THE PENSION SECURITY ACT: 

NEW PENSION PROTECTIONS TO SAFEGUARD 

THE RETIREMENT SAVINGS OF AMERICAN 

WORKERS

HEARING

BEFORE THE 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS 

OF THE 

COMMITTEE ON EDUCATION AND 

THE WORKFORCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, FEBRUARY 13, 2003 

Serial No. 108-2 

Printed for the use of the Committee on Education 

and the Workforce

87-277 pdf 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 

FAX: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
ii

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman 

THOMAS E. PETRI, Wisconsin GEORGE MILLER, California 

CASS BALLENGER, North Carolina DALE E. KILDEE, Michigan 

PETER HOEKSTRA, Michigan MAJOR R. OWENS, New York 

HOWARD P. “BUCK” McKEON, California DONALD M. PAYNE, New Jersey 

MICHAEL N. CASTLE, Delaware ROBERT E. ANDREWS, New Jersey 

SAM JOHNSON, Texas LYNN C. WOOLSEY, California 

JAMES C. GREENWOOD, Pennsylvania RUBEѳN HINOJOSA, Texas 

CHARLIE NORWOOD, Georgia CAROLYN McCARTHY, New York 

FRED UPTON, Michigan JOHN F. TIERNEY, Massachusetts 

VERNON J. EHLERS, Michigan RON KIND, Wisconsin 

JIM DeMINT, South Carolina DENNIS J. KUCINICH, Ohio 

JOHNNY ISAKSON, Georgia DAVID WU, Oregon 

JUDY BIGGERT, Illinois RUSH D. HOLT, New Jersey 

TODD RUSSELL PLATTS, Pennsylvania SUSAN A. DAVIS, California 

PATRICK J. TIBERI, Ohio BETTY McCOLLUM, Minnesota 

RIC KELLER, Florida DANNY K. DAVIS, Illinois 

TOM OSBORNE, Nebraska ED CASE, Hawaii 

JOE WILSON, South Carolina RAUѳL M. GRIJALVA, Arizona 

TOM COLE, Oklahoma DENISE L. MAJETTE, Georgia 

JON C. PORTER, Nevada CHRIS VAN HOLLEN, Maryland 

JOHN KLINE, Minnesota TIMOTHY J. RYAN, Ohio 

JOHN R. CARTER, Texas 

 MARILYN N. MUSGRAVE, Colorado 

 MARSHA BLACKBURN, Tennessee 

 PHIL GINGREY, Georgia 

 MAS BURNS, Georgia 

 Paula Nowakowski, Chief of Staff 

 John Lawrence, Minority Staff Director

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS 

SAM JOHNSON, Texas, Chairman

JIM DeMINT, South Carolina ROBERT E. ANDREWS, New Jersey

JOHN A. BOEHNER, Ohio DONALD M. PAYNE, New Jersey 

CASS BALLENGER, North Carolina CAROLYN McCARTHY, New York 

HOWARD P. “BUCK” McKEON, California DALE E. KILDEE, Michigan 

TODD RUSSELL PLATTS, Pennsylvania JOHN F. TIERNEY, Massachusetts 

PATRICK J. TIBERI, Ohio DAVID WU, Oregon 

JOE WILSON, South Carolina RUSH D. HOLT, New Jersey 

TOM COLE, Oklahoma BETTY McCOLLUM, Minnesota 

JOHN KLINE, Minnesota ED CASE, Hawaii 

JOHN R. CARTER, Texas RAUѳL GRIJALVA, Arizona 

MARILYN N. MUSGRAVE, Colorado 

MARSHA BLACKBURN, Tennessee 
iii

Table of Contents 

OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, SUBCOMMITTEE ON 

EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE 

WORKFORCE ............................................................................................................................... 2

OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON 

EDUCATION AND THE WORKFORCE..................................................................................... 4

STATEMENT OF THE HONORABLE ANN L. COMBS, ASSISTANT SECRETARY, 

EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. DEPARTMENT OF 

LABOR, WASHINGTON, D.C. .................................................................................................... 6

STATEMENT OF ED ROSIC, VICE PRESIDENT AND MANAGING ASSISTANT 

GENERAL COUNSEL, MARRIOTT INTERNATIONAL, INC., BETHESDA, MD, 

TESTIFYING ON BEHALF OF AMERICAN BENEFITS COUNCIL ..................................... 24

STATEMENT OF SCOTT SLEYSTER, SENIOR VICE PRESIDENT AND PRESIDENT OF 

RETIREMENT SERVICES AND GUARANTEED PRODUCTS, PRUDENTIAL FINANCIAL, 

FLORHAM PARK, NJ................................................................................................................. 28

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON 

EDUCATION AND THE WORKFORCE................................................................................... 37

APPENDIX B - WRITTEN STATEMENT OF THE HONORABLE ANN L. COMBS, 

ASSISTANT SECRETARY, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. 

DEPARTMENT OF LABOR, WASHINGTON, D.C. ................................................................ 41

APPENDIX C - WRITTEN STATEMENT OF ED ROSIC, VICE PRESIDENT AND 

MANAGING ASSISTANT GENERAL COUNSEL, MARRIOTT INTERNATIONAL, INC., 

BETHESDA, MD, TESTIFYING ON BEHALF OF AMERICAN BENEFITS COUNCIL...... 49

APPENDIX D - WRITTEN STATEMENT OF SCOTT SLEYSTER, SENIOR VICE 

PRESIDENT AND PRESIDENT OF RETIREMENT SERVICES AND GUARANTEED 

PRODUCTS, PRUDENTIAL FINANCIAL, FLORHAM PARK, NJ ........................................ 69

APPENDIX E – SUBMITTED FOR THE RECORD, ANSWER TO CASH BALANCE 

QUESTION POSED BY REP. CAROLYN McCARTHY.......................................................... 79

APPENDIX F – SUBMITTED FOR THE RECORD, STATEMENT OF ROBERT A.G. 

MONKS, MECHANICSVILLE, MD .......................................................................................... 83
iv

APPENDIX G – SUBMITTED FOR THE RECORD, STATEMENT OF EMPLOYEE-OWNED 

S CORPORATIONS OF AMERICA (ESCA), WASHINGTON, D.C.APPENDIX H – 

SUBMITTED FOR THE RECORD, STATEMENT OF AMERICAN COUNCIL OF LIFE 

INSURERS (ACLI)APPENDIX I – SUBMITTED FOR THE RECORD, STATEMENT OF 

THE INVESTMENT COMPANY INSTITUTE........................................................................ 105

APPENDIX H – SUBMITTED FOR THE RECORD, STATEMENT OF AMERICAN 

COUNCIL OF LIFE INSURERS (ACLI).................................................................................. 111

APPENDIX I – SUBMITTED FOR THE RECORD, STATEMENT OF THE INVESTMENT 

COMPANY INSTITUTE........................................................................................................... 123

APPENDIX J – SUBMITTED FOR THE RECORD, EMPLOYEE OPINIONS ON 

RETIREMENT PLANS: A BENCHMARK STUDY ON RETIREMENT PERCEPTIONS, THE 

PRUDENTIAL INSURANCE COMPANY OF AMERICA, FLORHAM PARK, NJ ............. 131

Table of Indexes.......................................................................................................................... 146 
1

THE PENSION SECURITY ACT: NEW PENSION PROTECTIONS 

TO SAFEGUARD THE RETIREMENT SAVINGS OF AMERICAN WORKERS 

____________________

Thursday, February 13, 2003 

Subcommittee on Employer-Employee Relations 

Committee on Education and the Workforce 

 U. S. House of Representatives 

Washington, D.C. 

 The Subcommittee met, pursuant to call, at 1:00 p.m., in Room 2175, Rayburn House 

Office Building, the Hon. Sam Johnson, Chairman, presiding. 

 Present: Representatives Johnson, DeMint, Ballenger, McKeon, Platts, Wilson, Cole, 

Kline, Carter, Musgrave, Andrews, Payne, McCarthy, Kildee, Tierney, Wu, Holt and Case. 

 Staff Present: Christine Roth, Professional Staff Member; David Connolly, Jr., Professional 

Staff Member; Dave Thomas, Senior Legislative Assistant; George Canty, Counselor to the 

Chairman; Ed Gilroy, Director of Workforce Policy; Molly Salmi, Deputy Director of Workforce 

Policy; Kevin Smith, Senior Communications Counselor; Kevin Frank, Professional Staff Member; 

Deborah L. Samantar, Committee Clerk/Intern Coordinator. 

Mark Zuckerman, Minority General Counsel; Michele Varnhagen, Minority Labor 

Counsel/Coordinator; Peter Rutledge, Senior Legislative Associate/Labor; Dan Rawlins, Minority 

Staff Assistant/Labor.
2

Chairman Johnson. The Subcommittee on Employer-Employee Relations will come to order. 

 The Subcommittee is meeting today to hear testimony on the “Pension Security Act: New 

Pension Protections to Safeguard the Retirement Savings of American Workers.” 

 I am eager to get to our witnesses today, so I am going to limit the opening statements to the 

Chairman and Ranking Minority Member of the Subcommittee. If other Members have statements, 

they will be included in the hearing record. 

 With that, I ask unanimous consent for the record to remain open 14 days to allow Member 

statements and other extraneous material referenced during the hearing to be submitted for the 

official hearing record. 

 Hearing no objection, so ordered. 

OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

 Today it is my privilege to Chair the first hearing on the Pension Security Act. Protecting 

the retirement security of Americans remains a key priority for all of us, and with a new Congress 

we have a real opportunity to send President Bush a comprehensive pension security bill he can 

sign into law. 

We should not have to wait for another corporate scandal before we empower workers with 

new protections that can help them enhance and protect their retirement security. And we are 

committed to addressing the pension security of American workers. Workers ought to be fully 

protected and fully prepared with the tools they need to protect and enhance their retirement 

security.

The Pension Security Act will give millions of Americans new tools to help them better 

manage and expand their retirement savings. 

 This proposal: 

x gives workers new freedom to diversify contributions of company stock after 

holding it for 3 years in their 401(k) accounts; 

x provides employees access to high-quality professional investment advice; 

x allows workers to purchase retirement planning services with pretax dollars;

x gives workers better information about their pension plans. 

 The measure also includes a number of provisions to make it easier for small businesses to 

start and maintain pension plans and would further protect employees by ensuring that statutory 
3

stock options will not be subject to payroll taxes. 

 Last year, the Full Committee held three hearings over 4 days to examine the collapse of 

Enron and how to better protect pension participants. We heard testimony from administration 

officials, pension experts, employees. The theme that emerged was that people need more 

resources to effectively manage their retirements. 

Enron, like most companies, did not provide its employees with access to investment 

advice. Neither did they pay very much in income tax. The Pension Security Act would fix 

outdated Federal laws to allow employers to provide their workers with high-quality professional 

investment advice as an employee benefit, while making advice providers personally liable for any 

advice not provided in the employee's best interest.

Millions of employees who have seen their 401(k) balances dwindle might have been able 

to preserve their retirement savings if they had access to a qualified advisor who would have 

warned them in advance that they needed to diversify. 

