- 2 - - 8 - - lO - - 12 - -9- -3- T-6 - Ii -5- - -6- -7- i i - 4 - INTRODUCTION pants and from January I,EBRI 1981 to June 30, 1981 an additional 2.3 million ADMINISTRATION ,'3 :'2 _ _ _ _• I A 1978 study conducted by Arthur Andersen & Company indicated that for The Act also allows for the I undertaking of research I and surveys to col- participants. To Public ERISA summarize, AND and PRIVATE private the fiduciary employer PENSIONS and pensions prohibited and individual transactions effort provisions are playing of FIDUCIARY STANDARDS AND PROHIBITED TRANSACTIONS I See Table 2. a sample of _8 large employers i the added administrative costs lect, compile, analyze and publish data, information, and statistics a Providing ERISA an increasingly are forshown retirement important by available income role.inf inThe ormati the ocontinued nUnited to have States levelsto has of ppedeffort takencertain will on be bad ASSETS 3. There is no documented evidence showing that plan participants and The TRIPARTITE agency administrative TABLE struc2 ture found in ERISA, based approximated 9 million dollars. Extrapolation indicates that for all relating to employer benefit plans. practices affected by whilefuture creating Social add Security ed planpolicy, costs and future placing policy aon special in-kindburden bene- economic In spite dimensions of adverse experience foreseen by immediately very few asfollowing recently passage as 1974. The long- beneficiaries make use of the information provided to them. Instead, The Employee Retirement Income Security Act of 1974 (ERISA) has a form- upon the legislative history, was quite clearly the result of political This area of ERISA represents one of the most important and contro- IRAs have been criticized FAC'!_._ in the _I past FECgING for IRA not CREATION providing for low income plans the added costs could approximate 100 million dollars. i J fit term programs, costs of meeting and future retirement federalincome regulatory promises policy. already Givenmade theseis facts stag- the of on ER many ISA, gnet ood plan practices. formation The since same 1974 informati totaled on in197,523 dicates plans. that there In 1976 are Pension there isfunds a clear heldconsensus assets ofthat $687they billion discard at the theend information of the second in most ative history that goes back at least to 1955. While the reaction to jobs compromise. As a result of its initial inefficiences the agencies agreed • versial. For plan sponsors, concern has principally been over the time individuals. Available research indicates that this is true. IRAs The Departments of Treasury and Labor and the Pension Benefit Guaranty need for national attention to retirement income policy on a comprehen- gering: there ways were to open only up3,494 an easier net new pathplans; for the in 1980, good with 56,063. out cDuring ondoning thethefirst bad. cases. Again, many argue that access to much of the information on lost through the closing of the U.S. Studebaker auto plant was one of to qu aarter reallocation of 1981, of($478.4 responsibilities billion priva in t1e; 976$208.6 and thebillion Reorgani st zate ation and local). Plan NK3MSER .NUMBER and expense that has been required to obtain exemptions from the generally provide for the moderate-income, full-time worker; they cannot Three purposes were set forth in ERISA for the reporting and disclosure Corporation have worked continuously since the passage of ERISA to half sive of basis 1981,cannot 31,478benewstated planstoo were strongly. formed. FACTOR ELIGIBLE IRAS [rfILIZATION regret, demand reaction might meet to thethe factobjectives that someof ERISA accrued more pension efficiently. benefits would not Numbe These r 4funds of 1979 grew madefrom these 5% to adjustm 16%ents of total perman financial ent. assets from 1950 to agencies and the inability to continue what have been normal business be expected, based upon available information, to provide for low-income provisions : FUTURE responsibly PROSPECTS meet their obligations. o several trillion dollars for Social Security; (MIT.T.TONS)(MILLIONS) be paid was met with shock and anger. With the Studebaker closing, the 1980. In 1979, the top 25 corporate funds held $120 billion; the top 25 practices that are viewed as legitimate. For fiduciaries, concern has individuals. The government program safety net promises protection to WHY ERISA? Those not covered by a private plan can be clearly identified: To summarize, there is agreement that the purposes of ERISA are sound, movement for "reform" began in earnest, culminating in the passage of Thepublic review,funds condu held cted $126-130 by the billion; Office ofthe Manag topem 25 entTaftand -HartBu ley dgetfunds in de held - $12 principallyINCOME beenIZVF/_ over the greater stringency of ERISA provisions as low-income individuals with sporadic attachment to the workforce. IRAs 1. to provide information to the government for purposes of enforcement; While there are many who feel that revision and refinement of ERISA is o nearly one-trillion dollars for federal employees; Private ERISA. sector reaction to the post-ERISA environment shows the tremen- but that the implementation might be made more efficient and effective. billion. Private assets grew 35-fold from 1950 to 1980 (13.25% per year), veloping the Reorganization Plan, clearly indicated that substantial cost compared to the fiduciary requirements in other areas of activity. For will increase the number of persons with adequate income during retire- both needed and justified, few if any deny that ERISA was needed or <$20,000 31.0 0.9 2.9% ERISA specified the following problems that required legislative solution dous o 31% resilience of workers of our report economic that s they ystem. are Inworking spite offorthefirms new with costs less and state and local assets grew 40-fold (13.8% per year) with a net inflow savings could be realized through consolidation into a single agency. investment specialists there has been concern that ERISA has discouraged ment, but $20,000 will not eliminate poverty 18.0 among 4.4 the elderly. 