committee approves of the approach taken by the Labor Department in Interpretive Bulletin 75-2. The language of section 141 of the bill codifies the Interpretive Bulletin, to the extent that document relates to insurers. Under section 141, the Committee expects that the Department will monitor the development of new insurance company products. Whether or not such a product falls within the language of ERISA section 401 (b) (2), as amended by bill section 141, is to be determined not by the application of any mechanistic test but rather on the basis of its value to plans and their participants under prevailing and projected economic conditions.
10 29 CPR See. 2509.





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Re fuid of Mistaken Contributions-Section 142
Soon after ERISA's enactment, it was recognized that ERISA section 403 (c) (2) (A), an exception to the general rule that plan assets may never inure to the benefit of any employer, was unworkable for many collectively bargained multiple employer plans (including multiemployer plans). As a general proposition, the Committee strongly approves the general rule (ERISA section 403(c) (1)) and endorses the intent of the several necessary exceptions (sections 403
(c) (2) and (3)). Section 402 (c) (2) (A), however, which permits the return of contributions made by an employer by a mistake of fact, but only if the contribution is returned within one year after it has been made, is too narrow for collectively bargained multiple employer plans.
First, a grace period of one year from the time a contribution is made is sometimes not a long enough time for the plan to learn that the contribution has been made, to determine that it has been made by a mistake of fact rather than for some other reason, and to complete the careful verification and paperwork involved in reaching the determination and in returning the contribution.
Second, the "mistake of fact" limitation is too narrow, especially given the existence of section 302 of the Labor-Management Relations Act, 1947 (LMAIRA). Under section 302, it is a criminal offense for an employer to make a contribution to a plan on behalf of, e.g., a person who is an independent contractor or supervisor within the meaning of the LMRA. It is also a criminal offense for a plan to accept such a contribution. Yet such contributions may be made not only due to a mistake of fact but also due to a mistake of law (e.g., because of an incorrect interpretation of the LMRA meaning of "independent contractor" or "supervisor"). And there have been situations in which contributions have been deliberately made on behalf of the "wrong" persons.
Collectively bargained plans must have greater flexibility in dealing with these types of contributions, and section 142 of the bill, therefore, measures the time period during which contributions must be returned from the time when the plan administrator determines (1) that the contribution was made by a mistake of fact or (2) that holding a contribution would contravene section 302 of the LMRA. After the determination is made, the plan has six months in which to return the contribution.
Further, to deal equitably with existing situations in which a plan admini st ator discovered a mistakenly made contribution too late to return it within one year, or discovered a contribution made in contravention of section 302 of the LMRA, amended ERISA section 403
(c) (2) (A) provid(les a period of six months from the date of enactment (during which such a contribution may be returned.
Because the return period begins to run at the time of the plan adiinistrator's determination, the (Conmunittee believes that six months' time for return is sufficient. Also, the Conmmittee expects that plan administrators, if they have not already done so, will establish proeedures consistent with their fiduciary duty under which mistaken cont ributions and contributions iiiade in contravention of section 302, IMRA. will be found and returned in a timely and efficient manner.





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Cofiduciary Respo nibility-Section 143
The amendment made to ERISA section 405 (cofiduciary responsibility) by bill section 143 is, in the Conmittee's vxiew, necessary to conform the law to the realities of business organization. While the Committee agrees with and endorses the underlying intent of ERISA section 405 (a) (3) the existing language of that provision assumes that knowledge on the part of one individual or one division of, e.g., a corporation, is imputed to all the individual- or divisions in the corporation and to the corporation itself. If interpreted literally, section 405 (a) (3) faces many business organizations with the equally untenable choices of either establishing costly and complex internal reporting systems or risking the imposition of liability as a cofiduciary without any means of guarding against the liability.
The language of new ERISA section 405 (e) (2) -"in the noriial course of such fiduciary's business"-is intended to provide a flexible standard under which various organizational forms of doing business can be recognized. However, the Committee does not intend thiis language to insulate a particular organization from cofiduiciary responsibility and liability merely because it follows sloppy internal management practices.
Proldbited Transaction Exemption Reporting; Definition of "Party
In Interest" and "Relative"-Sections 145 and 102(1) (2).
and (6)
Since the effective date of ERISA's fiduciary provisions, plan sponsors, service providers, and investment advisors and managers have encountered difficulty securing guidance from the Labor I)epartment and the Internal Revenue Service regarding application of the prohibited transaction rules, the scope of the statutory exemptions, and in securing decisions on applications for administrative exemptions. Long delays have been a regular occurrence, and applicants for single and class exemptions respecting business transactions have been forced to hold them in abeyance (or sometimes cancel them altogether) due to lengthy agency deliberation and processing times.
Since Reorganization Plan No. 4 was implemented in late December of 1978, the Labor Department, with minor exceptions, has been solely resonsible for administrative exemption processing and for interpretation of the prohibited transaction rules and statutory exemptions." An improvement appears to have resulted, although it is not clear whether the recent reduction in processing time is due to localization of function in the Labor I)epartment, shifts of personnel from IRS to Labor, or growing understanding of the law and heightened sophistication on the part of staff. Without question, though, the improvemnent is a welcome one.
However, the Committee is of the view that a more formal oversight, role by the Congress regarding prohibited transaction exeiptions is both necessary and appropriate. While applauding the Labor Department for the recent improvements in processing, the Committee is also aware that no single ERISA subject has received mnore attention and criticism by plan trustees, sponsors, service providers, etc.,
11 Under the Reorganization Plan, IRS retains responsibility for interpretations regarding the prohibited transaction excise taxes, individual retirement accounts, loans to ESOPs, ear-marked account plans, and ancillary matters. Reorganization Plan No. 4, Sees. 102 (a) and (b).





36

than prohibited transaction exemptions, and of what has been perceived, rightly or wrongly, as the inability of the government to consider and decide upon exemption applications rapidly and equitably.
Therefore, section 145 of the bill establishes a formal reporting mechanism to assist Congress in its oversight responsibilities. Beginning on January 1, 1980, the Labor Department will have to report to this Committee, to the Committee on Education and Labor of the House of Representatives, and to the President respecting each prohibited transaction exemption application on which a final administrative determination has not been reached after the passage of 180 calendar days in the case of individual exemptions and one year in the case of class exemptions. Each such report must identify the applicant(s) and the transaction (s) involved in the application and the terms and conditions of the exemption that is sought. In addition, if the Department has proposed to grant one or more exemptions relating to the application (s), the report must include an identification of the persons who will be involved or affected and must describe the terms and conditions of the proposed exemption. The report must also identify the Labor Department official(s) responsible for the application's processing.
Regarding the subject of prohibited transactions more generally, the Committee believes that the case has not been made to warrant a basic change in the approach Congress adopted in 1974. It was the view of the Congress then, as evidenced by its adoption of the Senate version over the House version, that ERISA's goal of protecting the integrity of plan assets could best be served by absolute, positive prohibitions against a range of transactions between plans and persons occupying positions in which they can influence plan decision-making about investment (and other uses) of plan assets (parties in interest).
At the same time, however, the Committee believes that experience has warranted some relaxation of the rules describing parties in interest. Accordingly, section 102(1) of the bill contains a carefully measured narrowing of the party in interest definition (section 3 (14) of the Act), as well as some clarifying changes.
This amendment eliminates the parenthetical clause in section 3 (14) (A). The Committee is of the view that whether or not a person is a fiduciary under ERISA should be determined on the basis of the definition of that tern in section 3(21) of the Act. Removal of the pIarenthetical clause eliminates the possibility of confusion in this regard.
Tlie changes made by bill section 102(1) to subparagraphs (B), (C),
(1)), (H), and (I) of ERISA section 3(14) all have the effect of narrowing the category of persons who are parties in interest under FRISA, and should be of considerable help in reducing the ambit of the prohibited transaction rules. The basis for all of these changes is Ohe ( ollnmittee's judglent that the persons who will be excluded from the deficit ion by these changers are extremely unlikely to be in a positiol thlrouIgh which they can influence the actions of plan fiduciaries regarding flan assets.
With r esl)ect to service providers, it is the Committee's view that l)rofessio (Is, e.g., act uaries, accountants, lawyers, uncompensated investm nelit 1(visors and o, hers who hold the selves out as having special cx lwert ise reclatin g to) plan assets, investment, and finances, can by virtue





37

of only a single involvement with the plan exercise a nicas.ure of defacto control, so that subsequent transactions (or subsequent parts of a continuous transaction) between such persons and the plan s hould be subject to the prohibited transaction rules. On the other hand, the_ re is no reason to assume that a single service (or a series of sporadic serI'Vices not perf ormed pursuant to a single agreement) by a nonprof essional will vest any measure of control in such a person.
The Committee believes that the Labor Department has now had sufficient experience with the prohibited transaction rules and the party in interest definition to enable it to pre-scribe sensible regulations further defining the terms "professional" and '-nonprofess.-ional"' in amended subparagraph (13), and the Conmmittee expects the Department to do so expeditiously.
Under subparagraphs (C) and (D) of section 3 (14) every employer of employees covered by a plan and every union which has nmenmbers covered by a plan is a party in interest. These definitions make sense in1 the case of a single employer plan and, as regards the union, make sense in most multiemployer plan situations. But in a typical multiemployer plan, with scores, hundreds, or even thousands of cont ributing employers, it is plain "overkill" to classify each one as a party in interes-t. In these plans, the rule of reason dictates that only those employers who may be in a position to exert control over the plan should be classified by the statute as parties in interest. In the Committee's view, this objective can be met by including within subparagraph
(C) only those employers (1) who employ one or more of the trustees or (2) whose employees constitute five percent or more of the total employees covered by the plan.
For purposes of certainty, the five percent test is to be made as of the first day of a plan year. In cases where the plan, exercising due diligence, cannot be certain that a particular employer is not a five percent, or more employer at the beginning of a plan year, the percentage figures as of the beginning of the previous plan year are to be used unless the plan officials have reason to know that the figures are inaccurate as regards a particular employer. In such a case, the particular employer is to be deemed a party in interest until plan records demonstrate otherwise.
For example, a construction industry plan which maintains its records on a calendar year basis has 60 contributing employers on January 1, 1980, no one of which employs more than three percent of the plan's participants on that date. The figures are roughly the same for the succeeding two years. During calendar year 1983, a large contractor begins work in the area. On January 1, 1984, the plan administrator has reason to believe, based on his best judgment, that the large contractor accounts for at least five percent of the plan's participants, but will not know for sure until contributions are received from the contractor. The contractor is to be deemed to be a party in interest from January 1, 1984 until the beginning of the plan year following the year in which the plan's records based on contributions or other data demonstrate~ that the contractor employs less than five percent of the plan's participants.
The five percent test is also to be applied to the unions whose mnembers are covered by multiunion plans. Tfher~e are relatively few of these plans, and the Committee expects that the "Department, will. b~y





38

regulation, interpret subparagraph (D) in the spirit of these amendments regarding application of the five percent test in situations involving separate locals within, e.g., a district, joint regional council, or international.
There may be unusual situations in which persons excluded from the definition of party in interest by the amendments to section 3(14) (C) and (D) should in fact be deemed to be parties in interest because they are owned (within the meaning of section 3(14) (E) (i)-(iii)) by a plan fiduciary. Bill section 102(6) gives the Department of Labor authority to classify such persons as parties in interest on a class basis if the Secretary finds that such action is in the public interest and necessary in order to achieve the purposes of title I of ERISA.
The amendment to section 3(14) (H) removes from the party in interest definition employees of employers maintaining or contributing to a plan. Under present law, every employee covered by a plan is a party in interest and a literal interpretation of section 406(a) (1) (D) would turn most welfare plan benefit payments into prohibited transactions. Under the amendment, only those employees who occupy positions of control are included within the definition by reason of subI)aragraph (II).
The change in subparagraph (I) (substituting the word "in" for the word "with") codifies a long-standing Labor D)epartment interI)retation 12 and has the effect of slightly narrowing the definition.
Section 102 (2) corrects an error in ERISA's drafting. The failure to include brothers and sisters in the definition of "relative" (ERISA section 3 (15)) is corrected by this change.

AMENDMENTS TO PART 3 OF TITLE I OF ERISA
ERIS A 1 d isory Council-NSection 151
Section 151 specifies that one of the three members of the Advisory Council who are representative of employers shall be representative of employers maintaining small plans. In pact of In flationl-Nectioi 152
Persistent high increases in the costs of goods and services have a particularly cruel iilI)pact on those whose income is fixed. While Social Security retirement payments are indexed, all but a handful of private pensioi plans are not. Many private defined benefit plan sponsors, wIhile syllipath etic land willing to assist their retirees through what are essentially voluntary and gratuitous sup)lelmental pension payments, maintain that any form of mandatory cost-of-living increases would be ruinously expensive and would, at the very least, require a substantial lowering of benllefit levels. (O)thers have argued that if giveni the choice, part icipl)ants woul( accel)t initially lower benefits in return for assurance that some fornl of inflation a djutstmuent would )e automatically 1) ro v i iedi
Aside frio these geeralities. little else lhas I been presented to the ('ollnittee in terns feasible suggest ions, and it is the Coummittee's view t1hat morle analy sis is needed before a judgment can be mIade about the feasil)ility alld ram ifications of requiring plans to provide cost-ofSMetropolitan Life Insurance Company, Opinion letter 75-147; Great Western Sayings sanud Iloan Association. Opinion letter 77-:.





39

living adjustments. Section 152 of the bill iiiandates a study, to 1)e conducted by the Secretary of Labor, whicl the (oiltiittee expects will provide a sound basis for further deliberations. The study is to be completed and submitted to the Congress not later than 24 n'lonihs after enactment of S. 209.
As noted above in the discussion of S. 20's a iendint to tie ERISA definition of "pension plan," supplemental retirelient ilncoiie arrangements are used by plan sponsors to hell) offset the effect of inflation on fixed pension benefits. The use of these arrangements will be encouraged by the amendment in bill section 102 (5). Remndies-Sectio n 153
The change made by bill section 153 (1) is a conforming change necessitated by section 111 of the bill. Section 153(6) reserves to the Secretary of Labor exclusively the authority to intervene in actions under part 5 of ERISA. These actions will involve claims procedures, intetference with rights protected under title I, coercive interference, inisrepresentation, employers' obligations to contribute to collectively bargained plans, and preemption.
The other amendments to section 502 of ERISA which are made by bill section 153 are designed to complement substantive changes nade elsewhere in the bill and are discussed elsewhere in this section. Misrepresentation; ERISA and the Securities Laws-Sections 153
and 154
Section 154(b) of the bill adds to title I of ERISA new section 515, which prohibits certain forms of misrepresentation in connection with employee benefit plans. Section 153(2) amends section 502 of ERISA to provide an express damages remedy in cases of reliance on a proscribed misrepresentation. Section 153 (5) makes additional changes in ERISA civil remedy and court jurisdiction rules to conform them lo) the new misrepresentation remedy. Section 154(a) amends ERISA section 514 to clarify that the antifraud provisions of the Federal securities laws and all provisions of state securities laws shall not apply prospectively to the relationship between a plan or plan sponsor and an employee. Section 153(7) renders nugatory any litigation based olI an act or omission occurring on or after the date of enactment of the bill insofar as it alleges that the relationship between a plan or plan sponsor and an employee may serve as the basis for a claim under the Federal securities laws' antifraud provisions or under any provision of state securities laws, and holds harmless plans, plan sponsors and others from any and all civil or criminal liability, penalty or punishment arising from any such existing claim.
It is the firm view of the Committee that the role of the Federal and state securities laws regarding the relationship between plans or plan sponsors and employees should be, at most, extremely limited. That relationship is already heavily regulated under ERISA, analogous and complementary provisions of the Internal Revenue Code, the Taft-Hartley Act, the Landrum-Griffin Act, a panoply of labor standards laws, title VII of the Civil Rights Act, other laws which prohibit age or sex discrimination in employment, and certain Federal criminal laws. MNore to the point, perhaps, no less than six Federal agencies (the Department of Labor, the Internal Revenue Service, the Pension




40

Benefit Guaranty Corporation, the National Labor Relations Board, the Justice Department, and the Equal Employment Opportunity Commission) administer and enforce these laws.
The Securities Act of 1933 and the Securities Exchange Act of 1934 regulate, among other things, the issuance, sale and purchase of securities. The amendments made by the ERISA Improvements Act do not disturb in any way the application of the 1933 and 1934 Act to transactions involving the issuance, sale or purchase of securities between plans and plan sponsors or third parties such as investment managers, nor do they affect in any way the definition of the term "security" in connection with such transactions. However, the amendments provide that the interests of an employee in a plan is not to be considered to be a security for purposes of the antifraud rules of the 1933 and 1934 Acts and within the meaning of any provision of a state securities law.
The application of the 1933 and 1934 Acts' antifraud rules to the relationship of an employee to a multiemployer plan and one of its sponsors, a local union, was the subject of recent Supreme Court litigation. In I.B.T. v. Daniel,13 the Court ruled unanimously that the antifraud rules did not apply. The decision is largely consistent with the Committee's views as regards defined benefit plans in which participation is mandatory, but the amendments in S. 209 extend the Daniel case result to all employee benefit plans which are subject to title I of ERISA.
The application of the registration rules of the 1933 Act and the periodic reporting rules of the 1934 Act to an employee benefit plan also rests on an interpretation of the term "security" which includes the interest of an employee in such a plan. Given ERISA's reporting and disclosure rules, the Committee considered extending its treatment of the antifraud rules to the 1933 Act's registration rules. Consistency alone would mandate such an extension and, as noted above, the Committee is not enthusiastic about any involvement by the SEC in the day-to-day affairs of ERISA plans where the involvement is based upon the relationship between the plan or its sponsor and employees covered by the plan. Moreover, the Supreme Court's decision in the Daniel case casts considerable doubt on a portion of the rationale that has been used by the SEC to justify application of the registration rules to certain plans. Finally, due to lack of guidance from the SEC, there continues to exist great uncertainty as to the types of plans which must register under the 1933 Act.
The Commnittee expressed its concern in this regard to the SEC and has been assured that the Commission will soon clarify its views." As a result of this assurance, and because the potential for day-to-day involvement by the SEC in plan operations is somewhat less respecting the registration rules than it is in connection with the antifraud rules, S. 209 does not affect application of the registration rules to
1I International Brotherhood of Teamsters, etc. v. John Daniel, U.S. -, 99 S.Ct. 790 (Jan. i. I 1 79).
i &"* *t l Iar and the public should receive as much guidance as possible from the ( OinaissiOni to resolve any uncertainties as to the application of the registration provisions o(f Ihe Federal securities laws . The Division of Corporation Finance will be ill a position to prepare a detailed release on registration of interests in employee benefit plins for the (omnimnission's approval before the end of this year." Extracts from a May 9. 1979 letter froin the Associate Director, Division of Corporation Finance, SEC. T1he full text of the letter is reprinted on pp. 709-710 of the 1979 Hearings.





