T t. L II /-S -ll*. 7
96th Congress
1st Session
COMMITTEE PRINT
S. 209
THE ERISA IMPROVEMENTS ACT OF 1979
SUMMARY AND ANALYSIS OF
CONSIDERATION
PREPARED BY THE
COMMITTEE ON LABOR AND HUMAN
RESOURCES
UNITED STATES SENATE
NOVEMBER 1979
Printed for the use of the
Committee on Labor and Human Resources
53-018 0
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1979
COMMITTEE ON LABOR AND HUMAN RESOURCES
HARRISON A. WILLIAMS, Jr., New Jersey, Chairman
JENNINGS RANDOLPH, West Virginia RICHARD S. SCHWEIKER, Pennsylvania
CLAIBORNE PELL, Rhode Island JACOB K. JAVITS, New York
EDWARD M. KENNEDY, Massachusetts ROBERT T. STAFFORD, Vermont
GAYLORD NELSON, Wisconsin ORRIN G. HATCH, Utah
THOMAS F. EAGLETON, Missouri WILLIAM L. ARMSTRONG. Colorado
ALAN CRANSTON, California GORDON J. HUMPHREY, New Hampshire
DONALD W. RIEGLE, Jr., Michigan
HOWARD M. METZENBAUM, Ohio
Stephen J. Paradise, General Counsel and Staff Director
Marjorie M. Whittaker, Chief Clerk
Steven J. Sacher, Special Counsel
David A. Winston, Minority Staff Director
Peter H. Turza. Special Counsel to Senator Javits
(II)
FOREWORD
The "ERISA Improvements Act of 1979" contains amendments to
the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code of 1954 which, in the view of the Committee on Labor
and Human Resources, are necessary and desirable in light of five
years' experience since ERISA was enacted.
S. 209 represents a balanced legislative approach in furtherance of
national policy respecting retirement income — it is designed to en-
courage and stimulate private sector retirement and welfare plans
while continuing ERISA's thrust towards improving plans from the
standpoint of the workers and retirees for whom the plans have been
established. It is also forward-looking legislation that takes into
account the likely results of present demographic, economic, and social
trends.
Under the Senate rules, legislation which is jointly referred to two
or more committees may be reported only by such committees jointly,
accompanied by only one report. S. 209 is such a bill, and this sum-
mary and analysis of consideration is being made available as a Com-
mittee Print in the belief that it will be helpful to the Committee on
Finance and others in their consideration of the "ERISA Improve-
ments Act of 1979." I am pleased to include in this print the views of
the Committee as well as additional views, background and legisla-
tive history, the complete text of the bill as amended and approved by
the Committee, and other pertinent material.
Harrison A. Williams, Jr.,
Chairman,
Committee on Labor and Human Resources.
(in)
Digitized by the Internet Archive
in 2013
http://archive.org/details/s209erisaimprove00unit
CONTENTS
Page
I. S. 209: Summary 1
II. History of legislation 5
III. Committee views and analysis 10
IV. Additional views of (1) Senator Javits and (2) Senator Hatch 61
V. Tabulation of votes cast in committee 66
VI. Congressional Budget Office — cost estimate 67
VII. Changes in title I of ERISA 68
VIII. S. 209. as amended and approved by the Committee on Labor and
Human Resources 90
IX. Pertinent correspondence 184
(V)
I. Summary of the Bill
The bill is divided into four titles, as follows :
I. General Amendments to ERISA.
II. Amendments to the Internal Revenue Code of 1954.
III. Special Master and Prototype Plans.
IV. Employee Benefits Commission.
The bill is intended to achieve the following major objectives :
A. Strengthen and increase coverage of private sector retire-
ment income and welfare benefit arrangements ;
B. Provide greater assurance that employees and their families
will receive benefits from such arrangements;
C. Clarify and simplify the Federal laws under which employee
benefit plans operate and are regulated, and reduce paperwork
burdens of plan sponsors, administrators and service providers;
D. Adjust the applicability of certain Federal and state laws as
they relate to plans which are subject to ERISA ; and
E. Streamline the administration and enforcement of ERISA
and the Internal Revenue Code, insofar as it relates to employee
benefit plans which are subject to ERISA.
TITLE I GENERAL ERISA AMENDMENTS
The amendments in title I of S. 209 change many provisions of title
I of ERISA.
The ERISA declaration of policy is amended to state explicitly
Congress' policy that private sector employee benefit plans are to be
encouraged and fostered. Also, the definition of "pension plan" is
changed to give the Secretary of Labor explicit authority to treat
legitimate severance pay or supplemental retirement income arrange-
ments as welfare plans rather than pension plans.
The reporting and disclosure rules are changed to provide an alter-
native method of document distribution for multiemployer plans, to
eliminate the requirement that plans must annually furnish partici-
pants with summary annual reports, to provide greater flexibility for
the Secretary of Labor to grant variances and exceptions from the
statutory rules, to consolidate and simplify in one section the presently
scattered rules relating to participants' status reports, and to clarify
the roles of accountants and actuaries who perform services for plans.
The minimum standards provisions of title I are revised to make
clear that certain types of reciprocity arrangements between collec-
tively bargained plans are permissible. Other changes are made in the
participation, vesting, accrual, and funding rules, primarily in recog-
nition of the unique circumstances under which multiemplover plans
operate. The permissibilitv of reducing welfare plan disability pay-
ments due to Social Security disability payment increases and reduc-
ing of pension plan retirement payments due to workers' compensa-
tion payments is clarified. Protection is provided for surviving spouses
(l)
of deceased participants who completed substantial service under a
plan before death. ERISA's rule prohibiting assignments or aliena-
tions of benefit rights is clarified to ensure that it will not be interpreted
to preclude a plan's honoring certain property settlements, alimony or
child support orders of state courts. The elapsed time method of meas-
uring service for purposes of ERISA's minimum standards, already
approved by Labor Department proposed regulations, is codified.
Regarding ERISA's fiduciary responsibility provisions, the rule
governing the extent to which an insurance company's general account
shall be deemed to hold assets of a plan which is signatory to a contract
or policy issued by the insurer is clarified, as is the general cofiduciary
responsibility rule as it relates to fiduciaries which conduct business
in corporate, partnership or association form. The rule governing re-
funds of contributions made to collectively bargained plans is relaxed
slightly. The prohibited transaction and related rules are changed in
three respects : the ERISA definition of "party in interest" is narrowed
to exclude persons who, as a practical matter, do not occupy positions
in which they can exert influence over a plan ; a new statutory exemp-
tion is provided for transfers of assets between plans which have en-
tered into reciprocity arrangements; and the Secretary of Labor will
be required to report to the Congress and to the President respecting
those applications for administrative exemptions as to which final
agency determinations have not been made expeditiously.
In the areas of administration and enforcement, the bill requires
that one member of the Secretary of Labor's ERISA Advisory Council
must be representative of small employers and directs the Secretary
to study and report to the Congress on the feasibility and ramifications
of mandatory cost of living increases for pension plans. Also, rules are
established prohibiting misrepresentations to employees about plans
subject to ERISA and requiring employers to make periodic contribu-
tions to collectively bargained plans.
ERISA's preemption rules are changed in several respects. Applica-
tion of the antifraud provisions of the federal securities law to the rela-
tionship between an employee and an ERISA plan (or officials of the
plan or plan sponsor) is nullified, and application of State securities
laws to an ERISA plan is preempted. Preemption will not apply to
certain State laws dealing with health care plans (although States will
be preempted from specifying in insurance laws or regulations the
types of benefits, other than conversion rights, which must be made
available in policies or contracts issued by insurers to plans). Also, a
conforming change is made to foreclose arguments that ERISA pre-
empts state court orders dealing with property settlement, alimony, or
child support payments described in the new explicit exception to the
rule prohibiting assignments and alienations.
Numerous changes are made in ERISA's enforcement and federal
court jurisdiction provisions to conform to substantive changes made
elsewhere in ERISA by the bill.
TITLE I! INTERNAL REVENUE CODE AMENDMENTS
Changes are made in provisions of the Internal Revenue Code of
1954 which are analogous to the ERISA title r provisions amended by
S. -jo!) and described above.
In addition, four other amendments to the Cock' are made. The first
two (sections 201 and 202) deal with rollover or other favorable tax
treatment for lump sum distributions made by tax-qualified plans. The
bill amends the aggregation of plan rules to provide that, as respects
multiemployer plans and plans for employees of organizations de-
scribed in Code section 501(c) (3) or (5) (charitable, religious, etc,
and labor, agricultural or horticultural associations) all defined bene-
fit plans of an employer are to be treated as a single plan and all
defined contribution plans are to be treated as a single plan. Also, an
employee receiving a lump sum distribution from a multiemployer
plan after not working in service covered under the plan for a period
of six months would be eligible for rollover or other favorable tax
treatment.
Section 203 of S. 209 amends the code to permit employees who are
active participants in most tax-qualified plans to claim a deduction for
certain contributions made to the plan in which they are participating
or to an Individual Retirement Account. The deduction is limited to
the lesser of $1,000 per year or 10 percent of annual compensation, and
rules are included to prohibit discrimination in favor of the highly
compensated.
To stimulate the creation of more private sector plans, section 204
of the bill includes a limited tax credit for small employers who estab-
lish or commence contributions to tax qualified plans. The credit is
designed to offset the initial costs of plan design and implementation.
Accordingly, the credit is a phased-down incentive of five years' dura-
tion, based on a percentage of allowable deductions for contributions
made by the employer to the plan. In the year of the plan's establish-
ment, the credit is five percent of allowable deductions. For each of the
second and third years after establishment, it is three percent. For each
of the next two years, it is one percent. The credit is not available for
the sixth and subsequent years after the plan's establishment.
The staff of the Joint Committee on Taxation has estimated the
revenue costs of sections 201-204 of S. 209, as follows :
It is estimated that section 201 of the bill would reduce
budget receipts by less than $5 million annually.
It is estimated that section 202 of the bill would reduce
budget receipts by less than $5 million annually.
It is estimated that section 203 of the bill would reduce
budget receipts by $480 million in fiscal year 1980, by $1,025
million in fiscal vear 1981, by $1,145 million in fiscal year
1982, and by $1,330 million in fiscal year 1984.
It is estimated that section 204 of the bill would reduce
budget receipts by $5 million in fiscal year 1980, by $25 mil-
lion in fiscal vear 1981, by $50 million in fiscal year 1982, and
by $90 million in fiscal year 1984.1
TITLE III SPECIAL MASTER AXD PROTOTYPE PLANS
Under title III of the bill, a "master sponsor,'' such as a bank, in-
surer, mutual fund, or savings and loan association, would develop
one or more special master pension plans and would seek approval, at
1 Staff of the Joint Committee on Taxation, "Description of S. 75 S. 94, S. 20!) and
S. 557" (Comm. Print 1979) (Hereinafter "Joint Committee Print5').
the national office level, from the Secretary of Labor. The terms of
approval may be conditioned by the Secretary, and the Secretary of
the Treasury has an opportunity to add conditions related to ap-
plicable Internal Revenue Code provisions.
Once approval is obtained, the master sponsor makes the special
master plan available to employers, subject to any conditions stipu-
lated by the government. An adopting employer may establish and
implement the plan without further determinations by the govern-
ment. The master sponsor is the administrator and fiduciary of each
adopting employer's plan, and the responsibilities of each adopting
employer under ERISA and complementary provisions of the tax
code are limited to complying with the terms of the plan, paying the
costs of funding the plan (as to which the present tax code deducti-
bility rules would apply) , paying a servicing fee to the master sponsor,
and furnishing the master sponsor with timely and accurate work-
force data. Numerous safeguards are included to prevent abuse by
either adopting employers or master sponsors.
TITLE IV EMPLOYEE BENEFITS COMMISSION
Title IV of S. 209 consolidates in a single agency, the new "Em-
ployee Benefits Commission," the functions related to administration
and enforcement of ERISA and complementary tax code provisions
that are now scattered in three separate agencies: the Labor Depart-
ment, the Treasury's Internal Revenue Service, and the Pension
Benefit Guaranty Corporation.
The Employee Benefits Commission is composed of five members,
including a chairman who is a special liaison for the Secretary of
Labor and a vice-chairman who is a special liaison for the Secretary
of the Treasury. All five members are Presidential appointments, sub-
ject to Senate confirmation, and serve six year, staggered terms. The
chairman and vice chairman are nominated by the President from lists
of candidates submitted, respectively, by the Secretary of Labor and
the Secretary of the Treasury. The other three members are nominated
by the President from a list of candidates submitted jointly by the two
secretaries.
In addition to administering and enforcing ERISA and comple-
mentary tax code provisions, the Commission is to formulate policy
respecting federal laws which relate to employee benefit plans.
The Commission is an on-budget agency; however, the portion of
the Commission's activities attributable to title IV of ERISA (plan
termination insurance) would continue to be financed by plan-paid
premiums.
The Commission will commence its work, and the transfers of func-
tion and stall' identified by title IV of S. 209 shall be completed by,
the date which is two years after the enactment of S. '209. At that time,
subtitle A of title III of ERISA (jurisdiction, administration, and
enforcement) is repealed.
II. History of Legislation
During- October of 1977, the Labor Subcommittee of the Committee
on Human Resources held ERISA oversight healings, during which
many issues addressed in S. 209 were discussed.1 On May 1. 1978,
S. 3017, the direct predecessor to S. 209, was introduced and referred
to the Committee on Human Resource's and the Committee on Finance
jointly, by unanimous consent. Hearings on S. 3017 and other bills to
amend ERISA and the Internal Revenue Code were conducted jointly
by the Labor Subcommittee and the Finance Committee's Subcom-
mittee on Private Pension Plans and Employee Fringe Benefits during
August of that year.2
S. 209 was introduced on January 24, 1979 and was referred to the
Committee on Labor and Human Resources and the Committee on
Finance jointly, by unanimous consent. Hearings were conducted in
February by the Committee on Labor and Human Resources.3 On
May 16, 1979 the Committee amended the bill in certain respects and
approved it unanimously, with three abstensions.4
In the course of these hearings, testimony was heard and written
comments received from a wide range of persons, including representa-
tives of the Labor Department, the Treasury, the Pension Benefit
Guaranty Corporation, and the Securities and Exchange Commission.
Witnesses included the following :
Members of Congress
Senators
Dewey F. Bartlett, Oklahoma.
Lloyd Bentsen, Texas.
Daniel K. Inouye, Hawaii.
Spark M. Matsunaga, Hawaii.
Executive branch officials
Department of Labor, Secretary of Labor Ray Marshall, et al.
Department of the Treasury, Assistant Secretary for Tax Policy,
Donald C. Lubick, et al.
Pension Benefit Guaranty Corporation, Director Matthew Lind,
et al.
Securities and Exchange Commission, Chairman Harold Williams,
et al.
1 "Oversight of ERISA. 1977 : Hearings before the Subcommittee on Labor of the Senate
Committee on Human Resources." 95th Congress, 1st session (1977).
2 ERISA Improvements Act of 1978: Joint hearings on S. 3017. S. 901. S. 2992. S.
3193. S. 1745, S. 1383 and S. 250 before the Subcommittee on Labor. Committee on Human
Resources and Subcommittee on Private Pension Plans and Employee Fringe Benefits,
Committee on Finance, 95th Congress, 2d session (1978).
s ERISA Improvements Act of 1979: Hearings on S. 209 before tbe Committee on
Labor and Human Resources, 96th Congress, 1st session (1979). [Hereinafter cited as
1979 Hearings.]
4 See V, Tabualtion of Votes Cast in Committee, p. 66. Pursuant to Rule XXVI of the
Standing Rules of the Senate, legislation which is referred to two or more committees
jointly may be reported by those committees only with a joint renort. Accordingly, thp
Committee action taken on May 16 constitutes an approval of the bill, as amended, in tbe
nature of a favorable report and indicates the Committee's readiness to report the bill
favorably as soon as possible.
(5)
Other persons
Donald C. Alexander — Former Commissioner, Internal Revenue
Service, Olwine, Connelly, Chase, O'Donnell and TVeyher.
American Academy of Actuaries — Stephen G. Kellison, et al.
American Bankers Association — Charles A. Moran, et al.
American Bar Association — Frank Cummings, et al.
American Council of Life Insurance — William Gibb, et al.
American Federation of Labor/Congress of Industrial Organiza-
tions— Bert Seidman, et al.
American Institute of Certified Public Accountants — Andrew J.
Capelli,et al.
American Society for Personnel Administration — James H.
Ferguson.
American Society of Pension Actuaries — J. William Cloer, et al.
Association of Private Pension and Welfare Plans — William Bret,
et al.
William Chadwick, Former Administrator, Office of Pension and
Welfare Benefit Programs, U.S. Department of Labor — Paul, Has-
tings, Janofsky & Walker.
Chamber of Commerce — Ernest Griffes, et al.
Church Alliance for the Clarification of ERISA — Charles Cowsert,
et al.
Council of Construction Employers, Inc. — Harry P. Taylor, et al.
ERISA Industry Committee/Business Roundtable — Boris Auer-
bach,et al.
John Finnell — retiree.
Hawaii State Federation of Labor. AFI^CIO — A. Van Horn
Diamond.
Roderick Hills — Former chairman, Securities and Exchange Com-
mission, Latham, Watkins & Hills.
Investment Company Institute — David Silver, et al.
National Association of Pension Consultants and Administrators.
Inc. — Harry Lamon, Jr.. et al.
National Coordinating Committee for Multiemployer Plans —
Robert Georgine, et al.
National Employee Benefits Institute — Steven Schanes.
National Federation of Independent Business — James '"Mike"
McKeyitt.
National Women's Political Caucus — Anita Xelam.
Pension Rights Center — Karen Ferguson, et al.
Prudential Insurance Company of America. Equitable Life Assur-
ance Society of the U.S., John Hancock Mutual Life Insurance Com-
pany. Aetna Life and Casualty Company and Mutual Life Insurance
Company of New York Theodore Groom, Groom & Nordberg.
Roy Schotland- ( reorgetown I Fniversity Law Center.
State of I la waii I )r. Joshua C. Agasalud, et al.
United Automobile, Aerospace and Agricultural Implement
Workers of America, International Union- -Claude Poulin, et al.
La wrence Walner counsel to Mr. John Daniel.
Western Conference of Teamsters Pension Trust Fund- -- T. Neal
MrNaniara. Pillsbury, Madison & Sutro; Theodore Groom, Groom &
NTordberg.
In addition, statements for the record were submitted bv :
Members of Congress and state legislator*
Senators
Frank Church, Idaho.
Robert Packwood, Oregon.
Ted Stevens, Alaska.
Orrin Hatch, Utah.
Dennis DeConcini, Arizona.
Representatives
Carl Perkins, Kentucky.
Al Ullman, Oregon.
John Seiberling, Ohio.
Patricia Schroeder, Colorado.
State legislators
Donald Ching, Majority Leader, Hawaii State Senate.
Other persons
Alder, Jonathan; Boothroyd, Herbert; Fleming, Donald — New
England Life.
Anderson, Herbert; Hudson, H. P.; Kinder, Wesley — National
Association of Insurance Commissioners.
Armand, John — Red Crown Federal Credit LTnion.
Asling, John.
Barnes, Willie — Commissioner of Corporations, State of California.
Bateman, Ben Carlyle — Vice President, Thompson & Green Ma-
chinery Company, Inc.
Berin, Barnet — Director, Professional Standards, William M.
Mercer, Inc.
Bradley, Howard — Wholesale, Inc.
Budek-Kielski, Ewa — Chairman, Committee for ERISA Working
Action.
Clarke, Weston — Vice President, American Telephone and Tele-
graph Company, Human Resources Division.
Conte, Michael.
Damaso, Carl — President, International Longshoremen's and Ware-
housemen's Union, Local 142.
Davis, Hilton — U.S. Chamber of Commerce, Vice President for
Legislative Action.
Diamond, J. C. — National Association of Small Retirement Plans.
Drake-Johnson, Craig — Deferred Compensation Administrators,
Inc.
Driesen, George — Van Arkel, Kaiser, Gressman, Rosenberg and
Driesen.
Dudovits, Neal; Miller, Bruce — National Senior Citizens Law
Center.
Ellingsen, Rudolph.
Faber, Peter — Harter, Secrest and Emery.
Fox, Douolas, Esq.
George, Ralph — President, IPCO, Inc.
Gordon, Michael — Mittleman & Gordon.
Gray, William — Financial Analysts Federation.
8
Grier, W. E. — Standard Oil Company of California.
Grohne, Jack — Corporate Fiduciaries Association.
Guarrera, John; Weinschel, Bruno — Institute of Electrical and
Electronics Engineers, Inc.
Hassen, Joel; Singer, Thomas — Kaiser Aluminum and Chemical
Corp.
Henrickson, Warner — Standard Oil Company of Indiana.
Hornbostel, Charles — President, Financial Executives Institute.
Jackson, Paul — The Wyatt Company.
Kirk, Donald — Financial Accounting Standards Board.
Kluwin, John — American Bar Retirement Association.
Kneen, H. P. — International Business Machines.
Lewis, Stuart; Sherman, Gerald — Association of Advanced Life
Underwriters.
Lidsay, Dennis — Master Contracting Stevedore Association of the
Pacific Coast, Inc.
Marinich, M. George — Director, Pension and Insurance Depart-
ment, United Rubber, Cork, Linoleum and Plastic Workers of
America.
McDonald, J. Douglas — Treasurer, Planning Counselors, Inc.
Middleton, II. Woodward — Middleton, McMillan, Architects, Inc.
Moore and Associates, Charles P.
Mutschler and Associates, John G.
Navarre, R. W. — President, Simpson Industries Association.
O'Brien, Edward — Securities Industries Association.
Pavlo, Andrew — President, Oil, Chemical and Atomic Workers
International Union.
Perkins, Richard — Society of Professional Benefit Administrators.
Quillen, William — Senior Vice President, Wilmington Trust
( Company.
Sachs, Theodore — Marston, Sachs, Nunn, Kates, Kadushin &
O'Hare.
Shockley, W. Ray — Executive Vice President, American Textile
Manufacturers Institute, Inc.
Siegel, Mayer — Attorney.
Skillnian, Richard — Caplin and Drysdale.
Sprague, Fred — Orrin A. Sprague Agency.
Staats, Elmer — Comptroller General of the United States.
Svetanics, Milton — General American Life Insurance Company.
Tannenbaum, Arnold.
Tarver, Norman.
Tassios, Dimitrios — Department of Chemical Engineering, New
Jersey Institute of Technology.
Tennant, Otto Chairman, National Society of Professional En-
gineers, and the American Society of Mechanical Engineers.
Thompson, .James General Vice President, Association of Western
Puh) and Paper Workers.
Tnornberry, Gary Columbian Peanut Company.
Thorsen, Edward Madigan and Thorsen.
Tully, Richard Dugan Production Corporation.
Tuttle, William Tuttle, Morris, Kairick & Ingram.
9
American Paper Institute.
Arthur Young and Company.
Associated General Contractors of America, Inc.
Health Insurance Association of America.
Merrill Lynch, Pierce, Fenner, and Smith, Inc.
National Association of Manufacturers.
National Automobile and Associates Retirement Trust.
Price Waterhouse and Company.
Printing Industries of America, Inc.
U.S. League of Savings Associations.
III. Committee Views and Analysis
It is the view of the Committee on Labor and Human Kesources that
the Employee Retirement Income Security Act of 1974 is extremely
important legislation which, in the main, has already proven its value
for the retirement income and welfare benefit security of the roughly
55 million American workers and their families who are covered by
private sector plans. Further, it is the view of the Committee that,
especially as regards retirement income, ERISA's value and impor-
tance in the future will be even greater, as present demographic trends
indicate that the proportion of retirees in our society is likely to grow
significantly larger during the coming years.
Hence, the changes in ERISA and the tax code which are contained
in S. 209, while comprehensive in the sense that all five parts of title
I, subtitle B of ERISA (and complementary provisions of the Internal
Revenue Code) are in some way affected, do not disturb any of its
fundamental, underlying, substantive concepts.1 Based on almost 5
years' experience since enactment, the Committee strongly approves
and endorses these basic tenets, which are presently reflected in
ERISA's provisions :
Voluntary private sector arrangements can and should play a
vital role in assuring retirement income and welfare (health care,
disability, accident, supplemental unemployment, etc.) benefits
for American workers and their families.
The national interest in these arrangements is significant and is
appropriately reflected in Federal law, both in terms of incentives
which are made available for persons who maintain or contribute
to the arrangements, and in terms of rules under which such
arrangements are regulated, including reporting and disclosure
requirements to assist in the regulation.
Covered employees must be fairly informed as to their plans'
terms and financial condition and as to their rights and obligations
under the plans.
Standards respecting the terms of retirement income and other
deferred compensation arrangements (e.g., participation, vesting,
accrual, and related matters) are necessary and appropriate.
The economic and social ramifications of private plan assets are
great, and standards respecting the funding of certain retirement
income arrangements and the conduct of fiduciaries and parties in
interest of all <\\e\\ plans are necessary and appropriate.
The Federal courts and, in certain cases, the state courts and
the U.S. Tax Court, are appropriate forums for the redress of
complaints alleging violations of federal law relating to private
sector retirement income and welfare benefit programs, and access
to the courts should be readily available to complainants.
1 Due to the pendency <>f separate legislation (S. 1076) concerning problems <>r plan
termination Insurance under title IV of ERISA, s. 209 does not address title iv issues
and Hi'' committee expresses no view al this time regarding the problems addressed
by s. 1076.
(10)
11
Accordingly, S. 209 docs not change any of the fundamental substan-
tive concepts involved in the treatment of private sector plans under
ERISA and the tax code. Rather, the ERISA Improvements Act of
1979 is properly viewed as remedial legislation ; the changes it makes
do have long-term significance in terms of the underlying goals de-
scribed in the summary section of this analysis, but the changes also
address many specific problems which have arisen or been highlighted
in the years since ERISA's enactment.
Policy of Encouraging Private Plans — Section 101
Section 101 of the bill amends ERISA's declaration of policy to
make explicit Congress' policy that the establishment and maintenance
of private sector plans should be encouraged and fostered. In the Com-
mittee's view, this policy has been implicit and reflected in a variety
of federal laws, including the tax code, the Taft-Hartley Act, ERISA,
and most recently, in the 1978 amendments to the Age Discrimination
in Employment Act. But given the ever-increasing social and economic
importance of private retirement income arrangements and the in-
evitable tension between the equally important goals of fostering vol-
untary employee benefit plans and at the same time regulating such
plans to assure equity and fairness, the Committee believes that an
explicit statement of the former is desirable and necessary.
Definitions — Section 102
Section 102 of the bill amends several of the key ERISA definitions.
The changes in the definitions of "party in interest" and "relative"
(ERISA sections 3(14) and (15)) are discussed below in connection
with changes in ERISA's fiduciary responsibility provisions.
The definition of "multiemployer plan" (ERISA section 3(37)) is
simplified under bill section 102(4) by eliminating the 50/75 percent
aggregate amount of contributions tests. It is the view of the Commit-
tee that these tests are difficult to administer and enforce, and are
based on a premise which has proven faulty. At the time of ERISA's
enactment, there was concern that the special treatment accorded to
multiemployer plans in certain instances (e.g., the 40-year amortiza-
tion rule for unfunded past service liabilities rather than the 30-year
rule applicable to single employer plans) would serve as an incentive
for plans which were not true multiemployer plans to characterize
themselves as multiemployer plans for the purpose of taking advan-
tage of these special rules. In fact, experience has shown that the dis-
incentives to being characterized as a multiemployer plan are more
than strong enough to counterbalance the incentives. Indeed, while the
Committee is aware of numerous instances in which multiemployer
plans have sought to be characterized as single employer plans, the
Committee is unaware of any case in which a single employer plan
has sought to be characterized as a multiemployer plan.
In lieu of the 50/75 percent tests, the amended definition provides
that a collectively bargained plan to which ten or more employers con-
tribute and which meets the "benefits payable without regard to the
cessation of contributions" test of the present definition will be a multi-
emplover plan for all ERISA purposes. Also, the Secretary of Labor
may afford multiemployer plan treatment to a collectively bargained
plan in which more than one and less than 10 employers contribute
and which meets the "benefits payable" test if he finds that doing so
79-2
12
would be consistent with ERISA's purposes. The Committee expects
that such a finding will normally be made respecting such plans, but
that extra scrutiny will be applied in cases involving an unusually
high proportion of total contributions by a single contributing employ-
er. Since the amended definition retains the Secretary's existing power
to prescribe other requirements for any multiemployer plan, ample
authority exists to prevent any unforeseen abuse.
Severance Pay and Supplemental Retirement Income Arrangements —
Section 102 {5)
The amendment to the definition of "pension plan" (section 102(5) )
is designed to provide statutory flexibility to foster the creation and
continued operation of severance pay arrangements and supplemental
retirement income arrangements which are not subterfuges to evade
the purposes of ERISA.
Although the Committee is not dissatisfied with the Secretary's past
efforts to delineate the types of severance pay arrangements which are
not pension plans, the Committee believes that the rigidity of the
present definition of "pension plan" has unneecssarily circumscribed
the permissible ambit of the Secretary's regulatory authority. Under
the amendment, for example, the Committee would expect the Secre-
tary to provide greater flexibility for severance pay arrangements
covering true reduction-in-force situations so as to permit severance
payments in excess of two year's compensation in such situations.
The onset of persistent high rates of inflation has made supple-
mental retirement income arrangements all the more valuable to re-
tirees. Ileiv, even more than in the case of severance pay arrangements,
the establishment and maintenance of such supplemental retirement
income arrangements has been hampered by the rigidity of the "pen-
sion plan" definition and by the fact that there is some doubt under
present law as to whether a supplemental retirement income arrange-
ment which is not a "pension plan" is a "welfare plan." The amend-
ment will permit the Secretary to adopt regulations which will foster
legitimate supplemental arrangements.
In establishing the categories of plans referred to in the amendment,
the Committee expects the Secretary to include rules which will pre-
vent abuse of ERISA's funding and other rules which are applicable
to pension plans but inapplicable to welfare plans.
In addition, the "subterfuge" sentence at the end of new section
3(2) (B) provides another safeguard under which the Secretary
may remove any arrangement or type of arrangement previously in-
cluded in one of the exempted categories if he finds it to be a pension
plan masquerading as a severance pay or supplemental retirement
income arrangement.
AMENDMENTS TO PART 1 OF TITLE I OF ERISA
Sections 111-118 of the bill make changes in ERISA's reporting and
disclosure rules. All of the changes are designed to simplify these rules
mid reduce paperwork for plan administrators, plan sponsors and
vice providers.
Disclosure of Status Under Pension Plans— Section 111
Section 111 consolidates existing ERISA sections 105 and 209 and
makes several clarifying changes. As regards penalties imposed under
13
amended ERISA section 105(c) (3), it is the view of the Committee
that any such penalties are to be paid to the plan, and this view is
reflected in subsection (c)(3). Further, as stated in that subsection,
the payment of any such penalty to the plan may not be used as an off-
set against required contributions.
Exemptions and Modifications From Part 1 Requirements— Sections
112 and 1H
Under present law the Secretary of Labor has plenary authority to
exempt any welfare plan from any ERISA title I reporting or dis-
closure requirement. However, as regards pension plans, the Secretary's
flexibility is limited to providing an ''alternative method," under
rather strict limitations.
As amended by section 112 of S. 209, ERISA section 110 consolidates
in one place the Secretary's authority to exempt any plan or class of
plans from any Part 1 (reporting and disclosure) requirement or to
modify any such requirement if he finds that the exemption or modifi-
cation is appropriate and necessary in the public interest and is con-
sistent with the purposes of title I of ERISA.
Concern has been expressed that the Secretary, pressured by pension
plans seeking special treatment under this new, more liberal standard,
will proceed to grant exemptions and modifications on a wholesale
basis, severely diluting ERISA's disclosure provisions. The Commit-
tee neither expects nor will tolerate this result. In the reporting and
disclosure area, as elsewhere under ERISA, uniform principles and
rules are set forth which must be applied, in a common sense fashion,
to an almost infinite variety of types of plans, plan sponsors, and serv-
ice providers. The intent of the change made by section 112 of the bill
is to provide the Secretary with sufficient flexibility to tailor these
principles and rules by type of plan ; to enable the Secretary to utilize
the regulatory process in the public interest to recognize that a particu-
lar reporting or disclosure rule which makes perfectly good sense in
the context of one type of plan makes less sense or no sense at all in
the context of another plan or type of plan.
Section 114 of the bill mandates that this recognition be fully ex-
plored by both the Secretary of Labor and the Secretary of the
Treasury.
More generally, the Committee expects that the Secretaries will
find numerous ways in which ERISA's (and the tax code's) report-
ing or disclosure rules can be adjusted for various types of plans to
ease reporting and disclosure paperwork and cost burdens without
depriving participants, beneficiaries or the government of information
needed to understand plan terms and conditions, rights and obliga-
tions, and plan finances, and without any measurable adverse impact
on enforcement activities or on the government's need to catalogue
and understand the identity and types of plans in the regulated
universe.
In this regard, the Committee recognizes that both Secretaries have
already gone to considerable lengths to reduce unnecessary paperwork
and plan administration costs, and the Committee encourages the
Secretaries to continue those efforts, mindful of the cardinal principle
that such endeavors must not result in a material lowering of ERISA's
essential levels of protection. The changes made by sections 112 and
114 of the bill are intended to effectuate this important goal.
14
Elimination of Summary Annual Report — Section US
Section 113 of S. 209 abolishes the requirement that plans must
annually furnish each participant with a summary of the plan's an-
nual report. The Committee is of the view that the summary -annual re-
port presently required by ERISA seciton 10-±(b) (3) , as interpreted by
Labor Department regulations,2 is of questionable value to the vast
majority of participants and is a relatively costly item for plans to
prepare and distribute. Relatively few employees can utilize the in-
formation shown on these records, and the Committee believes that
there is a measure of validity to the comment that some participants
are unnecessarily confused and alarmed due to misunderstandings of
material contained in the summary annual report.
On the other hand, the Committee strongly believes that informa-
tion respecting a plan's financial condition should be fully available to
those participants or beneficiaries who seek it, and notes that, under
other provisions of ERISA, each participant or beneficiary has a right
to request from the plan administrator a complete copy of the plan's
most recent annual financial report. A reasonable copying charge, based
on the number of pages copied, may be made for the document, but
section 113 of the bill provides that the total charge may in no event
exceed $10. Also, of course, participants or beneficiaries may exercise
their right as members of the public to request copies of current and
former annual reports from the Labor Department files.
Opinions of Actuaries and Accountants; Scope of Accountant'*
Opinion — Sections 115 and 116
Sections 115 and 116 of the bill clarify the respective responsibilities
of accountants and actuaries who perform services for plans. To ensure
that plan annual financial reports adhere to professional accounting
standards. ERISA requires that each such report be accompanied by
an opinion of an independent public accountant. For certain types of
plans (e.g., defined benefit pension plans), the report must also include
an actuarial statement prepared and certified to by an actuary enrolled
by the Joint Board for the Enrollment of Actuaries.
Under present law, each of these professionals may rely on the
correctness of any matter certified to by the other, but they are not
required to do so. The Committee recognizes that the permissive re-
liance language was deliberate on the part of ERISA's draftsman, and
was premised on the assumption that the tension therein' created be-
tween the plan's actuary and the plan's accountant would result in a
form of private sector self-policing. It is the view of the Committee,
however, that in fact this statutorily created tension is on balance
counterproductive; that whatever value has resulted from the tension
is substantially outweighed by the confusion, delay, and cost to plans
that have arisen due to what is perceived as "second guessing" of one
professional's work by another.
The Committee is aware that there is at least a potential overlap, in
some respects, between the two areas of professional expertise and,
further, that both professions have been working together with the
government to more clearly define their respective areas of ERISA
expertise. However, whatever the eventual outcome of those efforts, the
Committee believes that the statutory scope of each profession's
• CPB Bee. 2520.1041V 10, 44 F.H. 19400, Apr. U, 1070.
15
ERISA-related responsibility must be clarified now to put a stop to
the confusion and cost resulting from disagreements between actuaries
and accountants in preparation of plan annual financial reports. The
change made by section 115 — requiring reliance by the accountant on
matters certified to by actuary, and vice versa — accomplishes this
result.
If, during the course of further Congressional consideration of this
legislation, the two professions reach an agreement respecting their
roles in connection with ERISA plans that differs from the rule em-
bodied in section 115, and if the agreement reached is consistent with
the goals of the amendment made by section 115, the Committee stands
ready to consider such a substitution.
Section 116 addresses a similar problem involving the plan account-
ant's auditing of plan assets held by Federally or state regulated banks
and insurers. ERISA presently states that the plan's accountant may
rely on the correctness of statements which have been prepared and
certified as to accuracy by the bank or insurer, but need not do so.
Hence, some plan accountants have insisted on auditing all of the
assets held in a pooled trust or account.
Again, the Committee believes that whatever marginal degree of
protection for the plan and its participants and beneficiaries may be
theoretically achieved by these audits is far outweighed by the costs
involved. Accordingly, section 11(> requires the plan accountant to
rely on certified statements furnished by the bank or insurer.
Alternative Document Distribution Method for Multiemployer
Plans — Sections 117 and 153(7)
Section 117 of S. 209 provides an alternative method of distribution
for documents and notices, which, under the provisions of ERISA, the
Internal Revenue Code, or other applicable law, must be furnished
directly to plan participants. In the case of a multiemployer plan.
direct furnishing by the plan requires that the plan compile and main-
tain an up-to-date list of the home addresses of participants. For many
multiemployer plans this task has proven to be expensive and, in some
cases, simply impossible. During hearings on S. 209, a witness 3 repre-
senting a very large multiemployer plan stated :
When it first became apparent that the Labor Department
would require delivery through the mails, the administrative
offices of the WCT Plan began efforts to accumulate home
address records for its approximately 600,000 participants.
These efforts were undertaken at an estimated initial cost of
$2.5 million. A number of approaches to gathering this infor-
mation have been taken. For example, an address information
card, which participants have been asked to complete and
return, has been inserted in the summary plan description and
summary annual report which have been distributed to partic-
ipants. We have asked that notices soliciting home address
information be placed in union periodicals. To date, these and
other efforts have generated only a 50 percent rate of response.
We believe it is likely that a very substantial portion of par-
ticipants will never respond at all.
3 Theodore R. Groom, co-counsel for the Western Conference of Teamsters Pension Trust
Fund, 1979 Hearings, supra.
16
The problems of establishing initial home address records
have been substantial and quite discouraging. However, the
difficulty and expense of maintaining current address infor-
mation is even more staggering. Some of the reasons are as
follows :
If only one of every five plan participants moves each
year, more than 100,000 home addresses will need to be
updated annually.
Scores of thousands of persons join or leave the plan
each year so that, as a practical matter, the number of
persons for whom home address records must be main-
tained is far in excess of 600,000 and will continually
increase.
A substantial segment of the WCT Plan population is
employed in the food processing industry where multiple
address changes in a year are common, and many persons
may not actually have a "home address". In fact, we be-
lieve that the Plan has correct addresses for less than 40
percent of this large group of participants.
In view of these and other problems, the annual mainte-
nance cost of the "home address" file is estimated at $1 million.
The ability of the WCT Plan to comply with the current
distribution-by-mail requirements is really only one aspect of
the problem. Assuming that the Plan could maintain current
home address records for all participants, the cost of postage
alone for mailing summary plan descriptions could easily ap-
proach several hundred thousand dollars. The annual cost of
mailing summary annual reports could involve another
$100,000 yearly expenditure, excluding the costs of envelopes
and handling. The imposition of such substantial costs (which,
no doubt, will steadily increase) seems inconsistent with the
purpose of ERISA — more and more of each $1 in contribu-
tions must be used to pay costs of administration instead of
paying benefits to participants and beneficiaries.
Admittedly, the magnitude of the figures presented by the Western
Conference Plan, the largest of all multiemployer plans, is not repre-
sentative in an absolute sense for all such plans. Tn proportionate
terms, however, the figures may serve as a reliable benchmark.
Accordingly, new section 112 of ERISA provides that, if certain
strict procedures are followed and safeguards are observed, a multi-
employer plan may provide for the distribution of documents by the
employers who contribute to the plan. If the alternative is adopted,
and if the plan furnishes the documents to each employer in timely
fashion and with proper instructions, each employer would become
legally responsible for furnishing the documents, by hand delivery
or mail, to his employees who are participants in the plan. To assure
that contributing employers are not forced against their will to under-
take this responsibility, the alternative can be used only where the
plan's board of t rustees (which, under section 302(c) (5) of the Labor-
Management Relatione Act, HUT. must he equally representative of
labor and management) authorizes adoption of the alternative by a
unanimous vote.
17
Moreover, the alternative may not be effectuated unless the admin-
istrator of the plan makes an initial finding that use of the alternat ive
will be less costly to the plan than direct distribution and will result in
distribution which is at least as comprehensive as would result through
direct distribution. Further, the plan administrator must periodically
assess the efficacy of the alternative, and use of the alternative may
not be continued unless, after each such assessment, the administrator
makes the same findings regarding cost and comprehensiveness of dis-
tribution. If, for example, an administrator were to become aware of
facts indicating that some participants were not receiving the docu-
ments under the alternative method, these facts would have to be taken
into account in the administrator's next periodic assessment. Similarly,
the alternative may not be continued unless it is periodically reauthor-
ized by unanimous vote of the trustees.
As regards cost, the Committee contemplates that many employers
will agree to furnish the documents at no charge to the plan. How-
ever, the plan is not to be precluded from reimbursing employers for
actual costs incurred in furnishing documents, if such costs are reason-
able and if. despite such reimbursement, the administrator nevertheless
can make the cost-savings finding described above.
