U.S. GOVERNMENT PRINTING OFFICE

63–458 WASHINGTON : 2000

OVERSIGHT OF PENSION ISSUES

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

MAY 5, 1998

Serial No. 105–101

Printed for the use of the Committee on Ways and Means

(

(II)

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON OVERSIGHT

NANCY L. JOHNSON, Connecticut, Chairman

ROB PORTMAN, Ohio

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

PHILIP S. ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

WILLIAM J. COYNE, Pennsylvania

GERALD D. KLECZKA, Wisconsin

MICHAEL R. MCNULTY, New York

JOHN S. TANNER, Tennessee

KAREN L. THURMAN, Florida

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.

(III)

C O N T E N T S

Page

Advisory of April 28, 1998, announcing the hearing ............................................ 2

WITNESSES

AlliedSignal Inc., Russ Hawkins ............................................................................ 175

Associated Benefits Corporation, Thomas C. Walker ........................................... 76

Association of Private Pension and Welfare Plans, James A. Klein ................... 16

ERISA Industry Committee, and DuPont Company, Kenneth W. Porter .......... 36

Heinz Family Philanthropies, Jeffrey R. Lewis .................................................... 107

KPMG Peat Marwick LLP, Martha Priddy Patterson .......................................... 120

Maryland Teachers & State Employees Supplemental Retirement Plans, and

National Association of Government Deferred Compensation Administrators, Arthur N. Caple, Jr ..................................................................................... 147

National Association of Professional Employer Organizations, National Association of Temporary and Staffing Services, and Vincam Group, Carlos

A. Saladrigas ........................................................................................................ 134

National Rural Electric Cooperative Association, Glenn English ........................ 70

Profit Sharing/401(k) Council of America, David Wray ....................................... 156

Salisbury, Dallas L., Employee Benefit Research Institute, and American

Savings Education Council .................................................................................. 48

Small Business Council of America, and Small Business Legislative Council,

Paula A. Calimafde .............................................................................................. 57

U.S. Chamber of Commerce, and Fox Group, Lynn Franzoi ............................... 162

Watson Wyatt Worldwide, Howard C. Weizmann ................................................ 181

Women’s Institute for a Secure Retirement, Cindy Hounsell .............................. 112

SUBMISSIONS FOR THE RECORD

Air Line Pilots Association, statement ................................................................... 191

ESOP Association, Michael Keeling, statement .................................................... 195

Investment Company Institute, statement ............................................................ 201

Kennelly, Hon. Barbara B., a Representative in Congress from the State

of Connecticut, statement .................................................................................... 90

National Coordinating Committee for Multiemployer Plans, statement ............ 207

National Defined Contribution Council, Denver, CO, statement ........................ 212

Neal, Hon. Richard E., a Representative in Congress from the State of Massachusetts ................................................................................................................. 92

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OVERSIGHT OF PENSION ISSUES

TUESDAY, MAY 5, 1998

HOUSE OF REPRESENTATIVES,

HOUSE WAYS AND MEANS COMMITTEE,

SUBCOMMITTEE ON OVERSIGHT,

Washington, DC

The Subcommittee met, pursuant to notice, at 2:07 p.m., in room

1100, Longworth House Office Building, Hon. Nancy L. Johnson

(Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

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Chairman JOHNSON of Connecticut. Good afternoon, ladies and

gentleman.

While you’re settling, I’m going to start so that we can move forward. We do have three panels this afternoon, and members always have many things pressing on their schedules, and I’d like

the maximum number of members to hear what the panelists have

to say since the members who are here all represent people who

are particularly interested in the subject of pension reform.

Welcome to our hearing to explore how we can help people be

more secure in their retirement years. We’ll hear proposals to simplify the tax law related to retirement plans and to encourage

growth of pension plans. The private pension system is a key part

of retirement security for most Americans. Private pensions along

with social security and personal savings are the three traditional

components of individual retirement security. We can improve the

standard of living for retirees by strengthening our pension system.

The first time Congress acted to encourage pension plans to develop through tax incentives was in 1921. Over the past 77 years,

Congress has expanded, reformed, refined, amended, and, indeed,

tinkered with the pension law numerous times. Some changes were

meant to expand pension coverage. Some changes were meant to

curb the abuse of a tax subsidized plan. Some changes were meant

to assure the fairness of our pension system, and recent changes,

unfortunately, were meant to raise the revenue as a part of budget

acts.

While each of the separate changes made over the years had a

legitimate purpose, the cumulative effect was disastrous. As pension tax law became overly complex, employers began to close out

their plans in droves, and new employers shied away from establishing pension plans for their employees. Even professional tax experts could not keep up with the changes; they were so numerous

and so constant. Picayune rules and frequent mandates requiring

costly, formal amendments to plans cut more and more people out

of pension plans rather than cutting more and more people into

plans as Congress had intended. Indeed, small employers have to

come to feel in the pension area that no good deed goes

unpunished.

To its credit, Congress has recognized the need to simplify pension law. In 1996, Congress enacted pension simplification provisions as part of the Small Business Job Protection Act and continued that work in the Taxpayer Relief Act of 1997, and, indeed, as

a result of this committee’s work, we do have the simple plan out

there for small businesses working, making a difference, and one

of the things I hope we will hear today is any suggestions you have

for making that simpler as I understand that is not yet simple

enough. We also, as you well know, have a proposal out there for

SAFE which we’ve already taken testimony on. Again, all these

things are always open to your input as we move forward.

Much work needs to be done, and some of the people to whom

I’m going to yield in opening statements which is unusual for this

committee, have done some excellent work, and this committee is

committed to bringing together some of the really thoughtful work

that has been done in the area of pension reform to achieve our

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goal of opening up tax subsidized retirement savings opportunities

for all working people.

A second purpose of today’s hearing is to review the fairness of

our pension system especially for care givers, primarily women.

Traditional pension plans provide the best benefits to people who

remain in the work force on a continuous basis. This deeply disadvantages women who often have break in employment either to

take care of young family members or old family members. These

women would welcome the opportunity to buy back, to make catch

up contributions, in their pension plan in order to increase their retirement security. We should explore how pension law could accommodate such important differences in the patterns of our lives in

order to provide more equal access to retirement security.

Several members and numerous outside groups have developed

constructive proposals to simplify the pension law and to encourage

the growth of pension plans. We will review each proposal carefully

and prepare for legislative action this session.

I’d like, now, to yield to my colleague and Ranking Member, Mr.

Coyne.

Mr. COYNE. Thank you, Madam Chairwoman, and it’s good that

we’re holding this Oversight Subcommittee hearing today. It’s the

second hearing on pension issues, and I’m especially interested in

continuing our discussion of why significant segments of our society

are without pensions and how we can simplify our pension laws to

expand and increase coverage.

I want to personally welcome Mr. Jeffrey Lewis who is here to

present the results of a national poll conducted by the Theresa and

H. John Heinz Foundation. The foundation survey concluded that

80 percent of Americans are concerned that they will not have

enough money to live on when they retire. In the congressional district that I represent and many others across the country, that fear

is justified. Almost half the retirees in the area that I represent in

western Pennsylvania live on Social Security; which provides less

than $9,000 a year or about $750 a month. Retirees with private

pensions have almost twice as much income, but they still have to

be very, very careful about their spending habits.

The Heinz Foundation’s research also will give us some insight

into why so many Americans do not have retirement savings. Fifty

to 60 percent of the men and women surveyed reported that they

usually have little or no money left after paying their bills to save

for retirement. Today, more and more pension plans require employees to contribute in order to participate in retirement plans.

That makes it even more important that the Congress address the

difficulty many workers have stretching their paychecks to support

their families and save for retirement.

I believe the Heinz Foundation’s work will be of great help to us

in understanding who does not have pension coverage and why

they don’t have it. Their work in this area is just one of the many

contributions the foundation has made to the State of Pennsylvania

and the improved well-being of all our citizens.

Also, it is timely for the subcommittee to continue to review various proposals and approaches to expanding pension coverage. In

follow up to our earlier hearing on this topic, Congressman Neal

of the Ways and Means Committee, introduced H.R. 3672, the EmVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 E:\HEARINGS\63458 pfrm07 PsN: 63458
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ployee Pension Portability and Accountability Act of 1998. The bill

would expand retirement savings and increase access to pensions

for millions of employees. I am pleased to have joined in co-sponsoring that particular legislation. Today, we will also have the opportunity to discuss the pension simplification package developed

by Congressman Cardin and Congressman Portman. I know we all

look forward to hearing more about that proposal.

Finally, all the tools the Congress has provided to promote retirement savings are only helpful if people participate and use them.

In July of 1995, the Department of Labor, together with over 100

private and public sector partners, launched the Retirement Savings Education Campaign.

I want to welcome Mr. Dallas Salisbury, chairman of the American Savings Education Council and president of the Employee

Benefit Research Institute. He will update us on the tremendous

strides the council has made in partnership with the Department

of Labor in educating Americans about retirement savings and

helping them prepare for life after their work. Also, he will discuss

the upcoming June 4th SAVER Act Summit. I believe now is good

time to reflect on the progress we have made and the work that

is left to do. I look forward to discussing these issues in more detail

with the witnesses and my colleagues who have contributed greatly

to advancing this discussion. Thank you, Madam Chairwoman.

[The opening statement follows:]

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Chairman JOHNSON of Connecticut. Thank you, Bill. We do have

a lot of speakers this afternoon, but in deference to their constructive contribution and, really, many hours of work in preparation for

this hearing, let me recognize, first, Mr. Portman.

Mr. PORTMAN. Thank you, Madam Chair, and thanks for your

leadership on this issue. Not only have you introduced the SAFE

legislation that I am proud to co-sponsor that provides a much better defined benefit vehicle for smaller companies, but just by having these hearings—the previous hearing, this one, and into the future—I think you’ve done a great service by raising public awareness on the needs to increase retirement savings.

I’d also like to thank Ben Cardin who’s here joining us on the

subcommittee today who has been my partner on some of these

pension simplification efforts and co-author specifically of one of

the proposals we’re going to be talking about today, which Mr.

Coyne just mentioned, which is the Retirement Security for the

21st Century Act.

Ben and I teamed up over the last few years and in 1996 and

1997, we were able to get through some pretty good pension reforms, and I think what this bill really is building upon those reforms in, perhaps, a more comprehensive way. It represents a

year’s worth of work by a lot of people in this room today; members, Nancy Johnson being one; Jerry Weller, I see is with us

today, contributed to it; other members; also, a lot of people in organizations, again, many of whom are here and we’ll hear from in

a moment. All of them deserve a lot of thanks. We don’t have time

to go through all that, but as it gets into the hearing I’m sure we’ll

hear from a lot of these people about their contributions to it and

specific input. We never could have put all this together without

Wade Ballou from House Legislative Counsel, and he deserves

some credit today, because it was a gargantuan task to draft the

bill and he did it well.

Mrs. Johnson’s opening statement and Mr. Coynes’ statement, I

think, stated the challenge very well. The historical analysis,

Nancy, you gave I think is right on, and I think some of the challenges we face in the future, Mr. Coyne spoke about. Bottom line

is as we look into the next century, increasing retirement savings

just has to be one of our top national priorities. Why? Well, first,

to provide a backstop for Social Security which is under increasing

pressure, but also to counter these recent trends we’ve seen of retirement savings going the wrong way.

While Americans have traditionally saved a relatively large percentage of their earnings, these numbers have changed in recent

years, and it should be of great concern to us as policymakers, and

it’s not just an esoteric economic matter for economists and financial analysts to talk about and to lament as compared to our global

trading partners and so on, it’s a bottom line issue for millions of

working families.

If you think about it, there are about 75 million members of my

generation, the baby boom generation, now approaching their late

forties and fifties, and they aren’t ready for retirement. In fact,

studies show that older members of the baby boom generation have

less than 40 percent of the savings needed to avoid a decline in

their standard of living after retirement. We’ve got to ensure that

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this generation and all future generations do have a means toward

retirement security.

That’s really why we’ve introduced this bill. It, again, builds on

the pension simplification measures and expansion measures like

the simple plan for small business that were enacted in 1996; also,

the pension provisions to simplify pensions in 1997, and in doing

so, it will increase savings and security. First, it expands the availability of pension plans by breaking down the current barriers to

savings, it increases the contribution limits, compensation benefit

limits that have discouraged employers from establishing new

plans or improving existing plans. It eliminated what I think are

perverse disincentives in the current system that actually prevent

people from setting money aside for their future.

To allow older Americans to prepare for their retirement, it includes a catch up provision for participants 50 years and older. The

provision will allow Americans to contribute up to $5,000 per year

to a 401(k), 403(b), and 457 plan. In particular, the current limits

have hurt women—and Nancy Johnson mentioned this earlier, it

was the subject of the last hearing—but women who are returning

to the work force after raising families need this catch up provision. It allows them to catch up for all the years they’ve spent outside the work force or working in part-time positions.

The bill includes portability mentioned by Mr. Coyne a minute

ago. The portability provisions allow workers who are changing

jobs to roll over retirement savings into different types of plans.

Basically, it allows pensions to catch up with the reality of an increasingly mobile work force out there.

With merger mania upon us, it also fixes the ‘‘same desk’’ rule,

which I think is very important, by allowing workers to consolidate

their 401(k) savings into one account by rolling distributions from

their old plan into the plan provided by their new employer. The

bill reduces regulatory burdens; it simplifies the complex non-discrimination rules; reforms the sanctions systems; streamlines the

very expensive rules currently in place.

There are a lot of other important provisions in the legislation

that we don’t have time to get into right now, but I know we’ll hear

about them from our distinguished panel of experts later on. Suffice it to say, I think it is a very comprehensive package; certainly

can be improved, and we look forward to hearing from you on that,

and, taken as a whole, it will better prepare Americans for the next

century.

I want to conclude, Madam Chair, just with the point, the obvious point I hope, that as we continue our critical discussions over

saving Social Security—and they are very important—we can’t

overlook the vital role that private pensions play in providing retirement security for Americans, and that’s what this is really all

about. This is something we can do now to empower millions of

Americans to take charge of their own futures and plan for their

retirement. So, again, Madam Chair, I want to thank you for your

leadership on the issue and for holding yet another hearing today

and for allowing me to make this statement.

Chairman JOHNSON of Connecticut. Thank you very much, and

thank you for your fine work on this subject, and, certainly, both

your statement and Mr. Coyne’s statement make absolutely clear

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that even if we are able to have no change at all in Social Security,

it doesn’t in any way reduce our responsibility or compromise our

responsibility to make sure that Americans are far better prepared

to live in retirement than simply relying on Social Security.

I’d like to recognize Mr. Cardin who is visiting our committee

today in recognition of his responsibility for the bill that we’re

going to hear before us along with Mr. Porter. Mr. Cardin.

Mr. CARDIN. Thank you, Madam Chairman, and let me thank

you for the courtesy of allowing me to make a very brief opening

statement. I want to join in commending you for your leadership

in holding this hearing. By your statement and by Mr. Coyne’s

statement, I think it’s very clear that this committee is dedicated

to trying to make it easier for Americans to plan for their retirement security. So, I congratulate both for your leadership in this

area, and I look forward, along with Mr. Portman, working with

the subcommittee and the full committee on implementing changes

in our pension laws to make it easier for more people to have adequate, private retirement plans.

Among workers in our Nation today, we have found an alarming

reduction in their ability to provide for private retirement. If you

look at the private savings in the United States, we find that we

now are the lowest among the industrial major nations of the

world. In our savings ratio, we’ve fallen in the last generation from

9 percent of personal income to 3.8 percent of personal income. If

you look at those workers and firms under 25 employees, only 1 out

of 5 have an employer-sponsored retirement plan available to them.

The point that you raise, Madam Chairman, about the importance

for retirement security is not just Social Security; it’s also a person’s private savings and a retirement plan that must be in place

for retirement security.

Along with Congressman Portman, we have filed H.R. 3788. Congressman Portman has explained the bill or some of the details of

the bill. I think you will see that it’s a comprehensive approach to

reforming our pension law to make it easier for more people to

have and participate in retirement plans and for people to be able

to put more money away for their retirement. It does some things

differently than we’ve done in the past. As you pointed out, Madam

Chairman, in the last couple Congress’, we’ve been reducing the

limits that people can put in retirement plans. H.R. 3788, the Retirement Security for the 21st Century Act, increases those limits

so people can put more money away; so plans can provide for greater economic security for people in their retirement.

As Congressman Portman pointed out, we recognize the reality

of our current work force where people change jobs and, therefore,

change the type of retirement plans that they can participate in.

We make it easier rather than more difficult for people to transfer

their funds, rollover their funds, into different types of retirement

plans rather than the current restrictions that make it very complicated and difficult for people to maintain a retirement plan when

they change employment.

We provide for catch up provisions, because the reality of today’s

work force is that people in their younger years are paying college

tuition for their children and find it very difficult to put money

away for retirement. As they get closer to retirement, they’re interVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HEARINGS\63458 pfrm07 PsN: 63458
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ested in trying to do something to make it easier for their retirement years. The pension law should understand that and make it

easier for people to provide for their economic security.

And, of course, I think the hallmark of this legislation is simplification. Too many employers, today, are not participating in retirement plans because of the complexities involved. In the last

couple Congress’, we have taken major steps to try to simplify the

retirement law. Still, much more needs to be done. The legislation

that Congressman Portman and I have filed moves much further

in that direction particularly for small businesses to make it easier

for small employers to provide for more retirement security for his

or her employees.

It also works not just for private retirement plans but for nonprofit and governmental sectors, because all sectors, all types of

employers, need a system that’s easier for them to participate in

order to take care of their employees needs.

Madam Chairman, I would hope that the committee would give

very careful consideration to this legislation. I think you’ll find that

the many provisions are all well thought out and are aimed at one

principle goal—to increase the ability of Americans to plan for their

retirement.

I’m very pleased that we have on our panel Art Caple who’s from

my own State of Maryland, and I also welcome back Glenn English,

our former colleague. We look forward to hearing from all the witnesses, and I would ask that my full statement and the summary

of H.R. 3788 be made part of the record.

Chairman JOHNSON of Connecticut. Thank you. Mr. Weller.

Mr. WELLER. Thank you, Madam Chair, and, first, let me just

commend you on your leadership, and thank you for your leadership on convening today’s hearing particularly on the issue of the

private pension system which over 100 million working Americans

depend on for their retirement income as we work to strengthen

what should be a bipartisan priority, and I want to commend you

and my friends and colleagues, Representatives Portman and

Cardin for their leadership as well. I’ve enjoyed working with

them.

Of course, I just want to make a brief point here, Madam Chair,

but I particularly want to focus on an issue that we worked to address, and I appreciate your co-sponsorship along with Representative English, a member of this subcommittee, of H.R. 3632; legislation designed to address some badly needed reform in the area of

multi-employer pension funds.