41

ERISA plans. The subject of registration, however, remains one of great interest to the Committee. The Conmmilttee expects the SEC to issue clear rules as expeditiously as possible and contemplates that the rules will take full cognizance of the detailed reporting and disclosure requirements of ERISA and of the Supreme Court's views in the Daniel decision regarding the 1970 amendment to section 3 of th(e 1933 Act.15
The Committee's antipathy towards application of the securities laws' antifraud provisions and concepts to ERISA plans and the involvement of the SEC in the day-to-day operations of plans is not to be confused with the Committee's views regarding misrepresentations made to employees about their plans. Positive protection against such misrepresentations is necessary and desirable, and new ERISA sections 515 (added by bill section 154(b)) and 502(a) (7) (added by bill section 153(2)) reflect the Committee's view in this regard.
ERISA's fiduciary rules provide some protection against conduct by fiduciaries that misleads or deceives plan participants. Thus, a fiduciary who by written or oral statement deliberately misleads one or more participants concerning, e.g., the plan's financial condition, has violated his duty to act solely in the interest of the participants.
However, the duty of a fiduciary under ERISA does not run to an employee who is not a plan participant and, even as regards participants, ERISA's civil enforcement provisions focus on equitable relief and on integrity of plan assets. Thus, assuming a, participant in the case described above could show damages resulting from his or her reliance on the fiduciary's misleading statement, there is uncertainty as to whether the participant could recover an appropriate measure of damages under existing law.
Of course, a person who is not a fiduciary has no duty under ERISA respecting statements made to employees.
Regarding new section 515, the Committee emphasizes the following:
(1) A knowing misrepresentation is required. This would include a statement which is inaccurate or false on its face and known to be so by the utterer as well as a statement which is deceptive (and known by the utterer to be so) by virtue of omission. It would also include an inaccurate, false, or deceptive statement which is not known to be so but which is made with willful or reckless disregard for its veracity. It would not include, however, an unintentional oral oission or error of description made by a person who does not hold himself out as an expert about the plan (and who does not occupy a position under the plan or with a plan sponsor or collective bargaining party to the plan which a reasonable person would assume is occupied by a plan expert), if it is clear under the facts and circuinstances that the omission or error was wholly unintentional. Thus. for example, if a union official (who is not an official of a plan covering the union's members) describes the plan in general terms to a group of employees and also tells the employees that the description is general and that more detailed information is available if they want it,
15 "The amendment recognized only that a pension plan had 'an interest or participation' in the fund in which its assets were held, not that prospective beneficiaries of a plan had any interest in either the plan's bank-maintained assets or the plan itself." I.B.T. v. Daniel, U.S. -, 99 S.Ct. 790 (1979).





42

his failure to detail fully, e.g., the forfeiture or suspension of benefit rules of the plan, is not to be considered a knowing misrepresentation in violation of section 515.
Similarly, if a general description of a corporation's plan were made orally to a prospective employee by an individual in the companys personnel department whose duties include screening job applicants but no functions under the plan and were accompanied by a copy or offer of a copy of the summary plan description, failure to accurately describe, e.g., the break in service rules of the plan, is not to be considered a knowing misrepresentation in violation of section 515.
(2) The three subjects covered by section 515 (a) are intended to be interpreted in a relatively broad fashion, subject of course to the exception contained in subsection (b). "Terms and conditions of the plan" would thus include the plan rules in their entirety and provisions of applicable law. "Financial condition of the plan" would include plan assets, liabilities, or transactions, and expectations or predictions regarding future assets, liabilities, or transactions. "Status under the plan"' would include the facts, plan rules, and law relating to an individual's satisfaction of the participation, vesting, accrual, break in service, and other terms of the plan upon which benefit receipt is based.
(3) Rules already included in ERISA require a standard of accuracy in disclosures plans must make to participants and beneficiaries. The statutory rules have been considerably augmented and refined by Labor Department, IRS, and PBGC regulations, and these existing rules establish levels of responsibility respecting disclosure documents which take into account the "layman's language" and "summary" concepts of ERISA, and which are not intended to be disturbed by S. 209. Accordingly, section 515(b) provides that if such a document satisfies these already existing standards, no person shall be liable under subsection (a) respecting the document. However, if the material in such a document fails to meet existing standards, subsection
(b) would not be applicable and, under the proviso to that subsection, the person or persons responsible for the failure could not rely on that subsection as a defense to a claim of misrepresentation under subsection (a).
The Committee recognizes that, in many cases, plans have included in, e.g., the summary plan description or benefit status report, material that goes beyond what is required by the law. This is done in an effort to apprise participants as to matters in addition to those as to which disclosure is required or in a level of detail greater than that which is required by the law. The Committee views this practice as highly beneficial to participants and emphasizes that the proviso to s,,hsection (1) does not relate in any way to the range of subjects included in any ERISA or Code disclosure document but rather to the manner in which matters required to be covered by the document are treated.
For example, the Committee notes that under section 102(a) (1) of ERISA. the sllititary plan ,hdes(ril)tion niust he "sufficiently accurate and comprehensive to reasonably apprise ** participants and beneficiaries of their rights and 01)l igat ions under the plan." Section 102(b) of ERISA describes the range of material that must be covered by





43

the SPDA Labor Department regulations 16 provide' add(itjoina 1 guiiidance regarding both sets of requirements. A summary plan description which meets the test of section 102(a) (1) and applicable regution1'tMS and covers the material described in section 102(b) and applicable regulations cannot give rise to liability under section 515 (a), ven if it contains additional statements, as long as those additional statements, by themselves and when taken together Nvith the material required by section 102(b) and applicable regulations, meet the s tandard of section 102 (a) (1) and applicable regulations.
Section 515(b) also makes clear that plans need not, by virtue of section 515 (a), add additional material to EiR1SA and Code-requlired disclosure documents. Congress determined the required scope of these( documents regarding subject matter, subject only to adjustments that may be made by the Secretaries of Labor and the Treasury. Without the subsection (b) exception, it might be argued that a summary plan des-cription or benefit status report which fails to include the statistical probability of actual receipt of a pension is misleading and constitutes a misrepresentation. The subsection (b) exception is intendled, among other things, to preclude such an interpretation.
In summary, the applicability of the new misrepresentation rule to documents required to be furnished to plan participants and beneficiaries will be as follows:
(1) If such a document completely fails to address a subject whichl is required by law or regulation, section 515 has no applicability. The remedies for such a failure are those already in ERISA and the Internal Revenue Code, e.g., ERISA sections 501 and 5-02 (c) ; Code section 6690.
(2) Subjects addressed in such a document (whether required to be included by law or regulation or voluntarily included) are to be judged by the standard presently in the law and applicable regulations (e.g., a summary plan description must be "sufficiently accurate and comprehensive to reasonably apprise * participants and beneficiaries of their rights and obli 'gations, under the(, plan," 17 ) and not by the standard of section 515 (a). If the manner of addressing subjects in such a document satisfies the presently existing applicable standard, section 515 is not applicable. If such existing standard is not satisfied, section 515 (a) applies pursuant to the proviso of section 515 (b)., and applicable remedial provisions would include new section 502 (a) (7) as well as, exg., section 502 (a) (3).
Subsection '515 (c), which provides that a plan itself shall not be liable for damages resulting from a misrepresentation, reflects the Committee's view that plan assets ought not be drawn upon in recompense for misrepresentations of individuals involved with the plan. plan sponsor, or other persons associated with the plan. Of course, the presence of a misrepresentation allegation combined with a claim under, e.g., section 502 (a) (1) (B)~ (to recover benefits due under the terms of a plan) should not, in itself, preclude a recovery of benefits from plan assets in connection with such claim.
Subsection (d) provides that the misrepresentation rule is not retroactive. Under new ERISA section 502(1) (3) (added by bill section 153 (7) ) and new section 515 (d), a claim involving the relationship
16 29 CFR Section 2520.102-2, et seq.
17 ERISA, Section 102 (a) (1).

53-018 0 79 -4





44

between a plan or plan sponsor and an employee under the Federal securities laws' antifraud rules (or under state securities laws) remains cognizable and may be adjudicated to final decision in the Federal courts only if such claim arises from an act or omission which occurred prior to the date of enactment of S. 209. A similar claim arising from an act or omission occurring on or after the date of enactment will be cognizable in the Federal courts only if it can be made under new ERISA section 515.
New ERISA section 502(a) (7), added by bill section 153(2), is the remedy provision that complements section 515. It specifies the availability of damages as a form of relief in a meritorius case under section 515. It also clarifies that there can be no recovery of damages absent a showing that the claimant relied on a misrepresentation. It is the Committee's view that the burden of proving reliance rests with the claimant. A mere allegation of reliance is not intended to be sufficient to shift the burden of proof to the defendant.
Also, it is the Committee's view that the claimant in an action under section 502 (a) (7) must prove damages and that the cause of the damages was reliance on a misrepresentation.
Numerous witnesses testified in opposition to section 515 on the grounds that it is an invitation to spurious and vexatious litigation. After careful consideration, the Committee rejected these arguments as a basis for striking section 515 from the bill. As noted above, the Committee believes that a, prohibition against misrepresentation and an effective remedy where a misrepresentation occurs are necessary to protect employees, participants, and beneficiaries against knowingly inaccurate, false, or misleading information which can defeat ERISA's most basic purposes. Moreover, the logic of these arguments applies with equal force to many other statutes and rules of law which protect individuals by permitting the recovery of damages for violations of important rights and interests. The mere threat of abuse is not, in the Committee's view, sufficient reason to ignore the gap in ERISA's protective mechanisms that exists in the absence of a prohibition against misrepresentation.
The threat of abuse, however, is not taken lightly by the Committee. The elements of proof for the recovery of damages in an action under new ERISA section 502 (a) (7) and the careful tailoring of section 515 itself evidence the Committee's intent to include in ERISA effective protection against misrepresentation without encouraging vexatious litigation or "strike' suits. In this regard, the Committee notes that ERISA section 502(g) (1) (as amended by bill section 153(4)), which provides that a court may allow reasonable attorney's fees and costs to either party, will apply to misrepresentation suits and provides a potent disincentive to frivolous and abusive suits.
Further, the Committee intends and expects that the Secretary of Labo~r, by regulation pursuant to ERISA section 505 and through litigation policy and practice, will take special care to adhere faithfully to the policy views expressed herein, and that the federal courts shall do likewise. 1he Secretary, of course, may not initiate suits under sect ion 502 (a) ( h)l, but he nmay intervene in such suits and may initiate suits for equitable relief, e.g., injunctions, against conduct which violates section 515.





45

In this regard, the Committee emphasizes that section 515, unlike tle securities laws' antifraud rules, has been designed specifically for use in connection with employee benefit plans. The special nature of, e.g.1 collectively bargained plans, is not to lbe ignored in i"terpretat ions of and decisions under section 515. The realities of the workplace environment and the union hiring hall, the essentially political nature of union and employer conduct in connectionNwith organizing can ipaigms. and the frequent necessity for rapid decision-making in connection with contract ratification votes are factors that must be considered as part of the overall picture encompassed by section 515.
Concerning the adjustment in application of the securities laws and the new misrepresentation provision, new ERISA section 514(e) (added by bill section 155(4)) provides that both changes are to t)e applied to all plans which are subject to title I of ERISA, including plans which have no "common law" employees. Delinquent ContT4butiwks-Sections 154 (b) and 153(3) and (4)
New ERISA sections 516 and 502(b) (2) and (g) (2), added by bill sections 154(b) and 153(3) and (4), relate to a problem encountered at one time or another by virtually every multiple employer plan-delinquencies in making required contributions by contributing employers. Section 516 applies only in those situations where, pursuant to the terms of a plan which is collectively bargained (or under the terms of a collective bargaining agreement related to such a plan) one or more employers are obligated to make specified periodic contributions to the plan.
The problems caused by delinquencies in such plans, brought to the Committee's attention previously, have been reemphasized in connection with the Committee's consideration of legislation to amend title IV of ERISA. The importance of timely receipt of previously agreed upon periodic contributions to a collectively bargained multiple employer plan is great. Section 516 reflects the Committee's views that the collectively bargained obligation of an employer to contribute to such a plan merits special treatment under ERISA, and that sole reliance on widely varying state laws governing suits to collect delinquent contributions is both insufficient and unnecessarily costly.
As is noted above in the discussion of bill section 142 (refunds of contributions), section 302 of the Labor-Management Relations Act prohibits contributions on behalf of certain persons. Legitimate disputes occasionally arise over whether certain contributions are permissible under section 302. New ERISA section 516 clarifies that only contributions the payment of which is not inconsistent with, e.g., section 302, LMRA, are subject to the new rule.
Because of the costs of litigation and pre-litigation legal work which are frequently involved in efforts to collect delinquent contributions and because of the importance of timely contributions in connection with the funding requirements for multiple employer plans, the Committee believes that an additional incentive for timely payment is necessary. This is accomplished by new ERISA section 502 (g)
(2) (added by bill section 153(4)), under which reasonable attorneys' fees and costs of the action must be awarded to the plan in section 516 suits in which a judgment in favor of the plan is awarded.





46

New ERISA section 502(b) (2), prohibiting the Secretary of Labor from initiating suits under section 516, reflects the Committee's view that the Labor Department should not be subjected to pressures which might cause it to routinely institute collection litigation on behalf of plans against delinquent employers. This prohibition, however, does not disturb the authority of the Secretary of Labor to intervene in actions, including section 516 actions, under title I of ERISA, and the Committee contemplates that the Secretary will exercise his intervention power under section 516, in accordance with his general litigation policy.
Precmnption of State Laws-Sections 155 (1) and (2)
In addition to subjects previously discussed (application of State securities laws to the plan/employee relationship, obligation of ERISA plans to honor state court decrees involving marital property, alimony and child support), S. 209 makes two additional changes in ERISA's preemption of State law rules.
The two sentences added to ERISA section 514(b) (2) (B) by bill section 155(1) clarify the extent to which state laws regulating insurance, which are generally not preempted respecting ERISA plans, may affect plans which are subject to title I of ERISA.
The first sentence overturns the decision of the U.S. First Circuit Court of Appeals in 11adstworth, et al. v. Whaland,18 which held that a New 1Iampshire insurance law 19 regulating the content of group insurance policies sold to ERISA covered welfare plans was not preemiipted under section 514 of ERISA.
The Conmmittee is of the view that while states should not be precluded from requiring ERISA plan sponsors to provide health care benefits or services to employees and their dependents (as explained morle fully below), states should not be permitted to impose such req(uiremnents only on those plan sponsors which choose to provide benefits through the medium of insurance. Just as the existing language of ERIS.A section 514(b) (2) (B) was intended to prevent state insurance laws (and actions of state insurance commissioners) from interfering with a plan sponsor's choice to "self insure," so the first new sentence added to subparagraph (B) of section 514(b) (2) by bill section 155(1) is intended to prevent state action which would have the opp()osite effect, i.e., interfering with a plan sponsor's choice to provide benefits through insurance.
The second sentence added to subparagraph (B) by bill section 155
(1) iimakes clear that a provision of a state insurance law (or a duly promulllgated rule or regulation under such a law) which requires 11( lusion of con version rights in policies issued to plans is not preeiupte(d by section 514 of ERISA. The Committee believes that such rights are valuable to employees and their dependents, and that state policies (lesigne(I to effectuate the exercise of rights of continued prot('tiOl fo)r eill )Ofecs cae grofl ) coverage ceases should and can be
"',30 F. 2d 70 ( 1.st Cir. 1977), cert. denied, 435 U.S. 980 (1978).
SN.IIi. v Sta An. S .415: 18 a(I) (1976) : "Each insurer that issues or revi :1s any I li f gromp tor blanket accident or health insurance providing benefits for m lient oI r Ihsital o) plensss. -hall provide to ~each group, or to the portion of each group Icompris1 d of elartiifiate h4lhrs of such insurance e who are residents of this State and whoe, prin.il pal Ih e of e ploym11,t is in this Staite, ('overage for expenses arising fiom the t renatm nt i of mIental illnesses anld .emotional disorders *





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permitted without undue disruption of ERISA's general policy regarding preemption of State laws.
Bill section 155(2), adding new paragraphs (5) (A) and (5) (B) to ERISA section 514(b), makes a major change in ERISA's preemption rules.
As a general proposition, the Committee approves and reaffirms the present sweeping preemption of state laws which relate to ElRISAcovered employee benefit plans. In the Committee's view, cases such aAzzaro v. IlHanett 20 and National Carr-i ers' Conferencie Committee v. Hleffernan were correctly decided. The national interest in uniform federal regulation of ERISA-covered employee benefits plans is still generally paramount.
However, preemption under ERISA can on occasion result in the supercession of a type of state law or an aspect of state court jurisdiction which many believe are highly desirable. In such situations, the Congress is justified in reviewing the competing policies highlighted by such actual or arguable supercession and in deciding whether an additional explicit exception should be added to the ERISA preemption rule. One such situation has involved the relationship between ERISA and state domestic relations laws. As previously discussed, the Committee has decided that a new explicit statutory exception to ERISA preemption (as well as to the anti-assignment and anti-alienation rule) is warranted to replace the implied exception to ERISA's anti-assignment and anti-alienation rule as found by certain courts.
Another such situation has involved ERISA's preemption of certain state health care statutes. In two federal court decisions, progressive health care statutes of two states 22 have been held preempted by ERISA.23 Stated in the most elementary terms, employees and their dependents in these states are deprived of benefits and protections which the states, in the exercise of their power to regulate for the health and safety of their citizens, have deemed appropriate, while at the same time Congress has not regulated the substantive aspects of these matters at all.
In order to accommodate the bona fide state interest in protecting its citizens by assuring better health care services-an interest which is consistent with the Federal interest expressed through ERISA of assuring improved protections under pension and welfare plans-the Committee has decided to except from ERISA's general preemption rules those state laws (or portions thereof) (1) requiring an employer to directly or indirectly provide health care benefits or services to employees and their dependents, or (2) regulating arrangements under which such benefits or services are provided.
During hearings on S. 209, a number of witnesses pointed out that some ERISA welfare plans with multistate coverage provide health
-0 414 F. Supp. 473 (S.D.N.Y. 1976), aff'd without written opinion, 553 F. 2d 93 (2d Cir.). cert. denied, 432 U.S. 824 (1977). In Azzaro, the District Court held that ERISA prohibited a State insurance department from directly supervising an employee pension benefit plan.
"1 454 F. Supp. 914 (D. Conn. 1978). The District Court in Heffernan held that ERIISA preempted a State statute insofar as it imposed a tax on benefits paid to State residents under a dental plan covered by ERISA.
2 Hawaii Prepaid Health Care Act, Haw. Rev. Stat. 393-1 to 393-51 (1976) ; California Knox-Keene Ilealt Care Service Plan Act of 1975, Cal. Health and Safely Code, seCs. 1340 to 1345 (West Cum. Supp. 1971-1977).
3 Hewlett-Packard Co. v. Barnes, 425 F. Supp. 1294 (N.D. Cal. 1977), aff'd, 371 F. 2d 502 (9th Cir. 197R). cert. denied, 99 S. Ct. 108 (1978) (the California la\\w) ; Stalida d Oil of California v. Agsalud, 442 F. Supp. 965 (N.D. Cal. 1977), appeal docketed, No. 7,S 1095 (9th Cir. Jan. 16, 1978).