 Besides providing investment advice to workers, the Act includes new, important measures 

that give employees the freedom to diversify their portfolio and provide employees with a benefit 

statement. 

More important, the bill strikes a critical balance between providing retirement security for 

workers, providing privately held companies a source of capital and providing workers ownership 

through ESOPs. 

 Under the bill, employees may sell company stocks and diversify into other investment 

options after they avail the company stock for more than 3 years. In addition, it requires companies 

to give workers quarterly benefit statements that include information about accounts, including the 

value of their assets, the right to diversify and the importance of maintaining a diversified portfolio. 

 I am proud that we are moving forward with the Pension Security Act as a bipartisan 

measure, and I am hopeful that we can continue to work with our Democrat friends to reach 

consensus on the pension reforms that I have just outlined. 

 Last year, the House acted quickly in the face of corporate scandals to protect American 

workers' retirement by passing this plan. Unfortunately, the Senate did not even consider it. With 

the makeup of the new Congress, I think the time for this bill has come! 

WRITTEN OPENING STATEMENT OF CHAIRMAN SAM JOHNSON, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE 

ON EDUCATION AND THE WORKFORCE – SEE APPENDIX A

Chairman Johnson. Today, the Subcommittee will hear from two panels of witnesses on the 

subject of pension reform. Our first witness will be Assistant Secretary of the newly named, 

Employee Benefits Security Administration, at the Department of Labor; and the second panel 
4

represents plan sponsors, service providers and pension experts. Both panels have an interest in 

any pension legislation. 

 The Nation's employer-based pension system is essential to the security of American 

workers, and we should move quickly to finish the good work that we began in the last Congress 

and restore confidence in our pension system. 

 I now yield to the distinguished Ranking Minority Member of the Subcommittee, Mr. 

Andrews, for whatever opening statement he wishes to make. 

Mr. Andrews. Thank you, Mr. Chairman. 

 I want to begin by publicly honoring the Subcommittee Chairman of this Subcommittee on 

the day after the 30th commemoration year of a day of liberation for him. Sam Johnson, for those 

of you who do not know, served this country with incredible nobility and bravery in the Vietnam 

conflict and spent, if I am not mistaken, 7 years in a north Vietnamese prison camp. Yesterday was 

the 30-year anniversary of his release. 

 Sam, none of us would be sitting here without the bravery that you showed; and I just want 

to personally thank you for giving us the privilege of living in freedom in this country. Thank you. 

 I also want to take a moment and introduce two students from my district that are visiting 

with us today. I was supposed to meet with them personally during this time, but it is my 

responsibility to attend these Subcommittee hearings. Chen Chang and Colin Martin are with us 

today from the Congressional Youth Leadership, and I welcome them to the Subcommittee. 

 I also wanted to say to our new colleague, Mr. Ed Case, representing Hawaii that we 

welcome him to the Subcommittee and look forward to his participation and active role on the 

Committee. 

OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, 

SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

 We are meeting at a time when what is essentially a very sound pension system is faced 

with three of the greatest challenges that I think it has faced since 1974 when ERISA was enacted. 

 The first challenge was dramatically illustrated by the collapse of Enron and other pension 

problems that occurred, which affected thousands of other workers around the country in recent 

times. That problem has many dimensions, but I think the first and foremost among them is 

embedded in our shift from plans that are run by boards of trustees to plans that are run by 

individuals through 401(k) and other individually managed accounts. There are a host of issues 

surrounding that: How people can get appropriate advice? How they can be given a full range of 
5

options to manage their money as they see fit when the time comes? And I know that the proposals 

that the majority has put forward address that. We, too, have proposals that address that; and we 

look forward to debating and discussing and negotiating them. 

 Second problem is that at a time of significant weakness in our economy, corporations 

around our country are being compelled this year to put billions of dollars into pension 

contributions because of the severe downturn in the financial markets. It is hard to think of a time 

when corporate America has been less able to take billions of dollars out of circulation than today.

But the realities are that the under funding of plans that exist because of the downturns in the 

market has created not only a severe crisis in many pension funds but a real drag on the U.S. 

Economy. It would be the supreme irony that at the same time we debated and eventually enacted 

stimulus legislation that we undid all the good that any stimulus legislation may do by taking huge 

amounts of money out of circulation through necessary pension fund contributions. It is a real 

problem we have to address. 

 Finally, a problem that is not new but deepens in intensity is the fact that nearly 70 million 

Americans who will go to work today have no pension at all. And if medical technology continues 

to advance as I hope and pray and assume that it will, in a few decades America is going to be a 

place filled with 85- or 90-year-old people who have only Social Security. That is a recipe for a 

new generation of impoverished Americans who are, in many cases, unable to go back to work 

because of age and in most cases probably unwilling to go back to work unless it is absolutely 

necessary. People who have paid their dues and raised their families and paid their bills for 

generations are going to find themselves back in the workforce at a very advanced age because they 

will have no other option. 

 It is our responsibility to answer these and other questions, and I look forward today to 

being the first in what I hope will be a series of efforts during this Congress to come to grips with 

those problems. I don't believe that they require or lend themselves to partisan approaches. I think 

there are many areas in this part of our policy where we can come to common understanding. I 

hope, knowing the good faith of the Chairman of the Subcommittee, that we will be able to do that. 

 We have some very significant objections to the bill that is before the Subcommittee, and 

we have ideas that we believe should be brought before the Subcommittee. But I hope that today 

will be a first step toward reconciling those views and ideas, and I look forward to hearing from the 

witnesses.

Chairman Johnson. Thank you, Mr. Andrews, and thank you for your earlier comments. I 

appreciate that. And I think I agree with his comment that this is the greatest Nation in the world 

and were it not for our military men and women today we would not be free and have the freedoms 

that we enjoy and the ability to agree to disagree. 

 We can talk about these bills, and he is right. We are in an area where there should be some 

agreement. So I hope that with this hearing and further down the road during the markup we can 

come to some accommodation and especially on those other issues we discussed in the future. 

Thank you for your comments. 
6

 Our only witness on the first panel is the Honorable Ann Combs. As all of you know, 

Secretary Combs is the Assistant Secretary of the Employee Benefits Security Administration, 

formerly known as the Pension and Welfare Benefits Administration. That is a mouthful, but I will 

tell you what, she is the number two lady over there in the Labor Department and does a great job 

for America. 

 Before her appointment, she was Vice President and Chief Counsel, Retirement and 

Pension Issues, for the American Council of Life Insurers. During the Reagan and prior Bush 

Administrations, Ms. Combs spent 6 years as Deputy Assistant Secretary of Labor for the above 

EBSA. Her previous experience includes the National Association of Manufacturers and 

PriceWaterhouse, Inc. A graduate of the University of Notre Dame, Ms. Combs also holds a J.D. 

from the George Washington University Law School here in Washington, D.C. 

 On behalf of the Subcommittee, I welcome you today. I don't think I have to explain the 

light system. You are aware of it. 

 So, Madam Secretary, you may begin your testimony. 

STATEMENT OF THE HONORABLE ANN L. COMBS, ASSISTANT 

SECRETARY, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, 

U.S. DEPARTMENT OF LABOR, WASHINGTON, D.C. 

Thank you. Good afternoon, Chairman Johnson, Ranking Member Andrews and other 

Members of the Committee. Thank you for inviting me here today to discuss the Bush 

Administration's proposals to strengthen the retirement security of American workers, retirees and 

their families. 

 As you have mentioned, Chairman Johnson, last week Secretary Chao did change the name 

of our agency to the Employee Benefits Security Administration. This was done to make our 

agency's mission more recognizable to the people we serve, in particular the rank and file workers 

and their families who rely on us for advice and assistance in securing their benefits. Last year, we 

assisted a record 184,000 American workers and achieved record monetary recoveries through 

enforcement actions in both pension and health care plans. 

 The recent revelations of corporate and union malfeasance, combined with the challenging 

economy, have heightened Americans' concerns about our private pension system. The Bush 

Administration has a comprehensive agenda combining tough enforcement with both short- and 

long-term reform proposals to improve and strengthen the private pension system. 

 Today you have asked me to specifically focus on the Pension Security Act, so that is what 

my remarks address. 

 Congress made a down payment on improving retirement security by passing a portion of 

the President's Retirement Security Plan last year in the Sarbanes-Oxley Act. We are pleased that 
7

the Chairman has made passing the remainder of the Pension Security Act an immediate priority 

for this Congress. 

 The Sarbanes-Oxley Act, as you know, contains two key provisions from the President's 

plan. First, workers will now receive 30 days notice prior to a pension plan blackout period, 

enabling them to plan accordingly and to make necessary decisions about asset allocations, 

distributions or loan applications. Second, corporate officers are now prohibited from selling their 

own company stock during a blackout period. 

 But the American people deserve the benefits of the remaining proposals of the President's 

Retirement Security Plan as well. This plan would give workers more freedom to diversify their 

investments, provide better disclosure to workers through improved individual benefit statements 

and provide access to professional investment advice. 

 We all agree that increasing workers' ability to diversify their retirement savings would 

benefit workers, retirees and their families. The President's plan would ensure that workers could 

sell company stock contributed on their behalf and diversify into other investment options after 

they have been in the plan for 3 years. A recent survey by Hewitt Associates indicated that 62 

percent of companies already have or are considering easing employer stock restrictions. This is 

good news, but we need to make sure that all workers are able to choose how to invest their 

accounts.

 A meaningful ability to diversify also depends on workers receiving timely information 

about their 401(k) accounts. The President's Retirement Security Plan would require companies to 

provide workers with quarterly benefit statements, including information about the value of their 

assets, their right to diversify and the importance of maintaining a diversified portfolio. 

 As noted by Mr. Andrews, the pension investment world has changed over the past 25 

years, and workers are increasingly responsible for managing their own retirement accounts. 

Individual Americans now have primary responsibility for investing approximately $2 trillion in 

retirement savings through defined contribution plans, and they need help. ERISA currently has 

barriers that prevent employers and investment firms from providing individualized investment 

advice to workers; and, as a result, millions of Americans do not have the information necessary to 

make sound investment decisions. 

 The President's plan would increase workers' access to professional investment advice. By 

relying on expert advisors who assume full fiduciary responsibility for their counsel and by 

disclosing relationships and fees associated with the investment alternatives, workers will be better 

equipped to make better retirement decisions. And, frankly, American workers not only need but 

they want more advice. A recent survey by CIGNA Retirement Services indicated that 89 percent 

of 401(k) holders want specific information on investment decision-making. 

 The Department took a first step towards making investment advice more available last year 

when we issued an advisory opinion to SunAmerica that provides a model for independent 

investment advice. While this is extremely important, the opinion does not address all of the 
8

barriers that workers face. 

 For example, when a worker receives specific recommendations generated by an 

independent advisor and then delivered by the financial service provider, the worker can't consult 

with the financial service firm to question or deviate from the recommendations. The financial 

services firm cannot discuss its own products with the plan participant because of ERISA's 

prohibited transaction rules. So the worker is left with the take-it-or-leave-it choice of accepting 

the advice that is generated by the independent model or has to make decisions on their own, again 

without the benefit of advice. 