H.R. 3632 addresses the problem created by section 415 of the

internal revenue code which sets compensation-based limits and a

dollar limit on pension plans. These limitations take an unfair and

unintended toll on workers like those in the building and construction trades who rely on multi-employer pension funds for their retirement income. The original intention of section 415 was to prevent wealthy executives from collecting lavish pensions, however,

since its enactment in 1974, the provision has been amended to the

point where its only meaningful impact is on multi-employer plan

participants. Not only have amendments freed corporate executives

from these limitations but public officials and public employees are

exempted from its most stringent provisions.

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Section 415 is preventing multi-employer plans from paying

working people the pension benefits they have earned and on

which they have relied in planning their retirement. A familiar result is that a carpenter who may have worked for several contractors over his or her career; may have started working as a youth

and put in 35 years of hard, physical labor, and for whom retiring

at 50 is hardly a luxury, discovers upon applying for his pension

benefits that his plan is barred from paying him all that he has

earned; finds his plan cut regardless of the plans promises of financial health.

At a time when we in Washington bemoan retirement savings,

it’s unconscionable that we continue these arcane limitations that

punish that do save. We have a unique opportunity to correct this

by passing H.R. 3632 which would amend section 415 to include

multi-employer pension plans and the list of plans that are exempt

from the compensation-based limits and that retain the pre-1986

Tax Reform Act early retirement rules.

Again, Madam Chairman, I thank you for your co-sponsorship of

this legislation and look forward to working with you.

Chairman JOHNSON of Connecticut. Thank you very much. I

would just comment that rarely have I had the privilege of being

part of a subcommittee on Ways and Means where we have so

many very, very interested members really committed to making

something happen, and my colleague from Georgia, while she

agreed not to make an opening statement, is a very regular and

committed member of this subcommittee, and we plan to move forward. So, with that, let us start with the first panel. Mr. Klein,

president, Association of Private Pension and Welfare Plans; Kenneth Porter, chairman of the ERISA Industry Committee; Dallas

Salisbury, the president and CEO of EBRI; Paula Calimafde the

Small Business Council of America and the Small Business Legislative Council; Glenn English, former colleague and friend, National Rural Electric Cooperative Association, and Tom Walker,

president of the Associated Benefits Corporation.

[The opening statement of Mr. Ramstad follows:]

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Chairman JOHNSON of Connecticut. Mr. Klein.

STATEMENT OF JAMES A KLEIN, PRESIDENT, ASSOCIATION

OF PRIVATE PENSION AND WELFARE PLANS

Mr. KLEIN. Madam Chairman and members of the subcommittee,

I’m James Klein, president of APPWP, the Benefits Association.

I’m accompanied today by Lynn Dudley, APPWP’s vice president of

retirement policy. Thank you for inviting me this afternoon.

APPWP represents the Nation’s major employers and other organizations that serve benefit plan sponsors. Collectively, our members either sponsor directly or provide services to retirement and

health plans that cover more than 100 million Americans. It’s a

privilege for me to testify at today’s hearing along with so many

professional colleagues and members of my organization, especially

Ken Porter of DuPont sitting to my right, who served as Chair of

the APPWP Board of Directors when so many of the initiatives

about which I will speak today were being developed by our policy

committees and board.

I hope that following my prepared remarks I will be asked many

substantive questions about the need for pension law improvements and APPWP’s specific recommendations, but I wanted to use

a large portion of my formal five minutes, if I may, to speak in

more philosophical terms about the significance of today’s hearing.

For those of us in the employee benefits community, today’s

hearing is really no ordinary event. For one thing, we’re not generally used to appearing on the so-called victim’s panel. Madam

Chairman, through the years, very few members of Congress have

assumed the mantle of leadership on retirement policy. That’s understandable. The specifics of pension legislation are enough to

make almost anyone’s eyes glaze over. The technical nature of it

is difficult to communicate to other lawmakers and the public at

large.

Madam Chairman, you have been the exception to the rule. You

have recognized the vital importance of a strong employer-sponsored pension system, and you have successfully pressed for legislation to further that goal. Countless Americans, Madam Chairman,

have a more secure retirement thanks to your efforts.

Today’s hearing accompanies the introduction of legislation of

two other members of the Ways and Means Committee who have

also distinguished themselves as champions of the private retirement system; and as advocates for the millions of Americans who

rely on that system. In previous years, Representatives Portman

and Cardin took the lead in advocating important pension simplifications that became law as part of the Small Business Job Protection Act of 1996 and the Taxpayer Relief Act of 1997. Now, Representatives Portman and Cardin have authored H.R. 3788, the Retirement Security for the 21st Century Act. As its name suggests,

the legislation goes beyond simplifying many of the complex pension rules. It sets Congress on a course to help Americans better

prepare for the challenges of ensuring a secure retirement in the

21st century. In developing this bill, Mr. Portman and Mr. Cardin

have demonstrated a clear vision about the need for retirement

savings, and they have worked very hard to craft proposals that

are fair and prudent. Just as you, Madam Chairman, are ably

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served by experienced and dedicated staff—and I note that sitting

behind you is Mac McKenny with whom I had the pleasure of

working on the original pension simplification bill back in 1990—

so, too, have Representatives Portman and Cardin been assisted by

their conscientious staff members, Barbara Pate and David

Koshgarian, and we want to acknowledge their efforts as well.

APPWP is proud that so many of the proposals we developed

some years ago formed the basis for the pension simplification legislation of 1996 and 1997, and we are gratified that many of our

more recent proposals for improving the retirement system were

embraced by Representatives Portman and Cardin as they drafted

H.R. 3788.

In the interest of time, I request that the full text of APPWP’s

March 1997 report, ‘‘Preparing Americans for the Future,’’ as well

as the subsequent document from February of 1998 outlining our

proposals further, be included in the formal hearing record.

Madam Chairman, my written statement contains extensive

analysis of various provisions of current pension law that restrict

retirement plan savings. These provisions have been added to the

Internal Revenue Code by more than 10 major laws enacted between 1992 and 1994. More importantly, my written statement describes how the Retirement Security for the 21st Century Act

would correct these problematic provisions, and, thereby, benefit

both plan participants and plan sponsors.

I do not have time to discuss all of these proposals, so allow me

to conclude by recommending four broad themes for Congress to

consider as it moves forward. First, Congress must reverse years

of short-sighted restrictions on the ability of both employers and

participants to adequately set aside assets that will be needed to

ensure retirement income security, and, in many cases, to pay

promised benefits. Americans need to save, and H.R. 3788 will help

them do so more effectively.

Second, Congress must recognize that rules governing the pension system should serve rather than impede the need for companies to be competitive. That does not mean that companies should

be allowed to save money by choosing not to provide retirement

coverage for certain workers; quite the contrary. It means that provisions of current law that restrict employers from covering moderate income workers whom they wish to cover, or that disrupt

plan coverage following a corporate transaction need to be modified

or possibly repealed.

Third, do not allow revenue loss estimates to dissuade you from

passing sound retirement policy proposals. For too long, retirement

policy was driven either by the desire to raise tax revenue or to address phantom concerns about retirement plans that favor higher

paid workers. Obviously, you must be prudent about paying for

proposals that expand pensions. But the pension tax expenditure is

worth it. It helps families, especially at the middle income level,

and it’s a bargain for the Federal Treasury too. Roughly $3 of retirement benefits are paid from private employer-sponsored plans

for every $1 of tax expenditure.

Moreover, and in conclusion, pension contributions not only provide the assets needed to pay retirement benefits but also provide

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the investment capital necessary to drive economic growth which

leads, in turn, to more tax receipts.

Finally and fourthly, favorable consideration of the PortmanCardin legislation will make it easier for Congress and the President to make difficult decisions concerning Social Security reform.

To the extent that Americans can rely on employer-sponsored plans

to provide much needed retirement income, financial pressures on

Social Security, and other public programs will be lessened.

Madam Chairman, it may take some time for the provisions of

the Retirement Security for the 21st Century Act to become law.

But I am convinced that the introduction of this bill, and your decision to hold today’s hearing to explore ways to enhance retirement

savings, will come to be viewed as the turning point in restoring

the traditional role of Congress as a partner in the growth of a vibrant, private sector retirement system. The APPWP commends

you and Representatives Portman and Cardin and all who support

their efforts. We pledge the APPWP’s energy and resources for the

passage of this much needed legislation. Thank you.

[The prepared statement and an attachment follows:]

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[An additional attachment is being retained in the Committee

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Chairman JOHNSON of Connecticut. Thank you, Mr. Klein.

Because we do have so many people testifying today on three

panels, I do have to ask you to please try to stay within the light,

so we’ll have time for some questions.

Mr. Porter.

STATEMENT OF KENNETH PORTER, CHAIRMAN, ERISA

INDUSTRY COMMITTEE

Mr. PORTER. Thank you, Madam Chair. My name is Kenneth

Porter. I am the chairman of the ERISA Industry Committee, commonly known as ERIC. I’m appearing before the subcommittee on

ERIC’s behalf this afternoon.

ERIC enthusiastically supports many of the provisions of H.R.

3788, and we thank Congressmen Portman and Cardin and their

staffs for the vision——

Chairman JOHNSON of Connecticut. Excuse me, Mr. Porter, could

you put the microphone directly in front of you? Yes, thanks. You

have to be close; that’s it, that’s fine.

Mr. PORTER. All right. This might be better. ERIC enthusiastically supports many of the provisions of H.R. 3788, and we commend Congressmen Portman and Cardin and their staffs for the vision, the wisdom, and the commitment in introducing this

groundbreaking bill. We also would like to thank the subcommittee

for affirmatively addressing the many important retirement security issues raised herein.

Let me briefly highlight of the few of the several provisions in

H.R. 3788 that ERIC strongly supports and that will, first, increase

benefit security and enhance retirement savings; second, will increase portability, and, third, will rationalize rules affecting the administration of plans. As shown in my first attachment, the Internal Revenue Code imposes a dizzying array of limits on the benefits that can be paid from and the contributions that can be made

to tax-qualified plans. It was not always that way.

The limits originally imposed by ERISA in 1974 allowed nearly

all workers participating in employer-sponsored plans to accumulate all of their retirement income under funded tax-qualified

plans. Between 1982 and 1994, Congress enacted laws that repeatedly lowered the limits and imposed wholly new limits. The result

is that today’s employers increasingly must rely on non-qualified,

unfunded plans. H.R. 3788 turns this tide at a critical time. If we

wait until the baby boom cohort begins to retire, it will be too late

for employers to accumulate the cash needed to pay for increased

pension liabilities and for employees, who will be out of time to accumulate retirement savings.

H.R. 3788 provides an opportunity we cannot afford to pass up.

The provisions of the bill are significant, but by no means are they

excessive; they’re moderate. For example, section 101 significantly

increases the benefit and contribution limits by restoring them to

the levels allowed 16 years ago in 1982, but, after allowing for inflation, the limits in the bill would still be less than 60 percent of

the value of the 1982 limits.

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Regarding pension portability, in today’s world, employers and

employees increasingly are involved in business mergers, acquisitions, and divestiture. Current law often makes it difficult for employees to transfer their retirement savings from one plan to another and to consolidate their retirement savings in a single plan

where they can manage it effectively and efficiently. H.R. 3788 addresses this problem. As shown in a chart in attachment B, 401(k)

plans are the only plans where a rollover sometimes may not be

permitted. This anomaly is caused by the provision of the law

called, ‘‘same desk rule.’’ This special restriction makes it difficult

for employees to keep track of their accounts with former employers, and employers, themselves, find it difficult to keep track of

former employees who may not remember to send a change of addresses to their former employer. The bill repeals this rule.

Current Treasury regulations discourage plans from allowing employees to elect to transfer benefits from plan to another. ERIC

strongly supports the provisions of this bill that would address that

problem.

ERIC also strongly supports the provisions to allow an employee’s after-tax contribution to be included in a rollover. Current law

can force employees to reduce their retirement savings before

they’re ready to retire.

Finally, we are very pleased that H.R. 3788 significantly advances the work Congress began in earlier bills to strip away regulatory barnacles. Many current rules unnecessarily increase the

cost of plan administration, discourage plan formation, and make

retirement planning more difficult for employees.

In conclusion, Madam Chairman and members of the subcommittee, ERIC applauds Congressmen Portman and Cardin for

the introduction of this bill. ERIC looks forward to completing its

analysis of the bill and to providing the subcommittee with additional comments on it. It is clear that the bill’s vision will help ensure that currently and in the future we will have better opportunities to prepare for retirement security, and that employees will be

better able to sponsor and administer plans that are coherent and

efficient. The bill’s strong support for funded, tax-qualified plans

sponsored voluntarily by employers for their employees fills a vital

need in our Nation’s retirement framework, and I thank the subcommittee, Madam Chair, for the opportunity to testify and will be

pleased to answer your questions.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you, Mr. Porter.

Mr. Salisbury.

STATEMENT OF DALLAS L. SALISBURY, PRESIDENT AND CEO,

EMPLOYEE BENEFIT RESEARCH INSTITUTE AND PRESIDENT

AND CEO, AMERICAN SAVINGS EDUCATION COUNCIL

Mr. SALISBURY. Chairman Johnson and Congressman Coyne,

members of the committee—it’s a pleasure to be here today. I want

to provide my formal focus on retirement savings education which

began between the Department of Labor and EBRI in meetings in

1994. By July 1995, the Department of Labor, and the Treasury

Department with Members of Congress launched a retirement savings education campaign with numerous public and private sector

partners.

One part of that campaign was the creation of the American Savings Education Council which includes over 14 Federal agencies,

Members of Congress, and 250 private sector organizations. That

campaign, as the congressman mentioned, has led to the creation

and dissemination of millions of copies of a Top 10 Ways to Save

brochure and numerous others available through both an 800 number and a website at the Department of Labor. The American Savings Education Council has put out a Power to Choose brochure,

a Ballpark retirement income estimator, and, again, makes much

available through its website.

The Securities and Exchange Commission sponsored a full week

on facts on Saving and Investing, with many public and private

partners in national teleconferences with extensive savings education materials and planning materials now available through the

SEC website and an 800 number.

The Jumpstart Coalition brings together over 250 public, and private organizations focused exclusively on bringing financial literacy

and early savings education to young adults, and Girl Scouts, USA

is doing the same within the Girl Scout program. Most of these organizations have linked websites and numerous 800 numbers to

take information out with one ultimate purpose in the hope that

individuals will save and prepare for retirement at very early ages

and will ask, frankly, their employers to help them do so and encourage their employers to create retirement savings opportunities.

Last fall, the Congress on a bipartisan basis acted to pass the

SAVER Act calling for a national summit on retirement income

savings. That summit will be held here in Washington, D.C. on

June 4th and 5th. Leading up to that summit, EBRI and ASEC,

this fall, launched a Choose to Save media campaign in the Washington, DC area with WJLA channel 7 and eight local radio stations to take public service announcements on savings education to

the broad population of the three-State metro area. That will be

complimented by contributed space print ads throughout the metro

system during the month of June and is being run across the Nation in public service announcements on Associated Press radio, 75

all-news stations.

EBRI has just completed a health confidence survey looking at

issues of retiree health savings for retiree health. For the SAVER

Summit, we have just completed a new retirement confidence survey and also an extensive national survey of small employer retireVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 E:\HEARINGS\63458 pfrm07 PsN: 63458
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ment programs and small employer attitudes towards why they either have programs or what has kept them from creating pension

programs, both of which will be released just prior to the summit

on June 2.

ASEC is quite proud to be the primary private sector partner on

the summit contributing substantially to the financing; preparing

draft agendas and briefing books, and I want to publicly recognize

the American Society of Pension Actuaries for their invaluable assistance to the Nation in doing the negotiating and managing of

the logistics for the summit.

The June 4 and 5 SAVER Summit will bring together 239 delegates from both political parties and from all sectors to build an action agenda for educating the American public and American employers to the absolute necessity of moving towards planning and

saving and the creation of retirement plans. No more than 20 percent of all workers will ever work under one defined benefit pension plan long enough to get a sufficient, substantial pension. For

80 percent that do not work a full career with one employer, the

only hope of adequate supplementation is individual savings helped

through their employment situation with preservation and rollover.

First, consider the fact that two-thirds of retirees have little from

the sources just mentioned which underlines the need for saving

and retirement planning education. Then consider the fact that

Congress has already acted to raise the eligibility age under Social

Security to 67 which will make that savings through employer

plans and individual effort all the more important.

In closing, I congratulate the Oversight Subcommittee for its ongoing work on this important topic. I first appeared before this subcommittee on pension issues 22 years ago and have always found

it to be focused on providing a framework for policies that will enable Americans and American employers to fulfill the dream of a

comfortable retirement. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much.

Ms. Calimafde.

STATEMENT OF PAULA A. CALIMAFDE, CHAIR, SMALL BUSINESS COUNCIL OF AMERICA AND SMALL BUSINESS LEGISLATIVE COUNCIL, BETHESDA, MARYLAND

Ms. CALIMAFDE. Madam Chair and Members of the Committee,

it’s a pleasure to be here today. I’m Paula Calimafde, Chair of the

Small Business Council of America. Also, I’m here on behalf of the

Small Business Legislative Council, and I am also here on behalf

of the White House Conference for Small Business; I was a delegate at that conference. I’m a practicing tax attorney. I specialize

in qualified retirement plans and estate planning, and I’ve been

doing it, I guess, fortunately or unfortunately, for 20 years.

The SBCA represents the interests of privately held and family

owned businesses in the tax, health care, and employee benefits

area. We’re the technical tax group for small business. The Small

Business Legislative Council is a permanent, independent coalition

of nearly 100 trade and professional associations that share a common commitment to the future of small business. The SBLC represents interests in such diverse areas as manufacturing, retailing,

distribution, professional technical services, construction, transportation, and agriculture.

At the White House Conference on Small Business, the 1995

White House Conference, the Pension Simplification and Revitalization Recommendation received the 7th highest ranking in terms

of votes of all of the recommendations. There were 60 that ultimately went to Congress and the President, and the pension recommendation was number 7. Interestingly enough, many of the

recommendations that were contained in that number 7 recommendation are included in H.R. 3788 which was the bill that

was just introduced yesterday by Congressman Portman and Congressman Cardin.

To truly appreciate the magnitude of this bill, I think it’s important to look back a decade and see where we were. If you will, I

want to spend a few seconds reading an excerpt from testimony

that I gave in front of the Senate Finance Committee in 1990 also

on behalf of SBCA and SBLC, and here I’m reading from this testimony I did eight years ago: ‘‘The voluntary, private retirement system is being slowly destroyed by a relentless layering of complex

tax laws. Over the last decade, Congress has amended and revised

the tax laws governing retirement plans at an alarming rate in the

quest to find short-term revenue to offset the budget deficit. The

long-term impact of the bill on the retirement system is not given

enough consideration. This piecemeal legislation is taking its toll

on the retirement system in America.