48

care benefits that meet or exceed the requirements and standards of existing state laws, and it has been suggested that if ERISA plans must comply with various state health care laws, the result will be an increase in plan administrative costs, accompanied in at least some cases by a lowering of overall benefit packages, at least regarding certain plans. The Committee recognizes that application of state health care laws of the type described in new ERISA section 514(b)
(5) (A) will impact on the operations of multistate ERISA welfare plans and that some increase in administrative costs is possible for such plans to the extent that they cover employees in states which have enacted such laws. However, the Committee is of the view that in the large majority of cases the impact of bill section 155(2) for employees and their dependents will be favorable.
Moreover, the Conmmittee has taken pains to limit the possibility of undue impact on plan administration. Paragraph (5) (B) provides that the provisions of parts 1, 4 and 5 of title I of ERISA shall continue to supersede state health care benefit or service laws. This means that while states may effectuate the substance of their health care laws as regards employees (and their dependents) covered by ERISA plans, provisions of such state laws which relate to ERISA's reporting and disclosure (part 1), fiduciary responsibility (part 4), or claims procedure, interference with protected rights, misrepresentation, and delinquent contributions in collectively bargained multiple employer plans (sections 503, 510, 511, 515 and 516) shall continue to be superseded under section 514(a). Also, the Committee contemplates that any litigation involving both issues arising under ERISA parts 1, 4, or 5 and issues arising under substantive provisions of state health care laws described in paragraph (5) (A), may be fully litigated in the Federal courts under ERISA's civil enforcement provisions and pendant jurisdiction rules.
Paragraph (5) (B) authorizes the Secretary to enter into cooperain '
tive arrangements with officials of states which have enacted health care laws described in paragraph (5) (A) to assist those states in effectuating the policies of any portions of such laws that are superseded by the provisions of parts 1, 4 and 5 of ERISA's title I. In this regard, the Coninittee expects the Secretary to include in his annual report to the Congress (ERISA section 513(b)) a discussion of the interplay between state health care laws and ERISA, and an assessment of the extent to which the policies referred to in paragraph (5) (B) are t)eillg effectuated under ERISA.
The laws to wich paragraph (5) (A) applies are State laws (or portions thereof) (1) requiring an emilployer to directly or indirectly provide hliealthi care benefits or services to employees or employees and their depenidents, or (2) regulating arrangements under which such benefits or services are provided. Use of the word "indirectly" is not ilten(ided to override or colitflict with the first sentence that is added to ElRISA section 514(1)) (2) (IB) by bill section 155 (1) (specifying tIlIt State inslIlranice laws requiring that particular benefits be proviIed rl id h a vai able inder insure(l plans are superseded). Rather, the terl "directly or indirectly" is included in new paragraph 5 to make it clear that a State health care law which otherwise meets the terms of paragraph (5) (A) will not be superseded merely because it )'rmiits eiulovyers to )rovide required benefits through insurance or





49

because it regulates insured health care arrangements, as long as it also regulates uninsured health care arrangements.
Also, a state law which is not described in new ERISA section 514
(b) (5) (A) is of course not subject to the rules describedd above. Whether such a law is preempted will depend on how section 514 otherwise applies to it. For example, a state law prohibiting elployors from maintaining pension or welfare plans (including health care arrangements) would be a law described in section 514(a) and not described in any of the exemptive provisions of section 514. Accordingly, such a law would be preempted.
When the Committee met to mark up S. 209, there was some discussion as to the advisability of amending ERISA to include a minimum standard for participation in welfare plans, especially health care arrangements. The Committee decided that such a change was uninecessary, in view of its understanding that welfare plans conimonly provide for immediate participation or participation within a very short time after the commencement of employment. In connection with its oversight activity, the Committee will be monitoring welfare plan participation rules and stands ready to reconsider this decision if a trend away from the practice of rapid welfare plan participation appears to be developing.
With respect to the meaning of existing ERISA section 514(d), the Committee is of the view that this provision was not intended to be a basis for determining whether a state law is preempted by ERISA. Section 514(d) addresses the relationship between ERISA and other Federal laws.24 The proper and only general standard for determining whether ERISA preempts a state law is contained in ERISA section 514(a) which states that ERISA preempts any and all state laws insofar as they relate to an employee benefit plan described in ERISA section 4(a), and are not exempt under ERISA section 4(b). This, for example, in Bucyras-Erie Company v. Department of Industry, Labor and Human Relations of Wiscovsin,21 the Seventh Circuit Court of Appeals' reliance on ERISA section 514(d) as the basis for decision was, in the view of the Committee, incorrect.
The Committee's interpretation of ERISA section 514 (d) is entirely consistent with the floor statements of Senators Williams and Javits on March 23, 1978 with respect to the relationship between ERISA amid state age discrimination statutes.21
Effective Dates for Amendments to Title I of ERISA
As specified in section 118 of the bill, the amendments made by bill sections 111 (disclosure of status under pension plans), 112 (exemptions and modifications), and 117 (alternative document distribution method for multiemployer plans) are effective on the date of enactment of S. 209. The amendments made by sections 113 (elimination of summary annual report), 115 (opinions of actuaries and accountants) and 116 (scope of accountant's opinion) are effective respecting all plan years beginning on and after the (late of enactment.
24This is generally true under the amendment to section 514(d) made by bill section 154(a) (3). However, new section 514(d) (2), the sole exception to this general rule, clarifies the relationship between plans subject to ERISA and State securities laws.
2 599 F. 2d 205, 7th Cir.. 1979.
26124 Cong. Rec. S. 4451 (daily ed. Mar. 23, 1978), as corrected, 124 Cong. Rec. S. 4767 (daily ed. Apr. 4, 1978).





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As provided by bill section 126(c), the amendments made to ERISA section 206 (b) by section 126 (a) and the conforming amendment to Internal Revenue Code section 401(a) (15) made by bill section 205 (h) are effective respecting plan years beginning on and after the date which is 60 days after the date of enactment of S. 209.
The change in ERISA's joint and survivor rules made by bill section 127 (and the conforming amendment to Code section 401(a) (11) made by bill section 205 (i)) is effective, as specified in bill section 127
(c), with respect to active participants in, and terminated, vested participants under, a plan during plan years beginning on or after the date which is 12 months after S. 209's enactment date.
Pursuant to section 156 of the bill, all other amendments made by the bill to ERISA's title I and all other conforming amendments to the Internal Revenue Code (bill section 205) are effective on the date of the bllfs enactment.

TITLE II-AMENDM1ENTS TO THE INTERNAL REVENUE ('ODE
Tax Treatmenct Of Liump NSumn Distributions From MJultiemployer
Plans Ad Plan s Of Certain Tax Exempt Organizations-Ten
Year Averaging .ad Capital Gains Treatment-Section 201
Although for most purposes under ERISA and the Internal Revenue Code, retirement plans are classified either as defined benefit plans or defined contribution plans, a different system of classification is used for purposes of section 402(e) of the Code. Under Code section 402 (e) (4) (C), for purposes of determining qualification for the favorable tax treatment availal)le for lump sum distributions from qualified plans, retirement plans are classified either as pension plans. profit sharing plans, or stock bonus plans.
This p)re-ERISA system of classification under section 402(e) has worked to the disadvantage of multiemployer plans and has deprived covered( worke rs of tax benefits which are widely available to workers under single employer plans. If a worker is covered under both a single employer pension plan and a profit sharing plan, a lump sui distribution from the profit sharing plan may qualify for favored tax treatment (e.g., ten year averaging and capital gains treatment) under ('ode section 402(e). However, if a worker is covered under a multiemployer pension plan (defined benefit plan) and a money purchase plan (defined contribution plan), a distribution from the money purchase plan cannot (lualifv for favored tax treatment under section 14)2(e) because benefits from both plans must be aggregated under a rule which requires that the balance to.the credit of an employee must be paidi within one taxable year anid pension plan benefits are normally paid over a tern of years. This discrepancy in tax treatment occurs Even thoughll a single eliployer profit sharing plan and iiiuiltiemployer money pl)lrchiase )lan are both defined contribution plans which are very s iilar in all major respects. The use of a profit sharing plan wMoIl1 no)t he feasible in a multiemi)loyer context, however, because of I)roblells involved il colmpuitng the profits of the many employers contr ilut Iting to th)e plan and the possibl)h lis)arate effects on workers 'ov',retl iin tlen t0he plan.
Thie ('olimnittee is of the view thlIat the favored tax treatment allowed Iid ler section 40)2 (e) for particil)anuts in single eti)lover plans ought






to be available to workers covered under multlenployer 1)lans an(I knows of no tax policy that would be adversely affected bY such a change. Accordingly, un(ler the amendment approved by t'he ( 'oiimittee, a multiemployer retirement plan would Ie classified as either a defined benefit plan or a defined contribution plan for l)Ilrposes of the aggregation rules under section 402 (e).
The disparity in treatment under )resent tax law also advei- ely affects workers covered under retirement plans inaintained by tax exempt organizations described in :Code sections 501 (c) (,') (' chaitable, religious, educational, etc.) and (5) (labor, agricultural and horticultural). Here, too, the Committee sees no reason for not extending the availability of favorable tax treatment to these emIployees and knows of no adverse affect on tax policy that would result from sucl an extension.
The staff of the Joint Committee on Taxation has estimated that section 201 of the bill would reduce budget receipts by less than $5 million annually.7
Tax treatment of lump sum di.4tbutions .from multiemployer plansseparation from the ser'e--section 202
Because multiemployer plans provide portability of pension credits between the various employers maintaining the plans, and because such plans exist in industries where changes of employment are frequent, difficulty has arisen in some cases in determining when a -separation from the service" occurs in the context of a multiemployer plan for purposes of determining qualification for favored tax treatment of certain lump sum distributions under section 402(e). In order to resolve this issue, the amendment to section 402 (e) (4) made by bill section 202 specifies that a separation from service shall be deemed to have occurred in the case of a multiemployer plan if any employee has not worked in service covered up by the plan for a period of 6 consecutive months.
The staff of the Joint Committee on Taxation has estimated that section 202 would reduce budget receipts by less than $5 million annually.2
Deduction .for certain employee retirement savings and contributionssection 203
Bill section 203 amends the Internal Revenue Code to allow a deduction to certain individuals who participate in most types of qualified pension plans for contributions to their plan, or to an IRA, or in part to their plan and in part to the IRA.
Under current law, an individual who is not participating in a qualified pension plan mav contribute and deduct up to the lesser of $1,500 ($1,750 in the case of'certain husband and wife IRAs) or 15 percent of the individual's compensation. On the other hand, an individual who is an active participant in a qualified pension plan may not make a deductible contribution to an IRA or the qualified plan in which he is participating. This exclusion from favorable tax treatment for employee contributions applies even where the employer's contribution made on behalf of the individual is small, or where the individual may never vest in a private plan retirement benefit because of frequent
27 Joint Committee Print.
28 Id.





52

changes in employment. The Committee believes that the deduction available under the proposed amendment to the Code will correct the inequity described above and, at the same time, will give additional encouragement to the establishment of new, tax-qualified pension plans.
Under new Internal Revenue Code section 221, added by section 203 of the bill, the deductible limit for an employee's contribution is the lesser of $1,000 or 10 percent of annual compensation. In determining the limit on deductible contributions to an individual retirement account, the amount of the limit will be reduced first by any amount contributed to the qualified plan. Thus, a deduction for a contribution to an IRA will be allowed only to the extent that the amount contributed to the plan is less than the deduction limitation. Also, the same deduction limitation applies if the employee makes contributions to two or more plans.
Employee contributions made either to an IRA or to the plan would be generally treated as contributions made by the employer, except for purposes of determining the amount of the employer's deduction for its own contribution and for certain other purposes, such as application of the vesting and previously existing antidiscrimination rules under the Code.
The Committee also believes that the tax benefit derived from this new deduction should be spread among all participants of a plan on a nondiscriminatory basis and in a responsible fashion. For purposes of testing for discrimination in favor of the highly compensated, the bill uses the concept of an "actual deferral percentage," similar to the one used with respect to cash or deferred compensation arrangements.
The antidiscrimination rules applicable to employee contributions under new Code section 221 work in the following manner:
If the annual compensation of an employee covered by a qualified plan equals or exceeds $23,087 (equivalent to the present compensation of a GS-12, step one, U.S. Government employee), and if his or her compensation is within the top one-third of the total compensation paid to all other plan participants, the employee would be considered to be "highly compensated" under new Code section 221 (c) (7), and would be allowed a deduction only if the employer certifies that the actual referrall percentage limitations have been met. Generally, these rules will be met and highly compensated employees will be eligible to make deductible contributions to the plan or to an IRA, if the aggregate percentage for all highly compensated employees derived by dividing each such individual's deductible contributions by his compensation is not nore than one and one-half times the percentage (lerive(l in the same fashion for all )articipants who are not highly (011 I lensate(l.
A de(hction for contributions to a plan or to an IRA would be available for an employee with compensation of less than $23,087 without re-ar( to whether his or her compensation is within the top one-thi rd of CO sensationn paid to all other plan participants. Because tie bill describess the coiwpensation (ividing line in terms of a GS level, the line will be aljulsted whenever Congress adjusts, pay levels of Federal eflhployees, or when pay levels are aj(lusted by the President to keep pace with inflation.





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Deductions for employee contributions to plans or IRAs wouldl generally be available under the bill to active participants in qualified pension, profit-sharingy or stock bonus plans. Deductions, would not be available to participants in governmental plans, tax-sheltered annuities, or to self-employed individuals. IHowever, contributions made by employees to certain pre-ERISA group retirement~ trusts maintained by labor organizations would be deductible.
As a safeguard against the possibility that employers would shift a portion of their pension cost to employees because of the available deduction, the Committee decided to permit the dedc~ltionl ii the case of plans requiring mandatory contributions to only those plans which required such contributions on January 1, 1978. It is obvious with respect to these existing plans that the cost-sharing by the employer and its employees was not encouraged by the availability of a deduction for employee contributions.
Section 203 has been included in S. 209 because of the Committee's view that a way must be found to eliminate the gross inequity created by the unavailability of IRAs for certain active participants in taxqualified plans. Recognizing that perfect equity cannot be achieved regairdingr either one employee vis-a-vis another or the policies that underlie favorable tax and labor law treatment to encourage sound private sector retirement income arrangements, the Committee believes that section 203 is a responsible approach to a (difficult pr'oblemi.
The staff of the Joint Committee on Taxation has estimated that the revenue loss from section 203 would be $480 million in fiscal year 1980, $1,025 million in fiscal year 1981, $1,145 million in fiscal year 1982, and $1,330 million in fiscal year 1984.9 Tax Credits for Qualified Plans Sponsored by Sm-all EmbployersSection 204
It is the view of the Committee that the national interest in adequate present and future retirement income for Americans who have ceased active participation in the workforce demands an expansion in coverage under private sector plans which supply retirement income.
Tax incentives have historically played a prominent role in encouraging employers to establish and maintain such plans. Along with other incentives such as emphasis on benefit plans by employees' organizations in collective bargaining, increased productivity flowing from employees peace of mind regarding income during their retirement years, and comnpetit ive pressures leading to establishment and improvemnent of plans, favorable tax treatment has resulted in very substantial coverage among employees of medium to large employers.
However, this extent of coverage has not been irirored as respects smaller employers, where employees more frequently are not represented by labor organizations, economics and efficiencies of scale are less often realized, profit margins are geeal thinner, and the value of the favorable tax treatment presently available to sponsors of taxqualified plans is less.
Bearing these factors in mind, the Committee has concluded that substantial growth in employer-sponsored retirement income plan coverage is unlikely in the absence of additional incentives, especially for
2"Joint Committee Print.





