The Employee Retirement Income Security Act of 1974: A Political History 9780520931398

Table of contents :
Contents
Tables
Foreword
Acknowledgments
Introduction: “A Minor Miracle”
1. Policy-Making for Private Pensions
2. “The Most Glorious Story of Failure in the Business”
3. “The ‘Bible’ in This Field”
4. “A New Legislative Era in This Country”
5. “A Major American Institution . . . Built upon Human Disappointment”
6. A Green Light in the Senate
7. A Donnybrook in the House
8. Enacting ERISA
Epilogue
Notes
Index

Citation preview

The Employee Retirement Income Security Act of 1974

california/milbank books on health and the public 1. The Corporate Practice of Medicine: Competition and Innovation in Health Care, by James C. Robinson 2. Experiencing Politics: A Legislator’s Stories of Government and Health Care, by John E. McDonough 3. Public Health Law: Power, Duty, Restraint, by Lawrence O. Gostin 4. Public Health Law and Ethics: A Reader, edited by Lawrence O. Gostin 5. Big Doctoring: Profiles in Primary Care in America, by Fitzhugh Mullan, M.D. 6. Deceit and Denial: The Deadly Politics of Industrial Pollution, by Gerald Markowitz and David Rosner 7. Death Is That Man Taking Names: Intersections of American Medicine, Law, and Culture, by Robert A. Burt 8. When Walking Fails: Mobility Problems of Adults with Chronic Conditions, by Lisa I. Iezzoni 9. What Price Better Health? Hazards of the Research Imperative, by Daniel Callahan 10. Sick To Death and Not Going to Take It Anymore! Reforming Health Care for the Last Years of Life, by Joanne Lynn 11. The Employee Retirement Income Security Act of 1974: A Political History, by James A. Wooten 12. Evidence-Based Medicine and the Search for a Science of Clinical Care, by Jeanne Daly 13. Disease and Democracy: The Industrialized World Faces AIDS, by Peter Baldwin

The Employee Retirement Income Security Act of 1974 A Political History

james a. wooten

University of California Press berkeley

los angeles

london

Milbank Memorial Fund new york

Employee Benefit Research Institute washington, d.c.

The Milbank Memorial Fund is an endowed operating foundation that engages in nonpartisan analysis, study, research, and communication on significant issues in health policy. In the fund’s own publications, in reports or books it publishes with other organizations, and in articles it commissions for publication by other organizations, the fund endeavors to maintain the highest standards for accuracy and fairness. Statements by individual authors, however, do not necessarily reflect opinions or factual determinations of the fund. University of California Press Berkeley and Los Angeles, California University of California Press, Ltd. London, England © 2004 by the Regents of the University of California

Library of Congress Cataloging-in-Publication Data Wooten, James A., 1958–. The employee retirement income security act of 1974 : a political history / James A. Wooten. p. cm —(California/Milbank books on health and the public; 11). Includes bibliographical references and index. ISBN 0–520-24273–4 (cloth : alk. paper). 1. United States. Employment Retirement Income Security Act of 1974—History. 2. Pension trusts—Law and legislation—United States—History. 3. Pension trusts—United States—History. I. Milbank Memorial Fund. II. Title. III. Series. KF3512.W67 2005 344.7301'252—dc21 2002011390 Manufactured in the United States of America 13 12 11 10 09 08 07 06 05 04 10 9 8 7 6 5 4 3 2 1 Printed on Ecobook 50 containing a minimum 50% post-consumer waste, processed chlorine free. The balance contains virgin pulp, including 25% Forest Stewardship Council Certified for no old growth tree cutting, processed either TCF or ECF. The sheet is acid-free and meets the minimum requirements of ANSI/NISO Z39.48–1992 (R 1997) (Permanence of Paper).

For my sister, Margaret F. Wooten, my mother, Margaret A. Wooten, and in memory of my father, Dean Wooten

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Contents

List of Tables

ix

Foreword by Daniel M. Fox and Dallas Salisbury

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Acknowledgments introduction: “a minor miracle”

xiii 1

1. policy-making for private pensions: the genesis and structure of a policy domain

17

2. “the most glorious story of failure in the business”: the studebaker-packard corporation and the origins of erisa

51

3. “the ‘bible’ in this field”: the president’s committee on corporate pension funds and the origins of erisa

80

4. “a new legislative era in this country”: pension reform from blueprint to bill

116

5. “a major american institution . . . built upon human disappointment”: agenda-setting in the u.s. senate

151

6. a green light in the senate

190

7. a donnybrook in the house

217

8. enacting erisa

241

epilogue

271

Notes

287

Index

401

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Tables

1. Recommendations in Cabinet Committee’s Provisional Report, 1962

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2. Recommendations in Cabinet Committee’s Final Report, 1965

112

3. Provisions of S. 3421, Ninetieth Congress, Second Session, 1968

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4. Provisions of S. 3598, Ninety-Second Congress, Second Session, 1972 (as introduced)

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5. Principal Senate Bills in the Ninety–Third Congress

