APPENDIXES

Appendix 1

ANALYSIS OF EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (PUBLIC LAW 93-406)1

New protections and guarantees for employees covered by private pension and welfare plans and for their beneficiaries are provided in the Employee Retirement Income Security Act of 1974 (Public Law 93-406). Enactment of the new reforms culminated more than 5 years of effort by the U.S. Senate Aging and Labor Committees.

About 35 million persons covered by private employee benefit plans are affected by the new law. Responsibilities for implementing the new provisions are assigned to the U.S. Department of Labor, the Internal Revenue Service, and the newly created Pension Benefit Guarantee Corporation. Attached appendix 1 describes the federal administration.

The inadequacy of existing law and the obvious need for reform was recognized by the Senate in the last three sessions of Congress.

Beginning with a series of studies and hearings on the "Economics of Aging," the U.S. Senate Special Committee on Aging focused national attention on pension reform issues. These studies revealed that while Social Security was still the economic mainstay for the vast majority of older Americans that many of their number had a vital stake in the employee benefit plans of private corporations.

The road to a secure retirement in the private system is paved with great expectations. Just over 4 million American workers were covered by private plans in 1940 with assets totaling $2.4 billion. Today more than 30 million persons are employed with firms having a private plan. Assets held in trust for these employees now exceed $130 billion.

Despite this enormous growth, however, about half the employees in private industry are still not covered by any plan and many plans were found to have restrictive age and service requirements which resulted in the exclusion of many employees.

LEGISLATIVE HISTORY

In 1970, 1971, and 1972, the Senate adopted resolutions mandating the Subcommittee on Labor to conduct an investigation of pension and welfare funds in the United States. On each occasion, the Senate directed the Subcommittee on Labor to place "special emphasis" on the need for protection of the 35 million workers covered by the private pension system.

A major segment of this investigation included a statistical survey of 1400 plans drawn from a sample of plans on file at the Department of Labor. To be sure, many excellent plans were found to be providing the security they promised. But analysis of the fine print of many pension contracts produced some disturbing results.

It revealed provisions which severely restricted eligibility for benefits, provisions which limited the employer's funding commitment and provisions which permitted questionable investment practices. A pattern of lost benefits was identified. Many participants had simply been unable to qualify for any benefits,

1 The Senate Committee on Aging is grateful to Mr. Michael Schoenberger for writing this report on the pension reform bill. Mr. Schoenberger, a research assistant with the Senate Committee on Labor and Public Welfare, worked on the bill before enactment. Since then, he has been named a member of Joint Pension Study Group, a unit comprising staff members from the four Congressional units which considered the legislation.

while others, who had managed to acquire a vested right to their pension credit, lost their benefits when the plan was terminated without adequate funds. Approximately, 1,200 terminations occurred in 1972 with about 8,500 participants losing vested benefits with a value of $35 million.

The Subcommittee on Labor concluded that these losses should be prevented by the adoption of comprehensive nationwide standards for the administration of the private pension and welfare plans. Accordingly, it made recommendations for comprehensive reform in the 92nd Congress.

These recommendations were embodied in a major pension reform measure (S. 4) introduced by Senators Williams and Javits in the early days of the 93d Congress. As a former Chairman of the Senate Aging Committee and now present Chairman of the Senate Labor Committee, Senator Harrison A. Williams, Jr., had a long-standing commitment to comprehensive reform. Senator Williams had directed the pension study from its inception.

The Williams-Javits legislation became the principal reform vehicle in the Senate and its principles were embodied in the measure which later passed by a unanimous Senate vote.

Later several tax reform measures were incorporated into the final legislative product which was signed by the President on Labor Day as the Employee Retirement Income Security Act of 1974 (ERISA).

In broad outline, ERISA was designed to:

1. Encourage the growth of private pension and welfare plans,

2. Insure that those who participate in such plans do not lose their benefits as a result of unduly restrictive eligibility provisions or by the failure of the plan to accumulate and retain sufficient funds to meet its obligations and,

3. Provide greater equity in the tax treatment of private retirement savings among the taxpayer groups involved.

MAJOR PROVISIONS

COVERAGE AND PARTICIPATION

Government plans, railroad retirement plans, and church plans were not covered by the provisions of ERISA. This regulation was designed from its inception specifically for the plans of private corporations.

Participation refers to the right of employees to have their work counted toward the earning of vested benefits. The new law requires that a worker who has reached age 25 and has earned at least one year of service must be permitted to participate if his employer has a plan.