In the last seven years alone, there have been eight major laws

having a significant impact on retirement plans—and then the

statement goes on to list them. Statistics are now available to show

that retirement plan terminations are increasing rapidly while new

plan adoptions are slowing down dramatically. The decline for new

defined plans is precipitous; a drop greater than 80 percent. Ten

years ago—now, remember, this is 18 years ago—when the voluntary retirement system was stable and the rules were clear, the

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system was flourishing. Cost to administrators and pension specialists were reasonable, and companies were able to take actions

knowing what the results would be. The system was working extremely well.

Congress has a real opportunity to return the system to its prior

simplicity, reliability, and clarity while retaining the reforms that

have been rejected into the system during the last several years.

The second step in restoring system to its prior viability would be

to restore retirement benefits to the levels they were at prior to the

onslaught of this legislation.’’ The statement then listed approximately 15 areas which would help to resuscitate this system. Eight

years later, many of these suggestions are contained in the pension

simplification legislation we’re addressing today.

All members of this committee, and, indeed, of Congress should

be proud of this legislation. It accomplishes that very rare thing

which is to remove layers and layers of overly complex and unnecessary rules. I believe that this one law combined with the two excellent laws that were just passed the last two years will give true

life to the retirement plan system.

The hours and attention put in by Congressman Portman, Congressman Cardin, and Congresswoman Johnson have to be mentioned. This is a superbly crafted pension bill, and it reflects an

enormous commitment to understanding this highly technical area.

I read this bill—I think out of 100 pages or something, I found one

thing that I thought might need a technical correction. So the

amount of technical skill that was brought to this bill is just outstanding. There are so many areas that the Small Business Council

of America and SBLC agrees with in this bill, that it would take

me another five minutes to list everything. And we truly believe

that by restoring the limits back to where they were 18 years ago,

this will accomplish more than any other bill, plus the changes in

the 401(k) area are superb. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much.

Mr. English.

STATEMENT OF GLENN ENGLISH, CHIEF EXECUTIVE OFFICER,

NATIONAL RURAL COOPERATIVE ASSOCIATION

Mr. GLENN ENGLISH. Thank you very much, Madam Chair. I appreciate the opportunity to appear before you today. My name is

Glenn English. I’m the Chief Executive Officer of the National

Rural Electric Cooperative Association. We have 1,000 not for profit

consumer owned electric systems in 46 States throughout this Nation. The National Rural Electric Cooperative Association administers the pension and welfare benefits for over 130,000 employees

and their dependents, as well as directors throughout the various

States.

Madam Chair, we feel that there is a continuing need for

strengthening and simplifying the laws that affect the retirement

programs across this country. We also believe in expanding coverage and in protecting the benefits and financial security of those

that are in retirement. Pension legislation enacted in the last several years has gone a long way to accomplish those objectives.

But I think this hearing today, Madam Chair, is desperately

needed and I want to commend you for focusing attention on this

very great need that all Americans have in their retirement. I appreciate the interest that’s being shown by the members of this

committee on this subject. So you all are to be commended for that.

Madam Chair, we strongly support the Retirement Security for

the 21st Century Act that is being offered by Representative

Portman and Cardin. Both representatives, I think, are to be

praised for offering this legislation. I too would, being a former

member of Congress, recognize that all such legislation needs great

staff work to make sure it accomplishes the results of the vision

of the various members involved, and so I want to commend Barbara Pate and David Cosgarian for their work on this legislation.

I’d like to focus on three areas that we find of particular interest.

One is in the area of expanding coverage. We applaud the increase

in the limits on contributions and benefits for both the defined benefit and defined contributions plan. We also applaud the repeal of

section 415 rule, limiting contributions to 25 percent of the pay,

and feel that that would go far in stimulating savings in this Nation.

Also, the expanding the portability is something that is of great

interest to NRECA. Today, NRECA provide for portability among

those employees of Rural Electric Cooperatives as they move from

electric cooperative to electric cooperative. This opportunity should

be extended to all Americans. All Americans should have the ability to expand their savings by rolling over their contributions. This

reflects the increasing mobility of the American workforce.

We are particularly interested in the proposed changes affecting

rollovers from section 457, plans and deferred compensation plans

into other qualified plans or IRA’s. Let me also, Madam Chair,

focus attention on reducing the regulatory burdens. This is something that I know that all of us are particularly concerned about.

The rules and regulations governing the qualified retirement plans

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are extremely complex and I know that this committee has heard

that over and over again—the need for some assistance.

I know that this committee is focusing attention on how to simplify the rules and regulations. Over the years, the Internal Revenue Service has developed programs to address many of the problems in this enforcement area. Recently the IRS has issued a revenue procedure expanding the various compliance resolution programs that are already in place. I think the Service these days—

they’re receiving their fair share of criticism—but their work in

this area should be commended and receive significant credit for

responding to employers’ concerns. The revenue procedure, 98–22,

will do much to advance the plans’ compliance, especially among

some of the smaller plans such as we have.

However, the service does not address two very important issues

and I’m very pleased that the legislation that has been introduced

by Representatives Portman and Cardin does exactly that. That is,

if an employer corrects a violation before an audit takes place, they

should not have to pay any penalty. And if an inadvertent violation

is discovered in an audit, the penalty should be reasonable.

In conclusion, Madam Chair, I simply want to say that Representatives Portman and Cardin have an outstanding piece of legislation and certainly all 1,000 electric cooperatives all across this

country strongly support that legislation and thank them for introducing this worthwhile bill. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much,

Glenn.

Mr. Walker.

STATEMENT OF THOMAS C. WALKER, PRESIDENT,

ASSOCIATED BENEFITS CORPORATION

Mr. WALKER. Madam Chairwoman, Congressmen and women,

and members of the staff, I thank you for the efforts you’re making

to deal with legislative and regulatory problems that restrict qualified plan installation and continuation for those employers who employ over half our working population, that is the small employer.

I’m president of a firm that provides prototype pension plans covering more than 18,000 employees and more than 80 percent of

them are in employers with less than 100 employees.

Congresswoman Johnson was exactly on point when, in announcing this hearing, she said, and I quote, ‘‘Overly complex tax rules

may be stifling the growth of healthy pension plans.’’ A point that

has always concerned me is the very restrictive rules that are in

place to be sure the highly compensated do not benefit disproportionately. The concept is good and certainly politically correct, but

it has negative results for the non-highly compensated that were

not contemplated, nor do I believe, intended. Realistically, the highly compensated make the decision to have or not have a qualified

pension plan. When the highly compensated benefit and/or contribution is compressed by law to the point where they receive

much less as a percent of compensation than the non-highly compensated, then decisions are made that leave the non-highly compensated without any plan at all or a plan less generous than

would have been created had the highly compensated been able to

enjoy proportionate benefits.

That said, we’re impressed with the stated focus of this hearing.

The restoration of maximum contribution and allowable compensation limits to previous ceilings, prior to when revenue was needed,

is going to create a great deal of new interest in retirement plan

establishment by small employers.

The repeal of the current liability funding limit would correct a

revenue raiser added in 1987 that has led to systematic plan under

funding, as well as erratic, unstable, and unpredictable contribution patterns, all of which has resulted in benefit reductions and

some plan terminations. One termination in particular comes to

mind. The employer had a defined benefit plan and as with many

small employers, employee turnover seems to be cyclical with none

1 year and up to 50 percent the next. This mean the average age

and average length of service fluctuates dramatically, driving the

allowable maximum contribution from nothing to as much as 6.5

percent of pay. This fluctuation is not manageable for a small business. Had the 150 percent limit not been in place, his years of 0

contribution could have had a contribution of say 3 percent, and

that would have drawn down the maximum year to something in

the 4 percent range. This would have been acceptable to the owner

and the plan would have survived.

My written testimony also includes other legislative issues, but

I want to be sure relief from regulatory burdens are verbally expressed. The only current statutory sanction for even a minor violaVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00080 Fmt 6633 Sfmt 6602 E:\HEARINGS\63458 pfrm07 PsN: 63458
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tion of any of the myriad and occasionally conflicting pension rules

is complete disqualification of the plan.

The IRS deserves much credit for establishing and improving its

compliance programs, including APRSC, VCR, and CAP. However,

three key issues for small employers need legislative direction.

First, if an employer corrects a violation prior to audit, the employer should not be required to pay any penalty nor make any

submission to the IRS. Second, if a good faith inadvertent violation

is discovered upon audit, the penalty should be reasonable. And finally, and perhaps most important, innocent rank and file employees should be protected from tax sanctions.

We’ve seen a parade of really good pension simplification bills,

but all the resulting regulations have so cluttered the pension landscape that much of what plan administrators do is make work

noise that has no redeeming quality. The anti-discrimination legislative language in the Tax Reform Act of 1986 was two sentences

long and is a very simple concept. You can’t favor owners or highly

compensated individuals in a qualified plan or you no longer have

a qualified plan. The very first issue of the regulations for these

2 sentences were 687 single spaced pages, and they’ve expanded

annually since, and now number over 1,100. And this is only one

example.

Regulations designed to cover every conceivable action that any

evil or demented mind could take puts a burden on the system

that’s unreasonable if any kind of cost benefit study were ever to

be done. If every plan in this country has to spend on average $100

to comply with a regulation that stops 1 person from taking some

absurd action, there are those who would say that’s okay. I say

that’s unreasonable, and so do many small employers who have terminated plans or never installed one, because of compliance costs

that do not provide one nickels worth of benefit to any person anywhere, except perhaps to the person who gets hired to keep the

plan in compliance.

In summary, your willingness to hold this hearing is being applauded by many small businesses all across the land. We hope

that many of the changes discussed here today become law and

that the regulators find ways to regulate reasonably. While we all

understand the need to temper pension laws so that the rank and

file employee truly benefits, we must move away from the idea that

the way to accomplish that is to be sure the fat cat doesn’t benefit.

That idea has prevented more rank and file employees from getting

any pension at all than it has ever increased benefits for. The fat

cat makes the decision.

Thank you, Madam Chairwoman, for exerting the effort necessary on your part and the part of all your staff. And thank you

also to those representatives who participated today for holding

this hearing. Your willingness to review the provisions of current

law and regulation discussed here today is indeed encouraging to

us out in the fly over zone, called Iowa. We support changing the

rules to move to more facts and circumstances, common sense, let’s

get everybody covered simplicity. This hearing is a giant step in

that direction. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much for

your comments and your testimony and for your review of the

Portman-Cardin legislation, which is going to bring us dramatically

forward. Let me ask you a couple of different questions.

First of all, on the issue of catch up provisions—I’ve described

this in terms of the different pattern of working life commonly—

it’s common for women. But last year we amended the legislation

governing teachers to allow them to buy back more in their latter

years of service, than the law currently allows—for exactly not the

pattern of employment reason, but the pattern of affluence in our

lives recently. When you’re young you have children and then college, and so on and so forth. The time when you can really invest

more money into retirement than any other is when you’re still

working, when your kids have gone off to school, you’ve bought

your home, you’ve got your car.

We are—Mr. Weller mentioned some legislation that would affect

the construction trades, but it’s the same concern. It’s the same

principle. That there are times when you put more in and there are

times when you put less in. And our current laws don’t allow us

to maximize our retirement security, because they don’t allow us

to put money in when we are able to recognize the money that

we’ve put in the past when we were able in a way that is fair and

reasonable.

When you look at the issue of catch up contributions, does the

Portman-Cardin bill allow us to look at—does it structure catch up

contributions in a way that would, in a sense, solve the problems

of all of these groups, working women, people who have contributed

more in the past to their pension plans than they are able to in

the last three years, and so on and so forth. Would you just comment on the structure of the catch up provisions.

Mr. KLEIN. I’ll take a crack at it first. It may not completely

solve the problem certainly, but it makes a wonderful step in the

right direction. And by the way it is drafted across the board in

that way. It’s flexible enough. It’s particularly helpful I think to

women and others who may have been out of the workforce for periods of time while they were raising children and so forth. And I

couldn’t say it any better than you that it reaches people at a point

in time in their lives when they may have more discretionary income to set aside for their retirement needs.

Chairman JOHNSON of Connecticut. Ms. Calimafde.

Ms. CALIMAFDE. I think in the small business area, there’s going

to be some problems with it. And the reason why is because the

catch up is subject to the discrimination test in the 401(k) area and

I believe that most small businesses are going to opt to go into the

safe harbors and be done with all that anti-discrimination testing.

And my guess is that this will just be not available really for small

business employees, because it just brings them right back into all

that testing again. So, it’s the problem with the testing which is

going to cause the small business to say no catch ups here, because

it’s just going to cost too much to do it administratively. Of course,

if the safe harbor included catch up contributions, then this would

go a long way towards easing administrative problems.

Chairman JOHNSON of Connecticut. Let me then go on to my second question. The non-discrimination rules, the limit on annual

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contributions, and the top heavy rules, all speak to the same concern—that Congress doesn’t want to have taxpayers subsidize rich

retirement plans for high earners without low earners having equitable benefit. Do we need all three? Which ones should we—how

could we achieve our goals in a far simpler manner? Does the

Portman-Cardin bill go as far in that direction as we can or is it

time to simply dump the non-discrimination rules? Can we achieve

that same goal through simply salary limits and percentage of salary contributable limits? Is there a simple way to do this?

Mr. Walker.

Mr. WALKER. I would like to suggest that the problem of the top

heavy rules does come into play very dramatically with small employers. The Small Business Job Protection Act introduced a safe

harbor for 401(k) plans that required certain contributions for the

non-highly compensated in order to meet the safe harbor. Unfortunately, in many small employers where you have an older highly

compensated individual and then perhaps two or three young, fairly low paid individuals, the safe harbor isn’t available to them because the top heavy rules get in the way. The plan is going to become top heavy right away and it’s going to therefore fail the safe

harbor test.

I think we need to be realistic in looking at limits that certainly

don’t favor highly compensated, but I think that we have tended

to not only not favor, but perhaps even punish the highly compensated through the rules that we’ve put in place. I understand

the general feeling about why these rules are necessary. I think,

however, that they are punishing the wrong people because I think

what it ends up punishing is the non-highly compensated who end

up without a plan at all.

Chairman JOHNSON of Connecticut. Any other comments? Mr.

English.

Mr. GLENN ENGLISH. Madam Chair, if I might, there’s another

element I think that sometimes we oversimplify and overlook and

that is this: I’m not sure income has that much to do with whether

people save or not. We read stories every day about people who

make enormous amounts of money that don’t save. You’ve got other

folks that make very modest means who accumulate a good deal.

It basically comes down to the discipline and the habits that those

individuals have.

It is my understanding that part of the overall objective is to try

to encourage people to save, and we would like to do that. I think

that we all agree that that is the purpose with regard to these programs. And as I understand it, with Representatives Portman and

Cardin, that’s the objective of what they’d like to do—is to give

these people the opportunity to save more.

So I think we have to take a little bit of that into account—not

oversimplify and encourage people to save. I think that when we

do we will find that probably this is going to have a bigger impact

on people who we would not consider to be in the upper limits of

compensation in this country. It’s probably going to have more of

an impact on ordinary Americans than it is on those high income

folks. Common sense ought to come into play here a little bit. We

ought to keep in mind what it is we’re trying to do with this legislation.

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Chairman JOHNSON of Connecticut. Well the reason I asked the

question is because common sense suggests that these are three

means of addressing the same problem, each having slightly different sort of angles to them, but the total of all three of them creating a very complex system that you’ve already described where

some of the benefits in Portman-Cardin will be available to some

and not to others. We’re still going to drive savings decisions as a

consequence of the legal technicalities.

And that really isn’t our goal. Our goal is to enhance savings and

our second goal is not to subsidize too much savings by those for

whom it is easier. So, it seems to me that these three together are

really extraordinarily burdensome and what I’m looking for is, is

there any way we would go further than the Portman-Cardin bill

and simply merge some of these efforts to address the same problems.

Mr. Klein.

Mr. KLEIN. Madam Chairman, I think that the combination of

those rules, dollar limits as well as non-discrimination laws, is the

functional equivalent of belts and suspenders and I think that the

dollar limits themselves are sufficient to meet the stated policy objective to ensure that a disproportionate amount doesn’t go to the

highly paid, if people accept that as an appropriate policy.

Certainly, the complete repeal of these rules that have had the

negative effects that have been amply described by others on the

panel, would indeed go further than the very positive step that Mr.

Portman and Mr. Cardin have laid out, though their step is definitely a positive one, that at a minimum, should be taken up.

I want to also follow up onto the answer that Ms. Calimafde gave

a moment ago to the question on the catch up contribution. Those

non-discrimination rules could also be problematic in the large employer context as well, which might drive people to go into this safe

harbor if they’re eligible for it, where those non-discrimination

rules don’t apply. I just wanted to underscore that it’s a problem

across the board potentially—both large and small companies—and

I think Mr. Porter had a point on that.

Chairman JOHNSON of Connecticut. Mr. Porter.

Mr. PORTER. Thank you, Madam Chair. It’s an observation—as

we were going through the bill, as we tried to look at the convolutions caused by the multiplicity of rules and as we applaud the

catch up contribution; and then we ask, ‘‘How would that work

with the rules on maximum contributions?’’

And we observe that a woman who reenters the workforce and

who happens to be highly compensated, but still missed out on

years of ability to contribute, and who happens to make her contribution early in the year, has better chances getting her money

into the plan before the nondiscrimination test cuts off contributions later in the year. So you end up with weird situations where

a large number of people making contributions in the beginning of

the year could affect the ability of other people to make contributions later in the year.

So somehow it seems to me that in order to achieve the greater

goal, we need to find a way to keep from hammering ourselves with

so many hammers, and perhaps the catch up contributions need to

be looked at separately from the other rules.

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Chairman JOHNSON of Connecticut. In other words, do I hear you

saying that even the dramatic simplifications in the PortmanCardin bill wouldn’t protect us from situations where people have,

in a sense, an even access to saving, even in the same plan.

Mr. PORTER. That’s correct. Simply by timing within the year

and whether you happen to be highly compensated or not.

Chairman JOHNSON of Connecticut. There are so many questions

to be asked. Let me yield to my colleague, Mr. Coyne.

Mr. COYNE. Thank you, Madam Chairwoman. With unanimous

consent permission, Mrs. Kennelly and Mr. Neal both had opening

statements.

Chairman JOHNSON of Connecticut. So ordered.

[The statements of Mrs. Kennelly and Mr. Neal follow:]

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Mr. COYNE. Thank you.

