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Chamber of Commerce, Grand Rapids, MI, May 11, 1973
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The original documents are located in Box D34, folder "Chamber of Commerce, Grand
Rapids, MI, May 11, 1973" of the Ford Congressional Papers: Press Secretary and Speech
File at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. The Council donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
M OFFICE COPY
REMARKS BY REP. GERALD R. FORD, R-MICH.
REPUBLICAN LEADER, U. S. HOUSE OF REPRESENTATIVES
BEFORE THE GRAND RAPIDS CHAMBER OF COMMERCE
FRIDAY, MAY 11, 1973
FOR RELEASE ON DELIVERY
most
T WOULDN'T BE SURPRISED IF MANY OF YOU ARE ALREADY FAMILIAR
WITH PENSION ISSUES. BUT LET ME ADD A FEW MORE IDEAS THAT ARE
INVOLVED IN THE PENSION CONTROVERSY. THEY INVOLVE EQUITY IN THE
WORKPLACE, INCOME ADEQUACY OF OLDER AMERICANS, FEDERAL INCOME TAX,
CAPITAL FORMATION AND CONCENTRATION, AND, AS WITH MANY IMPORTANT
DOMESTIC ISSUES OF TODAY, THE PROPER ROLE OF GOVERNMENT REGULATION
VIS-A-VIS THE PRIVATE DECISION-MAKING PROCESS. IN FACT, THERE IS
HARDLY A DOMESTIC ECONOMIC ISSUE TODAY WHICH CANNOT BE RELATED
IN SOME WAY TO OUR PRIVATE PENSION SYSTEM.
THERE ARE so MANY FACETS OF THE PENSION CONTROVERSY AND THE
PENSION PLANS THEMSELVES ARE so VARIOUS AND TECHNICALLY COMPLICATED
THAT WE COULD GO ON FOR HOURS SIMPLY DESCRIBING THE CONTENT OF THE
SSUES,
BUT
DO
BECAUSE
ISSUES, BUT I WON'T DO THAT HERE BECAUSE I THINK YOU ALREADY HAVE
AN EXCELLENT BACKGROUND KNOWLEDGE OF THE SUBJECT. IN THE LAST
YEAR OR so THERE HAVE BEEN MANY MAGAZINE AND NEWSPAPER ARTICLES
AND AT LEAST TWO TELEVISION 'SPECIALS' DEVOTED TO THE PROBLEMS
OF THE PRIVATE PENSION SYSTEM. WHAT I WOULD LIKE TO DO IN THE
BRIEF TIME AVAILABLE HERE IS TO DESCRIBE THE PRESIDENT'S PROGRAM
ON PENSIONS AND THE FEATURES OF THE TWO ADMINISTRATION BILLS.
(MORE)
GERALD FORD VIBRARY
Digitized from Box D34 of the Ford Congressional Papers: Press Secretary and Speech File at the Gerald R. Ford Presidential Library
PAGE 2
ONE OF WHICH I INTRODUCED IN THE HOUSE OF REPRESENTATIVES DURING
THE 92ND CONGRESS.
LAST APRIL 11, PRESIDENT NIXON OUTLINED HIS PENSION PROGRAM
IN A MESSAGE HE SENT TO CONGRESS. IT IS A FOUR-POINT PROGRAM, HERE
ARE THE ESSENTIALS OF THE FOUR POINTS:
1. EMPLOYEES WHO WISH TO SAVE INDEPENDENTLY FOR THEIR
RETIREMENT OR TO SUPPLEMENT EMPLOYER-FINANCED PENSIONS
SHOULD BE ALLOWED TO DEDUCT ON THEIR INCOME TAX RETURNS
AMOUNTS SET ASIDE FOR THESE PURPOSES.
TODAY ONLY 30 MILLION EMPLOYEES ARE COVERED BY
PRIVATE RETIREMENT PLANS. NOW I CONSIDER THIS FACT --
THAT ABOUT HALF OF THE PRIVATE WORKFORCE HAS SUCH
COVERAGE -- TO BE A SIGNIFICANT ACHIEVEMENT AND NOT AT
ALL A SHORTCOMING. NEVERTHELESS, THE NON-COVERED AND
INDEPENDENTLY COVERED WORKERS SHOULD BE ENCOURAGED TO
BUILD UP GREATER SAVINGS FOR RETIREMENT.
UNDER PRESENT LAW, BOTH THE CONTRIBUTIONS WHICH AN
EMPLOYER MAKES TO A QUALIFIED PRIVATE RETIREMENT PLAN ON
BEHALF OF HIS EMPLOYEES AND THE INVESTMENT EARNINGS ON
THOSE CONTRIBUTIONS ARE GENERALLY NOT SUBJECT TO TAXES
UNTIL THEY ARE PAID TO THE EMPLOYEE OR TO HIS BENEFICIARIES.
THE TAX LIABILITY ON INVESTMENT EARNINGS IS ALSO DEFERRED
WHEN AN EMPLOYEE CONTRIBUTES TO A GROUP PLAN, THOUGH IN
(MORE)
PAGE 3
THIS CASE THE CONTRIBUTION ITSELF IS TAXABLE. BUT WHEN AN EMPLOYEE
SAVES INDEPENDENTLY FOR HIS OWN RETIREMENT, BOTH HIS CONTRIBUTION
AND THE INVESTMENT EARNINGS ON SUCH SAVINGS ARE CURRENTLY SUBJECT
TO TAXES.
THIS INEQUITY DISCOURAGES INDIVIDUAL SELF-RELIANCE AND
SLOWS THE GROWTH OF PRIVATE RETIREMENT SAVINGS. IT PLACES AN UNFAIR
BURDEN ON THOSE EMPLOYEES (ESPECIALLY OLDER WORKERS) WHO WANT TO
ESTABLISH A PENSION PLAN OR AUGMENT AN EMPLOYER-FINANCED PLAN.
To PROVIDE SUCH PERSONS WITH THE SAME OPPORTUNITIES NOW AVAILABLE
TO OTHERS, THE ADMINISTRATION BILL WOULD MAKE CONTRIBUTIONS TO
RETIREMENT PROGRAMS BY INDIVIDUALS DEDUCTIBLE UP TO THE LEVEL OF
$1,500 PER YEAR OR 20% OF INCOME, WHICHEVER IS LESS, INDIVIDUALS
WOULD RETAIN THE POWER TO CONTROL THE INVESTMENT OF THESE FUNDS,
CHANNELING THEM INTO BANK ACCOUNTS, MUTUAL FUNDS, ANNUITY OR
INSURANCE PROGRAMS, GOVERNMENT BONDS, OR INTO OTHER INVESTMENTS.
THIS PROVISION WOULD BE ESPECIALLY HELPFUL TO OLDER WORKERS
WHO ARE MOST INTERESTED IN RETIREMENT. THE LIMITATION ON DEDUCTIONS
WOULD DIRECT BENEFITS PRIMARILY TO EMPLOYEES WITH LOW AND MODERATE
INCOMES, WHILE PRESERVING AN INCENTIVE TO ESTABLISH EMPLOYER-
FINANCED PLANS. THE LIMIT IS NEVERTHELESS SUFFICIENTLY HIGH TO
PERMIT OLDER EMPLOYEES TO FINANCE A SUBSTANTIAL RETIREMENT INCOME.
