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Press Conference of Richard F. Schubert, Stephan Gardner, Paul Fasser, Donald Alexander, and William Kilberg
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Press Conference of Richard F. Schubert, Stephan Gardner, Paul Fasser, Donald Alexander, and William Kilberg
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Digitized from Box 1 of the White House Press Releases at the Gerald R. Ford Presidential Library
FOR IMMEDIATE RELEASE
SEPTEMBER 2, 1974
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
RICHARD F. SCHUBERT, UNDER SECRETARY OF LABOR;
STEPHAN GARDNER, DEPUTY SECRETARY OF TREASURY;
PAUL FASSER, ASSISTANT SECRETARY OF LABOR FOR LABOR MANAGEMENT;
DONALD ALEXANDER, COMMISSIONER OF INTERNAL REVENUE SERVICE;
AND
WILLIAM KILBERG, SOLICITOR, DEPARTMENT OF LABOR
12:21 P.M. EDT
MR. TER HORST: Before I go into a regular
briefing, I know you want to have a briefing on the bill
signing and the importance of the Pension Reform Act which
the President signed in the Rose Garden. You were all
there, obviously, so you know how that scene went.
Secretary Brennan planned to be out here but he
has an appointment with the President, as you know from
the schedule, and that conflicted with the delay and the
ceremony in the garden, so he is in seeing the President
now.
So handling the briefing this morning on the
bill will be Under Secretary of Labor, Richard Schubert;
Under Secretary of the Treasury, Stephan Gardner; Paul
Fasser, who is Assistant Secretary of Labor for Labor
Management Relations; and Donald Alexander, the Commissioner
of the Internal Revenue Service.
You have the Presidential statement, I believe, and
a fact sheet.
So, Mr. Schubert.
MR. SCHUBERT: Thank you.
The Employee Retirement Income Security Act of
1974 is a significant new building block in the social
structure of this nation.
It represents the concern of Congress and the
Executive Branch for the future security of workers and
their families -- for those rights which are earned by
the skill and expertise which make this country run.
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- 2 -
It has been a great concern to government, and
to all American citizens, that some workers devote years
to their jobs, to their careers and to their employers,
only to find the expected rewards of work in their old
age denied them when their employment is terminated.
Now that pension reform has become a reality,
these workers can reach their later years with much greater
assurance that they will not face economic hardship and
despair.
About 35 million persons and nearly 2 million
private pension and welfare plans will be affected by the
provisions of this new law.
It requires of those who administer private
pension and welfare plans the following:
First, that the monies contributed to pension
plans be in hand to pay benefits when they are due;
Second, that a person who works for a certain
minimum amount of time be assured of collecting the pension
benefits earned during that period when the person reaches
retirement age -- regardless of where he or she is.
Third, that funds of employee benefit plans be
handled in a prudent manner and exclusively in the interest
of the workers and their families;
Fourth, that workers covered by these plans have
quick and easy access to the information they need about
their benefits, the operations of their plans, and that
their rights to benefits and information be enforceable
under Federal law in Federal courts.
And finally, through an insurance corporation
established within the Department of Labor, certain
covered workers' pension benefits are now guaranteed up
to a maximum amount in the event the pension plan is
terminated.
The private pension and welfare system in this
country is remarkably large and complex. By 1980, it is
anticipated that the system will have assets of $250
billion, by far the largest single body of private funds
in the world. We look to this law to improve the security
and guarantees of this system and we do intend to see to
it that the many provisions of the law will set forth, in
plain language, the rules of the game for all to understand.
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- 3 -
In this spirit, private industry and workers
can strengthen their partnership so that it pays fair
dividends to each.
This strengthening is possible because of the
efforts of many concerned Americans who worked diligently
to produce a law which would be fair to both workers and
their employers, and which would leave flexibility for
an even better private employee benefit plan system in
the future.
I wish to commend the cooperative efforts of
the interagency task force and of the staffs of several
committees and many individual Members of the Congress
which went into the development of this legislation.
We want especially to single out for commendation the
employees of the U.S. Department of Labor whose tireless
and dedicated efforts over several years have to such a
large extent been responsible for this achievement.
The Employee Retirement Income Security Act is
a symbol of how we must continue working together if we
are to gain the prosperity that each of us seeks.