Mr. Klein, I wonder if you could let us know the proposals you

talked about how the retirement security act would affect low and

very low wage and salary earners, if it were enacted.

Mr. KLEIN. These are precisely the people who we need to be concerned about—you need to be concerned about. Frankly, I’m not

really concerned about the very highly paid. They have ample resources to take care of their own retirement needs. The rules that

exist now that would be fixed under the kind of proposals that

we’ve made, under the kind of proposals that Mr. Portman and Mr.

Cardin have drafted, really are intended to help the hard working

middle income folks, people who particularly may fall just above

the threshold of the so-called highly compensated level, as well as

people down the line.

For reasons I thought that were quite well articulated by Mr.

Walker, often it’s the lack of a plan entirely because of the burdensome nature of rules that ends up hurting the lowest paid. It has

driven more higher-income and more people into the non-qualified

plan arena entirely that lacks all the protection. So, really for a

couple of reasons, the changes that are made here would help the

lower paid.

First of all, as Mr. Porter noted, the limits that are now in the

law are lower in real terms, to say nothing of the inflation affect,

than they were 16 years ago. Secondly, the way that plans are

funded that look at the projected nature of what a benefit will be

in the future, really means that the threshold that now seems to

be very high—that seems to only affect highly paid people—really

impedes the funding for people of modest wages.

Back in 1993, when Congress considered a change in the compensation limit that could be taken into account for funding plans,

and it was lowered from roughly $235,000 a year to $150,000 a

year, it sounded like it still was something that was only affecting

very highly paid people. Because $150,000 is a lot. We conducted

a study at that time that demonstrated that that level would impede the ability of a company to fund for benefits that it has promised to a 30-year-old person earning $35,000, because of the expected increases in that person’s earnings over the course of their

career.

So these rules are definitely hurting people at the low and moderate wage levels, who are precisely the people that we need to be

helping.

Mr. COYNE. And you feel that these proposals that you’ve talked

about would help the earners in the $15,000 to $20,000 and

$25,000 a year category, as a result of some of the things that

you’ve pointed out here?

Mr. KLEIN. Yes. It would definitely help people at all ranges.

Even if it wouldn’t precisely help all people at a certain low income

level, it would certainly help them more broadly because it would

encourage more plans to be created that would provide benefits to

those people who otherwise would have nothing.

Mr. COYNE. Mr. Salisbury, I wonder if you could comment on

what are some of the strategies that are being implemented by retirement plan sponsors to encourage more participation in the

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plans and to, if they already are participating in the plan, to expand their participation across the board.

Mr. SALISBURY. I think, Mr. Coyne, the first point that you just

made, which is related to low income individuals—that since most

low income individuals work for small employers and it is small

employers that most readily do not have plans. That one of the primary needs is to get more small employers to have plans which

will make them available therefore to low income individuals.

What employers are then seeking to do, as most of your defined

contribution plans today provide for a matching contribution, most

of those plans now make available extensive educational materials

and an increasing number of employers now provide direct financial assistance whether it be through video tapes. Nearly 100 percent provide written material that helps people figure out how

much they should be contributing.

You’re now seeing more extensive use of computer based information as even relatively small firms have access to Intranets

within their businesses and the most recent approach as a result

of continued efforts by individuals in Congress and the Administration to encourage employers to go the step of not only direct expanded education, but even to make available investment advice,

is essentially new Internet-based programs and one-on-one counseling aimed at giving individuals an understanding of how much

they need to save in order to have a comfortable retirement.

So you are most aggressively seeing more hands on activity by

employers and contracting with third parties to come in and actually meet with employees and do seminars, which is the best way

to get positive results.

Mr. COYNE. Thank you very much.

Chairwoman JOHNSON of Connecticut. I—I don’t quite understand why sort of the simple idea of limiting the amount that you

can contribute to a percentage of your salary, or perhaps also a dollar cap as it does in the current law, 25 percent or $30,000—even

if you adjusted that so that lower income people could contribute

more or you paired that with sort of a comprehensive catch up

piece, so that in periods of high earning when you really could contribute more, you could or maybe you would do that for certain income levels.

Why don’t you accomplish the goals of the top heavy provisions

and of the non-discrimination provisions if you do that? Why do we

have to have the top heavy provisions any more?

Mr. SALISBURY. Chairwoman Johnson, I think Mr. Klein chose

words noting that there are many other ways for employers to

make sure that high income people get what the employer wishes

for the high income people to have.

The research that we’ve done, including the new small employer

survey, underlines the degree to which the more complexity one

builds into the system, the more likely an employer—small employer—is to simply not have a plan. It’s a reason I would emphasize. That if the objective is to expand the number of plans, to expand coverage, and to expand the number of low and moderate income people with protection, the type of simplification that you just

articulated, and getting to the absolute minimum degree possible,

the administrative complexity that an employer faces is what is

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going to allow the thousand roses to bloom, so to speak. And that

simplicity is what is essential from all of our survey research, as

well as research done in the academic community.

To a degree that one is concerned about ‘‘abuses,’’ as an individual who recently retired after 33 years with one of the largest

companies in America doing their compensation planning, his comment was, ‘‘ultimately, the high income people will always be given

everything they want, even if the company totally and completely

grosses them up for taxes.’’

So to a very large degree, all this complexity, rather than keeping money from going to high income individuals, does not keep

that from happening. But it may well cause the employer to think

it’s not worth the trouble of maintaining a retirement income program that would benefit the low and moderate income population.

Chairwoman JOHNSON of Connecticut. Well, thank you. I think

you’re absolutely right. The years in which we wrote these pension

plans, there was not nearly the creativity in the compensation

structure that there is now in regard to ways and means of compensating high earners.

If we don’t really radically move on non-discrimination and top

heavy rules, we’re not going to accomplish anything. We’ve done

this before. We did this with the alternative minimum tax. The alternative minimum tax was great politics. Now it’s going to rob

families in America of their $500 credit for children.

So, I think we do have to think far, far more radically, and I just

wanted to push that point at the beginning of this hearing. Because, you know, 50 percent of the small businesses in America

that are being founded today, are being founded by women. And

they’re mostly very small entities.

But together, collectively, they employ more people than the top

10 Fortune 500 employ. Now the top 10 Fortune 500 have the expertise to deal with top heavy. The 50 percent of the women founded—the 50 percent of the businesses founded by women, have 1, 2,

3 employees, and they have no expertise. So if you ever want to get

them into this—and they’re smart, they’re entrepreneurials, they’re

making, and so their employees are going to be well paid—if you

ever want to get them in, I think we have to think more radically.

When I see before me in this day and age, three provisions that

have the same goal—the monetary percentage limits—the 25 percent, $30,000; the top heavy; non-discrimination, it reminds me

that we have our heads in the sand. This is not the real world and

we have succeeded through those mechanisms in doing exactly

what we knew they would have done and we’ve hidden it from ourselves year after year after year.

Every pension debate I’ve been a part of, we’ve made progress.

But Congressman Portman and Congressman Cardin have succeeded the larger issue absolutely flat out on the table. And I think

it is our responsibility as a committee to look at the real impact,

and get ourselves out from under old fashioned rhetoric, and plow

through to what do we really have to do if small businesses are

going to do it and provide pension plans, and how can we in that

context prevent what we all we don’t want to do.

But if you limit it to 25 percent or $30,000 cap, or whatever we

have to do, and do we need a lower cap—I mean a higher cap—

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for low income people and a lower cap for upper income people for

equity purposes, or do we just need a couple of things with a good

catch up provision that allows the flexibility for the pattern of our

lives.

So, I’ll yield now to Mr.—let’s see, where am I now—Mr.

Portman, sorry—I thought I’d gotten further than that—I’m sorry.

Mr. PORTMAN. I’m not going to say anything, because she’s not

only endorsed the bill, she’s gone way further. So this is great. We

can all go home. No, I really appreciate all the work you all put

into this and, Chairwoman Johnson, your enthusiasm is fantastic.

The philosophy behind what we’ve tried to do the last few years

really is spelled out by Mr. Salisbury, and it’s a very simple philosophy. And that is, that you can expand coverage greatly by reducing the burden, the cost, the liability, the risk of liability that Mr.

Walker and others talked about. And it works.

I think the information we’re getting in from the field on the

SIMPLE plan is a great example of that. I think in the next several

months we’re going to have some amazing data on that—on the

hundreds of thousands of people who are now covered by retirement savings plans who never were before. And I hope it will provide, at least, the general philosophical framework for this Congress to go much further.

Let me just get in a couple of other issues, if I could. One thing

is the cost to all this. To be honest, as a fiscal conservative as most

of us are now, we have to recognize that there will be revenue cost

to all this. Most of these rules—you’re right, Mr. Klein, are kind

of like a belt and suspenders—which is why we go into the detail

we do on eliminating all together the 25 percent rule, raising the

limits, raising the deferral, modifying the top heavy rules significantly—although, we could go further than that—and also clarifying and modifying non-discrimination rules. Generally, we do

that in this legislation already.

But, one reason on the limits, as an example, we are somewhat

constrained, is that there is a cost to it. If there was no limit at

all, it would be even a greater revenue estimate, which we would

have to then compensate for with some kind of tax or entitlement

program changes. So, there are some other limitations here. We

just need to be cognizant of, to be honest about this, and we’ll see

how far we can go.

I think one thing Mr. Klein has done well is to spell out how

these so called tax expenditures, which is what they’re called in the

field, do actually benefit not just the individual workers, but the

economy. And that’s something we’re trying to get the Joint Tax

Committee, of course, to focus on. To do more, as we always say,

dynamic scoring. And, Mr. Klein, because I raised the issue, you

might just touch on that quickly, and then I have a couple other

questions.

Mr. KLEIN. Yes, I agree and I think I would make this comment

about the tax expenditure and the revenue loss that obviously you,

as responsible members of the committee, have to consider.

As I said in my opening remarks, I do believe that this is a tax

expenditure that is fundamentally worth it—and my written statement talks about how the evidence of the tax expenditure being

heavily weighted toward more middle income people. Mr. Salisbury

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has done a study in this regard, and another respected researcher—Sylvester Schieber has done work in that respect.

So it really is a tax expenditure that is aimed at, if you will, the

right people who need it. That’s number one. Number two, we need

to consider the way the tax expenditure is calculated. I testified before this subcommittee a couple of weeks ago on the health care tax

expenditure. And I made the point then that I thought it was a

bargain for not only the individuals covered by health plans, but

for the U.S. treasury, because it would be so much more expensive

to provide those benefits directly to the people.

It’s even more the case in the pension arena. The evidence is

there to show the bargain that it is for workers and their families

and the government. But also, unlike the health care tax expenditure, on the pension side, of course, this is money that is ultimately

recaptured. And we’re coming near a phase, over the next number

of years, where a big bubble of the baby boomers are going to begin

to retire, and we’ll be paying tax on those benefits that we are

going to be receiving. And that should help the tax expenditure loss

figure considerably.

The other point, of course, that is special about the pension tax

expenditure, is that it provides the capital necessary to make the

economy grow. And that in turn leads to other tax collections.

Mr. PORTMAN. Right. Your full statement is part of the record

and those who haven’t seen it, it is a good analysis of that. I think

it’s important to get that in the record, because that’s a hurdle

we’ll have to face.

Let me just briefly touch on the contribution limits and on the

25 percent rule, because I’m not sure it was as clear as it could

have been. Mr. Walker talked a lot about the rank and file workers

versus the fat cats, as you said. If I could just ask one question and

get it on the record. Maybe, Mr. Walker, you could respond and Mr.

Porter, or Ms. Calimafde. How does increasing the contribution

limits help those people who are rank and file workers save for retirement? What would the impact be on this?

Mr. WALKER. For example, right now—and incidentally your bill,

taking the currently $160,000 limit back to the $235,000, will be

very helpful—because at $160,000, if you have a 401(k) plan and

an employer that has a 50 percent match on the first 6 percent of

pay, the guy that owns the business can’t even get the 50 percent

because of the fact that you can only count the first $160,000 of

compensation.

So obviously, those kinds of increases in the limitations are going

to do great things in terms of enticing that owner to take advantage of the possibility of doing some more things for himself. But,

in that same process, bringing everyone along with him obviously,

because they are going to go to the safe harbors. Which means they

are going to include everyone in that circle.

The difficult part of this was hit on by Jim and others. The

owner will find a way—if nothing else, the business itself is typically a pretty good retirement plan for a lot of those business owners. And so their desire to do things for themselves, greed if you’d

like, is going to have a significant impact on what they do for their

employees as well.

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Mr. PORTMAN. I know my time is up. Mr. Porter may want to answer, if the chair will indulge me.

Let me say that there are some relatively controversial issues in

this bill that I would like to have had time to get into and perhaps

we’ll be submitting written questions to you all. But I appreciate

all the great input today and a lot of you complimented the legislation. I know you don’t agree with every aspect of it and again,

Chairwoman Johnson has raised some important new questions.

We could go even further.

But one that I do want people to talk about is this—the SIMPLE

plans versus the 401(k) and where we should go on the limits. I

think, Paula, you had some thoughts on that earlier when we

talked. But I think there’s some issues here—whether there should

be this disparity between the defined contribution plan, the defined

benefit plan, and so on. So we do look forward to continuing the

dialogue.

I don’t want everyone in this room to think that this is a lovefest.

There are some issues here we had to work through over the last

several months, and I think we came out where we probably

should. But we want your continued input.

Mr. Porter, would you like to finish?

Mr. PORTER. Just briefly, two issues. One is, it’s obvious from a

lot of studies that, as people go through their life, they’re net debtors during their early years of out of college and in the work force,

and as they approach retirement, they start concentrating their

savings.

And as much as you, our leaders in the Nation, have to be concerned about what happens when the baby boom bus hits retirement age, as employers we’re concerned that as our workforces

reach those ages when they’re in the prime years of being able to

save, that they be able to put in what they feel they need to approach their retirement.

And on the defined benefits side, unfortunately, there are times

when jobs get eliminated and people have to leave the workforce

before they had really wanted to. And we’re seeing surprising numbers of individuals who are not highly compensated but who have

their defined benefit plan benefits limited because they are retiring

at early enough ages that the limits come down and reduce their

benefits.

Now, for people in larger corporations where there are benefit

restoration plans, at least they’re held whole by their employers,

but it’s not all secure. So, two instances that increased limits help

the rank and file employees are those situations where they’re

ready to save and can’t and those situations where their job is

eliminated and their full benefit cannot be paid from a qualified

pension plan.

Mr. PORTMAN. Thank you. Thank you all for all your help.

Chairman JOHNSON of Connecticut. Thank you. Mrs. Thurman.

Mrs. THURMAN. Thank you, Madam Chairman. Mr. Klein, in

your testimony on page four, you talk that there had been a comprehensive study of administrative cost for large and medium and

small plans, and how much that’s grown in all of those different

areas. Can you give us some examples of what you’re talking about

in administrative cost? Is that just the complexity of the tax laws?

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Is that some of the charges that we put on up to the $19? Can you

give me some examples?

Mr. KLEIN. Sure. And that was drawn from a study by Ed

Hustead from the Hay Group and I’d be more than happy, if you’d

like, to submit the entire report—it’s not very long—for the formal

hearing record.

The study really addresses a number of the different requirements resulting from years and years of legislative items that were

mentioned on page three of my testimony—specific major pieces of

legislation aimed at extracting revenue from employer sponsored

retirement plans. It includes such things as the cost of a plan sponsor being advised by their professional advisors and attorneys as

to the nature of the changes in the law caused by Congress or the

regulations from the regulatory agencies. It includes the expenses

involved in amending plans. It involves the expenses involved in

communicating these changes to participants. It involves, on the

defined benefit side, the additional cost of the Pension Benefit

Guaranty Corporation premiums.

Interestingly, the study, and to this extent I must correct myself,

I might even have understated the point. The study that Mr.

Hustead did actually relates to the ongoing administrative costs;

not actually to the additional costs of implementation of the

changes themselves. So the result of those rules in an ongoing fashion, that is reflected in these very devastating numbers. It would

be even worse if you added to that the actual implementation cost

of making specific changes to the law and amending the plan.

Mrs. THURMAN. In the solvency, I believe of that fund and some

of the problems it had placed a couple of years ago. I wasn’t here

at the time, but I understand there was a rather large deficit because of pension plans going broke and then, of course, some other

things happened. I don’t know how we address that from making

sure that people who have invested are protected in those cases. So

I’m not sure that’s one we can do much about. Maybe you have a

different idea, and if you do, please elaborate, somebody?

Mr. KLEIN. Well, you know, there have been a lot of comments

being made today that may, perhaps, have beaten up somewhat on

Congress for some of the complexities that have been caused. Certainly, one of the things that Congress has done well is to shore

up the fiscal difficulties faced by the Pension Benefit Guaranty

Corporation in previous years. And the PBGC reports a very robust

financial situation now. It might be even something for Congress

to contemplate, since the chairman has suggested thinking radically, of perhaps lowering some of those PBGC premiums, as appropriate, to help encourage the growth of plans, particularly, in the

small sector.

Mrs. THURMAN. With that in mind, and for anybody, in the bill

that’s been discussed today, do you see where this bill will make

those administrative costs less?

Ms. CALIMAFDE. I can speak to that on behalf of small business.

There is one provision after another in this bill which strips away

unnecessary complications. So, for instance, in the top heavy area,

yes, it keeps the top heavy rules. And I understand where the

Chair is going on this. The top heavy rules are largely duplicative

of all these other rules. But there are still groups out there in this

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town, they may not have great technical expertise in this area, but

they think the top heavy rules give great benefits to common law

employees. So, you know, you’re dealing with a perception not reality there. But the way it has stripped down some of the complexity in the top heavy area will certainly help out.

The 401(k) safe harbors, I believe, are going to change radically

how the whole 401(k) plan is perceived by small business. And this

bill, that we’re talking about today, opens up both safe harbors to

small business. Before this bill, only one safe harbor was available

to small business. This bill also opens up the match. So, I think

there are dramatic changes which would make it much easier for

small business to sponsor a plan in a cost effective fashion.

Mr. WALKER. And yet, regarding the small business, the small

business is still going to have to test for top heavy and that—

there’s a cost involved in doing that because most employers are

not capable of doing that by themselves. And when you have a

facts and circumstances situation where you have every employee

of that employer being treated exactly the same way, i.e., the contribution is the same or the benefit from a defined benefit plan is

exactly the same, then imposing an additional administrative burden when common sense tells you this is not a discriminatory plan

because every employee is being treated equally creates a roadblock, in the minds at least, of many employers for the establishment of a plan.

Mrs. THURMAN. Thank you.

Chairman JOHNSON of Connecticut. Mr. Weller.