FOR EXAMPLE, A PERSON WHOSE PLAN BEGINS AT AGE 40, WITH
CONTRIBUTIONS OF $1,500 A YEAR, COULD STILL RETIRE AT AGE 65 WITH
(MORE)
PAGE 4
AN ANNUAL PENSION OF $7,500 IN ADDITION TO SOCIAL SECURITY
BENEFITS.
THIS PROPOSED DEDUCTION WOULD BE AVAILABLE TO THOSE ALREADY
COVERED BY EMPLOYER-FINANCED PLANS, BUT IN THIS CASE THE UPPER
LIMIT OF $1,500 WOULD BE REDUCED TO REFLECT PENSION PLAN
CONTRIBUTIONS MADE BY THE EMPLOYER. AN APPROPRIATE ADJUSTMENT
WOULD ALSO BE MADE IN THE CASE OF INDIVIDUALS WHO DO NOT CONTRIBUTE
TO THE SOCIAL SECURITY SYSTEM OR THE RAILROAD RETIREMENT SYSTEM.
2. SELF-EMPLOYED PERSONS WHO INVEST IN PENSION PLANS FOR
THEMSELVES AND THEIR EMPLOYEES SHOULD BE GIVEN A MORE GENEROUS TAX
DEDUCTION THAN THEY NOW RECEIVE.
UNDER PRESENT LAW, SELF-EMPLOYED PERSONS MAY ESTABLISH PENSION
PLANS COVERING THEMSELVES AND THEIR EMPLOYEES. HOWEVER, DEDUCTIBLE
CONTRIBUTIONS ARE LIMITED ANNUALLY TO $2,500 OR 10% OF EARNED
INCOME, WHICHEVER IS LESS, THERE ARE NO SUCH LIMITS TO CONTRIBUTIONS
MADE BY CORPORATIONS IN BEHALF OF THEIR EMPLOYEES.
THIS DISTINCTION IN TREATMENT IS NOT BASED ON ANY DIFFERENCE
IN REALITY, SINCE SELF-EMPLOYED PERSONS AND CORPORATE EMPLOYEES
OFTEN ENGAGE IN SUBSTANTIALLY THE SAME ECONOMIC ACTIVITIES. ONE
RESULT OF THIS DISTINCTION HAS BEEN TO CREATE AN ARTIFICIAL
INCENTIVE FOR THE SELF-EMPLOYED TO INCORPORATE; ANOTHER RESULT HAS
BEEN TO DENY BENEFITS TO THE EMPLOYEES OF THOSE SELF-EMPLOYED
PERSONS WHO DO NOT WISH TO INCORPORATE WHICH ARE COMPARABLE TO
(MORE)
PAGE 5
THOSE OF CORPORATE EMPLOYEES.
To ACHIEVE GREATER EQUITY, THE ADMINISTRATION BILL WOULD
RAISE THE ANNUAL LIMIT FOR DEDUCTIBLE CONTRIBUTIONS BY THE
SELF-EMPLOYED TO $7,500 OR 15% OF INCOME, WHICHEVER IS LESS,
THIS PROVISION WOULD ENCOURAGE AND ENABLE THE SELF-EMPLOYED TO
PROVIDE MORE ADEQUATE BENEFITS FOR THEMSELVES AND FOR THEIR
WORKERS.
3. A MINIMUM STANDARD SHOULD BE ESTABLISHED FOR THE VESTING
OF PENSIONS,
INADEQUATE VESTING IN PENSION PLANS IS PERHAPS THE MOST
SERIOUS PROBLEM IN OUR PRIVATE PENSION SYSTEM. CONCEPTUALLY, VESTING
MEANS THAT THE BENEFIT RIGHTS ACCRUED BY A PLAN PARTICIPANT WILL NOT
BE FORFEITED, EVEN IF HE CHANGES JOBS OR STOPS WORKING BEFORE
NORMAL RETIREMENT AGE. WHEN 10, 15, OR 20 YEARS OF ACCRUED PENSION
CREDITS SUDDENLY GO DOWN THE DRAIN BECAUSE OF A LAYOFF, ILLNESS OR
OPPORTUNITY FOR A BETTER JOB, IT IS NO CONSOLATION TO BE TOLD THAT
YOU HAVE LOST NOTHING BECAUSE YOU NEVER GAINED A LEGAL RIGHT TO A
PENSION. THE PLAIN FACT TODAY IS THAT, FOR THE VAST MAJORITY OF
PLAN PARTICIPANTS, PENSION EXPECTATIONS ARE BUILT UP BY GOING TO
WORK DAY IN AND DAY OUT, AND NOT BY HIRING A LAWYER AND MAYBE ALSO
AN ACTUARY TO ADVISE YOU FROM TIME TO TIME ABOUT YOUR STATUS UNDER
THE PLAN'S PROVISIONS.
MORE THAN TWO-THIRDS OF ALL PRIVATE PENSION PLAN PARTICIPANTS
(MORE)
PAGE 6
ARE NOT NOW VESTED. OF COURSE, THIS FIGURE INCLUDES LARGE NUMBERS
OF YOUNG, SHORT-SERVICE WORKERS WHO MAY OBTAIN VESTED RIGHTS LATER
ON IN THEIR CAREERS, BUT A DISTURBINGLY LARGE NUMBER OF OLDER
WORKERS ARE NOT PROTECTED BY VESTING:
--40 PER CENT OF PLAN PARTICIPANTS AGE 45 OR MORE
ARE NOT VESTED;
--35 PER CENT OF PLAN PARTICIPANTS AGE 50 OR MORE
ARE NOT VESTED;
--26 PER CENT OF PLAN PARTICIPANTS AGE 55 OR MORE
ARE NOT VESTED.
PENSIONS, BY THEIR VERY NATURE, ARE OF GREATEST CONCERN TO
TO THE OLDER WORKER, ACCORDINGLY, THIS LACK OF VESTED RIGHTS FOR
OLDER WORKERS IS CRITICAL, FOR THEY EXPERIENCE THE GREATEST HARDSHIPS
WHEN BENEFIT LOSSES OCCUR, AND AN OLDER WORKER WHO LOSES BENEFIT
RIGHTS HAS FAR LESS OPPORTUNITY TO OBTAIN A PENSION FROM A SUBSEQUENT
EMPLOYER THAN DOES A YOUNGER WORKER.
WHILE THERE IS A NEED FOR SOME VESTING -- ESPECIALLY AMONG
OLDER WORKERS -- IT MUST BE RECOGNIZED THAT A FEDERALLY-ESTABLISHED
VESTING STANDARD WOULD RAISE COSTS FOR THOSE PLANS WITHOUT VESTING
AND FOR THOSE CURRENTLY OFFERING SLOW VESTING. IF THESE INCREASED
COSTS WERE EXCESSIVE OR ILL-CONSTRUCTED, VESTING COULD COME AT THE
EXPENSE OF REDUCED FUTURE BENEFIT PAYMENTS FOR RETIREES AND COULD
DISCOURAGE NEW OR IMPROVED PENSION PLANS, FOR THESE REASONS A
"RULE OF 50" WAS SELECTED AS A MINIMUM STANDARD; ONE WHICH WOULD
(MORE)
PAGE 7
BE MODERATE IN COST BUT WHICH WOULD BRING RAPID VESTING FOR
MIDDLE-AGED AND OLDER WORKERS.