Now, as indicated at the outset, I have a
team of people who are assisting me in this briefing
today and I think each one notes some special passing
reference.
As indicated, Stephan Gardner, who is the
Deputy Secretary of Treasury, is with us; and Donald
Alexander, the Director of IRS; Paul Fasser of Labor-
Management Relations within the Department of Labor;
Bill Kilberg, who is your solicitor; and two of the
lawyers from the Department of Labor who have lived
with this bill from its very inception and who probably
have contributed more from a legal standpoint than
any other two attorneys working on this bill in the
Executive Branch.
Now, gentlemen, it is a pleasure to be with
you and try to answer some of your questions.
Q
Mr. Schubert, is there anything in
this legislation that covers in an ex post facto way
people who have lost their pension rights in the past?
MR. SCHUBERT: The only thing in the bill that
provides for retroactive application relates to plans
that have terminated between July 1, 1974 and the
enactment date. And those plans, in a very special way,
are covered by the Pension Benefit Guaranty Corporation
title of the bill.
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Other than that, it is prospective in applica-
tion and in fact in your briefing materials you will
find indication of when the various titles and provisions
of those titles take effect.
Q
How soon will the Guaranty Corporation be
in business?
MR. SCHUBERT: It will be in business tomorrow
morning. In fact, technically it was in business as of
the time that the President signed the bill.
Let me give a word of background in that
regard, and also extend our great appreciation to a
number of people who have made this all possible.
We anticipated, frankly, as we followed the
progress of the early part of the legislation through
Congress, that this corporation whose prime responsibility
it is to ensure benefits, would take effect or become
effective perhaps as much as a year after enactment date.
It was about three or so months ago that we
realized that we would have a corporation effective on
enactment date and in fact some indication that it would
be effective retroactively. And we put together a group
of teams with a nucleus from the Labor Department, but
very strong assistance from IRS and Commerce and OMB,
and they have been literally working night and day so
that we would be prepared tomorrow morning with people
detailed from various operations within the Government
to begin the process that is the Pension Benefit Guaranty
Corporation.
We did not have the authority to hire any
permanent employees. We will be doing that and putting
them in the organizational boxes that we have created.
Q
Has a director been chosen?
MR. SCHUBERT: No, a director has not been chosen.
The structure of the corporation is this: There is a three-
man board of directors. The Secretary of Labor is the
statutory designated chairman of the board, the Secretary
of Treasury and the Secretary of Commerce are the other
two directors of the corporation.
Our organizational sense provides for an
executive director to be the operational head, the
working head reporting to the chairman and the board
of directors. We are in the process of searching for the
ideal candidate for that job.
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- 5 -
Q
How much money in premiums does the
corporation expect to collect in the first year of
operation?
MR. SCHUBERT: The corporation's premium
structure is oriented to a very simple formula --
$1 per head for single employer plans, and 50 cents
per head, as I recall, for multi-employer plans.
It is anticipated that the corporation will
be self-financing.
At the outset, however, obviously there is the
need for capital to run the corporation and the corpora-
tion has the authority to borrow up to $100 million from
the Treasury Department in a line of credit type operation.
We will be getting premium notices out.
I am not sure whether any calculation has been
done, gentlemen, on how much we expect in the first year
in premiums. Any idea on that?
About $23 million, it is suggested.
Q
$1 per hour and 50 cents per hour?
MR. SCHUBERT: No; $1 per head for employees
per year for employees covered under single employer
plans, and 50 cents per employee for all employees covered
under multi-employer plans.
Q
Does the Department have any idea what
their expanded operations are going to cost in terms of
administrative expenses? I understand you are going to
need supplemental appropriations.
MR. SCHUBERT: We are working on a supplemental
now.
Let me make a couple of things clear in this
regard. There are five or six large or major components
in this legislation. Participation, vesting, and
funding are the primary responsibility of the Department
of Treasury.
The reporting and disclosure and fiduciary are
the Department of Labor, within house, as it were,
within the Department of Labor and then the Pension
Benefits Guaranty Corporation is to be housed within
the Department, and will be serviced in many ways by
the Department of Labor.
MORE
- 6 -
We are in the process of developing a pension
supplemental for the Department of Labor functions with
regard to the Pension Benefit Corporation. We have
developed an initial projection with regard to staff
needs for the first year. Very frankly, we need more
experience before we can harden up some of those figures.