As regards the application of EKISA's fiduciary responsibility pro-
visions to the parties involved in a plan's adoption and implementation
of the alternative method of document distribution, the trustees and
plan administrator are of course fiduciaries and their conduct in con-
nection with the authorizations and determinations described above
would have to satisfy the standards of section 404 and other provisions
of part 4 of title I. So, for example, the trustees' actions under the
requirements of new section 117(e) would be tested against the stand-
ards of part 4, as would the action of the plan administrator and
trustees under subsections (a) and (b) of that new section.
As is indicated by the language of subsection (d) of new section 112,
the Committee is of the view that an employer required to distribute
documents under the alternative shall be deemed to be a plan adminis-
trator solely for purposes of those provisions of law which relate
specifically to the obligation to furnish plan documents under ERISA
or other applicable law and for enforcement purposes related to that
obligation, and shall not be deemed a fiduciary merely because the
furnishing obligation has been imposed pursuant to the plant's adop-
tion of the alternative method.
Thus, for example, if the plan administrator were to furnish a con-
tributing employer with copies of the summary plan description for
distribution to that employers employees who were plan participants
and the documents were subsequently found to be inaccurate or other-
wise substantively insufficient, the employer would not be liable.
Moreover, if the employer were named as a defendant in a suit by a
participant or the Secretary alleging only the substantive insufficiency
of the summary plan description, the employer's motion to dismiss
himself as a party-defendant would be appropriately granted by the
court. This is because the complaint in such a case would not relate
to the obligation to furnish the documents, but rather to their content.
18
The Committee contemplates that the ''necessary services" statutory
exemption (section 408 (b) (2) of ERISA and section 4975(d) (2) of
the Internal Revenue Code) from the party in interest prohibited
transactions (section 406(a) (1) (A)-(D) of ERISA and section 4975
(c) (1) (A)-(4) of the Code) would be applicable to reasonable ar-
rangements by which plans reimburse employers for actual and rea-
sonable costs of document distribution and further, that the Secretary
of Labor will expeditiously grant an appropriately structured admin-
istrative class exemption, with such conditions as the Secretary deems
necessary under section 408(a), for reimbursement situations involv-
ing employers who are plan fiduciaries.
Xew ERISA section 502 (m), added by bill section 153(7), amends
ERISA's enforcement provisions to conform to new ERISA section
112. Xew subsection (m) assumes that there will be situations in which
a plan has used the alternative method but that a plaintiff participant
who has not received a plan document nevertheless sues the plan officials
because, e.g., the participant does not know that the alternative has
been used and assumes that the plan officials are responsible. The first
sentence contemplates that where the alternative method has been
properly authorized and implemented as far as the plan is concerned,
and the only allegations made by the plaintiff involve a failure of
timely receipt, the plan officials should not be liable. However, the
Committee is of the view that in such situations, the court, before
dismissing the action as to the plan and its officials, shall satisfy itself
that the requirements of section 112 (a), (b), and (e) have been satis-
fied by those parties.
The second sentence assumes that in the situation described above.
the plan officials, or perhaps the plaintiff, would move to join the
responsible employer as the person responsible for the distribution
failure, and contemplates that such a motion would be granted expedi-
tiously under applicable rules of Federal civil procedure.
AMENDMENTS TO PARTS 2 AND .'i OF TITLE I OF ERISA
Sections 121-129 and 131 of S. 209 contain amendments to provisions
of parts 2 and 3 of ERISA's title I. With the exception of sections
12(>-129, these provisions of the bill deal largely with ERISA problems
which are unique to, or exacerbated under, collectively bargained mul-
tiemployer plans. It is the view of the Committeee that some of the
difficult ies which multiemployer plans have encountered in attempting
to comply with ERISA can and should be overcome by statutory ad-
justments. Just as the provisions of S. 209's sections 111-118, which are
generally applicable to all plans, are expected to be most helpful re-
specting plans of small employers, so the Committee expects that most
of the ERISA part 2 and 3 amendments will be of greatest value
respecting multiemployer plans.
Ri ciprocity . 1 rmngements — St ction i.ii
Bill section L21 entirely amends ERISA section 209 (the present
substance of which has been incorporated in section 105 of the Act by
section HI of the bill) to encourage collectively bargained plans, par-
19
ticularly multiemployer plans, to establish and maintain reciprocity
arrangements which protect an employee's vesting and benefit accrual
despite shifts from the employment covered by one plan to employment
covered by another.
Every multiemployer plan offers built-in, intraplan portability, a
feature which is of great value to employees. But this intraplan porta-
bility applies only as regards work that is performed for an employer
who, under applicable collective bargaining agreements, is required to
contribute to the plan. Reciprocity arrangements provide, in effect, a
further measure of portability to plan participants, protecting workers
from the loss of pension credits when a shortage of jobs in one geo-
graphic area forces them to seek work in a different area.
One particular type of reciprocal arrangement, commonly referred
to as umoney-follows-the-manv, involves a transfer of contributions
on the employee's work when he or she is employed outside the juris-
diction of the "home plan." On receipt of the transferred contributions,
the home plan credits the employee with that service, even though it
was outside its own covered employment. Plan trustees and counsel
have in some cases been reluctant to establish new reciprocity arrange-
ments of this type or expand existing ones because of uncertainties
about certain ERISA provisions.
It is the view of the Committee that voluntary reciprocity arrange-
ments should be facilitated because of their obvious value to employees.
In some industries and in some geographic areas, there is little as-
surance that a particular employee will always be able to find work in
a location that is within the geographic area covered by the plan and
there is a corresponding likelihood that work under a different plan
will be available in a location which is outside that geographic area. In
such situations, reciprocity arrangements make a great deal of sense
from the standpoint of employees, employers and unions alike and.
in terms of 8. 209's goal of enhancing the retirement income potentials
of the private sector, are extremely important from the standpoint of
national interest and policy.
Concern has been expressed by the Treasury Department that, in
extreme situations, section 121 of the bill could undermine the princi-
ples which underlie the ERISA and tax code rules relating to the
funding of plans and mergers and consolidations of plans. However.
no case involving this potential cause, either pre- or post-ERISA,
has been brought to the attention of the Committee, and new ERISA
section 209 gives the Secretary full power, by regulation, to impose
additional conditions to protect pension and welfare benefits of em-
ployees working under these arrangements.
Section 144 of the bill complements section 121 by adding a new.
statutory exemption from the prohibited transaction rules for transfers
of contributions between plans. The exemption permits the payment
of reasonable charges by the transferee plan for administrative ex-
penses reasonably incurred by the transferor plan.
Certain plans, such as plans which are maintained by universities
in connection with the Teachers Insurance and Annuity Association-
College Retirement Equities Fund and which are funded by fully
portable annuity contracts without cash surrender values, although
collectivelv bargained in some cases, are not included under new sec-
tion 209. The TIAA-CREF arrangement, for example, offers full
20
portability on a national basis, and application of section -209 would
involve redundancy and confusion.
Although section 121 is limited by its terms to collectively bar-
gained plans in which contributions are made on behalf of employees
pursuant to applicable bargaining agreements, the Committee has
become aware that proposed regulations 4 promulgated by the Internal
Revenue Service under sections 401(a) (12) and 414 (1) of the Internal
Revenue Code face affiliated companies which have long-established
beneficial reciprocity and portability arrangements for their employees
with a Hobson's Choice. Under these proposed regulations, such
companies, if they wish to continue a decades-long practice of trans-
ferring assets and liabilities attributable to pension rights of employees
moving from company to company, will have to comply with expensive
and burdensome rules requiring actuarial calculations, recordkeeping,
disclosure and reporting. Or, these requirements can be avoided, but
only by ending the practice of transferring assets and liabilities,
''freezing-' an employee's accrued benefit at the time of his or her move
from one company to another, and paying multiple, separate pensions
upon retirement. This course of action would mean confusion for em-
ployees, receipt of multiple benefit status reports, multiple modifica-
tions in summary plan descriptions, multiple notifications from the
Social Security Administration at retirement time, multiple tax filing
requirements, etc.
The Committee understands that despite the fact that there has
been no known instance of abuse in over 40 years during which a
reciprocity and portability arrangement has been in effect respecting
one group of affiliated companies, the Internal Revenue Service has
indicated a reluctance to provide a modification of its proposed regu-
lations for this or similar arrangements which will permit the con-
tinued transfer of assets and liabilities without imposition of all of
the burdensome requirements previously noted.
Because the Committee's focus on reciprocity in connection with
S. 209 has been confined to situations that arise, most typically, in
multiemployer plans and because the Internal Revenue Service's reg-
ulations have not been finalized as of the date the Committee met to
mark up the bill, no amendment to ameliorate the disruptive effect of
Code sections 401(a) (12) and 414(1) (analogous to ERISA section
208) has been considered by the Committee. If, however, the final
regulations of the IRS regarding these Code sections do not satis-
factorily resolve the dilemma created by the proposal, the Committee
stands ready to consider such an amendment at the earliest appropriate
t iinc.
Maritime Industry Plans Technical Correction — Section
The technical correction made1 by bill section 122 clarities the appli-
cation of ERISA's accrual rules in maritime industry plans, and codi-
fies existing Labor Department regulations. The amendment makes it
clear that if a maritime industry plan provides the maximum accrual
for, e.g. 200 days of service in a year, the participant who completes
1 25 days of service would be en< it led to receive five-eights of the maxi-
mum accrual. This change merely conforms the statutory treatment
' 42 !K. ::::7o. July 1, 1<»77.
21
of accrual for maritime industry plans to the treatment specified for
plans in general and corrects a drafting error in ERISA.5
Measuring Participation on a. Plan-Year Basis — Section 123
Under present law, a plan may use its bookkeeping year ("plan
year") for measuring employees' service for all purposes (e.g. vesting,
accrual) except for the purpose of measuring whether an employee has
completed a sufficient length of covered service to be eligible to partici-
pate in the plan. For participation purposes, the plan in most cases
must measure from the date on which the employee commenced service
under the plan. The use of the employment commencement date is
supported by the rationale that, since under ERISA eligibility to par-
ticipate must generally precede entitlement to all other rights under
the Act, measurement of service for that purpose should commence
at the earliest possible time, a rationale with which the Committee
does not find fault.
However, the statutory mandate that the date employment com-
menced must be used for participation purposes creates complication
(and consequent costs) in plan recordkeeping because records for all
other purposes may be — and usually are — kept on a plan year basis.
To deal in an equitable fashion with this disparity, section 123 of
S. 209 permits a plan to measure service for participation purposes
on a plan-year basis, commencing with the first plan year during
which the employee is engaged in covered employment. However, in
order to insure that use of the plan year for this purpose does not
delay the commencement of benefit accrual, section 123 permits such
use only if the plan does not impose a waiting period for vesting or
benefit accrual purposes. Thus, a plan which chooses to use the plan-
vear basis for calculating eligibility to participate must, under the
bill's amendment to ERISA section 202(a) (3) (A), provide that an
employee receives credit for vesting and accrual purposes based on
all covered service beginning with service during the plan year in
which the employee first entered covered service following the em-
ployer's participation in the plan.
For example, a 25-year old employee whose service began on April 1,
1979 must, under present law, be permitted to begin participation (and
benefit accrual) in a plan which uses a calendar year as its plan year
sometime during 1980 if he or she had completed 1000 hours of service
by April 1980. If 1000 hours of service are not completed during the
period April 1, 1979 to April 1, 1980, but are completed during the
1980 plan year, participation and benefit accrual must commence not
later than January 1, 1981. Thus, in order to determine the required
date for participation, a calendar-year plan must compute hours of
service during the 12-month period April 1, 1979 to April 1, 1980 in
addition to computing hours of service during the 1979 plan year and
the 1980 plan-calendar year.
Under the change made by section 123 of S. 209f participation for
the same employee under the same plan would not have to begin until
January 1, 1981 (assuming the employee did not complete 1000 hours
* Conference Renort to Acrompani/ H.R. 2. H.R. Rep. No. 93-1280. 93d Congress. 2d
session, pp. 263. 269 (1974). reprinted in Subcommittee on Labor. Senate Committee on
Labor and Public Welfare. 94th Congress. 2d session. Legislative History of the Emplovee
Retirement Income Security Act of 1974. at 4530, 4536 (1976) [Hereinafter ERISA
Legislative History].
22
of service prior to December 31, 1979, but did complete at least 1000
hours of service during the 1980 plan year) and irrespective of whether
the employee completed 1000 hours of service during the period
April 1, 1979 to April 1, 1980 (of course, if the employee completed
1000 hours of service during the period April 1, 1979 to December 31,
1979, participation would have to commence on January 1, 1980). In
any event, as of the date participation commences, the participant
would be entitled to vesting and benefit accrual credit measured on the
basis of hours of service completed by the employee in each plan year
during which the employee worked in covered service (i.e., 1979 and all
subsequent plan years). Thus, if the employee did not complete 1000
hours of service during the 1980 plan year, participation would not be
required until the employee did complete 1000 hours of service in a.
plan year, but vesting and benefit accrual credit would still be granted
retroactively on the basis of all service completed during 1979 and all
subsequent plan years.
Summation of Different Benefit Accrual Rates — Section 12 %
Bill section 124 amends ERISA section 210 to clarify the manner in
which the generally applicable accrual rules (ERISA section 204(b)
(1) ) are applied to multiemployer plans. Two distinct types of prob-
lems are addressed.
The first relates to a "multilevel" multiemployer plan. Many of the
largest multiemployer plans are multilevel plans, in which employees in
each of two or more different collective bargaining units participate in
the plan under a benefit accrual formula based on the level of employer
contributions negotiated in the bargaining agreement for each particu-
lar bargaining unit. For example, the agreement negotiated for one
unit of employees (Unit A) may call for employer contributions of
SO. ^5 per hour worked and provide that a participant in Unit A will be
entitled to a pension commencing at normal retirement age of $10 per
month for each year of service. Another bargaining unit (Unit B)
participating in the same plan may negotiate an employer contribu-
tion rate of $0.50 per hour and the benefit for covered employees of
that unit at normal retirement age will be $20 per month per year of
service. Under present law, it is unclear how the benefit accrual require-
ments of section 204 (b) apply to a multilevel plan of the type described
above, particularly in cases where an employee transfers between units.
It is the Committee's view that the correct approach to be taken in
cases of this type is to separately compute the benefit accrual for the
emplovee's period of service in Unit A and for his period of service in
Unit B. The sum of these different rates of benefit accrual as defined
by employment in different bargaining units should then be combined
to compute the minimum benefit required under section 204(b) for a
vested participant In cases where section 204(b) (1) requires a projec-
tion of the normal retirement benefit to which an employee would be
entitled at his normal retirement age (subparagraphs (A) and (C)),
the projection should be made on the basis of the average of the rates
applicable to the employee in each of the units in which he has worked,
weighted to reflect the number of years in each unit during which he
was covered.
The above method as applied to a multilevel plan under bill section
\-i\ is illustrated by the following examplee: In a multilevel, multi-
23
employer plan, the normal retirement benefit for Unit A members is
a pension for life beginning at normal retirement age of $10 per month
for each year of service. The normal retirement benefit for Unit B
employees is a pension for a life of $20 per month for each vein- of serv-
ice. After accumulating five years of benefit accrual credit in Unit A,
an employee transfers to Unit B and thereafter accrues an additional
five years of credit. At this point, his five years of service in Unit A
gives rise to a normal retirement benefit of $50 per month and his five
years of service in Unit B gives rise to a normal retirement benefit of
$100 per month. His total accrual toward the normal retirement benefit
is $150 and the weighted average of the benefit accrual rates attribu-
table to his ten years of service is $15 per month for each year of
serivce. A benefit accrual rate of $15 per month should therefore be
used in projecting the normal retirement benefit of this employee for
purposes of the three percent formula of section 204(b) (1) (A) and
the fractional formula of section 204(b) (1) (C). If the employee re-
turns to employment in group A for an additional five years of serv-
ice, the employee's total accrual toward a normal retirement benefit
after the additional five years would be $200 and the weighted average
of the different benefit accrual rates applicable to his 15 years of serv-
ice would be $13.33 per month per year of service. Accordingly, at this
point, an accrual rate of $13.33 per month per year would oe used to
make the projection required under the subparagraph (A) and (C)
formulas.
The second problem to which bill section 124 is addressed arises in
cases where, generally as a result of a collectively bargained increase
in the rate of employer contributions to a multiemployer plan, the
benefit accrual rate is increased for all service after a future fixed
calendar date. For example, suppose the employers which contribute
to a multiemployer plan agree to increase the contribution rate from
$0.25 per hour to $0.50 per hour as of January 1, 1980. The credit
earned toward a normal retirement benefit for service under the plan
is correspondingly increased from $10 per year of service to a $20
per year of service for service after January 1, 1980. Under the amend-
ment to section 210(a), cases of this type would be treated in the same
manner as though all of the workers covered under the plan trans-
ferred on January 1, 1980 from a bargaining unit with a $10 per month
per year of service formula to a bargaining unit with a $20 per month
per year of service formula.
Suspension of Benefits Due to Reemployment — Section 125
Section 203(a) (3) (B) of ERISA permits pension plans to tempo-
rarily suspend benefit payments, in certain cases, for periods during
which a retiree is reemployed. As respects multiemployer plans, the
exception presently in the law applies only when three distinct criteria
are satisfied. The reemployment must be (1) in the same industry, (2)
in the same trade or craft, and (3) in the same geographic area covered
by the plan when benefit payments commenced.
The purpose of the suspension rules is to remove incentives that
would encourage and permit a form of "double dipping." Annuitants
who, while continuing to draw benefits, return to work of a type which
competes with employees of preretirement age who are participants
in the same plan defeat the purposes of the pension plan and create
24
labor relations instabilities. However, where the work engaged in
bears no relationship to the employment nexus which is covered by the
plan, these side effects are non-existent or greatly minimized.
For multiemployer plans, the present three-pronged test does not
conform to the intended policy because a former employee drawing
pension benefits may return to work without triggering suspension if
e.g., he is reemployed in the same industry and geographic area as that
covered by the plan but in a different trade than the one he had prac-
ticed before retirement. Yet where the reemployed annuitant is en-
gaged in work covered by the plan, both deleterious effects described
above are present. The plan is paying retirement benefits to an indi-
vidual who is not retired, and plan participants of pre-retirement age
are denied work opportunities they would otherwise have.
Section 125 of the bill remedies this problem by permitting a multi-
employer plan to suspend benefits if a retiree goes back to work
which is in the same industry or trade (or craft) and the same
geographic area as when benefits commenced. This change will permit
multiemployer plans to protect themselves against destructive ''double
dipping/' while not penalizing annuitants who are reemployed in
work which has no relationship to work covered by the plan.
The Committee's amendment also codifies a portion of proposed
Labor Department regulations stating that, in the context of a multi-
employer plan, the term "employed" includes self -employment. In
some industries, self-employed persons and employees compete for
work in the same industry, trade or craft, and geographic area. A
retiree who returns to work as a self-employed person should have no
greater claim to receive pension benefits than a retiree who returns to
work as an employee. In the case of a multiemployer plan, suspension
of benefits properly is based upon the type of post-retirement work
engaged in, not on whether a participant's post-retirement earnings
are derived from employment or self-employment.
A third change in the suspension rules under section 125 relates to
the period of suspension. The change is intended to avoid the con-
version of pensions into a form of supplementary unemployment com-
pensation. Some plans cover employment that is sporadic or irregular.
In such situations an employee who has attained normal retirement
age may draw pension benefits for the months when he is not work-
ing (either because work is not available or because he chooses not to
work), but he may be employed during the rest of the year, either at
the same job, or another job covered by the plan, or in the same craft
or industry, and area covered by the plan. In such instances, the
employee may not, in any real sense, be retired.
If the pension may be suspended only for the months of employ-
ment, multiemployer plans will be obligated to pay benefits for par-
ticular months to an employee who has attained normal retirement
Bge and is eligible for a pension, notwithstanding his work during
other months in employment of a type and in an area covered by the
plan. Where employment is characteristically irregular, this may re-
quire a. plan to divert resources to non-retired participants who are
temporarily unemployed at the expense of fuller benefits for those
who have substantially retired from the type of employment covered
hv the plan. The Committee is of the view that a plan should be per-
mitted to deal with this problem by a suspension period which is
25
longer than the months of employment, pursuant to regulations of
the Secretary of Labor, as provided by bill section 1'25 (3) .
A fourth change in the suspension of benefit rules applicable to
multiemployer plans is necessary because such plans find it difficult to
enforce their rules concerning suspension of benefits. A multiemployer
plan is a distinct entity from the employers maintaining the plan and
does not necessarily have access to the employment records of par-
ticipating employees sufficient to detect forbidden reemployment.
Moreover, the reemployment may be with an employer who does not
contribute to the plan and with whom the, plan has no connection.
In order to provide a basis for securing compliance with their sus-
pension rules, multiemployer plans generally provide that a retired
worker must notify the plan if he returns to work after retirement
in the same industry, trade or craft, and geographic area. The purpose
of this rule is to protect the job opportunities of active workers and
preserve the assets of the pension fund for the benefit of persons who
are truly retired and therefore have the greatest need for retirement
income.
Although the Committee believes most retirees are conscientious
in complying with plan rules of this type, a few may attempt to
obtain a personal financial advantage at the expense of the plan by
deliberately not reporting their reemployment. In order to insure
that these few do not obtain a financial benefit at the expense of the
majority who abide by the rules, plans should be permitted to impose
reasonable sanctions on those who flout plan reporting rules.
In connection with the enforcement of these plan reporting rules,
the Committee expects that the Secretary's regulations will provide
that plans may impose a penalty in an amount not exceeding one year's
benefit where a plan obtains evidence that a "retiree" engaged in
employment in the same industry or trade or craft, and geographical
area covered under the plan and failed to report it to the plan within
a reasonable time. It should not be necessary for the plan to establish
the exact number of hours of proscribed employment, but the penalty
must bear a reasonable relationship to the gravity of the violation of
the plan's rules.
More generally, the Secretary's regulations must assure fairness for
both plans and their participants and retirees. Plan rules on suspen-
sion under these regulations must embody basic elements of due proc-
ess. At the same time, the regulations must provide sufficient flexibility
and latitude so that plans can protect their integrity and the retire-
ment income interests of their participants and retirees.
Reductions in Retirement or Disability Benefits — Section 126
Section 126 of the bill deals with two distinct matters. The first of
these is the relat'onship between disability payments under ERISA
plans and disability payments under Social Security. Under present
law it is clear that retirement or disability benefits (or vested rights
in such benefits) under a pension plan may not be decreased by reason
of an increase in retirement or disability benefit levels or in the wage
base under title II of the Social Security Act or by reason of an in-
crease in benefit levels under the Railroad Retirement .vet. This rule
embodies the Congressional policy that beneficiaries should not be
deprived of, e.g., cost of living increases under Social Security, by a
26
consequent reduction in benefits to which the individual is entitled
under a private plan. The present statutory prohibition against reduc-
tions (section 206(b)), however, is limited to pension plans. Yet in
some cases, private sector disability protection is furnished not as a
component of a pension plan but through a separate arrangement
which falls within the title I definition of "welfare plan."
The Committee is of the view that there is no rational basis for a
distinction in treatment based upon the happenstance of plan design,
and section 126 clarifies the applicability of the prohibition against
decreases whether the disability benefits are provided as a component
of a pension plan or separately as a welfare plan or part of such a plan.
The other portion of section 126 involves the relationship between
benefits under an ERISA plan and worker's compensation. As is evi-
denced by recent decisions in the Federal courts,6 there is some uncer-
tainty as to whether it is permissible for an ERISA pension plan to
reduce or suspend benefits respecting persons who are receiving work-
er's compensation payments.
The Committee is of the view that a retirement pension is different
than a worker's compensation award. The former represents a com-
ponent of a worker's earnings which has been deferred. It has been
earned by a period of service for an employer which is at least long-
enough to satisfy the plan's vesting standards. Generally speaking,
whether or not a pension will be paid to an individual is a matter that,
if not wholly within the individual's control, can at least be the sub-
ject of planning and influence of the individual.
Workers' compensation, by contrast, is paid when an employee is
injured or becomes ill in the course of or as a result of his or her em-
ployment and is disabled. Workers' compensation payments are not
"earned" in the sense pensions are earned, but rather are paid in ac-
cordance with state law as compensation for a disability sustained in
the course of employment.
Without expressing a general view on the desirability of offsetting
the cost of one form of benefit by reducing payments under another
form of the same type of benefit, the Committee believes that offset-
ting the cost of workers' compensation payments by reducing a dif-
ferent type of benefit — retirement pensions — is unsound as a matter
of public policy and counterproductive as a matter of labor relations.
It is also an aberration from ERISA's vesting policy which is not
supported by any countervailing public policy.
Section 126(a) (3) of the bill, accordingly, would make explicit in
ERISA a principle that some courts have already found to be implied
in ERISA's vesting rules by clearly stating that the reduction of
vested retirement pension benefits due to workers' compensation pay-
ments is prohibited.
'Tins provision is nol intended to prohibit an ERISA welfare disa-
bility plan from reducing the benefits otherwise payable to a disabled
participant by an amount not in excess of workers' compensation pay-
ments made to the participant by the employe!" maintaining the wel-
fare plan. Nor is it intended to prohibit an ERISA pension plan which
" Bee, e.g., Buozynski v. General Motors, 456 F. Supp. 8(57 (D.N. J. 1978) ; Utility Workers
i nion \. consumers Power Co., 459 B\ Supp. 447 (B.D. Mich. 1978) ; contra Pavlovic v
Chryalen Corp., (B.D. Mich., Jan. 10, 1078) : Bor&ine v. Evans Products Co., 453 v Supp
19 (E.D. Mi<h. 1078) ; Carlson v. Bundy, (B.D. Mich.. Aug. 18, 11)77).
27
provides disability benefits from providing for a reduction in plan
benefits otherwise payable to a disabled retiree by an amount not ex-
ceeding the workers' compensation payments made by the employer
maintaining the plan (or made by an insurer on behalf of the em-
ployer), but only to the extent that the value of plan disability pay-
ments exceeds the value of the participant's accrued, vested retirement
pension.
The extent to which pension plan disability payments exceed the
value of a participant's accrued, vested retirement pension will be
dependent on the terms of the plan. For example, a pension plan pro-
vides for the commencement of disability benefit payments six months
after the date on which a participant is permanently disabled, and
provides that a non-vested participant is deemed vested at that time.
The plan also provides that, commencing at the time when the disabled
participant reaches the plan's normal retirement age, the disability
pension converts to a retirement pension based upon actual accrued
loenefits. At the normal retirement age, the disabled employee is also
receiving workers' compensation. Under the clarification made by sec-
tion 126(a) (3) of the bill, the plan could not reduce its payments to
the disabled retiree because such payments do not exceed his vested
accrued benefits.
However, if in the above example the plan provides that the disa-
bility pension continues to be paid even after the disabled participant
reaches the plan's normal retirement age, or provides that the disa-
bility pension converts to a retirement pension based on accruals that
would have been credited if the participant had not been disabled, the
plan's payments to the disabled retiree who is receiving workers' com-
pensation after normal retirement age may be reduced to the extent
that they exceed the amount to which the retiree would be entitled
based on accual accruals.
Of course, there may be no reduction in pension plan payments
based on workers' compensation received before the disabled partici-
pant reaches the plan's normal retirement age. Also, the amendment
is not intended to disturb existing rules regarding integration between
private plans and Social Security benefits. Finally, the amendment
applies to all cases in which workers' compensation (including, e.g.,
benefits paid under the Black Lung Benefits Act of 1972) is paid,
including cases where liability is conceded or undisputed.
Survivor Protection — Section 127
Section 127 of the bill makes two major changes in ERISA's "joint
and survivor" rules. First, section 127 provides clearly that a pension
plan (as defined in section 3(2) of ERISA) may provide for one or
more annuity forms of benefit as options. One such option would have
to be the qualified joint and survivor annuity described in section 127.
However, under the amendment, plans would not be faced with the
choice, presently imposed by Internal Revenue Service rules, of either
providing the joint and survivor annuity as the normal form of bene-
fit or having no annuity form of benefit whatsoever.
Second, all pension plans would have to provide a benefit for the
surviving spouse of a participant who dies at any time after achieving
10 years of vesting service. Under the amendment, the amount of the
survivor's benefit and the terms of its payment will depend on the
terms of the plan.
53-018 0-79-3
28
In a plan which provides an annuity as the normal form of bene-
fit, the surviving spouse of a participant who dies after attaining 10
years of vesting service will receive a benefit unless an election to the
contrary has been made and not subsequently revoked by the par-
ticipant prior to death. The benefit will be in the form of an annuity.
The value of the annuity will be based upon accruals to the date of the
participant's death, adjusted to take account of the joint characteristic
of the annuity. Payments of the annuity to the spouse will begin on
the annuity starting date, which is determined as of the date of the
participant's death if death occurs after the date on which the par-
ticipant attains the earliest retirement age under the plan, or as of the
date that the participant would have attained the earliest retirement
age under the plan if death occurs before that date.
Where the actuarial equivalent of the surviving spouse's annuity
does not exceed $'2,000 on the date of the participant's death, the plan
may distribute the benefit in the form of a lump sum or in install-
ments, with payout taking place (or in the case of installments, be-
ginning) not later than the annuity starting date described above.
In a plan which provides a normal form of benefit other than an
annuity, the surviving spouse of a participant who dies after achiev-
ing 10 years of vesting service and before receiving nonforfeitable
benefits will also receive a benefit from the plan. The benefit will be in
lump sum or installment payment form, in an amount equal to the
value of the participant's benefit at the time of death, with payment
taking place (or beginning) not later than 60 days after the end of the
plan year during which the participant died. A different payment (or
payment commencement) time and a different method of distribution,
agreed to in writing by the plan and the surviving spouse, will also
be acceptable under the amendment.
The provisions described above reflect several policy judgments of
the Committee. First, the Committee is of the view that death of a
married participant after a substantial term of covered service should
not defeat the right to vested benefits. As noted above, the Committee
views pension benefits as a form of deferred compensation, and the
amendment made by section 1:27, without disturbing the 1974 Con-
gressional judgment that the right to receipt of deferred income may
be conditioned upon completion of a period of relatively continuous
service, more fully perfects the concept of nonforfeitability that is so
central to ERISA's underlying purposes.
Second, the amendment reflects the Committee's view that plans
which are designed to provide retirement income, e.g., plans offering
an annuity as the normal form of benefit — most typically, defined
benefit plans, and which are described to employees as retirement in-
come vehicles, ought to provide retirement income to surviving spouses
except in cases where the value of the spouse's benefit is de minimis.
Accordingly, the amendment provides that in such plans the
surviving spouse's benefit shall be an annuity commencing at the
time when the annuity would have begun' if the participant had
lived until attaining the earliest retirement age under the plan (or,
if death occurs after the attainment of such age, at the time of actual
death). This type of plan covers the majority of employees covered
under private sector pension plans. Under such plans, employees' ex-
pectations for retirement income are greatest, most readily ascertain-
able, and most consonant with sound retirement planning.
29
On the other hand, for those plans which provide for a normal form
of benefit other than an annuity — most typically, defined contribution
plans providing a lump sum as the normal form, the Committee is of
the view that the enhanced survivor's righi is approximately ful-
filled by a full payout (or payout commencing) at the actual time of
the participant's death, even if that event occurs well before the plan's
earliest retirement age. Further, without expressing a normative judg-
ment about the relative merits of one form of benefits as compared to
another, the Committee is of the view that plan sponsors who wish to
provide, e.g., a lump sum as the normal form of benefit but who also
wish to offer an annuity as an optional form ought to be allowed to
do so. Accordingly, the amendment expressly reverses Internal
Revenue Service rules to the contrary.
Under the amendment, for plans providing an annuity as the normal
form of benefit, the joint and survivor form of annuity is the form in
which benefits will be paid unless an election to the contrary is made by
the participant. In the absence of affirmative action by the participant,
vested benefits will be paid to a surviving spouse where the partici-
pant's death occurs after completion of 10 years of vesting service and
before the plan's earliest retirement age and, in those cases in which a
participant survives until actual retirement, a joint and survivor an-
nuity will be paid.
Because there wall 'be situations in which a joint and survivor annuity
is not the most advantageous form of benefit from the participant's
standpoint, the amendment requires that participants in such plans be
given the right to elect another available form of benefit. But no such
election should be irrevocable prior to death or retirement because the
participant's situation may change over the span of years between the
point of achieving 10 years of vesting service and the point of death or
retirement. Important choices such as these must be made with full
knowledge of their consequences. Therefore, subsection (e) of the
amendment requires that such plans must provide an appropriate and
timely notice fully explaining the terms and conditions of the joint and
survivor annuity and the rights, effects and procedures pertaining to
elections, revocations and reelections. If the summary plan description
of the plan is sufficiently comprehensive on the subject of the joint and
survivor annuity and if the notice itself highlights its own importance,
the notice need be furnished only once.
To minimize the costs of plan amendments conforming to the changes
mandated by section 127, the Secretary of the Treasury is directed to
develop versions of model language which tax-qualified plans can
adopt. The amendment made by section 127 will be effective as to active
participants and terminated service, vested participants during plan
years beginning on or after one year from the date the bill is enacted.
Alimony and Support Payments — Section 128
Section 206(d) of ERISA generally prohibits the alienation or as-
signment of pension plan benefits. The prohibition embodies the policy
judgment that benefits intended to be used as retirement income ought
to be preserved for that purpose and, more particularly, that in the
absence of the prohibition benefits intended for retirement income
could easily be diverted for other purposes.7
7 See Internal Revenue Code section 401(a) (13) and regulations thereunder, 20 C.P.R.
Sec. 1.401(a)-13 (1978).
30
Kecent litigation 8 has raised the issue of whether this prohibition
was intended to permit a plan to refuse to honor a State court order
directing the payment of all or part of a participant's benefit to a
divorced spouse for alimony (or, in community property states, as a
portion of the divorced spouse's marital property share) or child sup-
port. It is the view of the Committee that, generally, the prohibition
was not intended and should not be interpreted to permit a plan to
refuse to honor such an order, and sections 128 and 155(3) of the bill
are designed to clarify the law in this respect, both as to the scope of
the prohibition and as to ERISA's preemption of state domestic rela-
tions law.
This amendment, in effect, replaces the implied exception to the
prohibition which has been judicially approved in some cases with an
explicit and carefully delineated statutory exception. Accordingly,
section 128 requires that state court orders be specific enough so that
the plan will know who and how much to pay but does not require a
plan to distribute a benefit prior to the time stated in the plan or to
pay in a different form or for a different duration than is called for by
the terms of the plan. For example, if a plan were served with an order
-fating that part or all of a participant's benefit must be distributed to
a divorced spouse prior to the time when a distribution to the partici-
pant would be permitted under the terms of the plan, the plan would
not violate section 206 of ERISA, as amended by bill section 128, if it
refused to make the distribution. In such a case, the order would not be
in compliance with new section 206(d) (3) and would be expressly
preempted pursuant to ERISA section 514(b) (6), added by bill sec-
tion 155(3) . However, the mere fact that an order which complies with
new section 206(d) (3) is served on a plan prior to the time specified in
the plan for distribution of benefits does not mean the order is pre-
empted. In this case, the plan would have to retain the order and would
have to make the distribution in accordance with the order at the time
stated in the plan.
Elapsed Time — Section 129
Prior to ERISA's enactment many plans measured service by the
elapsed time method, which has the virtue of great simplicity from
the standpoint of both plan recordkeeping and employee comprehen-
sion. ERISA's present rules explicitly authorize the counting-of-
hours method of measuring service for purposes of the participation,
vesting, and accrual rules. Generally, these ERISA minimum stand-
ard- require that an employee be credited with a year of service for
participation and vesting purposes upon completion of 1000 hours of
service during a measuring period of 12 continuous months with the
employer who maintains the plan (or, in the case of a multiemployer
plan, with an employer who is required to contribute to the plan under
applicable collective bargaining agreements).
During its development of the extensive regulations necessary to
implement these rules, the Labor Department recognized the desir-
abllity of the elapsed time method of measuring service, under which
it is not necessary to count hours. Instead, the entire period of time
. Stone v. Stone, »•"><> F. Supp. 018 (N.D. Cal. 1978), appeal docketed, No. 78-2313
(9th <'ir. June 21, 1978) : Francis v. United Tech. cu>/>., 458 F. Supp. 84 (N.D. Cal.
mis >
31
which elapses while the employee is employed with the employer main-
taining the plan (or with employers required to contribute to the plan)
is taken into account, without regard to the actual number of hours
completed during the period.
In the introduction to its temporary regulation, the Labor Depart-
ment stated :
(t)he alternative [elapsed time] method set forth in this
section is designed to enable a plan to lessen the administra-
tive burdens associated with the maintenance of records of an
employee's hours of service by permitting each employee to
be credited with his or her total period of service with the
employer or employers maintaining the plan, irrespective of
the actual hours of service completed in any 12-consecutive-
month period.9
Section 129 is intended to provide a more secure statutory base for
the elapsed time concept. The only concern that has been expressed
about use of elapsed time systems is the theoretical possibility that a
particular participant could have a pattern of service that would be
treated less favorably under an elapsed time method than under the
counting-of -hours method. The Committee recognizes this possibility ;
and recognizes also that the obverse is even more likely — that, on the
whole, employees and participants are more likely to benefit from the
type of elapsed time method authorized in the Labor Department's
temporary regulations than to be disadvantaged by it, as compared to
the counting-of -hours method. And, of course, the lower administrative
costs associated with the elapsed time method will also inure to the
benefit of the participants.
To be sure that any such system authorized by the Secretary of
Labor pursuant to this amendment is in fact not disadvantageous to
participants in the aggregate, the second sentence of section 129 has
been included. It is the Committee's expectation that the Secretary
will continuously review operations of plans which use an elapsed time
method authorized by the regulations, and will make any adjustments
found to be necessary to assure compliance with this directive.
Funding to Take Account of Future Amendments — Section 131
Section 131 clarifies the maner in which the funding rules should be
applied in the case of a collectively bargained plan which adopts an
increase or decrease in benefit accrual to take place in some subsequent
year. In general, the amendment provides that once the change in
benefit accrual rates has been adopted and is no longer contingent
upon some future event, it must be taken into account for purposes of
applying the funding rules to the plan in the case of any plan year
begining after December 31, 1980. Use of this same method would be
permitted for plan years beginning before December 31, 1980.
In some cases the change described above will be helpful to plans
in dealing with an actual or prospective funding deficiency. For ex-
ample, a plan faced with a funding deficiency must generally either
obtain increased contributions from employers or decrease future bene-
fit accruals. If a multiemployer plan were faced with an anticipated
funding deficiency at a time when renegotiation of contribution rates
9 29 CFR Sec. 2530.200b9.
32
was not permitted under the collective bargaining agreement, it might
be forced to decrease the benefit accrual rates applicable to active
employees.
The Committee considers it preferable that a drastic change of this
kind, if necessary, should not be implemented without notice to em-
ployees. The need for adequate notification may require that the change
only become effective in a subsequent plan year. Moreover, a postponed
effective date may allow sufficient time for contract expiration, nego-
tiation of greater contributions, and cancellation of the planned reduc-
tion in benefits.
Under the amendment approved by the Committee, it will not be
necessary for plans to accelerate unduly the effectiveness of a benefit
decrease in order to have an impact on the application of the funding
standard for the year the decrease is adopted. Under bill section 131,
once the decrease in benefit accrual rates has been formally adopted,
the plan would be entitled to adjust its funding account to reflect the
change, even if the decrease does not become effective until a subsequent
plan year.
Similarly, under the amendment, an increase in benefits would have
to be reflected in the funding of the plan, even if the benefits are not
actually increased until a year later.
It is not the Committee's intention to weaken funding standards by
affording the device of repeatedly postponed reductions. In order to
avoid that possibility, this section provides that if a reduction is not
implemented, regulations are to provide for an appropriate adjustment
to the plan's funding standard account.
AMENDMENTS TO PART 4 OF TITLE I OF ERISA
Insurance Company General Account Assets — Section HI
ERISA presently provides that to the extent a plan is funded
through insurance, the assets of the plan shall be deemed to include
the policy but not, solely by reason of the policy's issuance, the under-
lying assets of the insurer. This rule, similar to a rule that applies
where a plan holds shares of a mutual fund, constitutes statutory
recognition of the difficulties and complications that would arise if
the plan's assets, merely by virtue of the issuance of a policy to the
plan by the insurer, were deemed to include all of the insurer's assets.
The present ERISA rule, however, is not applicable unless two con-
dit ions are met. First, the policy must be a "guaranteed benefit policy,"
defined in ERISA section 401(b)(2)(B) as "an insurance policy or
contract to the extent that [it] provides for benefits the amount of
which is guaranteed by the insurer." Second, by definition, a "guaran-
teed benefit policy" does not include any portion of an insurer's
separate account other than surplus in that account. Taken together,
these two conditions mean, generally, that ERISA's special rule on
plan assets applies only to those types of policies or contracts which
fit within the "guaranteed benefit policy" definition, and only where
they are written on the insurer's general account.
Early on, the Labor Department recognized that a literal interpre-
tation of ERISA section 101(b)(2) would place both insurers and
insured plans in untenable positions. The basic problem is that the
definition of "guaranteed benefit policy" is unduly restrictive. The
33
Department addressed this problem in Interpretive Bulletin 75-2 10
in which a general interpretation was applied specifically to insurance
companies.
As a general proposition, the Department said that investment by
a plan in securities of a corporation or partnership would not, for that
reason alone, convert the underlying assets of the corporation or part-
nership into plan assets, thereby making a subsequent transaction
between the corporation or partnership and a person who is a party in
interest to the plan a prohibited transaction.