THE RULE OF 50 WOULD REQUIRE 50 PER CENT VESTING WHENEVER
ANY COMBINATION OF AGE AND YEARS OF PLAN PARTICIPATION EQUALS 50,
WITH VESTING OF AN ADDITIONAL 10 PER CENT EACH YEAR FOR FIVE YEARS
THEREAFTER. THUS, A WORKER WHO BEGINS TO PARTICIPATE IN A PLAN
AT AGE 30 WOULD, AT AGE 40 WITH 10 YEARS OF COVERED SERVICE,
BECOME 50 PER CENT VESTED; A WORKER, AGE 45 WITH 5 YEARS OF COVERED
SERVICE, WOULD ALSO ACHIEVE 50 PER CENT VESTING, BOTH WOULD BE
100 PER CENT VESTED AFTER 5 ADDITIONAL YEARS.
To ALLEVIATE ANY DANGER THAT THE RULE OF 50 MIGHT LIMIT NEW
EMPLOYMENT OPPORTUNITIES FOR OLDER WORKERS AND ALSO TO KEEP VESTING
COSTS AT A MINIMUM, THE ADMINISTRATION BILL WOULD ALLOW PLANS TO
EXCLUDE EMPLOYEES FROM COVERAGE UNTIL THEY HAVE UP TO THREE YEARS
OF SERVICE, ALSO, PLANS COULD EXCLUDE AN EMPLOYEE WHO FIRST BECOMES
ELIGIBLE WHEN HE HAS ATTAINED AN AGE WHICH IS WITHIN 5 YEARS OF THE
NORMAL RETIREMENT AGE UNDER THE PLAN. IN ADDITION, TO EASE THE
IMPACT OF INCREASED COSTS, ONLY BENEFITS ACCRUED AFTER A SPECIFIED
EFFECTIVE DATE WOULD HAVE TO BE VESTED UNDER THE MINIMUM STANDARD,
THOSE VESTING AND ELIGIBILITY STANDARDS WOULD BE WRITTEN
INTO THE INTERNAL REVENUE CODE AND PLANS WOULD HAVE TO ADHERE TO
THEM TO MAINTAIN THEIR TAX-QUALIFIED STATUS. IT IS FOR THIS REASON
THAT THE ADMINISTRATION BILL WOULD BE ADMINISTERED BY THE
(MORE)
PAGE 8
TREASURY DEPARTMENT, WHICH HAS THE EXPERTISE NECESSARY FOR THIS
PARTICULAR JOB. IN THIS REGARD, THE PRESIDENT'S PROPOSAL WOULD NOT
DISTURB THE PRIMARY AND APPROPRIATE ROLE OF THE TREASURY DEPARTMENT
AS THE FEDERAL AGENCY ADMINISTERING MATTERS RELATED TO THE TAX
QUALIFICATION OF PRIVATE PENSION PLANS.
4. PENSION FUNDS SHOULD BE ADMINISTERED ACCORDING TO
FEDERAL STANDARDS OF FIDUCIARY RESPONSIBILITY.
SOME 125 BILLION DOLLARS HAVE BEEN ACCUMULATED IN PRIVATE
PENSION FUNDS TO PAY RETIREMENT BENEFITS IN FUTURE YEARS, CONTROL
OF THESE FUNDS IS SHARED BY EMPLOYERS, UNIONS, BANKS, INSURANCE
COMPANIES, AND OTHER ENTITIES. MOST OF THIS VAST SUM OF MONEY IS
HONESTLY AND EFFECTIVELY MANAGED. BUT OVER THE YEARS INSTANCES
HAVE COME TO LIGHT WHERE PENSION FUNDS HAVE BEEN MISMANAGED, ABUSED
BY SELF-DEALING, OR SUBJECTED TO PLAIN WRONGDOING, BECAUSE THE
PENSION FUND NORMALLY IS THE ONLY SECURITY UNDERLYING BENEFIT
EXPECTATIONS OTHER THAN THE ABILITY OF CONTRIBUTING EMPLOYERS TO
CONTINUE IN BUSINESS, IT IS CLEAR THAT PLAN PARTICIPANTS SHOULD
HAVE SOUND PROTECTION AGAINST CARELESS AND CORRUPT FUND MANAGEMENT.
To THIS END, THE PRESIDENT HAS ASKED CONGRESS TO ENACT THE
EMPLOYEE BENEFITS PROTECTION AcT.
THE EBPA WOULD AMEND THE EXISTING WELFARE AND PENSION PLANS
DISCLOSURE AcT IN SEVERAL SIGNIFICANT WAYS. MOST IMPORTANTLY, IT
WOULD IMPOSE FEDERAL STANDARDS OF FIDUCIARY RESPONSIBILITY ON
(MORE)
PAGE 9
PERSONS WHO CONTROL PENSION FUNDS (AND HERE I MIGHT ADD THAT THE
STANDARDS WOULD APPLY ALSO TO MANAGERS OF PRIVATE EMPLOYEE WELFARE
FUNDS). THESE STANDARDS BASICALLY REQUIRE THAT PLAN FIDUCIARIES
DISCHARGE THEIR DUTIES SOLELY IN THE INTERESTS OF PLAN PARTICIPANTS
AND THEIR BENEFICIARIES, AND THAT THEY DO so IN ACCORDANCE WITH A
"PRUDENT MAN" RULE AND THE DOCUMENTS GOVERNING THE FUND. THERE ARE
ALSO SOME SPECIFIC PROHIBITIONS AGAINST SELF-DEALING AND CONFLICTS
OF INTEREST. A FIDUCIARY WOULD BE PERSONALLY LIABLE FOR LOSSES
CAUSED BY HIS BREACH OF THE STANDARDS, AND PLAN PARTICIPANTS IN A
CLASS ACTION OR THE SECRETARY OF LABOR COULD SUE TO RECOVER THE
LIABILITY.
OTHER SIGNIFICANT FEATURES OF THE EBPA (or "FIDUCIARY BILL,"
AS IT IS POPULARLY CALLED) INCLUDE BROADENED REPORTING AND DISCLOSURE
REQUIREMENTS, STRONGER INVESTIGATORY AND ENFORCEMENT POWERS FOR THE
SECRETARY OF LABOR, AND A PROHIBITION AGAINST PERSONS CONVICTED OF
CERTAIN CRIMES FROM HOLDING RESPONSIBLE POSITIONS IN A PLAN, I
SHOULD NOTE, HOWEVER, THAT THE BILL WOULD NOT INTERFERE WITH STATE
LAWS WHICH NOW REGULATE THE INSURANCE, BANKING AND SECURITIES
I
FIELDS.
THE DEPARTMENTS OF LABOR AND THE TREASURY HAVE COMPLETED
A STUDY TO DETERMINE THE EXTENT OF BENEFIT LOSSES WHICH RESULT
FROM PENSION PLAN TERMINATIONS.