Mr. WELLER. Thank you, Madam Chair, and I’d like to focus my

questions on the issue I brought up in my opening statement regarding the pension limits of Section 415 on multi-employer pension plans. And it’s kind of interesting about this particular issue

is this is an issue I’ve heard about over the last several years that

I’ve had the privilege of serving in Congress, and it has come up

at town meetings and various gatherings throughout the district

that I represent. Usually it’s brought to my attention by the

spouse. You know, the wife who’s watched her husband who has for

a lifetime—who has gone out every day and has been finishing cement, or building housing, or putting up structural steel, backbreaking work. And, of course, in good times they’ve made more

money and put more money into their pension plan. But then when

it’s time to retire, they discover that promises made aren’t necessarily kept under the full pension that they thought they were

going to earn with the 415 limits.

And I’d like to just direct a few questions, perhaps, I should direct to Mr. Klein and Mr. Salisbury and if other members of the

panel would like to answer them, but just so we can fully understand this issue. Mr. Klein, am I correct that the Section 415 limits

are not preventing rank and file workers covered by multi-employer plans from receiving full pensions that they would otherwise

receive under their plans?

Mr. KLEIN. Yes, I think it’s applicable in both the multi-employer

and the non-multi-employer context, and that’s actually one of the

virtues of the Portman-Cardin bill in terms of some of the relief

that it accords in the Section 415 arena.

Mr. WELLER. Mr. Salisbury, do you have anything to add to that?

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Mr. SALISBURY. It, both in terms of the actual benefits paid, you

are correct as well as the 415 limits, as Jim mentioned, for all

plans do affect the amount of funding that can be done in those

plans which is an interesting juxtaposition to what the Congresswoman was raising regarding the Pension Benefit Guarantee Corporation that we have an agency to ensure and guarantee the benefits of defined benefit and defined contribution plans. Yet, because

the 415 limits do not allow for projection of salary increases, we

have laws that make it very difficult for pension plan sponsors to

fully fund those benefits when they do want to provide them.

Mr. WELLER. So, then it’s safe to accept the base limits of Section

415 for defined benefit plans are not designed for multi-employer

plans whose benefits are not based on a worker’s wages or salary,

is that correct?

Mr. SALISBURY. Well, a defined—most of your multi-employer

plans are not the same type of formula. You’re correct as a single

employer plan. One would say they were designed for them in the

sense that Congress explicitly knew they were applying them to defined—to multi-employer plans. But they do, you are correct, have

a slightly different effect and impact because of the nature of the

benefit formula. That can also, however, apply to some large single

employer plans. For example, the plans of companies like General

Motors that have the same type of benefit formula as a building

construction trade’s multi-employer plan. So, again, these are—

these are the types of provisions that impact many pension plans

across the board in terms of benefit delivery and funding.

Mr. WELLER. Do other members of the panel have any responses

to those questions?

Ms. CALIMAFDE. If I could go off multi-employer for one minute

and talk about how this bill would repeal the 25 percent of compensation limit in section 415. That is a section that really hurts

lower paid employees. In my own law firm, for two years now, one

secretary and one paralegal that had 401(k) contributions returned

because of the 25 percent of compensation limitation test. So that

is one real life area that I can tell you will really affect a lot of staff

employees and help them to be able to put more into the 401(k)

plan. I mean, it almost serves, well, it does serve a very negative

purpose right now.

Mr. WELLER. Well, it’s kind of an issue of fairness. You know, in

good times, if someone is working overtime, working extra hours

during the week, perhaps working for a different contractor on a

weekend, making extra money. This is an opportunity for them to

set aside more during those good times, and it’s kind of fair, I

think, if you put in more, be able to take more out. That’s an issue

of fairness and, of course, Congress has recognized that with firefighters and other public employees in other pension programs.

Let me just ask this, perhaps, Mr. Klein, you know, if we were

to lift this Section 415 pension limit on multi-employer plans,

would it jeopardize these funds in any way?

Mr. KLEIN. Well, I really don’t see how because the effect of the

rules is to really curtail funding of benefits. So to the extent we can

ensure greater funding, greater security, greater benefits being

paid, that should serve to benefit all.

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Mr. WELLER. And would we give these participants in these

multi-employer pension plans any special benefit that anyone else

is not receiving? Are we doing anything special if we limit these

limits an exception since we’ve done this for other pension plans?

Mr. KLEIN. I’m sort of coasting into a territory that I would want

to reflect on and answer to you, following up in writing. Nothing

immediately comes to mind that would draw any distinction. I

think as a number of us have said, the effect of the rules really are

negative on all types of plans, multi-employer as well as single employer, and the rules definitely are problematic as they apply to the

single employer world as well. And it’s not that I think that there’s

any special, favorable treatment in the single employer world at

the present.

Mr. WELLER. Mr. Salisbury, do you have anything to add?

Mr. SALISBURY. Well, I think as you noted, the Congress did act

to change these rules for governmental plans and incremental is

incrementalism and they do have an impact on funding. One of my

early testimonies before this committee 20 years ago was when we

completed the Multi-employer Amendments Act Study at the Pension Benefit Guarantee Corporation, and at that time, there were

recommendations that encouraged Congress to find ways to expand

funding of multi-employer plans which were severely under-funded

at that point in time.

Mr. WELLER. Okay, thank you. Madam Chair, thank you very

much. And it’s my hope as we work to improve our private pension

system that we address this issue which affects millions of Americans in the building trade. And, again, I appreciate your support

of this issue.

Chairman JOHNSON of Connecticut. Before I dismiss this panel,

since you spent a lot of time being very nice about the PortmanCardin bill which is really an excellent piece of legislation and proposal, would you like to briefly point to parts of it that you think

are particularly good or around which there are still controversies

that we should direct our attention to?

Mr. KLEIN. Well, I would just say because I think it’s part of our

responsibility to point out areas in which there might be controversies, that clearly, the revenue issue is one area as Mr. Portman

mentioned. I hope that my earlier answer is valuable and one that

I would hope members agree with. I think that we really have to

stop in its tracks, Madam Chairman, this notion that retirement

plans somehow exist to help the very highly paid. I think if one

thing has been forthcoming from the testimony today from the entire panel, it’s the effort to which employers go to provide these

benefits and the extent to which these rules really are hurting the

lower paid. I think that issue just needs to be taken on directly.

You’ve challenged everyone to think in more radical ways and I

think that’s important. And I think that there’s just ample evidence that the rules have hurt the wrong people, if you will, that

they have not helped the people they were intended to help.

Chairman JOHNSON of Connecticut. Anyone else wish to comment?

Mr. SALISBURY. Madam Chairman, rather than commenting on

the bill per se, I just make a notation on the tax expenditures issue

and the calculation methodology. It was developed when most of

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the system was a defined benefit system. In the defined contribution realm where we’re talking about this really being employee

money going in, employee money coming out, with very fast vesting

in most cases. If they’re invested in equities, then they’re basically

taking out after 20 and 30 years most of the money coming out is

from investment earnings, it is not from their contributions.

They’re being taxed at regular income tax rates as they take those

capital gains out, whereas if they were saving that money outside

of a qualified plan system, under the last year’s tax act, they would

be paying much more favorable capital gains tax rates. So, in essence, if one looks at that in the calculation of defined contribution

tax preferences, we’ve done numbers that one can actually find

that there is a revenue gain for the Government the more savings

goes into qualified plans as opposed to being done outside of qualified plans to the degree that money is invested in equities.

And today about 60 percent of all defined contribution assets are,

in fact, invested in equities so people are actually paying higher

taxes, not lower taxes ultimately over the lifetime as a result of the

current tax treatment. That is totally and completely ignored by

the Treasury Department, the Office of Management and Budget,

and the Joint Tax Committee when they do their tax expenditure

calculations.

Mr. WALKER. And as somebody who has been around a long time, one improvement I might suggest in the $5,000 add-on contribution

is how about a 10 to 15 year look-back? You know, I’m getting

awful close. [Laughter.]

Chairman JOHNSON of Connecticut. OK, Mr. English.

Mr. ENGLISH. Madam Chair, I stated in my opening remarks of

the three years that we particularly focused there’s nothing about

the bill that we find to be objectionable at all. We find the bill to

be a fine piece of legislation.

Ms. CALIMAFDE. I just want to mention that the excluding 401(k)

contributions from the 404 15 percent deduction limit will go a long

way because, again, that works to cut back common law employees

often. Another change I thought was very good was bringing the required minimum distribution date, that’s when you must start taking money out of the retirement plan from 70.5 to 75 but for 5 percent owners, they have to start taking out 75 if they keep working.

And I don’t—I can’t come up with a rationale why a 5 percent

owner has to take out money while he or she is still working when

everyone else can keep on and they don’t have to take the money

out.

One thing I think we should try to accelerate faster is this repeal

of the 150 percent of current liability funding. This goes to define

benefit plans. This is a real problem for small business because

they’re not allowed to fund the retirement plan in a level fashion.

And for a typical small business, the swing of $100,000 or more,

for the defined benefit funding is tremendous. So if we could speed

that up.

And I want to make one comment. I heard one of my panelists

say, fellow panelists say, well, you know, the owner of a small business, their retirement is the business. And I want to take issue

with that. There’s a lot of small businesses out there that will not

be able to be sold. In many cases, retirement for that small busiVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00107 Fmt 6633 Sfmt 6602 E:\HEARINGS\63458 pfrm07 PsN: 63458
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ness owner is the retirement plan which is why so often retirement

plans that are sponsored by small business are very strong plans.

So, you know, I wish it were true. Unless what you meant was the

small business owner gets to keep working for the rest of his or her

life, which I think may be really true. But the bill, overall, is really

a very strong bill, I think, for retirement plans.

Chairman JOHNSON of Connecticut. Will the business community

object to the faster vesting period, the accelerated vesting from five

to three years?

Ms. CALIMAFDE. Well, some of the business community is going

to. Remember, small business is already stuck with these vesting

schedules because of the top heavy rules. You know, I’ve always

felt that why should small business have faster vesting than everyone else? So, I think the longer vesting schedule is better. I know

at the White House Conference on Small Business there were a

number of delegates who made the comment that it’s not fair that

vesting is so fast. For instance, comments were made such as,

‘‘Why are my employees fully vested after three years when in a

larger entity they’re vested after five years?’’ You know, five years

seems fast enough. So, it’s almost a non-issue for small business

but I’m sure for mid-size and larger it’s a significant issue. Also,

remember that many small businesses don’t even offer a match because it doesn’t count for top-heavy purposes. Small businesses

often just make the profit sharing contribution instead. The ultimate result of faster vesting could be smaller matches so that employers who would be affected by this change would keep costs constant.

Chairman JOHNSON of Connecticut. But in a sense, the sector

that would have the most difficulty adapting to it already has it.

Mr. Porter.

Mr. PORTER. One, Madam Chair, I would like to mention that

we’ve heard a number of testimonies dealing in particular with

smaller business and with how the complexity of the law discourages plan sponsors. For the larger corporations, in many cases,

their interest is to do what’s right for the employee. And they’re

going to do what’s right regardless of how complicated it is. We’re

in the process of a major re-tooling of how we administer our benefits, and the common frustration expressed by the business leaders,

who don’t understand ERISA, is that somehow the people who are

working in benefits administration are engaging in some sort of

technological lovefest. [Laughter.]

And it’s a big issue. There’s no suggestion that the benefits ought

to be curtailed. There’s no consideration that they don’t want to

provide benefits to people. The consideration is that it’s a tremendous waste of money, and time, and effort, and manpower of talented people who could be doing very productive things for the

economy to have to deal with all of this. And I think that’s where

we would come off in the vesting issue. We’re more concerned,

mostly concerned about being able to provide what we want to provide for our employees in a cost-effective manner.

Chairman JOHNSON of Connecticut. Interesting. Mr. Portman.

Mr. PORTMAN. Just quickly, the faster vesting, of course, is because of the increasingly mobile workforce. We tried to address

that and I think you make a good point that that’s already a reVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00108 Fmt 6633 Sfmt 6602 E:\HEARINGS\63458 pfrm07 PsN: 63458
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quirement for smaller business and that I’m not hearing much

from the larger businesses on that. But something we did struggle

with was the 5 percent owner rule. That was one, frankly, I agree

with you on. We did get comments on that one. And, frankly, we

did not have time to work through some kind of anti-abuse rules

and, that’s one we might want to revisit. I think you’re right I don’t

think it’s consistent with the rest of the legislation.

Let me ask you one more question, quickly, since Chairwoman

Johnson has given us this opportunity about the salary reduction

SIMPLE plan. Now, this is the ability really to go to a very simplified plan where the employee would be able to set aside, or the

employer, $5,000 into an account, with no matching. Do you have

concerns about that? This is one others have raised as a concern

that, as an example, could be used by owners simply to provide for

themselves, not having any contribution requirements. Does that

concern any of you on this panel?

Ms. CALIMAFDE. Well, it breaks ground with any retirement rule

we’ve had to date, the SIMPLE plan broke ground, but the company still had to match. So this is the first retirement plan where

the company would have to do nothing at all.

I know the SBCA and the SBLC are a little concerned in that

this is really an IRA. The SIMPLE is really an IRA plan and employees can access that money by simply going to the bank or the

brokerage house and say they want to withdraw. There’s a 10 percent penalty for that withdrawal but that doesn’t seem to be much

of a barrier. What I liked about the legislation is with the SIMPLE

salary reduction only, it’d set a $5,000 limit and then the SIMPLE

regular plan was, I think, a $10,000 limit.

Mr. PORTMAN. Raised from $6,000 to $10,000.

Ms. CALIMAFDE. Right, you jumped up to $10,000.

Mr. PORTMAN. So there’s a disparity.

Ms. CALIMAFDE. And then 401(k), you went from 10 thousand to

15 thousand. So, it would seem to me, you’re giving an incentive

for a company to move out of what I would consider the IRA area

into the true qualified retirement plan area. And so I think it’s an

interesting idea. Hopefully, it will bring more small businesses to

the table and ultimately get them to the 401(k) area which is a

huge success story. In our firm, that one paralegal I was telling you

about, who was cut back by the 25 percent of compensation test,

that paralegal in eight years, with employer contributions, and her

own 401(k) savings has an account balance of $84,000. You know,

you just can’t beat that kind of story.

Mr. PORTMAN. You’re okay with the $10,000 as compared to the

$15,000 on the 401(k), do you think that’s adequate?

Ms. CALIMAFDE. Yes, what I was saying is I think the gap is

what’s very important——

Mr. PORTMAN. Yes, that’s important.

Ms. CALIMAFDE [continuing]. Because I do think the 401(k) is a

much stronger plan because the employees can’t access the money

easily. So it has forced savings and what we’re seeing with all the

data is that, in fact, most employees will not go to the employer

to get a loan or get a hardship distribution unless they really need

it. So, the money is staying in the plan and the trick, I think, to

saving is once an employee gets a good account balance statement

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then he or she really enjoy seeing the money grow, and they like

these 800 numbers, and they like getting to pick and choose between mutual funds so it’s actually the 401(k) that is engendering

a lot of excitement among the employees.

Mr. WALKER. I think, incidentally, that will be a great first step

because you have the two year rule, they can’t have had a plan for

the prior two years so basically what you’re going to draw into the

pension marketplace are employers who do not have existing plans

and have not had them. I think that’s great.

Mr. PORTMAN. Okay, well, that’s certainly is our intent. It’s trying to get those employers who have nothing at all. It’s a lot better

to have that rule than no ability at all to save. So we think it’s a

good step but it is a change in direction. And I think one that’s

going to be somewhat controversial. Thank you.

Mr. WALKER. Madam Chairman.

Chairman JOHNSON of Connecticut. I think it’s an important

step, too, because it gives employees an opportunity to start the

savings habit, whether their employer can afford to participate or

not. And with a number of very small businesses out there that in

two years are going to be a little bit bigger businesses, I think it’s

very, very important to start, to initiate the savings habit as early

as possible. And I think once the employer has started in it, he’ll

want to be able to maintain that participation and move to the

next step.

Thank you very much for your help this afternoon, and we’ll look

forward to working with you as we develop this legislation. Also,

if any of you really want to participate with me in thinking outside

the box, to repeal my word, ‘‘radical.’’

Mr. KLEIN. I have one for you right now.

Chairman JOHNSON of Connecticut. Substitute——

Mr. KLEIN. I can tell you in 20 seconds or less. A lot of these

rules that we’re talking about have been designed to deal with

problems, either real or perceived, in the small business area. And

yet they are applicable to the large businesses represented by my

group and by the group that Mr. Porter represents here. So in

thinking about relief, you can’t forget about the problems that

these rules cause unintentionally to large business. And if you

want to really think outside of the box, if there’s going to be exceptions for small businesses in all sorts of non-pension areas, maybe

pensions is an area which there should be exceptions for large companies.

Chairman JOHNSON of Connecticut. Well, I really do urge you to

think outside of the box and come up with, you know, the outline

of proposals so we can look at them, and start talking with them

because, you know, we really, you don’t often really modernize the

law. And the Portman-Cardin proposal is really a dramatic effort

to modernize the law. I think we also, at the same time, need to

think outside the box, and what would we do if we were starting

from scratch because we now understand, first of all, the extraordinary urgency, the real urgency of getting Americans to save. Social Security is a totally inadequate retirement income and now

people are spending a career in retirement. All of us will live longer

in retirement than we lived at home with our parents. [Laughter.]

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That was a lifetime when you were 16 and 18. And we’re all

going to experience 20 years of retirement, pretty much, at least.

So, we really can’t any more have Federal laws founded on, in a

sense, defensive assumptions. We really have to do things to force

everyone in our Nation to participate in retirement planning. And

that’s what we did in the 401(k), and all the enlargements of all

those things. So we have now a sort of anachronistic pension structure underneath all of those other vehicles and really, if we’re

worth our salt, we’ll think more broadly.

Thanks.

Ms. CALIMAFDE. Thank you for your efforts.

Chairman JOHNSON of Connecticut. Mr. Jeffrey Lewis, the executive director of the Heinz Family Philanthropies; Cindy Hounsell,

the executive director of the Women’s Institute—if you could proceed?

Okay, it’s just been announced that there’ll be a series of five

votes starting at 5:15 which means that we really ought to try to

get everybody’s testimony in before that time. So we’re going to

have to be, we’re going to have to stay within the time frames, and

target our questions.

Mr. Lewis.

STATEMENT OF JEFFREY LEWIS, EXECUTIVE DIRECTOR,

HEINZ FAMILY PHILANTHROPIES

Mr. JEFFREY LEWIS. Thank you. Madam Chair, Congressman

Coyne. I am Jeffrey Lewis, executive director of the Teresa and H.

John Heinz III Foundation.