24.4% 2. to provide information for research studies called for in ERISA sec- advocate its repeal. (Act Section 2): MINIMUM o billions thanSTANDARDS 100 for workers, state and yet local they represent employees; 67.1% of the noncovered; administrative COVERAGE AND requirements PARTICIPATION of ERISA, private plan formation has nearly for private funds in 1980 of $22.3 billion. The review also indicated that arguments for the current structure $20-$50,000 16.4 3.5 21.3% venture capital investment. And, for a very diverse group there is a tion 503; and reached its >$50 pre-ERISA ,000 levels. Statement New 1.6 particiof patio0.8 n is growing 50.0% rapidly, and principally centered around the need to assure that multiple interests belief that these requirements have eliminated _r_l creativity in the invest- Corporate experience with thrift-savings plans and payroll deductions POST-ERISA EXPERIENCE there I. o lack billions is every of employee for reas private-sector on information; to believe employees; that the market will respond to new o Trade and Service employees generate 38.7% of jobs, they represent Research on the effects ofDallas the participation, L. Salisburyvesting and funding pro- ERISA established AC_ age 25, one year of service and 1,000 hours of work would The U.S. be considered Department on ofmaLabor jor issues. and the The U.S. present General structu Accounting re, it is Office ment of pension assets. lends evidence that deductible employee contributions will be used. Many 3. to provide information to plan participants and beneficiaries. 58.4% of the noncovered; incentives. In this case, a reduction in the costs of creating and main- Submitted To The visions as theofrequired ERISA has minimum been quite standard extensive. for pension Government plan participation. and private-sector Ad- argue have d, both providmade es th estimates at assurancof e. future asset levels - assuming no changes companies 25-6 have4 achieved up to 25.0 80% utilization 5.3 across all21.2% income groups. Experience since September 2, 1974 has been documented and analyzed research taining 2. dueindicates ato pensi the on lack that: planof cvesting ould proprovisions vide such many an incentive. employees with long Meeting these United costs could States prove Senate to be Labor the majorCommittee policy issue in the re- justing in publicfor policy. agricultural These and forecasts self-employed project total persons assetsthisof"ERISA" $3 trtllionworkforce in > $20,000 9.2 _.4 47.8% Research in this area has been limited. Articles, speeches andpast And, a recent survey indicated that over 50% of all workers will set The common complaint in past hearings has been that no research has tirement thoroughly incomeenough area to in allow the decade an assessment ahead, How of ERISA it is provisions. answered willIn fact, be of o years 27.7% of haveemployment annual earnings were losing belowanticipated $10,000, they benefits; represent 44.1% of Subcommittee On Labor IRAs represents AND DEDUCTIBLE 49.7 millionCONTRIBUTIONS workers, out of a total workforce of 95.4 million. private plans and $975 billion in state and local plans by the mid- testimony represent the only real resources. These resources: aside additional dollars if given the ability to do so on a tax deferred been presented to document or quantify the benefits achieved as a resuIt in some cases that analysis has been so complete that it has already Sere'iceand Houl'sI/ the noncovered; tremendous With the difficulties importance facing to all the thoseSocial involved Security- which system,meansthe every need for a 1. 1990 The' s. minimum standards set forth caused an increase in plan costs, EmpIoyer plans For coverThe74%Record of the Of ERISA Its workforce: Hearing Of 68.3% actively partici- basis. of the above noted costs, or how effectively the noted purposes have American. led to major post-ERISA legislative changes in the plan termination insur- 3. due to the inadequacy of minimum funding standards, the soundness complementary 25-64 private employee 15.0 benefit system 5.3 has never35.3% been more clear. a reallocation of plan November benefits to4, shorter 1981 service workers, and a pate. Of participants who had I0 or more years of service in current _ NC _ The Iegislation (S 1541) being discussed today highlights the importance I. highlight the fact that these provisions will become increasingly con- been achieved. Our limited review indicates that: >-$20,000 5.8 4.4 7_.9% ance program. While the "market place" appears to have adjusted to the o and 42.3%stability have been of plans with their with current respect to employer adequate for funds five years to pay orpro- less, On S. 1541 jobs, general78% strengthening were vested and of plan another funding 11.4% status. did not know their vesting Major public policy changes may well be made in the Social Security of working towards a holistic national retirement income policy. Such a troversial as the size of pension assets continues to grow and These new approaches and opportunities can greatly enhance retirement presence but constitute of ERISA, 57.9% there of is the substantial noncovered. evidence indicating that there For example, mised benefits were the mightdecision be endangered; made to expand benefit provisions status. program _ which could have "_ a dramatic _ . effect .on _the ° se future _ ° asset projec- policy would generally be viewed as including an emphasis on in- multiple interests seek to move investments to their benefit; income and move us towards more comprehensive ways of supplementing 1. Due to the agencies' enforcement focus on large plans and the lack are many changes that could be made to reduce plan costs without re- through Social Security and to raise payroll taxes to a level sufficient tions. 