WHEN A PENSION PLAN IS TERMINATED, AN EMPLOYEE PARTICIPATING
(MORE)
PAGE 10
IN IT CAN LOSE ALL OF PART OF THE BENEFITS WHICH HE HAS LONG BEEN
RELYING ON, EVEN IF HIS BENEFITS ARE FULLY VESTED. THE ADMINISTRATION'S
STUDY SHOWED THAT ABOUT 3,100 RETIRED, RETIREMENT-ELIGIBLE AND
VESTED WORKERS LOST PENSION BENEFITS THROUGH TERMINATIONS IN THE
FIRST SEVEN MONTHS OF 1972, WITH LOSSES TOTALLING SOME
$10 MILLION. To PUT THIS IN PERSPECTIVE, THESE LOSSES SHOULD BE
COMPARED WITH THE MORE THAN $10 BILLION IN BENEFITS PAID ANNUALLY.
THE LABOR AND TREASURY DEPARTMENTS CONCLUDED THAT THE
TERMINATION PROBLEM IS NOT A MAJOR ONE -- ALTHOUGH THESE PENSION
TERMINATION LOSSES DID, OF COURSE, WORK A HARDSHIP ON WORKERS AND
THEIR FAMILIES. THE PROBLEM IS THAT NOBODY HAS BEEN ABLE TO DEVISE
A PROPER PLAN FOR A GOVERNMENT-SPONSORED TERMINATION INSURANCE
PROGRAM. No PLAN HAS YET BEEN DEVISED WHICH WOULD NOT BE EITHER
so PERMISSIVE AS TO MAKE THE GOVERNMENT LIABLE FOR ANY AGREEMENT
REACHED BETWEEN EMPLOYES AND EMPLOYERS, OR so INTRUSIVE AS TO
ENTAIL GOVERNMENT REGULATION OF BUSINESS PRACTICES AND COLLECTIVE
BARGAINING ON A SCALE OUT OF KEEPING WITH OUR FREE ENTERPRISE
SYSTEM.
THE PRESIDENT THEREFORE DECIDED NOT TO RECOMMEND TERMINATION
INSURANCE AT THIS TIME. HE SUGGESTS THAT THE PRIVATE SECTOR IS IN
A BETTER POSITION THAN THE FEDERAL GOVERNMENT TO DEVISE PROTECTION
AGAINST THE TERMINATION LOSS PROBLEM. AND HE HAS ASKED THAT
EMPLOYERS, UNIONS AND PRIVATE INSURANCE COMPANIES ACCEPT THAT
CHALLENGE.
(MORE)
PAGE 11
THE WRONG SOLUTION TO THE TERMINATIONS PROBLEM COULD DO MORE
HARM THAN GOOD BY RAISING UNDULY THE COST OF PENSION PLANS FOR THE
MANY WORKERS WHO ARE NOT AFFECTED BY TERMINATIONS.
THAT CONCLUDES MY DESCRIPTION OF THE FOUR POINTS WHICH
COMPRISE THE PRESIDENT'S PROGRAM ON PENSIONS. Now I.WOULD NOT BE
CANDID IF I LEFT YOU WITH THE IMPRESSION THAT NO OTHER PENSION
PROPOSALS HAVE COME TO THE ATTENTION OF CONGRESS, OR THAT THERE
IS NOT ANY CONTROVERSY ABOUT WHAT OR HOW MUCH SHOULD BE DONE,
THE PRESIDENT DOES NOT SEE EYE TO EYE WITH ADVOCATES OF
REFORM WHO FAVOR COSTLY PENSION PLAN TERMINATION INSURANCE. BUT
HE HAS LEFT THE DOOR OPEN FOR A POSSIBLE COMPROMISE ON THIS ISSUE
AND THAT OF "PORTABILITY" -- PERMITTING A WORKER WHO CHANGES JOBS
TO TRANSFER PENSION CREDITS TO HIS NEW POST OR TO A CENTRAL
DEPOSITORY OPERATED BY THE GOVERNMENT.
THE NEW NIXON PROGRAM FOLLOWS FOR THE MOST PART HIS
1971 PROPOSALS, BUT A NEW PROVISION WOULD REQUIRE EMPLOYERS To
INCREASE SUBSTANTIALLY THE AMOUNT OF MONEY THEY SET ASIDE EACH
YEAR FOR THE PAYMENT OF FUTURE BENEFITS. THIS IS A VITAL PROVISION,
FOR MORE THAN A THIRD OF THE PENSION FUNDS NOW COVERING SOME
35 MILLION WORKERS HAVE ONLY NOMINAL AMOUNTS IN THEM INSTEAD OF
THE 5 PER CENT OR MORE MR. NIXON PROPOSES. As A CONSEQUENCE SOME
13 MILLION WORKERS ARE NOT ENTITLED TO ANY PENSION UNLESS THEY ARE
STILL ON THE PAYROLL WHEN THEY REACH RETIREMENT AGE,
(MORE)
PAGE 12
UNDER BOTH THE BILL BY SENATOR HARRISON WILLIAMS, JR.,
WHICH HAS BEEN APPROVED BY THE SENATE LABOR COMMITTEE, AND THE NIXON
PROGRAM, WORKERS WITH VESTED RIGHTS WOULD RETAIN THE AMOUNT VESTED
IF THEY LOST OR CHANGED JOBS, IF THE COMPANY WERE MERGED WITH ANOTHER,
OR IF THE PENSION PLANS WERE INADEQUATELY FUNDED OR MISMANAGED. THE
PROVISIONS ON SOME OF THESE POINTS DIFFER IN DETAIL, BUT THE
PRINCIPLE IS THE SAME.
WHERE THE ADMINISTRATION AND THE WILLIAMS BILL ARE FURTHEST
APART IS ON THE QUESTION OF PROVIDING FEDERAL INSURANCE TO PROTECT
THE PENSION RIGHTS OF EMPLOYES OF BUSINESSES THAT FAIL. PROPOSALS
THAT HAVE BEEN MADE so FAR TO DEAL WITH SUCH EVENTUALITIES WOULD BE
TOO HARD TO ADMINISTER. BUT THE WHITE HOUSE IS PREPARED TO WORK
WITH CONGRESS ON SOME POSSIBLE ACCOMMODATION COVERING NOT ONLY
THIS POINT BUT THE QUESTION OF PORTABILITY.
ENACTING ANY PENSION CONTROLS THIS YEAR WILL BE DIFFICULT.
BUT GENUINE COOPERATION BETWEEN THE WHITE HOUSE AND CONGRESS MIGHT
GET THIS IMPORTANT JOB DONE.
LET ME LEAVE WITH YOU A GENERAL CHARACTERIZATION OF THE
PRESIDENT'S PROGRAM, BASICALLY, IT REGARDS PRIVATE PENSION PLANS
AS VALUABLE ASSETS IN OUR FREE ENTERPRISE SYSTEM AND SEEKS NOT TO
DISCOURAGE THEIR FURTHER GROWTH AND DEVELOPMENT. SOME IMPROVEMENTS --
VESTING AND FIDUCIARY STANDARDS -- CLEARLY ARE NEEDED TO MAKE
RETIREMENT EXPECTATIONS MORE SECURE. AT THE SAME TIME, THE INEQUITIES
(MORE)
PAGE 13
THAT EXIST BETWEEN THE COVERED WORKERS AND THE NON-COVERED OR
INADEQUATELY COVERED CAN BE REMEDIED WITHOUT THE FEDERAL GOVERNMENT
REDESIGNING THE PRIVATE RETIREMENT STRUCTURE.