Applying this general interpretation to insurance companies, the
Department said :
* * * if an insurance company issues a contract or policy
of insurance to a plan and places the consideration for such
contract or policy in its general asset account, the assets in
such account shall not be considered to be plan assets. There-
fore, a subsequent transaction involving the general asset
account between a party in interest and the insurance com-
pany will not, solely because the plan has been issued such
a contract or policy of insurance, be a prohibited transaction.
The Committee basically agrees with the position in the Interpre-
tive Bulletin, and is of the view that as far as insurance companies
are concerned, the decision as to whether or not insurer assets should
be treated as plan assets should turn primarily on the nature of the
insurer's account in which the plan's premiums are held. An insurer's
general account contains commingled assets of, typically, thousands
or millions of policy holders. The manner in which these assets may
be invested under state law is heavily regulated and generally re-
stricted to relatively safe and conservative debt instrument invest-
ments emphasizing low-risk, long-term appreciation, and security of
principal. Insurance company separate accounts, by contrast, are
permitted under state law to invest heavily in equity securities.
To meet the needs of their plan sponsor customers, insurers, like
other financial institutions offering investment management and ad-
ministrative services to employee benefit plans, are constantly develop-
ing new products. A competitive and innovative environment for these
institutions can be most beneficial for the plans and their participants.
Accordingly, it is the view of the Committee that expansion of the
present ERISA section 401(b) (2) rule from the "guaranteed benefit
policy" terminology to any "policy or contract of insurance" is war-
ranted and desirable.
Conceptually, the Committee approves of the approach taken b}7
the Labor Department in Interpretive Bulletin 75-2. The language of
section 141 of the bill codifies the Interpretive Bulletin, to the extent
that document relates to insurers. Under section 141, the Committee
expects that the Department will monitor the development of new
insurance company products. Whether or not such a product falls
within the language of ERISA section 401(b)(2), as amended by
bill section 141, is to be determined not by the application of any
mechanistic test but rather on the basis of its value to plans and their
participants under prevailing and projected economic conditions.
™29 CFR Sec. 2509.
34
Re rund of Mistaken Contributions — Section 1J$
Soon after ERISA's enactment, it was recognized that ERISA
section 403 (c) (2) (A), an exception to the general rule that plan
assets may never inure to the benefit of any employer, was unworkable
for many collectively bargained multiple employer plans (including
multiemployer plans). As a general proposition, the Committee
strongly approves the general rule (ERISA section 403(c) (1)) and
endorses the intent of the several necessary exceptions (sections 403
(c)(2) and (3)). Section 402 (c)(2)(A), however, which permits
the return of contributions made by an employer by a mistake of fact,
but only if the contribution is returned within one year after it has been
made, is too narrow for collectively bargained multiple employer
plans.
First, a grace period of one year from the time a contribution is
made is sometimes not a long enough time for the plan to learn that the
contribution has been made, to determine that it has been made by a
mistake of fact rather than for some other reason, and to complete the
careful verification and paperwork involved in reaching the determi-
nation and in returning the contribution.
Second, the "mistake of fact" limitation is too narrow, especially
given the existence of section 302 of the Labor-Management Rela-
tions Act, 1947 (LMRA) . Under section 302, it is a criminal offense for
an employer to make a contribution to a plan on behalf of, e.g., a per-
son who is an independent contractor or supervisor within the mean-
ing of the LMRA. It is also a criminal offense for a plan to accept
such a contribution. Yet such contributions may be made not only
due to a mistake of fact but also due to a mistake of law (e.g., because
of an incorrect interpretation of the LMRA meaning of "independent
contractor'' or "supervisor"). And there have been situations in which
contributions have been deliberately made on behalf of the "wrong"
persons.
Collectively bargained plans must have greater flexibility in deal-
ing with these types of contributions, and section 142 of the bill, there-
fore, measures the time period during which contributions must be
returned from the time when the plan administrator determines (1)
that the contribution was made by a mistake of fact or (2) that hold-
ing a contribution would contravene section 302 of the LMRA. After
the determination is made, the plan has six months in which to return
the contril)ution.
Further, to deal equitably with existing situations in which a plan
administrator discovered a mistakenly made contribution too late to
return it within one year, or discovered a contribution made in con-
travention of section 302 of the LMRA. amended KRIS A section 403
(c) (2) (A) provides a period of six months from the date of enact-
ment during which such a contribution may be returned.
Because the return period begins to run at the time of the plan ad-
ministrator's determination, the Committee believes that six months'
time for return is sufficient. Also, the Committee expects that plan
administrators, if they have not already done so, will establish pro-
cedures consistent with their fiduciary duty under which mistaken
contributions and contributions made in contravention of section 30*2.
L.MR A. will be found and returned in a timelv and efficient manner.
35
(Jo-fiduciary Responsibility — Section US
The amendment made to ERISA section 405 (cofiduciary respon-
sibility) by bill section 14:* is, in the Committee's view, necessary to
conform the law to the realities of business organization. While the
Committee agrees with and endorses the underlying intent of ERISA
section 405(a)(3) the existing language of that provision assumes
that knowledge on the part of one individual or one division of, e.g.,
a corporation, is imputed to all the individuals or divisions in the
corporation and to the corporation itself. If interpreted literally, sec-
tion 405(a)(3) faces many business organizations with the equally
untenable choices of either establishing costly and complex internal
reporting systems or risking the imposition of liability as a cofiduciary
without any means of guarding against the liability.
The language of new ERISA section 405(e)(2) — "in the normal
course of such fiduciary's business'' — is intended to provide a flexible
standard under which various organizational forms of doing business
can be recognized. However, the Committee does not intend this
language to insulate a particular organization from cofiduciary re-
sponsibility and liability merely because it follows sloppy internal
management practices.
Prohibited Transaction Exemption Reporting; Definition of "Party
In Interest" and "Relative"— Sections' 1^5 and 102(1) , (£).
and (6)
Since the effective date of ERISA's fiduciary provisions, plan spon-
sors, service providers, and investment advisors and managers have
encountered difficulty securing guidance from the Labor Department
and the Internal Revenue Service regarding application of the pro-
hibited transaction rules, the scope of the statutory exemptions, and in
securing decisions on applications for administrative exemptions. Long
delays have been a regular occurrence, and applicants for single and
class exemptions respecting business transactions have been forced to
hold them in abeyance (or sometimes cancel them altogether) due to
lengthy agency deliberation and processing times.
Since Reorganization Plan Xo. 4 was implemented in late December
of 1978, the Labor Department, with minor exceptions, has been solely
resonsible for administrative exemption processing and for interpreta-
tion of the prohibited transaction rules and statutory exemptions.11
An improvement appears to have resulted, although it is not clear
whether the recent reduction in processing time is due to localization of
function in the Labor Department, shifts of personnel from IRS to
Labor, or growing understanding of the law and heightened sophis-
tication on the part of staff. Without question, though, the improve-
ment is a welcome one.
However, the Committee is of the view that a more formal over-
sight role by the Congress regarding prohibited transaction exemp-
tions is both necessary and appropriate. While applauding the Labor
Department for the recent improvements in processing, the Committee
is also aware that no single ERISA subject has received more atten-
tion and criticism by plan trustees, sponsors, service providers, etc.,
11 Under the Reorganization Plan. IRS retains responsibility for interpretations re-
garding the prohibited transaction excise taxes, individual retirement accounts, loans to
ESOPs. ear-marked account plans, and ancillary matters. Reorganization Plan Xo. 4,
Sees. 102 (a) and (b).
36
than prohibited transaction exemptions, and of what has been per-
ceived, rightly or wrongly, as the inability of the government to con-
sider and decide upon exemption applications rapidly and equitably.
Therefore, section 145 of the bill establishes a formal reporting
mechanism to assist Congress in its oversight responsibilities. Begin-
ning on January 1, 1980, the Labor Department will have to report to
this Committee, to the Committee on Education and Labor of the
House of Representatives, and to the President respecting each pro-
hibited transaction exemption application on which a final administra-
tive determination has not been reached after the passage of 180 calen-
dar days in the case of individual exemptions and one year in the case
of class exemptions. Each such report must identify the applicant (s)
and the transaction (s) involved in the application and the terms and
conditions of the exemption that is sought. In addition, if the Depart-
ment has proposed to grant one or more exemptions relating to the
application (s), the report must include an identification of the persons
who will be involved or affected and must describe the terms and con-
ditions of the proposed exemption. The report must also identify
the Labor Department official (s) responsible for the application's
processing.
Regarding the subject of prohibited transactions more generally,
the Committee believes that the case has not been made to warrant a
basic change in the approach Congress adopted in 1974. It was the
view of the Congress then, as evidenced by its adoption of the Senate
version over the House version, that ERISA's goal of protecting the
integrity of plan assets could best be served by absolute, positive pro-
hibitions against a range of transactions between plans and persons
occupying positions in which they can influence plan decision-making
about investment (and other uses) of plan assets (parties in interest).
At the same time, however, the Committee believes that experience
has warranted some relaxation of the rules describing parties in inter-
est. Accordingly, section 102(1) of the bill contains a carefully meas-
ured narrowing of the party in interest definition (section 3(14) of the
Act ) , as well as some clarifying changes.
This amendment eliminates the parenthetical clause in section
3(14) (A). The Committee is of the view that whether or not a person
is a fiduciary under ERISA should be determined on the basis of the
definition of that term in section 3(21) of the Act. Removal of the
parenthetical clause eliminates the possibility of confusion in this
regard.
The changes made by bill section 102(1) to subparagraphs (B), (C),
(I)), (II), and (I) of EKISA section 3(14) all have the effect of nar-
rowing the category of persons who are parties in interest under
ERISA, and should be of considerable help in reducing the ambit of
the prohibited transaction rules. The basis for all of these changes is
the Committee's judgment that the persons who will be excluded from
the definition by these changers are extremely unlikely to be in a posi-
tion through which they can influence the actions of plan fiduciaries
regarding plan assets.
With respect to service providers, it is the Committee's view that
professionals, e.g., actuaries, accountants, lawyers, uncompensated in-
vestment advisors and others who hold themselves out as having special
expert ise relal ing to plan assets, invest ment, and finances, can by virtue
37
of only a single involvement with the plan exercise a measure of de-
facto control, so that subsequent transactions (or subsequent pari- of
a continuous transaction) between such persons and the plan should
be subject to the prohibited transaction rules. On the other hand, there
is no reason to assume that a single service (or a series ol* sporadic serv-
ices not performed pursuant to a single agreement) by a nonprofes-
sional will vest any measure of control in such a person.
The Committee believes that the Labor Department has now had
sufficient experience with the prohibited transaction rules and the party
in interest delinition to enable it to prescribe sensible regulations
further defining the terms ''professional" and ''nonprofessional" in
amended subparagraph (13), and the Committee expects the Depart-
ment to do so expeditiously.
Under subparagraphs (C) and (D) of section 3(14) every employer
of employees covered by a plan and every union which has members
covered by a plan is a party in interest. These definitions make sense in
the case of a single employer plan and, as regards the union, make
sense in most multiemployer plan situations. But in a typical multi-
employer plan, with scores, hundreds, or even thousands of contrib-
uting employers, it is plain "overkill" to classify each one as a party
in interest. In these plans, the rule of reason dictates that only those
employers who may be in a position to exert control over the plan
should be classified by the statute as parties in interest. In the Commit-
tee's view, this objective can be met by including within subparagraph
(C) only those employers (1) who employ one or more of the trustees
or (2) whose employees constitute five percent or more of the total
employees covered by the plan.
For purposes of certainty, the five percent test is to be made as of the
first day of a plan year. In cases where the plan, exercising due dili-
gence, cannot be certain that a particular employer is not a five percent
or more employer at the beginning of a plan year, the percentage fig-
ures as of the beginning of the previous plan year are to be used unless
the plan officials have reason to know that the figures are inaccurate as
regards a particular employer. In such a case, the particular employer
is to be deemed a party in interest until plan records demonstrate
otherwise.
For example, a construction industry plan which maintains its rec-
ords on a calendar year basis has 60 contributing employers on Janu-
ary 1, 1980, no one of which employs more than three percent of the
plan's participants on that date. The figures are roughly the same for
the succeeding two years. During calendar year 1983, a large con-
tractor begins work in the area. On January 1, 1984, the plan admin-
istrator has reason to believe, based on his best judgment, that the large
contractor accounts for at least five percent of the plan's participants.
but will not know for sure until contributions are received from the
contractor. The contractor is to be deemed to be a party in interest
from January 1, 1984 until the beginning of the plan year following
the year in which the plan's records based on contributions or other
data demonstrate that the contractor employs less than five percent of
the plan's participants.
The five percent test is also to be applied to the unions whose mem-
bers are covered by multiunion plans. There are relatively few of
these plans, and the Committee expects that the Department will, by
38
regulation, interpret subparagraph (D) in the spirit of these amend-
ments regarding application of the five percent test in situations in-
volving separate locals within, e.g., a district, joint regional council,
or international.
There may be unusual situations in which persons excluded from the
definition of party in interest by the amendments to section 3(14) (C)
and (D) should in fact be deemed to be parties in interest because they
are owned (within the meaning of section 3(14) (E) (i)-(iii) ) by a
plan fiduciary. Bill section 102(6) gives the Department of Labor
authority to classify such persons as parties in interest on a class basis
if the Secretary finds that such action is in the public interest and nec-
essary in order to achieve the purposes of title I of ERISA.
The amendment to section 3(14) (II) removes from the party in
interest definition employees of employers maintaining or contributing
to a plan. Under present law, every employee covered by a plan is a
party in interest and a literal interpretation of section 406(a) (1) (D)
would turn most welfare plan benefit payments into prohibited trans-
actions. Under the amendment, only those employees who occupy posi-
tions of control are included within the definition by reason of sub-
paragraph (H).
The change in subparagraph (I) (substituting the word "in" for
the word "with") codifies a long-standing Labor Department inter-
pretation 12 and has the effect of slightly narrowing the definition.
Section 102(2) corrects an error in ERISA's drafting. The failure
to include brothers and sisters in the definition of "relative" (ERISA
sect ion 3 (15) ) is corrected by this change.
AMENDMENTS TO PART 5 OF TITLE I OF ERISA
ERISA Advisory Council — Section 151
Section 151 specifies that one of the three members of the Advisory
Council who are representative of employers shall be representative of
employers maintaining small plans.
Impact of Inflation — Sect Jon 152
Persistent high increases in the costs of goods and services have a
particularly cruel impact on those whose income is fixed. While Social
Security retirement payments are indexed, all but a handful of private
pension plans are not. Many private defined benefit plan sponsors,
while sympathetic and willing to assist their retirees through what are
essentially voluntary and gratuitous supplemental pension payments,
maintain that any form of mandatory cost-of-living increases would be
ruinously expensive and would, at the very least, require a substantial
lowering of benefit levels. ( )t hers have argued t hat i f given t he choice,
participants would accept initially lower benefits in return for assur-
ance that some form of inflation adjustment would be automatically
provided.
A-ide from these generalities, little else has been presented to the
Committee m terms of feasible suggestions, and it is the Committee's
view t hat more analysis is needed before a judgment can be made about
t he feasibility and ramiflcal ions of requiring plans to provide cost-of-
1 Metropolitan Life Insurance Company, Opinion letter 7.r>-147 ; Groat Western Snv
Ingl and Loan Association, Opinion letter 77 83.
39
living adjustments. Section 152 of the bill mandates a study, to be
conducted by the Secretary of Labor, which the Committee expects
will provide a sound basis for further deliberations. The study is to
be completed and submitted to the Congress not later than 2 1 months
after enactment of S. '20V.
As noted above in the discussion of S. 20i)'s amendment to the
ERISA definition of "pension plan/' supplemental retirement income
arrangements are used by plan sponsors to help offset the effect of
inflation on fixed pension benefits. The use of these arrangements will
be encouraged by the amendment in bill section 102(5) .
Remedies — Section 153
The change made by bill section 153(1) is a conforming change ne-
cessitated by section 111 of the bill. Section 153(6) reserves to the Sec-
retary of Labor exclusively the authority to intervene in actions under
part 5 of ERISA. These actions will involve claims procedures, inter-
ference with rights protected under title I, coercive interference, mis-
representation, employers' obligations to contribute to collectively
bargained plans, and preemption.
The other amendments to section 502 of ERISA which are made by
bill section 153 are designed to complement substantive changes made
elsewhere in the bill and are discussed elsewhere in this section.
Misrepresentation ; ERISA and the Securities Laics — Sections 153
and 154-
Section 154(b) of the bill adds to title I of ERISA new section 515,
which prohibits certain forms of misrepresentation in connection with
employee benefit plans. Section 153(2) amends section 502 of ERISA
to provide an express damages remedy in cases of reliance on a pro-
scribed misrepresentation. Section 153(5) makes additional changes in
ERISA civil remedy and court jurisdiction rules to conform them to
the new misrepresentation remedy. Section 154(a) amends ERISA
section 514 to clarify that the antifraud provisions of the Federal secu-
rities laws and all provisions of state securities laws shall not apply
prospectively to the relationship between a plan or plan sponsor and
an employee. Section 153(7) renders nugatory any litigation based on
an act or omission occurring on or after the date of enactment of the
bill insofar as it alleges that the relationship between a plan or plan
sponsor and an employee may serve as the basis for a claim under the
Federal securities laws' antifraud provisions or under any provision
of state securities laws, and holds harmless plans, plan sponsors and
others from any and all civil or criminal liability, penalty or punish-
ment arising from any such existing claim.
It is the firm view of the Committee that the role of the Federal
and state securities laws regarding the relationship between plans or
plan sponsors and employees should be. at most, extremely limited.
That relationship is already heavily regulated under ERISA, analo-
gous and complementary provisions of the Internal Revenue Code, the
Taft-Hartley Act, the Landrum-Grimn Act, a panoply of labor stand-
ards laws, title YII of the Civil Rights Act. other law's which prohibit
age or sex discrimination in employment, and certain Federal criminal
laws. More to the point, perhaps, no less than six Federal agencies
(the Department of Labor, the Internal Revenue Service, the Pension
40
Benefit Guaranty Corporation, the National Labor Relations Board,
the Justice Department, and the Equal Employment Opportunity
Commission) administer and enforce these laws.
The Securities Act of 1933 and the Securities Exchange Act of
1934 regulate, among other things, the issuance, sale and purchase of
securities. The amendments made by the ERISA Improvements Act
do not disturb in any way the application of the 1933 and 1934 Act to
transactions involving the issuance, sale or purchase of securities be-
tween plans and plan sponsors or third parties such as investment
managers, nor do they affect in any way the definition of the term
"security" in connection with such transactions. However, the amend-
ments provide that the interests of an employee in a plan is not to be
considered to be a security for purposes of the antifraud rules of the
1933 and 1934 Acts and within the meaning of any provision of a
state securities law.
The application of the 1933 and 1934 Acts' antifraud rules to the
relationship of an employee to a multiemployer plan and one of its
sponsors, a local union, was the subject of recent Supreme Court litiga-
tion. In I.B.T. v. Daniel,1* the Court ruled unanimously that the anti-
fraud rules did not apply. The decision is largely consistent with the
Committee's views as regards defined benefit plans in which participa-
tion is mandatory, but the amendments in S. 209 extend the Daniel
case result to all employee benefit plans which are subject to title I of
ERISA.
The application of the registration rules of the 1933 Act and the
periodic reporting rules of the 1934 Act to an employee benefit plan
also rests on an interpretation of the term "security" which includes
the interest of an employee in such a plan. Given ERISA's reporting
and disclosure rules, the Committee considered extending its treatment
of the antifraud rules to the 1933 Act's registration rules. Consistency
alone would mandate such an extension and, as noted above, the Com-
mittee is not enthusiastic about any involvement by the SEC in the
day-to-day affairs of ERISA plans where the involvement is based
upon the relationship between the plan or its sponsor and employees
covered by the plan. Moreover, the Supreme Court's decision in the
Daniel case casts considerable doubt on a portion of the rationale that
has been used by the SEC to justify application of the registration
rules to certain plans. Finally, due to lack of guidance from the SEC,
there continues to exist great uncertainty as to the types of plans which
must register under the 1933 Act.
The Committee expressed its concern in this regard to the SEC
and has been assured that the Commission will soon clarify its views.14
As a result of this assurance, and because the potential for day-to-day
involvement by the SEC in plan operations is somewhat less respect-
ing the registration rules than it is in connection with the antifraud
niH>s^ -s- 209 does not atl'cct application of the registration rules to
* International Brotherhood of Teamsters, etc. v. John Daniel, U.S. , 99 S.Ct. 790
♦ the I, Mr ;iii(l the public should receive as much guidance as possible from the
Commission to resolve any uncertainties as to the application of the registration pro-
visions Of the Federal securities laws . . . The Division of Corporation Finaace will he
In a position to prepare a .1. -tailed release on registration of interests in employee bene-
\ ,,' o"S,."m ! V, ( "(mmissl1,,M's appeal before tin- end of this year." Extracts from a
•1' • ,-..;. , ,'' T'V" llu' A880ciate Director. Division of Corporation Finance, SEC.
1 •■•• '"'i te*1 <>i the letter is reprinted on pp. 7o«> 710 of the 1079 Hearings
41
ERISA plans. The subject of registration, however, remains one of
great interest to the Committee. The Committee expect- the SEC to
issue clear rules as expeditiously as possible and contemplates thai
the rules will take full cognizance of the detailed reporting and dis-
closure requirements of ERISA and of the Supreme Court'- view- in
the Daniel decision regarding the 1970 amendment to section 3 of the
1933 Act.15
The Committee's antipathy towards application of the securities
Jaws' antifraud provisions and concepts to ERISA plans and the in-
volvement of the SEC in the day-to-day operations of plans is not to
be confused with the Committee's views regarding misrepresentations
made to employees about their plans. Positive protection against such
misrepresentations is necessary and desirable, and new ERISA Mo-
tions 515 (added by bill section 154(b)) and 502(a)(7) (added by
bill section 153(2) ) reflect the Committee's view in this regard.
ERISA's fiduciary rules provide some protection against conduct
by fiduciaries that misleads or deceives plan participants. Thus, a
fiduciary who by written or oral statement deliberately misleads one
or more participants concerning, e.g., the plan's financial condition,
has violated his duty to act solely in the interest of the participants.
However, the duty of a fiduciary under ERISA does not run to an
employee wTho is not a plan participant and. even as regards partici-
pants, ERISA's civil enforcement provisions focus on equitable relief
and on integrity of plan assets. Thus, assuming a participant in the
case described above could show damages resulting from his or her
reliance on the fiduciary's misleading statement, there is uncertainty
as to whether the participant could recover an appropriate measure of
damages under existing law.
Of course, a person who is not a fiduciary has no duty under ERISA
respecting statements made to employees.
Regarding new section 515, the Committee emphasizes the
following :
(1) A knowing misrepresentation is required. This would include
a statement which is inaccurate or false on its face and known to be
so ;by the utterer as well as a statement which is deceptive (and known
by the utterer to be so) by virtue of omission. It would also include
an inaccurate, false, or deceptive statement which is not known to be
so but which is made with willful or reckless disregard for its
veracity. It would not include, however, an unintentional oral omis-
sion or error of description made by a person who does not hold
himself out as an expert about the plan (and who does not occupy a
position under the plan or with a plan sponsor or collective bargain-
ing party to the plan which a reasonable person would assume i>
occupied by a plan expert), if it is clear under the facts and circum-
stances that the omission or error was wholly unintentional. Thus, for
example, if a union official (who is not an official of a plan covering
the union's members) describes the plan in general terms to a group
of employees and also tells the employees that the description is gen-
eral and that more detailed information is available if they want it,
15 "The amendment recognized only that a pension plan had 'an interest or partici-
pation' in the fund in which its assets were held, not that prospective beneficiaries of a
plan had any interest in either the plan's bank-maintained assets or the plan itself." I.H.T.
v. Daniel, U.S. — , 99 S.Ct. 790 (1979).
42
his failure to detail fully, e.g., the forfeiture or suspension of benefit
rules of the plan, is not to be considered a knowing misrepresentation
in violation of section 515.
Similarly, if a general description of a corporation's plan were
made orally to a prospective employee by an individual in the com-
pany's personnel department whose duties include screening job ap-
plicants but no functions under the plan and were accompanied by a
copy or offer of a copy of the summary plan description, failure to
accurately describe, e.g., the break in service rules of the plan, is not
to be considered a knowing misrepresentation in violation of section
515.
(2) The three subjects covered by section 515(a) are intended to be
interpreted in a relatively broad fashion, subject of course to the
exception contained in subsection (b). "Terms and conditions of the
plan'' would thus include the plan rules in their entirety and provi-
sions of applicable law. "Financial condition of the plan'' would in-
clude plan assets, liabilities, or transactions, and expectations or
predictions regarding future assets, liabilities, or transactions. ''Status
under the plan" would include the facts, plan rules, and law relating
to an individual's satisfaction of the participation, vesting, accrual,
break in service, and other terms of the plan upon which benefit re-
ceipt is based.
(3) Rules already included in ERISA require a standard of accu-
racy in disclosures plans must make to participants and beneficiaries.
The statutory rules have been considerably augmented and refined by
Labor Department, IRS, and PBGC regulations, and these existing
rules establish levels of responsibility respecting disclosure documents
which take into account the "layman's language" and "summary"
concepts of ERISA, and which are not intended to be disturbed by
S. 209. Accordingly, section 515(b) provides that if such a document
satisfies these already existing standards, no person shall be liable
under subsection (a) respecting the document. However, if the mate-
rial in such a document fails to meet existing standards, subsection
(b) would not be applicable and, under the proviso to that subsection,
the person or persons responsible for the failure could not rely on
that subsection as a defense to a claim of misrepresentation under
subsection (a).
The Committee recognizes that, in many cases, plans have included
in, e.g., the summary plan description or benefit status report, mate-
rial that goes beyond what is required by the law. This is done in an
effort to apprise participants as to matters in addition to those as to
which disclosure is required or in a level of detail greater than that
which is required by the law. The Committee views this practice as
highly beneficial to participants and emphasizes that the proviso to
subsection (b) does not relate in any way to the range of subjects in-
cluded in any ERISA or Code disclosure document but rather to the
manner in which matters required to be covered by the document are
t reated.
For example the Committee notes that under section 102(a)(1) of
ERISA, the summary plan description must be "sufficiently accurate
and comprehensive to reasonably apprise * * * participants and bene-
ficiariee of their rights and obligations under the plan." Section 102(b)
of ERISA describes the range of material that must be covered by
43
theSPD. Labor Department regulations lfl provide additional guidance
regarding both sets of requirements. A summary plan description
which meets the test of section 102(a) (1) and applicable regulations
and covers the material described in section 102(1)) and applicable
regulations cannot give rise to liability under section 515(a), even if
it contains additional statements, as long as those additional state-
ments, by themselves and when taken together with the material re-
quired by section 102(b) and applicable regulations, meet the standard
of section 102(a) (1) and applicable regulations.
Section 515(b) also makes clear that plans need not, by virtue of
section 515(a), add additional material to ERISA and Code-required
disclosure documents. Congress determined the required scope of these
documents regarding subject matter, subject only to adjustments that
may be made by the Secretaries of Labor and the Treasury. Without
the subsection (b) exception, it might be argued that a summary plan
description or benefit status report which fails to include the statistical
probability of actual receipt of a pension is misleading and constitutes
a misrepresentation. The subsection (1)) exception is intended, among
other things, to preclude such an interpretation.
In summary, the applicability of the new misrepresentation rule to
documents required to be furnished to plan participants and bene-
ficiaries will be as follows :
(1) If such a document completely fails to address a subject which
is required by law or regulation, section 515 has no applicability. The
remedies for such a failure are those already in ERISA and the In-
ternal Revenue Code, e.g., ERISA sections 501 and 502 (c) ; Code sec-
tion 6690.
(2) Subjects addressed in such a document (whether required to be
included by law or regulation or voluntarily included) are to be judged
by the standard presently in the law and applicable regulations (e.g.,
a summary plan description must be "sufficiently accurate and com-
prehensive to reasonably apprise * * * participants and beneficiaries
of their rights and obligations under the plan,"17) and not by the
standard of section 515(a). If the manner of addressing subjects in
such a document satisfies the presently existing applicable standard,
section 515 is not applicable. If such existing standard is not satisfied,
section 515(a) applies pursuant to the proviso of section 515(b), and
applicable remedial provisions would include new section 502(a)(7)
as well as, e.g., section 502 (a) (3) .
Subsection 515(c), which provides that a plan itself shall not be
liable for damages resulting from a misrepresentation, reflects the
Committee's view that plan assets ought not be drawn upon in recom-
pense for misrepresentations of individuals involved with the plan,
plan sponsor, or other persons associated with the plan. Of course, the
presence of a misrepresentation allegation combined with a claim un-
der, e.g., section 502(a)(1)(B) (to recover benefits due under the
terms of a plan) should not, in itself, preclude a recovery of benefits
from plan assets in connection with such claim.
Subsection (d) provides that the misrepresentation rule is not retro-
active. Under new ERISA section 502(1) (3) (added by bill section
153(7)) and new section 515(d), a claim involving the relationship
16 29 CFR Section 2520.102-2, et seq.
"ERISA. Section 102(a)(1).
53-018 0
44
between a plan or plan sponsor and an employee under the Federal
securities laws' antifraud rules (or under state securities laws) re-
mains cognizable and may be adjudicated to final decision in the Fed-
eral courts only if such claim arises from an act or omission which
occurred prior to the date of enactment of S. 209. A similar claim
arising from an act or omission occurring on or after the date of enact-
ment will be cognizable in the Federal courts only if it can be made
under new ERISA section 515.
New ERISA section 502(a)(7), added by bill section 153(2), is
the remedy provision that complements section 515. It specifies the
availability of damages as a form of relief in a meritorius case under
section 515. It also clarifies that there can be no recovery of damages
absent a showing that the claimant relied on a misrepresentation. It
is the Committee's view that the burden of proving reliance rests with
the claimant. A mere allegation of reliance is not intended to be suffi-
cient to shift the burden of proof to the defendant.
Also, it is the Committee's view that the claimant in an action under
section 502(a) (7) must prove damages and that the cause of the dam-
ages was reliance on a misrepresentation.
Numerous witnesses testified in opposition to section 515 on the
grounds that it is an invitation to spurious and vexatious litigation.
After careful consideration, the Committee rejected these arguments
as a basis for striking section 515 from the bill. As noted above, the
Committee believes that a prohibition against misrepresentation and
an effective remedy where a misrepresentation occurs are necessary
to protect employees, participants, and beneficiaries against know-
ingly inaccurate, false, or misleading information which can defeat
ERISA's most basic purposes. Moreover, the logic of these arguments
applies with equal force to many other statutes and rules of law which
protect individuals by permitting the recovery of damages for viola-
tions of important rights and interests. The mere threat of abuse is
not, in the Committee's view, sufficient reason to ignore the gap in
ERISA's protective mechanisms that exists in the absence of a prohibi-
tion against misrepresentation.
The threat of abuse, however, is not taken lightly by the Committee.
The elements of proof for the recovery of damages in an action under
now ERISA section 502(a)(7) and the careful tailoring of section
515 itself evidence the Committee's intent to include in ERISA effec-
tive protection against misrepresentation without encouraging vexa-
tious litigation or "strike ' suits. In this regard, the Committee notes
that ERISA section 502(g) (1) (as amended by bill section 153(4)),
which provides that a court may allow reasonable attorney's fees and
costs to cither party, will apply to misrepresentation suits and provides
a potent disincentive to frivolous and abusive suits.
Further, the Committee intends and expects that the Secretary of
Labor, by regulation pursuant to ERISA section 505 and through liti-
gation policy and practice, will take special care to adhere faithfully
to the policy views expressed herein, and that the federal courts shall
do likewise. The Secretary, of course, may not initiate suits under
sen ion 502(a) (7), hut he may intervene in such suits and may initiate
-nits for equitable relief, e.g., injunctions, against conduct which vio-
late- Section 515.
45
In this regard, the Committee emphasizes that section 515, unlike the
securities laws' antifraud rules, has been designed specifically for use
in connection with employee benefit plans. The special nature of, e.g.,
collectively bargained plans, is not to be ignored in interpretations of
and decisions under section 515. The realities of the workplace environ-
ment and the union hiring hall, the essentially political nature of
union and employer conduct in connection with organizing campaigns,
and the frequent necessity for rapid decision-making in connection
with contract ratification votes are factors that must be considered as
part of the overall picture encompassed by section 515.
Concerning the adjustment in application of the securities laws and
the new misrepresentation provision, new ERISA section 514(e)
(added bv bill section 155(4)) provides that both changes are to be
applied to all plans which are subject to title I of ERISA, including
plans which have no "common law" employees.
Delinquent Contributions — Sections 154(b) and 153(3) and (4)
Xew ERISA sections 516 and 502(b)(2) and (g)(2), added by
bill sections 154(b) and 153(3) and (4), relate to a problem encoun-
tered at one time or another by virtually every multiple employer
plan — delinquencies in making required contributions by contributing
employers. Section 516 applies only in those situations where, pur-
suant to the terms of a plan which is collectively bargained (or under
the terms of a collective bargaining agreement related to such a plan)
one or more employers are obligated to make specified periodic con-
tributions to the plan.
The problems caused by delinquencies in such plans, brought to the
Committee's attention previously, have been reemphasized in connec-
tion with the Committee's consideration of legislation to amend title
IV of ERISA. The importance of timely receipt of previously agreed
upon periodic contributions to a collectively bargained multiple em-
ployer plan is great. Section 516 reflects the Committee's views that the
collectively bargained obligation of an employer to contribute to such
a plan merits special treatment under ERISA, and that sole re-
liance on widely varying state laws governing suits to collect delin-
quent contributions is both insufficient and unnecessarily costly.
As is noted above in the discussion of bill section 142 (refunds of
contributions), section 302 of the Labor-Management Relations Act
prohibits contributions on behalf of certain persons. Legitimate dis-
putes occasionally arise over whether certain contributions are per-
missible under section 302. Xew ERISA section 516 clarifies that only
contributions the payment of which is not inconsistent with, e.g., sec-
tion 302, LMRA, are subject to the new rule.
Because of the costs of litigation and pre-litigation legal work
which are frequently involved in efforts to collect delinquent contri-
butions and because of the importance of timely contributions in con-
nection with the funding requirements for multiple employer plans,
the Committee believes that an additional incentive for timely pay-
ment is necessary. This is accomplished by new ERISA section 502(g)
(2) (added by bill section 153(4) ), under which reasonable attorneys'
fees and costs of the action must be awarded to the plan in section 516
suits in which a judgment in favor of the plan is awarded.
46
New ERISA section 502(b) (2), prohibiting the Secretary of Labor
from initiating suits under section 516, reflects the Committee's view
that the Labor Department should not be subjected to pressures which
might cause it to routinely institute collection litigation on behalf of
plans against delinquent employers. This prohibition, however, does
not disturb the authority of the Secretary of Labor to intervene in
actions, including section 516 actions, under title I of ERISA, and
the Committee contemplates that the Secretary will exercise his inter-
vention power under section 516, in accordance with his general litiga-
tion policy.
Preemption of State Laws — Sections Ion (1) and {2)
In addition to subjects previously discussed (application of State
securities laws to the plan/employee relationship, obligation of
ERISA plans to honor state court decrees involving marital property,
alimony and child support), S. 209 makes two additional changes in
ERISA's preemption of State law rules.
The two sentences added to ERISA section 514(b) (2) (B) by bill
section 155(1) clarify the extent to which state laws regulating insur-
ance, which are generally not preempted respecting ERISA plans,
may affect plans which are subject to title I of ERISA.
The first sentence overturns the decision of the U.S. First Circuit
Court of Appeals in Wadsworth, et ah v. ^Yhaland™ which held that
a New Hampshire insurance law 1!l regulating the content of group
insurance policies sold to ERISA covered welfare plans was not pre-
empted under section 514 of ERISA.
The Committee is of the view that while states should not be pre-
cluded from requiring ERISA plan sponsors to provide health care
benefits or services to employees and their dependents (as explained
more fully below), states should not be permitted to impose such
requirements only on those plan sponsors which choose to provide
benefits through the medium of insurance. Just as the existing language
of ERISA section 514(b) (2) (B) was intended to prevent state insur-
ance laws (and actions of state insurance commissioners) from inter-
fering with a plan sponsor's choice to "self insure," so the first new
sentence added to subparagraph (B) of section 514(b) (2) by bill sec-
tion 155(1) is intended to prevent state action which would have the
opposite effect, i.e., interfering with a plan sponsor's choice to provide
benefits through insurance.
The second sentence added to subparagraph (B) by bill section 155
( 1 ) makes dear that a provision of a state insurance law (or a duly
promulgated rule or regulation under such a law) which requires
inclusion of conversion lights in policies issued to plans is not pre-
empted In section 511 of ERISA. The Committee believes that such
rights are valuable to employees and their dependents, and that state
policies designed to effectuate the exercise of rights of continued pro-
tection tor employees after group coverage ceases should and can be
162 r 2d 7<i (lsl Clr. r.i77», cert, denied. 435 r.s. 980 t litis).
\ II. Rev. Stat. Ann. Sec. 415: 18 a(I) (1976) : "Bach insurer that issues or re-
views ;m\ polici ni group or blanket accident or health Insurance providing benefits for
in. .Heal nr hospital expenses, -hall provide to each group, or to the portion of each group
comprised <>i certificate holders of such Insurance who are residents of this state and
whose principal place ol employment is in this State, coverage tor expenses arising fiom
the treatmenl ot mental Illnesses and emotional disorders • * •",
47
permitted without undue disruption of ERISA's general policy re-
garding preemption of State laws.
Bill section 155(2), adding new paragraphs (5) (A) and (5) (B) to
ERISA section 514(b), makes a major change in ERISA's preempt ion
rules.
As a general proposition, the Committee approves and reaffirms the
present sweeping preemption of state laws which relate to ERISA
covered employee benefit plans. In the Committee's view, eases such as
Azzaro v. Harnett 20 and National Car-Tiers' Conference Committer v.
Heffeman21 were correctly decided. The national interest in uniform
federal regulation of ERISA-covered employee benefits plans is still
generally paramount.
However, preemption under ERISA can on occasion result in the
supercession of a type of state law or an aspect of state court jurisdic-
tion which many believe are highly desirable. In such situations, the
Congress is justified in reviewing the competing policies highlighted
by such actual or arguable supercession and in deciding whether an
additional explicit exception should be added to the ERISA pre-
emption rule. One such situation has involved the relationship between
ERISA and state domestic relations laws. As previously discussed, the
Committee has decided that a new explicit statutory exception to
ERISA preemption (as well as to the anti-assignment and anti-aliena-
tion rule) is warranted to replace the implied exception to ERISA's
anti-assignment and anti-alienation rule as found by certain courts.
Another such situation has involved ERISA's preemption of certain
state health care statutes. In two federal court decisions, progressive
health care statutes of two states — have been held preempted by
ERISA.23 Stated in the most elementary terms, employees and their
dependents in these states are deprived of benefits and protections
which the states, in the exercise of their power to regulate for the
health and safety of their citizens, have deemed appropriate, while at
the same time Congress has not regulated the substantive aspects of
these matters at all.
In order to accommodate the bona fide state interest in protecting its
citizens by assuring better health care services — an interest which is
consistent with the Eederal interest expressed through ERISA of
assuring improved protections under pension and welfare plans — the
Committee has decided to except from ERISA's general preemption
rules those state laws (or portions thereof) (1) requiring an employer
to directly or indirectly provide health care benefits or services to
employees and their dependents, or (2) regulating arrangements under
which such benefits or services are provided.
During hearings on S. 209, a number of witnesses pointed out that
some ERISA welfare plans with multistate coverage provide health
20 414 F. Supp. 47.->» (S.D.N.Y. 11)76), aff'd without written opinion, 553 F. 2d 93 (2d Cir.).
cert, denied, 432 U.S. 824 (1977). In Azzaro, the District Court held that ERISA prohibited
a State insurance department from directly supervising an employee pension benefit plan.
-1454 F. Supp. 914 (D. Conn. 1978). The District Court in Heffernan held that ERISA
preempted a State statute insofar as it imposed a tax on benefits paid to State residents
under a dental plan covered by ERISA.
--Hawaii Prepaid Health Care Act, Haw. Rev. Stat. 393-1 to 393-51 (1976) ; California
Knox-Keene Health Care Service Flan Act of 1!)7 5. Cal. Health and Safety Code, sees.
1340 to 1345 (West Cum. Supp. 1971-1977).
33 Hewlett-Packard Co. v. Barnes, 425 F. Supp. 1294 (X.D. Cal. 1977) aff'd, 571 F. 2d
502 COtli Cir. 197S). cert, denied, 99 S. Ct. 108 (1978) (the California law) ; Standard
Oil of California v. Agsaliul, 442 F. Supp. 965 (N.D. Cal. 1977), appeal docketed, No. 7S-
1095 (9th Cir. Jan. 16, 1978).
48
care benefits that meet or exceed the requirements and standards of
existing state laws, and it has been suggested that if ERISA plans
must comply with various state health care laws, the result will be an
increase in plan administrative costs, accompanied in at least some
cases by a lowering of overall benefit packages, at least regarding
certain' plans. The Committee recognizes that application of state
health care laws of the type described in new ERISA section 514(b)
(5) (A) will impact on the operations of multistate ERISA welfare
plans and that some increase in administrative costs is possible for such
plans to the extent that they cover employees in states which have
enacted such laws. However, the Committee is of the view that in the
huge majority of cases the impact of bill section 155(2) for employees
and their dependents will be favorable.