 Equally important, the Department of Labor does not have the ability to address the 

problem that employers continue to be uncertain about their liability for investment advice that is 

given by third parties to their workers. Legislation is needed to address the liability concerns of 

plan sponsors who are otherwise reluctant to make advice services available. 

 The investment advice proposal in the Chairman's bill includes important safeguards to 

ensure that workers receive quality advice that is in their best interest. Only qualified fiduciary 

advisors that are fully regulated by applicable banking and insurance and securities laws would be 

eligible to provide advice. Investment advisors who breach their fiduciary duty would be 

personally liable for any failure to act solely in the interest of the worker and would be subject to 

civil and criminal penalties. It would be illegal for a fiduciary advisor to make investment 

recommendations in order to increase their own compensation. Advice providers also would have 

to clearly disclose any fees and potential conflicts. 

 Simply put, plan sponsors and their employees need more investment advice options; and 

that is why the President strongly supports the Chairman's legislation, which has been passed twice 

by the House in the 107th Congress with strong bipartisan support. 

 In closing, let me again urge the Subcommittee to pass this legislation. Taken together, the 

ability to make unrestricted investment decisions with the confidence that comes from having good 

information and professional investment advice will give workers the choices, the confidence and 

the control that they need over their retirement savings. 

Mr. Chairman, this completes my statement. I would be happy to answer any questions that 

Members of the Subcommittee may have, and I would ask that my written statement be submitted 

for the record. 

WRITTEN STATEMENT OF THE HONORABLE ANN L. COMBS, ASSISTANT 

SECRETARY, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. 

DEPARTMENT OF LABOR, WASHINGTON, D.C. – SEE APPENDIX B 

Chairman Johnson. So ordered. Thank you for being here. 
9

I understand the Department has been involved in a lengthy investigation into the Enron 

case. Can you comment on the progress you have made? 

Ms. Combs. I can, Mr. Chairman; and I think it is a fair question. We have been asked why has 

the Enron investigation has taken so long. There are several points I would like to make. 

 One, we have taken specific actions to assist the workers in the Enron situation. We 

appointed an independent fiduciary to replace the corporate officers who had been serving as 

fiduciaries of the plan. State Street Bank is now serving as the fiduciary of the retirement plans for 

Enron workers. We also filed an amicus brief in private litigation laying out the Department's view 

of the law and how ERISA applies to situations like Enron, and I think our brief in that case served 

not only to benefit the workers in Enron but workers across the country. I think it has had a major 

impact on corporate plan sponsors. I think they have taken a good hard look at the systems they 

have in place and how they are meeting their fiduciary obligations. 

 That being said, the investigation is ongoing. It is an extremely complicated investigation. 

We are working closely with the Securities and Exchange Commission and with the Justice 

Department. I am hoping that we will be able to conclude our investigation soon and take whatever 

the next appropriate steps are. But, beyond that, I can't really talk about the specifics of the 

investigation, other than it is hopefully coming to a conclusion soon. 

Chairman Johnson. Good. 

 While the Pension Security Act was a response to corporate misconduct, I am curious about 

the agency's investigation into another type of misconduct. Can you let me know what is 

happening regarding the investigation into the mess with Ullico and Global Crossing and the 

pension funds of the AFL-CIO union members? 

Ms. Combs. As you know, and as I testified before this Subcommittee previously, we generally 

don't talk about ongoing investigations unless there has been a public action that has been 

undertaken so it is on the public record; and because we just recently took such an action in the 

Ullico case, I can confirm we do have an investigation. We filed in court just this week to enforce 

a subpoena that we had issued to Ullico and its officers trying to seek additional information and 

documents including the report that was issued by former Governor Thompson. 

Ullico failed to comply with our subpoena so we went to court yesterday. And just this 

morning I learned that we have a hearing scheduled for next week, which is very quick. So we are 

moving to enforce that subpoena and continue the investigation. But, beyond that, I can't talk about 

specifics of what is going on in that investigation. 

Chairman Johnson. Well, as you know, I am always concerned about creating too many 

requirements for businesses. Small businesses in particular have trouble meeting them. I am 

concerned that additional plan requirements would discourage employers from offering plans. Can 

you tell me what provisions in the Pension Security Act would help the Department of Labor tailor 

requirements for small businesses, and would you be able to help small employers meet the 
10

requirements and protect participants? 

Ms. Combs. Yes. There are several provisions in the bill that are designed to ease the burden on 

small business, in particular, the requirement to provide quarterly benefit statements with 

information about the accounts. I think the Act specifically acknowledges that the Secretary can 

take steps to make sure that the reporting burden reflects the needs of small business. For instance, 

it doesn't require that they value their assets quarterly. One of the provisions is that an annual 

valuation can be used. 

 I also believe that the investment advice provisions in the bill will be helpful to small 

business. As I mentioned in my testimony, we have given an opinion about the use of independent 

advisors, and that is a terrific option and one that tends to be more broadly available to larger 

employers. 

 Small businesses, for instance, don't tend to want to have to contract with a number of 

individual vendors. So if they can go to one institution for all services, they would be more likely 

to make investment advice available to their workers. So I hope that will be a benefit to the small 

employer. 

Chairman Johnson. Thank you. 

Mr. Andrews, you care to inquire? 

Mr. Andrews. Thank you, Mr. Chairman, and Madam Secretary for your testimony. 

 About a year ago, the Full Committee heard testimony from an Enron employee who had 

seen his 401(k) balance drop from about $600,000 down to about $14,000. As I recall, virtually all 

of his account was held in the stock of his employer at Enron. 

 We also heard during those three hearings what I thought to be astonishing testimony that 

indicated that people in a fiduciary capacity in that plan had not only failed to disclose material 

information to the plan participants but themselves had acted upon that material information to 

divest themselves of their own holdings at the same time the ship was sinking. 

 I believe it was you who came back to the Subcommittee in the middle part of 2002, and we 

asked the question the Chairman just asked about enforcement actions by the Department of Labor.

I want to revisit his question of today and ask why it is that, more than a year after those revelations 

and by my count about seven or eight months since the Department was last here before this 

Subcommittee, no enforcement action has been undertaken under existing law. 

Ms. Combs. I think that is a fair question, Mr. Andrews. It is frustrating to all of us who have 

been involved with the Enron situation and others. We have worked very diligently and have taken 

a lot of action. It is, as I said before, an extremely complicated situation. 

You referenced the hearing about the tax and accounting practices of Enron. These were a 

very, very difficult set of facts to wade through, understand and follow the trail, if you will, to 
11

conduct this investigation. We are cooperating with the other Federal agencies involved in this as 

well.

Mr. Andrews. Have any of those Federal agencies filed civil actions on behalf of the plan 

participants? 

Ms. Combs. There have been private cases, but none of the other government agencies have 

brought their cases yet, to my knowledge. 

Mr. Andrews. Here is my concern. I agree with you about the complexity of this case, but I think 

you would also have to agree with me that assets that might be subject to judgment are much more 

likely to evaporate and disappear. And I am not talking about assets of the plan; I am talking about 

personal assets of defendants that might be called into cases of this nature. It is incomprehensible 

to me that we have waited more than a year to do something about this. 

 The question that I worry about is a rhetorical question, but I think it is going to make a big 

difference in the lives of people like Mr. Padgett who testified here a year ago. How many assets 

move beyond the reach of civil judgment in that year's time that might have been there to back up a 

judgment that could have been entered against the guilty parties should they be proven guilty in 

that case? I understand that when there are criminal investigations going on, civil remedies 

sometimes have to take a back seat. 

 I understand that this is a very complex case. But I also understand that you are giving us 

precisely the same answer that you gave us eight months ago. The case did not get any more 

complex in the last eight months and the assets didn't get any easier to recover. When can we 

expect the Department to disclose publicly whether it will pursue a civil action here or not? 

Ms. Combs. I am very hesitant to give you an exact date, because I don't have an exact date. I 

don't know the answer to that question. We are wrapping things up. I realize that I am giving a 

response similar to what I gave eight months ago when asked similar questions. What can I say to 

the Subcommittee, because you deserve a fuller answer? But we are not there yet, and it is 

difficult. You can't compromise an investigation by talking about it and putting it at risk. 

 I am confident that we will do it soon. I don't want to put an exact date on it because, as I 

said, I don't know the exact date. You are right. It is a question of balance making sure those 

assets are preserved and that recoveries are possible. We also want to have an airtight case or as 

strong a case, I should say, as possible, if and when we do move, so that we are successful. And I 

think we are at a point where we will be taking action soon. 

Mr. Andrews. Frankly, I can only say if the same fiduciary standard that applies to ERISA 

trustees applies to the Department in terms of protecting the assets of those you are entrusted to 

protect, I think the Department could be sued for breach of fiduciary duty. 

 If a plan trustee waited more than a year to vigorously pursue the disappearance of assets, I 

think the Department would hold that plan trustee under the terms of ERISA. And I mean no 
12

disrespect, but I find your answers to be wholly unsatisfactory. 

Ms. Combs. I am not sure there is evidence that assets are disappearing, and I know the Justice 

Department has moved against certain people who are the subject of various investigations to 

preserve their assets. Certainly we are anxious to make sure we maximize the recoveries to the 

extent that we can, and I understand your frustration. 

Chairman Johnson. Could you tell me if you are having problems with Judiciary on this? 

Ms. Combs. It has been a very cooperative relationship. And it is not just the SEC and Judiciary, 

it is also the IRS and FBI. 

Chairman Johnson. But is the coordination aspect between all those agencies being done 

efficiently? 

Ms. Combs. It is being done very efficiently. I think our investigators and our lawyers would both 

say there are several task forces that are working well together and sharing information. Some of it 

is just a practical task. Everyone needs to depose the same people, and I think getting all of those 

things organized for a case that is as complex as this is, it has worked very well. We don't have any 

complaints. 

Chairman Johnson. Mr. Cole, do you care to inquire? 

Mr. Cole. Yes, sir, Mr. Chairman. Thank you very much. 

 Ann, it’s good to see you. I have just a couple of quick questions. If the legislation in 

question had been in effect during the Enron debacle, what would have been the consequences? 

Would we have been able to avoid most of the negative consequences? 

Ms. Combs. Well, I think that is an important distinction. This legislation is not designed nor 

would it have prevented the accounting irregularities and malfeasance that allegedly took place at 

the Enron Corporation. However, there are several things in this legislation, which would have 

improved the situation of the workers, and their retirement plans. 

 For instance, in the Enron plan, they were not allowed to diversify out of company stock. 

The matching contributions in their 401(k) plan were made in company stock, and they were able 

to purchase additional shares. They couldn't diversify out of their matching contributions until they 

were age 50. This would be a significant change so they would have had more ability to sell. 

 I think they would have benefited greatly from investment advice. Many of the participants 

in the Enron plans, frankly, were heavily concentrated in their employer's securities and had they 

had professional advice about the value of diversification, and better information about what was 

happening, that certainly would have been to their advantage. 