I was the Republican staff director for the late U.S. Senator John

Heinz, who as, you may recall, was devoted to these ssues, and up

until the day he was tragically killed, was working on pension legislation. I know if the Senator were alive today, he would be in the

thick of the discussion on Social Security reform as well as the

challenges of improving the private pension system. Teresa Heinz,

chairman of the Heinz Family Philanthropies, made it her mission

to ensure that part of the foundation’s focus is to finish some of the

visionary work with which the late Senator was involved.

I deeply appreciate the opportunity to be here this afternoon to

discuss the results of a national poll that we recently completed.

During the past several months, the Heinz Foundation joined with

SunAmerica Corporation to undertake the historic National Women’s Retirement Survey. The objective of the poll was to target

women aged 25–55 to better understand what women, in and outside, the workplace were doing to prepare for retirement, and how

they personally address these issues. A total 1,858 people were

interviewed and we over-sampled for African-American and Hispanic American men and women.

Although many Americans would ideally like to retire early, most

know realistically they will have no choice but to work at least

until age 65. In fact, for one half of Americans aged 25 to 55 there

may be no such thing as retirement as we know it. Nearly half of

all the respondents say they expect to have to take on a full- or

part-time job after they retire in order to support themselves.

The general polling results underscore the fact that Americans

share a fear about the financial survival of Social Security. Only

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1 in 20 Americans believe Medicare and Social Security will definitely be there when they retire. However, our findings point to a

much larger and more troubling issue that we are facing in America today, a retirement savings crisis. A crisis where first far too

many low-income Americans, particularly, African American and

Hispanic Americans, are working in settings where pensions simply are not offered, second, they are financially unable to participate in pension plans if they are offered, and third, they are not

making enough to save on their own.

Here, we believe we have done something very different. Our

goal was, in particular, to begin to understand what African Americans and Hispanic Americans are and are not doing with regard to

savings and pension issues generally.

Let me share with you four specific results:

Number one, 75 percent of African-American women and 69 percent of Hispanic women report that they usually have little or no

money left after paying their bills to save for retirement;

Second, 71 percent of African American women and 59 percent

of Hispanic women are concerned that they will simply not have

enough money on which to live when, and if, they retire.

Third, while there continues to be a debate about the issue of

raising the retirement age for purposes of eligibility for Social Security, for many African-American and Hispanic-American women

this is really a nonissue. Sixty percent of African American and 57

percent of Hispanic women expect to have to continue to work at

a part-time or full-time job after retirement simply to survive.

And, finally, Hispanic Americans are the most likely to be employed in jobs where pensions are not offered. Madam Chair, minority women are not optimistic. They are short on finances and increasingly inclined to believe that they will never have the power

to control their financial destinies. Since many do not have enough

money to make ends meet while they’re working, they cannot fathom a time in the future when they will not be working. They fear

that retirement for them will represent a financial prison. Fiftyseven percent of African American and 54 percent of Hispanic

women fear they will live at or near the poverty level after working

long and hard throughout their lives. If these trends continue, not

only will poverty and old age continue to have a distinctly feminine

face, but the feminization of poverty will have gained a greater

stranglehold on women in general and minority women in particular.

Let me summarize my remarks in that way, and ask that they

be placed in the record in their full. And thank you for the opportunity to be here, and, most importantly, for the leadership of this

subcommittee. It is rare that we can have such bipartisan strength

on these kinds of issues, and it’s wonderful to see it going forward.

Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much, and

thank you for your good work in this field.

Ms. Hounsell.

STATEMENT OF CINDY HOUNSELL, EXECUTIVE DIRECTOR,

WOMEN’S INSTITUTE FOR A SECURE RETIREMENT

Ms. HOUNSELL. Yes. On behalf of the Women’s Institute for a Secure Retirement, I want to thank the members of the subcommittee, and particularly Chairman Johnson and Representative

Coyne for inviting us here today.

WISER’s primary mission is education, providing women with information and the retirement planning skills so that they can surmount the overwhelming challenges to securing retirement income.

Our goals include increasing awareness among the general public,

policy-makers, and the business community of the structural barriers that prevent women’s adequate participation in the Nation’s

retirement systems.

Instead of reading the entire text of my statement, I’d like to

highlight certain points:

Retirement challenges for women workers: three out of four

working women earn less than $25,000 per year. Half of all women

work in traditionally female, relatively low paid jobs without pensions. Women are more likely to work in part-time and minimum

wage jobs without pensions. Women’s earnings average 74 cents for

every $1 earned by men. Women retirees receive only half the average pension benefits that men receive. Women spend 15 percent of

their careers care-giving outside of the workforce compared to less

than 2 percent by men.

Reasons why women need more retirement income: women live

longer than men. They earn less so their Social Security and pension benefits are smaller. Women are likely to be widowed or divorced and not remarry. Non-married women are more likely to be

poor. Women, because they live longer, are more likely to need

long-term institutional care.

Over the past 15 years, there’s been a shifting of the burden of

retirement from the employer to the employee. A trend that will almost certainly have a disproportionate effect on all low-wage workers, but particularly women for the following reasons: as low-wage

earners saving for retirement, women are clustered in low and middle income households. The median income for all working women

under age 65 was less than $15,000. For full time women it was

less than $25,000. The fact that women earn 26 percent less income than men creates less of an opportunity for savings. It means

they have substantially less income to put in an IRA or 401(k) savings plan. And that means their pension benefits are going to be

less than men’s. Consider the statistic that for workers over age 40,

the average woman has accumulated only $7,000 in her 401(k) plan

whereas the average man has accumulated $20,000 in his.

A recent USA Today survey of the Nation’s largest employers

found that the worse plans are offered in the retail and service industries the sector where the workers are less likely to have pensions, the pay is low and the jobs are dominated by women. The

survey’s results indicated that the workers least able to save also

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have the lowest savings—and the lowest matching contributions by

employers.

Given these basic facts, what I’m about to say may be perceived

as controversial but is not meant to be so. And I understand that

people over 50 often need to have extra time to catch up because

earlier in their career they were not able to contribute. But we also

have to be candid when we talk about pension reforms and who

they’re going to benefit. I’ve spoken with thousands of women in

the past few years and not a single one has complained that she

cannot put enough money into her 401(k), or that she needs a

catch-up provision. And those are the women that I’m most concerned about today. In fact, it’s exactly the opposite. As the National Women’s Retirement Survey indicates, most working women

are trying to juggle their finances just to find some income to contribute. And low wage working women that I talk to simply wished

that they had some sort of a pension. Expanding savings opportunities by increasing contribution limits or creating catch-up contributions may not have much effect on the women we are most concerned about, the majority of America’s working women who earn

less than $40,000 per year. What will help these women? Simplified vehicles, like SAFE, that provide immediate vesting and a

special focus on the small employer market, vesting reform for all

retirement plans, simplification that’s explicitly linked with improved coverage and non-discrimination requirements.

Finally, we commend the subcommittee for focusing attention on

this critically important issue. The implications of inadequate pension coverage and benefit receipt are far-reaching. But they’re also

directly related to income. We need to address these issues now

and take steps that will narrow the gap between those workers

who are financially able to save adequately and those who cannot.

Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you.

Ms. Patterson.

STATEMENT OF MARTHA PRIDDY PATTERSON, DIRECTOR, EMPLOYEE BENEFITS, POLICY AND ANALYSIS, KPMG, COMPENSATION AND BENEFITS PRACTICE, PEAT MARWICK, LLP

Ms. PATTERSON. I’m Martha Priddy Patterson with KPMG. I

think I’m here as a sort of a bridge witness in the sense that in

the day time I work with employers on these various difficult retirement plan issues. That’s my vocation. My advocation has been

talking to groups of women in two or more wherever they will gather about the importance of starting early to plan for their retirement and planning forward.

Ms. Hounsell and I are sort of the ‘‘Thelma and Louise’’ of retirement planning for women in that we will go anywhere, anytime to

talk with women about how important it is to address these issues.

However, we frequently come at these things from different sides,

just like Thelma and Louise.

I liked much of what I read in the bill this morning. I must tell

you I spend a great deal of time reading through legislation and

this was the first bill that I looked at in a long time that made me

smile. There’re some wonderful things in there, and let me skip

right to the one that does help, I think, a little bit with the very

low wage earner woman and that is eliminating the 25 percent of

compensation limit. That just punishes low wage workers, male or

female. And it also robs them, too often, of matching contributions

from their employer. Our survey that we do each year for retirement plans shows that about 85 percent of people who are in

401(k)’s get a match. When you’re cut off from putting in more

than 25 percent of your income that is a big problem, and that’s

a problem not only for women but for their families. Recognize that

over 50 percent, or nearly 50 percent of people in this country have

access to no pension, private pension plan at all. So when you’ve

got a two wage earner family, as most of our families are today,

of course, it’s likely that one of them is not getting a pension at

all. If the other one is, it becomes even more important that they

not have limits on their income to set their wage bases and to set

their retirement benefits at those very low wages.

So I thought that was a very good thing. I also liked the idea of

the catch-up provision. I don’t disagree with Cindy that does not

really help people at the lower end of the wage scale, there’s no

question about that. But I do think it’s very, very important for

those at the middle levels. If there are problems with the non-discrimination rules on the catch-up, and I think there very well may

could be, there’s an easy answer to that and that is you simply exempt them from both the 401(k) non-discrimination rules and from

the 401(a)(4) rules and simply require that the individual first fund

up under the regular contributions before they get to that catchup provision. So I think that that’s an issue that can easily be

worked on.

I want to touch on something that no one else here today has

talked about so far and that is the treatment of ESOP dividends.

I cannot understand, I have never understood the rationale and

justification for giving the employer deductions for the dividends

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that are paid out of that ESOP, the only retirement plan that lets

us get earnings out of it, by the way. And, indeed, encourages employers to get the earnings out of there. And does not give a deduction to the employer, if those dividends remain in the ESOP.

That—I just do not see the rationale for that at all.

And I want to skip right on with the length of time that we’ve

got, and, you know, my testimony will be made part of the record,

to address a question that the Chair posed about the overlapping

limits and the lack of necessity for them. And you asked is there

any way to rationalize these? Of course, there isn’t. Let’s be frank

and real about this. The reason so many of those limits go there,

and it’s not just a belt and suspenders, it’s a unitard over long underwear and belt and suspenders. We’ve got so many limits, and

the reason they got there was we needed the revenue and we knew

that. And many of these things were adopted, not because they had

any pension policy whatsoever, but because we simply needed the

revenue.

With that, I see my time is running out and I’ll conclude my remarks.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much. That

was a very important point that you made about the two earners.

With so many employers not offering a pension plan at all, the

limit is very harsh because it doesn’t allow a couple to make the

decision to have one salary to try to provide their retirement benefits while the other’s salary provides their income.

And then your explanation of why we have these overlapping requirements is an honest one. I think one of the reasons I want to

encourage you all to think out of the box is that, you know, if revenue is problem, then we think about how to phase in. But if you

phase in a simple reform, you get to the right place in the end. If

you just don’t reform because of the revenue implications, you

never fix the problem. So I think we ought to not let the revenue

implications prevent us from thinking about what will it really

take to get more people into a savings system to assure that they

will have greater retirement security than is possible under the

current plan.

And I think, Ms. Hounsell, your data and Mr. Lewis’ data about

where many women are now and where they’re likely to go without

change is startling. And if there was ever a case to be made for

thinking outside the box, that case can be made right now. And

then we will deal with the issue of revenue, but if we don’t look

at what would be the reform that will serve people, then we won’t

have done our job.

So, thank you very much for your testimony. Mr. Coyne?

Mr. COYNE. Thank you, Madam Chairwoman. I’d just like to ask

Mr. Lewis, given the breadth and the somewhat disturbing results

of the survey, where do you intend to take your efforts after this?

Mr. LEWIS. Well there’s three pieces to that. The first piece is we

are in the process of preparing another national poll that looks specifically at Asian Americans. I know Mr. Salisbury’s group has

looked at that, it’s probably in a much more smaller context but

we’re working on a national poll because in terms of population

groups, no one has really looked effectively at Asian Americans to

understand what they are and are not doing as well. We hope to

be in the field in the next couple of months on that.

The second thing that we’re doing is we have initiated, through

the Women’s Institute, a series of minority initiatives. In Georgia,

in Pennsylvania, and elsewhere across the country, designing strategies at the grassroots level working with African American and

Hispanic American groups that are designed to bring educational

initiatives in multiple languages to them, but to work with grassroots leaders to open doors before we can get to other people in the

community. But to educate them first, educate those who are grassroots leaders who can go out, who they can go out and educate others.

And the third piece that we’re doing is really then focused on the

whole issue of divorce. Divorce becomes a major issue with regard

to pension issues. You know, when we did the Retirement Equity

Act in 1984, and we passed the QDRO, you know, when we did the

QDRO, the Qualified Domestic Relations Orders, it was a major

step forward. But we have a population of women today who are

what we refer to as the ‘‘forgotten faces,’’ whose husbands got them

to sign a waiver and who took a lifetime benefit adjoined survivor

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annuity, and had really no understanding what they were signing,

pre-QDRO and post-QDRO. And then the QDRO problem is then

compounded by the fact that, you know, when a woman goes into

a divorce setting, she is often with a lawyer, who in many cases

simply doesn’t understand the law, doesn’t understand what a

Qualified Domestic Relations Order is, doesn’t know what kind of

questions to ask of the husband, or the husband’s attorney, and

many times she will, you know, take a house as a defined benefit

in lieu of a pension. And while it may be a valuable asset now, in

the long term she is giving away significant financial security.

Cindy and I are now graphing a piece we hope to go to a magazine very soon on the whole issues of divorce. We did a piece, as

you are probably aware of, for Good Housekeeping that was published in April of this year. So our goal is then for next year to do

a piece separately on divorce. Each of the pieces that we do then

are published in English, Spanish, Portuguese, and at least one

Asian dialect.

Mr. COYNE. In your testimony, you mentioned efforts by the

foundation to develop a national pension plan, could you tell us

anything more about that?

Mr. JEFFREY LEWIS. Congressman Portman has the provisions

bill that he spoke about earlier about allowing small businesses to

simply allow—not have to contribute but allow people to save some

form of income which is a tremendous effort. But in the event that

that doesn’t happen, we’ve been working on an effort to try and figure out how you establish a national pension plan, recognizing that

small businesses can only do so much. And in they’re trying to

maximize their ability to remain competitive in the workplace, either domestically or globally, we’re looking at a program to try and

find out how do we get workers to begin to save money, minimizing

to the extent possible, what the overhead expenses would be for a

small employer and simply taking the deduction out and shipping

it someplace else where the funds would be managed. We’ve been

in conversations and discussions with Morgan Stanley and a number of other people in putting such a plan together.

Mr. COYNE. Thank you. Ms. Hounsell, how much of the women’s

retirement savings crisis would you attribute to the lack of knowledge about how and why to save for retirement, and how much is

simply driven by the lack of money to put aside?

Ms. HOUNSELL. Well, I think, it’s basically the lack of funding although Martha Patterson and I always have this same conversation that is that everyone can save even a little bit, and clearly

that’s the education piece that people need to hear. But, what people really need is a pension or some way to save through their employer and that just doesn’t exist for the majority of working

women.

Mr. COYNE. So it’s your sense that it’s probably more tipped towards the fact that people don’t have the money to put aside?

Ms. HOUNSELL. Right. I mean, they can’t find it at the end of the

day. If there were a small amount that could be taken out of their

gross pay, say 1 percent and put in an employer vehicle, it would

likely spur people to do just that. But if they don’t have that opportunity at work and they don’t have the employer pushing a plan—

I’ve heard so many stories from people where women say, ‘‘You

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know, I never would even have started doing this if it weren’t for

somebody in my office who told me I had to do it. Even though I

couldn’t afford it, they made me do it and that’s the only reason

I have anything today.’’

Mr. COYNE. Thank you very much.

Chairman JOHNSON of Connecticut. I think that’s a very good

point. It’s like Social Security is taken out, FICA taxes, and you

never see it so you never know it. And I think we need to be able

to have that option at a low enough level so that even if you are

counting every penny, you can learn to count a few less. Mr.

Portman?

Mr. PORTMAN. Thank you, Madam Chair, and thank you all for

your input. Ms. Patterson, I really enjoyed your analysis of why we

have these various rules, boot straps and suspenders, and other

things. And I think you’re right in regard to some of them. Some

of them you can look at specifically and see that it was for a revenue raiser. Others, the top heavy rules, for instance, came about,

I think as well intentioned but perhaps weren’t meant to be part

of a larger layered approach, and in the aggregate, I think, are now

having a negative impact.

Just briefly, on the ESOP provision, you analyzed it, I think, perfectly but you didn’t say whether you thought it was good or bad

in the legislation. I think what you’re saying is you think that so

long as the employee is making the reinvestment into the ESOP

that there ought to be a deduction so that it encourages retirement

savings through the ESOP, is that correct? You would support the

provision in the legislation?

Ms. PATTERSON. Yes, that’s correct.

Mr. PORTMAN. Okay.

Ms. PATTERSON. If I left any confusion about that, I regret it. If

I can just add one little thing to the QDRO’s, let me tell you that’s

something that drives plan sponsors crazy too.

Mr. PORTMAN. Sure.

Ms. PATTERSON. So, we really need to try to find some ways to

get that problem cleaned up. It also drives lawyers crazy, divorce

lawyers, because they don’t, they don’t know what to do with it.

Mr. PORTMAN. Yes. One other quick question I would have on the

25 percent rule we’re repealing, I think you’re exactly right. I was

trying to get at that earlier but it only hurts, as one of our earlier

witnesses said, rank and file folks. In other words, if you’re a highly compensated person, the 25 percent rule is not going to be your

cap. It’s going to be the contribution limit.

Ms. PATTERSON. Exactly.

Mr. PORTMAN. And so I appreciate the fact that you support that

repeal and I think it will help lower paid women and lower paid

men as compared to highly compensated.

The catch-up issue, you know, is going to help and so on and

your thoughts on exempting it from the non-discrimination and top

heavy rules, I think that’s something we need to look at it. Who

it helps really goes to the bigger issue, which Ms. Hounsell talked

about earlier, and whether folks are going to save who are at the

lower income levels. And the other way to go about this, of course,

is for the Government to provide on the direct expenditure side

more income, either through Social Security, which is already a

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program which is progressive or through some other direct means

and I guess what we’re saying here is we don’t see that happening,

particularly given the state of Social Security so we need to provide

that expansion. As Ms. Hounsell said earlier, some of these women

are in jobs where there just isn’t an opportunity. I mean, some of

them will not save any way because they need every last cent for

the daily needs. But in other cases, there’s not the opportunity

among small employers, defined as 25 or fewer. We understand

that fewer than 30 percent offer any kind of retirement savings

plan at all now.