Q
You spoke of a flexibility for an even
better private employee benefit system in the future.
What provisions might be added in subsequent years by
Congress?
MR. SCHUBERT: I think clearly one of the intents
of this legislation is not to restrict or constrict employers
and collective bargaining agents from developing better
forms of vesting, higher forms of benefit levels, greater
degrees of protection.
I know that that was one of the considerations
in the mind of the Congressional drafters and in our
minds as we provided technical assistance to them.
I should note one other thing. There is also
conscious concern expressed in the legislation not to
inhibit the creation of new plans in the future.
This bill does not necessitate the creation of
pension coverage where it currently does not exist. At
the same time, there was a clear concern that we not do
anything to inhibit that development in the private
sector.
Q
Mr. Schubert, have you made any kind of
an estimate as to how many plans will be disbanned as a
result of this legislation?
MR. SCHUBERT: If by disbanned you mean how
many plans will be terminated, the only experience we
have to base our operational projections on is a study made
by the Department of Treasury and the Department of Labor,
I believe based on '72 experience, and it is being
updated into '73 experience.
Based on that data, I believe we anticipated
something like 720 -- 1,200 terminations perhaps in the
first year of operation, 700 under the law with a projec-
tion that some portion -- and it is very difficult to
project this -- but some portion would not have sufficient
assets within the plan to take care of vested liability,
and consequently would be looking to the corporation and
its premium funds for assistance in meeting the obligation.
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Q
How many workers would this represent?
MR. SCHUBERT: I believe the corporation -- it
is projected the corporation would cover something like
23 million workers.
Q
But of the 1,200 plans that would terminate
the first year, how many workers do you think would have
been covered by those?
MR. SCHUBERT: Mr. Rose says in '72 that the
number of plans that terminated reflected about 20,000
employees.
Q
Why did they terminate?
MR. SCHUBERT: They would have terminated for
a whole variety of reasons, including some financial
difficulties or conclusion that the money, the amount of
liquid cash and liquid assets identified for the corpora-
tion might be utilized in some other fashion by the employer
plan that created the trust fund.
Now the significant thing about this legislation
is that it no longer will be possible for plans to be
terminated, thereby leaving workers who have great expecta-
tions and expectancies in the lurch, because henceforth
there will have to be sufficient assets to protect the
vested liabilities that have been incurred in this pension
legislation.
Q
You used two numbers, 1200 plans, and then
you say 700 under the law. Which would be the correct
number that the insurance corporation would be handling?
MR. SCHUBERT: I have to pass to the experts.
The fact is not all pension plans are covered by the Pension
Benefit Guaranty Corporation. I believe it is defined
benefit plans.
Henry or Steve, do you want to address yourself
to that a minute, please?
MR. ROSE: The 1200 is the estimate of the number
of terminations during 1972, and that is our anticipation
for this year. And the 700 is the approximate number that
will have insufficient funds to cover the vested liabilities.
Q
Mr. Rose, would there be an additional
group of funds, pension groups, that would not choose to
continue because of this type of legislation?
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- 8 -
MR. ROSE: That is possible but we have no
way of knowing that.
Q
Mr. Schubert, can you tell us anything
about the legislative history of this? Why did it take
seven years to get it out? When did the Administration
begin to back it?
MR. SCHUBERT: As I recall, the Administration's
first proposal with regard to this was back in 1970 and
there has been since then a great deal of legislative
activity.
I would just suggest in general terms that,
as indicated by the President when he picked up this
massive piece of legislation, this is a fantastically
complex area.
As I recall, there were 300 or 400 pages in
both the House version and the Senate version which had
to be measured together, and I should note what I thought
was an extraordinarily able job done by Congressional
staff working under some very severe time strictures
and restraints to get this out as timely as possible,
and I thought they did a fantastic job in handling
extremely complex areas.
That does not mean that we have foreseen,
or that they have foreseen, or anyone has, all of the
complications that will be discovered and wrestled with
in the administration of the legislation.
I think, very frankly, that the Administration's
decision to make this a priority matter a couple of years
ago had a very significant impact on the success that was
finally achieved this morning.
Q
Mr. Schubert, you used the figure of
23 million people who would be covered eventually by
the benefits of the corporation.