 Obviously, as we said in our amicus, ERISA already requires that the information they are 

given by their management be accurate information, and that the fiduciaries act in their interest and 
13

protect their interests. That is what the investigation is about, whether they met those standards, 

but I think the bill would have helped. 

Mr. Cole. So in your opinion this would have significantly enhanced the protections available to 

workers at Enron had we had something like this in effect? 

Ms. Combs. Yes, I think this would have. 

Mr. Cole. Was there legislation like this proposed by previous administrations? 

Ms. Combs. I don't believe there was, not to my knowledge. 

Mr. Cole. So we are breaking new ground here in response to a crisis or a problem or that terrible 

situation that broke upon us rather suddenly in 2001? 

Ms. Combs. I think that is a fair statement, yes. 

Chairman Johnson. I think, if you will allow me, the idea has been around for a while but that 

brought it to the forefront. 

Ms. Combs. Investment advice had been discussed. 

Chairman Johnson. You have been hearing that noise. That is not the Martians coming. It is the 

wind blowing through the windows behind us, and we can't stop it. Maybe our Department of 

Labor could find somebody to fix it. 

Ms. McCarthy, you care to inquire? 

Ms. McCarthy. Yes, I would, thank you, Mr. Chairman. 

 I just want to change the subject a little because there are a number of complaints that I am 

getting from some of my constituents on the cash balance pension plan. We know that some 

companies have already made accommodation for the older workers that have been there for 20 or 

30 years, but I am concerned about what input the Department had on the controversial proposals 

of the IRS regulations permitting cash balance pension plan conversions without protections for 

older worker pensions? This I know is a controversy with an awful lot of people. Obviously those 

workers that have been there 20 and 30 years do get hurt with this conversion. What is the 

Department basically looking into, as far as that goes? 

Ms. Combs. The regulations you mentioned, as you rightly said, were issued by the Treasury 

Department. They have the responsibility for interpreting those portions of the Tax Code that deal 

with benefit accruals and things that were at issue in the application of the age discrimination rules 

on cash balance plans. The Administration has a coordinated effort at the Department. Our staff 

did review those regulations to see what implications there were for areas under our jurisdiction, 

through technical review, but the regulations were developed by the Treasury Department, and they 
14

are going to have hearings. 

 I think regulators need to give guidance to the public. I think it is important they put the 

regulations out and they get input from the public, and I am sure they will be hearing from all 

interested parties on those. 

 We are concerned about workers and the effect of transition. The Department's role has 

been on the disclosure side, working with the Treasury. Treasury actually has the responsibility for 

the official notice, but we have been working closely with them on that. 

 As you may know, our Inspector General looked at several cash balance conversions, and 

we are waiting for guidance from the IRS as to how they apply interest rates and conversions. We 

are concerned about the issue Mr. Andrews was talking about. The switch from defined benefits to 

defined contribution plans raises a lot of issues, and cash balance plans are defined benefit plans.

They have a lot of benefit for employees. The risk is on the employer. The Pension Benefit 

Guarantee Corporation insures them. 

 But you are right. This transition issue in the conversion does have a major effect on people 

who are near retirement, and we need to look carefully at those issues and make sure that they are 

protected.

Ms. McCarthy. Just to follow up on that, I was just handed this. This came from the Department 

of Treasury basically to this Subcommittee. The IRS and Treasury have not issued regulations or 

guidelines on lump sums paid by cash balance plans. So, apparently, they have given you the 

information. Am I reading this correctly? Actually, the IRS is saying that they have given you the 

guidance.

Ms. Combs. I am not familiar with the letter that you are referring to. But we checked as recently 

as last week, I believe, about the status of their guidance to us; and they have yet to tell us how they 

apply the conversion; the lump sum rates on the issue. We can look into this and answer for the 

record, but I am just not familiar with it. 

Ms. McCarthy. I am going to give you a copy of this. This is going back to December of 2002. 

Ms. Combs. Let me just ask. We will take a look at it and give you an answer in writing. 

Ms. McCarthy. I am hoping that you might look at those companies that basically have, in my 

opinion, been very good to their workers, because they have, as far as the complaints, taken care of 

their older workers. 

 Obviously, to all of a sudden lose quite a large lump of money when approaching 

retirement, people like me thought we would retire at 55, are now looking at 67. That is a big 

difference. But for those older workers that thought they could retire and now can't, we really have 

to do a little more to protect them. 
15

 Thank you. 

Chairman Johnson. Thank you. 

Mr. Ballenger, do you care to inquire? 

Mr. Ballenger. Yes, if I may. 

Ms. Combs, have you read the latest Fortune magazine story about Ken Lay and what he 

did at Enron? The question all of a sudden arises that maybe he didn't do anything illegal because 

when he spoke and said he thought the stock was under priced and you should buy, he was buying, 

but at the same time, because of margin costs, he was selling. And the news media made the fact 

that he was selling at those times into an indictment against him. 

 I don't know whether our friends will say that this case should be decided quicker. They 

ought to read that story because, in reality, I think he needed some investment advice to quit buying 

his own stock if the guy just didn't have enough brains to realize that it was going down the tubes.

But the basic idea that he evidently, seriously believed when he told his employees that it was a 

good buy because it was selling far too low was evidently sincere. Have you heard any of that? 

Ms. Combs. I didn't read the Fortune story, but I read reports of the story. And we have to 

establish facts, and that is why investigations take a long time. We take depositions and put people 

on the record under oath and establish facts. It is hard to speculate on the media reports and what 

he believed or didn't believe. Those are very difficult issues. 

Mr. Ballenger. That would make it complicated for lawyers even, and lawyers don't understand 

money anyhow except on the collecting end. 

 Let me just say, having started off with a profit-sharing plan, which I gave to my employees 

that turned out not to be a very good plan because some years you don't make any money and they 

had been used to getting money, I had to do something else. I came up with a defined benefit plan 

and had that arranged for my employees. I ran into government regulations, and then all of a 

sudden ERISA was enacted, and scared me to death. I thought to myself, pretty soon the 

government is going to tell me how and what I have to put in. So I liquidated that and gave it to my 

employees and went into a defined contribution plan. And now it appears that the cash balance 

plans are going to take care of that one, too. 

 Do you feel somewhere along the line that if the Federal Government keeps involving itself 

in various and sundry benefits that an employer gives an employee, employers are just going to quit 

giving those benefits because the Federal Government is going to step in and change the rules after 

you already started the thing? 

Ms. Combs. I think it is a balancing act. It is a voluntary system, and employers don't have to 

provide these retirement savings plans for their workers. There need to be protections put in place.

We need to have regulations and have enforcement and rules. But we have to balance that against 
16

an employer’s willingness. 

 I think we have over the years layered on a lot of complication. I think there is much we 

can do, working together, to simplify the law. In some way just the constant change is a 

disincentive for employers. 

 So it is an issue we can work on together to try to strike that balance, and simplification is 

desperately needed. 

Mr. Ballenger. The sad part about it is that you mentioned what the majority of the news media 

and everyone else doesn't seem to recognize, and that is it is a voluntary benefit that employers can 

either give or not give. I think in a competitive world in order to get the best employees you can 

get, you come up with plans that try to top what someone else has offered. And all of a sudden you 

run into “9/11” and the economy collapses and everything costs more than you thought, and then 

you try to figure some way out of your over commitment. 

 Steel companies and automobile companies are all deeply in debt, and their pension plans 

are killing them. It is very difficult to change it. 

Ms. Combs. It is difficult. 

Mr. Ballenger. That was a completely unbiased statement on my part. 

Chairman Johnson. Thank you, Mr. Ballenger. 

Mr. Case, do you care to inquire? 

Mr. Case. Yes, Mr. Chairman. 

 As a lawyer, I will attempt to demonstrate my knowledge of money issues over and above 

collecting.

 Madam Secretary, thank you. Welcome to the Subcommittee. I agree that the bill takes a 

step in the right direction in many areas, but I would like to refocus on the professional investment 

advice portion of this because I think that probably is the most sensitive part of the bill; and judging 

from the devotion in your oral testimony on this one point, it appears to be quite sensitive. So let 

me ask you the basic question, and my sub questions are designed to ask you the question, why is it 

necessary we do this right now? 

My understanding is that, under the ERISA laws at the moment, we have some pretty strict 

barriers to the ability of employers and firms providing pension services that provide independent 

investment advice to their employees. It is pretty tight, isn't it? You can't do it under many 

situations. 

Ms. Combs. They are independent investment advisors if you use a third party who is unrelated to 

the plan options or the financial service provider. When firms are also sponsoring some of the 
17

investment options in the plan, there is a very strict prohibition. 

Mr. Case. And the advisory opinion that you referred to, first of all, I assume if it was an advisory 

opinion, that what you have set up and authorized under that advisory opinion is compliant with 

law. And I think a very important part of that advisory opinion, if I am not mistaken, is that each of 

these advisors when they take advantage of the safe harbor under the advisory opinion actually hire 

an independent financial advisor to look over their shoulder, right? 

Ms. Combs. They actually contract with an independent. In the case of SunAmerica it was 

Ibottson who develops an asset allocation model if you will. Ibottson feeds in the individual 

participant's information, demographic information, and risk tolerance and produces an optimal 

investment portfolio. Then the financial services firm presents that to the individual, but they can't 

deviate from that. The financial services firm can't say, well, if you aren't comfortable in the 

international fund, you can do this instead. That is the limitation of the opinion. 

 The opinion opened up a lot of access to advisors, and I am proud of it, but I think there is 

more that we need to do. 

Mr. Case. Fundamentally, what that opinion said was that you need to retain the independent 

advice to the entity that is taking advantage of that opinion, right? 

Ms. Combs. Under current law, that is a requirement. 

Mr. Case. And under the bill as proposed, that is gone. You don't have to have that independent 

advice anymore. 

Ms. Combs. That is right. Under the bill, in this instance SunAmerica itself, the SunAmerica 

advisor could sit down with the worker and say, well, if you are not comfortable with this portfolio 

that has been produced by the model we can tweak it, we can adjust it. This bill would allow that 

to happen. That can't happen now. 

 I hate to use them as an example. 

Mr. Case. You take out the third party. 

Ms. Combs. You could. 

Mr. Case. What is the policy reason for doing that? And let me go a step further. Your testimony 

says that current law raises barriers against them providing individual advice; and you go on to say, 

as a result, millions of rank and file workers don't have the information and advice necessary. 

Is there any lack of independent information and advice available to workers who want 

advice? I mean, I could see this if the only people out there providing investment services were the 

very same people that were the employers or that were starting up these pension plans, but my 

understanding of this industry is that there are a lot of people out there wanting to give advice. Is 
18

there a shortage of people available to give independent advice? 

Ms. Combs. There are people who are able and willing to give independent advice. But 

consolidation in the financial service industry has made this more of a problem because a lot of 

people are related to one another, which causes them to violate these rules. 

Mr. Case. Just to follow up on that, this bill would facilitate more consolidation, right? Because it 

would really drive the independent advisors back under the umbrella of these very same companies 

that now can have a one-size-fits-all, drive-in, get-everything-you-want kind of model. 