And we’re going to hear from the Chamber, I saw their testimony

a second ago that there are roughly 30,000 employers who have

now adopted the SIMPLE plan which, if you assume it’s on average

10 employees, that’s 300,000 workers who are now covered. And as

Mr. Lewis says, it’s just not the workers it’s usually the family because of the lack of coverage. So, often there’s just one spouse. You

mentioned earlier your support for the defined benefit plan, the

SAFE type plan, do you think providing more incentives in terms

of SIMPLE, SAFE, this contribution we talked about earlier outside of a plan, will actually begin to get at some of the problems

that you identified?

Ms. HOUNSELL. Yes, I have changed my position over the last 10

years. I believe any vehicle is helpful even the salary reduction

SEP which was eliminated from the law when the SIMPLE was instituted. I’ve heard complaints from so many people about that

elimination because that was all they had and so any vehicle, I

think, will make a difference.

Mr. PORTMAN. Yes.

Ms. HOUNSELL. Because it gets people started. I believe small

employers especially need a good starter plan.

Mr. PORTMAN. Any thoughts on that Mr. Lewis?

Mr. JEFFREY LEWIS. No, I mean, we know from the polling data

that any knowledge of savings is a major factor in a woman’s ability to save. The more she knows the more likelihood that she is to

save, and it’s particularly true among minority women.

Mr. PORTMAN. One thing I do and I’m sure Mrs. Johnson and

others do, is to go to high schools and talk to kids about saving in

401(k)’s and profit-sharing plans and so on and you get kind of this

stare, like, I’m going to live forever and I’m not going to need it.

I mean, it’s very difficult but I think there’s an obligation on all

of our parts to begin to develop that sense that it is, in fact, one

of the best deals out there. If you have it through your employer,

take advantage of it. That word gets out.

Mr. JEFFREY LEWIS. One of the things, if I could comment, one

of the things that Cindy and I have done as we travel across the

country is do a little chart showing compounding so if you, when

you say to an 18-year-old, because we talk to them as well, if you

can take $100 a year, or a $100 a month, whatever the amount of

the money is, let us show you what it looks like, assuming 8 percent or some percentage, and their eyes open very wide.

Mr. PORTMAN. The power of compound interest.

Mr. JEFFREY LEWIS. The power of compounding really educates

them because they begin to understand what that means in terms

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of just general savings or in terms of an Individual Retirement Account. That really does help.

Mr. PORTMAN. Good luck.

Mr. JEFFREY LEWIS. Thank you.

Ms. HOUNSELL. Thank you.

Chairman JOHNSON of Connecticut. Congresswoman Thurman?

Mrs. THURMAN. Thank you, Madam Chairman, and I apologize,

I have constituents in; it happens, it’s a part of this job. The ESOP

issue has been a big issue for me. I have some employer owned

businesses in the district and, in fact, am part of the legislation

that would try to look at the issue that’s being discussed here. In

the conversation, though, with this panel, do you see that as maybe

a possible benefit for the women that are working since they would

actually be able to reinvest which would also bring up their retirement plans to a better level, fortunately, than others?

Ms. PATTERSON. Certainly the idea that the dividends that can

be kept in the plan and the employer still get the deduction is a

benefit for everyone in the plan. I don’t think there’s any question

about that. I don’t think it has a major effect between genders,

frankly.

Mrs. THURMAN. Okay. In the last panel, and if I missed this, I

apologize, and I know that Portman talked a little bit about this

but in this idea of the highly compensated and their making the

decisions for their companies whether or not to have a pension plan

or not to have a pension plan. Have you, did you look at that in

any of your studies as to that being a real cause out there? Is that

really a cause? Do they really make those decisions based on that?

Is that causing some of this problem?

Ms. PATTERSON. I think there are a number of different levels of

employers. Major employers who are offering benefits are offering

benefits because they want to offer benefits. The limit on various

compensation levels or benefit levels, their executives know that

they’ll just simply, as one of the panelists said, they’ll get what

they want and if the company has to gross them up for it, so much

the better. So they’re not going to not have benefit plans because

of these limits. I think on that group of employers, though, that are

not currently offering benefit plans, there’s very little incentive for

the top executives to push to institute a retirement plan when he

or she will get relatively little out of it. I don’t think there’s any

question about that so we’ve got to make those a little more attractive in one way or the other. Either less complex, or more incentives to begin those plans.

Mrs. THURMAN. Now with unemployment being at a low time,

we’re really at a low point and people are out there in the marketplace. While I can understand what they’ve said in the incentive

part of it, but at the other end of it, in fact, some of these folks’

salaries at the top end are based on their production and how

much their companies are growing and those kinds of things and

part of that is productivity by their employees which would mean

that the more benefits they receive, the better feeling that they

have that they’re a part of what’s going on in that company. At

what point, as this unemployment stays at this, will we see more

and more of decisions being made by companies to add pensions to

keep employees because it’s a long-term advantage of not having to

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do re-training and those kinds of things? Is there any advantage

to that at all?

Ms. HOUNSELL. Well, I think there is but I think we have to start

educating employees because a lot of employees just are not aware

that they really need a pension plan.

Mrs. THURMAN. But if they’re being taken away from that job

and brought over to another job, one of the reasons they’re leaving

the job they’re in today is because there are plans available. I

mean, is that happening out there at all?

Ms. PATTERSON. I don’t think that there’s any question that a

good retirement plan is a great incentive to lure people to the company, and yes, we do find that. But I don’t get the sense, and our

surveys don’t really reflect, that people are instituting retirement

plans to pull in people.

Mrs. THURMAN. Okay.

Ms. PATTERSON. Now, they may be. I just haven’t seen any hard

data on that.

Mrs. THURMAN. I’m just kind of curious. It would be one of the

things that I would offer, I mean, if I were trying to get goodtrained people, wanting them to stay longer, and I thought that my

salary was going to be increased because I had better productivity,

you want to make your employees happier, stay longer, and do

those kinds of things. I just wondered if there was anything going

on out there now with unemployment being so low. It might be an

interesting question?

Ms. PATTERSON. I think it will be and I tend it to put in next

year’s survey.

Mrs. THURMAN. Good, thanks.

Chairman JOHNSON of Connecticut. Thank you very much. I appreciate it Ms. Patterson. There are several bills on the ESOP

issue, including one by Cass Ballenger and myself so the provisions

are close. Thank you. That’s all, right. Thank you.

The next panel, we will have to move right through the testimony so that we get to at least hear everyone before the bells go

off. So, if Carlos Saladrigas could start, following by Timothy

Doherty, Arthur Caple, David Wray, Lynn Franzoi, and Russ Hawkins, and Howard Weizmann, I would appreciate it. Mr. Saladrigas,

chairman and chief executive officer of Vincam Human Resources

on behalf of the National Association of Professional Employer Organizations, and the National Association of Temporary and Staffing Services.

STATEMENT OF CARLOS A. SALADRIGAS, CHAIRMAN AND

CHIEF EXECUTIVE OFFICER, VINCAM HUMAN RESOURCES;

ACCOMPANIED BY TIMOTHY E. DOHERTY, CHAIRMAN AND

CHIEF EXECUTIVE OFFICER, DOHERTY EMPLOYMENT

GROUP, ON BEHALF OF THE NATIONAL ASSOCIATION OF

PROFESSIONAL EMPLOYER ORGANIZATIONS, AND NATIONAL ASSOCIATION OF TEMPORARY AND STAFFING SERVICES

Mr. SALADRIGAS. Good afternoon, Madam Chairwoman.

Chairman JOHNSON of Connecticut. You’re accompanied by Timothy Doherty? Okay.

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Mr. SALADRIGAS. And members of the subcommittee, my name is

Carlos Saladrigas. I’m chairman and CEO of the Vincam Group, a

professional employer organization (PEO) headquartered in Coral

Gables, Florida. I am the past president and board member of the

National Association of Professional Employer Organizations

(NAPEO).

My company is one of the leading PEO’s in the Nation, the sixth

largest Hispanic-owned company in the Nation, and we have an office in your great State of Connecticut.

With me is Tim Doherty, CEO of the Doherty Group, Employment Group, headquartered in Edina, Minnesota. Mr. Doherty is

the immediate past president of the National Association of Temporary and Staffing Services, and is a current member of their

board.

We’re testifying today in support of House bill 1891, the Staffing

Firm Worker Benefit Act of 1997. The provisions of this bill are

also included in the pension reform legislation introduced by Mr.

Portman and Mr. Cardin.

Today, an estimated 4 million workers are employed through

staffing arrangements in the U.S. Staffing firms are playing an extraordinary role in today’s economy by providing these workers

with increased independence, flexibility, and the opportunity to obtain better pensions and health benefits. It is well known that most

of the new jobs being created in the United States today are being

created by small businesses. Fifty-three percent of all U.S. workers

are employed by small to medium sized businesses, that’s a total

of over 49 million individuals.

Companies like mine, and Mr. Doherty’s, are transforming the

way these small businesses respond to the myriad employer responsibilities and risks imposed on them, and by pooling employees

of many small businesses, PEO’s create a scale and scope that

makes it possible for us to deliver affordable, quality health and

pension benefits to small businesses.

You see, small businesses today are simply having a very hard

time managing the complexities of employing people. These include

the responsibility for paying employees, record keeping, providing

and managing employee benefits, managing workplace safety,

OSHA regulations, workers’ compensation claims and last, but not

least, the responsibility for compliance with labor and employment

laws which, as you know, have multiplied over the last 30 years.

We, in the industry, saw these needs in the marketplace. In response, we created the concept of professional employer organizations, or PEO’s, to help take over these employer responsibilities

from small businesses and to provide significant retirement and

other benefits to workers on a more cost-effective manner. By assuming legal responsibility for these employer obligations, PEO’s

help to free up small firms from the business of employment so

that they can focus on their real business, whether it is a small florist shop, a plumbing firm, an architect’s office, or a manufacturer.

As employers, PEO’s are responsible for payroll and related payroll tax administration, benefits, retirement plans, workers’ compensation. They implement client employment law compliance programs and work on safety policies which have substantially reVerDate 11-MAY-2000 14:01 Aug 03, 2000 Jkt 063458 PO 00000 Frm 00139 Fmt 6633 Sfmt 6602 E:\HEARINGS\63458 pfrm07 PsN: 63458
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duced workplace injuries and costs. In my firm, we have documented a better than 50 percent reduction in workplace injuries.

Because we operate as large employers, PEO’s also bring millions

of workers under the protection of Federal laws, such as COBRA,

and the Family and Medical Leave Act, and bring millions of employees to the same level of statutory protection that their counterparts enjoy working for larger organizations.

Many of these same benefits are provided by temporary staffing

firms, Madam Chairwoman. Temporary help service companies

help businesses operate more productively by supplying skilled employees, as needed, to meet seasonal workloads, variable production

schedules, and special projects. But temporary work also serves

millions of employees who need job flexibility, supplemental income, skills training, and a bridge to permanent employment. In

1997 alone, over 7 million temporary employees found permanent

work, 2.9 million as a direct result of their temporary job. As you

know, many people prefer temporary work, parents with young

children, students needing summer employment, retirees looking

for extra income and to stay active, as well as many skilled and

highly paid professional and technical workers.

The Government also benefits from the staffing services provided

by temporary help service companies and PEO’s. These staffing

firms operate as large employers with sophisticated automated payroll systems so that we can ensure faster and more reliable payment to the Government of billions of dollars of employment taxes

each year. Moreover, by providing workers with retirement plans

and other benefits, we provide a secure future for millions of Americans. For these workers, Social Security can serve its intended

purpose, which is, to supplement private savings.

Madam Chairwoman, the Staffing Firm Worker Benefits Act is

essential in order for staffing firms to continue the positive role

that they’re playing in the economy. To deliver the services and

benefits we provide for employees and customers, we need to bring

the tax rules into the 21st Century by codifying the employer status of a staffing firm for employment tax and benefit plan purposes.

Under the Internal Revenue Code, the determination of who is

the employer is generally made by reference to the rules historically developed under common law. These rules are outdated. They

do not take into account the nuances of our type of service because

they focus primarily on who directs the day-to-day work activities

of the employee. As a result, our employer status and the validity

of our benefit plans under the tax code is uncertain. Under present

rules, our ability to sponsor benefit and pension plans is unclear.

H.R. 1891 solves this problem by providing that staffing firms that

meet the fundamental requirements of an employer, will be treated

as the employer for employment tax and benefit purposes, even if

they do not direct the worker’s day-to-day activities.

Madam Chairwoman, without this bill the health and retirement

benefits of thousands of workers could be jeopardized. Many also

could lose their protection under Federal law, such as COBRA and

the Family and Medical Leave Act, because those laws accent most

small businesses. Clarifying that staffing firms are the employer

would ensure that workers will continue to get these benefits. It

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would also encourage the expansion of benefits, especially to employees working at small businesses.

I would emphasize, Madam Chairwoman, because some have expressed concern about it, that under the bill, protection under Federal and State labor unemployment laws, including civil rights,

wage an hour, occupational safety, and collective bargaining remain the same.

Chairman JOHNSON of Connecticut. Mr. Saladrigas.

Mr. SALADRIGAS. Yes?

Chairman JOHNSON of Connecticut. I’m going to have to ask you

to suspend——

Mr. SALADRIGAS. Sure.

Chairman JOHNSON of Connecticut. Because we have now 15

minutes, at any rate, we really must move on so everybody will get

a chance.

Mr. SALADRIGAS. Sure, all right. Thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. But thank you very much.

Mr. Caple.

STATEMENT OF ARTHUR N. CAPLE, JR., CHAIRMAN, LEGISLATIVE COMMITTEE, NATIONAL ASSOCIATION OF GOVERNMENT DEFERRED COMPENSATION ADMINISTRATORS

Mr. CAPLE. Thank you, Madam Chairwoman. I’d first like to

thank Congressmen Cardin and Portman for the great leadership

that they extended to the retirement community in being pro-active

in addressing change in the past as it regarded retirement systems.

And, Madam Chairwoman, I must say that it was music to my ears

to sit back in the gallery to listen to you, and I was thinking about

perhaps I ought to yield to the chairwoman because the comments

that you made in this person’s opinion were right on the money,

and I think well beyond the testimony that was offered here today.

And I think it’s extremely delightful to have a chairwoman who

chairs the committee that has an extensive knowledge of the subject that’s being addressed. And I could agree with the couple of

points that you addressed very strongly. I think you were, indeed,

right on the issues.

I come here, Madam Chairman, today as I serve as executive director of the supplemental programs in Maryland, and we have a

comprehensive program. Under our umbrella, we administer both

457, 403(b), and 401(k) programs. Additionally, I served for 13

years as a trustee on the Defined Benefit Board in Maryland,

which is a sizeable, $26 billion defined benefit plan, and chair the

investment committee for that group. I come today, also, as the

chairman of the legislative committee for the National Association

of Deferred Compensation Administrators, which is a national organization representing 49 States and some 5,000 counties and cities across the country.

I’m going to speak to the issues as it relates to the public sector

primarily. I will try to cut my remarks short. You have the written

testimony. We’re running out of time, and I apologize for the head

cold and the chest cold that I come with today, and also I’m on my

last cough drop. [Laughter.]

So I will try to keep my comments short.

I think everyone has concluded that we have a retirement crisis.

The question is now what do we do about the retirement crisis?

How do we cut to the chase and get to the solutions to the problem? And that’s somewhat of what we’ve been addressing today. I

think that the Cardin-Portman bill is, again, another piece of legislation that goes right to the issues. I think it does a lot of good

things for a lot of people. And I should tell the Congress people

here today we have worked extensively, not only on this issue, but

the trust issue in the public sector resulted in 457 money being

placed in trust. And I want you to know that it effectively protected

about $60 billion in public assets, public employee assets across the

country. And in going through that exercise, I think that the people

of America ought to know that the staff of the Ways and Means

committee, the staff of the congressional offices were courteous,

competent, and most importantly, always accessible. And that was

of great assistance to us as we were trying to work through these

very arduous issues.

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I guess I’m going to try to paraphrase my comments and get to

the issues. The subject of portability, and the question is why did

that become important? All of you have heard it said that 90 percent of your total invested return is due to asset allocation, not to

market timing. When we talk about employees investing their

money they’re going to have a portion of their money in the markets as well as fixed income products, and what’s important is that

they have it properly diversified. We now deal with a very portable

workforce, particularly in the technological and professional area.

If you would look at it this way, a person could change careers five

or six times during their working career and they might go through

six employers. That means that when they get to number five,

they’re going to have five different plans. On average, they’re going

to have somewhere between five and ten investment options in

each of those plans. When they get to the fifth employer, if they’ve

left everything where it is, they now have to deal with five different plans and 50 investment options and how any one can keep

track of it, and balance and re-balance and get proper asset allocation is beyond me. So, if they can take it from ‘‘A’’ to ‘‘B’’ to ‘‘C’’

to ‘‘D,’’ it greatly enhances their ability to manage their portfolio.

Secondly, there’s an issue that has been addressed and we would

welcome the opportunity to further discuss it. There’s been a proposal to eliminate the 10 percent Federal excise penalty for money

that goes into the 457 plan from 401(k) plan above—up to $50,000.

We believe that that’s going to create some administrative burdens

on the plans that are receiving roll-over monies because now they

have to do a separate accounting mechanism. They’re going to have

to keep—they’re going to label the monies, if you will.

Chairman JOHNSON of Connecticut. That’s a very valuable comment and, you know, those kinds of things if you could give us suggestions. Unfortunately, the red light is on so if you can, you’re just

about at the end of your testimony, so——

Mr. CAPLE. I’ve finished, Madam Chairman.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Mr. Wray.

STATEMENT OF DAVID WRAY, PRESIDENT, PROFIT SHARING/

401(K) COUNCIL OF AMERICA, CHICAGO, ILLINOIS

Mr. WRAY. Thank you very much. I am David Wray, president

of the Profit Sharing/401(k) Council of America, an association that

for the past 50 years has represented companies that sponsor profit

sharing and 401(k) plans for their employees. We have approximately 1,200 company members who employ approximately 3 million plan participants. Our members range in size from a six employee parts distributor to firms with hundreds of thousands of employees. PSCA has 290 members with less than 100 employees.

Small companies, those with 100 employees or less, employ nearly one-third of the workers over the age of 25. However, small companies, as we know, sponsor considerably fewer plans than large

companies. For these small companies that sponsor tax qualified

retirement plans, the financial commitment is high. PSCA has

found that companies with fewer than 50 employees contribute an

average of 35.1 percent of their total net profits to their profit sharing plans. The average cost of the match in a 401(k) plan of that

size is 32.6 percent of the total net profits. In contrast, companies

with more than 5,000 employees have average profit sharing contributions of 8.3 percent of total net profit, and 401(k) matches that

represent 3.9 percent of net profit. Of course, large companies are

far more likely than small firms to offer a defined benefit plan as

well.

