[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]




 
                      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


                    U.S. GOVERNMENT PRINTING OFFICE
63-767                     WASHINGTON : 2000



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel
                                 ------                                

                       Subcommittee on Oversight

                NANCY L. JOHNSON, Connecticut, Chairman
ROB PORTMAN, Ohio                    WILLIAM J. COYNE, Pennsylvania
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
PHILIP S. ENGLISH, Pennsylvania      JOHN S. TANNER, Tennessee
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

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.
                            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


                      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 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 Employee 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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    [GRAPHIC] [TIFF OMITTED] T3458A.005
    
    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 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 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 interested 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 
non-profit 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.
    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 
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 the investment capital necessary to drive economic 
growth which leads, in turn, to more tax receipts.
    Finally and fourthly, favorable consideration of the 
Portman-Cardin 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 files.]
    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.
    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 retirement 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 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 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 violation 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 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.
    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.
    Chairman Johnson of Connecticut. In other words, do I hear 
you saying that even the dramatic simplifications in the 
Portman-Cardin 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 
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 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--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 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.
    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? 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 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, back-breaking 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?
    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.
    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 
Portman-Cardin 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 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 business 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 requirement 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 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.]
    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 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. Fifty-seven 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 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 catch-up 
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 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 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 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 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 
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 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 
good-trained 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.
    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 reduced 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 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.
    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 
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 full funding limits for defined 
benefit plans; repealing the multiple-use 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 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 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 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.]
    [Submissions for the record follow:]


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