Ms. Combs. Personally, I think the independents will remain that way. I think there is a niche for 

independent advice. I think it is good service. But what we hear is that there is not a lot of take-up 

among employees because it is often Internet based and pretty sophisticated. You have to sit there 

and fill in a lot of information. What they really want at the end of the day is to sit down across 

from a person or pick up the phone and ask what should I do. And so this is another option. 

 Independent advice, I think has its niche. I think it will continue as a viable option. But the 

intent of this bill and what we would like to see is more options made available for that small 

employer who just wants to make one stop and go to a Fidelity or a Vanguard or someone and have 

them take care of the whole process. 

Mr. Case. They can do that right now under the advisory opinion, that “one stop.” 

Ms. Combs. It is more than looking over their shoulder. They have to generate the advice. They 

could. But again using as an example an advisor from Fidelity or Vanguard or SunAmerica or 

Prudential who is on the next panel, they couldn't sit down and say, here is what our model 

produced for you. Are you comfortable with it? Is there anything else you would like to do 

instead? That is what they can't do, and that is what they want to do. They want to provide that 

very individualized, very personalized point of contact. 

 And I think that is what most people we hear about are comfortable with. What we really 

want to do is get the advice to people, and we want to help them be better informed and help them 

make better decisions. So I think we want to get services out there that they can and are willing to 

access and use. 

Mr. Case. My time is up, but I would suggest that the timing of doing this is wrong under the 

circumstances, and perhaps it needs to be thought through a little further. 

 Thank you. 

Chairman Johnson. Gentleman's time has expired. 

Mr. Kline, do you care to comment? 

Mr. Kline. Yes, thank you, Mr. Chairman; and thank you, Madam Secretary, for being here and 

for the thoroughness of your responses to our questions. I want to follow up on what my colleague 
19

was just talking about. 

Mr. Case was pursuing the notion of investment advice. And in response to an earlier 

question you addressed the complexity of dealing with the Enron case and the many government 

agencies that are involved, the FBI and so forth. It seems to me that the investment advice portion 

of the Pension Security Act is an important part of it. Can you talk to us about how that will be 

enforced, keeping the investment advice legal? Who is going to be responsible and how is that 

going to work? 

Ms. Combs. There are several safeguards in the legislation. 

 First of all, you have to be a qualified advisor, and that means you have to be regulated by 

the banking institutions or the FDIC or the broker dealers or by State insurance law if you are an 

insurance agent. So the person giving the advice is subject to professional regulation. 

 Most importantly, they have to acknowledge that they are acting as a fiduciary, which 

means they have an obligation to act only in the interest of the person whom they are advising. 

That is under ERISA, and we enforce those rules. Financial institutions take fiduciary 

responsibility extremely seriously. They realize that if they violate the fiduciary roles, they are not 

only personally liable but we often seek and do often get bans on them serving as fiduciaries in the 

future, which is a career killer if you are a financial institution. So that is a serious sanction as 

well.

 And there are all sorts of reporting and disclosure provisions. They have to disclose their 

fees. So there is a whole statutory framework established to make sure people are aware. 

Mr. Kline. In your judgment, would the enforcement of this portion of the Act be pretty 

straightforward and not lead to those complications that you discussed earlier despite the fact that 

there is a whole scheme? 

Ms. Combs. Correct. 

Mr. Kline. Mr. Chairman, I yield back. 

Chairman Johnson. Mr. Payne, do you care to inquire? 

Mr. Payne. I have a short inquiry. Let me thank you for your testimony, Secretary Combs. And I 

thank the Chairman for calling this very important hearing and the Ranking Member for being right 

on top of this issue. The ability to present to employees a plan and then to sell it is the crux of what 

has been a debate for a number of years 

 Very interestingly, I think Mr. Case as a new member, astutely saw one of the contentions. 

I am not going to deal with that issue right now. I just want to get back to some of the discussion 

about the defined benefit as opposed to the defined contribution plan, which we currently have. 
20

 In the old days, the defined benefit was the way that most companies went. And coming 

from ACLI, I know you are familiar with actuarial and actuarial statements. These benefits were 

not just done willy-nilly. They were based on the present value of future needs and the whole 

question of how actuarially we come up with amounts that would come out at a particular time. 

And I don't know why all of his plans failed. 

 But I do believe that the government should have stepped into the issue when many small 

businesses had plans in which revenue was taken from the company, or a CEO or executive officer 

of a small business could have a plan that would give them, say, 20 percent of their earnings for 

retirement but other employees might get 5 percent. I mean the government needed to step in. The 

government didn't step in just because they were looking for something else to do, and they stepped 

in to ensure an equal and fair distribution of retirement income. 

 I just mention that about defined benefits because, as you know, a week or so ago the 

United Steelworkers were told that their health care and their pension benefits would simply be 

totally eliminated because Bethlehem Steel is selling their company and they simply eliminated any 

benefits. It is just very harsh for beneficiaries to find out that they have no longer have benefits.

Do you believe that profitable companies that have promised, of course, Bethlehem Steel is 

far from profitable at this time, a certain level of retirement income should be able to renege on the 

promises that they make at this time as they move forward or should there be some adjustment so 

that they can use their actuarial information to determine where they stand? 

 I mean to get a letter, say as of Friday, that you have no more health benefits and no more 

pension benefits like the Bethlehem steel workers got last week is almost criminal. And some 

assistance from the government should be part of it. 

 People feel that government is best which governs least, and that is great. However, in this 

instance, there is a need, I believe, for the government to take a look at this. What are your views 

on that? 

Ms. Combs. Well, in the Bethlehem situation, I would just point out that the company is in 

bankruptcy, and did terminate its plan. The Pension Benefit Guaranty Corporation (PBGC) has 

assumed that plan, and so the retirees will be receiving benefits from the insurance system. There 

is a limit on the guarantee, I think it is approximately $44,000 a year now, but some people receive 

less than that depending on their age and, as you said, it is actuarially factored in. But there is a 

Federal safety net for companies that terminate in an under funded situation, when they are in 

bankruptcy and in distress. 

 Retiree health is a different situation. There are no requirements that retiree health benefits 

be funded. There is no insurance program for retiree benefits. It really is a contractual obligation 

between the employer and the workers. And the employers, if they have reserved in their plan the 

right to terminate it or cancel it, can do that. There are some provisions that you all passed last year 

to expand the Trade Adjustment Assistance Act that would provide a health care tax credit up to 65 

percent of the cost of health care for people whose benefits are being paid by the PBGC. So those 

Bethlehem retirees who are receiving benefits from the PBGC will receive assistance in purchasing 
21

health care through a Federal tax credit. 

 So, there are programs that are in place. But it is a bad situation and one that we don't like 

to see happen. The Administration is currently working on proposals to improve and shore up the 

defined benefit system. There are several approaches. We want to make sure that promises that are 

made are kept and that pensions are well funded. We want to make sure that the interest rate used 

to replace the 30-year Treasury rate that is expiring, is an accurate interest rate that reflects the true 

liabilities of the plan. We need to make sure there are transition rules so companies can get on the 

right path. The insurance system's integrity is shored up and preserved, and that there is 

transparency so that people are aware of the funded status of their plans. 

 When Bethlehem terminated I understand that it was only about 50 percent funded. I don't 

know the exact number, but a plan shouldn't be in that kind of situation. We need to work together 

to make sure that promises are kept. 

Chairman Johnson. Thank you, Mr. Payne. 

Mr. Platts, you are recognized for 5 minutes. 

Mr. Platts. Thank you, Mr. Chairman. I will be brief. I need to run off to a organization meeting 

for Government Reform. 

I want to thank Madam Secretary for being here and for the information you shared with us, 

and also thank the Administration. 

And thank you, Mr. Chairman, for your leadership in moving this issue very quickly at the 

beginning of the new session, because of its importance to so many of our workers in need of the 

additional assistance and guidance. And if I could, Mr. Chairman, I would also add my words of 

gratitude for your service to our Nation and to all men and women who have served our nation and 

who have overcome such challenges as you have done. I’m proud to be a new Member of the 

Subcommittee with you. Thank you. 

Chairman Johnson. I appreciate that. Thank you. 

Mr. Wu, do you care to comment? 

Mr. Wu. Thank you very much, Mr. Chairman. 

I would like to ask the Assistant Secretary a question or two about the vesting aspects, or 

what I view as vesting aspects, of the bill that passed through our Subcommittee and the Full 

Committee and the House last year. And I come at this from the perspective of someone who has 

run, if you will, in essence, a small business. 

I had thought that it would be wise to have a vesting period for our retirement plan, and it 

was one of my Republican law partners who actually said: If folks are sticking around just to vest, 

that is the worst reason for someone to stick around. You know, you want someone on your team 
22

who is pulling hard on the harness all the time and not just for compensation or pension reasons. 

And I acceded to his wisdom in that particular instance. 

 In the bill that we passed, we have a rolling 3-year period. And as I recall, I supported that 

bill, but with reservations about that particular provision. We have some pretty significant 

businesses in Oregon, which provide instant vesting, and you can opt out of the employer stock the 

moment that you receive it. I have heard the arguments about employers not being interested in 

providing stock if employees would just leave it. 

Do you think that that is a real issue, or is that a bit of a canard? And if it is more than a 

canard, what percentage of employers do you think would fail to offer their employees their own 

stock because of faster vesting provisions? 

Ms. Combs. I do think it is a real issue. I don't have any statistics to say what percentage of 

employers would stop offering stock or, more importantly, stop offering matching contributions.

And you are right, many plans do allow immediate diversification out of employer stock and they 

find that that works well for their workforce and it meets their objectives. But other employers 

have said that if they can't keep the employer stock to give people some connection for three years 

or so with participation, that they won't be able to make as generous a matching contribution 

because they won't use stock to match. 

Mr. Wu. What drives that concern? Because if I were an employer, I would think boy, I want my 

employees to keep my stock because they want to, not because they have to. And if there is a 

“have to” aspect of this, then there are other aspects of my business plan that I ought to be looking 

at. Don't you think that if your own employees want to opt out real fast, the business has a bit of a 

problem? 

Ms. Combs. I think some employers want to build loyalty. They are giving the stock as a way to 

reward people who are going to stay with them for a while. They view it as a reward and, 

therefore, they want to have some time restraints on it. I think there are different business models 

and different motivations for companies. But we heard from many, many employers that said it 

was important that there be a period of time in which they could require that the match in 

contributions primarily remain invested in employer securities. 

 It is cost effective for companies to make matches in employer securities, and so they want 

to keep it in stock and they want to have some of it invested because they think it builds employee 

loyalty to the firm to be an owner/investor as well as an employee, and I think it does. 

Mr. Wu. Well, I have been supportive of various aspects of what I hope to be a bipartisan bill, but 

I do have to say that I have deep concerns about an employer that can't earn that loyalty on a dayby-day basis. 