2. Principal difficultiesidentified have been related more to the com- dividual effort in addition to government or employer sponsored programs. Social of Securit effectiveness y. with which the documents filed have been handled, ducing the protections and safeguards provided by ERISA. 4. due to the termination of plans, employees have been deprived of to Themeet noncovered all Social work Security in newer obligations, industries, thefor demand small for employers, private plans for Source: EBRI estimates from May 1979 CPS Data and plexity of regulations than to requirements of the statute. For Mature industries have even higher levels of coverage. In 1979 relevant 2. provide example after example of transactions that require there may be more information required than will be or can be effec- and the anticipated dollars available benefits. to fund private plans would decrease. shorter time periods Treasury and atDepartment relativelyData, low wages. 1979. INTERACTION WITH SOCIAL SECURITY example, there are multiple definitions being promulgated for hour workforce coverage in the Mining industry was 88.8%, in Manufacturing Up through this year, 48 million persons were elegible for IRAs, with REPORTING exemptions AND that DISCLOS the UREauthors find it nearly impossible to view as tively used. Further, such reforms could be expected to accelerate the rate of new 81.9%, of service and inandTransportation year of service 79.9%. and IfIRS only /Treasury private initiatives establishments re- with 5.3 million persons creating them. They are principally created by per- abusive; i_ ,,._..,_ _ i_ plan formation and growth of participation that has been experienced InThese addition, problems extant led research to articulation indicatesof specific that Social policy: Security contributions The noncovered represent 23% of the ERI$A workforce. Present policies 1,000 garding or more vesting employees (the 4/are _0 controversy). considered, in 1979 the coverage rate was Any of the following changes in Social Security could have important sons over age 25, working full time and earning more than $20,000. This Reporting and disclosure requirements of ERISA have been among its most 2. Funding for finishing 1978 and 1979 statisticalfileswas cut off in since 1977; could remove the conditions that have caused no new multi- at plusbest individual have no provisions effect on aggregate will providesavings retirement levels income while private to many pension of 95.8%. consequences for private and public employer plan contribution levels, _=. _o,-:. _ _'_'. _. _=_ .. . group accounted for 4.4 million of all IRAs. Of the 5.8 million persons 3. provide substanial evidence that the cases brought to date by the frequently criticized provisions. And, as a result, among the most mid-1980 and the data will not be available for research studies. As employer plans to be created; and, could remove special pressures on contributions these 1. Require persons increase reporting by the time aggregate and they disclosure reach savings age ... by 65. establish between Research fiduciary 35¢undertaken and 80¢ standards per in 3. asset Studies accumulations indicate thatand earlier individual participation initiatives: or faster vesting would meeting these criteria and with more than one year of service, 75.9% government would not have been harmed by less restrictive fiduciary analyzed. a result, this reason for collecting certain information is removed. defined benefit plans. contributed 1980 by ... the require dollar. President's vesting Clearly Commission of indicating accrued on benefits that Pensiona ofshift Policy employees from andprivate with reformulated significant pensionsin increase costs from 2% to 30% without any significant increase in And, contrary to reports, private pension plan growth has not stopped. T created IRAs. With the extension of IRA elegibility to all workers, 25 of and prohibited transactions provisions; i Many argue that if research is not to be done, the information now L m _ I.= to 1981Social for periods EBRI Security indicates of service could that have ... 70% establish a negative to 80%minimum ofeffect those standards on reaching savings of 65and funding at capital the turn ... Inbenefits 1950 9.8provided million participated and an actual in long plans, termby decrease 1979, 35.2 in million benefits partici- pro- the 49 o millio raising n new retirement eligibles agesrepresent good IRA prospects in that they lJ A 1977 Department of Labor sponsored study indicated that small required to be filed might instead be required to be available upon marke Table ts. I provides detail on plan and participation growth since 1976. of the and century require will plan receive termination private pension insurance. income. For others, partic- match pated: vided theparticipation to abov long-service e criteria.growth workers. of 263%, compared to labor force growth of o reducing the level of indexing 4. indicate that these provisions increase the cost of plans due to the employer demand. plan administrative costs were increased by as much as 100% ularly those with limited workforce attachment, government transfer pro- 89% During 1980 new plan qualifications included 3.8 million partici- o adjusting the benefit calculation formula necessity of constant legal review of even the smallest transaction by ERISA requirements. grams 2. encourage may be thetheonly continuation effective and meansmaintenance of providing of "retirement" voluntary private income. To summarize, the statutory minimum standards of ERISA are generally If 25% o to speeding 50% of up theseincreas persons es inwere the to payroll establishtax IRAs, the potential by the plan and its fiduciaries. pension plans and the timely and uninterrupted payment of pension viewed as both constructive and sufficient. There is, however, a doc- annual retirement income set aside could be as high as 20 o universal coverage benefits. umented billion concern dollars. over regulations that have been issued in the past. N EMPLOYEE BENEFIT RESEARCH INSTITUTE Any opinions stated in this testimony are Mr. Salisbury's.