VESTING

Vesting is the heart of the new law and it will probably have the most significant impact. This term refers to right of the employee to acquire a legal claim to his pension credit after working a reasonable period under the coverage of the plan. Prior to the new law, each pension plan could have whatever vesting schedule it chose.

ERISA requires the plan to adopt one of the three alternative standards which require :

1. Full vesting after 10 years of service, or

2. 25 percent vesting after 5 years of service gradually increasing to full vesting after 15 years of service or

3. A rule of 45 under which employees with 5 years of service begin to vest when their age and service totals 45.

SURVIVOR BENEFITS

If the retirement plan provides benefits in the form of an annuity, as most do, it will now be required to offer a joint and survivor option to married plan participants. A joint and survivor annuity pays benefits to the retired worker and spouse so long as they are both alive and then continues benefits, sometimes at a lower level, to the survivor if one spouse dies.

PLAN TERMINATION INSURANCE

Title IV of the Act establishes a new federal insurance program to ensure that employees who participate in private pension plans have guaranteed pension benefits even if their plan should prematurely terminate without adequate assets on hand. Monthly vested benefits are guaranteed up to certain limits ($750 a month). Based on past performance, approximately 1200 terminations can be expected annually.

The insurance program is now processing 500 terminations which have occurred since enactment. More than $25 million in premiums have been collected to meet these claims.

FIDUCIARY STANDARDS

Under prior law, trustees of employee benefit plans were required to administer the plan so as to protect the financial interests of participants. The precise content of these general duties had never been delineated legislatively until ERISA. Under the new law, trustees and other fiduciaries must administer the plan solely in the interest of participants and beneficiaries. Also they are held to strict standard of care in the investment of plan funds.

INDIVIDUAL RETIREMENT ACCOUNTS

Individuals not covered by either a government or private pension plan are allowed a tax deduction for contributions to their own individual retirement savings account. For that half of the work force not covered by a plan, the Act permits the new (IRA) Account as a means of retirement savings. Deductions for contributions of up to $1,500 annually are allowed.

KEOGH PLANS

Deductions for contributions made to the plans of the self-employed were increased from a maximum of $2,500 to $7,500 per year.

REPORTING AND DISCLOSURE

The new Act replaces and extends the disclosure requirements of prior law. Every pension plan will be required to furnish each worker with a summary plan description. It is required to be written in plain understandable language. The description must contain a statement of the plan vesting rules, the circumstances which may result in a loss of benefits, and the procedures to be followed in presenting claims for benefits.

In addition, each plan must furnish to each worker a summary of the annual financial report it files with the Secretary of Labor. This report would include a statement of the plan assets and liabilities as compared with the previous year and the receipts and disbursements during the year.

FUTURE DIRECTIONS

The overall effect of this pension legislation will be to affirm the important role of private pensions in providing retirement income for Older Americans. Congress has in this legislation implemented the mandate of the 1971 White House Conference on Aging which directed the Federal Government to take action to insure the preservation of pension benefits by workers and their survivors. The tax incentives of ERISA respond to the Conference recommendations that broader coverage of the private pension system be encouraged. But Congress was aware that national attention must be focused on the future directions of private pension and welfare plan development.

ERISA created a special joint pension study group to study the impact and implement the future development of this regulatory framework. Specifically, it is directed to study the impact of the new requirements on the hiring of older workers. In addition, this special study group will explore the adequacy of public plans in meeting the income needs of retirement. Reports are to be made to Congress within 24 months of enactment.

Appendix 2

HIGHLIGHTS OF THE STUDY 1 "THE MYTH AND REALITY OF AGING IN AMERICA"-CONDUCTED BY LOUIS HARRIS AND ASSOCIATES FOR THE NATIONAL COUNCIL ON THE AGING, INC.

Because of the sheer mass of data included in this study we are making the following highlights available in advance to interested people in the media. A copy of the complete study, which runs to 245 pages, is available on request. A press conference to discuss the study was held by Lou Harris and officials of the National Council on the Aging on Tuesday, April 15, at the Mayflower Hotel in Washington, D.C.

This study is by far the most extensive ever conducted to determine the public's attitude toward aging and their perceptions of what it's like to be old in this country-and to document older Americans' views and attitudes about themselves, and their personal experiences of old age.

The National Council on the Aging commissioned the study to provide definitive data to researchers, writers, students, legislators and the general public. For too long the people of this country have accepted without question all of the stereotypes and cliches about growing old. We hope the material that follows will separate the myth from the reality.