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smaller firms.30 The tax credit in section 204 of the bill is one of several major stimulants in S. 209 to the establishment of more plans covering more employees.
The credit provided by section 204 is designed to offset the costs associated with pjan design and the early years of plan implementation. Thus, the credit is of a phase-down type and is available only during the five consecutive years beginning with the plan's establishment, or, in the case of a multiple employer plan, beginning with the commencement of an employer's contributions to the plan. It is keyed to deductions for employer contributions 31 and is equal to 5 percent of such deductions in the first year, 3 percent in the second and third years, and 1 percent in the fourth and fifth years.
The credit is available to any "small business employers"' who establishes a tax-qualified plan meeting the requirements of Code section 401(a), 403(a) (annuity plans) or 405(a) (bond purchase plans). Section 204's definition of "small business employer" reflects the Committee's intent to limit the credit's availability to firms which are both small in size and in profits. Thus, the definition includes only employers with less than 100 employees and earnings and profits (if a corporation) or net profits (if an unincorporated trade or business or a partnership) of no more than $50,000.
The credit is not allowable in any year in which an employer (or successor) has terminated a tax-qualified plan of the type for which the credit is normally available.
The staff of the Joint Committee on Taxation, without expressing a view on the extent to which section 204 will increase coverage, has estimated that it would reduce budget receipts by $5 million in 1980, $25 million in 1981, $50 million in 1982 and $90 million in 1984.32 Amendments Conforming The Internal Rervenue Code To S. 209
Changes In Title I Of ERISA-Section 20J
Bill sections 205(a)-(m) contain amendments to the Internal Revenue Code to conform its provisions to the provisions of title I of ERISA, as amended by title I of S. 209. The Committee views stated above apply equally to these (Code amendments.

TITLE III-SPECIAL MASTER AND PROTOTYPE PLANS
A second major stimulant to encourage retirement plan establishment and maintenance is embodied in new ERISA section 601, added by section 301 of the bill. New section 601 authorizes and describes a new type of master or prototype retirement income plan, known as a "special master plan.'
A special niaster plan is a pension plan (within the meaning of section 3(2) of ERISA) which has been designed by a "master sponsor," i.e..a registered investment advisor, bank, savings and loan association. or insl ranIlce company, anid adopted by an employer (or association of (employers). General ly, sl)pecial nimaster plains nuist meet all requirements
This view appears to be shared by the Treasury DIepartment. Assistant Secretary Lubi.k. t.stifylng on section 204. stated : "It is probably true that a major improvement in cnverai.e by private plans will not be accomplished within the present framework of in,entives.' 1979 Hcarin 1s, p). 217.
:" lIdutions attributable to the transfer to or under the plan of employer securities (as defined in section 407(d) (1) of ERISA) are to be disregarded in calculating deductions onl which the credit is based.
Joint Cominmittee Print.





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of ERISA and the tax code but, under the terms of new section 601, virtually all of the administrative burdens and fiduciary responsibilities normally assumed by an employer who sponsors a pension plan are shifted from the adopting employer to the master sponsor. Thus, tle special master plan should be particularly attractive to small and other employers who are struggling with the paperwork, recordkeeping, and fiduciary duties associated with their present plans, or who have been reluctant to establish a retirement income plan because of apprehenlsions respecting these duties.
A second major improvement from the employer's perspective is that once a special master plan has been submitted to the Secretary of Labor by the master sponsor and has been approved, the plan need not be resubmitted to the Internal Revenue Service for approval by each adopting employer.
Once an employer adopts a special master plan, his only responsibilities under title I of ERISA will be to make the contributions that are required under the terms of the plan, to pay the servicing costs charged by the master sponsor, and to provide to the master sponsor the information needed to assure compliance with the applicable ERISA and tax code rules.33
Under new section 601(d), the Secretary of Labor may approve a special master plan for adoption by employers only if he finds that the plan, in design and in operation, will satisfy applicable rules of ERISA and the tax code. Before approval, the Secretary of Labor must submit the plan to the Secretary of the Treasury, who shall review the plan for compliance with applicable Internal Revenue Code requirements. If the Treasury Secretary finds that the design of the plan does not satisfy the Code's requirements, he must specify what changes must be made to bring the plan into compliance and obtain his concurrence in the approval.
The Committee contemplates that any particular master sponsor may design numerous special master plans (or variations of such plans), each intended for adoption by one or more categories of employers, depending upon such factors as size, workforce composition. industry characteristics, benefit features, and so on. In the process of approval, either or both Secretaries lnay find that a particular plan, intended to be adopted by, for example, employers with fewer than 100 employees in service industries, will in operation not comply with applicable ERISA or tax code rules. Or. it might be determined that the plan will not comply with such rules respecting certain service industries, even though the design of the plan is unobjectionable and it would, with respect to other service industries, operate in compliance with the rules. In either such case, the Committee expects that the terms of the approval would specify that the plan may be adopted only by service industry employers falling in certain categories designated by either Secretary.
Subsection (d) (7) provides that approval by the Secretaries of a special master plan does not in any way limit the power of the Secretary of the Treasury to find that the plan of any adopting employer, in operation, has in fact failed to neet applicable tax code rules. However. it is also made clear the consequences of the failure (e.g. disqualifica3 If the plan so provides, an adopting employer may also have the responsibility of furnishing summary plan descriptions and other documents which must, by law, be distributed to participants and beneficiaries of his plan.





56

tion) shall not be applied retroactively unless the Secretary also finds that the failure was intentional or the result of willful neglect by the adopting employer.
A number of adjustments have been made in the applicability of ERISA's title I requirements to master sponsors and adopting employers to facilitate the design and adoption of special master plans. Thus, special treatment is provided under ERISA rules relating to summary plan descriptions, annual reports, and the service provider and ancillary services exemptions from the prohibited transaction rules (new sections 601(c) (2), (3), and (4)).
Also, section 601(c) (5) provides that a master sponsor will not have a responsibility to verify the accuracy of information that is furnished to it by adopting employers, nor any responsibility for the failure of an adopting employer to properly fund the plan.
However, the master sponsor will be a fiduciary and the administrator of each adopting employer's plan. As such, the master sponsor will be subject to all applicable requirements of ERISA and the Code, except as otherwise provided in section 601. In this regard, section 601(c) (5) (C) provides that the master sponsor will not have responsibility under ERISA or the Code respecting the decision of an employer to adopt the master plan, except insofar as ERISA's fiduciary provisions apply to the advertising or publicizing of the administrative services provided, and the investment practices and procedures followed, by the master sponsor relating to the plan which is adopted and to the extent those provisions apply to disclosures regarding such services, practices and procedures.
When approval is given to a special master plan so that it may be made available to employers for adoption, the Secretary of Labor shall issue a certificate evidencing compliance of the terms and conditions of the plan with applicable requirements of ERISA and the Code. The certificate will he good for five years, and the Committee expects that the Secretary will by regulation establish procedures for the renewal of certificates after such review as the Secretary deems necessary.
The conditions for mandatory revocation of the certificate respecting the plan of any adopting employer or the entire special master plan are described in section 601(d) (5) (A) and (B). The Committee contenmp)lates that the Secretariy, in consultation with the Secretary of the Treasury, miay promulgate regulations delineating other circumstances under which a certificate will be revoked (e.g., where the plan, in operation, is abusive of the tax or labor law policies embodied in ERISA and applicable provisions of the Internal Revenue (Code).
Section 601(e) (1) specifies the conditions under which the duties (and( attendant liabilities) assumed by a master sponsor under section 601 shall be transferred to an adopting employer. The ('onmmittee conitem1Iplates that these conditions shall be stated in the terms of the plan and shall include the time att which the transfer shall occur. For (xamplle, a mster plan might provide that an adopting employer will I)e dleemedi to l)e )lan administrator (and, as such, a fiduciary) as of the ti 1e that such employerr furnishes inaccurate workforce data to the lnmaster S)OT()nsor an( that as of that time, the master sponsor ceases to be a1 minist ratio and fiducia'ry respecting that employer's plan. In It 1s WaY, master Cspolisols ca11 protect themselves from liability for matt ('seyondI t helli ('01i rol.





57

The special master plan provisions in new ERISA section (;(l tire designed to make the establishment and maintenance of sound retirement plans as simple and inexpensive as possible for employers. especially smaller employers who lack the "in-hiouse' resources to design and administer their own plans. At the same timne, special master plans, like all other plans, must meet or exceed the standards of applicable law. Thus, two concepts of section 601 are exceedingrly im port ant.
The first is the assumption by the master sponsor of virtually all of the administrative and fiduciary burden normally borne by an employer who sponsors a plan. The second is a procedure under which no master plan may be made available for adoption until it has been thoroughly reviewed by the Secretaries of Labor and the Treasury to be certain not only that the design of the plan meets all applicable legal standards, but also that the plan in operation will comply with the law.
To meet this second objective-compliance in operation-the Comnmittee emphasizes that the Secretaries are to have sufficient latitude in designating the types of employers (by size, industry, workforce characteristics, etc.) to which a master plan may be made, available for adoption to provide reasonable assurance that approved special master plans will, in operation, satisfy applicable rules. To a large extent, this "tailoring" can be accomplishel by permitting numerous variations of a particular master plan. For example, the Secretary of the Treasury, as part of the approval process under section 601 (d) (2)
(B), might approve the marketing of a master plan containing a ten year cliff vesting standard to one or more categories of employers with high workforce turnover characteristics only if, for those employers, the plan embodies the 4/40 vesting rules. As explained in section 601
(d) (1), the Committee contemplates that regulations and other rules under new part 6 will be designed to f acilitate the development of special master plans and their wide-spread adoption by employers.
Once approval is obtained under conditions imposed by the Secretaries relating to the terms and conditions of the plan and the class of employers to which it may be made available, section 601 contemplates an absolute, minimum of government" involvement respecting any adopting employer. Accordingly, adopting emplloyers will have no need to secure advance determination letters from the Internal Revenue Service, will not have to file annual financial (Form 5500) and other reports, will not have to furnish summary plan descriptions and other documents to plan participants (except as provided by section 601 (e) (2) ), and will not be. responsible for processing claims for benefits. All of the duties described above will be performed by the master sponsor, who will be legally responsible for carrying then out in the manner prescribed by law.
Similarly, the adopting employer will not be a fiduciary respecting the administration of the plan or the investment of plan assets. The master sponsor will be a fiduciary and, depending on the administrative and investment procedures followed, others may also be fiduciaries.
BillI section 301 (c) provides that the special master plan pr'ovisions shall be effective one year after the bill's enactment. As is specified in new ERISA Section 601 (d) (1), the Committee expects the two Secretaries to issue initial regulations and forms. sufficient to enable pr'o-





58

spective master sponsors to submit special master plans for approval, a soon as possible after enactment and not later than the effective date of section 601.

TITLE IV-EMPLOYEE BENEFITS COMMISSION
Title IV of S. 209 establishes a new agency-the Employee Benefits Commission-to take over the functions now performed by the Labor Department and Pension Benefit Guaranty Corporation under titles I and IV of ERISA, and by the Internal Revenue Service under provisions of the tax code relating to private sector pension plans.
It is the view of the Committee that the national interest in private sector employee benefit plans and the interests of plan sponsors, participants, and beneficiaries are not well served by the present fragmented method of administration and enforcement of ERISA and complementary provisions of Federal tax law. Further, the Committee believes that all of these interests will be better served under the unitary administrative arrangement provided by title IV of the bill.
There are several components of the Committee's reasoning and conclusions in this regard.
First, experience has demonstrated that where two or more agencies administer a law (or separate laws designed to achieve the same objective respecting the same sector of society), the inevitable result is confusion, duplication of effort, delay in decision making, undue cost for the regulated public, and reduced government effectiveness in attaining the objectives the law seeks to achieve.
All of these attributes are displayed under ERISA's tripartite administrative and enforcement arrangement, despite what the Committee believes to be generally good faith efforts by officials of all three agencies during two separate Administrations to minimize the inherent difficulties of the existing structure.
The attributes of fragmented administration are destructive of the purposes of ERISA. They make it vastly more difficult for the agencies and the Congress to assess the efficacy of the law itself or of particular provisions of the law. They exacerbate the burdens and costs of those who are regulated and needlessly breed frustration on their part respecting the law and for the entire process of government. And they delay or otherwise interfere with achievement of the law's objectives, thus short-changing employees and retirees.
Most importantly, fragmented jurisdiction has prevented the development and implementation, within the Executive Branch, of coherent short- and long-term planning respecting ERISA and, more generally, respecting the critically important subject of this natioWs policies regarding retirement income for the remaining years of this century and beyond.
Two recent developments bear on this matter. In late December of 1978, Reorganization Plan No. 4 was implemented, assigning more nearly exclusive responsibility for interpretation of some ERISA provisions to either the Labor Department or the Internal Revenue Service. The effects of the Reorganization Plan appear to be constructive, within its limited framework, and the Committee looks forward to the President ial evaluation and recomnmendat ions for long-term adiniistrative structure that are called for by section 107 of the Plan.

S






The Committee notes, however, that the Plan does not deal atf all with certain areas of shared jurisdiction, such as reporting and disclosure and enforcement, does not include within its scope any of t he overlaps between the Pension Benefit Guaranty C orporation and the other two agencies, and, of greatest importance, does not contain any mechanism for the development and implementation of rational and coherent policy.
Earlier this year, the President's Commission on Pension Policy gotunderway in earnest. It is the Committee's understanding that the Commission will not address the issue of ERISA's administrative anld enforcement structure, but will focus on broader, long-term retirement income issues and will make such recommendations as it deems necessary and appropriate. This too, is a welcome development, and the very fact that the President saw a need for the Commission emphasizes both the importance of retirement income policy-making and the present lack of it within the Executive branch agencies.
Unitary administration under the Employee Benefits Commission, as provided in title IV of the bill, will eliminate the attributes of tripartite jurisdiction under ERISA and, as is specified in bill section 401(e) (1), the Commission will formulate policy respecting Federal laws relating to employee benefit plans. The Committee contemplates that some of the policies formulated by the Commission may be implemented under the authority of existing law. In other cases, policies developed may not be implemented unless appropriate action is taken by Congress. In either case, though, there will be an ongoing Executive Branch policy making function.
The Commission will be independent of the Labor Department and the Treasury, but will have close, high-level links to both. The Commission's chairman will be a special liaison for the Secretary of Labor. The vice chairman wil be a special liaison for the Secretary of the Treasury. The Chairman and vice chairman will report regularly to the respective Secretaries. These statutory links will assure that labor, collective bargaining, and tax policy concerns will be appropriately considered in all Commission and staff decisions and actions. The Commission will have three additional members, and all five Commission members will be Presidential appointments, subject to Senate confirmation, with staggered six year terms of office, as provided in bill section 401 (c).
Regarding functions relating to employee benefit plans now performed by the Internal Revenue Service, bill section 401 (e) (3) identifies certain Internal Revenue Code sections under which functions will be transferred to the Commission. In addition, section 401 (f) requires the President, within nine months after the bill's enactment, to identify such other Code sections uhder which functions should be transferred to the Commission in order to effectuate the maximum feasible consolidation in the Commission of all statutory functions presently carried out by the Labor Department and the Internal Revenue Service respecting employee benefit plans. This discretion is accorded to the President in accordance with the Committee's view that the creation and operation of the Commission shall not disturb the integrity of either tax policy or tax collection.
Bill section 402 states the Commission's powers, which include all of the powers and authority now vested in the Secretary of Labor and



53-018 0 79 5





60

the PBGC under ERISA, as well as the power to obtain compliance with the Internal Revenue Code provisions described in bill section 401 (e) (3) (including the provisions designated by the President under section 401 (f ) ).
In addition, the Commission is to have the power to certify to the Secretary of the Treasury whether or not a particular plan satisfies the requirements of the Code provisions described in bill section 401 (e) (3) (and those designated under section 401 (f ) ). Section 403 specifies thatsuch certifications inust be treated by the Secretary of the Treasury as if he had made them himself.
These provisions effectuate the Committee's intent that the Commission is to be fully responsible for administering and enforcing ERISA and the complementary tax code provisions. The Committee believes that this can be done without disturbing the integrity of tax policy or tax collection, and notes that tax policy respecting employee benefit plans is designed largely to help effectuate Federal social and economic policies rather than to generate revenues for the operation of governnient and the provision of government services.