Moreover, the Committee has taken pains to limit the possibility of
undue impact on plan administration. Paragraph (5) (B) provides
that the provisions of parts 1, 4 and 5 of title I of ERISA shall con-
tinue to supersede state health care benefit or service laws. This means
that while states may effectuate the substance of their health care laws
as regards employees (and their dependents) covered by ERISA
plans, provisions of such state laws which relate to ERISA's report-
ing and disclosure (part 1) , fiduciary responsibility (part 4) , or claims
procedure, interference with protected rights, misrepresentation, and
delinquent contributions in collectively bargained multiple employer
plans (sections 503, 510, 511, 515 and 516) shall continue to be
superseded under section 514(a). Also, the Committee contemplates
that any litigation involving both issues arising under ERISA parts 1,
4, or 5 and issues arising under substantive provisions of state health
care laws described in paragraph (5) (A), may be fully litigated in the
Federal courts under ERISA's civil enforcement provisions and pend-
ant jurisdiction rules.
Paragraph (5) (B) authorizes the Secretary to enter into coopera-
tive arrangements with officials of states which have enacted health
care laws described in paragraph (5) (A) to assist those states in effec-
tuating the policies of any portions of such laws that are superseded
by the provisions of parts 1, 4 and 5 of ERISA's title I. In this regard,
the Committee expects the Secretary to include in his annual report
to the Congress (ERISA section 513(b)) a discussion of the inter-
play between state health care laws and ERISA, and an assessment of
the extent to which the policies referred to in paragraph (5) (B) are
being effectuated under ERISA.
The laws to which paragraph (5) (A) applies are State laws (or por-
tions thereof) ( 1 ) requiring an employer to directly or indirectly pro-
vide health care benefits or services to employees or employees and
their dependents, or (2) regulating arrangements under which such
benefits or services are provided. Use of the word "indirectly" is not
intended to override or conflict with the first sentence that is added
to ERISA section 514(b)(2)(B) by bill section L55(l) (specifying
that State insurance laws requiring that particular benefits be pro-
vided or made available under insured plans are superseded); Rather,
the term "directly or indirect ly" is included in new paragraph 5 to
make it deal- that a State health care law which otherwise meets the
terms' of paragraph (5) (A) will not be superseded merely because it
permits employers to provide required benefits through insurance or
49
because it regulates insured health care arrangements, as long as it
also regulates uninsured health care arrangements.
Also, a state law which is not described in new ERISA section 51 1
(b) (5) (A) is of course not subject to the rules described above.
Whether such a law is preempted will depend on how section 514
otherwise applies to it. For example, a state law prohibiting employers
from maintaining pension or welfare plans (including- health care
arrangements) would be a law described in section 514(a) and not
described in any of the exemptive provisions of section 514. Accord-
ingly, such a law would be preempted.
When the Committee met to mark up S. 209, there was some dis-
cussion as to the advisability of amending ERISA to include a mini-
mum standard for participation in welfare plans, especially health
care arrangements. The Committee decided that such a change was un-
necessary, in view of its understanding that welfare plans commonly
provide for immediate participation or participation within a very
short time after the commencement of employment. In connection with
its oversight activity, the Committee will be monitoring welfare plan
participation rules and stands ready to reconsider this decision if a
trend away from the practice of rapid welfare plan participation
appears to be developing.
With respect to the meaning of existing ERISA section 514(d), the
Committee is of the view that this provision was not intended to be a
basis for determining whether a state law is preempted by ERISA.
Section 514(d) addresses the relationship between ERISA and other
Federal lawTs.24 The proper and only general standard for determining
whether ERISA preempts a state law is contained in ERISA section
514(a) which states that ERISA preempts any and all state laws inso-
far as they relate to an employee benefit plan described in ERISA
section 4(a), and are not exempt under ERISA section 4(b). This,
for example, in Bucyrus-Erie Compa?iy v. Department of Industry,
Labor and Human Relations of Wisconsin,25 the Seventh Circuit
Court of Appeals' reliance on ERISA section 514(d) as the basis for
decision was, in the view of the Committee, incorrect.
The Committee's interpretation of ERISA section 514(d) is entirely
consistent with the floor statements of Senators Williams and Javits on
March 23, 1978 with respect to the relationship between ERISA and
state age discrimination statutes.26
Effective Dates for Amendments to Title I of ERISA
As specified in section 118 of the bill, the amendments made by bill
sections 111 (disclosure of status under pension plans), 112 (exemp-
tions and modifications), and 117 (alternative document distribution
method for multiemployer plans) are effective on the date of enact-
ment of S. 209. The amendments made by sections 113 (elimination of
summary annual report), 115 (opinions of actuaries and accountants)
and 116 (scope of accountant's opinion) are effective respecting all
plan years beginning on and after the date of enactment.
24 This is generally true under the amendment to section 514(d) made by bill section
154(a)(3). However, new section 514(d)(2), the sole exception to this general rule,
clarifies the relationship between plans subject to ERISA and State securities laws.
« 599 F. 2d 205, 7th Cir.. 1979.
26 124 Cong. Rec. S. 4451 (daily ed. Mar. 23, 1978), as corrected, 124 Cong. Rec. S.
4767 (daily ed. Apr. 4, 1978).
50
As provided by bill section 126(c), the amendments made to
ERISA section 206(b) by section 126(a) and the conforming amend-
ment to Internal Revenue Code section 401(a) (15) made by bill sec-
tion 205(h) are effective respecting- plan years beginning on and after
the date which is 60 days after the date of enactment of S. 209.
The change in ERISA's joint and survivor rules made by bill section
127 (and the conforming amendment to Code section 401(a) (11)
made by bill section 205 (i) ) is effective, as specified in bill section 127
(c), with respect to active participants in, and terminated, vested
participants under, a plan during plan years beginning on or after
the date which is 12 months after S. 209's enactment date.
Pursuant to section 156 of the bill, all other amendments made by
the bill to ERISA's title I and all other conforming amendments to
the Internal Revenue Code (bill section 205) are effective on the date of
the bill's enactment.
TITLE II AMENDMENTS TO THE INTERNAL REVENUE CODE
Tax Treatment Of Lump Sum Distributions From Multiemployer
Plans And Plans Of Certain Tax Exempt Organizations — Ten
Year Arc, ■aging And Capital (rains Treatment — Section 201
Although for most purposes under ERISA and the Internal Reve-
nue Code, retirement plans are classified either as defined benefit plans
or defined contribution plans, a different system of classification is
used for purposes of section 402(e) of the Code. Under Code section
402(e) (4) (C), for purposes of determining qualification for the favor-
able tax treatment available for lump sum distributions from qualified
plans, retirement plans are classified either as pension plans, profit
sharing plans, or stock bonus plans.
This pre-ERISA system of classification under section 402(e) has
worked to the disadvantage of multiemployer plans and has deprived
covered workers of tax benefits which are widely available to workers
under single employer plans. If a worker is covered under both a
-ingle employer pension plan and a profit sharing plan, a lump sum
distribution from the profit sharing plan may qualify for favored tax
treatment (e.g.. ten year averaging and capital gains treatment) under
Code section 402(e). However, if a worker is covered under a multi-
employer pension plan (defined benefit plan) and a money purchase
plan (defined contribution plan), a distribution from the money pur-
chase plan cannot qualify for favored tax treatment under section
102(e) because benefits from both plans must be aggregated under a
rule which requires that the balance to, the credit of an employee must
be paid within one taxable year and pension plan benefits are normally
paid over a term of years. This discrepancy in tax treatment occurs
even though a single employer profit sharing plan and multiemployer
money purchase plan are both defined contribution plans which are
very similar in all major respects. The use of a profit sharing plan
would not be feasible in a multiemployer context, however, because of
problems involved in computing the profits of the many employers
contributing to the plan find the possible disparate effects on workers
covered under the plan.
The ( Jommittee is of t he view t hat the favored tax t reatment allowed
under section 402(e) for participants in single employer plans ought
51
to be available to workers covered under multiemployer plan- and
knows of no tax policy that would be adversely affected by such a
change. Accordingly, under the amendment approved by the Com
mittee, a multiemployer retirement plan would bo classified as either
a defined benefit plan or a defined contribution plan for purposes of
the aggregation rules under section 402(e).
The disparity in treatment under present tax law also adversely
affects workers covered under retirement plans maintained by tax
exempt organizations described in Code sections 501(c)(3) (charit-
able, religious, educational, etc.) and (5) (labor, agricultural and
horticultural). Here, too. the Committee sees no reason for not extend-
ing the availability of favorable tax treatment to these employee- and
knows of no adverse affect on tax policy that would result from such
an extension.
The staff of the Joint Committee on Taxation has estimated thai
section 201 of the bill would reduce budget receipts by less than $5
million annually.27
Tax treatment of Jump sum distributions from multiemployer plans —
separation from the serr/ce — section 202
Because multiemployer plans provide portability of pension credits
between the various employers maintaining the plans, and because such
plans exist in industries where changes of employment are frequent,
difficulty has arisen in some cases in determining when a "separation
from the service'' occurs in the context of a multiemployer plan for
purposes of determining qualification for favored tax treatment of
certain lump sum distributions under section 402(e). In order to re-
solve this issue, the amendment to section 402(e) (4) made by bill sec-
tion 202 specifies that a separation from service shall be deemed to
have occurred in the case of a multiemployer plan if any employee has
not worked in service covered up by the plan for a period of 6 consecu-
tive months.
The staff of the Joint Committee on Taxation has estimated that
section 202 would reduce budget receipts by less than $5 million
annually.28
Deduction for certain employee retirement savings and contributions —
section 203
Bill section 203 amends the Internal Revenue Code to allow a deduc-
tion to certain individuals who participate in most types of qualified
pension plans for contributions to their plan, or to an IRA. or in part
to their plan and in part to the IRA.
Under current law, an individual who is not participating in a quali-
fied pension plan may contribute and deduct up to the lesser of $1,500
($1,750 in the case of certain husband and wife IRAs) or 15 percent of
the individual's compensation. On the other hand, an individual who
is an active participant in a qualified pension plan may not make a de-
ductible contribution to an IRA or the qualified plan in which he is
participating. This exclusion from favorable tax treatment for em-
ployee contributions applies even where the employer's contribution
made on behalf of the individual is small, or where the individual may
never vest in a private plan retirement benefit because of frequent
27 Joint Committee Print.
28 Id.
52
changes in employment. The Committee believes that the deduction
available under the proposed amendment to the Code will correct the
inequity described above and, at the same time, will give additional
encouragement to the establishment of new, tax-qualified pension plans.
Under new Internal Revenue Code section 221, added by section
203 of the bill, the deductible limit for an employee's contribution is
the lesser of $1,000 or 10 percent of annual compensation. In deter-
mining the limit on deductible contributions to an individual retire-
ment account, the amount of the limit will be reduced first by any
amount contributed to the qualified plan. Thus, a deduction for a
contribution to an IRA will be allowed only to the extent that the
amount contributed to the plan is less than the deduction limitation.
Also, the same deduction limitation applies if the employee makes
contributions to two or more plans.
Employee contributions made either to an IRA or to the plan
would be generally treated as contributions made by the employer,
except for purposes of determining the amount of the employer's
deduction for its own contribution and for certain other purposes,
such as application of the vesting and previously existing antidiscrimi-
nation rules under the Code.
The Committee also believes that the tax benefit derived from this
new deduction should be spread among all participants of a plan on
a nondiscriminatory basis and in a responsible fashion. For purposes
of testing for discrimination in favor of the highly compensated, the
bill uses the concept of an "actual deferral percentage," similar to
the one used with respect to cash or deferred compensation
arrangements.
The antidiscrimination rules applicable to employee contributions
under new Code section 221 work in the following manner :
If the annual compensation of an employee covered by a qualified
plan equals or exceeds $23,087 (equivalent to the present compensa-
tion of a GS-12, step one, U.S. Government employee), and if his or
her compensation is within the top one-third of the total compensation
paid to all other plan participants, the employee would be considered
to be "highly compensated" under new Code section 221(c)(7), and
would be allowed a deduction only if the employer certifies that the
actual deferral percentage limitations have been met. Generally, these
rules will be met and highly compensated employees will be eligible
to make deductible contributions to the plan or to an IRA, if the aggre-
gate percentage for all highly compensated employees derived by
dividing each such individual's deductible contributions by his com-
pensation is not more than one and one-half times the percentage
derived in the same fashion for all participants who are not highly
compensated.
A deduction for contributions to a plan or to an IRA would be
available for an employee with compensation of less than $23,087
without regard to whether his or her compensation is within the top
one-third of compensation paid to all other plan participants. Because
I he hill describes the compensation dividing line in terms of a GS
level, the line will be adjusted whenever Congress adjusts pay levels of
Federal employees, or when pay levels are adjusted by the President
(o keep pace with inflation.
53
Deductions for employee contributions to plans or IK As would
generally be available under the bill to active participants in qualified
pension, profit-sharing or stock bonus plans. Deductions would not
be available to participants in governmental plans, tax-sheltered
annuities, or to self-employed individuals. However, contribution-
made by employees to certain pre-KKISA group retirement trusts
maintained by labor organizations would be deductible.
As a safeguard against the possibility that employers would shift
a portion of their pension cost to employees because of the available
deduction, the Committee decided to permit the deduction in the case
of plans requiring mandatory contributions to only those plans which
required such contributions on January 1, 1978. It is obvious with
respect to these existing plans that the cost-sharing by the employer
and its employees was not encouraged by the availability of a deduc-
tion for employee contributions.
Section 203 has been included in S. 209 because of the Committee's
view that a way must be found to eliminate the gross inequity created
by the unavailability of IRAs for certain active participants in tax-
qualified plans. Recognizing that perfect equity cannot be achieved
regarding either one employee vis-a-vis another or the policies that
underlie favorable tax and labor lawT treatment to encourage sound
private sector retirement income arrangements, the Committee be-
lieves that section 203 is a responsible approach to a difficult problem.
The staff of the Joint Committee on Taxation has estimated that
the revenue loss from section 203 would be $480 million in fiscal year
1980, $1,025 million in fiscal year 1981, $1,145 million in fiscal year
1982, and $1,330 million in fiscal year 1984.29
Tax Credits for Qualified Plans Sponsored by Small Employers —
Section 204
It is the view of the Committee that the national interest in adequate
present and future retirement income for Americans who have ceased
active participation in the workforce demands an expansion in cover-
age under private sector plans which supply retirement income.
Tax incentives have historically played a prominent role in encour-
aging employers to establish and maintain such plans. Along with
other incentives such as emphasis on benefit plans by employees' orga-
nizations in collective bargaining, increased productivity flowing from
employees' peace of mind regarding income during their retirement
years, and competitive pressures leading to establishment and improve-
ment of plans, favorable tax treatment has resulted in very substantial
coverage among employees of medium to large employers.
How- ever, this extent of coverage has not been mirrored as respects
smaller employers, where employees more frequently are not repre-
sented by labor organizations, economics and efficiencies of scale are
less often realized, profit margins are generally thinner, and the value
of the favorable tax treatment presently available to sponsors of tax-
qualified plans is less.
Bearing these factors in mind, the Committee has concluded that sub-
stantial growth in employer-sponsored retirement income plan cover-
age is unlikely in the absence of additional incentives, especially for
29 Joint Committee Print.
54
smaller firms.30 The tax credit in section 204 of the bill is one of several
major stimulants in S. 209 to the establishment of more plans covering-
more employees.
The credit provided by section 204 is designed to offset the costs asso-
ciated with pian design and the early years of plan implementation.
Thus, the credit is of a phase-down type and is available only during
the five consecutive years beginning with the plan's establishment, or,
in the case of a multiple employer plan, beginning with the com-
mencement of an employer's contributions to the plan. It is keyed to
deductions for employer contributions 31 and is equal to 5 percent of
such deductions in the first year, 3 percent in the second and third
years, and 1 percent in the fourth and fifth years.
The credit is available to any "small business employers" who estab-
lishes a tax-qualified plan meeting the requirements of Code section
401(a), 403(a) (annuity plans) or 405(a) (bond purchase plans).
Section 204's definition of "small business employer' reflects the Com-
mittee's intent to limit the credit's availability to firms which are both
small in size and in profits. Thus, the definition includes only employ-
ers with less than 100 employees and earnings and profits (if a corpo-
ration) or net profits (if an unincorporated trade or business or a
partnership) of no more than $50,000.
The credit is not allowable in any year in which an employer (or
successor) has terminated a tax-qualified plan of the type for which
the credit is normally available.
The staff of the Joint Committee on Taxation, without expressing a
view on the extent to which section 204 will increase coverage, has esti-
mated that it would reduce budget receipts bv $5 million in 1980, $25
million in 1981, $50 million in 1982 and $90 million in 1984.32
Amendments Conforming The Internal Revenue Code To S. 209
Changes In Title I Of ERISA— Section 20:>
Bill sections 205(a)-(m) contain amendments to the Internal Rev-
enue Code to conform its provisions to the provisions of title I of
ERISA, as amended by title I of S. 209. The Committee views stated
above apply equally to these Code amendments.
TITLE III SPECIAL MASTER AM) PROTOTYPE PLANS
A second major stimulant to encourage retirement plan establish-
ment and maintenance is embodied in new ERISA section 601, added
by section 301 of the bill. New section 601 authorizes and describes a
new type of master or prototype retirement income plan, known as a
"special master plan/'
A special master plan is a pension plan (within the meaning of sec-
tion 3(2) of ERISA) which has been designed by a "master sponsor,"
i.e.. a registered investment advisor, bank, savings and loan association.
or insurance company, and adopted by an employer (or association of
employers). ( renerally, special master plans must meet all requirements
his \i<w appears to lie shared by the Treasury Department. Assistant Secretary
Lubick. testifying OH section 204, stated: "It is probably true that a major improvement
in coverage by private plans will not he accomplished within the present framework of In-
centives." /.''7.1/ Hearing a, p. 217.
Deductions attributable to the transfer to or under the plan of employer securities
(as defined in section 107(d) (1 ) of ERISA) are to be disregarded in calculating deductions
on which the credit is based.
in Committee Print.
00
of ERISA and the tax code but, under the terms of new section 601,
virtually all of the administrative burdens and fiduciary responsibili-
ties normally assumed by an employer who sponsors a pension plan arc
shifted from the adopting employer to the master sponsor. Thus, the
special master plan should be particularly attractive to small and other
employers who are struggling with the paperwork, recordkeeping, and
fiduciary duties associated with their present plans, or who have been
reluctant to establish a retirement income plan because of apprehen-
sions respecting these duties.
A second major improvement from the employer's perspective is that
once a special master plan has been submitted to the Secretary of Labor-
by the master sponsor and has been approved, the plan need not be
resubmitted to the Internal Revenue Service for approval by each
adopting employer.
Once an employer adopts a special master plan, his only responsibili-
ties under title I of ERISA will be to make the contributions that are
required under the terms of the plan, to pay the servicing costs charged
by the master sponsor, and to provide to the master sponsor the in-
formation needed to assure compliance with the applicable ERISA
and tax code rules.33
Under new7 section 601(d), the Secretary of Labor may approve a
special master plan for adoption by employers only if he finds that the
plan, in design and in operation, will satisfy applicable rules of
ERISA and the tax code. Before approval, the Secretary of Labor
must submit the plan to the Secretary of the Treasury, who shall
review the plan for compliance with applicable Internal Revenue
Code requirements. If the Treasury Secretary finds that the design of
the plan does not satisfy the Code's requirements, he must specify what
changes must be made to bring the plan into compliance and obtain
his concurrence in the approval.
The Committee contemplates that any particular master sponsor
may design numerous special master plans (or variations of such
plans), each intended for adoption by one or more categories of em-
ployers, depending upon such factors' as size, workforce composition,
industry characteristics, benefit features, and so on. In the process of
approval, either or both Secretaries may find that a particular plan,
intended to be adopted by, for example, employers with fewer than
100 employees in service industries, will in operation not comply with
applicable ERISA or tax code rules. Or. it might be determined that
the plan will not comply with such rules respecting certain service
industries, even though the design of the plan is unobjectionable and
it would, with respect to other service industries, operate in compliance
with the rules. In either such case, the Committee expects that the
terms of the approval would specify that the plan may be adopted only
by service industry employers falling in certain categories designated
by either Secretary.
'Subsection (d)(7) provides that approval by the Secretaries of a
special master plan does not in any way limit the power of the Secre-
tary of the Treasury to find that the plan of any adopting employer, in
operation, has in fact failed to meet applicable tax code rules. However,
it is also made clear the consequences of the failure (e.g. disqualifiea-
33 If the plan so provides, an adopting employer may also have the responsibility of
furnishing summarv plan descriptions and other documents which must, by law, be distri-
buted to participants and beneficiaries of his plan.
56
tion) shall not be applied retroactively unless the Secretary also finds
that the failure was intentional or the result of willful neglect by the
adopting employer.
A number of adjustments have been made in the applicability of
ERISA's title I requirements to master sponsors and adopting employ-
ers to facilitate the design and adoption of special master plans. Thus,
special treatment is provided under ERISA rules relating to summary
plan descriptions, annual reports, and the service provider and an-
cillarv services exemptions from the prohibited transaction rules (new
sections 601(c) (2), (3), and (4)).
Also, section 601(c)(5) provides that a master sponsor will not
have a responsibility to verify the accuracy of information that is
furnished to it by adopting employers, nor any responsibility for the
failure of an adopting employer to properly fund the plan.
However, the master sponsor will be a fiduciary and the adminis-
trator of each adopting employer's plan. As such, the master sponsor
will be subject to all applicable requirements of ERISA and the Code,
except as otherwise provided in section 601. In this regard, section
601(c) (5) (C) provides that the master sponsor will not have respon-
sibility under ERISA or the Code respecting the decision of an em-
ployer to adopt the master plan, except insofar as ERISA's fiduciary
provisions apply to the advertising or publicizing of the administra-
tive services provided, and the investment practices and procedures
followed, by the master sponsor relating to the plan which is adopted
and to the extent those provisions apply to disclosures regarding such
services, practices and procedures.
When approval is given to a special master plan so that it may be
made available to employers for adoption, the Secretary of Labor shall
issue a certificate evidencing compliance of the terms and conditions
of the plan with applicable requirements of ERISA and the Code. The
certificate will be good for five years, and the Committee expects that
the Secretary will by regulation establish procedures for the renewal
of certificates after such review as the Secretary deems necessary.
The conditions for mandatory revocation of the certificate respect-
ing the plan of any adopting employer or the entire special master
plan are described 'in section 601(d) (5) (A) and (B). The Commit-
tee contemplates that the Secretary, in consultation with the Secre-
tary of the Treasury, may promulgate regulations delineating other
circumstances under which a certificate will be revoked (e.g., where
the plan, in operation, is abusive of the tax or labor law policies em-
bodied in ERISA and applicable provisions of the Internal Revenue
Code).
Section 601(e)(1) specifies the conditions under which the duties
(and attendant liabilities) assumed by a master sponsor under sec-
t ion 601 shall he t ransferred to an adopting employer. The Committee
contemplates that these conditions shall be stated in the terms of the
plan and shall include the time at which the transfer shall occur. For
example, a master plan might provide that an adopting employer
will \)v deemed to he plan administrator (and, as such, a fiduciary) as
of the time that such employer furnishes inaccurate workforce data to
t he master sponsor and t hat as of that time, the master sponsor ceases
lo 1)/ administrator and fiduciary respecting that employer's plan. In
tliis way, master sponsors can protect themselves from liability for
matters bevond t heir conl rol.
57
The special master plan provisions in new ERISA section 601 are
designed to make the establishment and maintenance of sound re-
tirement plans as simple and inexpensive as possible for employers,
especially smaller employers who lack the "in-house" resource- to
design and administer their own plans. At the same time, special
master plans, like all other plans, must meet or exceed the standards
of applicable law. Thus, two concepts of section 001 are exceedingly
important.
The first is the assumption by the master sponsor of virtually all of
the administrative and fiduciary burden normally borne by an em-
ployer who sponsors a plan. The second is a procedure under which
no master plan may be made available for adoption until it has been
thoroughly reviewed by the Secretaries of Labor and the Treasury
to be certain not only that the design of the plan meets all applicable
legal standards, but also that the plan in operation will comply with
the law.
To meet this second objective — compliance in operation — the Com-
mittee emphasizes that the Secretaries are to have sufficient latitude
in designating the types of employers (by size, industry, workforce
characteristics, etc.) to which a master plan may be made available
for adoption to provide reasonable assurance that approved special
master plans will, in operation, satisfy applicable rules. To a large
extent, this "tailoring'' can be accomplishel by permitting numerous
variations of a particular master plan. For example, the Secretary of
the Treasury, as part of the approval process under section 601(d) (2)
(B), might approve the marketing of a master plan containing a ten
year cliff vesting standard to one or more categories of employers with
high workforce turnover characteristics only if, for those employers,
the plan embodies the 4/40 vesting rules. As explained in section 601
(d) (1), the Committee contemplates that regulations and other rules
under new part 6 will be designed to facilitate the development of
special master plans and their wide-spread adoption by employers.
Once approval is obtained under conditions imposed by the Secre-
taries relating to the terms and conditions of the plan and the class of
employers to which it may be made available, section 601 contemplates
an absolute minimum of government involvement respecting any
adopting employer. Accordingly, adopting employers will have no
need to secure advance determination letters from the Internal Rev-
enue Service, will not have to file annual financial (Form 5500) and
other reports, will not have to furnish summary plan descriptions
and other documents to plan participants (except as provided by sec-
tion 601(e) (2) ), and will not be responsible for processing claims for
benefits. All of the duties described above will be performed by the
master sponsor, who will be legally responsible for carrying them out
in the manner prescribed by law.
Similarly, the adopting employer will not be a fiduciary respecting
the administration of the plan or the investment of plan assets. The
master sponsor will be a fiduciary and, depending ^n the administra-
tive and investment procedures followed, others may also be fiduciaries.
Bill section 301(c) provides that the special master plan provisions
shall be. effective one vear after the bill's enactment. As is specified in
new ERISA section 601(d) (1), the Committee expects the two Secre-
taries to issue initial regulations and forms, sufficient to enable pro-
58
spective master sponsors to submit special master plans for approval,
a soon as possible after enactment and not later than the effective date
of section 601.
TITLE IV EMPLOYEE BENEFITS COMMISSION
Title IV of S. 209 establishes a new agency — the Employee Benefits
Commission — to take over the functions now performed by the Labor
Department and Pension Benefit Guaranty Corporation under titles I
and IV of ERISA, and by the Internal Revenue Service under provi-
sions of the tax code relating to private sector pension plans.
It is the view of the Committee that the national interest in private
sector employee benefit plans and the interests of plan sponsors, par-
ticipants, and beneficiaries are not well served by the present frag-
mented method of administration and enforcement of ERISA and
complementary provisions of Federal tax law. Further, the Committee
believes that all of these interests will be better served under the uni-
tary administrative arrangement provided by title IV of the bill.
There are several components of the Committee's reasoning and con-
clusions in this regard.
First, experience has demonstrated that where two or more agencies
administer a law (or separate laws designed to achieve the same ob-
jective respecting the same sector of society), the inevitable result is
confusion, duplication of effort, delay in decision making, undue cost
for the regulated public, and reduced government effectiveness in at-
taining the objectives the law seeks to achieve.
All of these attributes are displayed under ERISA's tripartite ad-
ministrative and enforcement arrangement, despite what the Com-
mittee believes to be generally good faith efforts by officials of all
three agencies during two separate Administrations to minimize the
inherent difficulties of the existing structure.
The attributes of fragmented administration are destructive of the
purposes of ERISA. They make it vastly more difficult for the agen-
cies and the Congress to assess the efficacy of the law itself or of par-
ticular provisions of the law. They exacerbate the burdens and costs
of those who are regulated and needlessly breed frustration on their
part respecting the law and for the entire process of government. And
they delay or otherwise interfere with achievement of the law's ob-
jectives, thus short-changing employees and retirees.
Most importantly, fragmented jurisdiction has prevented the devel-
opment and implementation, within the Executive Branch, of coherent
short- and long-term planning respecting ERISA and, more generally,
respecting the critically important subject of this nation's policies
regarding retirement income for the remaining years of this century
and beyond.
Two recent developments bear on this matter. In late December of
L978, Reorganization Plan No. 4 was implemented, assigning more
nearly exclusive responsibility for interpretation of some ERISA pro-
vision- to either the Labor Department or the Internal Revenue Serv-
ice. The effects of the Reorganization Plan appear to be constructive,
within its limited framework, and the Committee looks forward to
the Presidential evaluation and recommendations for long-term ad-
ministrative structure that arc called for by section 107 of the Plan.
59
The Committee notes, however, that the Plan docs not deal at all with
certain areas of shared jurisdiction, such as reporting and disclosure
and enforcement, does not include within its scope any of t be overlaps
between the Pension Benefit Guaranty Corporation and the other two
agencies, and, of greatest importance, does not contain any mecha-
nism for the development and implementation of rat ional and coherent
policy.
Earlier this year, the President's Commission on Pension Policy got
underway in earnest. It is the Committee's understanding that the
Commission will not address the issue of ERISA's administrative and
enforcement structure, but will focus on broader, long-term retire-
ment income issues and will make such recommendations as it deems
necessary and appropriate. This too, is a welcome development, and
the very fact that the President saw a need for the Commission em-
phasizes both the importance of retirement income policy-making and
the present lack of it within the Executive branch agencies.
Unitary administration under the Employee Benefits Commission,
as provided in title IV of the bill, will eliminate the attributes of
tripartite jurisdiction under ERISA and, as is specified in bill section
401(e) (1), the Commission wall formulate policy respecting Federal
laws relating to employee benefit plans. The Committee contemplates
that some of the policies formulated by the Commission may be im-
plemented under the authority of existing law. In other cases, policies
developed may not be implemented unless appropriate action is taken
by Congress. In either case, though, there will be an ongoing Execu-
tive Branch policy making function.
The Commission will be independent of the Labor Department and
the Treasury, but will have close, high-level links to both. The Com-
mission's chairman will be a special liaison for the Secretary of Labor.
The vice chairman wil be a special liaison for the Secretary of the
Treasury. The Chairman and vice chairman will report regularly to
the respective Secretaries. These statutory links will assure that labor,
collective bargaining, and tax policy concerns will be appropriately
considered in all Commission and staff decisions and actions.
The Commission will have three additional members, and all five
Commission members will be Presidential appointments, subject to
Senate confirmation, with staggered six year terms of office, as provided
in bill section 401 (c) .
Regarding functions relating to employee benefit plans now per-
formed by the Internal Revenue Service, bill section 401(e) (3) identi-
fies certain Internal Revenue Code sections under which functions w^ill
be transferred to the Commission. In addition, section 401(f) requires
the President, within nine months after the bill's enactment, to identify
such other Code sections under which functions should be transferred
to the Commission in order to effectuate the maximum feasible con-
solidation in the Commission of all statutory functions presently car-
ried out by the Labor Department and the Internal Revenue Service
respecting employee benefit plans. This discretion is accorded to the
President in accordance with the Committee's view that the creation
and operation of the Commission shall not disturb the integrity of
either tax policy or tax collection.
Bill section 402 states the Commission's powers, which include all
of the powers and authoritv now vested in the Secretarv of Labor and
53-018 0-79-5
60
the PBGC under ERISA, as well as the power to obtain compliance
with the Internal Revenue Code provisions described in bill section
401 (e) (3) (including the provisions designated by the President under
section 401(f)).
In addition, the Commission is to have the power to certify to the
Secretary of the Treasury whether or not a particular plan satisfies the
requirements of the Code provisions described in bill section 401(e) (3)
(and those designated under section 401(f)). Section 403 specifies
that such certifications must be treated by the Secretary of the Treasury
as if he had made them himself.
These provisions effectuate the Committee's intent that the Commis-
sion is to be fully responsible for administering and enforcing ERISA
and the complementary tax code provisions. The Committee believes
that this can be done without disturbing the integrity of tax policy or
tax collection, and notes that tax policy respecting ^employee benefit
plans is designed largely to help effectuate Federal social and economic
policies rather than to generate revenues for the operation of govern-
ment and the provision of government services.
IV. INDIVIDUAL VIEWS OF SENATOR JAVITS AND
ADDITIONAL VIEWS OF SENATOR HATCH
Individual Views of Jacob K. Javits
I am very pleased that the Senate Labor and Human Resources
Committee has unanimously approved S. 209, the ERISA Improve-
ments Act of 1979. As a cosponsor of this measure with Senator
Williams, I believe that S. 209 is a major step toward the clarification
and strengthening of the Employee Retirement Income Security Act
of 1974 (ERISA). The bill will improve the benefits, coverage, and
viability of the private pension system.
S. 209, to be sure, does not deal with every employee benefits issue.
For example, Senator Williams and I have cosponsored, by request,
S. 1076 which would redesign the plan termination insurance program
for multiemployer plans. S. 209, however, and its predecessor bill S.
3017, contain the first comprehensive set of ERISA amendments since
1974 and represent over two years of work of the Senate Labor Com-
mittee.1
I perceive a growing awareness in our country of the need now for
comprehensive planning regarding the equitable provision of retire-
ment income for an increasingly aging population. For this reason the
President has appointed the President's Commission on Pension Policy
which is presently studying the adequacy of private and public pen-
sion plans to contribute to our society's ability to cope with the pyra-
miding problem of providing retirement income. By the year 2030, the
over sixty-five age group, which in 1970 comprised about 10 percent of
the population, is expected to grow to approximately 17 percent of the
anticipated U.S. population. This "greying of the population" is in
part due to such demographic factors as declining fertility and mor-
tality rates as well as the maturation of the post-war baby boom.
The approach which Senator Williams and I have adopted in S.
209 for dealing with the the increasing demand for retirement income
is to encourage the maintenance and growth of private pension plans.
This approach stands in sharp contrast to the proposals of some to
scrap the private retirement system and establish one all-encompassing
Social Security system. I believe that the Social Security system should
be placed on a sound long term financial footing but that advanced-
funded private and public pension plans which contribute to capital
formation should continue to be maintained and expanded as a key
source of additional retirement income.
S. 209 contains provisions which are intended to facilitate compliance
with ERISA and thereby to remove impediments to plan maintenance
1 My earlier statements on the need for ERISA amendments include the following : 123
Cong. Rec. S.13528 (daily ed. Aug. 4. 1977) ; 123 Cong. Rec. S.16057 (daily ed. Sept. 30.
1977) ; 124 Cong. Rec. S.6584, S.6586 (daily ed May 1, 1978) ; 125 Cong. Rec. S.570
(daily ed. Jan. 24, 1979).
(61)
62
and formation. S. 209 also contains proposals which would expand
coverage and benefits under private pension plans. For a fuller discus-
sion of the bill's provisions, I refer to the preceding portions of this
Committee Summary and Analysis of Consideration which I approve.
I support particularly the statements on ERISA preemption, a subject
which my staff and I have studied extensively.
Every day of delay on enacting S. 209 is a day lost in strengthening
private employee benefit plans. I urge my colleagues in both the Senate
and the House to give S. 209 prompt consideration.
Additional Views of Senator Orrin G. Hatch on S. 209,
"The ERISA Improvements Act of 1979"
It is my judgment that S. 209 as presently constituted in certain
provisions, perpetuates the apparent negative impact which ERISA
has had on some some areas of the private pension system. Amend-
ments which have a chilling effect on the growth and continued sta-
bility of employee benefit plans must be avoided.
Accordingly, I believe we should enact amendments which will al-
leviate the current burdens or at least reduce the legal complexities em-
ployers must face, encourage the growth of plans to cover the 50 per-
cent of presently uncovered workers, and maintain proper protection
of the rights of existing participants and beneficiaries.
In short, a bill, to be worthy of full Senate consideration, should be
balanced and designed to encourage rather than discourage the growth
of the private pension system.
Allow me to indicate at this point some of the areas of S. 209 which
require further refinement to achieve the basic goals I have outlined
above.
1. The bill establishes a new agency, the Employee Benefits Commis-
sion, to administer ERISA. The agency is intended to end the dual
and overlapping jurisdictions under existing law currently exercised
by the Internal Revenue Service and the Department of Labor.
While the amendment is well-intended, I do have serious reservations
concerning the inclusion in this bill of a new agency to absorb the
current functions of the Treasury and Labor Departments and the
Pension Benefit Guaranty Corporation. Last session we approved the
Administration's ERISA Reorganization Plan No. 4 which attempts
to deal with the dual jurisdiction problem; however, the administra-
tion has not yet submitted its long-term proposal. It is due by January
31, 1980, on whether or not one new agency should be created. My feel-
ing is that the proposed new single agency should be deferred until
there has been a reasonable opportunity to assess the operation of the
Aministration's Reorganization Plan, and until the issue is addressed,
and the recommendations by the President's Commission on Pension
Policy have been received.
Moreover, creation of a new agency may well be counterproductive
and result in triple jurisdiction instead of dual jurisdiction. Although
consolidation of all pension regulation in one agency sounds good in
theory, in reality it may result in three agencies principally adminis-
tering ERISA — Treasury, Labor and the new agency — instead of the
two principal existing agencies. This will simply aggravate the prob-
lem instead of resolve it. For example, nobody has suggested that the
IRS be denied its traditional role of auditing tax deductions for pen-
sion contributions to insure that they are not used merely as a business
tax shelter device. Likewise, the Labor Department should always be
empowered to prevent certain union abuses whether or not such abuses
are pension related.
(63)
64
In addition, the principal multiple jurisdiction problems arose im-
mediately after passage of EKISA and, in large part, were associated
with the creation of new offices within the Labor and Treasury Depart-
ments and the implementation of entirely new legislation. The creation
of a new agency at this time could have the effect of resurrecting many
of the start-up and transfer of responsibility problems which were the
source of many of the complaints which generated this proposal but
which have now been largely resolved.
Furthermore, it is my opinion, that the American people want to cut
big government down to size not expand it. With respect to pensions,
there is no compelling need for the establishment of a new Federal
agency which would require hiring additional Federal employees and
opening held offices all over the Nation at what must be substantial
costs. This is an added cost which can be avoided by clarifying and
consolidating jurisdictional lines rather than creating more bureauc-
racy and I believe, by avoiding a premature action here, this situation,
which is of concern to all of us. will be satisfactorily resolved.
In summary, I believe the creation of a new agency is at best pre-
mature. Until such time as the Congress and the public can reach a
consensus on a coherent and responsive national pension policy, which
is the challenge of the Pension Commission, there seems to be no reason
to determine whether one, two or three agencies should implement
ERISA. I believe the overwhelming majority of our expert witnesses
testifying on this subject agree with the efficacy of a deferral of this
issue under the circumstances. It makes eminently good sense and I
hope that the Senate will agree with me when floor consideration is
commenced.
2. The bill would require that all qualified plans provide joint and
survivor benefits for each participant with 1 ) years of vested service
without regard to the participant's age at death.
This provision, in essence, mandates pension plans to provide a
death benefit to a surviving spouse unless the participant otherwise
elects. However, pension plans are designed to provide retirement
income, not death benefits. A requirement that accrued benefits be
paid to surviving spouses would increase the funding and administra-
tive burdens on plans, while providing relatively little protection to
surviving spouses since the benefit payable under the provision would
not commence until the employee would have attained retirement age,
which might be as much as thirty years after death. Moreover, most
employees currently elect out of pre-retirement survivor's annuities.
Because the benefit payable to a surviving spouse under the proposal
would be relatively small, even if the employee had ten or twenty
years of vesting service, most employees would elect not to take sur-
vivors' protection. Under the proposal, as I understand it, employees
may change their election regarding the survivor's annuity at will.
The recordkeeping burden on the employer would be immense, par-
ticularly when the incidence of divorce and remarriage1 is considered.
In addition, every defined benefit plan would have to be amended,
;iikI many defined contribution plans would need amendment; sum-
mary plan descriptions would have to be amended; plans would prob-
ably seek requalincation.
In light of the relatively small benefit advantages of this provision
we should evaluate it in this light : will it constitute another impedi-
65
ment on the growth and stability of employee benefit plans? I think
the answer is "yes", and accordingly it should be eliminated.
3. The bill, as reported, contains a provision which prohibits any
reduction or suspension of pension benefits as a result of an award or
settlement made under a workers' compensation law.
I feel it is an unwise proposal and should be eliminated.
a. The proposal would sanction costly and inappropriate double-
dipping.
b. The Internal Revenue Service has long allowed plans to offset
workers' compensation awards against pension benefits, thus permit-
ting the elimination of very costly duplication of benefits.
c. Many plans provide benefits commencing at normal retirement
age or upon earlier total and permanent disability. To preclude the
offset of workers' compensation benefits from pension benefits might
encourage employers to eliminate disability benefit provisions or to
resist increasing normal retirement pension benefit levels.
d. Those plans (and their summary plan descriptions) which nowT
offset workers' compensation would have to be amended.
e. The proposal is inconsistent with other Federal lawrs relating to
workers' compensation offsets. For example, 42 U.S.C. section 424a
provides that Social Security disability benefits must be offset by
workers' compensation benefits to the extent that the combined Social
Security and workers' compensation benefits exceed 80 percent of the
employee's previous average monthly earnings. Further evidence of
the policy against double benefits appears in other Social Security
provisions (see 42 U.S.C.A. sections 402(d)(2)(B), (k)(3), and
414(a)) and was recently reaffirmed by Congress by requiring reduc-
tion of Social Security survivors' benefits for persons receiving Civil
Service annuities (see section 334(b) (2) of the Social Security Amend-
ments of 1977, Public Law 95-216).
f. The provision might be inflationary because it has the potential
to cause a considerable increase in employers' workers' compensation
costs at a time when that system is in need of more urgent reform of
the administrative practices that increase unnecessary costs.
g. It would unnecessarily interfere with the right of free collective
bargaining iby interjecting the federal government into that process
and eliminating a currently negotiated item among labor and
management.
For all of these reasons, this proposal does not meet the test of
strengthening and expanding private pension plan coverage under
ERISA and as such, it should be rejected.