1. I V T nj
1 F I #
THANK YOU FOR YOUR ATTENTION. I WOULD NOT BE SURPRISED IF
YOU FEEL THAT I CAME HERE TO SELL YOU SOMETHING -- WELL-CONSIDERED
PRACTICAL PENSION PROPOSALS.
###
no Distribution
Office Copy
REMARKS BY REP. GERALD R. FORD, R-MICH.
REPUBLICAN LEADER, U. S. HOUSE OF REPRESENTATIVES
BEFORE THE GRAND RAPIDS CHAMBER OF COMMERCE
FRIDAY, MAY 11, 1973
FOR RELEASE ON DELIVERY
I WOULDN'T BE SURPRISED IF MANY OF YOU ARE ALREADY FAMILIAR
WITH PENSION ISSUES. BUT LET ME ADD A FEW MORE IDEAS THAT ARE
INVOLVED IN THE PENSION CONTROVERSY. THEY INVOLVE EQUITY IN THE
WORKPLACE, INCOME ADEQUACY OF OLDER AMERICANS, FEDERAL INCOME TAX,
CAPITAL FORMATION AND CONCENTRATION, AND, AS WITH MANY IMPORTANT
DOMESTIC ISSUES OF TODAY, THE PROPER ROLE OF GOVERNMENT REGULATION
VIS-A-VIS THE PRIVATE DECISION-MAKING PROCESS, IN FACT, THERE IS
HARDLY A DOMESTIC ECONOMIC ISSUE TODAY WHICH CANNOT BE RELATED
IN SOME WAY TO OUR PRIVATE PENSION SYSTEM.
THERE ARE so MANY FACETS OF THE PENSION CONTROVERSY AND THE
PENSION PLANS THEMSELVES ARE so VARIOUS AND TECHNICALLY COMPLICATED
THAT WE COULD GO ON FOR HOURS SIMPLY DESCRIBING THE CONTENT OF THE
ISSUES, BUT I WON'T DO THAT HERE BECAUSE I THINK YOU ALREADY HAVE
AN EXCELLENT BACKGROUND KNOWLEDGE OF THE SUBJECT. IN THE LAST
YEAR OR so THERE HAVE BEEN MANY MAGAZINE AND NEWSPAPER ARTICLES
AND AT LEAST TWO TELEVISION 'SPECIALS' DEVOTED TO THE PROBLEMS
OF THE PRIVATE PENSION SYSTEM. WHAT I WOULD LIKE TO DO IN THE
BRIEF TIME AVAILABLE HERE IS TO DESCRIBE THE PRESIDENT'S PROGRAM
FORD
ON PENSIONS AND THE FEATURES OF THE TWO ADMINISTRATION BILLS,
GERALD
LISBARY
(MORE)
PAGE 2
ONE OF WHICH I INTRODUCED IN THE HOUSE OF REPRESENTATIVES DURING
THE 92ND CONGRESS,
LAST APRIL 11, PRESIDENT NIXON OUTLINED HIS PENSION PROGRAM
IN A MESSAGE HE SENT TO CONGRESS. IT IS A FOUR-POINT PROGRAM. HERE
ARE THE ESSENTIALS OF THE FOUR POINTS:
1. EMPLOYEES WHO WISH TO SAVE INDEPENDENTLY FOR THEIR
RETIREMENT OR TO SUPPLEMENT EMPLOYER-FINANCED PENSIONS
SHOULD BE ALLOWED TO DEDUCT ON THEIR INCOME TAX RETURNS
AMOUNTS SET ASIDE FOR THESE PURPOSES.
TODAY ONLY 30 MILLION EMPLOYEES ARE COVERED BY
PRIVATE RETIREMENT PLANS. NOW I CONSIDER THIS FACT --
THAT ABOUT HALF OF THE PRIVATE WORKFORCE HAS SUCH
COVERAGE -- TO BE A SIGNIFICANT ACHIEVEMENT AND NOT AT
ALL A SHORTCOMING. NEVERTHELESS, THE NON-COVERED AND
INDEPENDENTLY COVERED WORKERS SHOULD BE ENCOURAGED TO
BUILD UP GREATER SAVINGS FOR RETIREMENT.
UNDER PRESENT LAW, BOTH THE CONTRIBUTIONS WHICH AN
EMPLOYER MAKES TO A QUALIFIED PRIVATE RETIREMENT PLAN ON
BEHALF OF HIS EMPLOYEES AND THE INVESTMENT EARNINGS ON
THOSE CONTRIBUTIONS ARE GENERALLY NOT SUBJECT TO TAXES
UNTIL THEY ARE PAID TO THE EMPLOYEE OR TO HIS BENEFICIARIES.
THE TAX LIABILITY ON INVESTMENT EARNINGS IS ALSO DEFERRED
WHEN AN EMPLOYEE CONTRIBUTES TO A GROUP PLAN, THOUGH IN
(MORE)
LIBRARY
PAGE 3
THIS CASE THE CONTRIBUTION ITSELF IS TAXABLE. BUT WHEN AN EMPLOYEE
SAVES INDEPENDENTLY FOR HIS OWN RETIREMENT, BOTH HIS CONTRIBUTION
AND THE INVESTMENT EARNINGS ON SUCH SAVINGS ARE CURRENTLY SUBJECT
TO TAXES.
THIS INEQUITY DISCOURAGES INDIVIDUAL SELF-RELIANCE AND
SLOWS THE GROWTH OF PRIVATE RETIREMENT SAVINGS, IT PLACES AN UNFAIR
BURDEN ON THOSE EMPLOYEES (ESPECIALLY OLDER WORKERS) WHO WANT TO
ESTABLISH A PENSION PLAN OR AUGMENT AN EMPLOYER-FINANCED PLAN.
To PROVIDE SUCH PERSONS WITH THE SAME OPPORTUNITIES NOW AVAILABLE
TO OTHERS, THE ADMINISTRATION BILL WOULD MAKE CONTRIBUTIONS TO
RETIREMENT PROGRAMS BY INDIVIDUALS DEDUCTIBLE UP TO THE LEVEL OF
$1,500 PER YEAR OR 20% OF INCOME, WHICHEVER IS LESS, INDIVIDUALS
WOULD RETAIN THE POWER TO CONTROL THE INVESTMENT OF THESE FUNDS,
CHANNELING THEM INTO BANK ACCOUNTS, MUTUAL FUNDS, ANNUITY OR
INSURANCE PROGRAMS, GOVERNMENT BONDS, OR INTO OTHER INVESTMENTS.
THIS PROVISION WOULD BE ESPECIALLY HELPFUL TO OLDER WORKERS
WHO ARE MOST INTERESTED IN RETIREMENT. THE LIMITATION ON DEDUCTIONS
WOULD DIRECT BENEFITS PRIMARILY TO EMPLOYEES WITH LOW AND MODERATE
INCOMES, WHILE PRESERVING AN INCENTIVE TO ESTABLISH EMPLOYER-
FINANCED PLANS. THE LIMIT IS NEVERTHELESS SUFFICIENTLY HIGH TO
PERMIT OLDER EMPLOYEES TO FINANCE A SUBSTANTIAL RETIREMENT INCOME.