IV. INDIVIDUAL VIEWS OF SENA TOR .JAVITS kANI1)
ADDITIONAL VIEWS OF SENA.'TOR HATCH

INDIVIDUAL VIEws OF JACOB K. JAVITS
I am very pleased that the Senate Labor and Hum-an Reouirces Committee has unanimously approved S. 209, the ERITSA Improvements Act of 1979. As a cosponsor of this measure with Senator Williams, I believe that S. 209 is a major step toward the clarification and strengthening of the Employee Retirement Income Security Act of 1974 (ERISA). The bill will improve the benefits, cove rage, and viability of the private pension system.
S. 209, to be sure, does not deal with every employee benefits issue. For example, Senator Williams and I have cosponsored, by request, S. 1076 which would redesign the plan termination insurance program for multiemployer plans. S. 209, however, and its predecessor bill S. 3017, contain the first comprehensive set of ERISA amendments since 1974 and represent over two years of work of the Senate Labor Coinmittee.'
I perceive a growing awareness in our country of the need now for comprehensive planning regarding the equitable provision of retirement income for an increasingly aging population. For this reason the President has appointed the President's Commission on Pension Policy which is presently studying the adequacy of private and public pension plans to contribute to our society's ability to cope with the pyiramiding problem of providing retirement income. By the year 2030, the over sixty-five age group, which in 1970 comprised about 10 percent of the population, is expected to grow to approximately 17 percent of the anticipated U.S. population. This "greying of the population" is in part due to such demographic factors as declining fertility and mortality rates as well as the maturation of the post-war baby boom.
The approach which Senator Williams and I have adopted in S. 209 for dealing with the the increasing demand for retirement income is to encourage the maintenance and growth of private pension plans. This approach stands in sharp contrast to the proposals of some to scrap the private retirement system and establish one all -encompassing Social Security system. I believe that the Social Security system should be placed on a sound long term financial footing but that advancedfunded private and public pension plans which contribute to capital formation should continue to be maintained and expanded as a key source of additional retirement income.
S. 209 contains provisions which are intended to facilitate compliance with ERISA and thereby to remove impediments to plan maintenance
My earlier statements on the need for ERISA amendments Include the following: 123 Cong. Rec. S.13528 (daily ed. Aug. 4. 1977) ; 123 Cong. Rec. S.107 (daily ed. Sept. 30,
1977) ; 124 Cong. Rec. S.6584, S.6586 (daily ed May 1, 1978) ; 125 Cong. Rec. 8.570 (daily ed. Jan. 24, 1979).
(61)





62

and formation. S. 209 also contains proposals which would expand coverage and benefits under private pension plans. For a fuller discussion of the bill's provisions, I refer to the preceding portions of this Committee Summary and Analysis of Consideration which I approve. I support particularly the statements on ERISA preemption, a subject which my staff and I have studied extensively.
Every day of delay on enacting S. 209 is a day lost in strengthening private employee benefit plans. I urge my colleagues in both the Senate and the House to give S. 209 prompt consideration.












ADDITIONAL VIEWS OF SENATOR ORRIN G. HATCH ON S. 209,
"THE ERISA IMPROVEMENTS ACT OF 1979"
It is my judgment that S. 209 as presently constituted in certain provisions, perpetuates the apparent negative impact which ERISA has had on some some areas of the private pension system. Amendments which have a chilling effect on the growth and continued stability of employee benefit plans must be avoided.
Accordingly, I believe we should enact amendments which will alleviate the current burdens or at least reduce the legal complexities employers must face, encourage the growth of plans to cover the 50 percent of presently uncovered workers, and maintain proper protection of the rights of existing participants and beneficiaries.
In short, a bill, to be worthy of full Senate consideration, should be balanced and designed to encourage rather than discourage the growth of the private pension system.
Allow me to indicate at this point some of the areas of S. 209 which require further refinement to achieve the basic goals I have outlined above.
1. The bill establishes a new agency, the Employee Benefits Commission, to administer ERISA. The agency is intended to end the dual and overlapping jurisdictions under existing law currently exercised by the Internal Revenue Service and the Department of Labor.
While the amendment is well-intended, I do have serious reservations concerning the inclusion in this bill of a new agency to absorb the current functions of the Treasury and Labor Departments and the Pension Benefit Guaranty Corporation. Last session we approved the Administration's ERISA Reorganization Plan No. 4 which attempts to deal with the dual jurisdiction problem; however, the administration has not yet submitted its long-term proposal. It is due by January 31, 1980, on whether or not one new agency should be created. My feeling is that the proposed new single agency should be deferred until there has been a reasonable opportunity to assess the operation of the Aministration's Reorganization Plan, and until the issue is addressed, and the recommendations by the President's Commission on Pension Policy have been received.
Moreover, creation of a new agency may well be counterproductive and result in triple jurisdiction instead of dual jurisdiction. Although consolidation of all pension regulation in one agency sounds good iii theory, in reality it may result in three agencies pincipally administering ERISA-Treasury, Labor and the new agency-instead of the two principal existing agencies. This will simply aggravate the problem instead of resolve it. For example, nobody has suggested that the IRS be denied its traditional role of auditing tax deductions for pension contributions to insure that they are not used merely as a business tax shelter device. Likewise, the Labor Departmeiit should always be empowered to prevent certain union abuses whether or not such abuses are pension related.
(63)





64

In addition, the principal multiple jurisdiction problems arose immediately after passage of ERISA and, in large part, were associated with the creation of new offices within the Labor and Treasury Departments and the implementation of entirely new legislation. The creation of a new agency at this time could have the effect of resurrecting many of the start-up and transfer of responsibility problems which were the source of many of the complaints which generated this proposal but which have now been largely resolved.
Furthermore, it is my opinion, that the American people want to cut big government down to size not expand it. With respect to pensions, there is no compelling need for the establishment of a new Federal agency which would require hiring additional Federal employees and opening field offices all over the Nation at what must be substantial costs. This is an added cost which can be avoided by clarifying and consolidating jurisdictional lines rather than creating more bureaucracy and I believe, by avoiding a premature action here, this situation, which is of concern to all of us. will be satisfactorily resolved.
In summary, I believe the creation of a new agency is at best premature. Until such time as the Congress and the public can reach a consensus on a coherent and responsive national pension policy, which is the challenge of the Pension Commission, there seems to be no reason to determine whether one, two or three agencies should implement ERISA. I believe the overwhelming majority of our expert witnesses testifying on this subject agree with the efficacy of a deferral of this issue under the circumstances. It makes eminently good sense and I hope that the Senate will agree with me when floor consideration is commenced.
2. The bill would require that all qualified plans provide joint and survivor benefits for each participant with 1 ) years of vested service without regard to the participant's age at death.
This provisiOln, in essence, mandates pension plans to provide a (leatlh benefit to a surviving spouse unless the participant otherwise elects. Ilowever, pension l)!ans are designed to provide retirement income, niot death benefits. A requirement that accrued benefits be paid to surviving spouses would increase the funding and administrative bu)llrdens on )lans, while providing relatively little protection to surviving S)O1uses since t he beiiefit playable under the )rovisioni would not conunence until the employee would have attained retirement age. \viiclh might he as 1mch as thirty years after death. Moreover, most em ployees currently elect out of pre-retirement survivor's annuities. BIecause the I)enefit payable to a surviving spouse under the proposal wouI(1 he relatively small, even if the employee had ten or twenty years of vestinI service, most empl)loyees would e!ec(t not to take survivors' protection. Under the proposal, as I understand it, employees Iay cae their election regarding the survivor's annuity at will. 'Ihe rec(ordlkeeping burden on the employer would xbe inunmense particuliarly when the icidence of divorce and remarriage is considered. In :ddit ion, every defined benefit. plan would have to be amended, and many defined contribution plans would need amendment; sumary plan descriptions would have to be amended; plans would probably seek requalification.
In light of the relatively small benefit advantages of this provision we should evaluate it in this light : will it constitute another impedi-





65

ment on the growth and stability of employee benefit plans? .1 thillk the answer is "yes", and accordingly it should be elimintite(t.
3. The bill, as reported, contains a provision which prohibits any reduction or suspension of pension benefits as a resist of aii or settlement made under a workers' compensation law.
I feel it is an unwise proposal and should be eliminated.
a. The proposal would sanction costly and inappropriate doubledipping.
b. The Internal Revenue Service has long allowed plans to offset workers' compensation awards against pension benefits, thus permitting the elimination of very costly duplication of benefits.
c. Many plans provide benefits commencing at normal retirement age or upon earlier total and permanent disability. To preclude the offset of workers' compensation benefits f roni pension benefits might encourage employers to eliminate disability benefit provisions or to resist increasing normal retirement pension benefit levels.
d. Those plans (and their summary plan descriptions) which now offset workers' compensation would have to be ainelided.
e. The proposal is inconsistent with other Federal laws relating to workers' compensation offsets. For example, 42 U.S.C. section 424a provides that Social Security disability benefits must be offset by workers' compensation benefits to the extent that the combined Social Security and workers' compensation benefits exceed 80 percent of the employee's previous average monthly earnings. Further evidence of the policy against double benefits appears in other Social Security provisions (see 42 U.S.C.A. sections 402 (d) (2) (B), (k) (3), and 414(a)) and was recently reaffirmed by Congress by requiring reduction of Social Security survivors' benefits for persons receiving Civil Service annuities (see section 334 (b) (2) of theSocial Security Amendments of 1977, Public Law 95-216).
f. The provision might be inflationary because it has the potential to cause a considerable increase in employers' workers' compensation costs at a time when that system is in need of more urgent reform of the administrative practices that increase unnecessary costs.
g. It would unnecessarily interfere with the right of free collective bargaining by interjecting the federal government into that process and eliminating a currently negotiated item among labor and management.
For all of these reasons, this proposal does not meet the test of strengthening and expanding private pension plan coverage under ERISA and as such, it shoulder rejected.
In conclusion, it is my hope and expectation that the amendatory process will cure some of these defects and that the product which will ultimately surface from the Finance Committee, where S. 209 has been referred, and through the Senate will facilitate and enhance the positive aspects of ERISA, for the benefit of all working Americans.











V. TABULATION OF VOTES CAST IN COMMITTEE
Pursuant to section 133(b) of the Legislative Reorganization Act of 1949, as amended, the following is a tabulation of votes in committee: Motion by Senator Javits that the Committee Print be treated as the basic text for purposes of amendment-agreed to without objection. Motion by Senator Pell to include plans of organizations described in Internal Revenue ('ode sections 501(c) (3) or 501(c) (5) in bill section 201, amending Code section 402(e) (4) (C) (relating to aggregation of certain trusts and plans)-agreed to without objection.
Motion by Senator Kennedy to adopt the Kennedy-Cranston amendmient, as clarified by Senator Metzenbaunim, providing that substantive requirements of state health care laws shall not be preempted by ERISA (bill section 155(2) )-agreed to without objection.
Motion by Senator Javits to require that the Secretary of Labor report to the Comiiiittee on Labor and Human Resources of the Senate and the Conmmittee on Education and Labor of the House of Representatives and to the President respecting certain pending applications for exemptions from ERISA's prohibited transaction rules (bill section 145 )-agreed to without objection.
Motion by Chairman Williams to report the bill favorably to the Senate as amended, subject to Rule XXVI of the Standing Rules of the Senate. carried as follows:
Yeas Nays Not Voting
Williams Nelson
Randolph Stafford
Pell Hatch
Kennedy
Eaigleton
('ranston
Riegle
Metzenbalim
Scliweiker
Javits
.A rlllst (l6 g
I IiiliArey
(66)











VI. CBO COST ESTIMATE
CONGRESSIONAL BUI)GET OFFICE,
U.S. ('o~ni.ss,
WVashington, D.C., Octobe'r ., 1979.
Hon. HARRISON A. WILLIAMs, Jr., Chairm-an, Committee on Labor and Huma n Resources, U.. AnoIItIf'.
Washington, D.C.
DEAR MR. CHAIRMAN: In accordance with the HBudget Act of 1974, the Congressional Budget Office has examined S. 209, which would make changes related to the Employee Retirement Income Seculrity Act of 1974 (ERISA). Title II of the bill makes several changes in the Internal Revenue Code of 1954 pertaining to contributions to retirement plans. The Congressional Budget Office agrees with the methods used and the resulting revenue estimates made by the Joint Committee on Taxation for Sections 201, 202. and 204 of Title II of the bill. The revenue loss for those sections is estimated to be less than $15 million in fiscal year 1980 and $120 million by fiscal year 1985.
Title IV of S. 209 would establish the Employee Benefits ('ommnnission as an independent agency of the Executive Branch. This ('omiiission would assume those functions and duties of the Secretary of Labor and the Pension Benefit Guaranty Corporation which fall under the Employee Retirement Income Security Act of 1974, and of the Secretary of Treasury insofar as they relate to employee benefit plans. Since the personnel of the new Commission would be transferred from the Departments of Labor and Treasury and the Pension Benefit Guaranty Corporation. with the possible exception of the ('omnlnissioners and Liaison Officers; the net cost in federal budget outlays of this title should not be significant.
The bill would provide a new tax expenditure with Section 20 !. which would allow a (credit to small business ein)loyers for their contributions to employer retirement plans. This provision is estimated to cost $5 million in fiscal year 1980 an(l approximately .110 million by fiscal year 1985.
Sincerely,
ALICE RIvuN.
Director'.
(67)











VII. AMENDMENTS MADE BY S. 209 TO TITLE I OF ERISA

SUBTITLE A-GENERAL PROVISIONS
FINDINGS AND DECLARATION OF POLICY
SEC. 2. (a)-(c) * *
(d) It is hereby further declared to be the policy of this Act to foster the establishment and maintenance of employee benefit plans sponsored by employers, employee organizations, or both.

DEFINITIONS
SEC. 3. For purposes of this title:
(1) ***
(2) (A) [The] Except as provided in subparagraph (B), the terms "employee pension benefit plan" and "pension plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program[A] (i) provides retirement income to employees, or
[B] (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or
beyond,
regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.
(B) Notwithstanding subparagraph (A), the Secretary may by regulation prescribe rules for one or more exempted categories under which (i) severance pay arrangements and (ii) supplemental retirement income arrangements will be deemed not to be pension plans for the purposes of this title but will be deemed to be welfare plans described in paragraph (1). Any such regulations shall include rules under which the Secretar~ may remove any siumch arrangement from any exempted category if he finds it to be a subterfuge to evade the purposes of this title.
(3)-(13) * *
(14) The term "party in interest" means, as to an employee benefit plan
(A) any fiduciary [including, but not limited to, any administrator. officer, trustee, or custodian], counsel, or employee of
such[employee benefit] plan;
(B) a person providing professional services to such plan, or a
person praiding nonFrotfessionial services on a continuous basis
to such plan;
sectionsI not shown are unchanged by S. 209. Subsections, paragraphs, etc. followed by asterisks are not changed by S. 209.
(68)





69

(C) an employer any of whose employees is a trustee of a truit
described in section 3092(c) of the Labor-Malnagenu t R./latI Act, 1947, if such trMut is maintained in Co nt t'on with such plan, and an employer any of whose employees [are];s covered by such plan if the employees of such employer conostitutalt perc, ot or more of all employees covered by the plan oi- the fi/t day of
the plan year;
(D) an employee organization any of whose inmb rs or eimployees is a trustee of a trust described in section 302(c) of Ith
Labor-Management Relations Act, 1947, if suih tm s aintai ed in connection with such plan, and an employee organization any of whose members [are] is covered ly)v such plan if the members of such employee organization conltitut .5 percent or more of all employees covered by the plan on the first day of the
plan year;
(E)-(G) * *
(H) an [employee.] officer, director (or an individual having
powers or responsibilities similar to those of officers or directors) [or] a 10 percent or more shareholder, directly or indirectly.
[of a person described in subparagraph (B). (C), (ID). (E), or (G), or of the employee benefit plan] or a highly cml p nsated employee (earning 10 percent or more of the yearly wages of an employer) of a person described in s-ubparagraph (LB). (('), (D),
(E),or (G) ; or
(I) a 10 percent or more ([directly or indirectly] in capital
or profits) partner or joint venturer, directly or indirectly. [of] in a person described in subparagraph (B), (C). (I)), (E), or
(G).
The Secretary, after consultation and coordination with the Secretary of the Treasury, may by regulation prescribe a percentage lower than 50 percent for subparagraph (E) and (G) and lower than 10 percent for subparagraph (H) or (I). The Secretary may prescribe regulations for determining the ownership (direct or indirect) of profits and beneficial interests, and the manner in which indirect stockholdings are taken into account. If the Secretary d(e te rmrnes that ;t is necessary in order to achieve the pnhrposes of this title and in the public interest to do so, he may by regulation (It slaIte "s parties in interest within the meaning of this paragraph any class of rmplay or any of whose employees are co-vered by a plan and any class of em ployee organizations any of whose members are coverd by a plan ( other r than an employer or an employee organization described in .-ubpara!raph (C) or (D)) if each employer or emrnployee organization comprising such class is owned (within the meaning of subparagraphs (E) (i) through (iii)) by a fiduciary respecting uwch a plan.
(15) The term "relative" means a brother, sister. spouse, ancestor. lineal descendant, or spouse of a lineal descendant.
(16)-(19) * *
(20) [The] Except as otherwise provided in sect;ians 502(7) and 514(d) (2) and (3), the term "security" has the same meaning as such term has under section 2(1) of the Securities Act of 1933 (15 U.S.C. 77b(1) ).
(21)-(36) * *





70

(37) (A) The term "multiemployer plan" means a plan[(i) to which more than one employer is required to
contribute,]
[(ii)] (1) which is maintained pursuant to one or more collective bargaining agreements between an employee organization
and more than one employer,
(ii) to which ten or more employers contribute, or to which
more than one and fewer than ten employers contribute if the S ecretawy finds that treating such a plan as a multiemployer
plan irould be cooi.satent with purposes of this, Act, and
[(iii) under which the amount of contributions made under
the plan for a plan year by each employer making such contributions is less than 50 percent of the aggregate amount of contributions made under the plan for that plan year by all
employers making such contributions,]
[(iv)] (i1i) under which benefits are payable with respect to
each participant without regard to the cessation of contributions by the employer who had employed that participant except to the extent that such benefits accrued as a result of service with the employer before such employer was required to contribute
to such plan, and
[(v)] (i) which satisfies such other requirements as the
Secretary may by regulations prescribe.
(B) For purposes of this paragraph
[(i) if a plan is a multiemployer plan within the meaning of
subparagraph (A) for any plan year, clause (iii) of subparagraph (A) shall be applied by substituting "75 percent" for "50 percent" for each subsequent plan year until the first plan year following a plan year in which the plan had one employer who made contributions of 75 percent or more of the aggregate amount of contributions made under the plan for that plan year
by all eniplovers making such contributions, and
[(ii)] all corporations which are members of a controlled
group of corporations (within the meaning of section 1563 (a) of the Internal Revenue Code of 1954, determined without regard to section 1563(e) (3) (C) of such Code) shall be deemed to be
one employer.
(38)-(39) * *