In conclusion, it is my hope and expectation that the amendatory
process will cure some of these defects and that the product which
will ultimately surface from the Finance Committee, where S. 209
has been referred, and through the Senate will facilitate and enhance
the positive aspects of ERISA, for the benefit of all working
Americans.
V. TABULATION OF VOTES CAST IN COMMITTEE
Pursuant to section 133(b) of the Legislative Reorganization Act of
1949, as amended, the following is a tabulation of votes in committee:
Motion by Senator Javits that the Committee Print be treated as the
basic text for purposes of amendment — agreed to without objection.
Motion by Senator Pell to include plans of organizations described
in Internal Revenue Code sections 501(c) (3) or 501(c) (5) in bill sec-
tion 201, amending Code section 402(e) (4) (C) (relating to aggrega-
tion of certain trusts and plans) — agreed to without objection.
Motion by Senator Kennedy to adopt the Kennedy -Cranston amend-
ment, as clarified by Senator Metzenbaum, providing that substantive
requirements of state health care laws shall not be preempted by
ERISA (bill section 155(2) ) — agreed to without objection.
Motion by Senator Javits to require that the Secretary of Labor re-
port to the Committee on Labor and Human Resources of the Senate
and the Committee on Education and Labor of the House of Repre-
sentatives and to the President respecting certain pending applications
for exemptions from ERISA's prohibited transaction rules (bill sec-
tion 145) — agreed to without objection.
Motion by Chairman Williams to report the bill favorably to the
Senate as amended, subject to Rule XXVI of the Standing Rules of
the Senate, carried as follows :
Yeas Nays Xot Voting
Williams Xelson
Randolph Stafford
Pel] Hatch
Kennedy
Eagleton
( Jranston
Riegle
Metzenbaum
Schweiker
Javits
Armstrong
I [umphrey
(66)
VI. CBO COST ESTIMATE
Congressional Budget Office,
U.S. Congress,
Washington J >.C, October 23, l(.n(.>.
Hon. Harrison A. Williams, Jr.,
Chairman, Committee on Labor and Human Resources, U.S. Senate,
Washington, D.C.
Dear Mr. Chairman : In accordance with the Budget Act of 1974.
the Congressional Budget Office has examined S. 209. which would
make changes related to the Employee Retirement Income Security
Act of 1974 (ERISA). Title II of the bill makes several changes in
the Internal Revenue Code of 1954 pertaining to contributions to re-
tirement plans. The Congressional Budget Office agrees with the
methods used and the resulting revenue estimates made by the Joint
Committee on Taxation for Sections 201, 202, and 204 of Title II of
the bill. The revenue loss for those sections is estimated to be less than
$15 million in fiscal year 1980 and $120 million by fiscal year 1985.
Title IV of S. 209 would establish the Employee Benefits Commis-
sion as an independent agency of the Executive Branch. This ( Commis-
sion would assume those functions and duties of the Secretary of
Labor and the Pension Benefit Guaranty Corporation which fall under
the Employee Retirement Income Security Act of 1974, and of the
Secretary of Treasury insofar as they relate to employee benefit plans.
Since the personnel of the new Commission would be transferred from
the Departments of Labor and Treasury and the Pension Benefit
Guaranty Corporation, with the possible exception of the Commis-
sioners and Liaison Officers ; the net cost in federal budget outlays of
this title should not be significant.
The bill would provide a new tax expenditure with Section 204,
which would allow a credit to small business employers for their con-
tributions to employer retirement plans. This provision is estimated to
cost $5 million in fiscal year 1980 and approximately $110 million by
fiscal year 1985.
Sincerely,
Alice M. Rivlin,
Director.
(67)
VII. AMENDMENTS MADE BY S. 209 TO TITLE I OF EKISA 1
Subtitle A — General Provisions
FINDINGS AND DECLARATION OF POLICY
Sec. 2. (a)-(c) * * *
(d) It is hereby further declared to be the policy of this Act to
foster the establishment and maintenance of employee benefit plans
sponsored by employers, employee organizations, or both.
DEFINITIONS
Sec. 3. For purposes of this title :
/-j \ * * *
(2) (A ) [The] Except as provided in subparagraph (B), the terms
"employee pension benefit plan'- and "pension plan'' mean any plan,
fund, or program which was heretofore or is hereafter established or
maintained by an employer or by an employee organization or by
both, to the extent that by its express terms or as a result of surround-
ing circumstances such plan, fund, or program —
[A] (i) provides retirement income to employees, or
[B] (ii) results in a deferral of income by employees for pe-
riods extending to the termination of covered employment or
beyond,
regardless of the method of calculating the contributions made to the
plan, the method of calculating the benefits under the plan or the
method of distributing benefits from the plan.
(B) Notwithstanding subparagraph (A), the /Secretary may by
regulation prescribe rules for one or more exempted categories under
ivhich (i) severance pay arrangements and (ii) supplemental retire-
ment income arrangements will be deemed not to be pension plans for
the purposes of this title but will be deemed to be welfare plans de-
scribed in paragraph (1). Any such regulations shall include rides
under which the Secretary may remove any such arrangement from
any exempted category if he finds it to be a subterfuge to evade the
purposes of this title.
(3)-(13) ***
(14) The term "party in interest" means, as to an employee benefit
plan —
(A) any fiduciary [including, but not limited to, any admin-
istrator, officer, trustee, or custodian], counsel, or employee of
suchTemployee benefit] plan;
(B) a person providing professional services to such plan, or a
person pro-riding nonprofessional services on a continuous basis
to such plan;
Sections not shown are unchanged by S. -01). Subsections, paragraphs, etc. followed by
asteriski are aol changed by s. 209.
(68)
69
(C) an employer any of whose employees is a trust < < of a t,
described in section 302{c) of the Labor-Management Relations
Act, 1947, if such trust is maintained in connection with such
plan, and an employer any of whose employees [are] is covered by
such plan if the employees of such em ploy < r constituti 5 perci nt
or more of all employees covered by the plan on the first day of
the plan year;
(D) an employer organization any of whose m< mh< rs or em-
ployees is a trustee of a trust described in section 302(c) of tht
Lab or- Management Relations Act, 1947. if such trust is main-
tained in connection with such plan, and an employee organiza-
tion any of whose members [are] is covered by such plan if the
members of such employee organization constituti 5 percent or
more of all employees covered by the plan on the first day of tit,
plan year;
(E)-(G) * * *
(H) an [employee,] officer, director (or an individual having
powers or responsibilities similar to those of officers or directors),
[or] a 10 percent or more shareholder, directly or indirectly.
[of a person described in subparagraph (B), (C), (D), (E), or
(G), or of the employee benefit plan] or a highly compensated
employee (earning 10 percent or more of the yearly wages of an
employer) of a person described in subpa ra r/raph (/>). (O), (D).
(E),or{G))ov
(I) a 10 percent or more ([directly or indirectly] in capital
or profits) partner or joint venturer, directly or indirectly, [of]
in a person described in subparagraph (B), (('). (I)). (E). or
The Secretary, after consultation and coordination with the Secretary
of the Treasury, may by regulation prescribe a percentage lower than
50 percent for subparagraph (E) and (G) and lower than 10 percent
for subparagraph (H) or (I). The Secretary may prescribe regula-
tions for determining the ownership (direct or indirect) of profits
and beneficial interests, and the manner in which indirect stockhold-
ings are taken into account. // the Secretary determines that it is
necessary in order to achieve the purposes of this titlt and in the public
interest to do so. he may by regulation dt signate as parties ',,, interest
within the meaning of this paragraph any class of employers any of
whose employees are covered by a plan and any class of t mployee orga-
nizations any of whose membt rs are coven <l by a plam ( other titan an
employer or an employee organization described in subparagraph (C)
or (D)) if each employer or employee organization comprising sunk
class is owned (within the meaning of subparagraphs < E) (i) through
(Hi) ) by a fiduciary respecting such a plan.
(15) The term "relative" means a brother, sister, spouse, ancestor.
lineal descendant, or spouse of a lineal descendant.
(16)-(19) * * *
(20) [The] Except as otherwise provided in sections 502(1) and
514(d) (2) and (S). the term "security" has the same meaning as
such term has under section 2(1) of the Securities Act of 1933 (15
U.S.C. 77b(l)).
(21)-(36) * * *
70
(37) (A) The term "multiemployer plan" means a plan —
[(i) to which more than one employer is required to
contribute.]
L(ii)3 (<0 which is maintained pursuant to one or more collec-
tive bargaining agreements between an employee organization
and more than one employer,
(ii) to which ten or more employers contribute, or to which
more than one and fewer than ten employers contribute if the
Sicretary finds thai treating such a plan as a multiemployer
plan mould be coiixist< ,if with purposes of this Act, and
£(iii) under which the amount of contributions made under
the plan for a plan year by each employer making such contri-
butions is less than 50 percent of the aggregate amount of
contributions made under the plan for that plan year by all
employers making such contributions,]
[(iv)] (Hi) under which benefits are payable with respect to
each participant without regard to the cessation of contributions
by the employer who had employed that participant except to
the extent that such benefits accrued as a result of service with
the employer before such employer was required to contribute
to such plan, and
E(V)J ({r) which satisfies such other requirements as the
Secretary may by regulations prescribe.
(B) For purposes of this paragraph
[(i) if a plan is a multiemployer plan within the meaning of
subparagraph (A) for any plan year, clause (iii) of subpara-
graph (A) shall be applied by substituting "75 percent" for
u50 percent'" for each subsequent plan year until the first plan
year following a plan year in which the plan had one employer
who made contributions of 75 percent or more of the aggregate
amount of contributions made under the plan for that plan year
by all employers making such contributions, and
[(ii)] , all corporations which are members of a controlled
group of corporations (within the meaning of section 1563(a)
of the Internal Revenue Code of 1954, determined without regard
to section 1563(e)(3)(C) of such Code) shall be deemed to be
one employer.
(38)-(39) * * *
Subtitle B— Regulatory Provisions
PART [—REPORTING AM) DISCLOSURE
Duty of Reporting and Disclosure
. L01. ia) The administrator of each employee benefit plan shall
cause to be furnished in accordance with section 104(b) to each par-
ticipant covered under the plan and to each beneficiary who is receiv-
ing benefits under the plan —
( 1 ) a summary plan descripl ion described in section 102(a) (1) ;
and
(2) the information described in section KM(l>) (3) and 105 (a)
and [>)](/,).
(b) (d) * * *
71
Annual Reports
Sec. 103. (a)(1) * * *
(2) * * *
(3) (A) Except as provided in subparagraph (C), the adminisl rat or
of an employee benefit plan shall engage, on behalf of all plan par-
ticipants, an independent qualified public accountant, who shall con-
duct such an examination of any financial statements of the plan, and
of other books and records of the plan, as the accountant may deem
necessary to enable the accountant to form an opinion as to whether
the financial statements and schedules required to be included in the
annual report by subsection (b) of this section are presented fairly in
conformity with generally accepted accounting principles applied on
a basis consistent with that of the preceding year. Such examination
shall be conducted in accordance with generally accepted auditing
standards, exept to the extent required by subparagraph (B). and
shall involve such tests of the books and records of the plan as are con-
sidered necessary by the independent qualified public accountant. The
independent qualified public accountant shall also offer his opinion as
to whether the separate schedules specified in subsection (b) (3) of this
section [and the summary material required under section 104(b) (3)]
present fairly, and in all material respects the information contained
therein when considered in conjunction with the financial statements
taken as a whole. The opinion by the independent qualified public
accountant shall be made a part of the annual report. In a case where
a plan is not required to file an annual report, the requirements of this
paragraph shall not apply. In a case wdiera by reason of section
[104(a) (2)] 110 a plan is required only to file a simplified annual re-
port, the Secretary may waive the requirements of this paragraph.
(B) In offering his opinion under this section the accountant [may]
shall rely on the correctness of any actuarial matter certified to by an
enrolled actuary [, if he so states his reliance].
(C) The opinion required by subparagraph (A) [need] shall not
be expressed as to any statements required by subsection (b) (3) (G)
prepared by a bank or similar institution or insurance carrier regu-
lated and supervised and subject to periodic examination by a State
or Federal agency if such statements are certified by the bank, similar
institution, or insurance carrier as accurate and are made a part of the
annual report.
(Y)\ * * *
(4) (A) The administrator of an employee pension benefit plan sub-
ject to the reporting requirement of subsection (d) of this section
shall engage, on behalf of all plan participants, an enrolled actuary
who shall be responsible for the preparation of the materials com-
prising the actuarial statement required under subsection (d) of this
section. In a case where a plan is not required to file an annual report.
the requirement of this paragraph shall not apply, and. in a case where
by reason of section [104(a) (2) J 110, a plan is required only to file a
simplified report, the Secretary may waive the requirement of this
paragraph.
(B)-(C) * * *
(D) In making a certification under this section the enrolled actu-
ary [may] shall rely on the correctness of any accounting matter under
72
section 103(b) as to winch any qualified public accountant has ex-
pressed an opinion [, if he so states his reliance].
(b)-(e) * * *
Filing With Secretary and Furnishing Information to Participants
Sec. 104. (a)(1) * * *
[(2) (A) With respect to annual reports required to be filed with
the Secretary under this part, he may by regulation prescribe simpli-
fied annual reports for any pension plan which covers less than 100
participants. In addition, and without limiting the foregoing sentence,
the Secretary may waive or modify the requirements of section 103
(d) (6) in such cases or categories of cases as to which he finds that
(i) the interests of the plan participants are not harmed thereby and
(ii) the expense of compliance with the specific requirements of sec-
tion 103(d)(6) is not justified by the needs of the participants, the
Pension Benefit Guaranty Corporation, and the Department of Labor
for some portion or all of the information otherwise required under
section 103(d) (6).
[(B) Nothing contained in this paragraph shall preclude the Sec-
retary from requiring any information or data from any such plan
to which this part applies where he finds such data or information
is necessary to carry out the purposes of this title nor shall the Sec-
retary be precluded from revoking provisions for simplified reports
for any such plan if he finds it necessary to do so in order to carry out
the objectives of this title.
[(3) The Secretary may by regulation exempt any welfare benefit
plan from all or part of the reporting and disclosure requirements of
this title, or may provide for simplified reporting and disclosure if he
finds that such requirements are inappropriate as applied to welfare
benefit plans.]
EW J (#) The Secretary may reject any filing under this section —
(A) if he determines that such filing is incomplete for purposes
of this part ; or
(B) if he determines that there is any material qualification by
an accountant or actuary contained in an opinion submitted pur-
suant to section 103(a)(3)(A) or section 103(a)(4)(B).
CO"*) J (-J>) If the Secretary rejects a filing of a report under para-
graph [(4)] {u2) and if a revised filing satisfactory to the Secretary
is not submitted within 45 days after the Secretary makes his deter-
mination under paragraph [(4)](#) to reject the filing, and if the
Secretary deems it in the best interest of the participants, he may take
any one or more of the following actions —
(A) retain an independent qualified public accountant (as de-
lined in section 103(a)(3)(D)) on behalf of the participants to
perform an audit,
(B) retain an enrolled actuary (as defined in section 103(a)
(4) (C) of this Act ) on behalf of the plan participants, to prepare
an actuarial statement.
(( 1 ) bring a civil act ion for such legal or equitable relief as may
be appropriate to en force t he provisions of this part, or
(I)) take any other action authorized by this title. The adminis-
trator -hall permit such accountant or actuary to inspect whatever
73
lx>oks and records of the plan are necessary for such audit. The
plan shall be liable to the Secretary for the expenses for such audit
or report, and the Secretary may bring an action against the plan
in any court of competent jurisdiction to recover such expenses.
(b) Publication of the summary plan descriptions and annual re-
ports shall be made to participants and beneficiaries of the particular
plan as follows :
(l)-(2) * * *
[(3) Within 210 days after the close of the fiscal year of the plan,
the administrator shall furnish to each participant, and to each benefi-
ciary receiving benefits under the plan, a copy of the statements and
schedules, for such fiscal year, described in subparagraphs (A) and
(B) of section 103(b)(3) and such other material as is necessary to
fairly summarize the latest annual report.]
E(4)] (3) The administrator shall, upon written request of any
participant or beneficiary, furnish a copy of the latest updated sum-
mary plan description, plan description, and the latest annual report,
any terminal report, the bargaining agreement, trust agreement, con-
tract, or other instruments under which the plan is established or
operated. The administrator may make a reasonable charge to cover
the cost of furnishing such complete copies. The Secretary may by
regulation prescribe the maximum amount which will constitute a
reasonable charge under the preceding sentence, but the charge for
furnishing a copy of the latest annual report may not exceed $10.
(c)-(d)
* *
[Reporting of Participant's Benefit Rights]
Disclosure of Status Under Pension Plans
Sec. 105. (a) (7) Each administrator of an employee pension benefit
plan shall furnish to any plan participant or beneficiary who so re-
quests in writing, a statement indicating, on the basis of the latest
available information —
[(1)] (A) for defined benefit plans, the total benefits accrued,
[and] or
(B) for individual account plans, the balance in the account,
and
(C) for all plans, the proportion of accrued benefits or account
balance which is nonforfeitable or the earliest date, assuming con-
tinued participation in the plan without a break in service, on
which some or all benefits will become nonforfeitable.
(2) [the nonforfeitable pension benefits, if any, which have ac-
crued, or the earliest date on which benefits will become nonforfeit-
able.]
[(b)] In no case shall a participant or beneficiary be entitled under
this subsection to receive more than one report described in [subsec-
tion (a)] paragraph (1) during any one 12 month period.
(3) If members of any class of participants or beneficiaries are an-
nually furnished with a statement which contains the in formation re-
quired by this subsection, tlte requirements of this subsection shall be
satisfied respecting the members of such class.
74
(.}) This subsection shall apply to a plan to which more than one
unaffiliated employe?- is required to contribute only to the extent pro-
vided by regulations prescribed by the Secretary.
(b)(1) Each administrator of an employee pension benefit plan
shall report, in such manner and at .such time as may be provided in
rt aviations 'prescribed by the Secretary, to each plan participant who
dm in (j a plan year —
(A) (i) terminates his service with the employer, or (ii) has a
one-year break in service, and
(B) is entitled to a deferred rested benefit under the plan as
of the end of such plan year, and
(C) with respect to whom retirement benefits are not paid un-
der the plan during such plan year.
The report required under this subsection shall inform the partici-
punt of the nature, amount, and form of the deferred rested benefit
to which hi is entitled, and shall contain such other information as
the St crt tary may require.
(2) Not more than one report shall be required under paragraph
(A) (ii) with respect to const cutive one-year breaks in service.
[(c) Each administrator required to register under section 6057
of the Internal Revenue Code of 11)54 shall, before the expiration of
the time prescribed for such registration, furnish to each participant
described in subsection (a) (2) (C) of such section, an individual state-
ment setting forth the information with respect to such participant
required to be contained in the registration statement required bv sec-
tion 6057(a)(2) of such Code.]
(f)(1) Except as provided in paragraph (2) of this subsection.
each employer shall, i,, accordance with regulations prescribed by the
Si cretary, maintain records with respect to each of his employees suf-
p'ci( nt to determine the b< nefits din or which may become due to such
( mployees. Tin t mployt r shall furnish the plan administrator infor-
mation necessary for the administrator to make the reports required
by subsections (a) and (b).
(2) If more titan one employer adopts a plan, each such employer
shall, in accordance with regulations pi (scribed by the Secretary, fur-
nish to tin plan administrator information necessary for the admin-
istrator to maintain the records and make the reports required by
subsections (a) and {b) . Such administrator shall maintain the records
and, to th< extent provided under regulations prescribed by the Sec-
retary, mah fh< reports, requiredby subsections (a) and (b)l
(3) If any person who is required under this section (other than
U) dt r subsection (a)(1)) to famish information or to maintain r< cords
fails to comply with such requin m nts, he shall pay to the plan a pen-
alty of $10 for <<tch employee with respect to whom such failure oc-
eurs, unless it is shown that such failure is due to reasonable cause.
Contributions required under tin terms of the plan ma a not be re-
dua d as a result of the payrru nt of any suchpenalty,
( ',) If a participant mho lias terminated service or has a one year
break in 8t rvice is furnished annually with a report which contains the
information described in paragraph (/), the furnishing of such re-
port shall satisfy tlu disclosure rt quirement of such paragraph.
( (I ) * * *
75
Retention of Records
Sec. 107. Every person subject to a requirement to file any descrip-
tion or report or to certify any information therefor under this title
or who would he subject to such a requirement hut for an exemption
or simplified reporting requirement under section [104(a)(2) or (->)]
110 of this title shall maintain records on the matters of which dis-
closure is required which will provide in sufficient detail the necessary
hasic information and data from which the documents thus required
may he verified, explained, or clarified, and checked for accuracy and
completeness, and shall include vouchers, worksheets, receipts, and
applicable resolutions, and shall keep such records available for ex-
amination for a period of not less than six years after the date on which
such documents would have been filed but for an exemption or simpli-
fied reporting requirement under section [104(a) (2) or (3)] 110.
[Alternative Methods of Compliance
[Sec. 110. (a) The Secretary on his own motion or after having
received the petition of an administrator may prescribe an alternative
method for satisfying any requirement of this part with respect to
any pension plan, or class of pension plans, subject to such requirement
if he determines —
[(1) that the use of such alternative method is consistent with
the purposes of this title and that it provides adequate disclosure
to the participants and beneficiaries in the plan, and adequate re-
porting to the Secretary,
[(2) that the application of such requirement of this part
would —
[(A) increase the costs to the plan, or
[(B) impose unreasonable administrative burdens with re-
spect to the operation of the plan, having regard to the par-
ticular characteristics of the plan or the type of plan involved,
and
[(3) that the application of this part would be adverse to the
interests of plan participants in the aggregate.
[(b) An alternative method may be prescribed under subsection (a)
by regulation or otherwise. If an alternative method is prescribed other
than by regulation, the Secretary shall provide notice and an oppor-
tunity for interested persons to present their views, and shall publish
in the Federal Register the provisions of such alternative method.]
Exemptions and Modifications
Sec. 110. The Secretary may by regulation < onditionally or uncon-
ditionally exempt any employee benefit plan or person, or any class of
employee benefits plans or persons, from any requiremi nt of this part
or may modify any such requirement if he determines that such ex-
emption or modification is —
(1) appropriati and necessary in the public interest, and
{2) consistent with the purposes of this tith .
? - ■:
76
Alternative Document Distribution Method for Multiemployer Plans
Sec. 112. (a) (1) If the administrator of a multiemployer pi an peri-
odically makes an affirmative determination that the alternative
method of document distribution described in subsection (b) will be
less costly to the plan, and will result in document distribution which
is ut least as comprehensive as would result if such documents were
distributed in aocordanee with the document furnishing requirements
of sections 101(a). 104(b) (1). 205(e), or other provisions of laic, in-
cluding applicable regulations, the administrator will be deemed to
have satisfied the furnishing requirements of such sections, laiv and
regulations if he satisfies the requirements of subsection (b).
(2) Each determination referred to in paragraph (1) shall be writ-
ten, and shall in elude the evidence and describe the methodology on
which it is based.
(b) A plan administrator satisfies the requirements of this subsec-
tion, with respect to all or a group of participants who are employees
of an employer if —
(1) the administrator furnishes the document to such employer
in sufficient quantities and at such time as to enable such employer
to furnish such document by the time when the administrator
would otherwise he required to furnish such participants with the
document, and notifies such employer of the time or times by which
such documents must be furnished; and
(2) in the case of the updated summary plan description and
modifications or changes described in section 104(b) (7), not later
than GO days after the prescribed time by which such documents
must be furnished, the administrator notifies participants through
postings at apj>Hcable local union offices or any other method
reasonably calculated to comprehensively serve notice that such
document was recently distributed and that participants may ob-
tain, the document free of charge by written request to the
administrator.
(c) If the administrator satisfies the requirements of subsection
(b)(1) with respect to participants who arc employees of an employer,
such employer shall furnish the documt nt to such participants within
the time prescribed for furnishing such document. If an employer
ch008€S to satisfy the r< qi 're //k nts of the preceding sentence by mailing
the document to the personal residences of one or more participants,
reasonably current personal residence addresses must be utilized. For
this purposi . a list of participants* home addresses most recently com-
piled in eon n< etion with the r< <juir< no nts of section 6051(a) (relating
to information concerning wages paid employees) of the Internal Rev-
> nm Cod* of 1954 """J 0i utilized if such list has bet n updated ivithin
flu 12-month period preceding the date of mailing.
(d) To the exti nt that an employer is reguin d to furnish documents
pursuant to subsection {<). such < m ployi r shall be considered the plan
administrator solely for purposes of any provision of law which im-
poses liability or civil or criminal penalties for tin jail arc to satisfy
thi document furnishing requirements of sections 101(a), 104(b) (1),
205(e) or other provisions of law or regulations which require the fur-
nishing of documi nts to plan pa it ici pa nts.
77
(e) Subsections (a) tlirough {d) shall be applicable to a plan and
the employers contributing to such plan only if the plan administrator
has been authorized or reauthorized to make the periodic d< termina
tions referred to in subsection (a) . . 1 ny such authorization or reauthor-
ization shall be valid —
(7) only if express and written, and pursuant to a unanimous
vote of the plan's trustees at a regularly scheduled and duly no-
ticed meeting;
(2) only if such vote and any discussion pertinent to the plan's
adoption of the alter nab ice method, of document distribution <l<
scribed in this section have been recorded in the minutes of the
trustees' meetings; and
(3) for a period of time not exceeding —
(^4) 42 months from the date on which the administrator
makes the first of the determinations referred to in subsection
(a) in the case of the authorization; and
(B) 36 months in the case of any reauthorization.
(f)(1) The Secretary /nay prescribe such regulations as he deems
necessary to carry out the purposes of this section.
(2) The Secretary shall establish a system, to monitor compliant
withy enforce, and assess the usefulness of the alternative method of
document distribution prodded by this section. Such system may em-
ploy random sampling techniques. The limitation imposed by section
504(b) (relating to the Secretary's authority to require the submission
of plan books and records in the course of an investigation) shall not
apply to a request or subpoena by the Secretary for plan books and
records (including records of any employer subject to subsection (c) )
which are sought solely for the purposes of this subsection.
PART 2 PARTICIPATION AND VESTING
'Coverage
Sec. '201. This part shall apply to any employee benefit plan de-
scribed in section 4(a) (and not exempted under section 4(b)) other
than —
(1) an employee welfare benefit plan, except as provided in
section 206 ( b ) ;
(2)-(7) * * *
Minimum Participation Standards
Sec. 202. (a)(1) * * *
/Q\ * * *
(3) (A) For purposes of this section, the term "year of service"
means a 12-month period during which the employee has not less than
1,000 hours of service. For purposes of this paragraph, computation
of any 12-month period shall be made with reference to the date on
which the employee's employment commenced, except that, in accord-
ance with regulations prescribed by the Secretary, such computation
may be made by reference to the first day of a plan year (i) in the
case of an employee who does not complete 1,000 hours of service dur-
ing the 12-month period beginning on the date his employment com-
78
menced or (ii) in the case of a plan where rights and benefits under
this fart are determined on the basis of all of an employee's service
without regard to the date on which the employee's participation in the
plan commenced.
/ (\ # * *
(b) * * *
Minimum Vesting- Standards
Sec. 203. (a)(1) * * *
(2) * * *
(3) (A) * * *
(B) A right to an accrued benefit derived from employer contribu-
tions shall not be treated as forfeitable solely because the plan provides
that the payment of benefits is suspended for such period as the em-
ployee is employed, subsequent to the commencement of payment of
such benefits —
(i) in the case of a plan other than a multiemployer plan, by an
employer who maintains the plan under which such benefits were
being paid ; and
(ii) in the case of a multiemployer plan, in the same industry,
[in the same] trade, or craft, and the same geographic area cov-
ered by the plan, as when such benefits commenced. The Secretary
shall prescribe such regulations as may be necessary to ensure fair-
ness under and otherwise carry out the purposes of this subpara-
graph, including regulations with respect to the meaning of the
term 'employed,' which may, with respect to clause (ii), include
self-employment. The permissible period of benefit suspension
shall include a period determined pursuant to regulations promul-
gated by the Secretary in addition, to the months in. which the
employment occurs to the extent necessary to prevent the periodic
payment and suspension of pension benefits to workers who have
not retired but who continue to work on an irregular basis.
The imposition of a financial penalty on a pensioner who fails to re-
port his employment as required by the rules of a plan shall not be
deemed a violation of the resting requirements of this section. The
a mount of the -financial penalty permitted by the preceding sentence
shall h, determined pursuant to regulations promulgated by the Sec-
retary hut in no event shall the penalty exceed an amount equal to one
IP ar's benefit.
(C)-(D) * * *
(b)-(d) * * *
Benefit Accrual Requirements
Sec. 204. (a) * * *
(b)(1) * * *
(:',)( (A)(1))***
(E) For purposes of this subsection in the case of any maritime
industry, L25 day- of service shall be treated as [a year oi participa-
tion] IflOO hours of si rvice. The Secretary may prescribe regulations
to carry oul the purposes of t his subparagraph.
(.•I (h) *
79
Joint and Survivor Annuity Requirement
Sec . 205. (a) A pension plan may provide thai thi normal form of
benefit is a form other than an annuity. If a pension plan provides
for the payment of benefits in the form of an annuity ( whether as the
normal form or as an option ), such plan shall provide for the payment
of the annuity benefits in a form having the effect of a qualified joint
and survivor annuity.
[(b) Jn the case of a plan which provides for the payment of bene-
fits before the normal retirement age as defined in section ;>(-!), the
plan is not required to provide for the payment of annuity benefits in
a form having the effect of a qualified joint and survivor annuity dur-
ing the period beginning on the date on which the employee enters
into the plan as a participant and ending on the later of
[(1) the date the employee reaches the earliest retirement age,
or
[(2) the first day of the 120th month beginning before the date
on which the employee reaches normal retirement age.]
(b)(1) A plan which provides that the normal form of benefit is
an annuity shall, with respect to any participant who under the plan
is credited with at least 10 years of service for vesting purposes under
section 203 and who dies before the annuity starting date, provide a
survivor's annuity for the participants spouse —
(^L) which begins on the annuity starting date (determined as if
the participant had lived until the earliest retirement age under
the plan, or tlie participant's actual dale of death if later, and had
retired ort such date prior to death) , if the spouse is living on such
date, and
(B) except as provided in paragraph (2), the payments under
which are not less the payments which would have been made un-
der the survivors annuity to which such spouse would, have been
entitled if the participant had terminated employment on his date
of death, had survived and retired on such annuity starting date,
and had died on the day following such date.
(2) If on the date of the participants death, the actuarial equiva-
lent of the survivor s annuity does not exceed $2,000, a plan described
in paragraph (1) may distribute the survivors benefit in the form of
a lump sum, or in the form of installments commencing, not later than
the annuity starting date specified in paragraph (1) (A) .
[(c) (1) A plan described in subsection (b) does not meet tjie require-
ments of subsection (a) unless, under the plan, a participant has a
reasonable period in which he may elect the qualified joint and sur-
vivor annuity form with respect to the period beginning on the date
on which the period described in subsection (b) ends and ending on
(he date on which he reaches normal retirement age if he continues his
employment during that period.
[(2) A plan does not meet the requirements of this subsection un-
less, in the case of such election, the payments under the survivor
annuity are not less than the payments which would have been made
under the joint annuity to which the participant would have been en-
titled if he had made an election under this subsection immediately
prior to his retirement and if his retirement had occurred on the date
immediately preceding the date of his death and within the period
within which an election can be made.]
80
(c) A plan which provides that the normal form of benefit is a fmm
other than an annuity shall, with respect to any participant ivho under
the plan has at least 10 years of service far' vesting purposes under sec-
lion 203 and who dies before receiving the percentage of his benefit
which is nonforfeitable, provide (1) that the participant's benefit is
distributed- to the surviving spouse in the form of a lump sum, or in
installments commencing, not later than 60 days after the end of the
plan year in which the participant died, or (2) that the participants
benefit is distributed to the surviving spouse at such other time and in
such manner as the plan and the surviving spouse may agree in writing.
(d) A plan shall not be treated as not satisfying the requirements of
this section solely because the spouse of the participant is not entitled
to receive a survivor annuity [(whether or not an election has been
made under subsection (c))] unless the participant and his spouse
have been married throughout the 1-year period ending on the date of
such participant's death.
[(c) A plan shall not be treated as satisfying the requirements of
this section unless, under the plan, each participant has a reasonable
period (as prescribed by the Secretary of the Treasury by regulations)
before the annuity starting date during which he may elect in writing
(after having received a written explanation of the terms and condi-
tions of the joint and survivor annuity and the effect of an election
under this subsection) not to take such joint and survivor annuity.]
(e) (7) Participants in plans described in subsection (b) shall have
the right to elect not to take joint and survivor annuities and the right
to revoke such elections and to reelect, subject to the following terms
and conditions :
(A) A document explaining the terms and conditions of the joint
and survivor annuity, and the rights and effects of, and procedures
pertaining to, election, revocation and reelection, shall be furnished
to each participant a reasonable time before the date cm lohich the par-
ticipant completes 10 years of service for vesting purposes under sec-
tion 203.
(B) Any election, revocation or reelection shall be in writing. The
right to elect, revoke, or reelect shall not extend beyond the date of a
participants death or retirement under the terms of the plan, which-
/ occurs earlier.
(C) Respecting any participant, the document described in subpara-
graph (A) need not be furnished more than once if —
(i) the plan's summary plan description includes an explana-
tion, similar to the explanation described in subparagraph. {A),
which is generally applicable to all participants and which satis-
fies fhc requirements of section 102(a) (1) ;and
( ii) the document described in subparagraph (A) makes promi-
nent referx nee to the fact that the explanation contained, therein
may be of continuing importance to the participant and should
t>< retained with fhc summary plan description.
(2) The Secretary of the Trt asury shall prescribe regulation* to im-
plement this subsection.
(f)-(g) * * *
(h) For the purposes of this section, a plan may take into account
in any equitable fashion (as determined by the Secretary of the Treas-
81
ury) any increased costs resulting from providing [joint and survivor
annuity benefits under an election made under subsection (c)] the
survivors1 benefits required under this section, to the extent such in-
creased costs are attributable to the availability of such benefits prior
to the normal retirement age under the plan.
/•\ # # #
Other Provisions Relating to Form and Payment of Benefits
Sec. 206. (a) * * *
(b) If-
(1) a participant or beneficiary is receiving benefits under a
pension plan or is receiving disability benefits under a welfare
plan, or
(2) a participant is separated from the service and has non-
forfeitable rights to benefits, a plan may not decrease benefits of
such a participant by reason of any increase in the benefit levels
payable under title II of the Social Security Act or the Railroad
Retirement Act of 1937, or any increase in the wage base under
such title II, if such increase takes place after the date of the
enactment of this Act {or, in the case of a participant or bene-
ficiary who is receiving disability benefits under a ivelfare plan,
the date of enactment of the ERISA Improvements Act of J 979) ;
or (if later) the earlier of the date of first entitlement of such
benefits or the date of such separation. A pension plan may not
reduce or suspend retirement pension benefits being received by a
participant or beneficiary or retirement pension benefits in which
a participant loho is separated from the service has a nonforfeit-
able right by reason of any payment made to the participant or
beneficiary by the employer maintaining the plan as the result of
an award or settlement made under or pursuant to a workers1
compensation law.
/c\ * * *
(d)(l)-(2) * * *
(3) Paragraph (1) shall not apply in the case of a judgment, decree
or order {including an approval of a property settlement agreement)
relating to child support, alimony payments, or marital property
rights, pursuant to a State domestic relations law {whether of the
common law or community property type), tvhich —
{A) creates or recognizes the existence of an individual's right
to receive all or a portion of the benefits to ivhich a participant
or a participants designated beneficiary would otherwise be en-
titled under a pension plan,
{B) clearly identifies such participant, the amount or per-
centage of such benefits to be paid to such individual, the number
of payments to which such judgment, decree or order applies, and
the name and mailing ad chess of such individual, and
{C) does not require such plan to alter the effective date, timing,
form, duration, or amount of any benefit payments under the
plan or to honor any election which is not provided for under the
plan or which is made by a person other than a participant or
beneficiary.
82
[Recordkeeping and Reporting Requirements
[Sec. 209. (a)(1) Except as provided by paragraph (2) every em-
ployer shall, in accordance with regulations prescribed by the Secre-
tary, maintain records with respect to each of his employees sufficient
to determine the benefits due or which may become due to such em-
ployees. The plan administrator shall make a report, in such manner
and at such time as may be provided in regulations prescribed by the
Secretary, to each employee who is a participant under the plan and
who —
[(A) requests such report, in such manner and at such time as
may be provided in such regulations,
[(B) terminates his service with the employer, or
[(C) has a 1-year break in service (as defined in section 203
(b)(3)(A)).
[The employer shall furnish to the plan administrator the information
necessary for the administrator to make the reports required by the
preceding sentence. Not more than one report shall be required under
subparagraph (A) in any 12-month period. Xot more than one report
shall be required under subparagraph (C) with respect to consecutive
1-year breaks in service. The report required under this paragraph
shall be sufficient to inform the employee of his accrued benefits under
the plan and the percentage of such benefits which are nonforfeitable
under the plan.
[(2) If more than one employer adopts a plan, each such employer
shall, in accordance with regulations prescribed by the Secretary, fur-
nish to the plan administrator the information necessary for the ad-
ministrator to maintain the records and make the reports required by
paragraph (1). Such administrator shall maintain the records and to
the extent provided under regulations prescribed by the Secretary,
make the reports, required by paragraph (1).
[(b) If any person who is required, under subsection (a), to fur-
nish information or maintain records for any plan year fails to comply
with such requirement, he shall pay to the Secretary a civil penalty
of $10 for each employee with respect to whom such failure occurs,
unle-s it is shown that such failure is due to reasonable cause.]
Reciprocal Agreeim nts
Sec. 209. Notwithstanding any other provision of this title, the con-
tributions made with, respect to the employment of an employee pur-
suant to a collective-bargaining agreement and payable to a pension
or me/ fare plan maintained pursuant to that agreement {hereinafter
in this 8i et ion ,< f< n< d to as fhi 'a win/ plan') may be transferred to a
similar pension or nut fare plan established pursuant to another col-
lective-bargaining <i<ir<tm<nt under which the employee had previ-
ously In com, a participant (hereinafter referred to in this section as
the ihome plan ) if such transfer is pursuant to a written agreement
bt twet n tin administrator of the away plan und flu administrator of
the honn plan. hi any cast whi r< contributions received with respect
to tin ( m ploy m< nt of an < m ployee are t runs ft m d frotn un a way plan
to a hom< plan in accordant! with this 8t ct ion, such t ni ptoyment shull
be considered us employment under the jurisdiction of the home plan
for purposes of computing tht accrued benefit and vesting of such
83
employee, but the employee who contributed to the away plan on l>< -
half of such employee shall not be deem* d to be an < m/ployi r maintain-
ing the home phut .solely l>< causi of such transferrt d contributions. The
Secretary may by regulation establish additional conditions, and such
variances and exemptions as are consistent with the purposes of this
Act, in older to facilitate such transfer arrangements in tin interest
of portability and to protect the pension and welfan benefits of em-
ployees who become employed under two or more colli ctivi bargaining
agreements associated with different pension or WelfaTi plans. This
section shall not apply to a plan to the extt nt that it is f undid by port-
able annuity contracts without cash surrender rata, s.
Plans Maintained by More Than One Employer, Predecessor Plan-.
and Employer Groups
Sec. 210. (a) Notwithstanding any other provision of this part or
part 3, the following provisions of this subsection shall apply to a plan
maintained by more than one employer :
(l)-(3) * * *
(4) a multiemployer plan may pro ride that the accrued bene-
fit to which a participant is entitled upon his separation from the
service is —
(A) (i) the sum of different rates of benefit accrual for
different periods of participation as defined by one or more
fixed calendar dates, or
(ii) the sum of different rates of benefit accrual for dif-
ferent periods of participation, as defined by employment
in different bargaining units, and
(B) determined, for purposes of subparagraphs {A) and
(G) of subsection 204(b) (l),by projecting the normal retire-
ment benefit to which a participant would be entitled if he
continued to accrue benefits at the average of the rates ap-
plicable to his period of actual participation.
(b)-(d) * * *
Effective Dates
Sec. 211. (a)-(e) * * *
(/) Notwithstanding anything to the contrary in this part, the Sec-
retary may prescribe by regulation one or more systems of measuring
service for purposes of sections 202, 203, and 204 which are based upon
measurement of the elapsed time of an employee's service. Any such
regulations shall include safeguards to assure that employees whose
service is measured in terms of elapsed time are, in the aggregate, not
disadvantaged by the use of such system of measurement when com-
pared to employees whose service is measured in the manner prescribed
in sections 202, 203, and 20)h
Minimum Funding- Standards
Sec. 302. (a)-(b) * * *
(c) (1) For purposes of this part, normal costs, accrued liability,
past service liabilities, and experience gains and losses shall be deter-
mined under the funding method used to determine costs under the
plan. The funding method of a collectively bargained plan may take
84
account, and for any plan year beginning after- December SI, 1980,
shall take account, of all provisions of the plan, including provisions
which have not yet affected any participant as to entitlement to, or
accrual of, benefits. In the event any such provision is not implemented
at the time specified when the provision was adopted, the funding
standard account shall be appropriately adjusted in accordance with
regulations prescribed by the Secretary. A provision adopted but con-
tingent on a future event shall be deemed not to be in effect as a pro-
vision of the plan prior to the occurrence of tJiat event. A plan which
adopts the procedures described in the preceding three sentences must
apply such procedures consistently to both benefit increases arid bene-
fit decreases. The Secretary may by regulation extend the applicability
of such procedures or similar procedures to one or more classes of plans
which are not collectively bargained if he determines that such appli-
cation would be consistent ivith the purposes of this part. If the Secre-
tary determines that the application of such procedures, in the case of
any plan or class of plans, has been inconsistent with the purposes of
this part, he nvay condition or disallow the use of such procedures for
such plan or class of plans.