One of the most challenging tests facing our society is the accommodation of our continually increasing life span. Until the last generation, it was the human experience that people worked until they

died. In just a few seconds on the human clock, that has changed.

It is now no longer exceptional that people live to be 100 or for couples to celebrate their 50th wedding anniversaries.

One of the tools helping us financially adjust to this change is

the defined contribution retirement plan. This employer, employee,

Government partnership mechanism has proved to be one of the

greatest engines of individual wealth accumulation ever devised.

Collectively, defined contribution plans, which include 401(k), profit

sharing, ESOP, money purchase, 403(b), and 457 plans, hold more

than $2 trillion in assets. Further, more than 80 percent of the $1.5

trillion in IRA’s is the result of roll-overs from the private retirement system. In 1978, the year that 401(k) was passed, these programs had less than $200 billion in assets. This was only 20 years

ago.

Historically, most small companies have found it economically

impossible to sponsor retirement plans, even defined contribution

plans, because of the continual changes in the tax law, complicated

Government regulation, and intense marketplace competition. They

also suffer from complexity intimidation. Many small companies

are terrified of the IRS and will not participate in programs that

are so complicated that the rules can be inadvertently violated. To

expand small business retirement plans, several actions are required. Regulatory costs need to be lower and plan regulation

needs to be simplified. The benefits of a retirement plan as a tool

to attract and retain valued employees need to exceed plan costs

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and employers and key employees must be able to benefit from the

plans.

Women are a substantial portion of the small company workforce. They represent the fastest growing segment of the small

business community, and they own roughly 40 percent of the 23

million small businesses in the United States. Further, a recent

study indicates that, given the chance, women save greater percentages of their income and participate at a higher rate in 401(k)

plans than their male counterparts. The most effective way to expand retirement benefits for women is to make defined contribution

plans more available to small businesses.

Congress took important steps in this direction with the passage

of the Small Business Protection Act of 1996 and the Taxpayer Relief Act of 1997. It can take another significant step forward by

passing the Retirement Security for the 21st Century Act. The passage of this legislation will increase retirement savings, simplify

administrative burdens, and lead to expanded employer provided

retirement plans for American workers, especially women workers

who work for and run small businesses.

As my time is running out, I will just comment that H.R. 3788

is bold and visionary. Madam Chairwoman, you and the other

sponsors of this legislation deserve the gratitude of the millions of

American workers who will benefit from its passage. You have the

enthusiastic support of the members of the Profit Sharing 401(k)

Council of America.

Thank you very much.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you, Mr. Wray.

Ms. Franzoi.

STATEMENT OF LYNN FRANZOI, SENIOR VICE PRESIDENT,

BENEFITS, FOX GROUP, ON BEHALF OF U.S. CHAMBER OF

COMMERCE

Ms. FRANZOI. Thank you. Madam Chair and members of the Subcommittee on Oversight of Pension Issues, my name is Lynn

Franzoi. I am senior vice president of benefits for Fox Group. I appear before the subcommittee today on behalf of the U.S. Chamber

of Commerce.

The U.S. Chamber of Commerce is the world’s largest business

federation representing more than 3 million businesses and organizations of every size, sector, and region of the country. We are

pleased to appear before you today to discuss pension reform, and,

in particular, the Retirement for the 21st Century Act introduced

by Representatives Portman and Cardin. The U.S. Chamber applauds your leadership in seeking ways in which our Nation’s pension laws can be reformed in a positive manner. Today, we would

like to focus our attention on the Retirement Security for the 21st

Century Act and the positive changes it brings to our pension laws.

In the interest of time, I will focus on a select number of issues of

importance to the business community. However, I ask that a copy

of my testimony be submitted for the record.

The U.S. Chamber believes that the over-riding goal of any pension reform legislation should be to ease regulatory burdens on employers that sponsor retirement plans. In particular, we believe

that every effort should be made to enact those changes with the

greatest potential for expanding pension coverage within the small

business community. As you know, cost is a major deterrent to pension plan sponsorship within the small employer market. Legislation that seeks to reduce administrative cost on employers will

make pension plan sponsorship more attractive as a business proposition.

To that end, we support proposals that would modify or repeal

the top heavy rules. The top heavy rules are a major deterrent to

plan formation within the small business community. The proposal

contained within the Portman-Cardin legislative package will go a

long way toward making 401(k)’s more attractive and affordable for

small employers. While we favor outright repeal of top heavy, we

strongly support the proposed modifications.

We also support the proposed changes to the SIMPLE IRA. While

SIMPLE has proven to be a success during its first year of existence, creating a salary reduction only SIMPLE will allow employers that may not be in a financial position to afford matching or

employer contributions the opportunities to allow their employees

to save on a tax deferred basis.

Other favorable changes to the pension law that the Chamber

supports include the following: increasing the benefit and compensation limits to allow individuals to contribute more and to accrue greater benefits in their pension plans; enhancing pension

portability; repeal of the 25 percent of compensation limit as it applies to defined contribution plans; encouraging direct reinvestment

of ESOP dividends; repealing the 150 percent of current liability

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full funding limits for defined benefit plans; repealing the multipleuse test; changes to the separate line of business rules; and

changes to the same desk rule.

These are but a few of the proposed changes included in the

package. While there are numerous other provisions that we equally support, in the interest of time I’ve limited my comments to the

above. However, I would like to mention an issue that seems overlooked when policy makers discuss women’s pension rights. One

way to significantly improve the retirement security of women in

this country is to expand coverage within the small business community. According to the Small Business Administration, women

own approximately 40 percent of all businesses in America and this

percentage is anticipated to grow to over 50 percent early in the

next century. And more women work for small employers, or small

businesses than they do for large employers. The lack of coverage

within the small business community is a women’s pension issue

and I encourage you to look closely at this when contemplating

pension reform.

In closing, I want to say that the U.S. Chamber stands ready to

assist you and the Congress in enacting sensible pension reform

legislation that will encourage and expand pension coverage. To

that end, we support the Portman-Cardin pension legislative package as a model for successful pension reform.

I thank you.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much.

Mr. Hawkins.

STATEMENT OF RUSS HAWKINS, VICE PRESIDENT, BENEFITS,

ALLIED SIGNAL, INC., MORRISTOWN, NEW JERSEY

Mr. HAWKINS. Thank you for this opportunity to express our support for legislation that would enhance retirement savings by giving employees the option to reinvest dividends earned on company

stock held in an ESOP.

As Vice President for Benefits, I am responsible for overseeing

our benefit programs for Allied Signal’s 70,000 workers. As a 30

year employee with the company, I can speak to Savings Plan

issues, both from the standpoint of an administrator, but also as

a long-term employee.

At 10.6 percent, employees are the single largest group of company shareholders. We take pride in that and want that percentage

to increase even more. Our employee-owners are building wealth

and sharing in the growth and success of the company.

Our Savings Plan is one of the most generous in the country.

New employees may begin participating as soon as hired. And after

one year, we match 50 percent of employee contributions. After five

years, we match 100 percent of employee contributions up to 8 percent of their compensation.

There are 11 investment options for employee contributions.

These include bond funds, equity funds and company stock. Employee decisions are entirely up to them. We do not encourage or

discourage employee investment in company stock. In our communications with employees, we stress the importance of having diversified portfolios.

We are proud of the USA Today article, which we’ve shared with

you, that features our Savings Plan. It highlights one employee

who has accumulated a balance of $500,000. This employee has

been in the plan for 20 years and has accumulated these savings

without even contributing the maximum amount. We project her

nest egg will grow to $1 million by the time she retires.

But she is not alone. We have 157 employees with account balances over $1 million. Most of these are not company executives,

but rather employees at various salary levels. In fact, of 157 employees, 35 of them earn less than $80,000 and only 25 earn more

than $150,000. We have over 4,000 employees with account balances over $250,000, and of these, 3,000 of them earn less than

$90,000.

We believe strongly in employee ownership which is why we contribute company stock to the Savings Plan to match employee contributions.

Our Savings Plan is an ESOP as it is primarily intended to be

invested in employer stock. ESOPs provide an efficient means of

accumulating assets for retirement and an ownership interest in

the employer.

Over the years, Congress has enacted pro-ESOP legislation to encourage employers to establish and maintain ESOPs. One such

benefit, which we utilize, allows companies under certain circumstances to deduct dividends paid on company stock held in the

ESOP. The availability of this deduction was a significant factor in

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Allied Signal’s decision to increase the matching contribution in

1987 from 50 percent to 100 percent. This increase has resulted in

greater retirement savings for our employees.

But in order to take the dividend deduction, the law mandates

that we pay dividends to plan participants in cash—passing them

through the Savings Plan directly to the participants. Our employees routinely complain when they receive their dividend checks.

They believe that the dividends belong in the Savings Plan where

they could grow for retirement. As you well know, dividends that

are reinvested in a Savings Plan would over time provide a greater

amount to tax at retirement.

We support efforts to increase retirement savings and avoid unnecessary leakage in the private retirement system. Why encourage

current spending when there is such a significant need to increase

retirement savings?

The Internal Revenue Service has ruled that employers may provide for the equivalent of automatic re-investment, but only if they

jump through administrative hoops, and create a structure that is

complex, difficult to understand and explain to employees. To complicate things further, the IRS does not allow all employees to qualify for the automatic reinvestment equivalent.

Legislation that would allow employers to provide directly for

dividend reinvestment without the need for IRS rulings, regulations, and paperwork would vastly simplify the system and provide

equal treatment for all employees.

I applaud you, Madam Chairman, for including this employee option in the ESOP Promotion Act of 1997, and Congressmen

Portman and Cardin for including this proposal in The Retirement

Security for the 21st Century Act. There’s also strong bipartisan

support for the proposal on the Senate side.

I thank you for this occasion to present the views of AlliedSignal

and its employee-owners. I urge the subcommittee to act on this

legislation at the earliest opportunity.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Thank you very much, Mr.

Hawkins.

Mr. Weizmann.

STATEMENT OF HOWARD C. WEIZMANN, MANAGING

CONSULTANT, WATSON WYATT WORLDWIDE

Mr. WEIZMANN. Good afternoon. I am Howard Weizmann, managing consultant of the Washington office of Watson Wyatt Worldwide. I want to thank you, Madam Chairman, and members of the

Subcommittee on Oversight for sponsoring these hearings. I also

especially want to thank Congressmen Portman and Cardin for

their tireless work in developing this legislation.

It is my pleasure to discuss with you today, H.R. 3788, Retirement Security for the 21st Century Act, and our strong belief that

this legislation will cure many ills that have plagued our Nation’s

pension system in recent history. I manage an office of 300 consultants and pension actuaries, within a company that was a pioneer

in the area of pensions. Watson Wyatt Worldwide has a developed

defined benefit, defined contribution and hybrid pension plans for

the largest, most successful corporations in America, and the

tiniest companies in America.

I’m a benefits attorney by trade, and for years, I managed the

benefit team at a Fortune 100 company. In the late 1980’s, I ran

the Association of Private Pension and Welfare Plans. In my 20

plus years in the business, I’ve been fortunate to see it from all

sides: tax practitioner, benefits administrator, an employer, a consultant, and a lobbyist.

First, let me say, that we very strongly support the Retirement

Security Act. The multitude of regulation and legislation enacted to

further exact equity and feed the deficit has eroded the very core

and significance of ERISA. The greatest casualty in the fiscal wars

of the 1980’s and the supposed pursuit of tax equity was American

savings policy. In the name of deficit reduction, a plethora of new

legislative requirements and regulations hobbled the private pension system which had, until the 1980’s, been a growing and necessary component of private savings.

Between 1980 and 1990, 560 pages of regulations dealing with

employee benefits, mostly pension benefits, was issued by IRS, and

the figures don’t lie. During that same period, from 1975, actually,

to 1987, the number of pension plans was halved. To paraphrase

the old cliche, ‘‘If you can’t fix it, don’t break it.’’ The pension system wasn’t broken and wasn’t perfect in 1980, and today it is less

perfect, unfortunately, after the 560 pages of new regulations and

legislation. The bill before you today would go along way toward restoring the meaning and the simple beauty of ERISA.

My message is simple and straightforward. Complex pension

rules inhibit coverage and limit benefits. Our clients, in many

cases, represent the largest, most successful corporations in America, and their pension funds routinely spend six and sometimes

seven figures per year on regulatory compliance, not because they

want to but because they have to. I know firsthand of cases in

which the cost of compliance equaled or exceeded the benefits provided. I also know by anecdote that these rules keep employers

from sponsoring the pension plans. When we look at our clients

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and other large corporations who provide a defined benefit contribution plan for their active and retired workforce, we see dollars

that could be used to other purposes, such as enhancing retirement

benefits.

The Bible reminds us that those who sow the wind, reap the

world wind. While the pursuit of tax equity and deficit reduction

may have been driven by a notion of ideological purity, the practical result has generally been less coverage and, because of the

growth of unfunded non-qualified pension benefits, more insecurity

for workers, not greater security. By increasing the current limits

under the various sections specified in the act, and by cutting

through the legislative and regulatory underbrush choking the system, the legislation begins to reverse the erosion in coverage

brought about by the blind pursuit of these policies.

One additional consideration, not formerly mentioned, was that

as we consider the possible incorporation of individual savings

under Social Security, as well as the Government’s role in providing a retirement income safety net, we must focus on the role

that private pension should and could play. By increasing the incentives associated with corporate and individually sponsored private retirement vehicles, by reducing the complexity of both, we

can target increased, not decreased, increased Social Security benefits on more needy individuals, individuals not otherwise eligible

for retirement benefits from private sources. Under such a scheme,

Social Security benefits become a floor for only the most needy. Additional incentives for funded private pensions ensure that adequate retirement income will be available to employees through the

private system. Throughout this debate, I’ve heard for many years

we tried to make the private system stretch and fit all. We do have,

in fact, a national retirement system and it is called Social Security. Both have a role to play and we should allow each one to play

it.

In the end, in summary, we really applaud the sponsors for introducing this legislation. George Santayana, the philosopher once defined fanatics as those who redouble their efforts while forgetting

their aim. We have spent the last 15 years chasing the illusion of

virtue while creating the vice of reduced coverage. My hope that

when all is done and this bill has become law, we’ll never again

allow the pursuit of arcane public policies and deficit reduction to

derail our efforts at covering more Americans under the private

system.

Thank you very much.

[The prepared statement follows:]

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Chairman JOHNSON of Connecticut. Amen. I hope we—that we

will do pension policy in the context in the goals and objectives of

the program. I thank the panel very much for their testimony. Because of the impending votes, I’m not going to ask any questions

but I take very seriously the comments that you’ve made and invite

you to contribute to the project of thinking beyond the box, as well

as resolving the smaller problems within the Portman-Cardin bill

that we certainly will be paying attention to.

Mr. Coyne.

Mr. COYNE. I have none.

Chairman JOHNSON of Connecticut. Mr. Portman.

Mr. PORTMAN. Just briefly, again, to thank the panel. The portability issue is one, Mr. Caple, I think that we didn’t get into

enough today that we need to focus more on. I think it’s one of the

great benefits of this because it does just reflect what’s really going

on out there. Mr. Wray, talking about the limits and so on, we appreciate the Council’s help, Sam Murray and others putting it together. Lynn, thank you for the Chamber’s work, and David Kemps

also has been a very big help in that.

In the interest of time, I’m not going to get into the ESOP provisions. We talked about them earlier. I know your company has

been at the forefront on providing benefits and you’re very interested in the ESOP provision. I hope we do what is necessary in

terms of providing a deduction should there be a reinvestment

which seems to make a lot of sense. Mrs. Johnson has separate legislation on that, and Howard Weizmann, that historical perspective

was very interesting. Tax equity and deficit reduction has led to

this sort of, unholy alliance between the two.

I’ll just say with regard to the staffing firms, I know Mr.

Ramstad may want to talk more about that, but, I think, again, it

reflects reality. You have these staffing firms out there providing

retirement benefits, these smaller businesses are not going to provide them. And you want to be the employer right?

Mr. SALADRIGAS. That is correct.

Mr. PORTMAN. Why do you want to be the employer? People ask

me, why would you want the IRS to consider you the employer?

Mr. SALADRIGAS. Well, the answer is very simple. I think we

heard today how difficult it is for small businesses to meet the burdens of being an employer and to provide affordable, quality benefits to working Americans. What we provide for these businesses is

a benefit & human resource out-sourcing solution. It is a turn-key

system whereby a small business can focus on the business of their

business while we provide employees with health benefits, pension

benefits, and a full suite of human resource administration. We assume those responsibilities because we’re better equipped, and better able, and more knowledgeable to manage and discharge those

responsibilities. However, for the staffing industry to provide an

out-sourcing solution, we need to clarify & codify our employer status for tax and benefit plan purposes.

Mr. PORTMAN. And you will assume those responsibilities, including collective bargaining agreements?

Mr. SALADRIGAS. For collective bargaining agreements, basically

the law is very clear on that. PEO comply with the terms of a collective bargaining agreement. Federal courts have found a joint

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employer relationship where each of two employers ‘‘exert significant control over the same employees.’’ PEOs enjoy good relations

with Unions. So, this is not an issue. PEOs are co-employer in both

union & non-union workplaces and endorse the right of employees

to organize, or not organize, in accordance with the NLRB.

Mr. PORTMAN. Okay. Thank you very much. Mr. Doherty, I know

you have more, I’ll defer to Mr. Ramstad. Thank you.

Chairman JOHNSON of Connecticut. Mr. Ramstad is an important

member of this committee. I am sorry that he was not able to join

on until late. That happens on Tuesday when we’re all commuting.

Mr. Ramstad?

Mr. RAMSTAD. Yes, thank you, Madam Chair, and I am sorry

that I was late because of a delayed flight from Minneapolis. I

want to thank all the panelists, particularly, Tim Doherty, who’s

a prominent business person in the third district in Minnesota,

chairman and CEO of Doherty Employment Group in Edina. My

thanks to you and your colleague for your joint testimony in support of the legislation that I have cosponsored with my good friend

and colleague, Rob Portman, H.R. 1891.

For the reasons you point out, this is very important legislation,

obviously, and I wish we had more time to dialogue but the vote

is pending. I just want to, again, thank you for coming out here to

Washington to help us with this legislation.

Thank you, Madam Chair.

Chairman JOHNSON of Connecticut. Thank you very much. The

hearing will adjourn.

[Whereupon, at 5:15 p.m., the hearing was adjourned subject to

the call of the Chair.]

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