SUrBTITLE l--RE(LA,.TORY PROvISIONS
PART I1-IE0PORTING AND DISCLOSURE
DItY of leporting and Disclosure
>EC. 101. a) The administrator of each employee benefit plan shall Sall to be fIll rnisheI in cc 'nordance with section 104(b) to each participlant covered inder the plan and to each beneficiary who is receiving benefits under the plan-(1) a sununary plan description described in section l02(a) (1) ;
anid
(2) the in foim at ion nh(,ecribled in -sect ion 10-4 (b) (3) and 105 (a)
and [(*)](b).
(b)-(d) * *





71
Annual Reports
SEc. 103. (a) (1) * *
(2) * *
(3) (A) Except as provided in subparagraph (C), the administrator of an employee benefit plan shall engage, on behalf of all plan participants, an independent qualified public accountant, who shall conduct such an examination of any financial statements of the plan, and of other books and records of the plan, as the accountant may deem necessary to enable the accountant to form an opinion as to whether the financial statements and schedules required to be included in the annual report by subsection (b) of this section are presented fairly in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Such examination shall be conducted in accordance with generally accepted auditing standards, exept to the extent required by subparagraph (B). and shall involve such tests of the books and records of the plan as are considered necessary by the independent qualified public accountant. The independent qualified public accountant shall also offer his opinion as to whether the separate schedules specified in subsection (b) (3) of this section [and the summary material required under section 104 (b) (3) ] present fairly, and in all material respects the information contained therein when considered in conjunction with the financial statements taken as a whole. The opinion by the independent qualified public accountant shall be made a part of the annual report. In a case where a plan is not required to file an annual report, the requirements of this paragraph shall not apply. In a case where by reason of section [104(a) (2)] 110 a plan is required only to file a simplified annual report, the Secretary may waive the requirements of this paragraph.
(B) In offering his opinion under this section the accountant Inlay] shall rely on the correctness of any actuarial matter certified to bv an enrolled actuary [, if he so states his reliance].
(C) The opinion required by subparagraph (A) [need) shall not be expressed as to any statements required by subsection (b) (3) (G) prepared by a bank or similar institution or insurance carrier regulated and supervised and subject to periodic examination by a State or Federal agency if such statements are certified by the bank, similar institution, or insurance carrier as accurate and are made a part of the annual report.
(D) * *
(4) (A) The administrator of an employee pension benefit plan subject to the reporting requirement of subsection (d) of this section shall engage, on behalf of all plan participants, an enroled actuary who shall be responsible for the preparation of th., materials comprising the actuarial statement required under subsection (d) of this section. In a case where a plan is not required to file an annual report. the requirement of this paragraph shall not apply, anti, in a case where by reason of section [104(a) (2)] 110, a plan is required only to file a simplified report, the Secretary may waie the requirement of tlhis paragraph.
(B)-(C) * *
(D) In making a certification under this section the enrolled actilary [may] shall rely on the correctness of any accounting matter under





72

section 103(b) as to which any qualified public accountant has expressed an opinion [, if he so states his reliance].
(b)-(e) * *
Filing With Secretary and Furnishing Information to Participants
SEC. 104. (a) (1) * *
[(2) (A) With respect to annual reports required to be filed with the Secretary under this part, he may by regulation prescribe simplitied annual reports for any pension plan which covers less than 100 participants. In addition, and without limiting the foregoing sentence, the Secretary may waive or modify the requirements of section 103
(d) (6) in such cases or categories of cases as to which he finds that
(i) the interests of the plan participants are not harmed thereby and
(ii) the expense of compliance with the specific requirements of section 103(d) (6) is not justified by the needs of the participants, the Pension Benefit Guaranty Corporation, and the Department of Labor for some portion or all of the information otherwise required under section 103(d) (6).
[(B) Nothing contained in this paragraph shall preclude the Seeretary from requiring any information or data from any such plan to which this part applies where he finds such data or information is necessary to carry out the purposes of this title nor shall the Secretary be precluded from revoking provisions for simplified reports for any such plan if he finds it necessary to do so in order to carry out the objectives of this title.
[(3) The Secretary may by regulation exempt any welfare benefit plan from all or part of the reporting and disclosure requirements of this title, or may provide for simplified reporting and disclosure if he finds that such requirements are inappropriate as applied to welfare benefit planss]
[(4)] (2) The Secretary may reject any filing under this section(A) if he determines that such filing is incomplete for purposes
of this part; or
(B) if hlie determines that there is any material qualification by
an accountant or actuary contained in an opinion submitted pursuant to section 103(a) (3) (A) or section 103(a) (4) (B).
[(5)] (J) If the Secretary rejects a filing of a report under paragraph [(4)] (2) and if a revised filing satisfactory to the Secretary is not subitted within 45 days after the Secretary makes his deternilnation under paragraph [(4)](2) to reject the filing, and if the Secretary deems it in the best interest of the participants, he may take any' one or more of the following actions-( A) retain an independent qualified public accountant (as defin(ed in set ion o103(a) (3) (I))) on behalf of the participants to
l)erfonn an audit,
(B) retain an enrolled actuary (as (lefined in section 103(a)
(4) (C) of this Act) on bellalf of the plan participants, to prepare
an actuarial statement.
(C) bring a civil action for sulich legal or equitable relief as may
be al)prp)l)aoe to enforce the provisions of this part, or
(1)) take any other action authorized by this title. The administrat o, sl)all enn it such a(ountant or actilry to inspect whatever





73

books and records of the plan are necessary for su(ilh 'm alit. Tli' plan shall be liable to the Secretary for the expenses for such audlit or report, and the Secretary may bring an action against the plan
in any court. of COmpe tent juris(liction to recol'er sill(h (x IensPs.
(b) Publication of the summary plan (lescrilpt ions and annllal reports shall be made to participants and beneficiaries of the articlel lar plan as follows:
(1)-(2) * *
[(3) Within 210 days after the close of the fiscal year of the )Il. the administrator shall furnish to each participant, anlI to each honeeficiary receiving benefits under the plan. a copy of tihe statements and schedules, for such fiscal year, dlescrilbed in sui)bp)a ra)lphs ( A) anlI
(B) of section 103(b) (3) and such other material as is necessary to fairly summarize the latest annual report.]
[(4)] (3) The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, plan description, and the latest annual report. any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated. The administrator may make a reasonable charge to cover the cost of furnishing such complete copies. The Secretary may by regulation prescribe the maxmnuimn amount which will constitute a reasonable charge under the preceding sentence. but the charge for furnishing a copy of the latest annual report may not exceed 10.
(c)-(d) *

[Reporting of Participant's Benefit Rights]
Disclosure of Status Under Pension Plans
SEc. 105. (a) (1) Each administrator of an employee pension benefit plan shall furnish to any plan participant or beneficiary who so requests in writing, a statement indicating, on the basis of the latest available information[(1)] (A) for defined benefit plans, the total benefits accrued, [and] or
(B) for individual account plans, the balance in the account,
and
(C) for all plans, the proportion of accrued benefits or account
balance which is nonforfeitable or the earliest date, assuming continued participation in the plan without a break in service, on
which some or all benefts will become non *forfeitable.
(2) [the nonforfeitable pension benefits, if any, which have accrued, or the earliest date on which benefits will become nonforfeitable.]
[(b)] In no case shall a participant or beneficiary be entitled under this subsection to receive more than one report described in [subsection (a)] paragraph (1) during any one 12 month period.
(3) If members of any class of participants or beneficiaries are annually furnished with a statement which contains the in formation required by this subsection, the requirements of this subsNetion sluhall be satisfied respecting the members of such class.





74

Tbi. tib.8(wion shall apply to u plaa to which, more than One
c iPloyci i. 1,eqiiii-,ed to coiti bute only to the extent proi'ided by 1,cflilatio i. pi-,esei--ibed by the 8ecmtary.
(b) (1) L' Oi a -Iimo;shwtol- of an cinployee pension benefit plan
il siirh 11wititcl, (iiid at such timoo as may be provided in by the ', ec-retaj q,,, to each plan pai-ficipantwho (110 hq a plait Y((/i,(A) (;) feiwiiiates his service with the eraployer, or (ii) has a
Olic-.11c(li. ;/I 8ol vicc. Clod.
(B) /' N elitl'tlcd to a defe ,red vested benefit ui&er the plan as
of /i c wl o.f iich p/ait year, (i nd
(C) ivith to whwn. rcthc-ment benefits are -not paid Unde ; the ploli dil), tiq such plan year.
The report rcqtii1,cd imder this subsection shall inform, the partici1)(11it o f the n4tarc., (inwwit, fw m- of the deferred vested, bel eflt to w7oe1i he is eittitled, and slodl co0a;n uch Wei- infoiwwtion as tht, "' ccl 1101y
c2) Yot woj,(, tlwli o1w report shall be required ?twler paragraph
(A) (;;) irith I (., pc(,t to conse(-uti i-e one-year breaks a service.
[(e) Each ,idministi-ator required to register under section 6057 of the Internal Rex-enue Code of 1954 shall, before the expiration of the time prescril)ed for such registration, furnish to each participant desci-ibed in subsection (a) (2) (C) of such section, an individual statement setting foi-th the information with respect to such participant required to 6, (-ontained in the registration statement required by seetioii GO.-) 7 (a) (2) of such Code.]
(c) (1) Axcept (is pro?.' ided in paragraph (2) of th;s 8ubsection., i'W'li (,11ip7oyc,,. hv77. i1i twoordance with regulations pi (-w 14bed by the N ('O'ttlry t(lili with respect to each, of his en? p7oyees sufto detcl w i1w the bcneflt- due orwhich -may become due to Mch
Thc ciliploycr birliish the plan. administrator in fm,,M(ttio i lwcc' -wliy for the a(11o;1i,;.shwtor to make the reports required by.,o17)s((,1;,-)ns (o) and (b).
(2) 1 i llioiw than ow, employer adopts a plan, each, such employer '41(111' ;11 'Iccol'dallec il..;lh ieqii7alioio /)I cs(-)-;bc 7 by the Seci (,taiy, far;s//'(//o/' to llia;O(il*l the /,(,cords and make the rcporfs reqi1ired by SO)S(1(11 '(MN (tl) (iwl (b).,' ?irh the i-rcords
/t/ m'oridtd illldcr rcqulations p re. ( i) )y he See//I( rt polls.'i' (,qtl;red by,,;ah.wrlions (a) awl (b).
1 Iliy p 1,.,;oll Irbo ;A I:()q?1i)w(1 wn lei- th,;s section (othe thav,
t'11*011 00 O fill-111'sh I'li foriwiNon 01, to 11w;O(lio 1'()cords
1' /;/N to (,0//'/)/.1/ WWI -01(11 rc 111;1'(Ilc W"N' 11c shall pay to t1w plal a pent111 // (-) '1 1() /'0/' (ti('11 ( lliplo.ip ( trith rcspcof to 1.1-hom Ilch f(lilure oeshoirm 11oll "o/c/i foibirc e 's Juc to 1'ea. Unable cause.
Ilic lcrilo of the p/(ta inay not be relestIll 0-1, /hc -1)(1.111liclit 01'(11i.11"olch pcnally.
(I peill;cl.
litlill it'ho hels /c/v/i/'/0//c(/ oi, ha., a on(, year 1,10 (1 1-cpOrt wh;(-h coataills th')
;/I 1,01'Well;Mt ell I-I)e el I'li pl/ fl // (/ph ( 0, the bo-nish ilqj of 8Uch rePO/1 'b(Ills(Ill'sfy Ib( o.j'*";?/('h paragraph.
(' (1) ::, -





75

Retention of Records
SEc. 107. Every person subject to a requirement to file any description or report or to certify any information therefor under' this title or who would be subject to such a requirement but for an exemption01 or simplified reporting requirement under section [104(a) (2) or (3)] 110 of this title shall maintain records on the matters of which disclosure is required which will provide in sufficient detail the necessary basic information and data from which the documents thus required may be verified, explained, or clarified, and checked for accuracy and completeness, and shall include vouchers, worksheets, receipts. and applicable resolutions, and shall keep such records available for examination for a period of not less than six years after the d(late on which such documents would have been filed but for an exemption or simplifled reporting requirement under section [104(a) (2) or (3)] 110.

[Alternative Methods of ('ompliance
[SEC. 110. (a) The Secretary on his own motion or after having received the petition of an administrator may prescribe an alternative method for satisfying any requirement of this part with respect to any pension plan, or class of pension plans, subject to such requirement if he determines[(1) that the use of such alternative method is consistent with
the purposes of this title and that it provides adequate disclosure to the participants and beneficiaries in the plan, and adequate reporting to the Secretary,
[(2) that the application of such requirement of this part
would[(A) increase the costs to the plan, or
[(B) impose unreasonable administrative burdens with respect to the operation of the plan, having regard to the particular characteristics of the plan or the type of plan involved,
and
[(3) that the application of this part would be adverse to the
interests of plan participants in the aggregate.
[(b) An alternative method may be prescribed under subsection (a) by regulation or otherwise. If an alternative method is prescribed other than by regulation, the Secretary shall provide notice and an opportunity for interested persons to present their views, and shall publish in the Federal Register the provisions of such alternative method.]

Exemptions a(nd Mod(ifications
ASEc. 110. The Secretary may by regulation conditionally or 1unconditionally exempt any employee beneft plan or person, or any class of employee benefits plans or persons. from any re(quirem#ne t of this pa-t or may modify any such requirement if h(e determines that such exemption or modifeation is
(1) appropriate and necessary in the public interest, and
(2) consistent with the purposes of this title.





53-018 0 79 6





76

A lternatice Documient Distribution1 Method for Multiemployer Plans
SEc. 112. (a) (1) If the admin istrator of a multiemployer plan periodically makes an affirmative determination that the alternative method of document distribution described in subsection (b) will be less costly to the plan, an(d will result in document distribution which ;s at least as comprehensive as would result if such documents were distributed in accordance with the document furnishing requirements of sections 101(a), 104(b) (1). 205 (e), or other provisions of law, including applicable regulations, the administrator will be deemed to have satisfied the furnishing requirements of such sections, law and regulations if he satisfies the requirements of subsection (b).
(2) Each determination referred to in paragraph (1) shall be written, and shall include the evidence and describe the methodology on which it is based.
(b) A plan administrator satisfies the requirements of this subsection with respect to all or a group of participants who are employees of an employer if(1) the administrator furnishes the document to such employer
in sufpciet quantities and at such time as to enable such employer to furnish such document by the time when the administrator would otherwise be required to furnish such participants with the document. and notifies such employer of the time or times by which
such documents must be furnished; and
(2) in the case of the updated summary plan description and
modifcations or changes described in section 104(b) (1), not later than 6(0 days after the prescribed tinw by which such documents must be furnished, the administrator notifies participants through postings at applicable local union offices or any other method reasonably calculated to comprehensively serve notice that such document was recently distributed and that participants may obtai, the document free of charge by written request to the
admin ist istrator.
(c) If the admiildistrator satisfies the requirements of subsection
(b) (1) with respect to participants who are employees of an employer, such employer shall furnish the document to such participants within the time prescribed for furnishing such document. If an employer ehoos s to satisfy the requirements of the preceding sentence by mailing the doceulnt to the personal residences of one or more participants, reasonably current persolma! residence addresses must be utilized. For this purpose, a list of participants' home addresses most recently comp/ile/d in eon ntion with the requirements of section iti 6051(a) (relating to information concerning wages paid employees) of the Internal Rev('nle code of 19.; may be utilized if such list has been updated within the 12-monthi period preceding the date of mailing.
(d) To the rxtnt that an employer is required to furnish documents puirsuant to stubscetion (c) suich employer shall be (considered the plan admi/nitrator solely for purpose of any plor)ision of law which imposes liable y or ci'il or criminal penalties for the failure to satisfy the dociment furnishing requirements of sections 101(a), 104(b) (1), 20 () or other provisions of law or regulations which require the furSi/hiyI of (o(lH/n/ Ilts to plan/ p/a /lilkthInts.





77

(e) Subsections (a) through (d) shall be applicable to a pjan and the employers contributing to such plan only if the plan administrator has been authorized or reauthorized to make thei periodic dletermi iations referred to in subseetion. (a). A ny such authorization or reauthorization shall be valid(1) only if express and written, and pursuant to a unanumou..
vote of the plan's trustees at a regularly scheduled and duly noticed meeting;
(2) only if such vote and any discussion pertitnent to the plan's
adoption of the alternative method of document distribution described in this section have been recorded in the minutes of th
trustees' meetings; and
(3) for a period of time not exeeding(A) 42 months from the date on which the administrator
makes the first of the determinations referred to in subsection
(a) in the case of the authorization; and
(B) 36 months in the case of any reauthorization.
(f) (1) The Secretary may prescribe such regulations as he deeims necessary to carry out the purposes of this section.
(2) The Secretary shall establish a system to monitor compliance wIith, enforce, and assess the usefulness of the alternative method of document distribution provided by this section. Such system may employ random sampling techniques. The limitation imposed by section 504(b) (relating to the Secretary's authority to require the submission of plan books and records in the course of an investigation) shall not apply to a request or subpoena by the Seeretary for plan books and records (including records of any employer subject to subsection (c)) which are sought solely for the purposes of this subsection.