Ms. Combs. The bill doesn't require you to keep it for 3-years. That is the maximum you can 

keep it. You can still have a plan where the stock could be sold the next day. It is just saying that 

those companies under the current law that say you can't sell until you are age fifty or you can’t sell 

until you retire can’t restrict it any longer than 3-years. 
23

Mr. Wu. I understand the provisions of the bill. There is a competing 1-year provision, and I am 

proposing that; you know, 1-year is pretty long. You know, if you are running your business well 

and you are treating your employees well, then hopefully, even if they can flip out on day one, they 

will stick with you. And a lot of people do stay out of feelings of loyalty and sometimes out of 

inertia. So I am rather concerned about this 3-year period. 

Chairman Johnson. The gentleman's time has expired. 

Mr. Wu. Thank you, Mr. Chairman. 

Chairman Johnson. That is fine. Let me just explain to you again what she said. It is voluntary 

on the company's part. It is the companies that require their employees to hold the stock for 40 

years as an example, or until employees reach age 55 that we were getting at. The companies that 

have employees that want to turn their stock over on the first day can. 

Mr. Wu. Yes, Mr. Chairman. I understand that we are trying to level the playing field, if you will. 

But it is a question of how level we are going to make it; a little bit smoother or a little bit rougher.

And a 3-year roughness is, from my perspective, too rough. 

Chairman Johnson. I know you also understand the idea of compromise up here in order to get 

something done. 

Mr. Wu. I surely do. And I think 1-year is a wonderful compromise. 

Chairman Johnson. Ms. Combs, thank you so much for your time and valuable testimony. We 

appreciate the job you are doing. What is the acronym again for the new name of the agency? 

Ms. Combs. The acronym is EBSA, for Employee Benefits Security Administration. 

Chairman Johnson. Thank you so much for being here. We appreciate your time, and you may 

step down.

Ms. Combs. Thank you.

Chairman Johnson. I would ask that the second panel come forward and take their seats. Thank 

you so much. 

 For the benefit of the witnesses and the Members who are still here, we are expecting one 

vote within 5 minutes or so. We will recess at that point until the vote is over and come back and 

begin where we left off. We will do what we can right now. 

 Our first witness on the second panel is Mr. Ed Rosic. He is Vice President and Managing 

Assistant General Counsel for Marriott International, Inc., Bethesda, MD. Mr. Rosic is testifying 

on behalf of the American Benefits Council. 
24

 The second witness is Ms. Nell Minow. Ms. Minow is the Editor for The Corporate 

Library, Portland, ME. 

 And the final witness for today is Mr. Scott Sleyster. Mr. Sleyster is the Senior Vice 

President and President of Retirement Services and Guaranteed Products for Prudential Financial, 

Washington, D.C. 

 I ask you all to limit your statements to 5-minutes, if you will. Your written statements will 

be included in the record. And I remind Members that the same 5-minute rule for questioning 

witnesses applies. 

Mr. Rosic, you may begin your testimony now. And if we quit in the middle in a minute, 

we will start where we left off. Go ahead, please, sir. 

STATEMENT OF ED ROSIC, VICE PRESIDENT AND MANAGING 

ASSISTANT GENERAL COUNSEL, MARRIOTT INTERNATIONAL, INC., 

BETHESDA, MD, TESTIFYING ON BEHALF OF AMERICAN BENEFITS 

COUNCIL

Good afternoon, Chairman Johnson, Ranking Member Andrews, and Members of the 

Subcommittee. Thank you for the opportunity to appear this afternoon. As you noted, I am Ed 

Rosic with Marriott International. We are headquartered in Bethesda, Maryland. 

 With over 144,000 employees and nearly 2,600 operating units, Marriott is a leading 

worldwide operator and franchiser of hotels and related lodging facilities. I am here this afternoon 

on behalf of the American Benefits Council, which is a public policy organization principally 

representing Fortune 500 companies and other organizations that assist employers of all sizes in 

providing benefits to employees. Collectively, the Council's members either directly sponsor or 

provide services to retirement stock and health plans covering more than 100 million Americans. 

 Let me begin by noting the importance of our voluntary employer-sponsored retirement 

savings system. Today, more than 56 million workers have amassed more than $2 trillion in 

retirement savings, and many have built a substantial ownership stake in their company. These 

successful employer-sponsored plans not only prepare workers for retirement and democratize 

corporate ownership, but they also serve as engines of economic growth. 

Chairman Johnson, you understand the delicate balance of regulation and incentives upon 

which the success of this voluntary employer-sponsored pension system depends, and we 

appreciate your sensitivity to these issues as you lead this Subcommittee's approach on retirement 

policy.

 In order to avoid unintended harms, the Council believes that retirement savings policies 

should focus on insuring that 401(k) participants have the information, education, and professional 
25

advice they need to wisely exercise their investment responsibility. We supported the proposals 

contained in the Pension Security Act of 2002 that would have helped employers facilitate 

professional investment advice for 401(k) participants. The employees at Marriott are provided 

with an array of educational services for retirement planning; however, Marriott, along with many 

other employers, would welcome the additional flexibility in choices provided by these investment 

advice provisions. 

 Moreover, the Council would urge the inclusion of tax incentives for qualified retirement 

planning services, and we, likewise, support providing employees with more regular retirement 

plan benefit statements that stress the importance of diversification. 

 In addressing the question of company stock and retirement plans, we have been concerned 

that aggressive diversification rules could risk reduced matching contributions in some 

circumstances since employers would no longer be able to guarantee that every worker has a longterm ownership stake. The Pension Security Act's diversification rule, under which employees can 

exchange shares of company stock after three years, is directly responsive to our concern. It allows 

employers to use either 3-years of service rule, or a rolling 3-years from date of grant rule, and also 

adopts a transition rule under the proposed diversification regime. We sincerely appreciated the 

bill's approach on this issue. 

 Finally, we wish to thank you and Chairman Boehner for rejecting more onerous mandates 

and liabilities such as expanded ERISA liability, joint trusteeship, and additional fiduciary 

insurance, all of which would unfairly penalize broad-based employee ownership. And we would 

urge your continued opposition to such proposals. 

 The Council would support including in the reintroduced Pension Security Act several other 

initiatives that were dropped from the 2001 tax reform bill and that would enhance the voluntary 

employer-sponsored retirement system. These provisions include expansion of the employee plans 

compliance resolution system, the missing participants program, and the incentives for forming 

new defined benefit plans. Recently there has been renewed interest in defined benefit pension 

plans due to their guaranteed nature and the important buffer they provide to employees against 

market risk. We believe Congress should also use the occasion of its review of the defined 

contribution plan system to streamline the rules that apply to defined benefit plans so more 

companies can provide these employer-funded and insured plans to workers. 

Chairman Johnson, you have led the way in addressing one of the most vexing problems 

faced today by defined benefit plan sponsors: The inflated liabilities, the funding requirements, 

and premium obligations that have resulted from the buy-back and discontinuation of the 30-year 

Treasury bond. We are pleased that you have expressed your desire to enact permanent pension 

interest rate reform. 

Chairman Johnson, the Council also commends you for supporting broad-based stock 

ownership and enhancing the opportunities for equity ownership by rank and file employees. We 

fully support legislation that excludes statutory stock option plans, such as employee stock 

purchase plans, from the imposition of federal payroll tax withholding. 
26

 In closing, Mr. Chairman, the Council urges a cautious and prudent retirement policy 

approach so as not to undermine our successful retirement savings and employee ownership 

system. Thank you for the opportunity to appear. 

WRITTEN STATEMENT OF ED ROSIC, VICE PRESIDENT AND MANAGING 

ASSISTANT GENERAL COUNSEL, MARRIOTT INTERNATIONAL, INC., 

BETHESDA, MD, TESTIFYING ON BEHALF OF AMERICAN BENEFITS 

COUNCIL – SEE APPENDIX C 

Chairman Johnson. Thank you, sir. I appreciate all of you being here, and your time. It is not 

easy for you to come up here sometimes. But right now we have got a vote call. We will recess 

and be back as soon as this vote is over, somewhere around 15 minutes. The committee stands in 

recess.

[Recess.]

Chairman Johnson. The Subcommittee will come to order. We will be back in session, and 

begin the testimony with Mrs. Minow. Please go ahead with your testimony now. Thank you for 

being here. 

Ms. Minow. Thank you very much, Mr. Chairman. It is a great honor to be here, and I appreciate 

your allowing me to substitute for my long-time colleague Bob Monks. I ask to submit his 

testimony into the record. 

Bob Monks, of course, was at one time the head of what we used to call PWBA and is very 

familiar with these issues. 

Chairman Johnson. What is it called now? 

Mr. Andrews. EBSA. 

Ms. Minow. EBSA. Thank you, Mr. Andrews. I forgot it already. 

STATEMENT OF NELL MINOW, EDITOR, THE CORPORATE LIBRARY, 

PORTLAND, ME 

 I am here really to talk about just one of the issues that has come up with regard to the 

proposed legislation, and to tell you that in general I am very supportive of the leadership that you 

are showing on these issues and of the bill. But I do want to raise some concerns over the issue of 

conflicts of interest that may arise, and to encourage you to continue to keep the barriers to 

recommendation of products that can create that conflict of interest.
27

I think if the year 2002 taught us anything about the vulnerabilities in our system, it is that 

we do have to take conflicts of interest very, very seriously. Particularly, the conflicts have been 

exacerbated with the elimination of many of the restraints on conglomeration. The conflicts are 

there. They are real. They exist. And it seems ironic to me that in an era where we are working so 

hard to strengthen Chinese walls and barriers to conflicts in so much of our financial markets, we 

are talking about removing some of those protections in this very sensitive area. 

 Right now, the trustee is prohibited from making investment advisory arrangements and for 

making recommendations for services that are that advisor's own services. And there is no reason 

to remove that protection. There are similar services available in many, many different places. 

And I am not at all persuaded that a disclaimer or a disclosure of conflict of interest will correct the 

problem. I think we have had a tradition in our regulatory system of making distinctions between 

different kinds of investors. We allow sophisticated and wealthy investors, for example, to do 

things that we don't allow the average American to do. And we are talking about average 

Americans here. 

 I have great respect for their intelligence and their integrity, but I do think they get 

overwhelmed with some of this financial information. And when you talk about setting up these 

special relationships, you talk about how they do want to talk to a person, they want to have some 

human interaction, and they become very vulnerable at that same point. And when that same 

person they are talking to says, listen, I think my own products are the best; now, there is a conflict, 

I am warning you about that, but you still want to buy my own products. I think you are really 

opening up the door to an area of abuse that is completely unnecessary. 

 Those that propose the amendment say that the Pension Security Act would fix outdated 

Federal laws and allow employers to provide their workers with high quality professional 

investment as an employee benefit, but also include key safeguards to protect the interests of the 

workers. It must be a commentary on the times in which we live that restriction against conflict of 

interest can be characterized as outdated Federal laws. I think conflicts of interest are very serious. 

 I want to put that into context for a moment and say that while I respect Secretary Combs' 

comments about the ability of the Department of Labor to enforce conflict of interest issues, 

frankly, they failed very badly over the years with regard to conflicts. None of the abuses of the 

corporate meltdowns of last year would have been possible without the complicit support of the 

large pension funds in endorsing incompetent boards of directors, outrageous pay plans, et cetera.