FOR EXAMPLE, A PERSON WHOSE PLAN BEGINS AT AGE 40, WITH
CONTRIBUTIONS OF $1,500 A YEAR, COULD STILL RETIRE AT AGE 65 WITH
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AN ANNUAL PENSION OF $7,500 IN ADDITION TO SOCIAL SECURITY
BENEFITS.
THIS PROPOSED DEDUCTION WOULD BE AVAILABLE TO THOSE ALREADY
COVERED BY EMPLOYER-FINANCED PLANS, BUT IN THIS CASE THE UPPER
LIMIT OF $1,500 WOULD BE REDUCED TO REFLECT PENSION PLAN
CONTRIBUTIONS MADE BY THE EMPLOYER, AN APPROPRIATE ADJUSTMENT
WOULD ALSO BE MADE IN THE CASE OF INDIVIDUALS WHO DO NOT CONTRIBUTE
TO THE SOCIAL SECURITY SYSTEM OR THE RAILROAD RETIREMENT SYSTEM.
2. SELF-EMPLOYED PERSONS WHO INVEST IN PENSION PLANS FOR
THEMSELVES AND THEIR EMPLOYEES SHOULD BE GIVEN A MORE GENEROUS TAX
DEDUCTION THAN THEY NOW RECEIVE.
UNDER PRESENT LAW, SELF-EMPLOYED PERSONS MAY ESTABLISH PENSION
PLANS COVERING THEMSELVES AND THEIR EMPLOYEES, HOWEVER, DEDUCTIBLE
CONTRIBUTIONS ARE LIMITED ANNUALLY TO $2,500 OR 10% OF EARNED
INCOME, WHICHEVER IS LESS. THERE ARE NO SUCH LIMITS TO CONTRIBUTIONS
MADE BY CORPORATIONS IN BEHALF OF THEIR EMPLOYEES.
THIS DISTINCTION IN TREATMENT IS NOT BASED ON ANY DIFFERENCE
IN REALITY, SINCE SELF-EMPLOYED PERSONS AND CORPORATE EMPLOYEES
OFTEN ENGAGE IN SUBSTANTIALLY THE SAME ECONOMIC ACTIVITIES. ONE
RESULT OF THIS DISTINCTION HAS BEEN TO CREATE AN ARTIFICIAL
INCENTIVE FOR THE SELF-EMPLOYED TO INCORPORATE; ANOTHER RESULT HAS
BEEN TO DENY BENEFITS TO THE EMPLOYEES OF THOSE SELF-EMPLOYED
PERSONS WHO DO NOT WISH TO INCORPORATE WHICH ARE COMPARABLE TO
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THOSE OF CORPORATE EMPLOYEES.
To ACHIEVE GREATER EQUITY, THE ADMINISTRATION BILL WOULD
RAISE THE ANNUAL LIMIT FOR DEDUCTIBLE CONTRIBUTIONS BY THE
SELF-EMPLOYED TO $7,500 OR 15% OF INCOME, WHICHEVER IS LESS,
THIS PROVISION WOULD ENCOURAGE AND ENABLE THE SELF-EMPLOYED TO
PROVIDE MORE ADEQUATE BENEFITS FOR THEMSELVES AND FOR THEIR
WORKERS.
3. A MINIMUM STANDARD SHOULD BE ESTABLISHED FOR THE VESTING
OF PENSIONS.
INADEQUATE VESTING IN PENSION PLANS IS PERHAPS THE MOST
SERIOUS PROBLEM IN OUR PRIVATE PENSION SYSTEM. CONCEPTUALLY, VESTING
MEANS THAT THE BENEFIT RIGHTS ACCRUED BY A PLAN PARTICIPANT WILL NOT
BE FORFEITED, EVEN IF HE CHANGES JOBS OR STOPS WORKING BEFORE
NORMAL RETIREMENT AGE, WHEN 10, 15, OR 20 YEARS OF ACCRUED PENSION
CREDITS SUDDENLY GO DOWN THE DRAIN BECAUSE OF A LAYOFF, ILLNESS OR
OPPORTUNITY FOR A BETTER JOB, IT IS NO CONSOLATION TO BE TOLD THAT
YOU HAVE LOST NOTHING BECAUSE YOU NEVER GAINED A LEGAL RIGHT TO A
PENSION. THE PLAIN FACT TODAY IS THAT, FOR THE VAST MAJORITY OF
PLAN PARTICIPANTS, PENSION EXPECTATIONS ARE BUILT UP BY GOING TO
WORK DAY IN AND DAY OUT, AND NOT BY HIRING A LAWYER AND MAYBE ALSO
AN ACTUARY TO ADVISE YOU FROM TIME TO TIME ABOUT YOUR STATUS UNDER
THE PLAN'S PROVISIONS.
MORE THAN TWO-THIRDS OF ALL PRIVATE PENSION PLAN PARTICIPANTS
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ARE NOT NOW VESTED. OF COURSE, THIS FIGURE INCLUDES LARGE NUMBERS
OF YOUNG, SHORT-SERVICE WORKERS WHO MAY OBTAIN VESTED RIGHTS LATER
ON IN THEIR CAREERS, BUT A DISTURBINGLY LARGE NUMBER OF OLDER
WORKERS ARE NOT PROTECTED BY VESTING:
--40 PER CENT OF PLAN PARTICIPANTS AGE 45 OR MORE
ARE NOT VESTED;
--35 PER CENT OF PLAN PARTICIPANTS AGE 50 OR MORE
ARE NOT VESTED;
--26 PER CENT OF PLAN PARTICIPANTS AGE 55 OR MORE
ARE NOT VESTED.
PENSIONS, BY THEIR VERY NATURE, ARE OF GREATEST CONCERN TO
TO THE OLDER WORKER. ACCORDINGLY, THIS LACK OF VESTED RIGHTS FOR
OLDER WORKERS IS CRITICAL, FOR THEY EXPERIENCE THE GREATEST HARDSHIPS
WHEN BENEFIT LOSSES OCCUR, AND AN OLDER WORKER WHO LOSES BENEFIT
RIGHTS HAS FAR LESS OPPORTUNITY TO OBTAIN A PENSION FROM A SUBSEQUENT
EMPLOYER THAN DOES A YOUNGER WORKER,
WHILE THERE IS A NEED FOR SOME VESTING -- ESPECIALLY AMONG
OLDER WORKERS -- IT MUST BE RECOGNIZED THAT A FEDERALLY-ESTABLISHED
VESTING STANDARD WOULD RAISE COSTS FOR THOSE PLANS WITHOUT VESTING
AND FOR THOSE CURRENTLY OFFERING SLOW VESTING, IF THESE INCREASED
COSTS WERE EXCESSIVE OR ILL-CONSTRUCTED, VESTING COULD COME AT THE
EXPENSE OF REDUCED FUTURE BENEFIT PAYMENTS FOR RETIREES AND COULD
DISCOURAGE NEW OR IMPROVED PENSION PLANS. FOR THESE REASONS A
"RULE OF 50" WAS SELECTED AS A MINIMUM STANDARD; ONE WHICH WOULD
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BE MODERATE IN COST BUT WHICH WOULD BRING RAPID VESTING FOR
MIDDLE-AGED AND OLDER WORKERS.