PART 2-PARTICIPATION AND VESTING

Coverage
SEc. 201. This part shall apply to any employee benefit plan described in section 4(a) (and not exempted under section 4(b)) other than
(1) an employee welfare benefit plan, except as provided in
section 206 (b);
(2)(7) * *

Minimum Participation Standards
SE. 202.(a)(1) * *
(2) * *
(3) (A) For purposes of this section, the term "year of service" means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee's employment commenced, except that, in accordance with regulations prescribed by the Secretary, such computation may be made by reference to the first day of a plan year (i) in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment coim-






menced or (ii) in the case of a plan where rights and benefits under this part are determined on the basis of all of an employee's service without regard to the date on which the employee's participation in the plan commenced.
(4) * (b) ***
Minimiin Vesting Standards
SEc. 203. (a)(1) * *
(2) * *
(3) (A) * *
(B) A right to an accrued benefit derived from employer contributions shall not be treated as forfeitable, solely because the plan provides that the payment of benefits is suspended for such period as the employee is employed, subsequent to the commencement of payment of such benefits(i) in the case of a plan other than a multiemployer plan, by an
employer who maintains the plan under which such benefits were
being paid; and
(ii) in the case of a multiemployer plan. in the same industry,
[in the same] trade, or craft, and the same geographic area covered by the plan, as when such benefits commenced. The Secretary shall prescribe such regulations as may be necessary to ensure fairness under and otherwise carry out the purposes of this subparagraph, including regulations with respect to the meaning of the term 'employed,' which may, with respect to clause (ii), include self-em ployment. The permissible period of benefit suspension shall include a period determined pursuant to regulations promulgated by the Secretary in addition to the months in which the employment occurs to the extent necessary to pre rent the periodic payment and suspension of pension benefits to workers who have
not retired but who continue to work on an irregular basis.
The imposition of a finanvval penalty on a pensioner who fails to report his employment as required by the rules of a plan shall not be deemed a /iolation of the resting requirements of this section. The amount of the financial penalty permitted by the p)recedinfg sentence s/hal < determined pursuant to reg,ulations promulgated by the Seeretary ut i no erent shall the penalty exceed an amount equal to one /r(Ir" benefit.
()-(D) * (b)-(d) * *

Hlenefit Ac1,ual Re(luirenielits
Six. 204. (a) * *
(b)(1) * *
(2) * *
(3) ( (A)-(I)) * *
(E) For lpurl)oses of this sbiisetctioni in the (case of any maritime in stry, 12 (la\s of service shall bhe treated as [a year of participaiion] /.o) hours of sorr/ce. The Sc(cretary my In 1)rescribe regulations to arry olit 1he purposes of t his sul)aragra)lh.
(c)- (h) * *





79

Joint and Survivor Annuity Ie(luireiiient
SEC 205. (a) A pwfsio plan may pro i;dc that th nori#l form of benefit is a form. other than an annuity. Ifa l)nsion plan I) )rovi(les for the payment of benefits in the form of an annuity ( whirtheir as th normal form or as an option), such plan shall provide for the payment of the annuity benefits in a form having the effect of a (qualifie(1 joint and survivor annuity.
[(b) In the case of a plan which provides for the payment of beniefits before the normal retirement age as defined in section ." (24), the plan is not required to provide for the payment of anmity l)enefits in a form having the effect of a qualified joiit and survivor annuity during the period beginning on the date on which the employee enters into the plan as a participant and ending on the later of
[(1) the date the employee reaches the earliest retirement age.
or
[(2) the first day of the 120th month beginning before the date
on which the employee reaches normal retirement age.]
(b) (1) A.1 plan which. provides that the normal form. of ben-efit is an annuity shall, with respect to any parti(ipant who under the plan is credited with ait least 10 years of service for esting pu)uiposes under section 203 and who dies before the annuity starting d(late, provide a survivor's annuity for the participant s spous(e(A) which begins on the annuity starting (late (detennined as if
the participant had lived until the earliest retirement age under the plan, or the participant's actual date of death if later, and had retired on such date prior to death),if the spouse is living on such
date, and
(B) except as provided in paragraph (2), the payments under
which are not less the payments which would have been made under the survivor's annuity to which such spouse would have been entitled if the participant had terminated employment on his date of death, had survived and retired on such annuity starting date,
and had died on the da!y following .uch date.
(2) If on the date of the participant's death, the actuarial equivalent of the survivor's annuity does not exceed $2,000, a plan described in paragraph (1) may distribute the survivor's benefit in the form of a lump sum, or in the form of installments eomnencing, not later than the annuity starting date specified in paragraph (1) (A).
[(c) (1) A plan described in subsection (b) d(loes not meet the requirements of subsection (a) unless, under the plan, a participant has a reasonable period in which hlie may elect the qualified joint and survivor annuity form with respect to the period beginning on the date on which the period described in subsection (b) ends and ending on the date on which he reaches normal ret rement age if hlie continues his employment during that period.
[(2) A plan does not meet the requirements of this subsection unless, in the case of such election, the payments under the survivor annuity are not less than the payments which would have been made under the joint annuity to which the participant would have been entitled if he had made an election under this subsection immediately prior to his retirement and if his retirement had occurred on the date immediately preceding the date of his death and within the period within which an election can be made.]





80

(c) A plan which provides that the normal form of benefit is a fo-rm other than an annuity shall, with respect to any participant who under the plan has at least 10 years of service for vesting purposes under section 203 and who dies before receiving the percentage of his benefit which is nonforfeitable, provide (1) that the participant's benefit is distributed to the surviving spouse in the form, of a lump sum, or in installments com menacing, 'not later than 60 days after the end of the plan year in which the participant died, or (2) that the participant's benefit is distributed to the surviving spouse at such other time and in such manner as the plan and the surviving spouse may agree in writing.
(d) A plan shall not be treated as not satisfying the requirements of this section solely because the spouse of the participant is not entitled to receive a survivor annuity [(whether or not an election has been made under subsection (c))] unless the participant and his spouse have been married throughout the 1-year period ending on the date of such participant's death.
[(c) A plan shall not be treated as satisfying the requirements of this section unless, under the plan, each participant has a reasonable period (as prescribed by the Secretary of the Treasury by regulations) before the annuity starting date during which he may elect in writing (after having received a written explanation of the terms and conditions of the joint and survivor annuity and the effect of an election under this subsection) not to take such joint and survivor annuity.]
(e) (1) Participants in plans described in subsection (b) shall have the right to elect not to take joint and survivor annuities and the right to revoke such elections and to reelect, subject to the following terms and conditions:
(A) A document explaining the terms and conditions of the joint and survivor annuity, and the rights and effects of, and procedures pertaining to. election, revocation and reelection, shall be furnished to each participant a reasonable time before the date on which the participant completes 10 years of service for vesting purposes under seetion 203.
(B) Any election, revocation or reelection shall be in writing. The right to elect, revoke, or reelect shall not extend beyond the date of a participant's death or retirement under the terms of the plan, whichc er occurs earlier.
(C) Respecting any participant, the document described in subparagraph (A) need not be furnished more than once if(i) the plan's summary plan descri/ptio includes an explanation, similar to the explanation described in subparagraph (A), which is generally applicable to all participants and which satisfies the requirements of section 102(a) (1) ; and
( ii) the document described in subparagraph (A) makes prominent frefere ne to the fact that the explanation contained therein may be of iontilu;ng importance to the participant and should
be r(1tand w ith the summay plan description.
(2) The Secretary of the Treasur t shall prescribe regulations to impsubseetIt.
plement this sbefiOn.
(f)(g) * *
(h) For thle purposes of this section, a plan may take into account in any equitable fashion (as determined by the Secretary of the Treas-






ury) any increased costs resulting from providing [(joint and survivor annuity benefits under an election made under subsection (c)] the survivors' benefits required under this section, to the extent such increased costs are attributable to the availability of such benefits prior to the wnmal retirement age under the plain.
(i) * *
Other Provisions Relating to Form1 and PIayment of Benefits
SEc. 206. (a) * *
(b) If(1) a participant or beneficiary is receiving benefits under a
pension plan or is receiving disability benefits under a welfare
plan, or
(2) a participant is separated from the service and has nonforfeitable rights to benefits, a plan may not decrease benefits of such a participant by reason of any increase in the benefit levels payable under title II of the Social Security Act or the Railroad Retirement Act of 1937, or any increase in the wage base under such title II, if such increase takes place after the date of the enactment of this Act (or, in the case of a participant or beneficiary who is receiving disability benefits under a welfare plan, the date of enactment of the ERISA Improiements Act of 1979) ;
or (if later) the earlier of the date of first entitlement of such benefits or the date of such separation. A pension plan may 'not reduce or suspend retirement pension benefits being received by a participant or beneficiary or retirement pension benefits in which a participant who is separated from the service has a nonforfeitable right by reason of any payment made to the participant or beneficiary by the employer maintaining the plan as the result of an award or settlement made under or pursuant to a workers'
compensation law.
(C) * *
(d) (1)-(2)***
(3) Paragraph (1) shall not apply in the case of a judgment, decree or order (including an approval of a property settlement agreement) relating to child support, alimony payments, or Marital property rights, pursuant to a State domestic relations law (whether of the common law or community property type), which(A) creates or recognizes the existence of an individual's right
to receive all or a portion of the benefits to which a participant or a participant's designated beneficiary would otherwise be entitled under a pension plan,
(B) clearly identifies such participant, the amount or percentage of such benefits to be paid to such individual, the number of payments to which such judgment, decree or order applies, and
the nane and mailing address of such individual, and
(C) does not require such plan to alter the effective date, timing,
form, duration, or amount of a(ny benefit payments under the plan or to honor any election which is not provided for under the plan or which is made by a person other than a participant or
beneficiary.





82

[Recordkeepmig and Reporting Requirements
[,SFc. 219. (a) (1) Except as prLovided by paragraph (2) every employer shall. in accordance wiith regulations prescribed by the Sce tarv, maintain records with respect to each of his employees sufficient to determine the benefits due or which may become due, to such employees. T~he plan administrator shall make fi report, in such manner and at such time as may be provided in regulations prescribed by the Secretary, to each employee who is a participant under the plan and who
,[(A) requests such report, in such manner and at such time as
may be provided in such regulations,
[(B) t e rminates h is service with thle employer, or
[(C) has a 1-year break in service (as defined in section 203
(b) (3) (A)).
[The. employer shall furnish to the plan administrator the information necessary for the admiinistrator to make the reports required by the pre.-edingrsentenice. Not more than one report shall be reqluired1 under subparagraph (A) in any 12-month period. Not more than one report shall b)e required under subp~aragraph (C) with respect to consecutive 1-year breaks in service. The. report required under this paragraph shall be sufficient to inform the employee of his accrued benefits under the plan and the percentage of such benefits which are non forfeit abl e undIer the lan.i
[(2) If more than one employer adopts a plan, each such employer shall, in accordance with regulations prescribed by the Secretary, furnish to the plan administrator the information necessary for thie diiiinistrator to maintain the records and make the reports- required by paragrm aph (1). Such administrator shall maintain the records and to thle extent provided under ireguil ations prescribed by the Secretary, make. the, reports, required by paragraph (1).
[(b) If any person who is required, under subsection (a), to furnish informiat ion or maintain records for any plan year fails to com-ply with such reqjurenient, he shall, pay to the S ecretary a civil lpenllty of $10 for each employee with respect, to whom such failure occurs, unless it, is showNn that such failure is duie to reasonable cause.]

Reaiprooal A'qrcceuwdtN
itr. 20)f). Aof ,eth, towlioy (IVY/ ot/lcr prOrisAion of this title,. the coilf/l)ItoU'1 I/Hit/f with, rcspwct to the cm/./lolUnt of (In cm-ployee i'll)NU~lit to aI co//ccti lf-,( (l/ il/l (/ (1q/(r'cflt (Indl /Nfl/tlc to (I pen'lsijon 01' ii'l */ feljyb/U ullU falii e d pio.;wln t to that aql)rceenwnt (her~ein)after /U /lbs secr/ioU rrcfr1 to (1,A thflw f//(IlU) Imay Iwtactre to a1 NiU//l/ jC/N/fiOrW, W1f/a rt plb/U. rN;b/hf v1(hc /fllPrNtilit to an1other) Col'f / r /1' c 1l~ 111 l (I l 'Ib//I(tp I O C i t l' c /Up o y e h ad/U 1( p re ci0I/s/?/ hrrcoer a /)(lYr/ Wi(/f/Ut(1 ( h0'YH Y'ifr jctf(rt't/ to iUl this N'tWUn em f/I( hoyll /1/foi() 4j "o/h fru/' /*N' 'pli/N1/t to (I It'iItt( /1 (/(//te'111U1t hntr Iit fl. t/I( 'l i/iis/ lf/'1101 0 //( th illw/ /1/UP (I/1(1 Me, Um illNtrator of f/W li10/ /U Iill. //l (1/1 Ct/NCc wi 'r co/tiltltiOU. i'C(ii'tY with ),espet~C fo) f/I( riiip/oi/iutii o.1fel (nl f/p/oyco' f/Ct/'(/rltf C(/ c fln.P (Ill (11w1Y PIlan! /lo( /10/ boC /1fli ill flf'0/'d(/lr i/h /his NNfCtiOn'. NI/C/ c/U lo?//nenlt 87 all hr OlHi(rer /NI rly/Um l /)lO!//it'U 111fer the /i//Y(/Wt1i of the home pl(fli I'o,~ /fl//losfN olf co/I/p~il/ f/u ~ l 1/I(t.11d c/lt (/1(1l'ocsting of Such





83

employee, but the employer who c(antributed to thi, away plan 0 b
Plans Maintained by More Than One Employer, Predcces-or Plan.s, and Employer Groups
SEc. 210. (a) Notwithstanding any other provision of this part or part 3, the following provisions of this subsection shall apply to a plan maintained by more than one employer:
(1)-(3) * *
(4) a multiemployer plan may provide that the accrued be.nefit to which a participant is entitled upon his separ ation from the
service is(A) (i) the sum of different rates of benefit accrual for
different periods of participation as defned by one or more
fixed calendar dates, or
(ii) the sum of different rates of benefit accrual for different periods of participation, as defined by employment
in different bargaining units, and
(B) determined, for purposes of subparagraphs (A) and
(C) of subsection 204(b) (1), by projecting the normal retirement benefit to which a participant would be entitled if he continued to accrue benefits at the average of the rates applicable to his period of actual participation.
(b)-(d) * *
Effective Dates
SEC. 211. (a)-(e) * *
(f) Notwithstanding anything to the contrary in this part, the Secretary may prescribe by regulation one or more systems of measuring service for purposes of sections 202, 203, and 204 which are based upon measurement of the elapsed time of an employee's service. Any such regulations shall include safeguards to assure that employees whose service is measured in terms of elapsed time are, in the aggregate, not disadvantaged by the use of such system of measurement when compared to employees whose service is measured in the manner prescribed in sections 202, 203, and 204.

Minimum Funding Standards
SEc. 302. (a)-(b) * *
(c) (1) For purposes of this part, normal costs, accrued liability, past service liabilities, and experience gains and losses shall be determined under the funding method used to determine costs under the plan. The funding method of a collectively bargained plan may take





84

account, and for any plan year beginning after December 31, 1980, shall take account, of all provisions of the plan, including provisions which have not yet affected any participant as to entitlement to, or accrual of, benefits. In the event any such provision is not implemented at the time specified when the provision was adopted, the funding standard account shall be appropriately adjusted in accordance with regulations prescribed by the Secretary. A provision adopted but contingent on a future event shall be deemed not to be in effect as a provision of the plan prior to the occurrence of that event. A plan which adopts the procedures described in the preceding three sentences must apply such procedures consistently to both benefit increases and benefit decreases. The Secretary may by regulation extend the applicability of such procedures or similar procedures to one or more classes of plans which are not collectively bargained if he determines that such application would be consistent with the purposes of this part. If the Secretary determines that the application of such procedures, in the case of any plan or class of plans, has been inconsistent with the purposes of this part, he may condition or disallow the use of such procedures for such plan or class of plans.
(2)-(10) * *
(d) **
Coverage
SEC.401. (a) * *
(b) For purposes of this part:
(1) * *
[(2) In the case of a plan to which a guaranteed benefit policy is issued by an insurer, the assets of such plan shall be deemed to include such policy, but shall not, solely by reason of the issuance of such policy, be deemed to include any assets of such insurer. For purposes of this paragraph:
[(A) The term "insurer" means an insurance company, insurance service, or insurance organization, qualified to do business in a State.
[(B) The term "guaranteed benefit policy" means an insurance policy or contract to the extent that such policy or contract provides for benefits the anmoant of which is guaranteed by the insurer. Such term includes any surplus in a separate account, but excludes any other portion of a separate account.]
(2) In the case of a plan which i. funded in whole or in part by a contract or policy of nmwrance issued by an insurer, the assets of the plan s8ha// #ine/udce u.ch contract or polcy/ but shall not, solely by reason of the issuance of such contract or policy, include the assets of the ;InoWrl issuing the contract or policy except to the extent that such (INsels a'e fuir t ined / by the ;/.urtr in one or more separate accounts a1ld do not constitute surplus /in any such account. For purposes of ////1" part//Piaph, thIP term e mem N/#?#8"~p~f71tr itre; H/'P/1;/'//&J//'//.0 00///// boo/lr, ca// in nspfrance (OFnpayf, insurI//O scfrl;'e, 0) i1suae;j ofriaization, qualified to conduct business

EIstalishlnient of Trust
S. 403. (u)-(b) * *
(c)(1) * *
(2 (A) Ini thie case of a contribution which is nadle by an employer by a uiistake of fact, paragraph (1) shall not prohibit the return of






such contribution to the employer within one year after the payment of the contribution or, in the case of a collecticly bargained plan maintained by more than one e~milo.l/er, within six months (after the plan administrator determines that the contribution was made by a mistake of fact or determines that holding a contribution would contravene the provisions of section 302 of the Labor-Manaqgement Relations Act, 1947.
(B)-(C) * *
(3) * (d) * *
Liability for Breach by Co-fiduciary
SEc.405. (a)-(d) * *
(e) In the case of a fiduciary other than an indicidual, the term 'knowledge' in subsection (a) (3) shall mean(1) knowledge actually communicated, and
(2) knowledge on the part of any employee or agent of such
fiduciary which, in the normal course of such fduciary's business,
should have been conmmuicated by such employee or agent,
to such fiduciary's officer or employee who is authorized to carry out such fiduciary's responsibilities, obligations, or duties or who in fact carries out such responsibilities, obligations, or duties, regarding the matter to which the knowledge relates.