And yet the Labor Department has never once, ever, ever brought an action against a pension fund 

for failure of fiduciary obligation and protecting them on those issues. 

 The GAO has just undertaken an investigation in that area for the first time, I am pleased to 

say, on the issue that has been written up in the current issue of Business Week on Deutsch Asset 

management at Hewlett-Packard/Compaq. I would at least wait until you get that kind of data 

before you consider repealing this important protection. Thank you very much. 

Chairman Johnson. Thank you, ma'am, we appreciate your testimony. 
28

Mr. Sleyster, would you go ahead with your testimony now. 

STATEMENT OF SCOTT SLEYSTER, SENIOR VICE PRESIDENT AND 

PRESIDENT OF RETIREMENT SERVICES AND GUARANTEED 

PRODUCTS, PRUDENTIAL FINANCIAL, FLORHAM PARK, NJ 

Good afternoon, Chairman Johnson, Ranking Member Andrews, and Members of the 

Subcommittee. Thank you for the opportunity to appear this afternoon to testify about the need for 

investment advice for participants in defined contribution retirement plans and the safety and 

soundness associated with the provisions contained in the Pension Security Act. I am Scott 

Sleyster, President of Prudential Retirement Services and Guaranteed Products, a business of 

Prudential Financial. Prudential has over 75 years of experience serving the retirement needs of 

public, private, and nonprofit organizations. We manage or administer more than $60 billion of 

retirement assets, and we provide defined contribution services to one million participants, and 

annuity payments to 600,000 defined benefit participants. 

Mr. Chairman, as you and Chairman Boehner recognized by your sponsorship of the 

Pension Security Act, Federal pension law needs to be amended and modernized to encourage 

employers to provide workers with access to professional investment advice. When ERISA was 

passed in 1974, defined benefit plans (DB) were the primary platform upon which retirement 

benefits were being delivered, and the legislation was focused on the DB system. 

 Today, defined contribution plans (DC) dominate the retirement landscape with over 40 

million workers relying on DC plans for all or part of their non Social Security retirement income. 

As you know, DC plans have shifted all that investment risk to the workers. In the D B plans, the 

employer retained that investment risk and they typically hired actuarial and investment firms to 

study funding requirements and make their investment decisions. In DC plans, we have typically 

shifted that responsibility to the individuals to make on their own, and the workers who have to 

make those decisions are seeking advice. 

 Prudential recently conducted a survey that confirmed that participants are seeking guidance 

in managing their DC accounts. Among our survey's notable findings were that almost 60 percent 

of American workers feel that they are not saving enough for retirement. Only half of all the 

respondents set any type of savings goal, and upon further questioning, 30 percent of those who 

said they did set a goal said they did so by guessing. This finding is consistent with the 2002 

retirement confidence survey that indicated that fewer than one third of workers surveyed have 

calculated how much money they need to save by the time they retire. 

 Many workers are eligible but do not participate in their DC plans. Of these, 68 percent do 

not have college degrees, 45 percent have less than $50,000 in annual income, and 54 percent of 

them have children. Defined contribution participants indicate that they would like to get financial 

advice through their plan to help them better manage their investment decisions. Sixty three 

percent of participants surveyed responded that if they had access to a professional investment 
29

advisor, they would increase their savings level, and 41 percent said they would reallocate their 

portfolios based on this advice. 

Mr. Chairman, we at Prudential are committed to finding effective and efficient ways to 

provide DC plan participants with advice. While some have expressed concerns about fund 

providers offering advice, there are several reasons why fund providers are actually very well 

positioned to offer advice to the plans that they administer. Furthermore, the legislation does 

include substantial protections to ensure that participants are protected from conflicts of interest.

I think the most important reason, Mr. Chairman, is the efficient and effective delivery of 

this advice. Plan record keepers who currently offer investment funds already have access to the 

plan rules and knowledge of the plan's investment options. They are aware of the payroll 

contribution records of each participant. And the delivery of the investment advice, in effect, 

would be very low cost because it is just a simple extension of the services that are already being 

provided, and it would be provided in the format that the participants are already familiar dealing 

with; the 1-800 number and over the Internet. 

 Also, the DC market is intensely competitive, and there would be significant pressure for 

advisors to provide the best possible advice. Employers have an extensive universe of record 

keepers and investment advisors available to choose from, and ample opportunities to replace any 

advisor not performing at the highest level. Additionally, you have two layers of protection. The 

plan sponsor is already screening the choices that are available in DC plans and they are reviewing 

which choices are available. So it is a limited universe. And then, of course, as you know, the 

advice being offered would be subject to fiduciary rules. 

 In summary, Mr. Chairman, if the legislative goal is to help as many qualified plan 

participants as possible gain access to high quality professional investment advice, I believe the 

overall solution must include the ability for fund providers to offer advice. Fund providers serving 

as record keepers are in the best position to provide investment advice in a low cost, effective 

manner. If we do not find a more effective way to allow DC plan participants to access 

professional investment advice, I believe that we will not have done enough to make real progress 

towards Americans achieving retirement security. Thank you for the opportunity to speak today. 

WRITTEN STATEMENT OF SCOTT SLEYSTER, SENIOR VICE PRESIDENT 

AND PRESIDENT OF RETIREMENT SERVICES AND GUARANTEED 

PRODUCTS, PRUDENTIAL FINANCIAL, FLORHAM PARK, NJ – SEE 

APPENDIX D 

Chairman Johnson. Thank you, and thank you to all three of you.

I am going to do something a little different here. Ms. Minow talked about security and the 

thought that whomever the advisor might be is subject to some, I don't want to call it fraud, but 

“mis-advice”, shall we say, because he is going to push his own product. 
30

One at a time, I would like you three to tell me what you think of that, and why there isn't 

enough protection in this bill. The person doing the advising has got to be under severe regulations 

from almost every source. He has got to pass a lot of tests in order to be an advisor. And in your 

case, he is part of a big company that is not going to let him do something that is not right.

Furthermore, he could lose his license and ability to have a means of support if he did advise in the 

wrong way. 

 So, can you comment on that first, Ms. Minow? And then I would like to hear you two 

respond.

Ms. Minow. Yes, Mr. Chairman. Thank you. 

Let me put it this way: There are a wide range of financial products out there which are, 

with all respect to Prudential, almost identical. So what is the benefit? We have to ask ourselves 

what is the benefit of allowing them to present their own products, and what is the cost of allowing 

them to present their own products. 

 The fact is, because they are so similar, they will have a natural inclination to want to 

promote the ones that have the greater return for them. And with respect, I have to disagree that 

there are significant disincentives to do that. 

 The Labor Department's history of enforcing conflict of interest concerns, as I said, is 

almost nonexistent. Furthermore, the rules themselves are kind of squishy. As long as they 

recommend a product that somebody else has bought into, it is going to be very hard to prove that it 

is fraudulent.

I am not talking about fraud. I think we are okay, that fraud is taken care of. I am talking 

about a conflict of interest where the advisor is going to protect his own interests as well as the 

person he is advising, and I think we should take that out of the equation. 

Chairman Johnson. Well, the conflict normally arises, at least it has been stated as such in our 

other hearings, from advisors telling them they need to buy the company’s stock. 

Ms. Minow. Certainly. 

Chairman Johnson. And of course if Prudential has, and we will use them because they are here 

and they can defend themselves, their own line of products, you are, in essence, saying that is the 

company stock; is that true? 

Ms. Minow. Yes. 

Chairman Johnson. That is what you are trying to say? 

Ms. Minow. That creates the same kind of conflict. In other words, certainly they would have an 

incentive to promote the stock of the person who is employing them because they want to make 

them happy. Then they would want to make themselves happy. But an index fund is an index fund 
31

is an index fund. And, frankly, we are talking about retirement funds. We are not going to be 

telling them to invest in hydroponic futures; we are going to be talking just standard products. 

Chairman Johnson. I hope not. 

 Would you respond, please? 

Mr. Sleyster. Well, I have a couple of comments. 

I think, first and foremost, you need to remember that the choices or options that are being 

offered in DC plans have already been reviewed by the plan sponsor. The industry has demanded 

open architecture for some time. So you typically have 11 to 15 choices, and in most cases, our 

funds and any company's funds would probably only represent about a third of that. 

 Second, the most important decision here isn't the individual fund or even fund manager. 

The most important issue in managing a portfolio is asset allocation. And models are built to 

design asset allocation, and that is really what designs the choices you have. So, that if you have 

15 funds, you don't have 15 growth funds; you have some that are growth, some that are 

international, some that are small capped, some that are fixed income, some that are stable value. 

So many times with what the model is kicking out, you may or may not even have a proprietary 

asset choice there. And I think what really drives this is asset allocation. 

 The third point I would make, and I think it is probably the most important, is that the issue 

here is how are we going to get advice to people in a cost effective manner. While you can 

probably come up with more esoteric and elegant solutions that seem pure, if you are asking the 

company to fund that or you are asking the participant to pay an additional fee for that, then you are 

going to end up with what we have ended up with already, which is tools out there that aren't 

utilized or options that plan sponsors don't want to pay for. 

And, you know, quite frankly, that is really the issue: How do we get investment advice to 

the average employee? Remember, in the average 401(k) balance in America, 45 percent of plan 

participants have less than $10,000. People aren't typically trying to go after those customers to 

sell them other products. The real question is, how do we get them advice that is as close to 

unbiased as possible, but also in a very cost efficient and simple manner. 

Chairman Johnson. And you feel that they are protected because of the laws that are already in 

place in the investment industry? 

Mr. Sleyster. Well, as a participant in the industry, I can only say we feel very fully regulated.

We have very strong internal controls, but we also are audited, quite frankly, every time we set up a 

plan. The plan sponsor comes out and looks at what we do. And then we are also audited as a 

broker dealer and a licensed security. 

Chairman Johnson. Arthur Andersen put you all on alert, didn't it? 
32

Mr. Sleyster. Well, we feel that we are under a very bright spotlight. 

Chairman Johnson. Thank you. 

 Do you have a comment? 

Mr. Rosic. I tend to agree with Mr. Sleyster. We are talking about some fundamental advice here. 

And while I understand the practical concerns that Ms. Minow has, we do have the fundamental 

protections of ERISA still in place, plus the other legal regulatory environments for these advisors. 

The plan sponsor and the other fiduciaries of the plan are still players. And that is what ERISA's 

setup structure is about, to provide the basic protections. There is an enforcement issue, not just 

with the government, but there are private enforcement mechanisms available as well. 

Chairman Johnson. Thank you. 

Mr. Andrews, you are recognized for 5 minutes. 

Mr. Andrews. Thank you. 

 First of all, I would like to thank the panel for the excellent thought-provoking testimony. I 

have had a chance to read all the statements, and I appreciate it. 