(2)-(10) * * *
(d) * * *
Coverage
Sec. 401. (a) * * *
( b ) For purposes of this part :
q\ * * *
[(2) In the case of a plan to which a guaranteed benefit policy is
issued by an insurer, the assets of such plan shall be deemed to include
such policy, but shall not, solely by reason of the issuance of such
policy, be deemed to include any assets of such insurer. For purposes
of this paragraph :
[(A) The term "insurer'' means an insurance company, insurance
service, or insurance organization, qualified to do business in a State.
[(B) The term "guaranteed benefit policy" means an insurance
policy or contract to the extent that such policy or contract provides
for benefits the amount of which is guaranteed by the insurer. Such
term includes any surplus in a separate account, but excludes any other
portion of a separate account.]
(2) In the case of a plan which is funded in. whole or in part by a
contract or policy of insurance issued by an insurer, the assets of the
phi,, shall include such contract or policy but shall not, solely by reason
of the issuance of such contract or polici/, include the assets of the
insurer issuing the contract or policy except to the extent that such
assets are maintained by the insurer in one or more separate accounts
and do not co/istitnte Surplus in any such ac<ount. For purposes of
this paragraph^ the term Hnsun /' /mans u/i insurance company, insur-
ance service, or insurance organization, niiatified to conduct business
in a State.
Establishment of Trust
Sec. M)3. (a)-(b) * * *
(c)(1) * * *
(2) (A) In the case of a contribution which is made by an employer
by a mistake of fact, paragraph (1) shall not prohibit the return of
So
such contribution to the employer within one year after the payment
of the contribution or, in the case of a coUectivi ly bargained plan
maintained by more than one employer, within six months after the
phi a administrator determines that the contribution was made by a
mistake of fact or determines that holding a contribution would con-
tra cene the provisions of section 302 of the Labor-Management Rela-
tions Act ,1947.
(B)-(C) * * *
(3) * * *
(d) * * *
Liability for Breach by Co-fiduciary
Sec. 405. (a)-(d) * * *
(e) In the case of a fiduciary other than an individual, the term
7t' no wledge' in subsection (a) (3) shall mean —
( 1 ) Jcno wledgc actually communicated, and
(2) knowledge on the part of any employee or agent of such
■fiduciary which, m the normal course of such fiduciary's business,
should hare been communicated by such employee or agent,
to ■such fiduciary's officer or employee who is authorized to carry out
such fiduciary's responsibilities, obligations, or duties or who in fact
curries out such responsibilities, obligations, or duties, regarding the
matter to which the knowledge relates.
Exemptions from Prohibited Transactions
Sec. 408. (a) * * *
(b) The prohibitions provided in section 406 shall not apply to
any of the following transactions :
(l)-(9) * * *
(10) Any transfer of contributions between plans pursuant to sec-
tion 209, if a plan to which the contributions are transferred pays
not more than a reasonable charge for any administrative expenses
reasonably incurred by a plan transferring such contributions.
(c)-(e) * * *
(/) Beginning on January 1, 1980, the Secretary shall, toith respect
to each exemption application filed pursuant to subsection (a) tvhich
has been or is pending final administrative determination for a period
exceeding —
(1) 180 days, in the case of an individual exemption, or
(2) 365 days, in the case of a class exemption, report to the
Committee on Labor and Human Resources of the Senate and
the Committee on Education and Labor of the House of Rep-
resentatives, and to the President. Each such report shall iden-
tify and describe the applicant or applicants, the transaction or
transactions for which the exemption is sought, the teivns of the
exemption as described in the application and as proposed to
be granted by the Secretary (if there has been such a proposal),
and the reason or reasons for the continuing pendency of the
application. Such report shall also identify, by name and title.
the official or officials of the Department of Labor who are re-
sponsible for processing each such exemption application.
86
Civil Enforcement
Sec. 502. (a) A civil action may be brought —
(l)-(3) * * *
(4) by the Secretary, or by a participant, or beneficiary for
appropriate relief in the case of a violation of section 105[(c)] ;
(5)-(6) * * *
(7) by any employee, participant or beneficiary for damages
due to reliance on a misrepresentation described in section 515.
(b) (1) In the case of a plan which is qualified under section 401 (a) ,
403(a), or 405(a) of the Internal Revenue Code of 1954 (or with
respect to which an application to so qualify has been filed and has
not been finally determined) the Secretary may exercise his authority
under subsection (a) (5) with respect to a violation of, or the enforce-
ment of, parts 2 and 3 of this subtitle (relating to participation, vest-
ing, and funding), only if
[(1)](.4) requested by the Secretary of the Treasury, or
C(^)3 (B) one or more participants, beneficiaries, or fiduciaries,
of such plan request in writing (in such manner as the Secretary
shall prescribe by regulation) that he exercise such authority
on their behalf. In the case of such a request under this para-
graph he may exercise such authority only if he determines that
such violation affects, or such enforcement is necessary to pro-
tect, claims of participants or beneficiaries to benefits under the
plan.
(2) The Secretary shall not initiate an action to enforce section 516.
(c)-(f) * * *
(g)(1) Except as provided in paragraph (2), [In] in any action
under this title by an employee, £a] participant, beneficiary, or fidu-
ciary, the court in its discretion may allow a reasonable attorney's
fee and costs of the action to either party.
(2) In any action under this title by a fiduciary on behalf of a plan
to enforce the provisions of section 516 and in which a judgment in
favor of the plan is awarded, the court shall allow a reasonable at-
torney's fee and costs of the action, to be paid by the defendant.
(h) A copy of the complaint in any action under this title by an em-
ployee, participant, beneficiary, or fiduciary (other than an action
brought by one or more participants or beneficiaries under subsec-
tion (a) (1) (B) which is solely for the purpose of recovering benefits
due such participants under the terms of the plan) shall be served
upon the Secretary and the Secretary of the Treasury by certified
mail. Either Secretary shall have the right in his discretion to inter-
vene in any action, except that the Secretary of the Treasury may not
intervene in any action under parts 4 and J of this subtitle. If the
Secretary brings an action under subsection (a) on behalf of cm < em-
ployee, participant, or beneficiary, he shall notify the Secretary of
the Treasury.
(0-(j). * * *
(k) Suits by an administrator, fiduciary, employee, participant, or
beneficiary of an employee benefit plan to review a final order of the
Secretary, to restrain the Secretary from taking any action contrary
to t he provisions of this Act, or to compel him to take action required
under this title, may he brought in the district court of the United
87
States for the district where the plan has its principal office, or in
the United States District Court for the District of Columbia.
(I) Except as provided by paragraph (3) —
(1) no person or employee benefit plan .shall he subject to lia-
bility or punishment, civil or criminal, or be required to reim-
burse or pay money or any other thing of value, as the direct or
indirect result of a cause of action explicitly or implicitly alleg-
ing that the interest of an employee in an employee benefit plan
is, or ought to be characterized as or deemed to be, a security for
purposes of section 17 {a) of the Securities Act of 1933 and sec-
tion 10(b) of the Securities Exchange Act of 1934, or within
the meaning of any State law which regulates securities;
(2) no court of the United States shall have jurisdiction of an
action or proceeding at law or in equity, to the extent such action
or proceeding involves a cause of action explicitly or implicitly
alleging that tlie interest of an employee in an employee benefit
plan is, or ought to be characterized as or deemed to be, a security
for purposes of section 17(a) of the Securities Act of 1933 and
section 10(b) of the Securities Exchange Act of 193 4, or within
the meaning of any State law which regulates securities; and
(3) paragraphs (1) and (2) shall not apply respecting a cause
of action based upon any act or omission which occurred before
the date of enactment of the ERISA Improvements Act of 1979.
(m) In any civil proceeding relating to the disclosure requirements
of part 1 of this subtitle, a motion to dismiss the action as to a defend-
ant plan, plan administrator, or any trustee or tr-ustees solely on the
grounds that the plan has utilized the alternatwe method of docu-
ment distribution described in section 112 shall not be granted except
upon a -finding by the court that the requirements of subsections (a)
(b), and (e) of such section have been satisfied. Upon motion of any
plaintiff or defendant in such a civil proceeding, any employer to whom
section 112(c) applies who employs or employed any participant or
beneficiary who is a plaintiff in such proceeding may be joined as a
defendant, pursuant to applicable law.
Advisory Council
Sec. 512. (a)(1) * * *
(3) Of the members appointed, three shall be representatives of em-
ployee organizations (at least one of whom shall be representative of
any organization members of which are participants in a multiem-
ployer plan) ; three shall be representatives of employers [at least]
one of whom shall be representative of employers maintaining or con-
tributing to multiemployer plans and one of whom shall be
representative of employers maintaining small plans) ; three repre-
sentatives shall be appointed from the general public, one of whom
shall be a person representing those receiving benefits from a pension
plan; and there shall be one representative each from the fields of
insurance, corporate trust, actuarial counseling, investment counsel-
ing, investment management, and the accounting field.
/^\ * * *
(b)-(e) ***
88
Research, Studies, and Annual Report
Sec. 513. (a)-(c) ***
(d) The Secretary shall conduct a study of the feasibility and
ramifications of requiring employee pension benefit plans to provide
cost-of-living adjustments to benefits payable under such plans. The
Secretary shall compile data and analyze the effect inflation is having
and may be expected to have on retirement benefits provided by pri-
vate pension plans. The Secretary shall submit the study required by
this subsection to the Congress no later than 24, months after the date
of enactment of the ERISA Improvements Act of 1979.
Effect on Other Laws
Sec. 514. (a) * * *
(b)(1) ***
(2) (A) Except as provided in subparagraph (B) and subsection
{d) (2). nothing in this title shall be construed to exempt or relieve
any person from any law of any State which regulates insurance, bank-
ing, or securities.
(B) Neither an employee benefit plan described in section 4(a),
which is not exempt under section 4(b) (other than a plan established
primarily for the purpose of providing death benefits), nor any trust
established under such a plan, shall be deemed to be an insurance com-
pany or other insurer, bank, trust company, or investment company
or to be engaged in the business of insurance or banking for purposes
of any law of any State purporting to regulate insurance companies,
insurance contracts, banks, trust companies, or investment companies.
A State insurance lair which provides that a. specific benefit or bene-
fits must be provided or made available by a contract or policy of insur-
ance issued to an employee benefit plan is a law which relates to an
employee benefit plan within the meaning of subsection (a) and is not
a laio which regulates insurance within the meaning of subparagraph
(A). A provision of State law which requires that a contract or policy
of insurance issued to an employee benefit plan must permit a partic-
ipant to convert or continue protection after it ceases to be provided
under the employee benefit plan is a provision of a law described in
subparagraph (A) and not a provision of law described in subsection
(a).
CB) * * *
(3)-(4) ***
(-5) (A) Except as provided in subparagraph (B) and in the last
sentence of paragraph (#)(/?), subsection (a) shall not apply to a
State law insofar as it r< (/aires employers to directly or indirectly pro-
vide health care benefits or services to employees or employees and
tht ir dependents or which regulates arrangerru nts under which health
rare benefits or services are provided to employees or employees and
their dependents by employers.
(B) notwithstanding subparagraph (A), parts (/), (.£), and (S)
of this subtitle shall supercede any state law described in such sub-
paragraph^ but flu Secretary may enter into cooperate arrangements
under this paragraph and section 506 with officials of States ha ring
lanes desmbed in subparagraph (A) to assist such States in effectuat-
89
ing the 'policies of provisions of such laws which are superceded by
such parts.
(6) Subsection (a) shall not apply respecting any judgment, decree,
or order pursuant to a State domestic relations lata (whether of the
common law or community property type), if such judgment, decree
or order is described in section 206(d) (3).
(c) * * *
(d)(1) [Nothing] Except as provided in paragraph (2), nothing
in this title shall be construed to alter, amend, modify, invalidate, im-
pair, or supersede any law of the United States (except as provided
in sections 111 and 507(b)) or any rule or regulation issued under
any such law.
(2) Not withstand ing any provision of law to the contrary, the
interest of an employee in an employee benefit plan is not. and .shall
not be characterized as or deemed to be, a security for purposes of
section 17(a) of the SecuHties Act of 1983 a/ul .section 10(b) of th<
Securities and Exhange Act of 193 '4, or itdthin tin meaning of any
State law ichich regulates securities.
(e) For purposes of subsection (d) (2) and sections 502(1) and
515, the term ' employee benefit plan9 shall include any employee bene-
fit plan —
(1) defined in section 3(3), irrespective of ivhether the only
participants in the plan are owner -employees as defined in sec-
tion 401(c) (3) of the Internal Revenue Code of 1954, and
(2) which is described in section 4(d) and not exempt under
section 4(b).
Misrepresentation
Sec. 515. (a) It shall be unlawful for any person to knowingly
misrepresent the terms and conditions of an employee benefit plan, the
financial condition of a plan, or the status under the plan of any
employee, participant or beneficiary.
(b) No person shall be liable under subsection (a) respecting a
document which is required to be disclosed to participants or bene-
ficiaries or to be filed with the Secretary of Labor, the Pension Benefit
Guaranty Corporation or the Secretary of the Treasury under this
Act or the Internal Rerenue Code of 1954. provided that such docu-
ment satisfies the requirements of such Act or Code and duly pro-
mid gated regulations thereunder.
(c) An employee benefit plan shall not be liable for damages re-
sulting from a. misrepresentation described in subsection (a).
(d) Subsection (a) shall not apply as to any act or omission oc-
curring before the date of enactment of the ERISA Improvements
Act of 1979.
Obligation of Employer to Pay Contributions
Sec. 510. Every employer who is obligated under the terms of a
collectively bargained plan (or under the terms of a collective bar-
gaining agreement related to such plan) to make periodic contribu-
tions to the plan shall, to the extent not inconsistent with, laio, make
such contributions in accordance with the terms and conditions of such
plan or such agreement.
90
VIII. S. 209, AS AMENDED AXD APPROVED BY THE
COMMITTEE OX LABOR AXD HUMAN RESOURCES
1 SECTION 1. SHORT TITLE.
2 (a) This Act may be cited as the ''ERISA Improve-
3 merits Act of 1979".
4 (b) Table of Contents. —
Sec. 1. Short title and table of contents.
Sec. 2. Technical and conforming changes.
Sec. 3. Findings and declaration of policy.
TITLE I— AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974
Subtitle A — Declaration of Policy; Definitions
Sec. 101. Declaration of policy.
Sec. 102. Definitions.
Subtitle B — Simplifying and Clarifying Amendments
Part 1 — Reporting and Disclosure
Disclosure of status under pension plans.
Exemptions and modifications.
Elimination of summary annual report.
Improvement of reporting requirements.
Opinions of actuaries and accountants.
Scope of accountant '$ opinion.
Sec. 117. Alternative distribution method for multiemployer plans.
Sec. 118. Effective dates.
Part 2 — Minimum Standards
Sec. 121. Reciprocal agreements.
Sec. 122. Technical correction.
Sec. 123. Determining participation on a plan year basis.
Sec. 124. Summation of different benefit accrual rates.
Sec. 125. Suspension of benefits because of reemployment.
Sec. 126. Reduction in retirement or disability benefits.
Sec. 127. Survivor protection.
Sec. 12H. Alimony and support payments.
Sec. 129. Elapsed time.
Part 3 — Funding
Sec. 131. Funding to take account of future amendments.
Part 4 — Fiduciary RESPONSIBILITY
See 141. General asset account.
Sec. } 42. Refund of mistaken contributions.
Sec.
111.
Sec.
112.
Sec.
113.
Sec.
114.
Sec.
115.
Sec.
116.
91
Sec. 143. Cofiduciary responsibility.
Sec. 144. Exemption for reciprocity arrangements.
Sec. 145. Prohibited transaction exemption reporting.
Part 5 — Administration, Enforcement, and Adjustments in Applicable
Law
Sec. 151. Advisory council.
Sec. 152. Impact of inflation on retirement benefits.
Sec. 153. Remedies.
Sec. 154. Adjustments in applicable law.
Sec. 155. Preemption.
Sec. 156. Effective dates.
TITLE II— AMENDMENTS TO THE INTERNAL REVENUE CODE OF
1954
Sec. 201. Lump sum distributions; plans treated as single plan.
Sec. 202. Lump sum distributions; separation from the service.
Sec. 203. Deduction for certain employee retirement savings and contributions.
Sec. 204. Credit for the establishment of qualified plans by small employers.
Sec. 205. Conforming amendments for ERISA changes in title I.
TITLE III— SPECIAL MASTER AND PROTOTYPE PLANS
Sec. 301. Special master and prototype plans.
TITLE IV— EMPLOYEE BENEFITS COMMISSION
Sec. 401. Employee Benefits Commission.
Sec. 402. Powers of Commission.
Sec. 403. Termination of Treasury Department's jurisdiction.
Sec. 404. Agency cooperation.
Sec. 405. Effective date and repeal.
1 SEC. 2. TECHNICAL AND CONFORMING CHANGES.
2 The Secretary of the Treasury and the Secretary of
3 Labor shall, as soon as practicable but in any event not later
4 than 90 days after the date of the enactment of this Act,
5 submit to the Congress a draft of any technical and conform-
6 ing changes in the Internal Revenue Code of 1954, and the
7 Employee Retirement Income Security Act of 1974, respec-
8 tively, which are necessary to reflect throughout such Code
53-018 0-79
92
1 and Act the changes in the substantive provisions of law
2 made by this Act.
3 SEC. 3. FINDINGS AND DECLARATION OF POLICY.
4 (a) The Congress finds that the paperwork burdens and
5 compliance costs resulting from the implementation of the
6 Employee Retirement Income Security Act of 1974 and the
7 Internal Revenue Code of 1954 affecting employee benefit
8 plans and persons sponsoring such plans can be reduced in
9 certain respects without jeopardizing the interests of employ-
10 ees in such plans and in the integrity of the assets of such
1 1 plans; that the free flow of commerce and the implementation
12 of such Act and Code have been restricted and hampered by
13 assertions of applicability of Federal and State securities
14 and other laws to certain employee benefit plans; and that
15 present and future needs for retirement income can best be
16 met by strengthening and improving private employee pen-
17 sion benefit plans and that it is in the national interest to do
18 so.
19 (b) The Congress further finds that the free flow of com-
20 merce and the implementation of the provisions of the Em-
21 ployee Retirement Income Security Act of 1974 and of the
22 Internal Revenue Code of 1954 have been restricted and
23 hampered by administrative difficulties encountered by the
24 Labor Department, the Internal Revenue Service, and the
25 Pension Benefit Guaranty Corporation; that duplications
93
1 and overlapping of agency responsibility have resulted in
2 costly delays, confusion, and excessive paperwork, and that
3 the interests of participants in and beneficiaries under
4 private sector employee benefit plans have been adversely af-
5 fected thereby.
6 (c) It is hereby declared to be the policy of this Act to
7 foster the establishment and maintenance of private employee
8 pension benefit plans; to further improve such plans by clari-
9 fying, simplifying, and otherwise improving such Act and the
10 provisions of such Code; to clarify prospectively the extent to
1 1 which Federal and State securities and other laws may affect
12 employee benefit plans which are subject to such Act; and to
13 consolidate in a single agency the administration of the Em-
14 ployee Retirement Income Security Act of 1974 and certain
15 provisions of the Internal Revenue Code of 1954 relating to
16 employee benefit plans.
17 TITLE I— AMENDMENTS TO THE EMPLOYEE
18 RETIREMENT INCOME SECURITY ACT OF 1974
19 Subtitle A — Declaration of Policy; Definitions
20 SEC. 101. DECLARA TION OF POLICY.
21 Section 2 of the Employee Retirement Income Security
22 Act of 1974 is amended by adding at the end thereof the
23 following new subsection:
24 "(d) It is hereby further declared to be the policy of this
25 Act to foster the establishment and maintenance of employee
94
1 benefit plans sponsored by employers, employee organiza-
2 tions, or both. "
3 SEC. 102. DEFINITIONS.
4 Section 3 of the Employee Retirement Income Security
5 Act of 1974 is amended by —
6 (1) striking out subparagraphs (A), (B), (C), (D),
7 (H), and (I) of paragraph (14) and inserting in lieu
8 thereof, respectively, the following subparagraphs:
9 "(A) any fiduciary, counsel, or employee of such
10 plan;
11 "(B) a person providing professional services to
12 such plan, or a person providing nonprofessional serv-
13 ices on a continuous basis to such plan;
14 "(C) an employer any of whose employees is a
15 trustee of a trust described in section 302(c) of the
16 Labor- Management Relations Act, 1947, if such trust
17 is maintained in connection with such plan, and an
18 employer any of whose employees is covered by such
19 plan if the employees of such employer constitute 5
20 percent or more of all employees covered by the plan on
2 1 the first day of the plan year;
22 "(D) an employee organization any of whose
23 members or employees is a trustee of a trust described
24 in section 302(c) of the Labor- Management Relations
25 Act, 1947, if such trust is maintained in connection
95
1 with such plan, and an employee organization any of
2 whose members is covered by such plan if the members
3 of such employee organization constitute 5 percent or
4 more of all employees covered by the plan on the first
5 day of the plan year;
6 "(H) an officer, director (or an individual having
7 powers or responsibilities similar to those of officers or
8 directors), a 10 percent or more shareholder, directly or
9 indirectly, or a highly compensated employee (earning
10 10 percent or more of the yearly wages of an employer)
11 of a person described in subparagraph (B), (C), (D),
12 (E), or (G); or
13 U(I) a 10 percent or more (in capital or profits)
14 partner or joint venturer, directly or indirectly, in a
15 person described in subparagraph (B), (C), (D), (E),
16 or (G). '•';
17 (2) inserting in paragraph (15) "brother, sister, "
18 immediately before "spouse, " the first time it appears;
19 (3) striking out "The" in paragraph (20) and in-
20 serting in lieu thereof "Except as otherwise provided
21 in sections 502(1) and 514(d) (2) and (3), the";
22 (4) (A) striking out clauses (i), (ii), and (Hi) of
23 subparagraph (A) of paragraph (37) and inserting in
24 lieu thereof the following:
96
1 "(i) which is maintained pursuant to one or more
2 collective bargaining agreements between an employee
3 organization and more than one employer,
4 "(ii) to which ten or more employers contribute,
5 or to which more than one and fewer than ten employ-
6 ers contribute if the Secretary finds that treating such
7 a plan as a multiemployer plan would be consistent
8 with the purposes of this Act, and";
9 (B) redesignating clauses (iv) and (v) of para-
10 graph (37) (A) as clauses (Hi) and (iv), respectively,
11 and
12 (C) striking out subparagraph (B) of paragraph
13 (37) and inserting in lieu thereof the following new
14 subparagraph:
15 "(B) For purposes of this paragraph, all corporations
16 which are members of a controlled group of corporations
17 (within the meaning of section 1563(a) of the Internal Reve-
18 nue Code of 1954, determined without regard to section
19 1563(e)(3)(C) of such Code) shall be deemed to be one em-
20 ployer. ";
21 (5) (A) striking out "The" in paragraph (2) and
22 inserting in lieu thereof "(A) Except as provided in
23 subparagraph (B), the",
24 (B) striking out "(A)" before "provides" in such
25 paragraph and inserting in lieu thereof "(i)",
97
1 (C) striking out "(B)" before "results" in such
2 paragraph and inserting in lieu thereof "(ii)", and
3 (D) inserting a new subparagraph (B) in such
4 paragraph, to read as follows:
5 "(B) Notwithstanding subparagraph (A), the Secretary
6 may by regulation prescribe rules for one or more exempted
7 categories under which (i) severance pay arrangements and
8 (ii) supplemental retirement income arrangements will be
9 deemed not to be pension plans for the purposes of this title
10 but will be deemed to be welfare plans described in paragraph
11 (1). Any such regulations shall include rules under which the
12 Secretary may remove any such arrangement from any
13 exempted category if he finds it to be a subterfuge to evade
14 the purposes of this title. ";
15 (6) adding the following sentence at end of section
16 3(14), immediately following "account. ": "If the Sec-
17 retary determines that it is necessary in order to
18 achieve the purposes of this title and in the public in-
19 terest to do so, he may by regulation designate as par-
20 ties in interest within the meaning of this paragraph
21 any class of employers any of whose employees are
22 covered by a plan and any class of employee organiza-
23 tions any of whose members are covered by a plan
24 (other than an employer or an employee organization
25 described in subparagraph (C) or (D)) if each employ-
98
1 er or employee organization comprising such class is
2 owned (within the meaning of subparagraphs (E) (i)
3 through (Hi)) by a fiduciary respecting such a plan. ".
4 Subtitle B — Simplifying and Clarifying Amendments
5 Part 1 — Reporting and Disclosure
6 SEC. 111. DISCLOSURE OF STATUS UNDER PENSION PLANS.
7 Section 105 of the Employee Retirement Income Secu-
8 rity Act of 1974 is amended to read as follows:
9 "DISCLOSURE OF STATUS UNDER PENSION PLANS
10 "Sec. 105. (a) (1) Each administrator of an employee
1 1 pension benefit plan shall furnish to any plan participant or
12 beneficiary who so requests in writing a statement indicat-
13 ing, on the basis of the latest available information —
14 "(A) for defined benefits plans, the total benefits
15 accrued, or
16 "(B) for individual account plans, the balance in
17 the account, and
18 "(C) for all plans, the proportion of accrued bene-
19 fits or account balance which is nonforfeitable or the
20 earliest date, assuming continued participation in the
21 plan without a break in service, on which some or all
22 benefits will become nonforfeitable.
23 "(2) In no case shall a participant or beneficiary be
24 entitled under this subsection to receive more than one report
25 described in paragraph (1) during any one 12-month period.
99
1 "(3) If the members of any class of participants or bene-
2 ficiaries are annually furnished with a statement which con-
3 tains the information required by this subsection, the require-
4 ments of this subsection shall be satisfied respecting the mem-
5 bers of such class.
6 "(4) This subsection shall apply to a plan to which
7 more than one unaffiliated employer is required to contribute
8 only to the extent provided by regulations prescribed by the
9 Secretary.
10 "(b)(1) Each administrator of an employee pension
1 1 benefit plan shall report, in such manner and at such time as
12 may be provided in regulations prescribed by the Secretary,
13 to each plan participant who during a plan year —
14 "(A) (i) terminates his service with the employer,
15 or
16 "(ii) has a 1-year break in service, and
17 "(B) is entitled to a deferred vested benefit under
18 the plan as of the end of such plan year, and
19 "(C) with respect to whom retirement benefits are
20 not paid under the plan during such plan year.
21 The report required under this subsection shall inform the
22 participant of the nature, amount, and form of the deferred
23 vested benefit to which he is entitled, and shall contain such
24 other information as the Secretary may require.
100
1 "(2) Not more than one report shall be required under
2 paragraph (A)(ii) with respect to consecutive 1-year breaks
3 in service.
4 "(c)(1) Except as provided in paragraph (2) of this sub-
5 section, each employer shall, in accordance with regulations
6 prescribed by the Secretary, maintain records with respect to
7 each of his employees sufficient to determine the benefits due
8 or which may become due to such employees. The employer
9 shall furnish the plan administrator information necessary
10 for the administrator to make the reports required by subsec-
1 1 tions (a) and (b).
12 "(2) If more than one employer adopts a plan, each
13 such employer shall, in accordance with regulations pre-
14 scribed by the Secretary, furnish to the plan administrator
15 information necessary for the administrator to maintain the
16 records and make the reports required by subsections (a) and
17 (b). Such administrator shall maintain the records and, to
18 the extent provided under regulations prescribed by the Sec-
19 retary, make the reports, required by subsections (a) and (b).
20 "(3) If any person who is required under this section
21 (other than under subsection (a)(1)) to furnish information
22 or to maintain records fails to comply with such require-
23 ments, he shall pay to the plan a penalty of $10 for each
24 employee with respect to whom such failure occurs, unless it
25 is shown that such failure is due to reasonable cause. Contri-
101
1 butions required under the terms of the plan may not be re-
2 duced as a result of the payment of any such penalty.
3 "(4) If a participant who has terminated service or has
4 a one year break in service is furnished annually with a
5 report which contains the information described in paragraph
6 (1), the furnishing of such report shall satisfy the disclosure
7 requirement of such paragraph. ".
8 SEC. 112. EXEMPTIONS AND MODIFICATIONS.
9 (a) In General. — Section 110 of such Act is amended
10 to read as follows:
11 "EXEMPTIONS and modifications
12 "Sec. 110. The Secretary may by regulation condi-
13 tionally or unconditionally exempt any employee benefit plan
14 or person, or any class of employee benefits plans or persons,
15 from any requirement of this part or may modify any such
16 requirement if he determines that such exemption or modifi-
17 cation is —
18 "(1) appropriate and necessary in the public in-
19 terest, and
20 "(2) consistent with the purposes of this title. ".
21 (b) Conforming Changes.— (1) Section 104(a) of
22 such Act is amended —
23 (A) by striking out paragraphs (2) and (3), and
24 by redesignating paragraphs (4) and (5) as (2) and
25 (3), respectively; and
102
1 (B) by striking out "paragraph (4)" in paragraph
2 (3) (as redesignated) and inserting in lieu thereof
3 "paragraph (2)".
4 (2) Section 107 of such Act is amended by striking out
5 "104(a) (2) or (3)" in both places where it appears and in-
6 serting in lieu thereof "110".
7 (3) The last sentence of section 103(a)(3)(A) of such Act
8 is amended by striking out "104(a)(2)" and inserting in lieu
9 thereof "110".
10 (4) The second sentence of section 103(a)(4)(A) of such
11 Act is amended by striking out "104(a)(2)" and inserting in
12 lieu thereof "110".
13 (5) Section 101(a)(2) of such Act is amended by strik-
14 ing out "(c)" immediately preceding the period and inserting
15 in lieu thereof "(b)".
1 6 SEC. 113. EL1MINA TION OF SUMMARY ANNUAL REPORT.
17 (a) In General. — Section 104(b) of such Act is
18 amended —
19 (1) by striking out paragraph (3) and redesignat-
20 ing paragraph (4) as (3), and
21 (2) by inserting before the period at the end of the
22 last sentence of such redesignated paragraph the follow-
23 ing: ", but the charge for furnishing a copy of the
24 latest annual report may not exceed $10".
103
1 (b) Conforming Change. — The third sentence of sec-
2 tion 103(a)(3)(A) is amended by striking out "and the sum-
3 mary material required under section 104(b)(3)".
4 SEC. 114. IMPROVEMENT OF REPORTING REQUIREMENTS.
5 In order to avoid the reporting of unnecessary informa-
6 tion, the Secretary and the Secretary of the Treasury shall
7 develop reporting forms and requirements for employee bene-
8 fit plans described in section 4(a) and not exempt under sec-
9 tion 4(b) which, to the maximum extent feasible and consist-
10 ent with the purposes of this Act and the Employee Retire-
11 ment Income Security Act of 1974, take into account the
12 different types and sizes of employee benefit plans. Not later
13 than 12 months after the date of enactment of this Act, the
14 Secretaries shall report to the Congress on the actions taken
15 and proposed to be taken to implement this directive. Not
16 later than 24 months after the enactment of this section, the
17 Secretaries shall submit to the Congress their final written
18 report on the implementation of this section.
19 SEC 115. OPINIONS OF ACTUARIES AND ACCOUNTANTS.
20 Section 103(a) of such Act is amended —
21 (1) by inserting "except to the extent required by
22 subparagraph (B), " in paragraph (3) (A) after "Such
23 examination shall be conducted in accordance with
24 generally accepted auditing standards, ",
104
1 (2) by striking out "may" in paragraph (3)(B)
2 and inserting in lieu thereof "shall",
3 (3) by striking out " if he so states his reliance"
4 in such paragraph,
5 (4) by striking out "may" in paragraph (4)(D)
6 and inserting in lieu thereof "shall", and
7 (5) by striking out ", if he so states his reliance"
8 in such paragraph.
9 SEC. 116. SCOPE OF ACCOUNTANT'S OPINION.
10 Section 103(a)(3)(C) of such Act is amended by strik-
11 ing out "need" and inserting in lieu thereof "shall".
12 SEC. 117. ALTERNATIVE DISTRIBUTION METHOD FOR MULTIEM-
13 PLOYER PLANS.
14 Part 1 of subtitle B of title I of such Act is amended by
15 adding a new section 112, to read as follows:
16 "ALTERNATIVE DOCUMENT DISTRIBUTION METHOD FOR
17 MULTIEMPLOYER PLANS
18 "Sec 112. (a)(1) If the administrator of a multiem-
19 ployer plan periodically makes an affirmative determination
20 that the alternative method of document distribution de-
21 scribed in subsection (b) will be less costly to the plan, and
22 will result in document distribution which is at least as com-
23 prehensive as would result if such documents were distribut-
24 ed in accordance with the document furnishing requirements
25 of sections 101(a), 104(b)(1), 205(e), or other provisions of
105
1 law, including applicable regulations, the administrator will
2 be deemed to have satisfied the furnishing requirements of
3 such sections, law and regulations if he satisfies the require-
4 ments of subsection (b).
5 "(2) Each determination referred to in paragraph (1)
6 shall be written, and shall include the evidence and describe
7 the methodology on which it is based.
8 "(b) A plan administrator satisfies the requirements of
9 this subsection with respect to all or a group of participants
10 who are employees of an employer if —
11 "(1) the administrator furnishes the document to
12 such employer in sufficient quantities and at such time
13 as to enable such employer to furnish such document
14 by the time when the administrator would otherwise be
15 required to furnish such participants with the docu-
16 ment, and notifies such employer of the time or times
17 by which such documents must be furnished; and
18 "(2) in the case of the updated summary plan de-
19 scription and modifications or changes described in
20 section 104(b)(1), not later than 60 days after the pre-
21 scribed time by which such documents must be fur-
22 nished, the administrator notifies participants through
23 postings at applicable local union offices or any other
24 method reasonably calculated to comprehensively serve
25 notice that such document was recently distributed and
106
1 that participants may obtain the document free of
2 charge by written request to the administrator.
3 "(c) If the administrator satisfies the requirements of
4 subsection (b)(1) with respect to participants who are employ -
5 ees of an employer, such employer shall furnish the document
6 to such participants within the time prescribed for furnishing
7 such document. If an employer chooses to satisfy the require-
8 ments of the preceding sentence by mailing the document to
9 the personal residences of one of more participants, reason-
10 ably current personal residence addresses must be utilized.
1 1 For this purpose, a list of participants ' home addresses most
12 recently compiled in connection with the requirements of sec -
13 tion 6051(a) (relating to information concerning wages paid
14 employees) of the Internal Revenue Code of 1954 may be
15 utilized if such list has been updated within the 12-month
16 period preceding the date of mailing.
17 "(d) To the extent that an employer is required to fur-
18 nish documents pursuant to subsection (c), such employer
19 shall be considered the plan administrator solely for purposes
20 of any provision of law which imposes liability or civil or
21 criminal penalties for the failure to satisfy the document fur-
22 nishing requirements of sections 101(a), 104(b)(1), 205(e) or
23 other provisions of law or regulations which require the fur-
24 nishing of documents to plan participants.
107
1 "(e) Subsections (a) through (d) shall be applicable to a
2 plan and the employers contributing to such plan only if the
3 plan administrator has been authorized or reauthorized to
4 make the periodic determinations referred to in subsection
5 (a). Any such authorization or reauthorization shall be
6 valid —
7 "(1) only if express and written, and pursuant to
8 a unanimous vote of the plan's trustees at a regularly
9 scheduled and duly noticed meeting;
10 "(2) only if such vote and any discussion perti-
1 1 nent to the plan 's adoption of the alternative method of
12 document distribution described in this section have
13 been recorded in the minutes of the trustees' meetings;
14 and
15 "(3) for a period of time not exceeding —
16 "(A) 42 months from the date on which the
17 administrator makes the first of the determina-
18 tions referred to in subsection (a) in the case of
19 the authorization; and
20 "(B) 36 months in the case of any reauthori-
21 zation.
22 "(f)(1) The Secretary may prescribe such regulations as
23 he deems necessary to carry out the purposes of this section.
24 "(2) The Secretary shall establish a system to monitor
25 compliance with, enforce, and assess the usefulness of the
53-018 0-79-8
108
1 alternative method of document distribution provided by this
2 section. Such system may employ random sampling tech-
3 niques. The limitation imposed by section 504(b) (relating to
4 the Secretary 's authority to require the submission of plan
5 books and records in the course of an investigation) shall not
6 apply to a request or subpoena by the Secretary for plan
7 books and records (including records of any employer subject
8 to subsection (c)) which are sought solely for the purposes of
9 this subsection. ".
10 SEC. 118. EFFECTIVE DATES.
11 The amendments made by sections 111, 112, and 117
12 shall be effective on, and the amendments made by sections
13 113, 115, and 116 shall apply with respect to plan years
14 beginning on and after, the date of enactment of this Act.
15 Part 2 — Minimum Standards
16 sec. 121. reciprocal agreements.
1 7 Section 209 of the Employee Retirement Income Secu-
18 rity Act of 1974 is amended in its entirety to read as follows:
19 "reciprocal agreements
20 uSec. 209. Notwithstanding any other provision of this
21 title, the contributions made with respect to the employment
22 of an employee pursuant to a collective -bargaining agreement
23 and payable to a pension or welfare plan maintained pursu-
24 ant to that agreement (hereinafter in this section referred to
25 as the 'away plan ') may be transferred to a similar pension
10!)
1 or welfare plan established pursuant to another collective-
2 bargaining agreement under which the employee had previ-
3 ously become a participant (hereinafter referred to in this
4 section as the 'home plan ') if such transfer is pursuant to a
5 written agreement between the administrator of the away
6 plan and the administrator of the home plan. In any case
7 where contributions received with respect to the employment
8 of an employee are transferred from an away plan to a home
9 plan in accordance with this section, such employment shall
10 be considered as employment under the jurisdiction of the
11 home plan for purposes of computing the accrued benefit and
12 vesting of such employee, but the employer who contributed to
13 the away plan on behalf of such employee shall not be deemed
14 to be an employer maintaining the home plan solely because
15 of such transferred contributions. The Secretary may by reg-
16 ulation establish additional conditions, and such variances
17 and exemptions as are consistent with the purposes of this
18 Act, in order to facilitate such transfer arrangements in the
19 interest of portability and to protect the pension and welfare
20 benefits of employees who become employed under two or
21 more collective bargaining agreements associated with differ-
22 ent pension or welfare plans. This section shall not apply to a
23 plan to the extent that it is funded by portable annuity con-
24 tracts without cash surrender values. "
110
1 SEC. 122. TECHNICAL CORRECTION.
2 Section 204(b)(3)(E) of such Act is amended by strik-
3 ing out "a year of participation" and inserting in lieu thereof
4 the following: "1,000 hours of service".
5 SEC. 123. DETERMINING PARTICIPATION ON A PLAN YEAR
6 BASIS.
7 The second sentence of section 202(a)(3)(A) of such Act
8 is amended by inserting "(i)" after "first day of a plan year"
9 and by inserting after "date his employment commenced" the
10 following: "or (ii) in the case of a plan where rights and
1 1 benefits under this part are determined on the basis of all of
12 an employee's service without regard to the date on which the
13 employee fs participation in the plan commenced".
14 SEC. 124. SUMMATION OF DIFFERENT BENEFIT ACCRUAL
15 RATES.
16 Section 210(a) of such Act is amended by adding at the
1 7 end thereof the following new paragraph:
18 "(4) a multiemployer plan may provide that the
19 accrued benefit to which a participant is entitled upon
20 his separation from the service is —
21 "(A) (i) the sum of different rates of benefit
22 accrual for different periods of participation as
29 defined by one or more fixed calendar dates, or
24 "(ii) the sum of different rates of benefit
25 accrual for different periods of participation, as
Ill
1 defined by employment in different bargaining
2 units, and
3 "(B) determined, for purposes of subpara-
4 graphs (A) and (C) of subsection 204(b)(1), by
5 projecting the normal retirement benefit to which
6 a participant would be entitled if he continued to
7 accrue benefits at the average of the rates applica-
8 ble to his period of actual participation. ".
9 SEC. 125. SUSPENSION OF BENEFITS BECAUSE OF REEMPLOY-
10 ME NT.
11 Section 203(a)(3)(B) of such Act is amended —
12 (1) by striking out "in the same trade" in clause
13 (ii) and inserting in lieu thereof ", trade, ";
14 (2) by inserting "ensure fairness under and other-
lb wise" after "to" the first time it appears in the last
16 sentence; and
17 (3) by striking out " 'employed' . " in the last sen-
18 tence and inserting in lieu thereof the following: " 'em-
19 ployed, ' which may, with respect to clause (ii), include
20 self-employment. The permissible period of benefit sus-
21 pension shall include a period determined pursuant to
22 regulations promulgated by the Secretary in addition
23 to the months in which the employment occurs to the
24 extent necessary to prevent the periodic payment and
25 suspension of pension benefits to workers who have not
112
1 retired but who continue to work on an irregular basis.
2 The imposition of a financial penalty on a pensioner
3 who fails to report his employment as required by the
4 rules of a plan shall not be deemed a violation of the
5 vesting requirements of this section. The amount of the
6 financial penalty permitted by the preceding sentence
7 shall be determined pursuant to regulations promul-
8 gated by the Secretary but in no event shall the pen-
9 alty exceed an amount equal to one year's benefit. ".
10 SEC. 126. REDUCTIONS IN RETIREMENT OR DISABILITY BENE-
1 1 FITS.