THE RULE OF 50 WOULD REQUIRE 50 PER CENT VESTING WHENEVER
ANY COMBINATION OF AGE AND YEARS OF PLAN PARTICIPATION EQUALS 50,
WITH VESTING OF AN ADDITIONAL 10 PER CENT EACH YEAR FOR FIVE YEARS
THEREAFTER. THUS, A WORKER WHO BEGINS TO PARTICIPATE IN A PLAN
AT AGE 30 WOULD, AT AGE 40 WITH 10 YEARS OF COVERED SERVICE,
BECOME 50 PER CENT VESTED; A WORKER, AGE 45 WITH 5 YEARS OF COVERED
SERVICE, WOULD ALSO ACHIEVE 50 PER CENT VESTING, BOTH WOULD BE
100 PER CENT VESTED AFTER 5 ADDITIONAL YEARS.
To ALLEVIATE ANY DANGER THAT THE RULE OF 50 MIGHT LIMIT NEW
EMPLOYMENT OPPORTUNITIES FOR OLDER WORKERS AND ALSO TO KEEP VESTING
COSTS AT A MINIMUM, THE ADMINISTRATION BILL WOULD ALLOW PLANS TO
EXCLUDE EMPLOYEES FROM COVERAGE UNTIL THEY HAVE UP TO THREE YEARS
OF SERVICE. ALSO, PLANS COULD EXCLUDE AN EMPLOYEE WHO FIRST BECOMES
ELIGIBLE WHEN HE HAS ATTAINED AN AGE WHICH IS WITHIN 5 YEARS OF THE
NORMAL RETIREMENT AGE UNDER THE PLAN. IN ADDITION, TO EASE THE
IMPACT OF INCREASED COSTS, ONLY BENEFITS ACCRUED AFTER A SPECIFIED
EFFECTIVE DATE WOULD HAVE TO BE VESTED UNDER THE MINIMUM STANDARD.
THOSE VESTING AND ELIGIBILITY STANDARDS WOULD BE WRITTEN
INTO THE INTERNAL REVENUE CODE AND PLANS WOULD HAVE TO ADHERE TO
THEM TO MAINTAIN THEIR TAX-QUALIFIED STATUS, IT IS FOR THIS REASON
THAT THE ADMINISTRATION BILL WOULD BE ADMINISTERED BY THE
FORD
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TREASURY DEPARTMENT, WHICH HAS THE EXPERTISE NECESSARY FOR THIS
PARTICULAR JOB, IN THIS REGARD, THE PRESIDENT'S PROPOSAL WOULD NOT
DISTURB THE PRIMARY AND APPROPRIATE ROLE OF THE TREASURY DEPARTMENT
AS THE FEDERAL AGENCY ADMINISTERING MATTERS RELATED TO THE TAX
QUALIFICATION OF PRIVATE PENSION PLANS,
4. PENSION FUNDS SHOULD BE ADMINISTERED ACCORDING TO
FEDERAL STANDARDS OF FIDUCIARY RESPONSIBILITY.
SOME 125 BILLION DOLLARS HAVE BEEN ACCUMULATED IN PRIVATE
PENSION FUNDS TO PAY RETIREMENT BENEFITS IN FUTURE YEARS, CONTROL
OF THESE FUNDS IS SHARED BY EMPLOYERS, UNIONS, BANKS, INSURANCE
COMPANIES, AND OTHER ENTITIES. MOST OF THIS VAST SUM OF MONEY IS
HONESTLY AND EFFECTIVELY MANAGED. BUT OVER THE YEARS INSTANCES
HAVE COME TO LIGHT WHERE PENSION FUNDS HAVE BEEN MISMANAGED, ABUSED
BY SELF-DEALING, OR SUBJECTED TO PLAIN WRONGDOING. BECAUSE THE
PENSION FUND NORMALLY IS THE ONLY SECURITY UNDERLYING BENEFIT
EXPECTATIONS OTHER THAN THE ABILITY OF CONTRIBUTING EMPLOYERS TO
CONTINUE IN BUSINESS, IT IS CLEAR THAT PLAN PARTICIPANTS SHOULD
HAVE SOUND PROTECTION AGAINST CARELESS AND CORRUPT FUND MANAGEMENT.
To THIS END, THE PRESIDENT HAS ASKED CONGRESS TO ENACT THE
EMPLOYEE BENEFITS PROTECTION AcT.
THE EBPA WOULD AMEND THE EXISTING WELFARE AND PENSION PLANS
DISCLOSURE AcT IN SEVERAL SIGNIFICANT WAYS. MOST IMPORTANTLY, IT
WOULD IMPOSE FEDERAL STANDARDS OF FIDUCIARY RESPONSIBILITY ON
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PERSONS WHO CONTROL PENSION FUNDS (AND HERE I MIGHT ADD THAT THE
STANDARDS WOULD APPLY ALSO TO MANAGERS OF PRIVATE EMPLOYEE WELFARE
FUNDS). THESE STANDARDS BASICALLY REQUIRE THAT PLAN FIDUCIARIES
DISCHARGE THEIR DUTIES SOLELY IN THE INTERESTS OF PLAN PARTICIPANTS
AND THEIR BENEFICIARIES, AND THAT THEY DO so IN ACCORDANCE WITH A
"PRUDENT MAN" RULE AND THE DOCUMENTS GOVERNING THE FUND. THERE ARE
ALSO SOME SPECIFIC PROHIBITIONS AGAINST SELF-DEALING AND CONFLICTS
OF INTEREST. A FIDUCIARY WOULD BE PERSONALLY LIABLE FOR LOSSES
CAUSED BY HIS BREACH OF THE STANDARDS, AND PLAN PARTICIPANTS IN A
CLASS ACTION OR THE SECRETARY OF LABOR COULD SUE TO RECOVER THE
LIABILITY.
OTHER SIGNIFICANT FEATURES OF THE EBPA (OR "FIDUCIARY BILL,
AS IT IS POPULARLY CALLED) INCLUDE BROADENED REPORTING AND DISCLOSURE
REQUIREMENTS, STRONGER INVESTIGATORY AND ENFORCEMENT POWERS FOR THE
SECRETARY OF LABOR, AND A PROHIBITION AGAINST PERSONS CONVICTED OF
CERTAIN CRIMES FROM HOLDING RESPONSIBLE POSITIONS IN A PLAN, I
SHOULD NOTE, HOWEVER, THAT THE BILL WOULD NOT INTERFERE WITH STATE
LAWS WHICH NOW REGULATE THE INSURANCE, BANKING AND SECURITIES
FIELDS.
THE DEPARTMENTS OF LABOR AND THE TREASURY HAVE COMPLETED
A STUDY TO DETERMINE THE EXTENT OF BENEFIT LOSSES WHICH RESULT
FROM PENSION PLAN TERMINATIONS.
WHEN A PENSION PLAN IS TERMINATED, AN EMPLOYEE PARTICIPATING
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IN IT CAN LOSE ALL OF PART OF THE BENEFITS WHICH HE HAS LONG BEEN
RELYING ON, EVEN IF HIS BENEFITS ARE FULLY VESTED, THE ADMINISTRATION'S
STUDY SHOWED THAT ABOUT 3,100 RETIRED, RETIREMENT-ELIGIBLE AND
VESTED WORKERS LOST PENSION DENEFITS THROUGH TERMINATIONS IN THE
FIRST SEVEN MONTHS OF 1972, WITH LOSSES TOTALLING SOME
$10 MILLION, To PUT THIS IN PERSPECTIVE, THESE LOSSES SHOULD BE
COMPARED WITH THE MORE THAN $10 BILLION IN BENEFITS PAID ANNUALLY.