MR. SCHUBERT: By the Termination Insurance
Corporation. Yes, there are 35 million who are impacted in
one fashion or another by this legislation.
Q
But the 23 million are workers and the
35 million are workers plus dependents and beneficiaries?
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- 9 -
MR. SCHUBERT: No, they are both workers.
35 million is the scope of coverage or impact area, you
might say, of the total legislation, the pension bill
that has been signed into law. Approximately 23 million,
as we see it, would be covered by those provisions of the
bill that set up the corporations, the Termination
Insurance Corporation.
Q
What do you mean by "impacted"? I am
afraid I don't follow you.
MR. SCHUBERT: Well, you see there are a number
of areas set forth in the bill -- funding, vesting,
participation, reporting and disclosure, fiduciary and
termination insurance. There are 35 million who will
be covered in one fashion or another by one of those areas
in the bill.
In other words, let's assume that someone in a
welfare plan, not a pension plan -- and welfare plans are
not covered by the Termination Insurance Corporation --
but someone in a welfare plan believes that his fiduciary
has acted improperly with regard to the management of the
assets that person would have a claim under the law, could
come to the Department of Labor for assistance.
If we concluded that indeed there was a
judicable claim, we would go into court. We could
seek to set aside any improper transactions. We
could go after the fiduciary to recover any money
that had been lost through his failure to live up to
the so-called prudent man standards established under
the legislation.
Q
Could you give us separate coverage
figures for pension plans without welfare included?
I know you use the figure 35 million. Sometimes I say
30 million and sometimes I say 40 million, and I just
wonder.
Q
And I have seen 27-1/2 plus 5.
MR. SCHUBERT: That sounds like some kind
of a numbers game or something.
Let's start with the number of people in
pension plans as opposed to welfare plans, about 30
million, and that is the distinction between 35 and
30 that is set forth in our fact papers, or fact
sheets. 23 covered by the Termination Insurance
Corporation and its coverage.
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- 10 -
Q
You mean there are 7 million people in
pension plans that are not covered by the termination
insurance?
MR. SCHUBERT: Yes.
Q
Why would that be?
MR. SCHUBERT: As I understand it, they are
not part of a so-called defined benefits plan.
Henry, do you want to address yourself to
that, please?
MR. ROSE: The only pension plans that are
covered by the termination insurance plan are those that
have defined, fixed benefits at retirement age, you see.
Profit sharing plans, stock bonus plans, fixed contribu-
tion plans would not be covered.
Q
And then there are 5 million in welfare
plans that are covered?
MR. ROSE: There are many more than 5 million,
but there is a great deal of overlapping between the
coverage of welfare plans and those of pension plans.
Q
In other words, if I belong to a pension
plan that promises me a certain amount which I pay --
because you are talking about fixed contributions I am
paying into, right?
MR. ROSE: It could be fixed contributions from
your employer also but not promising you any particular
amount of money at retirement.
Q
When I retire?
MR. ROSE: That is right.
Q
If they go out of business, I have had it?
MR. ROSE: You will have whatever is in that
fund. If you are lucky, you will not be covered by the
Termination Insurance Corporation.
Q
But if they go broke?
MR. ROSE: You will have what is in the plan.
Q
Will there be a sufficient amount of money
in the fund to pay off?
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- 11 -
MR. ROSE: You will have what is in the fund.
Q
It is not insurance?
MR. ROSE: No, it is not insurance.
MR. KILBERG: The only thing they owe under
that type of plan is what is in the fund for you. So you
will get what is in the fund for you. If they have
invested it wisely and luckily, and the fund contributed
on your behalf has built up to a very large extent, and
the plan is terminated, you will get that large amount.
If they have been unlucky in their investments,
or if they have done a poor managerial job, you will get
a. lesser amount than you expected.
Now there are some new provisions in this bill,
fiduciary standards, that Dick has already mentioned,
which are going to help you in safeguarding your rights,
but your rights are not insured.
Q
May I ask a question for clarification?
MR. SCHUBERT: Yes, please.
Q
The reason I brought up the dollar per
hour --
MR. SCHUBERT: Not hour; per head, per employee.
Q
Let me explain why I brought it up. I
spoke with the President of the International Workers'
Union, Mr. Fosco.