Exemptions from Prohibited Transactions
SEC. 408. (a) * *
(b) The prohibitions provided in section 406 shall not apply to any of the following transactions:
(1)-(9) * *
(10) Any transfer of contributions between plans pursuant to section 209, if a plan to which the contributions are transferred pays not more than a reasonable charge for any administrative expenses reasonably incurred by a plan transferring such contributions.
(c)-(e) * *
(f) Beginning on January 1, 1980, the Secretary shall, with respect to each exemption application filed pursuant to subsection (a) which has been or is pending final administrative determination for a period exceeding(1) 180 days, in the case of an individual exemption, or
(2) 365 days, in the case of a class exemption, report to the
Committee on Labor and Human Resources of the Senate and the Committee on Education and Labor of the House of Representatives, and to the President. Each such report shall identify and describe the applicant or applicants, the transaction or transactions for which the exemption is sought, the terms of the exemption as described in the application and as proposed to be granted by the Secretary (if there has been such a proposal) and the reason or reasons for the continuing pendency of the application. Such report shall also identify, by name and title, the official or officials of the Departwment of Labor who are responsible for processing each such exemption application.





86

Civil Enforcement
SEc. 502. (a) A civil action may be brought(1)-(3) * *
(4) by the Secretary, or by a participant, or beneficiary for
appropriate relief in the case of a violation of section 105[(c)];
(5)-(6) * *
(7) by any employee, participant or beneficiary for damages
due to reliance on a misrepresentation described in section 515.
(b) (1) In the case of a plan which is qualified under section 401(a), 403(a), or 405(a) of the Internal Revenue Code of 1954 (or with respect to which an application to so qualify has been filed and has not been finally determined) the Secretary may exercise his authority under subsection (a) (5) with respect to a violation of, or the enforcement of, parts 2 and 3 of this subtitle (relating to participation, vesting, and funding), only if
[(1)] (A) requested by the Secretary of the Treasury, or
[ (2) ] (B) one or more participants, beneficiaries, or fiduciaries,
of such plan request in writing (in such manner as the Secretary shall prescribe by regulation) that he exercise such authority on their behalf. In the case of such a request under this paragraph he may exercise such authority only if he determines that such violation affects, or such enforcement is necessary to protect, claims of participants or beneficiaries to benefits under the
plan.
(2) The Secretary shall not initiate an action to enforce section 516.
(c-f * *
(g) (1) Except as provided in paragraph (2), [In] in any action under this title by an employee, [a] participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of the action to either party.
(2) In any action under this title by a fiduciary on behalf of a plan to enforce the procisios of section 516 and in 'which a judgment in fa 'or of the plan is awarded, the court shall allow a reasonable attonwy's fee and costs of the action, to be paid by the defendant.
(h) A copy of the complaint in any action under this title by an employee, participant, beneficiary, or fiduciary (other than an action brought by one or more participants or beneficiaries under subsection (a) (1) (B) which is solely for the purpose of recovering benefits due such participants under the terms of the plan) shall be served uipon the Secretary and the Secretary of the Treasury by certified mail. Either Secretary shall have the right in his discretion to intervene in any action, except that the Secretary of the Treasury may not intervene in any action under parts 4 ld 5 of this subtitle. If the Secretarl. brings al action under subsection (a) on behalf of an employee, pirticii)ant, or beneficiary, he shall notify the Secretary of the Treasury.
(i)-(j) * *
(k) Suits 1)v ani administrator, fiduciary, eiiployee, part cipant, or 1)eneficialy of an elplilyee benefit plan to review a final order of the Sereta ry, to rest ri in the Secretary from taking any action contrary to tihe pirovisions of this Act, or to compel him to take action required under this title, may )e brought in the district court of the United





87

States for the district where the plan has its principal office, or in the United States District Court for the District of Columbia.
(1) Except as provided by paragraph (3)
(1) no person or employee beie fit plan shall be subject to 1wability or puntfishmen't, civil or criminal, or be required to reimburse or pay money/ or any other thing of 'ral/le, (a8 the (liY'et or indirect result of a cause of action expicitly or implicitly alleying that the inte rest of an employee in an, employee benefit ploa is, or ought to be characterized as or deem ed to be, a security for purposes of section 17(a) of the Securities Act of 1933 avi section 10(b) of the Securities Exchange Act of 1934, or within
the meaning of any~ State law which regulates securities;
(2) no court of the United States sh-all have jurisdiction of an
action or proceeding at law or in equity, to the extent such action or proceeding involves a came of action explicitly or implicitly alleging that the interest of an employee in an employee benefit plan is, or ought to be characterized as or deemed to be, a security for purposes of section 17(a) of the Securities Act of 1933 and section 10(b) of the Securities Exchange Act of 1934; or within
the meaning of any State law which regulates securities; and
(3) paragraphs (1) and (2) shall not apply respecting a cause
of action based upon any act or omission which occurred before the date of enactment of the EISA Improvements Act of -1979.
(mn) In any civil proceeding relating to the disclosure requirements of part 1 of this subtitle, a mnot ion to dismiss the action as to a defendant plan, plan administrator, or any trustee or trustees solely on the grounds that the plan has utilized the alternative method of document distribution described in section 112 shall not be, granted except upon a finding by the court that the requirements of subsections (a)
(b), and (e) of such section have been satisfied. Upon motion of any plaintiff or defendant in such a civil proceeding, any employer to whom section 112(c) applies 'who employs or employed any participant or beneficiary who is a plaintiff in such proceeding may be joinedc as a defendant, pursuant to applicable law.

Advisory Council
SEC. .512. (a) (1)***
(2) * *
(3) Of the members appointed, three shall be representatives of emp)loyee organizations (at least one of whom shall be representative of any organization members of which are participants in a multiemployer plan) ; three shall be representatives of employers [at least] one of whom shall be representative of employers maintaining or Contributing to multiemployer plans and one of whom~ shall be representative of employers maintaining small plans) ; three representatives shall be appointed from the general public, one of whom shall be a person representing those receiving benefits from a pension plan; and there shall be one representatives each from the fields of insurance, corporate trust, actuarial counsel ing, investment counsel ing, investment management, and the accounting field.
S4) ** *
b)-(e)**





88

Research, Studies, and Annual Report
SEc. 513. (a)-(c) * *
(d) The Secretary shall conduct a study of the feasibility and ra-nifieations of requiring employee pension benefit plans to provide cost-of-living adjustments to benefits payable under such plans. The Secretary shall compile data and analyze the effect inflation is having and may be expected to have on retirement benefits provided by prirate pension plans. The Secretary shall submit the study required by this subsection to the Congress no later than 24 months after the date of enactment of the ERISA Improvements Act of 1979.

Effect on Other Laws
SEC. 514. (a) * *
(b) (1) * *
(2) (A) Except as provided in subparagraph (B) and subsection
(d) (2), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.
(B) Neither an employee benefit plan described in section 4(a), which is not exempt under section 4(b) (other than a plan established primarily for the purpose of providing death benefits), nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies. A State insurance law which provides that a specific benefit or benefits must be provided or made available by a contract or policy of insurance issued to an employee benefit plan is a law which relates to an employee benefit plan within the meaning of subsection (a) and is not a law which regulates insurance within the meaning of subparagraph
(A). A provision of State law which requires that a contract or policy of ino.suiranee issued to an employee benefit plan must permit a participant to convert or continue protection after it ceases to be provided under the employee benefit plan is a provision of a law described in subparagraph (A) and not a provision of law described in subsection
(a).
(B)***
(3)-(4) ***
(5) (A) Except as provided in subparagraph (B) and in the last sentence of paragraph (2)(B), subsection (a) shall not apply to a State law insofar as it requires employers to directly or indirectly proride health care benefits or services to employees or employees and /b;i (hdpvdent. or wh rIh "regulatx qeane nnts Uwle wh ich health care benefits or services are provided to employees or employees and their deendeni ts by employee ers.
(B) Notwrthstaind;nq subparagraph (A), parts (1), (4), and (5) of this subtitle shall// supersede any State law described in such subparagraph, but the Secretatry may enter into cooperate arrangements under this' paragraphl and section t0 with officials of States having laiws described in subparagraph (A) to assist such States in effectuat-





89

ing the policies of provisions of such laws which are superceded by such parts.
(6) Subsection (a) shall not apply respecting any judgment, decree, or order pursuwnt to a State domestic relations law whetherr of the common law or community property type), if such judgment, decree or order is described in section 206 (d) (3).
(c) * *
(d) (1) [Nothing] Except as provided in paragraph (2), nothing in this title shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States (except as provided( in sections 111 and 507(b)) or any rule or regulation issued under any such law.
(2) Notwithstanding any pre~ismion of law to the con trariy, the interest of an employee in an employee benefit plan is not. and sha// not be characterized as or deemed to be, a security for purposes of section 17(a) of the Securities Act of 193t and section 10(b) of the Securities and Exhange Act of 1934, or within the meaning of any State law which regulates securities.
(e) For purposes of subsection (d) (2) and sections 502(1) and 515, the term 'employee benefit plan' shall include any employees benifit plan(1) defined in section 3(3), irrespective of whether the only
participants in the plan are owner-employees as defined in seetion 401(c) (3) of the Internal Revenue Code of 1954, and
(2) which is described in section 4(a) and not exempt under
section 4 (b) .
Misrepresentation
SEc. 515. (a) It shall be unlawful for any person to knowingly misrepresent the terms and conditions of an employee benefit plan, the financial condition of a plan, or the status under the plan of any employee, participant or beneficiary.
(b) No person shall be liable under subsection (a) respecting a document which is required to be disclosed to participants or beneficiaries or to be filed with the Secretary of Labor, the Pension Benefit Guaranty Corporation or the Secretary of the Trea.sury under this Act or the Internal Revenue Code of 1954, provided that such document satisfies the requirements of such Act or Code and duly promulgated regulations thereunder.
(c) An employee beneft plan shall not be liable for damages resulting from a misrepresentation described in subsection (a).
(d) Subsection (a) shall not apply as to any act or omission occurring before the date of enactment of the ERIA nImproremi(ents Act of 1979.
Obligation of Employer to Pay Contributions
Sec. 516. Every employer who is obligated under the t ons of a
collectively bargained plan (or under the terms of a collective b ugaining agreement related to such plan) to make periodic cantributions to the plan shall, to the extent not inconsistent w~ith law, mak< such contributions in accordance with the terms and conditions of such plan or such agreement.





90


VIII. S. 209, AS AMENDED AND APPROVED BY THE
COMMITTEE ON LABOR AND HUMAN RESOURCES

1 SECTION). SHORT TITLE.

2 (a) This Act may be cited as the "ERISA Improve3 ments Act of 1979".

4 (b) TABLE OF CONTENTS.Sec. 1. Short title and table of contents.
Sec. 2. Technical and conforming changes.
Sec. 3. Findings and declaration of policy.

TITLE I-AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

Subtitle A-Declaration of Policy; Definitions

Sec. 101. Declaration of policy.
Sec. 102. Definitions.

Subtitle B-Simplifying and Clarifying Amendments PART 1-REPORTING AND DISCLOSURE

Sec. 111. Disclosure of status under pension plans.
Sec. 112. Exemptions and modifications.
Sec. 113. Elimination of summary annual report.
Sec. 114. Improvement of reporting requirements.
Sec. 115. Opinions of actuaries and accountants.
Sec. 116. Scope of accountant's opinion.
Sec. 117 Alternative distribution method for multiemployer plans.
Sec. 118. Effective dates.

PART 2-MINIMUM STANDARDS

Sec. 121. Reciprocal agreements.
Sec. 122. Technical correction.
Sec. 123. Determining participation on a plan year basis.
Sec. 124. Summation of different benefit accrual rates.
Sec. 125. Suspension of benefits because of reemployment.
Sec. 126. Reduction in retirement or disability benefits.
Sec. 127. Survivor protection.
Sec. 128. Alimony and support payments.
Sec. 129. Elapsed time.

PART 3-FUNDING

See. 131. Funding to take account of future amendments.

PARr 4-FDUCIARY RESPONSIBILITY

Se. 141. Genterl asset account.
See. 142. IRefund of mistaken contributions.





91


Sec. 143. Cofiduciary responsibility.
Sec. 144. Exemption for reciprocity arrangements.
Sec. 145. Prohibited transaction exemption reporting.

PART 5-ADMINISTRATION, ENFORCEMENT, AND ADJUSTMENTS IN APPLICABLE LA W

See. 151. Advisory council.
Sec. 152. Impact of inflation on retirement benefits.
Sec. 153. Remedies.
Sec. 154. Adjustments in applicable law.
See. 155. Preemption.
Sec. 156. Effective dates.

TITLE II-AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1954

Sec. 201. Lump sum distributions; plans treated as single plan.
Sec. 202. Lump sum distributions; separation from the service.
Sec. 203. Deduction for certain employee retirement savings and contributions.
Sec. 204. Credit for the establishment of qualified plans by small employers.
See. 205. Conforming amendments for ERISA changes in title L

TITLE III-SPECIAL MASTER AND PROTOTYPE PLANS

See. 301. Special master and prototype plans.

TITLE IV-EMPLOYEE BENEFITS COMMISSION

See. 401. Employee Benefits Commission.
See. 402. Powers of Commission.
See. 403. Termination of Treasury Department's jurisdiction.
See. 404. Agency cooperation.
Sec. 405. Effective date and repeal.

1 SEC. 2. TECHNICAL AND CONFORMING CHANGES.

2 The Secretary of the Treasury and the Secretary of

3 Labor shall, as soon as practicable but in any event not later 4 than 90 days after the date of the enactment of this Act, 5 submit to the Congress a draft of any technical and conform6 ing changes in the Internal Revenue Code of 1954, and the 7 Employee Retirement Income Security Act of 1974, respec8 tively, which are necessary to reflect throughout such Code









5 3-018 0 79 7





92

1 and Act the changes in the substantive provisions of law
2 made by this Act.
3 SEC. 3. FINDINGS AND DECLARATION OF POLICY.
4 (a) The Congress finds that the paperwork burdens and
5 compliance costs resulting from the implementation of the 6 Employee Retirement Income Security Act of 1974 and the 7 Internal Revenue Code of 1954 affecting employee benefit 8 plans and persons sponsoring such plans can be reduced in 9 certain respects without jeopardizing the interests of employ10 ees in such plans and in the integrity of the assets of such 11 plans; that the free flow of commerce and the implementation 12 of such Act and Code have been restricted and hampered by 13 assertions of applicability of Federal and State securities 14 and other laws to certain employee benefit plans; and that 15 present and future needs for retirement income can best be 16 met by strengthening and improving private employee pen17 sion benefit plans and that it is in the national interest to do 18 so.
19 (b) The Congress further finds that the free flow of com20 merce and the implementation of the provisions of the Em21 ployee Retirement Income Security Act of 1974 and of the 22 Internal Revenue Code of 1954 have been restricted and 23 hampered by administrative difficulties encountered by the 24 Labor Department, the Internal Revenue Service, and the 25 Pension Benefit Guaranty Corporation; that duplications





93

1 and overlapping of agency responsibility have resulted in 2 costly delays, confusion, and excessive paperwork, and that 3 the interests of participants in and beneficiaries under 4 private sector employee benefit plans have been adversely af5 fected thereby.
6 (c) It is hereby declared to be the policy of this Act to
7 foster the establishment and maintenance of private employee 8 pension benefit plans; to further improve such plans by clari9 fying, simplifying, and otherwise improving such Act and the 10 provisions of such Code; to clarify prospectively the extent to 11 which Federal and State securities and other laws may affect 12 employee benefit plans which are subject to such Act; and to 13 consolidate in a single agency the administration of the Em14 ployee Retirement Income Security Act of 1974 and certain 15 provisions of the Internal Revenue Code of 1954 relating to 16 employee benefit plans.
17 TITLE I-AMENDMENTS TO THE EMPLOYEE 18 RETIREMENT INCOME SECURITY ACT OF 1974 19 Subtitle A-Declaration of Policy; Definitions
20 SEC. 10L DECLARATION OF POLICY 21 Section 2 of the Employee Retirement Income Security

22 Act of 1974 is amended by adding at the end thereof the 23 following new subsection:
24 "(d) It is hereby further declared to be the policy of this
25 Act to foster the establishment and maintenance of employee





94


1 benefit plans sponsored by employers, employee organiza2 tions, or both. ".

3 SEC. 102 DEFNITONS.

4 Section 3 of the Employee Retirement Income Security

5 Act of 1974 is amended by6 (1) striking out subparagraphs (A), (B), (C), (D),

7 (H), and (I) of paragraph (14) and inserting in lieu

8 thereof, respectively, the following subparagraphs:

9 "(A) any fiduciary, counsel, or employee of such

10 plan;

11 "(B) a person providing professional services to

12 such plan, or a person providing nonprofessional serv13 ices on a continuous basis to such plan;

14 "(C) an employer any of whose employees is a

15 trustee of a trust described in section 302(c) of the

16 Labor- Management Relations Act, 1947, if such trust

17 is maintained in connection with such plan, and an

18 employer any of whose employees is covered by such

19 plan if the employees of such employer constitute 5

20 percent or more of all employees covered by the plan on

21 the first day of the plan year'1

22 "(D) an employee organization any of whose

2:3 members or employees is a trustee of a trust described 24 in section 302(c) of the Labor-Management Relations

25 Act, 1947, if such trust is maintained in connection