THE LABOR AND TREASURY DEPARTMENTS CONCLUDED THAT THE
TERMINATION PROBLEM IS NOT A MAJOR ONE -- ALTHOUGH THESE PENSION
TERMINATION LOSSES DID, OF COURSE, WORK A HARDSHIP ON WORKERS AND
THEIR FAMILIES. THE PROBLEM IS THAT NOBODY HAS BEEN ABLE TO DEVISE
A PROPER PLAN FOR A GOVERNMENT-SPONSORED TERMINATION INSURANCE
PROGRAM. No PLAN HAS YET BEEN DEVISED WHICH WOULD NOT BE EITHER
so PERMISSIVE AS TO MAKE THE GOVERNMENT LIABLE FOR ANY AGREEMENT
REACHED BETWEEN EMPLOYES AND EMPLOYERS, OR so INTRUSIVE AS TO
ENTAIL GOVERNMENT REGULATION OF BUSINESS PRACTICES AND COLLECTIVE
BARGAINING ON A SCALE OUT OF KEEPING WITH OUR FREE ENTERPRISE
SYSTEM.
THE PRESIDENT THEREFORE DECIDED NOT TO RECOMMEND TERMINATION
INSURANCE AT THIS TIME. HE SUGGESTS THAT THE PRIVATE SECTOR IS IN
A BETTER POSITION THAN THE FEDERAL GOVERNMENT TO DEVISE PROTECTION
AGAINST THE TERMINATION LOSS PROBLEM. AND HE HAS ASKED THAT
EMPLOYERS, UNIONS AND PRIVATE INSURANCE COMPANIES ACCEPT THAT
CHALLENGE.
GERNED
LISBARY
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THE WRONG SOLUTION TO THE TERMINATIONS PROBLEM COULD DO MORE
HARM THAN GOOD BY RAISING UNDULY THE COST OF PENSION PLANS FOR THE
MANY WORKERS WHO ARE NOT AFFECTED BY TERMINATIONS.
THAT CONCLUDES MY DESCRIPTION OF THE FOUR POINTS WHICH
COMPRISE THE PRESIDENT'S PROGRAM ON PENSIONS, Now WOULD NOT BE
CANDID IF I LEFT YOU WITH THE IMPRESSION THAT NO OTHER PENSION
PROPOSALS HAVE COME TO THE ATTENTION OF CONGRESS, OR THAT THERE
IS NOT ANY CONTROVERSY ABOUT WHAT OR HOW MUCH SHOULD BE DONE,
THE PRESIDENT DOES NOT SEE EYE TO EYE WITH ADVOCATES OF
REFORM WHO FAVOR COSTLY PENSION PLAN TERMINATION INSURANCE. BUT
HE HAS LEFT THE DOOR OPEN FOR A POSSIBLE COMPROMISE ON THIS ISSUE
AND THAT OF "PORTABILITY" -- PERMITTING A WORKER WHO CHANGES JOBS
TO TRANSFER PENSION CREDITS TO HIS NEW POST OR TO A CENTRAL
DEPOSITORY OPERATED BY THE GOVERNMENT.
THE NEW NIXON PROGRAM FOLLOWS FOR THE MOST PART HIS
1971 PROPOSALS, BUT A NEW PROVISION WOULD REQUIRE EMPLOYERS TO
INCREASE SUBSTANTIALLY THE AMOUNT OF MONEY THEY SET ASIDE EACH
YEAR FOR THE PAYMENT OF FUTURE BENEFITS. THIS IS A VITAL PROVISION,
FOR MORE THAN A THIRD OF THE PENSION FUNDS NOW COVERING SOME
35 MILLION WORKERS HAVE ONLY NOMINAL AMOUNTS IN THEM INSTEAD OF
THE 5 PER CENT OR MORE MR. NIXON PROPOSES, As A CONSEQUENCE SOME
13 MILLION WORKERS ARE NOT ENTITLED TO ANY PENSION UNLESS THEY ARE
STILL ON THE PAYROLL WHEN THEY REACH RETIREMENT AGE,
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UNDER BOTH THE BILL BY SENATOR HARRISON WILLIAMS, JR.,
WHICH HAS BEEN APPROVED BY THE SENATE LABOR COMMITTEE, AND THE NIXON
PROGRAM, WORKERS WITH VESTED RIGHTS WOULD RETAIN THE AMOUNT VESTED
IF THEY LOST OR CHANGED JOBS, IF THE COMPANY WERE MERGED WITH ANOTHER,
OR IF THE PENSION PLANS WERE INADEQUATELY FUNDED OR MISMANAGED. THE
PROVISIONS ON SOME OF THESE POINTS DIFFER IN DETAIL, BUT THE
PRINCIPLE IS THE SAME,
WHERE THE ADMINISTRATION AND THE WILLIAMS BILL ARE FURTHEST
APART IS ON THE QUESTION OF PROVIDING FEDERAL INSURANCE TO PROTECT
THE PENSION RIGHTS OF EMPLOYES OF BUSINESSES THAT FAIL. PROPOSALS
THAT HAVE BEEN MADE so FAR TO DEAL WITH SUCH EVENTUALITIES WOULD BE
TOO HARD TO ADMINISTER. BUT THE WHITE HOUSE IS PREPARED TO WORK
WITH CONGRESS ON SOME POSSIBLE ACCOMMODATION COVERING NOT ONLY
THIS POINT BUT THE QUESTION OF PORTABILITY.
ENACTING ANY PENSION CONTROLS THIS YEAR WILL BE DIFFICULT.
BUT GENUINE COOPERATION BETWEEN THE WHITE HOUSE AND CONGRESS MIGHT
GET THIS IMPORTANT JOB DONE.
LET ME LEAVE WITH YOU A GENERAL CHARACTERIZATION OF THE
PRESIDENT'S PROGRAM, BASICALLY, IT REGARDS PRIVATE PENSION PLANS
AS VALUABLE ASSETS IN OUR FREE ENTERPRISE SYSTEM AND SEEKS NOT TO
DISCOURAGE THEIR FURTHER GROWTH AND DEVELOPMENT. SOME IMPROVEMENTS --
VESTING AND FIDUCIARY STANDARDS -- CLEARLY ARE NEEDED TO MAKE
RETIREMENT EXPECTATIONS MORE SECURE. AT THE SAME TIME, THE INEQUITIES
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THAT EXIST BETWEEN THE COVERED WORKERS AND THE NON-COVERED OR
INADEQUATELY COVERED CAN BE REMEDIED WITHOUT THE FEDERAL GOVERNMENT
REDESIGNING THE PRIVATE RETIREMENT STRUCTURE, FINALLY, THE PROGRAM
DOES NOT ATTEMPT TO EXPERIMENT WITH IDEAS WHERE BASIC DATA IS
NEEDED.
THANK YOU FOR YOUR ATTENTION, I WOULD NOT BE SURPRISED IF
YOU FEEL THAT I CAME HERE TO SELL YOU SOMETHING -- WELL-CONSIDERED
PRACTICAL PENSION PROPOSALS,
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