MR. SCHUBERT: International Labor Union,
Mr. Peter Fosco.
Q
Yes; that is right, and he explained that
the worker contributes a dollar per hour, and of the
40 hours a week, they contribute $40 a week, $160 a month,
they get $100 back per month. Now, is that correct?
MR. SCHUBERT: That may well be the arrangements
that are established in a particular plan to which he has
referred. But the premiums that will be imposed by the
corporation on the employers and the plans around the
country are based on the number of employees in a certain
time frame that they have had. And it is $1 per head
except for multi-employer plans and there it is 50 cents
per head.
Q
Do you expect any legal problems with the
legal insurance part of the Act, with the American Bar
Association or the American Trial Lawyers Association?
MR. SCHUBERT: Yes. That matter has come up
very recently and Bill Kilberg has given some consideration
to it.
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- 12 -
MR. KILBERG: There was a story in yesterday's
paper about it. Section 415 of the statute clearly pre-
empts State laws with regard to prepaid legal insurance
programs. That means that State insurance departments
will not be able to regulate those prepaid legal insurance
programs. They will be regulated by this statute.
Insofar as State Bar Associations wish to take
punitive action against attorneys who participate in so-
called closed legal insurance systems, there is some
legislative history on that matter.
There was a colloquy in the Senate but we have not
had an opportunity to review that legislative history and
any similar legislative history which might have come
out in the House. And so we cannot comment at this point
on the authority of State Bar Associations to take that
kind of action.
But State insurance departments clearly would
be pre-empted.
Q
Mr. Schubert, there has been a great deal
said about this being the largest collection of private
capital in existence right now. Are there any plans to
include any of the managers of this money in the summit,
the inflation summit coming up? Does anyone know, perhaps
Mr. Gardner?
MR. SCHUBERT: That is a determination that is
to be made by the Secretary of Treasury given the fact
that banking and finance, that portion of these high-level
conferences, is within his jurisdiction.
So, I think you have to pursue that with him.
Steve, I don't know whether you have any comments
you want to make about that.
MR. GARDNER: There will be considerable participa-
tion by people involved in the investment of pension
funds at the various conferences on inflation.
Q
Can you give us any individuals in particular?
MR. GARDNER: The list I don't have at the moment,
but there will be one. There were many recommendations
to include people with that expertise and they inevitably
will be at the conference.
Q
Mr. Schubert, how many workers who were not
vested under previous situations would be automatically
vested under this legislation?
MR. SCHUBERT: I reaclly don't know of any wasy
to determine that unless you made a great, in-depth survey.
What we do perceive is that the vesting varied a great deal
from employer to employer.
MORE
- 13 -
In some cases it was well-funded vesting. In
other cases the funding was very shaky. And this bill
establishes vesting procedures and it establishes pay-as-
you-go funding procedures currently, and also establishes
formulae for picking up past service credits,
Q
But those people are not now automatically,
Either they abolish the pension plan and replace it with
one that fits the criteria, or they are automatically
vested?
MR. SCHUBERT: I think that is simplistic.
Don, do you want to address yourself to the
vesting question?
MR. ALEXANDER: First, I would like to ask Ira
Cohen whether he has any figures at all on the numbers
questions that were put to us.
Q No.
MR. ALEXANDER: Secondly, as far as vesting is
concerned, there are three alternatives provided under
the bill and the alternatives do not call for full and
immediate vesting.
Now, the alternatives provided do call in a number
of situations for faster vesting than is now provided by
some plans. The alternatives, however, are designed to make
it possible for particular corporations to adapt their
plans to one of the three offered in a way so as to do two
things, one is keep the plan going where the corporation
won't be required to terminate the plan. And people shouldn't
terminate plans by reason of the enactment of this bill.
Instead, this bill should encourage the creation of new plans.
And the other side of the coin is to give people
assurance after they have worked for a period of years, that
they will have built up some vested rights, that their
expectations won't be defeated by bank funding or vesting
that is overly delayed.
MR. TER HORST: Gentlemen, thank you very much for
coming out and being so cooperative.
If you have any more questions from the technical
experts on this bill, I am sure you could call their respective
departments and they will be more than happy to answer your
questions.
THE PRESS: Thank you.
END (AT 12:40 P.M. EDT)