12 (a) Section 206(b) of such Act is amended —
13 (1) by inserting after "plan" in paragraph (1) the
14 following: "or is receiving disability benefits under a
15 welfare plan";
16 (2) by inserting immediately after "this Act" the
17 following: "(or, in the case of a participant or benefici-
18 ary who is receiving disability benefits under a welfare
19 plan, the date of enactment of the ERISA Improve-
20 ments Act of 1979) "; and
21 (3) by adding at the end thereof the following new
22 sentence: "A pension plan may not reduce or suspend
23 retirement pension benefits being received by a partici-
24 pant or beneficiary or retirement pension benefits in
25 which a participant who is separated from the service
113
1 has a nonforfeitable right by reason of any payment
2 made to the participant or beneficiary by the employer
3 maintaining the plan as the result of an award or set-
4 dement made under or pursuant to a workers ' compen-
5 sation law. ".
6 (b) Section 201(1) of such Act is amended by inserting
7 after "plan" the following: " except as provided in section
8 206(b)".
9 (c) The amendments described in subsection (a) and in
10 section 205(h) shall apply with respect to plan years begin-
1 1 ning on and after the date which is 60 days after the date of
12 enactment of this Act.
13 SEC. 127. SURVIVOR PROTECTION.
14 (a) Section 205 of such Act is amended —
15 (1) by deleting subsections (a), (b), (c), and (e)
16 and inserting in lieu thereof the following:
17 "(a) A pension plan may provide that the normal form
18 of benefit is a form other than an annuity. If a pension plan
19 provides for the payment of benefits in the form of an annu-
20 ity (whether as the normal form or as an option), such plan
21 shall provide for the payment of the annuity benefits in a
22 form having the effect of a qualified joint and survivor
23 annuity.
24 "(b)(1) A plan which provides that the normal form of
25 benefit is an annuity shall, with respect to any participant
114
1 who under the plan is credited with at least 10 years of serv-
2 ice for vesting purposes under section 203 and who dies
3 before the annuity starting date, provide a survivors annuity
4 for the participant 's spouse —
5 "(A) which begins on the annuity starting date
6 (determined as if the participant had lived until the
7 earliest retirement age under the plan, or the partici-
8 pant's actual date of death if later, and had retired on
9 such date prior to death), if the spouse is living on
10 such date, and
11 "(B) except as provided in paragraph (2), the
12 payments under which are not less than the payments
13 which would have been made under the survivor's an-
14 nuity to which such spouse would have been entitled if
15 the participant had terminated employment on his date
16 of death, had survived and retired on such annuity
17 starting date, and had died on the day following such
1 8 date.
19 "(2) If on the date of the participant's death, the actu-
20 arial equivalent of the survivor's annuity does not exceed
21 $2,000, a plan described in paragraph (1) may distribute the
22 survivor's benefit in the form of a lump sum, or in the form
23 of installments commencing, not later than the annuity start-
24 ing date specified in paragraph (1) (A).
115
1 "(c) A plan which provides that the normal form of
2 benefit is a form other than an annuity shall, with respect to
3 any participant who under the plan has at least 10 years of
4 service for vesting purposes under section 203 and who dies
5 before receiving the percentage of his benefit which is nonfor-
6 feitable, provide (1) that the participant's benefit is distrib-
7 uted to the surviving spouse in the form of a lump sum, or in
8 installments commencing, not later than 60 days after the
9 end of the plan year in which the participant died, or (2) that
10 the participant's benefit is distributed to the surviving spouse
11 at such other time and in such manner as the plan and the
12 surviving spouse may agree in writing.
13 "(e)(1) Participants in plans described in subsection (b)
14 shall have the right to elect not to take joint and survivor
15 annuities and the right to revoke such elections and to reelect,
16 subject to the following terms and conditions:
17 "(A) A document explaining the terms and condi-
18 tions of the joint and survivor annuity, and the rights
19 and effects of, and procedures pertaining to, election,
20 revocation, and reelection, shall be furnished to each
21 participant a reasonable time before the date on which
22 the participant completes 10 years of service for vesting
23 purposes under section 203.
24 "(B) Any election, revocation or reelection shall
25 be in writing. The right to elect, revoke, or reelect shall
116
1 not extend beyond the date of a participant's death or
2 retirement under the terms of the plan, whichever
3 occurs earlier.
4 "(C) Respecting any participant, the document
5 described in subparagraph (A) need not be furnished
6 more than once if —
7 "(i) the plan's summary plan description in-
8 eludes an explanation, similar to the explanation
9 described in subparagraph (A), which is generally
10 applicable to all participants and which satisfies
11 the requirements of section 102(a)(1); and
12 "(ii) the document described in subparagraph
13 (A) makes prominent reference to the fact that the
14 explanation contained therein may be of continu-
15 ing importance to the participant and should be
16 retained with the summary plan description.
17 "(2) The Secretary of the Treasury shall prescribe regu-
18 lations to implement this subsection. ";
19 (2) by striking out "(whether or not an election
20 has been made under subsection (c))" in subsection
21 (d);
22 (3) by striking out "subsection (c)" in subsection
23 (f); and
24 (4) by striking out "joint and survivor annuity
25 benefits under an election made under subsection (c)"
117
1 in subsection (h) and inserting in lieu thereof "the sur-
2 vivors' benefits required under this section, to the
3 extent such increased costs are attributable to the avail-
4 ability of such benefits prior to the normal retirement
5 age under the plan".
6 (b) Not later than 1 year after the enactment of the
7 ERISA Improvements Act of 1979, the Secretary of the
8 Treasury shall develop versions of model language which can
9 be adopted by various types of plans as amendments which
10 comply with the requirements of this section. The Secretary
11 shall facilitate to the maximum extent possible the adminis-
12 trative processing of determination letter applications result-
13 ing from this section.
14 (c) The amendments made by this section and section
15 205 (i) shall apply with respect to active participants in, and
16 participants who have terminated service and are entitled to a
17 deferred vested benefit under, a plan during plan years be-
18 ginning on or after the date which is 12 months after the date
19 of enactment of this Act.
20 SEC. 128. ALIMONY AND SUPPORT PAYMENTS.
21 Section 206(d) of such Act is amended by adding at the
22 end thereof the following new paragraph:
23 "(3) Paragraph (1) shall not apply in the case of a
24 judgment, decree or order (including an approval of a proper-
25 ty settlement agreement) relating to child support, alimony
118
1 payments, or marital property rights, pursuant to a State
2 domestic relations law (whether of the common law or com-
3 munity property type), which —
4 "(A) creates or recognizes the existence of an indi-
5 vidual's right to receive all or a portion of the benefits
6 to which a participant or a participant's designated
7 beneficiary would otherwise be entitled under a pen-
8 sion plan,
9 "(B) clearly identifies such participant, the
10 amount or percentage of such benefits to be paid to
1 1 such individual, the number of payments to which such
12 judgment, decree or order applies, and the name and
13 mailing address of such individual, and
14 "(C) does not require such plan to alter the ef fee-
lb tive date, timing, form, duration, or amount of any
16 benefit payments under the plan or to honor any
17 election which is not provided for under the plan or
18 which is made by a person other than a participant or
19 beneficiary. "
20 SEC. 129. ELAPSED TIME.
21 Section 211 of the Employee Retirement Income Secu-
22 rity Act of 1974 is amended by inserting immediately after
23 subsection (e) the following new subsection.
24 "(f) Notwithstanding anything to the contrary in this
25 part, the Secretary may prescribe by regulation one or more
119
1 systems of measuring service for purposes of sections 202,
2 203, and 204 which are based upon measurement of the
3 elapsed time of an employee's service. Any such regulations
4 shall include safeguards to assure that employees whose serv-
5 ice is measured in terms of elapsed time are, in the aggregate,
6 not disadvantaged by the use of such system of measurement
7 when compared to employees whose service is measured in
8 the manner prescribed in sections 202, 203, and 204. ".
9 Part 3 — Funding
10 SEC. 131. FUNDING TO TAKE ACCOUNT OF FUTURE AMEND-
11 ME NTS.
12 Section 302(c)(1) of the Employee Retirement Income
13 Security Act of 1974 is amended by adding at the end there-
in of the following: "The funding method of a collectively bar-
15 gained plan may take account, and for any plan year begin-
16 ning after December 31, 1980, shall take account, of all pro-
17 visions of the plan, including provisions which have not yet
18 affected any participant as to entitlement to, or accrual of,
19 benefits. In the event any such provision is not implemented
20 at the time specified when the provision was adopted, the
21 funding standard account shall be appropriately adjusted in
22 accordance with regulations prescribed by the Secretary. A
23 provision adopted but contingent on a future event shall be
24 deemed not to be in effect as a provision of the plan prior to
25 the occurrence of that event. A plan which adopts the proce-
120
1 dures described in the preceding three sentences must apply
2 such procedures consistently to both benefit increases and
3 benefit decreases. The Secretary may by regulation extend
4 the applicability of such procedures or similar procedures to
5 one or more classes of plans which are not collectively bar-
6 gained if he determines that such application would be con-
7 sistent with the purposes of this part. If the Secretary deter-
8 mines that the application of such procedures, in the case of
9 any plan or class of plans, has been inconsistent with the
10 purposes of this part, he may condition or disallow the use of
1 1 such procedures for such plan or class of plans. ".
12 Part 4 — Fiduciary Responsibility
13 SEC. 141. GENERAL ASSET ACCOUNT.
14 Section 401(b) of the Employee Retirement Income Se-
15 curity Act of 1974 is amended by striking out paragraph (2)
16 and inserting in lieu thereof the following:
17 "(2) In the case of a plan which is funded in
18 whole or in part by a contract or policy of insurance
19 issued by an insurer, the assets of the plan shall in-
20 elude such contract or policy but shall not, solely by
21 reason of the issuance of such contract or policy, in-
22 elude the assets of the insurer issuing the contract or
23 policy except to the extent that such assets are main-
24 (dined by the insurer in one or more separate accounts
25 and do not constitute surplus in any such account. For
121
1 purposes of this paragraph, the term 'insurer' means
2 an insurance company, insurance service, or insurance
3 organization, qualified to conduct business in a
4 State. ".
5 SEC. 142. REFUND OF MISTAKEN CONTRIBUTIONS.
6 (a) Section 403(c)(2)(A) of such Act is amended by in-
7 serting before the period at the end thereof the following: "or,
8 in the case of a collectively bargained plan maintained by
9 more than one employer, within 6 months after the plan ad-
10 ministrator determines that the contribution was made by a
11 mistake of fact or determines that holding a contribution
12 would contravene the provisions of section 302 of the Labor-
13 Management Relations Act, 1947. ".
14 (b) The amendment made by subsection (a) shall be ef-
15 fective as of January 1, 1975, but as regards contributions
16 received by a collectively bargained plan maintained by more
17 than one employer before the date of enactment of the
18 ERISA Improvements Act of 1979, if the plan administra-
19 tor determined that any such contribution was made by
20 mistake of fact or in contravention of section 302 of the
21 Labor- Management Relations Act, 1947, before such date of
22 enactment, such determination shall be deemed to have been
23 made on such date of enactment.
122
1 SEC. 143. COFIDUCIARY RESPONSIBILITY.
2 Section 405 of such Act is amended by adding at the
3 end thereof the following new subsection:
4 "(e) In the case of a fiduciary other than an individual,
5 the term 'knowledge' in subsection (a)(3) shall mean —
6 "(1) knowledge actually communicated, and
7 "(2) knowledge on the part of any employee or
8 agent of such fiduciary which, in the normal course of
9 such fiduciary's business, should have been communi-
10 cated by such employee or agent,
11 to such fiduciary's officer or employee who is authorized to
12 carry out such fiduciary's responsibilities, obligations, or
13 duties or who in fact carries out such responsibilities, obliga-
14 tions, or duties, regarding the matter to which the knowledge
15 relates.".
1 6 SEC. 144. EXEMPTION FOR RECIPROCITY ARRANGEMENTS.
17 Section 408(b) of such Act is amended by adding at the
18 end thereof the following new paragraph:
19 "(10) Any transfer of contributions between plans
20 pursuant to section 209, if a plan to which the contri-
21 butions are transferred pays not more than a reason-
22 able charge for any administrative expenses reasonably
23 incurred by a plan transferring such contributions. ".
24 SEC. 145. PROHIBITED TRANSACTION EXEMPTION REPORTING.
25 Section 408 of such Act is amended by adding at the
26 end thereof the following new subsection:
123
1 "(f) Beginning on January 1, 1980, the Secretary
2 shall, with respect to each exemption application filed pur.su-
3 ant to subsection (a) which has been or is pending final ad-
4 ministrative determination for a period exceeding —
5 "(1) 180 days, in the case of an individual ex-
6 emption, or
7 "(2) 365 days, in the case of a class exemption,
8 report to the Committee on Labor and Human Resources of
9 the Senate and the Committee on Education and Labor of
10 the House of Representatives, and to the President. Each
11 such report shall identify and describe the applicant or appli-
12 cants, the transaction or transactions for which the exemption
13 is sought, the terms of the exemption as described in the ap-
14 plication and as proposed to be granted by the Secretary (if
15 there has been such a proposal), and the reason or reasons for
16 the continuing pendency of the application. Such report shall
17 also identify, by name and title, the official or officials of the
18 Department of Labor who are responsible for processing each
19 such exemption application. "
20 Part 5 — Administration, Enforcement, and
21 Adjustments in Applicable Law
22 sec 151. advisory council.
23 Paragraph (3) of section 512(a) of the Employee Re-
24 tirement Income Security Act of 1974 is amended by strik-
25 ing out "(at least one of whom shall be representative of
53-018 0-79
124
1 employers maintaining or contributing to multiemployer
2 plans)" and inserting in lieu thereof the following: "(one of
3 whom shall be representative of employers maintaining or
4 contributing to multiemployer plans and one of whom shall
5 be representative of employers maintaining small plans) ".
6 SEC. 152. IMP A CT OF INFLA TION ON RETIREMENT BENEFITS.
7 Section 513 of such Act is amended by adding at the
8 end thereof the following new subsection:
9 "(d) The Secretary shall conduct a study of the feasibil-
10 ity and ramifications of requiring employee pension benefit
1 1 plans to provide cost-of-living adjustments to benefits payable
1 2 under such plans. The Secretary shall compile data and ana-
13 lyze the effect inflation is having and may be expected to
14 have on retirement benefits provided by private pension
15 plans. The Secretary shall submit the study required by this
16 subsection to the Congress no later than 24 months after the
17 date of enactment of the ERISA Improvements Act of
18 1979."
19 SEC. 153. REMEDIES.
20 Section 502 of such Act is amended by —
21 (1) deleting "105(c)" in subsection (a)(4) and
22 inserting in lieu thereof "105";
23 (2) by adding at the end of subsection (a) a new
24 paragraph to read as follows:
125
1 "(7) by any employee, participant or beneficiary
2 for damages due to reliance on a misrepresentation de-
3 scribed in section 515. ";
4 (3) redesignating subsection (b) as paragraph (1)
5 of such subsection and adding a new paragraph (2), to
6 read as follows:
7 "(2) The Secretary shall not initiate an action to
8 enforce section 516. ";
9 (4) deleting subsection (g) and inserting in lieu
10 thereof the following:
11 "(g)(1) Except as provided in paragraph (2), in any
12 action under this title by an employee, participant, benefici-
13 ary, or fiduciary, the court in its discretion may allow a
14 reasonable attorney's fee and costs of the action to either
15 party.
16 "(2) In any action under this title by a fiduciary on
17 behalf of a plan to enforce the provisions of section 516 and
18 in which a judgment in favor of the plan is awarded, the
19 court shall allow a reasonable attorney's fee and costs of the
20 action, to be paid by the defendant. ";
21 (5) deleting "a participant" in subsection (h) and
22 inserting in lieu thereof "an employee, participant",
23 and inserting in subsection (k) "employee, " before
24 "participant";
126
1 (6) deleting "part 4" in subsection (h) and insert-
2 ing in lieu thereof "parts 4 and 5"; and
3 (7) inserting immediately after subsection (k) new
4 subsections (I) and (m), to read as follows:
5 "(I) Except as provided by paragraph (3) —
6 "(1) no person or employee benefit plan shall be
7 subject to liability or punishment, civil or criminal, or
8 be required to reimburse or pay money or any other
9 thing of value, as the direct or indirect result of a
10 cause of action explicitly or implicitly alleging that the
11 interest of an employee in an employee benefit plan is,
12 or ought to be characterized as or deemed to be, a secu-
13 rity for purposes of section 17(a) of the Securities Act
14 of 1933 and section 10(b) of the Securities Exchange
15 Act of 1934, or within the meaning of any State law
16 which regulates securities;
17 "(2) no court of the United States shall have
18 jurisdiction of an action or proceeding at law or in
19 equity, to the extent such action or proceeding involves
20 a cause of action explicitly or implicitly alleging that
21 the interest of an employee in an employee benefit plan
22 is, or ought to be characterized as or deemed to be, a
23 security for purposes of section 17(a) of the Securities
24 Act of 1933 and section 10(b) of the Securities Ex-
127
1 change Act of 1934, or within the meaning of any
2 State law which regulates securities; and
3 "(3) paragraphs (1) and (2) shall not apply re-
4 specting a cause of action based upon any act or omis-
5 sion which occurred before the date of enactment of the
6 ERISA Improvements Act of 1979.
7 "(m) In any civil proceeding relating to the disclosure
8 requirements of part 1 of this subtitle, a motion to dismiss the
9 action as to a defendant plan, plan administrator, or any
10 trustee or trustees solely on the grounds that the plan has
11 utilized the alternative method of document distribution de-
12 scribed in section 112 shall not be granted except upon a
13 finding by the court that the requirements of subsections (a),
14 (b), and (e) of such section have been satisfied. Upon motion
15 of any plaintiff or defendant in such a civil proceeding, any
16 employer to whom section 112(c) applies who employs or em-
17 ployed any participant or beneficiary who is a plaintiff in
18 such proceeding may be joined as a defendant, pursuant to
19 applicable law. "
20 SEC. 154. ADJUSTMENTS IN APPLICABLE LA W.
21 (a) Part 5 of subtitle B of title I of such Act is amended
22 by—
23 (1) deleting "subparagraph (B), " in section
24 514(b)(2)(A) and inserting in lieu thereof "subpara-
25 graph (B) and subsection (d)(2), ";
128
1 (2) deleting "Nothing" where it appears in section
2 514(d) and inserting in lieu thereof "(1) Except as
3 provided in paragraph (2), nothing"; and
4 (3) adding at the end of section 514(d) the follow-
5 ing new paragraph:
6 "(2) Notwithstanding any provision of law to the con-
7 trary, the interest of an employee in an employee benefit plan
8 is not, and shall not be characterized as or deemed to be, a
9 security for purposes of section 17(a) of the Securities Act of
10 1933 and section 10(b) of the Securities and Exchange Act
11 of 1934, or within the meaning of any State law which regu-
12 lates securities".
13 (b) Such part is further amended by adding immedi-
14 ately after section 514 the following new subsections, to read
15 as follows:
16 "misrepresentation
17 "Sec. 515. (a) It shall be unlawful for any person to
18 knowingly misrepresent the terms and conditions of an
19 employee benefit plan, the financial condition of a plan, or
20 the status under the plan of any employee, participant or
2 1 beneficiary.
22 "(b) No person shall be liable under subsection (a) re-
23 specting a document which is required to be disclosed to par-
24 ticipants or beneficiaries or to be filed with the Secretary of
25 Labor, the Pension Benefit Guaranty Corporation or the
129
1 Secretary of the Treasury under this Act or the Internal
2 Revenue Code of 1954, provided that such document satisfies
3 the requirements of such Act or Code and duly promulgated
4 regulations thereunder.
5 "(c) An employee benefit plan shall not be liable for
6 damages resulting from a misrepresentation described in sub-
7 section (a).
8 "(d) Subsection (a) shall not apply as to any act or
9 omission occurring before the date of enactment of the
10 ERISA Improvements Act of 1979.
11 "OBLIGATION of employer to pay contributions
12 "Sec. 516. Every employer who is obligated under the
13 terms of a collectively bargained plan (or under the terms of
14 a collective bargaining agreement related to such plan) to
15 make periodic contributions to the plan shall, to the extent
16 not inconsistent with law, make such contributions in accord-
17 ance with the terms and conditions of such plan or such
18 agreement. "
19 SEC. 155. PREEMPTION.
20 Section 514 of such Act is amended by —
21 (1) adding at the end of subsection (b)(2)(B) the
22 following: "A State insurance law which provides that
23 a specific benefit or benefits must be provided or made
24 available by a contract or policy of insurance issued to
25 an employee benefit plan is a law which relates to an
130
1 employee benefit plan within the meaning of subsection
2 (a) and is not a law which regulates insurance within
3 the meaning of subparagraph (A). A provision of State
4 law which requires that a contract or policy of insur-
5 a nee issued to an employee benefit plan must permit a
6 participant to convert or continue protection after it
7 ceases to be provided under the employee benefit plan
8 is a provision of a law described in subparagraph (A)
9 and not a provision of law described in subsection
10 (a). ";
11 (2) adding a new subsection (b)(5) as follows:
12 li(5)(A) Except as provided in subparagraph (B) and in
13 the last sentence of paragraph (2)(B), subsection (a) shall not
14 apply to a State law insofar as it requires employers to di-
15 rectly or indirectly provide health care benefits or services to
16 employees or employees and their dependents or which regu-
17 lates arrangements under which health care benefits or serv-
18 ices are provided to employees or employees and their depend-
19 ents by employers.
20 "(B) Notwithstanding subparagraph (A), parts (1), (4),
21 and (5) of this subtitle shall supersede any State law de-
22 scribed in such subparagraph, but the Secretary may enter
23 into cooperative arrangements under this paragraph and sec-
24 tion 506 with officials of States having laws described in
25 subparagraph (A) to assist such States in effectuating the
131
1 policies of provisions of such laws which are superseded by
2 such parts. ";
3 (3) adding a new subsection (b)(6) to read as
4 follows:
5 "(6) Subsection (a) shall not apply respecting anyjudg-
6 ment, decree, or order pursuant to a State domestic relations
7 law (whether of the common law or community property
8 type), if such judgment, decree or order is described in sec-
9 tion 206(d)(3).') and
10 (4) adding a new subsection (e) to read as follows:
11 "(e) For purposes of subsection (d)(2) and sections
12 502(1) and 515, the term 'employee benefit plan' shall in-
13 elude any employee benefit plan —
14 "(1) defined in section 3(3), irrespective of
15 whether the only participants in the plan are owner-
16 employees as defined in section 401(c)(3) of the Inter-
17 nal Revenue Code of 1954, and
18 "(2) which is described in section 4(a) and not
19 exempt under section 4(b). ".
20 EFFECTIVE DATES
21 Sec. 156. Except as otherwise provided by this Act, the
22 provisions of this Act and the amendments made by this Act
23 to the Employee Retirement Income Security Act of 1974
24 and to the Internal Revenue Code of 1954 shall be effective
25 on the date of enactment of this Act.
132
1 TITLE 11— AMENDMENTS TO THE INTERNAL
2 REVENUE CODE OF 1954
3 SEC. 201. LUMP SUM DISTRIBUTIONS; PLANS TREATED AS
4 SINGLE PLAN.
5 (a) General Rule. — Section 402(e)(4)(C) of the
6 Internal Revenue Code of 1954 (relating to aggregation of
7 certain trusts and plans) is amended to read as follows:
8 "(C) Aggregation of certain trusts
9 AND PLANS. — For purposes of determining the
10 balance to the credit of an employee under sub-
11 paragraph (A) —
12 "(i) all trusts which are part of a plan
13 shall be treated as a single trust,
14 "(ii) in the case of a multiemployer
15 plan (as defined in section 414(f)) or an or-
16 ganization described in section 501(c) (3) or
17 (5), all defined benefit plans maintained by
18 an employer shall be treated as a single
19 plan, and all defined contribution plans
20 maintained by an employer shall be treated
21 as a single plan,
22 "(Hi) in the case of any plan not de-
scribed in clause (ii), all pension plans
23
24 maintained by an employer shall be treated
25 0* a single plan, all profit-sharing plans
133
1 maintained by an employer shall be treated
2 as a single plan, and all stock bonus plans
3 maintained by an employer shall be treated
4 as a single plan, and
5 "(iv) trusts which are not qualified
6 trusts under section 401(a) and annuity con-
7 tracts which do not satisfy the requirements
8 of section 404(a)(2) shall not be taken into
9 account. ".
10 (b) Effective Date. — The amendment made by this
11 section shall apply to taxable years beginning after the date
12 of enactment of this Act.
13 SEC. 202. LUMP SUM DISTRIBUTIONS; SEPARATION FROM THE
14 SERVICE.
15 (a) General Rule. — Section 402(e)(4) of the Inter-
16 nal Revenue Code of 1954 (relating to definitions and spe-
ll cial rules) is amended by adding at the end thereof the
18 following new subparagraph:
19 "(M) Separation from the service. —
20 For purposes of subparagraph (A), in the case of
21 any multiemployer plan (as defined in section
22 414(f)), a separation from the service shall be
23 deemed to have occurred in the case of any em-
24 ployee if such employee has not worked in service
25 covered by the plan for a period of 6 consecutive
134
1 months after severing his employment relationship
2 with any employer maintaining the plan. ".
3 (b) Effective Date. — The amendment made by this
4 section shall apply with respect to plan years beginning after
5 the date of enactment of this Act.
6 SEC. 203. DEDUCTION FOR CERTAIN EMPLOYEE RETIREMENT
7 SA VINGS AND CONTRIBUTIONS.
8 (a) In General. —
9 (1) Deduction allowed. — Part VII of sub-
10 chapter B of chapter 1 of the Internal Revenue Code
11 of 1954 (relating to additional itemized deductions for
12 individuals) is amended by redesignating section 221
13 as 222 and by inserting after section 220 the following
14 new section:
15 "SEC. 221. DEDUCTION FOR CERTAIN EMPLOYEE RETIREMENT
1 6 SA VINGS CONTRIBUTIONS.
17 "(a) Deduction Allowed. — In the case of an eligi-
18 ble employee, described in subsection (c), there is allowed as
19 a deduction amounts paid in cash for a taxable year by such
20 individual for the benefit of himself —
21 "(1) to a plan described in section 401(a) which
22 includes a trust exempt from tax under section 501(a),
23 "(2) to an annuity plan described in section
24 403(a),
135
1 "(3) to a qualified bond purchase plan described
2 in section 405(a),
3 "(4) to an individual retirement account described
4 in section 408(a), individual retirement annuity de-
5 scribed in section 408(b), or for a retirement bond de-
6 scribed in section 409, or
7 "(5) to a group retirement trust maintained by a
8 labor organization described in section 501(c)(5) which
9 is financed exclusively by assessments of individuals
10 who are members of such labor organization, which
11 was established prior to January 1, 1974, and in
12 which the assessments paid to the trust by any partici-
13 pant are 100 percent nonforfeitable.
14 "(b) Limitation and Restriction. —
15 "(1) Maximum deduction. — The amount al-
16 lowable as a deduction under subsection (a) to an eligi-
17 ble employee for any taxable year may not exceed an
18 amount equal to 10 percent of the compensation includ-
19 ible in his gross income for such taxable year, or
20 $1,000, whichever is less.
21 "(2) Additional limitation. — No deduction is
22 allowed for any amount paid to an account, annuity,
23 or for a bond described in paragraph (4) of subsection
24 (a) except to the extent of the excess of the amount de-
25 termined under paragraph (1) over any amount paid
136
1 by the eligible employee to a plan or trust described in
2 paragraph (%), (2), (3) or (5) of subsection (a).
3 "(3) Alternative deduction.— No deduction
4 is allowed under subsection (a) for the taxable year if
5 the individual claims the deduction allowed by section
6 219 or 220 for the taxable year.
7 u(4) Exception where plan is discrimina-
8 TORY. — No deduction is allowed under subsection (a)
9 for a highly compensated participant (as defined in
10 subsection (c)(7)) unless the employer certifies in ac-
11 cordance with regulations prescribed by the Secretary
12 that the plan satisfies the discrimination standards in
13 subsection (c)(6).
14 "(5) Exception respecting certain
15 plans. — No deduction is allowed under subsection (a)
16 for any amount paid by a participant to a plan de-
ll scribed in paragraph (1), (2) or (3) of subsection (a)
18 which was not in existence on January 1, 1978 (or to
19 a successor to such a plan) if, under the terms of such
20 plan (or successor plan), employee contributions are
21 mandatory or employer contributions are not made
22 unless contributions are made by employees.
23 "(c) Definitions and Special Rules.—
24 "(1) Eligible employee.— For purposes of
25 this section, the term 'eligible employee' shall mean an
137
1 individual who is an employee without regard to sec-
2 tion 401(c)(1) or is a member of a labor organization
3 referred to in subparagraph (D) and who is an active
4 participant for any part of the taxable year in —
5 "(A) a plan described in section 401(a)
6 which includes a trust exempt from tax under sec-
7 tion 501(a),
8 "(B) an annuity plan described in section
9 403(a),
10 "(C) a qualified bond purchase plan de-
ll scribed in section 405(a), or
12 "(D) a group retirement trust maintained by
13 a labor organization described in section
14 501(c)(5) which is financed exclusively by assess-
15 ments of individuals who are members of such
16 labor organization, which was established prior to
17 January 1, 1974, and in which the assessments
18 paid to the trust by any participant are 100 per-
19 cent nonforfeitable,
20 but not if such plan is established or maintained by
21 the United States, by a State or political subdivision
22 thereof, or by an agency or instrumentality of any of
23 the foregoing.
24 "(2) Reports. — The Secretary shall promulgate
25 regulations which prescribe the time and manner in
138
1 which reports shall be filed by an employer receiving
2 contributions deductible under this section and by any
3 eligible employee making any such deductible contribu-
4 tion.
5 "(3) Recontributed amounts. — No deduction
6 shall be allowed under this section with respect to a
7 rollover contribution described in section 402(a)(5) ',
8 402(a)(6), 402(a)(7), 403(a)(4), 403(a)(5), 403(b)(8),
9 408(d)(3), or 409(b)(3)(C).
10 "(4) Amounts contributed under endow-
11 ME NT CONTRACT. — In the case of an endowment con-
12 tract described in section 408(b), no deduction shall be
13 allowed under this section for that portion of the
14 amounts paid under the contract for the taxable year
15 which are properly allocable, under regulations pre-
16 scribed by the Secretary, to the cost of life insurance.
17 "(5) Married individuals. — In the case of an
18 individual who is married (as determined under sec-
19 tion 143), the maximum deduction under subsection
20 (b) shall be computed separately for each individual,
21 and this section shall be applied without regard to any
22 community property laws.
23 "(6) Discrimination standards. —
24 "(A) A plan satisfies the discrimination
25 standards if the actual deferral percentage for
139
1 highly compensated participants (as defined in
2 paragraph (7)) for a plan year bears a relation-
3 ship to the actual deferral percentage for all other
4 participants for such plan year which meets either
5 of the following tests:
6 "(i) The actual deferral percentage for
7 the group of highly compensated participants
8 is not more than the actual deferral percent-
9 age of all other participants multiplied by
10 1.5.
11 "(ii) The excess of the actual deferral
12 percentage for the group of highly compensat-
13 ed participants over that of all other partici-
14 pants is not more than 3 percentage points,
15 and the actual deferral percentage for the
16 group of highly compensated participants is
17 not more than the actual deferral percentage
18 of all other participants multiplied by 2.5.
19 "(B) For purposes of subparagraph (A), the
20 actual deferral percentage for a specified group of
21 participants for a plan year shall be the average
22 of the ratios (calculated separately for each par-
23 ticipant in such group) of —
24 "(i) the amount deducted on behalf of
25 each participant for such plan year, to
53-018 0-79-10
140
1 "(it) the participant's total compensa-
2 tion for such plan year.
3 For purposes of the preceding sentence, the
4 amount deducted on behalf of a highly compen-
5 sated participant shall be determined without
6 regard to the exception in subsection (b)(4).
7 "(7) Highly compensated participant. —
8 For purposes of this section, the term 'highly compen-
9 sated participant' means any participant who is more
10 highly compensated than two-thirds of all participants
1 1 but only if such participant 's compensation for a plan
1 2 year equals or exceeds the salary of an employee of the
13 United States who is compensated at a rate equal to
14 the annual rate paid for step 1 of grade GS-12. No
15 individual who participates during a plan year only in
16 a group retirement trust described in subsection (a)(5)
17 shall be considered a highly compensated participant
18 for such year. ".
19 (2) Deduction allowed in arriving at ad-
20 justed GROSS income.— Section 62 of such Code
21 (defining adjusted gross income) is amended by insert-
22 ing after paragraph (14) the following new paragraph:
23 "(15) Deduction for certain contribu-
24 tions. — The deduction allowed by section 221 (relat-
141
1 ing to certain employee retirement savings contribu-
2 tions). "
3 (b) Tax Treatment of Certain Deductible Em-
4 ployee Contributions. — Subpart A of part I of sub-
5 chapter D of chapter 1 of such Code (relating to retirement
6 plans) is amended by inserting after subsection (I) of section
7 414 the following new subsection:
8 "(m) Deductible Employee Contributions. —
9 For purposes of this title, other than for purposes of sections
10 401 (a) (4) and (5), 404, 410(b), 411, and 412, any amount
1 1 which an employer is required to report pursuant to regula-
12 tions promulgated under subsection (c)(2) of section 221,
13 with respect to an amount paid by an eligible employee, as
14 defined in subsection (c)(1) of section 221, as an employee
15 retirement savings contribution, shall be treated as an em-
16 ployer contribution. "
17 (c) Conforming* Amendments. —
18 (1) So much of section 72(f) of such Code as pre-
19 cedes paragraph (1) thereof is amended to read as fol-
20 lows:
21 "(f) Special Rules for Computing Employee's
22 Contributions. — In computing, for purposes of subsection
23 (c)(1)(A), the aggregate amount of premiums or other consid-
24 eration paid for the contract, for purposes of subsection
25 (d)(1), the consideration for the contract contributed by the
142
1 employee, and for purposes of subsection (e)(1)(B), the aggre-
2 gate premiums or other consideration paid, amounts which
3 an employer is required to report, pursuant to regulations
4 promulgated under subsection (c)(2) of section 221, with re-
5 sped to an amount paid by an eligible employee, as defined
6 in subsection (c)(1) of section 221, as a retirement savings
7 employee contribution shall be excluded, and amounts con-
8 tributed by the employer shall be included, but only to the
9 extent that — ".
10 (2) Section 414(h) of such Code (Tax treatment
11 of certain contributions) is amended by inserting after
12 "any amount contributed" the following: "other than
13 an amount described in subsection (m)".
14 (3) So much of section 4973(b) of such Code as
15 follows paragraph (1)(A) thereof is amended to read as
16 follows:
17 "(B) the amount allowable as a deduction
18 under section 219, 220, or 221 for such contribu-
19 tions, and
20 "(2) the amount determined under this subsection
21 for the preceding taxable year, reduced by the sum
22 of—
23 "(A) the distributions out of the account for
24 the taxable year which were included in the gross
25 income of the payee under section 408(d)(1),
143
1 "(B) the distributions out of the account for
2 the taxable year to which section 408(d)(5) ap-
3 plies, and
4 "(C) the excess (if any) of the maximum
5 amount allowable as a deduction under section
6 219, 220, or 221 for the taxable year over the
7 amount contributed (determined without regard to
8 sections 219(c)(5) and 220(c)(6)) to the accounts
9 or for the annuities or bonds for the taxable year.
10 For purposes of this subsection, any contribution
11 which is distributed from the individual retirement ac-
12 count, individual retirement annuity, or bond in a dis-
13 tribution to which section 408(d)(4) applies shall be
14 treated as an amount not contributed. "
15 (d) Effective Date. — The amendments made by this
16 section shall apply to taxable years beginning after the date
17 of the enactment of this Act.
18 SEC. 204. CREDIT FOR THE ESTABLISHMENT OF QUALIFIED
19 PLANS BY SMALL EMPLOYERS.
20 (a) In General. — Subpart A of part IV of subchapter
21 A of chapter 1 of the Internal Revenue Code of 1954 (relat-
22 ing to credits allowed) is amended by inserting immediately
23 before section 45 the following new section:
144
1 "SEC. 44D. ESTABLISHMENT OF NEW SMALL BUSINESS EMPLOY-
2 ER RETIREMENT PLANS.
3 "(a) General Rule. — In the case of a small business
4 employer who maintains or makes contributions to or under
5 a qualified employer retirement plan, there is allowed as a
6 credit against the tax imposed by this chapter for the taxable
7 year an amount equal to a percentage (determined under sub-
8 section (b)) of the amount allowable for the taxable year to
9 such employer as a deduction under section 404.
10 "(b) Determination of Percentage. — The per-
il centage applicable under subsection (a) for a taxable year
12 is—
13 "(1) 5 percent for the first taxable year for which
14 a deduction under section 404 is allowable to the tax-
lb payer,
16 "(2) 3 percent for each of the succeeding 2 taxable
17 years, and
18 "(3) 1 percent for each of the 2 taxable years suc-
19 ceeding the 2 taxable years referred to in paragraph
20 (2).
21 "(c) Definitions; Special Rules. — For purposes
22 of this section —
23 "(1) Qualified employer retirement
24 PLAN. — The term 'qualified employer retirement plan'
25 means —
145
1 "(A) a plan described in section 401(a)
2 which includes a trust exempt from tax under sec-
3 Hon 501(a);
4 "(B) an annuity plan described in section
5 403(a); and
6 "(C) a qualified bond purchase plan de-
7 scribed in section 405(a).
8 "(2) Small business employer. — The term
9 'small business employer' means an employer (within
10 the meaning of section 404) which —
11 "(A) during the taxable year immediately
12 preceding the taxable year in which the credit al-
13 lowable under subsection (a) is first claimed, had
14 a monthly average of fewer than 100 employees,
15 and
16 "(B) (i) if a corporation, had earnings and
17 profits for the taxable year immediately preceding
18 the taxable year in which the credit allowable
19 under subsection (a) is first claimed equal to no
20 more than $50,000, or
21 "(ii) if an unincorporated trade or business
22 or a partnership, had net profits for the taxable
23 year immediately preceding the taxable year in
24 which the credit allowable under subsection (a) is
25 first claimed equal to no greater than $50,000.
146
1 "(3) Disregard for amounts attributable
2 TO EMPLOYER SECURITIES. — In determining the
3 amount of the credit allowable under subsection (a) for
4 any taxable year, any portion of the deduction allowed
5 for such year which is attributable to the transfer to or
6 under the plan of employer securities (as defined in
7 section 407(d)(1) of the Employee Retirement Income
8 Security Act of 1974) shall be disregarded.
9 "(d) Application With Other Sections. — The
10 amount of the deduction allowable under section 404 for any
1 1 taxable year shall not be reduced because of the allowance of
12 a credit under this section for the taxable year.
13 "(e) Terminations. — No credit is allowable under
14 subsection (a) for any taxable year to an employer (or succes-
15 sor to such an employer) who terminates a qualified employer
16 retirement plan during the taxable year. ".
17 (b) Clerical Amendment. — The table of sections for
18 such subpart is amended by inserting immediately before the
19 item relating to section 45 the following new item:
"Sec. 44D. Establishment of new small business employer retire-
ment plans. ".
20 (c) Effective Date. — The amendments made by this
21 section shall apply with respect to taxable years beginning
22 after the date of enactment of this Act.
147
1 SEC. 205. CONFORMING AMENDMENTS FOR ERISA CHANGES IN
2 TITLE I.
3 (a) Conforming Amendments for Section 102.—
4 (1) Paragraph (2) of section 4975(e) of such
5 Code (relating to definition of disqualified person) is
6 amended —
7 (A) by striking out subparagraphs (A)
8 through (D) and inserting in lieu thereof the fol-
9 lowing:
10 "(A) any fiduciary, counsel, or employee of
1 1 such plan;
12 "(B) a person providing professional services
13 to such plan, or a person providing nonprofes-
14 sional services on a continuous basis to such plan;
15 "(C) an employer any of whose employees is
16 a trustee of a trust described in section 302(c) of
17 the Labor-management Relations Act, 1947, if
18 such trust is maintained in connection with such
19 plan, and an employer any of whose employees is
20 covered by such plan if the employees of such em-
21 ployer constitute 5 percent or more of all employ -
22 ees covered by the plan on the first day of the
23 plan year;
24 "(D) an employee organization any of whose
25 members or employees is a trustee of a trust de-
26 scribed in section 302(c) of the Labor-Manage-
148
1 ment Relations Act, 1947, if such trust is main-
2 tained in connection with such plan, and an
3 employee organization any of whose members is
4 covered by such plan if the members of such em-
5 ployee organization constitute 5 percent or more of
6 all employees covered by the plan on the first day
7 of the plan year;",
8 (B) by striking out subparagraph (I) and in-
9 serting in lieu thereof the following:
10 "(I) a 10 percent or more (in capital or prof-
1 1 its) partner or joint venturer in a person described
12 in subparagraph (C), (D), (E), or (G). ";
13 (C) by inserting "brother, sister, " immedi-
14 ately before "spouse, " the first time it appears in
15 paragraph (6);
16 (2) Subsection (f) of section 414 of such Code
17 (relating to definition of multiemployer plan) is
18 amended by —
19 (A) striking out subparagraphs (A), (B), and
20 (C) of paragraph (1) of such subsection and in-
21 serting in lieu thereof the following:
22 "(A) which is maintained pursuant to one or
23 more collective bargaining agreements between an
24 employee organization and more than one
25 employer,
149
1 "(B) to which 10 or more employers contrib-
2 ute, or to which more than one and fewer than 10
3 employers contribute if the Secretary of Labor
4 finds that treating such a plan as a multiem-
5 ployer plan would be consistent with the purposes
6 of this Act, and";
7 (B) redesignating subparagraphs (D) and
8 (E) of paragraph (1) of such subsection as sub-
9 paragraphs (C) and (D), respectively, and
10 (C) striking out paragraph (2) of such sub-
11 section and inserting in lieu thereof the following
12 new paragraph:
13 "(2) For purposes of this subsection, all corpora-
ls tions which are members of a controlled group of corpo-
15 rations (within the meaning of section 1563(a) deter-
16 mined without regard to section 1563(e)(3)(C)) shall
17 be deemed to be one employer. "
18 (b) Conforming Amendment for Section 111. —
19 Subparagraph (C) of section 6057(a)(2) of such Code (relat-
20 ing to annual registration) is amended by redesignating
21 clauses (ii) and (Hi) as (Hi) and (iv), and by inserting after
22 (i) the following new clause:
23 "(ii) who has a 1-year break in service, "
24 (c) Conforming Amendment for Section 121. —
25 Subsection (I) of section 414 of such Code (relating to merg-
150
1 ers and consolidations of plans or transfers of plan assets) is
2 amended by striking out "A trust" and inserting in lieu
3 thereof "except in the case of a reciprocal agreement de-
4 scribed in section 209 of the Employee Retirement Income
5 Security Act of 1974, a trust".
6 (d) Conforming Amendment for Section 122. —
7 Subparagraph (E) of section 411(b)(3) of such Code (relat-
8 ing to maritime industries) is amended by striking out "a
9 year of participation" and inserting in lieu thereof "1,000
1 0 hours of service ' '.