The study will also provide base data about the attitudes and perceptions of age for NCOA's newest project, the National Media Resource Center on the Aging; and it will be used with other data to evaluate the results of future programs.

Several points should be made about this data:

First, the findings in the area of public policy are extremely significant. An overwhelming 97 percent of the American people believe that social security payments to the elderly should automatically increase with rises in the cost of living. There is no indication that the public supports an arbitrary limitation on this increase.

The study also reveals that 81 percent of the public agree that the Federal Government has the responsibility to use general tax revenues to help support older people. And 86 percent of the people are opposed to mandatory retirement at a fixed age if the worker wants to continue working and is able to do a good job. The study explored the attitudes of Americans on a wide range of issues related to aging, and compared the feelings of older people with the perceptions of those younger.

Second, the conclusion is obvious that most of the older people of this country have the desire and the potential to be productive, contributing members of our society. They do not want to be "put on the shelf" and excluded from social and economic activities.

Third, it is clear that most older people feel that their condition in life is better, economically and socially, than the general public believes it to be. But "most" can be a deceptive term; it is vitally important to remember that many millions of older people are living at, or below, the poverty line. Thus, when 15 percent of people over 65 say that "not having enough money to live on" is a personal problem for them, that percentage translates to some 3 million needy people. The same thing is true of many of the other categories discussed in the pages that follow.

1 The full text of the report is available from the National Council on the Aging, 1828 L Street, N.W., Washington, D.C. 20036. Members: $15. Nonmembers: $20.

Some of the other major findings include:

PUBLIC POLICY

A full 87 percent of those responsible for hiring and firing say "Most employers discriminate against older people and make it difficult for them to find jobs," and only 37 percent of these decisionmakers feel a fixed retirement age for everyone makes sense.

Among the older public now retired, 37 percent or 4.4 million people said they did not retire out of choice and approximately the same number-31 percent said they would like to be working now.

Not only should the Government provide income for older, retired people, the public feels it should provide them with enough income to live comfortably. By 76 to 19 percent the public agreed that "No matter how much a person earned during his working years, he should be able to have enough money to live on comfortably when older and retired."

There is tremendous potential support for a movement to improve the conditions and social status of people over 65. Those under 65 (81 percent, compared to 70 percent of those 65 and over) are most conscious of this need for focus and organization.

STEREOTYPES AND PROBLEMS OF OLDER PEOPLE

It is not the young alone who have negative expectations of old age. Recognizing that life is not so terrible for themselves, older people have bought the stereotypes and myths of old age and consider themselves the exception to the rule. In fact, for every older person who feels that his or her own life is worse now than what he/she thought it would be, there are three who say that life is better now than they expected. As many people under 65 feel that their current lives fall short of earlier expectations as those 65 and over. "While I personally am bright and alert," most people 65 and over seem to be saying, "most of my peers simply are not."

A comparison between the problems attributed to "most people over 65" by the public at large and the problems actually experienced personally by older people indicates the extent to which the public has a distorted view of what it is like to grow old. In most cases, the discrepancy is enormous:

50 percent of the public felt that "fear of crime" was a very serious problem for the aging, versus 23 percent of older people who thought it a problem for them personally;

51 percent of the public thought "poor health" a problem for the aging, versus 21 percent of older people who thought it a person problem;

62 percent of the public thought "not having enough money to live on" a problem for the aging, versus 15 percent of the elderly who found this a personal problem.

It is striking that in the above examples, people over 65 substantially agreed with those younger that these were problems for "most people over 65." But by the percentages indicated, individual older persons considered themselves exceptions.

Except for health and fear of crime, the "very serious" problems of those 18-64 are very comparable to those who are 65 and older, including not having enough money, job opportunities, medical care and education.

OLDER PEOPLE, THEIR LIFESTYLE AND PERCEPTIONS

It is generally recognized by the public at large that people over 65 represent a larger segment of the population today than 10 or 20 years ago. And, as a group, people over 65 are seen as healthier, better educated, and in better financial shape than in the 1950's or 60's.

But when queried as to the type of life older people lead, the perception, again, is quite different from the reality.

In the eyes of the public, people over 65 spend a great deal of their time in sedentary, private and isolated activities. Actually the older public is far more active than imagined.

Sixty-seven percent of the total public expects that most people over 65 spend a lot of time watching television. Only 36 percent of the older group report they do.