 Here is the practical situation I am concerned about, and I would ask each of the three 

panelists to comment. We had a comment a minute ago that 45 percent of the participants in 

401(k) plans have less than $10,000. Here is the problem. One of those persons with a small 

401(k) gets conflicted investment advice that turns out to be a violation of fiduciary duty. The 

investment advisor says, you know, the right thing for you to do is to put all of your money into 

this one fund. And it turns out that it is a poor asset allocation decision, and the person suffers a 

$6,000 loss in her $10,000 401(k).

I know that this is a violation of ERISA's breach of fiduciary duty. I also know that as a 

practical matter the history of this statute tells us that absolutely nothing is going to happen as a 

result to benefit the person who just lost 60 percent of her 401(k). 

 Let us review the possibilities she has under present law. The first is that she could sue, I 

suppose, the planned trustee or someone in the chain of fiduciary control for breach of fiduciary 

duty. Given the realities of contingent fee practice, she is not going to find a lawyer who is going 

to represent her in a case where her maximum recovery is $6,000. It is not going to happen. 

 The second reality that she has is she could write to the Department of Labor and ask them 

to do something about it. You all were present in the room earlier when the Assistant Secretary 

was here and told us that in the largest pension scandal in the modern history of the country, it has 

taken more than a year to do anything about that. So I think the prospects of them doing something 

for a $6,000 claim are rather slender. 
33

 I would ask the panel two questions, and I sincerely mean this. Number one, what is wrong 

with my conclusions about the remedial realities? Am I missing something? And number two, if 

those remedial deficiencies do exist, of what value is the protection of ERISA fiduciary coverage 

for someone who receives conflicted advice, a breach of fiduciary duty? Any of the three of you 

may start. 

Mr. Rosic. I think that a third remedy that might be available is monitoring by the plan sponsor 

and the other plan fiduciaries. This is going to act as a discouragement to a financial advisor for 

the kind of behavior you are speaking about. I know, for example, at my company if we retain a 

service provider who fails to measure up to the performance standards we specify, we send out an 

RFP (Request For Proposal) and hire somebody new. I think that might be significant since this is 

a business driven by small margins in many respects, and I think that is a significant, potential 

check on that kind of breach of fiduciary responsibility. 

Mr. Andrews. How often have one of the maids who work at a Marriott property forced you to 

change, or induced you to change pension plan carriers? Has that ever happened? 

Mr. Rosic. Well, we have a thorough system for vetting the service providers and the investment 

managers, et cetera. And we do listen to our associates who express displeasure or desire for new 

investment options, things like that. We grew from six to 13 investment options by reason of 

requests for mutual funds and index choices and things like that. So we do listen to our people.

Whether there has been a specific complaint, I don’t know. 

Mr. Andrews. I will say for the record, by the way, that I have had the most outstanding customer 

service at Marriott facilities I have ever had anywhere. I say that for the record. You folks do a 

great job. But I wonder if the folks who clean the rooms have that much influence over your 

selection of pension fiduciaries? Anybody else care to answer that one? 

Ms. Minow. Yes.

Mr. Andrews, the next time Bob Monks can't be here to give his testimony, I am going to 

ask him to have you as a substitute, because you made the points that I was hoping to make far 

better and more sharply than I did. And I appreciate that very much. 

That is exactly my point. It is one thing to talk about how much regulation there is and how 

much transparency there is, but the real fact is we have not had any enforcement in this area. And 

to open up a whole new area of vulnerability and conflicts of interest without any history of 

enforcement in the past I think is to invite in a lot more trouble. 

Mr. Sleyster. If I could answer Congressman, I guess a point I would make is that although I am 

not an expert on enforcement of things at DOL, today without the benefit of investment advice, the 

average participant out there has most of their assets in two to three funds. So they are already over 

concentrated. And the advice that would be given would be from an asset allocation model that 

typically drives people into at least seven asset classes. So I would simply make the observation 

that we are really in the situation today that you described for a large proportion of our participants.

And if we can't find a way to effectively get them advice, I think they are likely to remain in that 
34

situation.

Mr. Andrews. I take it as a given that most of the industry would follow what I view as the 

example of Prudential, and give advice with integrity, which I think your company does. I am 

concerned, though, about regulating the minority of advisors that would not follow that practice of 

integrity. I don't think most of corporate America behaves like Enron, thank goodness for that. But 

Enron did behave like Enron. And the laws that should have been in place to protect the workers, 

who lost hundreds of millions of dollars of pension assets, perhaps billions, were insufficient. I 

don't want to expand that problem. Thank you very much to each of you. 

Chairman Johnson. Mr. Tierney, do you care to question? 

Mr. Tierney. Well, if Mr. Andrews hadn't done such a good job of driving home the points that I 

think are central to this issue, I might. But there is no sense of beating it any more than it has. And 

I think it is quite clear, and I have never heard anybody make a satisfactory explanation as to why 

we can't continue the protections that are in place. I don't think business is going to change one 

iota, and I think that we might do high fives if you run out of here and get change; but if you don't 

get that change, I think nothing will matter to anybody. 

I hope that we would all have the sense to keep the protections there. And I would just 

close with that. 

Chairman Johnson. Thank you, Mr. Tierney. 

Mr. Sleyster, if employees do receive investment advice, what effect do you think it might 

have on company stock holdings? 

Mr. Sleyster. Well, the most important point associated with that, Mr. Chairman, is that company 

stock, or, for that matter, any individual security does not represent an asset class and the 

fundamentals of diversification and building models for efficient frontiers rely on asset classes. So 

I believe what would happen is that people would have to specifically designate money that they 

didn't want to be part of their asset allocation pool. If it went into the asset allocation pool, an 

individual stock is a security, and not an asset class, and therefore, it typically would not get any 

weight.

Chairman Johnson. Thank you for that comment. 

 Mr. Rosic, your company, I think, has employee stock purchase plans, if I am not mistaken. 

Can you explain the benefit you have realized from your employees partly owning the company? 

Mr. Rosic. Well, let me start by pointing out that in our 401(k) plan we have the Marriott 

company stock fund, which is completely voluntary. There are no contributions made directly into 

it. The entire fund is composed of money that participants have directed to that fund. Then in 

addition to the 401(k) plan we have an employee stock purchase plan under Section 423 of the Tax 

Code that is an additional opportunity for employees to participate in. 
35

Chairman Johnson. The employee stock purchase plan is not your primary retirement plan; isn’t 

that true? 

Mr. Rosic. That is correct. Participation in the employee stock purchase plan is an extra benefit. 

The retirement plan is the 401(k) plan. 

Chairman Johnson. Thank you, sir. 

Mr. Andrews. Mr. Chairman, could I just add one other thing? 

Chairman Johnson. Sure. Go ahead. 

Mr. Andrews. This is a little bit off the topic, but one of our witnesses today also has expertise 

outside the field of securities, in the movie area. I happen to know Ms. Minow is an expert movie 

reviewer, and I hope she would enter for the record her forecast of the Academy Award winners for 

us. Am I correct that on your Web site, you do offer movie reviews? 

Ms. Minow. It is a separate Web site, sir. It is MovieMom.com. Thank you very much. I am 

happy to put my predictions on the record. I think Jack Nicholson is going to get best actor, and I 

think that best actress will be Nicole Kidman. 

Mr. Andrews. The Chairman just expressed a different opinion about the movie. And you know, 

the Chairman is always right. 

Ms. Minow. I am not making a value judgment. I am making a prediction. Nicole Kidman will 

get best actress and Chris Cooper will get best supporting actor. And I think I will leave the rest of 

them open. 

Mr. Andrews. I sincerely want to thank each of the three panelists for their excellent contributions 

to this discussion. I thank the Chairman. 

Chairman Johnson. It has been a good discussion. 

 I notice one of our Members has just arrived. Do you care to comment? 

Mr. Cole. Thank you, Mr. Chairman. I do. 

I apologize for not being here for all your testimony. I was meeting with some constituents 

just outside. I have a couple of quick questions, and directed to any of you, so everybody feel free 

to take a swing at the ball.

How widely is it known among the general public that the match portion by a business to a 

401(k) is not a mandatory contribution and that it really is a decision that has been made by the 

business for its own purposes, obviously for the benefit of the employee to enhance their 

retirement, but also to encourage firm loyalty. Do you find that most people understand that this is 

not an automatic? Do you find that when we try to regulate it and limit it and sometimes get rather 
36

onerous in our requirements, that we discourage companies from bestowing what is good upon 

their employees? 

Mr. Rosic. Well, from my perspective, I think that while it may be understood that it is not 

mandatory, it has become an expectation as part of a standard package that there be some form of 

match. However, the variation in the magnitude of the match, even among large companies and 

small companies, is such that I think there is a healthy understanding that it is not a promise. 

Mr. Sleyster. I have two points to make. One, I think you know that a couple of very major 

corporations eliminated their match this year, so for people at those firms it became very apparent 

that it was not mandatory. My anecdotal evidence would be that at the managerial levels, I think 

people do understand that it is voluntary. But as you get down to the non-managerial levels and on 

the shop floor, if you will, I think it is believed to be more of an entitlement or an understanding 

that it has always been there and it always will be there. 

Mr. Cole. Let me ask you a further question if I may. Do you think it is very widely known? I 

have a small business and we have a 401(k) program with an employer match. We don't use our 

own stock because we are a privately held company, and that really doesn't make sense for 

anybody, employer or employee. But there is no match necessarily for the employer who is going 

to the cost of actually administering the program and is going beyond what the law requires in 

making a match available at all. 

I would suggest to you, while it is expected in large companies, there are a lot of small 

companies in this country that still don't offer a match. And again, if you make it more onerous for 

them, they are going to be either less inclined to do so, or as most things when you regulate it, it 

will just simply disappear. 

 So, I just want to commend you for coming in today. Thank you very much. And Mr. 

Chairman, thank you for giving me the opportunity to belatedly ask a couple of questions. I really 

think this is a very important piece of legislation, and look forward to helping move it through the 

process.

Chairman Johnson. That is fine. You know, Mr. Andrews and I like to have the new guys ask 

questions. You did a good job. Thank you, Mr. Cole. 

 If there are no further questions, I want to thank the witnesses for their valuable time and 

testimony. I do think this was a good hearing. And if there is no further business, the 

Subcommittee stands adjourned. 

Whereupon, at 3:07 p.m., the Subcommittee was adjourned. 
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Table of Indexes 

Chairman Johnson, 2, 5, 8, 9, 10, 12, 13, 15, 16, 18, 19, 21, 23, 24, 25, 26, 27, 29, 30, 31, 32, 34, 

35, 36 

Mr. Andrews, 4, 10, 11, 26, 32, 33, 34, 35 

Mr. Ballenger, 15, 16 

Mr. Case, 16, 17, 18, 19 

Mr. Cole, 12, 13, 35, 36 

Mr. Kline, 18, 19 

Mr. Payne, 19 

Mr. Platts, 21 

Mr. Rosic, 23, 24, 32, 33, 34, 35, 36 

Mr. Sleyster, 31, 32, 33, 34, 36 

Mr. Tierney, 34 

Mr. Wu, 21, 22, 23 

Ms. Combs, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23 

Ms. McCarthy, 13, 14 

Ms. Minow, 24, 26, 30, 33, 35