11 (e) Conforming Amendment for Section 123. —
12 Subparagraph (A) of section 410(a)(3) of such Code (relat-
13 ing to definition of year of service) is amended by striking
14 out "by reference to" and all that follows and inserting in
15 lieu thereof the following: "by reference to —
16 "(i) in the case of an employee who
17 does not complete 1,000 hours of service
18 during the 12-month period beqinning on the
19 date his employment commenced, the first
20 day of a plan year, and
21 "(ii) in the case of a plan where rights
22 and benefits are determined on the basis of
23 all of an employee's service, without regard
24 to the date on which the employee's partici-
25 pation in the plan commenced. ".
151
1 (f) Conforming Amendment for Section 124. —
2 Subsection (c) of section 413 of such Code (relating to plans
3 maintained by more than one employer) is amended by in-
4 serting after paragraph (4) the following new paragraph:
5 "(4A) Summation of different benefit ac-
6 CRUAL RATES. — The accrued benefit to which a par-
7 ticipant is entitled upon a separation from the service
8 is—
9 "(A)(i) the sum of different rates of benefit
10 accrual for different periods of participation as
11 defined by one or more fixed calendar dates, or
12 "(ii) the sum of different rates of benefit ac-
13 crual for different periods of participation, as de-
14 fined by employment and different bargaining
15 units, and
16 "(B) determined, for purposes of subpara-
17 graphs (A) and (C) of section 411(b)(1), by pro-
18 jecting the normal retirement benefit to which a
19 participant would be entitled if he continued to
20 accrue benefits at the average of the rates applica-
21 ble to his period of actual participation. ".
22 (g) Conforming Amendment for Section 125. —
23 Subparagraph (B) of section 411(a)(3) of such Code (relat-
24 ing to certain permitted forfeitures, suspensions, etc.) is
25 amended —
152
1 (1) by striking out "the same trade" and insert-
2 ing in lieu thereof "trade, "
3 (2) by inserting "ensure fairness under and other-
4 wise" after "to" the first time it appears in the last
5 sentence, and
6 (3) by striking out " 'employed' '" in the last sen-
7 tence of subparagraph (B) and inserting in lieu thereof
8 the following: " 'employed', which may, with respect to
9 clause (ii), include self employment. The permissible
10 period of benefit suspension shall include a period, de-
ll termined pursuant to regulations promulgated by the
12 Secretary of Labor, in addition to the months in which
13 the employment occurs to the extent necessary to pre-
14 vent the periodic payment and suspension of pension
15 benefits to workers who have not retired but who con-
16 tinue to work on an irregular basis. The imposition of
17 a financial penalty on a pensioner who fails to report
18 his employment as required by the rules of a plan shall
19 not be treated as a violation of the requirements of this
20 section. The amount of the financial penalty permitted
21 by the preceding sentence shall be determined pursuant
22 to regulations promulgated by the Secretary of Labor,
23 but in no event shall the penalty exceed an amount
24 equal to one year's benefit. ".
153
1 (h) Conforming Amendment for Section 126. —
2 Paragraph (15) of section 401(a) of such Code (relating to
3 prohibited decreases in benefit levels) is amended by adding
4 at the end thereof the following: "A trust shall not constitute
5 a qualified trust under this section unless under the plan of
6 which such trust is a part, the plan may not reduce retire-
7 ment pension benefits being received by a participant or ben-
8 eficiary, or pension retirement benefits in which a partici-
9 pant who is separated from the service has a nonforfeitable
10 right by reason of any payment made to the participant or
11 beneficiary by the employer maintaining the plan, as a result
12 of an award or settlement made under or pursuant to a work-
13 ers ' compensation law. ".
14 (i) Conforming Amendment for Section 127.—
15 Paragraph (11) of section 401(a) of such Code (relating to
16 joint and survivor annuities) is amended —
17 (1) by inserting "(whether as the normal form or
18 as an option)" after "annuity" the first time it appears
19 in subparagraph (A);
20 (2) by striking out subparagraph (B) and insert-
21 ing in lieu thereof the following:
22 "(B) A plan which provides that the normal
23 form of benefit is an annuity does not meet the
24 requirements of subparagraph (A) unless, with re-
25 sped to any participant who, under the plan, is
154
1 credited with at least ten years of service (for pur-
2 poses of section 411) and who dies before the an-
3 nuity starting date, the plan provides a survivor's
4 annuity for the participant 's spouse —
5 "(i) which begins on the annuity start-
6 ing date (determined as if the participant
7 had lived until the earliest retirement age
8 under the plan, or the participant's actual
9 date of death if later, and had retired on
10 such date prior to death), if the spouse is
11 living on such date, and
12 "(ii) except as otherwise provided in
13 this subparagraph, the payments under
14 which are not less than the payments which
15 would have been made under the survivor's
16 annuity to which such spouse would have
17 been entitled if the participant had terminat-
18 ed employment on his date of death, had sur-
19 vived and retired on such annuity starting
20 date, and had died on the day following such
21 date.
22 //, on the date of the participant's death, the actu-
23 arial equivalent of the survivor's annuity does not
24 exceed $2,000, a plan described in this subpara-
25 graph will not be considered not to meet the re-
155
1 quirements of subparagraph (A) if it distributes
2 the survivor's benefit in the form of a lump sum,
3 or in the form of installments commencing not
4 later than the annuity starting date specified in
5 clause (i). ";
6 (3) by striking out subparagraph (C) and insert-
7 ing in lieu thereof the following:
8 "(C) A plan which provides that the normal
9 form of benefit is a form other than an annuity
10 shall not be treated as satisfying the requirements
11 of this paragraph unless, with respect to any par-
12 ticipant who under the plan has at least 10 years
13 of service for purposes of section 411 and who
14 dies before receiving the percentage of his benefit
15 which is nonforfeitable, the plan provides that the
16 participant's benefit will be distributed to the sur-
17 viving spouse in the form of a lump sum, or in
18 installments commencing, not later than 60 days
19 after the end of the plan year in which the par-
20 ticipant died. ";
21 (4) by striking out "whether or not an election de-
22 scribed in subparagraph (C) has been made under sub-
23 paragraph (C)" in subparagraph (D);
24 (5) by striking out subparagraph (E) and insert-
25 ing in lieu thereof the following:
53-018 0-79-11
156
1 "(E) A plan described in subparagraph (B)
2 shall not be treated as satisfying the requirements
3 of this paragraph unless participants in the plan
4 have the right to elect not to take joint survivor
5 annuities, and the right to revoke such elections
6 and to reelect, under the following circumstances:
7 "(i) A document explaining the terms
8 and conditions of the joint survivor annuity,
9 the effect of an election, and the rights of,
10 and procedures pertaining to, election and
11 revocation, is furnished to each participant a
12 reasonable time before the date on which the
13 participant completes 10 years of service for
14 the purposes of section 411.
15 "(ii) Any election, revocation, or reelec-
16 Hon is in writing, and the right to elect,
17 revoke, or reelect does not extend beyond the
18 date of a participant's death or retirement
19 under the terms of the plan, whichever first
20 occurs.
21 "(Hi) With respect to any participant,
22 the document described in clause (i) need not
23 be furnished more than once if —
24 "(I) the plan's summary plan de-
25 scription includes an explanation, simi-
157
1 lar to the explanation described in
2 clause (i), which is generally applicable
3 to all participants, and
4 "(H) the document described in
5 clause (i) makes prominent reference to
6 the fact that the explanation contained
7 therein may be of continuing impor-
8 tance to the participant and should be
9 retained with the summary plan de-
10 scription. ";
11 (6) by striking out "(C) or" in subparagraph (F);
12 (7) by inserting after "joint and survivor annuity
13 benefits" in subparagraph (G) the following: "as of the
14 date on which a participant completes 10 years of serv-
15 ice for purposes of section 411 "; and
16 (8) by striking out "joint and survivor annuity
17 benefits." in the last sentence of such paragraph and
18 inserting in lieu thereof the following: "the survivors'
19 benefits required under this paragraph, to the extent
20 such increased costs are attributable to the availability
21 of such benefits prior to the normal retirement age
22 under the plan.
23 (j) Conforming Amendment for Section 128. —
24 Paragraph (13) of section 401(a) of such Code (relating to
25 assignment or alienation of benefits) is amended by adding at
158
1 the end thereof the following new section: "For purposes of
2 the first sentence of this paragraph, there shall not be taken
3 into account any assignment or alienation of benefits under
4 the plan required by a judgment, decree or order (including
5 an approval of a property settlement agreement) relating to
6 child support, alimony payments, or marital property rights,
7 pursuant to a State domestic relations law (whether of the
8 common law or community property type), which —
9 "(A) creates or recognizes the existence of an indi-
10 viduaVs right to receive all or a portion of the benefits
11 to which a participant or a participant's designated
12 beneficiary would otherwise be entitled under a pen-
13 sion plan,
14 "(B) clearly identifies such participant, the
15 amount or percentage of such benefits to be paid to
16 such individual, the number of payments to which such
17 judgment, decree or order applies, and the name and
18 mailing address of such individual, and
19 "(C) does not require such plan to alter the effec-
20 tive date, timing, form, duration or amount of any
21 benefit payments under the plan or to honor any elec-
22 tion which is not provided for under the plan or which
23 is made by a person other than a participant or benefi-
24 ciary. ".
159
1 (k) Conforming Amendment for Section 131. —
2 Subparagraph (A) of section 412(c)(2) of such Code (relating
3 to valuation of assets) is amended by adding at the end
4 thereof the following new sentence: "The funding method
5 may take account, and for any plan year beginning after
6 December 31, 1980, shall take account, of all provisions of
7 the plan, including provisions which have not yet affected
8 any participant as to entitlement to, or accrual of, benefits.
9 In the event any such provision is not implemented at the
10 time specified when the provision was adopted, the funding
11 standard account shall be appropriately adjusted in accord-
12 ance with the regulations prescribed by the Secretary. A pro-
13 vision adopted but contingent upon a future event shall be
14 deemed not to be in effect as a provision of the plan prior to
15 the occurrence of that event. A plan which adopts the proce-
16 dures described in the preceding three sentences must apply
17 such procedures consistently to both benefit increases and
18 benefit decreases. The Secretary may by regulation extend
19 the applicability of such procedures or similar procedures to
20 one or more classes of plans which are not collectively bar-
21 gained if he determines that such application would be con-
22 sistent with the purposes of this part. If the Secretary deter-
23 mines that the application of such procedures, in the case of
24 any plan or class of plans, has been inconsistent with the
160
1 purposes of this part, he may condition or disallow the use of
2 such procedures for such plan or class of plans. "
3 (I) Conforming Amendment for Section 142. —
4 Paragraph (2) of section 401(a) of such Code (relating to
5 exclusive benefit of employees and beneficiaries) is amended
6 by inserting before the semicolon at the end thereof the follow-
7 ing: "(but this paragraph shall not be construed, in the case
8 of a collectively bargained plan maintained by more than one
9 employer, to prohibit the return of a contribution within 6
10 months after the plan administrator knows that the contribu-
1 1 tion was made by a mistake of fact or knows that holding the
12 contribution would contravene the provisions of section 302
13 of the Labor- Management Relations Act, 1947)".
14 (m) Conforming Amendment for Section 144. —
15 Subsection (d) of section 4975 of such Code (relating to
16 exemptions from prohibited transaction rules) is amended —
17 (1) by striking out "or" at the end of paragraph
18 (12),
19 (2) by striking out the period at the end of para-
20 graph (13) and inserting in lieu thereof a semicolon
21 and "or", and
22 (3) by inserting after paragraph (13) the follow-
23 ing new paragraph:
24 "(14) any transfer of contributions between plans
25 under section 209 of the Employee Retirement Income
161
1 Security Act of 1974, if the plan to which the contri-
2 butions are transferred pays not more than a reason-
3 able charge for any administrative expenses reasonably
4 incurred by the plan transferring the contributions. "
5 TITLE 111— SPECIAL MASTER AND PROTOTYPE
6 PLANS
7 SEC. 301. SPECIAL MASTER AND PROTOTYPE PLANS.
8 (a) In General. — Subtitle B of title I of the Employ -
9 ee Retirement Income Security Act of 1974 is amended by
10 adding at the end thereof the following new part:
11 "Part 6 — Special Master and Prototype Plans
12 "special master and prototype plans
13 uSec. 601. (a) For purposes of this section —
14 "(1) 'special master plan' means a master or pro-
lb totype employee pension benefit plan which has been
16 approved by the Secretary of Labor in accordance with
17 subsection (d), all of the assets of which are controlled
18 by one or more master sponsors,
19 "(2) 'master sponsor' means any person who is
20 the sponsor of a special master plan and who —
21 "(A) has the power to manage, acquire, or
22 dispose of any asset of an adopting employer's
23 plan, and
24 "(B) is (i) registered as an investment advi-
25 sor under the Investment Advisor's Act of 1940;
162
1 (ii) is a hank, as defined in that Act; (Hi) is an
2 insurance company qualified to perform services
3 described in subparagraph (A) under the laws of
4 more than one State; or (iv) is a savings and loan
5 or similar association regulated by the Federal
6 Home Loan Bank Board or by a State or State-
7 authorized regulatory authority and empowered by
8 law to perform services described in subparagraph
9 (A),
10 "(3) 'adopting employer' means an employer any
11 of whose employees are covered under a special master
12 plan, or an association of such employers.
13 "(b) Notwithstanding any other provisions of this Act or
14 the Internal Revenue Code of 1954 to the contrary, in the
15 case of a special master plan —
16 "(1) except as provided in subsection (e), the re-
17 sponsibilities, duties, and obligations of an adopting
18 employer under parts 1, 2, 3, and 4 of this subtitle
19 shall be limited to making such timely contributions
20 and payments, and furnishing such timely, complete,
21 and accurate information, as may be required under
22 the terms of the plan; and
23 "(2) the requirements of the Internal Revenue
24 Code of 1954 which are applicable to the design of the
25 plan of the adopting employer shall be deemed to be
163
1 initially satisfied as of the date the adoptiny employer
2 and master sponsor execute the special master plan
3 joinder ayreement.
4 "(c) Notwithstandiny any other provisions of this Act or
5 the Internal Revenue Code of 1954 to the contrary, in the
6 case of a special master plan —
7 "(1) except as provided in subsection (e), the
8 master sponsor shall be the administrator of and a fi-
9 duciary respectiny each adoptiny employer's plan for
10 the purposes of this Act of such Code;
11 "(2) the requirements of section 102(b), if other-
12 wise satisfied, will not be violated if —
13 "(A) the plan description of an adoptiny em-
14 ployer's plan includes plan provisions common to
15 the plans of all employers adoptiny the special
16 master plan, toy ether with a description of each
17 type of variation from such common provisions
18 that is permitted under the terms of the approval
19 provided for in subsection (d), and an identifica-
20 tion, by name of adoptiny employer, employer
21 identification number, name of plan, and plan
22 identification number of the employers who have
23 adopted, and the plans containiny, each such vari-
24 ation, and
164
1 "(B) the summary plan description of each
2 adopting employer's plan describes provisions
3 common to the plans of all employers adopting the
4 special master plan, together with a description of
5 any provisions of such adopting employer's plan
6 which vary from such common provisions, with
7 appropriate cross-references;
8 "(3) the requirements of section 103 of this Act
9 and of section 6058 of the Internal Revenue Code of
10 1954, if otherwise satisfied, will not be violated merely
11 because data in the annual report reflect the aggregate
12 assets of the special master plan, if the annual report
13 also includes an identification, by name of adopting
14 employer, employer identification number, name of
15 plan, and plan identification number, of the percentage
16 of total special master plan assets attributable to each
17 adopting employer's plan;
18 "(4)(A) the exemption described in section
19 408(b)(2) of this Act and in section 4975(d)(2) of the
20 Internal Revenue Code of 1954 shall be applied as if
21 any master sponsor of a special master plan were a
22 party in interest respecting such plan for a reason
23 other than by virtue of such person 's being a fiduciary,
24 and
165
1 "(B) the term 'bank or similar financial institu-
2 tion' in section 408(b)(6) of this Act and in section
3 4975(d)(6) of the Internal Revenue Code of 1954 shall
4 be deemed to mean any master sponsor, and the term
5 'sound banking and financial practice ' in such sections
6 shall, in the case of a master sponsor other than a
7 bank, be deemed to mean 'sound fiduciary 'practice ';
8 and
9 "(5) no master sponsor shall have a responsibil-
10 ity, obligation, or duty under this Act or the Internal
11 Revenue Code of 1954 —
12 "(A) to ascertain whether information re-
13 quired to be furnished to the master sponsor by an
14 adopting employer pursuant to the terms of a spe-
15 cial master plan is accurate or complete,
16 "(B) due to the failure of an adopting em-
17 ployer to satisfy the requirements of subsection
18 (b)(1), or
19 "(C) respecting the decision of an employer
20 to adopt such master sponsor's plan, except as re-
2 1 gards the advertising or publicizing of and disclo-
22 sures concerning the administrative services pro-
23 vided, and the investment practices and proce-
24 dures followed, by such master sponsor.
166
1 "(d)(1) The Secretary of Labor and the Secretary of the
2 Treasury shall prescribe such regulations, and furnish such
3 rulings, opinions, forms, and other types of guidance as are
4 necessary to implement this section. To the greatest extent
5 consistent with the purposes of this Act and the Internal Rev-
6 enue Code of 1954, such regulations and other types of guid-
7 ance shall be designed to facilitate the development of special
8 master plans and their adoption by employers. Initial regula-
9 tions and forms, sufficient to enable perspective master spon-
10 sors to submit special master plans for approval, shall be
11 issued on or before the effective date specified in section
12 301(c) of the ERISA Improvements Act of 1979.
13 "(2) (A) The Secretary shall approve a special master
14 plan only if he determines that the plan of an adopting em-
lb ployer, in design and in operation, will satisfy the require-
16 ments of this section, and of other applicable requirements of
17 this Act and of the Internal Revenue Code of 1954 (to the
18 extent that such Act and Code are not inconsistent with this
19 section).
20 "(B) The Secretary shall not approve any special
21 master plan unless he has first submitted the plan to the
22 Secretary of the Treasury for review, together with such in-
23 formation as the Secretary of the Treasury may request. The
24 review of the Secretary of the Treasury shall be limited to the
25 applicability of, and compliance with, the provisions of the
167
1 Internal Revenue Code of 1954. The Secretary of the Treas-
2 ury shall either concur in the approval or refuse to concur. If
3 the Secretary of the Treasury refuses to concur, he shall
4 specify the changes that must be made in the plan to obtain
5 his concurrence. In the case of a refusal, the Secretary shall
6 not approve the plan unless the specified changes are made.
7 If the Secretary of the Treasury fails to concur or refuses to
8 concur within 270 days after such submittal, the failure shall
9 be deemed to be a failure described in section 7476(a)(2)(A)
10 of such Code, and —
11 "(i) the master sponsor shall be deemed to be a
12 'plan administrator' for the purposes of subsection
13 (b)(1) of such section,
14 "(ii) subsections (b)(2) through (b)(5) of such sec-
lb tion shall not be applicable, and
16 "(Hi) the special master plan shall be deemed to
17 be a 'retirement plan' within the meaning of subsection
18 (d) of such section.
19 "(3) Approval of special master plans and amendments
20 to such plans shall be accomplished by a process carried out
21 in the national office of the Secretary, until such time as he
22 may establish procedures for field office approval under
23 which uniformity of treatment by field offices is assured.
24 "(4) Upon approval of a special master plan, or of any
25 amendment to such a plan for which approval is required, a
168
1 special master plan certificate shall be issued to the master
2 sponsor by the Secretary. Except as provided in paragraph
3 (5), for a period of 60 months from the date of adoption of the
4 plan by an employer or from the effective date of an amend-
5 ment for which approval is required, such certificate or duly
6 notarized copy thereof shall be prima facie evidence in any
7 administrative or judicial proceeding that the terms and con-
8 ditions of the plan meet the applicable requirements of this
9 Act and of part I of subchapter D of chapter 1 of the Internal
10 Revenue Code of 1954.
1 1 "(5) The Secretary, after notice and hearing, and after
12 consultation with the Secretary of the Treasury respecting
13 the applicability of or compliance with the Internal Revenue
14 Code of 1954, shall revoke the certificate described in para-
15 graph (4) —
16 "(A) respecting the plan of any adopting em-
17 ployer, if he finds that there has been a failure on the
18 part of the employer to observe the terms and condi-
19 tions of the plan and that such failure has been detri-
20 mental to the rights of plan participants or beneficia-
21 ries under the terms and conditions of the plan, this
22 Act, or such Code; and
23 "(B) respecting the special master plan, if he
24 finds that there has been a failure to observe the terms
25 and conditions of the plan or the provisions of this sec-
169
1 tion on the part of the master sponsor and that such
2 failure has been detrimental to the rights of plan par-
3 ticipants under the terms and conditions of the plan,
4 this Act, or such Code.
5 "(6) The certificate issued by the Secretary upon the
6 approval of a special master plan, or upon the approval of an
7 amendment to such a plan for which approval is required,
8 shall specify the types of amendments, if any, for which ap-
9 proval need not be obtained.
10 "(7) Nothing in this section shall limit the power of the
1 1 Secretary of the Treasury, after audit, to determine that the
12 plan of any adopting employer, in operation, has failed to
13 meet the applicable requirements of part I of subchapter D of
14 chapter 1 of the Internal Revenue Code of 1954, but no such
15 plan shall be treated as not having met such requirements for
16 any plan year preceding the year in which the Secretary of
17 the Treasury makes such determination unless the determi-
18 nation includes a finding that the failure to meet such re-
Id quirements in any such preceding year was a result of inten-
20 tional failure or willful neglect on the part of the adopting
2 1 employer.
22 "(e)(1) Any adopting employer who fails to make such
23 timely contributions and payments or who fails to furnish
24 such timely, complete and accurate information as may be
25 required under the terms of a special master plan shall, in
170
1 accordance with the terms of such plan, be deemed to be the
2 administrator of the plan (only to the extent the plan covers
3 the employees of such adopting employer), as of the time spec-
4 ified in such plan, and as of such specified time the master
5 sponsor shall cease to be the administrator and a fiduciary of
6 such adopting employer's plan. ".
7 "(2) To the extent that an adopting employer, under the
8 terms of a special master plan, assumes responsibility for
9 furnishing the summary plan description or other documents
10 required to be furnished or otherwise made available to par-
1 1 ticipants, beneficiaries, or employees under the provisions of
12 part 1 of this subtitle, section 3001 of this Act or section
13 6057 of the Internal Revenue Code of 1954, such adopting
14 employer shall be deemed to be the administrator of the plan
15 (only to the extent the plan covers the employees of such em-
16 ployer), and the master sponsor shall not be the administrator
17 regarding the responsibilities undertaken by such adopting
18 employer.".
19 (b) The table of contents for the Employee Retirement
20 Income Security Act of 1974 is amended by inserting imme-
21 diately after the item relating to section 517 the following:
"Part 6 — Special Master and Prototype Plans
"Sec. 601. Special master and prototype plans. ".
22 (c) The amendments made by this section shall take
23 effect 12 months after the date of enactment of this Act.
171
1 TITLE IV— EMPLOYEE BENEFITS
2 COMMISSION
3 SEC. 401. EMPLOYEE BENEFITS COMMISSION.
4 (a) Establishment. — There is established, as an in-
5 dependent agency within the executive branch of the Govern-
6 ment, the Employee Benefits Commission. The Commission
7 is composed of —
8 (1) a chairman, who shall be the special liaison
9 officer for the Secretary of Labor appointed under
10 paragraph (1) of subsection (b),
11 (2) a vice chairman, who shall be the special liai-
12 son officer for the Secretary of the Treasury appointed
13 under paragraph (2) of subsection (b), and
14 (3) three additional members appointed by the
15 President, by and with the advice and consent of the
16 Senate, selected from a list of nominees submitted
17 jointly by the Secretary of Labor and the Secretary of
18 the Treasury.
19 (b) Labor and Treasury Department Liaison
20 Officers. —
21 (1) There is established within the office of the
22 Secretary of Labor, the position of special liaison offi-
23 cer to the Employee Benefits Commission. The special
24 liaison officer shall be appointed by the President, by
25 and with the advice and consent of the Senate, from a
53-018 0-79-12
172
1 list of nominees submitted to the President by the Sec-
2 retary of Labor and shall serve for a term of years in
3 accordance with the provisions of subsection (c). The
4 special liaison officer shall report regularly to the Sec-
5 retary of Labor on the activities of the Commission.
6 (2) There is established within the office of the
7 Secretary of the Treasury the position of special liai-
8 son officer to the Employee Benefits Commission. The
9 special liaison officer shall be appointed by the Presi-
10 dent, by and with the advice and consent of the
11 Senate, from a list of nominees submitted to the Presi-
12 dent by the Secretary of the Treasury and shall serve
13 for a term of years in accordance with the provisions of
14 subsection (c). The special liaison officer for the Treas-
15 ury shall report regularly to the Secretary of the
16 Treasury on the activities of the Commission.
17 (c) Terms of Office. —
18 (1) Number of years. — Members of the Com-
19 mission shall serve for terms of 6 years, except —
20 (A) the special liaison officer for the Secre-
21 tary of the Treasury first appointed after the date
22 of enactment of this Act shall serve for a term of
23 3 years, and
24 (B) of the 3 members of the Commission ini-
25 tially appointed under paragraph (3) of subsection
173
1 (a), one shall serve for a term of 2 years, one
2 shall serve for a term of 4 years, and one shall
3 serve for a term of 6 years.
4 (2) Service beyond expiration date. — A
5 member of the Commission may serve as a member of
6 the Commission after the expiration of his term until a
7 successor has taken office as a member of the
8 Commission.
9 (3) Vacancy appointments.— An individual
10 appointed to fill a vacancy occurring other than by the
11 expiration of a term of office shall be appointed only
12 for the unexpired term of the member such individual
13 succeeds.
14 (4) Political affiliation. — Not more than 3
15 members of the Commission may be affiliated with the
16 same political party.
17 (d) Compensation. — Members of the Commission
18 shall receive compensation equivalent to the compensation
19 paid at level III of the Executive Schedule.
20 (e) Functions. — The Commission shall —
21 (1) formulate policy respecting Federal laws
22 which now or may hereafter relate to employee benefit
23 plans,
24 (2) administer and enforce titles I and IV of such
25 Act, and
174
1 (3) administer and obtain compliance with —
2 (A) sections 401, 410, 411, 412, 413, 414,
3 6057, and 6058 of the Internal Revenue Code of
4 1954, and
5 (B) such other provisions of such Code as
6 are designated under subsection (f),
7 insofar as such sections and provisions relate to em-
8 ployee benefit plans defined in section 3(3) of the
9 Employee Retirement Income Security Act of 1974
10 (irrespective of whether the only participants in such
11 plans are owner-employees, as defined in section
12 401(c)(3) of such Code) which are described in section
13 4(a) of such Act and not exempt under section 4(b) of
14 such Act, including, to the extent provided by presiden-
15 tial order under subsection (f), individual retirement
16 accounts, annuities and bonds described in sections
17 408 and 409 of such Code.
18 (f) Designated Sections. — Not later than 9 months
19 after the enactment of this Act, the President shall by order
20 designate such sections (or provisions of sections) of the In-
21 ternal Revenue Code of 1954, in addition to the sections de-
22 scribed in subsection (e)(3)(A), under which functions,
23 duties, powers, or responsibilities presently exercised by the
24 Secretary of the Treasury shall be exercised by the Commis-
25 sion. Such additional sections or provisions shall include
175
1 those as may be necessary to effectuate the maximum feasible
2 consolidation in the Commission of all functions of the De-
3 partments of Labor and of the Treasury respecting employee
4 benefit plans and to otherwise carry out the purposes of th is
5 Act. For purposes of this subsection, the term "employee
6 benefit plans'' shall include any plan defined in section 3(3)
7 of the Employee Retirement Income Security Act of 1974
8 (whether or not the only participants in such plan are owner-
9 employees, as defined in section 401(c)(3) of the Internal
10 Revenue Code of 1954) which is described in section 4(a) of
11 such Act and not exempt under section 4(b) of such Act, and
12 shall also include an individual retirement account, annuity
13 or bond described in section 408 or 409 of such Code.
14 (g) Rules, Etc. — The Commission shall prepare writ-
lb ten rules for the conduct of its activities, shall have an offi-
16 cial seal which shall be judicially noticed, and shall have its
17 principal office in or near the District of Columbia (but it
18 may meet or exercise any of its powers anywhere in the
19 United States).
20 (h) Administrative Authority. —
21 (1) Staff director; general counsel. —
22 The Commission shall have a staff director and a gen-
23 eral counsel who shall be appointed by the Chairman.
24 The staff director and the general counsel shall be paid
25 at a rate not in excess of the rate in effect for level IV
176
1 of the Executive Schedule. With the approval of the
2 Chairman, the staff director may —
3 (A) appoint and fix the compensation of such
4 additional personnel as he considers necessary,
5 and
6 (B) procure temporary and intermittent serv-
7 ices to the same extent as authorized by section
8 3109(b) of title 5, United States Code.
9 (2) Use of other agencies' resources. —
10 In carrying out its responsibilities, the Commission
11 may avail itself of the assistance, including personnel
12 and facilities, of other agencies and departments of the
13 United States Government. The heads of such other
14 agencies and departments may make available to the
15 Commission such personnel, facilities, and other assist-
16 ance, with or without reimbursement, as the Commis-
17 sion may request.
18 SEC. 402. POWERS OF COMMISSION.
19 (a) In General. — The Commission has the powers
20 expressly granted to the Secretary of Labor and the Pension
21 Benefit Guaranty Corporation under the Employee Retire-
22 ment Income Security Act of 1974 and, in addition, has the
23 power —
24 (1) to require, by special or general orders, any
25 person to submit in writing such reports and answers
177
1 to questions as the Commission may prescribe, and
2 such submission shall be made within such reasonable
3 period of time and under oath or otherwise as the
4 Commission may require;
5 (2) to administer oaths or affirmations;
6 (3) to require by subpena, signed by the chairman
7 or the vice chairman, the attendance and testimony of
8 witnesses and the production of all documentary evi-
9 dence relating to the execution of its duties;
10 (4) in any proceeding or investigation, to order
11 testimony to be taken by deposition before any person
12 who is designated by the Commission and has the
13 power to administer oaths and, in such instances, to
14 compel testimony and the production of evidence in the
15 same manner as authorized under paragraph (3);
16 (5) to pay witnesses the same fees and mileage as
17 are paid in like circumstances in the courts of the
18 United States;
19 (6) to initiate (through civil actions for injunctive,
20 declaratory, or other appropriate relief), defend, or
21 appeal from a decision in, any civil action in the name
22 of the Commission for the purpose of enforcing the pro-
23 visions of this Act, and titles I and IV of the Employ -
24 ee Retirement Income Security Act of 1974, or for the
25 purpose of obtaining compliance with the sections or
178
1 provisions of the Internal Revenue Code of 1954 de-
2 scribed in section 401(e)(3) of this Act, through its
3 general counsel;
4 (7) to develop such prescribed forms, to make,
5 amend, and repeal such rules, pursuant to the provi-
6 sions of chapter 5 of title 5, United States Code, and
7 to issue such interpretations, opinions, and other forms
8 of guidance as are necessary to carry out the provi-
9 sions of this Act and titles I and IV of the Employee
10 Retirement Income Security Act of 1974, and as are
1 1 necessary to administer the sections or provisions of the
12 Internal Revenue Code of 1954 described in section
13 401(e)(3) of this Act;
14 (8) to conduct investigations and hearings, to en-
lb courage voluntary compliance, and to report apparent
16 criminal law violations to the appropriate law enforce-
17 ment authorities; and
18 (9) to certify to the Secretary of the Treasury that
19 an employee benefit plan described in section 401(e)(3)
20 of this Act—
21 (A) satisfies or does not satisfy (or has or
22 has not satisfied) the requirements of in any of
23 the sections or provisions of the Internal Revenue
24 Code of 1954 described in section 401(e)(3) of
25 this Act, or
179
1 (B) satisfies or does not satisfy (or has or
2 has not satisfied) the requirements of section 44C
3 of the Internal Revenue Code of 1954.
4 (b) Enforcement of Orders of the Commis-
5 SION. — Any United States district court within the jurisdic-
6 tion of which any inquiry is carried on may, upon petition
7 by the Commission in case of refusal to obey a subpena or
8 order of the Commission issued under subsection (a), issue
9 an order requiring compliance therewith. Any failure to obey
10 the order of the court may be punished by the court as con-
1 1 tempt.
12 (c) Transfer of Functions. — All functions and
13 duties of the Secretary of Labor and the Pension Benefit
14 Guaranty Corporation under the Employee Retirement
15 Income Security Act of 1974 are transferred to, and shall be
16 carried out by, the Commission, and all functions and duties
17 of the Secretary of the Treasury under the sections and pro-
18 visions of the Internal Revenue Code of 1954, described in
19 section 401(e)(3) of this Act, insofar as such sections relate to
20 employee benefit plans described in such section, are trans-
21 f erred to, and shall be carried out by, the Commission.
22 (d) Transfer Provisions.—
23 (1) Personnel, etc. — All personnel, liabilities,
24 contracts, property, and records determined by the Di-
25 rector of the Office of Management and Budget to be
180
1 employed, held, or used primarily in connection with
2 the functions of the Secretary of Labor and the
3 Pension Benefit Guaranty Corporation under the
4 Employee Retirement Income Security Act of 1974,
5 and of the Secretary of the Treasury under the sections
6 and provisions of the Internal Revenue Code of 1954,
7 described in section 401(e)(3) of this Act, insofar as
8 such sections relate to employee benefit plans described
9 in such section, are transferred to the Commission.
10 (2) Transfer of personnel. —
11 (A) Except as provided in subparagraph
12 (B), personnel engaged in functions transferred
13 under paragraph (1) shall be transferred in ac-
14 cordance with applicable laws and regulations re-
lb lating to the transfer of functions.
16 (B) The transfer of personnel pursuant to
17 paragraph (1) shall be made without reduction in
18 classification or compensation for one year after
19 such transfer.
20 (3) Procedural effects of transfer. —
21 (A) All laws and regulations relating to the
22 functions and duties transferred under this Act
23 shall, insofar as such laws and regulations are
24 applicable and not amended by this Act, remain
25 in full force and effect. All orders, determinations,
181
1 rules, and opinions made, issued, or granted
2 under such laws by the Secretary of Labor, the
3 Pension Benefit Guaranty Corporation, or by the
4 Secretary of the Treasury, which are in effect at
5 the time of the transfer provided by paragraph
6 (1), and which are consistent with the amend-
7 ments made by this Act, shall continue in effect to
8 the same extent as if such transfer had not oc-
9 curved.
10 (B) The provisions of this Act shall not
11 affect any proceeding pending before the Secre-
12 tary of Labor, the Pension Benefit Guaranty
13 Corporation, or the Secretary of the Treasury on
14 the date of enactment of this Act.
15 (C) No suit, action, or other proceeding com-
16 menced by or against the Secretary of Labor, the
17 Pension Benefit Guaranty Corporation, or the
18 Secretary of the Treasury shall abate merely by
19 reason of the transfer made under paragraph (1).
20 SEC. 403. TERMINATION OF TREASURY DEPARTMENT'S JURIS-
21 DICTION
22 (a) Termination of Treasury Jurisdiction. —
23 Except as provided in subsection (b), the Secretary of the
24 Treasury shall not administer, seek to obtain compliance
25 with, or otherwise exercise responsibility or power respecting
182
1 the sections or provisions of the Internal Revenue Code of
2 1954 described in section 401(e)(3) of this Act, insofar as
3 such sections relate to employee benefit plans described in
4 such section.
5 (b) Certifications by Commission. — Certifica-
6 tions made by the Employee Benefits Commission to the
7 Secretary of the Treasury pursuant to section 402(a)(9) of
8 this Act shall be treated by the Secretary as if he had made
9 such certifications himself.
1 0 SEC. 404. A GENCY COOPERA 7707V.
1 1 Pursuant to procedures they shall jointly formulate and
12 establish, the Employee Benefits Commission, the Secretary
13 of Labor, and the Secretary of the Treasury shall make
14 arrangements for —
15 (1) notification by the respective Secretaries to the
16 Commission regarding information which concerns the
17 Commission's functions under section 401(e), and
18 (2) notification by the Commission to the Secre-
19 taries regarding information which concerns their re-
20 spective functions under laws relating to employee
2 1 benefit plans.
22 SEC. 405. EFFECTIVE DA TE AND REPEAL.
23 This title shall take effect 24 months after the date of
24 enactment of this Act. Subtitle A of title III of the Employee
183
1 Retirement Income Security Act of 1974 is repealed on such
2 effective date.
JENNINGS RANSOLTH. W. VA. JACOB K. JAVrTS. N.V.
OAIBOBNE PELL. R.I. RICHARD B. SCHWEIKER. PA-
EDWARD M. KCNNEDY, MAS!. ROBEUT T. STAFFORD. VT.
GAYLORD NELSON. Wll. OKRIN O. MATCH. UTAH
THOMAS F. EAOLTTW1. MO. JOHN N. CHAFEE. R.I.
»m« CRANSTON. CALIF. B. 1. HAYAXAWA. CALIF.
184
IX. PERTINENT CORRESPONDENCE
^SlCmfcb ,-Sictfcs J-Dcncxte
. RIEGLE, JR., MICH.
COMMITTEE ON HUMAN RESOURCES
STEI-HF.N J. PARADISE. GENERAL COUNSEL
AND STAFF DIRECTOR WASHINGTON, DC. 20510
M. WHITTAKER, CHIEF CLERK
May 25, 1979
The Honorable Russell B. Long
Chairman
Committee on Finance
United States Senate
The Honorable Lloyd Bentsen
Chairman
Subcommittee on Private Pension Plans
and Employee Fringe Benefits
Committee on Finance
United States Senate
Dear Chairman Long and Chairman Bentsen:
Enclosed are copies of S. 209, as amended and approved
by the Committee on Labor and Human Resources on May 16,
1979.
Upon introduction, S. 209 was referred to this Com-
mittee and the Committee on Finance jointly, by unanimous
consent. Pursuant to Rule XXVI of the Standing Rules of
the Senate, no report on the bill has been published by
this Committee; however, a summary of the bill and an
analysis of its consideration by this Committee is being
prepared and will be furnished to you as soon as it is
available.
The expeditious action of this Committee on S. 209
indicates the importance we attach to the subjects
addressed by the bill. Mindful of the fact that the Sub-
committee on Private Pension Plans and Employee Fringe
Benefits has already conducted hearings on portions of
185
S. 209, I am hopeful that additional Finance Committee
action can be undertaken soon so that we can move forward
jointly with those ERISA and related tax code amendments
which our two committees believe are necessary and desirable.
With best wishes,
Sincerely,
WfitAAK
CUaJUL
Harrison A. Williams, Jhc .
airman p
Members of the Committee on Labor and Human Resource:
Members of the Committee on Finance
The Majority Leader
Enclosures
S SCHWT1KER, PA.
CAVLOflO NCt-S
USE. GENERAL COUNSEL
UNIVERSITY OF Fl numi
IIIIIIIIIll I
!86 3 1262 09114 8600
QlCrxUeb J&lcties Senate
COMMITTEE ON LABOR AND
HUMAN RESOURCES
WASHINGTON. D.C. 20510
November 9, 1979
The Honorable Russell B. Long
Chairman, Committee on Finance
United States Senate
Washington, D.C. 20510
The Honorable Lloyd Bentsen
Chairman, Subcommittee on Private
Pension Plans and Employee Fringe
Benefits
Committee on Finance
United States Senate
Washington, D.C. 20510
Dear Russell and Lloyd:
I am pleased to transmit the enclosed Summary and
Analysis of Consideration of S. 209, the "ERISA Improve-
ments Act of 1979." The materials in this Committee Print,
particularly the "Committee Views" section, should be help-
ful in Finance Committee deliberations on the bill.
With best wishes,
Sincerely,
»
6te
Harrison A. Williams, Jr.
Chairman
HAW:ssp
Enclosure
o
;
•
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11