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6. H.R. 4200 (as passed by the Senate) and H.R. 2 (as reported by the House Education and Labor Committee)

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7. Bills before the Conference Committee

247

8. Employee Retirement Income Security Act of 1974

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Foreword

The Employee Retirement Income Security Act of 1974 (ERISA) affects Americans’ pensions, disability, health and life insurance, and severance pay. Its history has not received sufficient attention, however, in part because of its technical complexity and the priorities of academic research on government and politics. Wooten’s history marks the thirtieth anniversary of the enactment of ERISA. He grounds the book in both an exhaustive survey of primary sources and his professional practice as a lawyer and an historian of contemporary policy. Wooten’s central theme is that the substance of policy for economic security has been important to powerful lawmakers and to most of the people within and outside government on whom they relied for guidance. Substance matters in policy for economic security because policy-makers’ obligations to their constituents reinforce their concern for the broad public interest. Interest groups matter too, as Wooten demonstrates in detail; but they have not dominated the history of ERISA, as cynics, including some scholars, claim. Public opinion has also mattered, but in Wooten’s story mainly as policy-makers have succeeded in informing it. The political history of ERISA has larger significance for understanding how Americans enact and revise major social legislation. Perhaps most important, this history demonstrates the difficulty of modifying policy to take account of changing circumstances. For example, a major purpose of ERISA was to secure defined-benefit pension plans, but the Pension Benefit Guaranty Corporation it created as an afterthought has devised incentives to terminate these plans. Similarly, ERISA’s preemption of state regulation of employee benefit plans has had profound consequences for health policy that have emerged slowly and have been shaped by the courts as well as by the action and inaction of Congress. Preemption has, moreover, kept many xi

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states from moving forward with policies that would have expanded health insurance coverage and security. Nevertheless, ERISA demonstrates the importance of legislation in protecting Americans’ economic security from both the forces and failures of markets. Americans are more secure in their private pensions than they are in their retiree health benefits; the latter have eroded in the absence of federal legislation stipulating requirements for participation, vesting, funding, and standards of administration. This is the eleventh of the California/Milbank Books on Health and the Public, and the first jointly published by the University of California Press, the Milbank Memorial Fund, and the Employee Benefit Research Institute (EBRI). The Fund is an endowed operating foundation that has worked since 1905 to improve and maintain health by encouraging persons who make and implement policy to use the best available evidence. EBRI, established in 1978, is the only nonprofit, nonpartisan organization in the United States that is totally committed to original public policy research on economic security and employee benefits. EBRI and the Fund collaborate with each other and with decision makers in the private and public sectors to assess the significance for policy of evidence about the relationship between economic security and health. Daniel M. Fox President Milbank Memorial Fund Dallas Salisbury President and CEO Employee Benefit Research Institute

Acknowledgments

In more than ten years working on this book, I have piled up a lot of debts. The book relies heavily on archival research. Many friends of mine who lived near archives were kind enough to allow me to housesit or borrow a couch or spare bedroom. My thanks to Elizabeth Abrams, Jonathan Cedarbaum, Doug Greenfield and Elaine Quintana, Heather Grob, John and Deborah Hilts, Deborah Malamud, David Moss and Abigail Rischin, Lisa Rabin, Liz Sacksteder and Peter Harrar, Rip and Tracy Verkerke, Mark Walker, and Sarah Rosen Wartell. As it happened, I did not have friends to impose on everywhere I needed to go. The Olin Summer Fellowship Program at Yale Law School and the School of Law at the State University of New York at Buffalo provided funds to defray the cost of visits to several archives. I also owe a debt of gratitude to archivists and librarians who patiently responded to my requests for documents and information. In particular, I would like to thank Jodi Allison-Bunnell at the University of Montana, Denise Conklin at Pennsylvania State University, Tom Downey at the Studebaker Archives, Allen Fisher at the LBJ Library, Carolyn Kopp at TIAA-CREF, Tab Lewis at the National Archives, Judith Mellins at Harvard Law School, Hope Nisly at Cornell University, Scott Parham at the Nixon Papers Project, and Daniel Rooney at the Department of Commerce. I owe special thanks to the staff of the Archives of Labor History and Urban Affairs at the Walter P. Reuther Library at Wayne State University for helping me work with unprocessed materials in the collections of the United Auto Workers. The staffs of the Yale Law Library and the Law Library at the State University of New York at Buffalo also were indispensable. I have benefited from interviews, correspondence, and conversations with a number of participants in the events the book recounts. They include Merton Bernstein, Joseph Califano, Herbert Chabot, Robert Connerton, xiii

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Frank Cummings, Kenneth Dam, Thomas Donahue, John Erlenborn, Karen Ferguson, Lester Fox, James Gaither, Bill Gibb, the late Michael S. Gordon, Vance Hartke, Peter Henle, the late Paul Jackson, Ken Morris, Russell Mueller, Gaylord Nelson, Tom Paine, Robert Paul, Loren Pennington, Bill Posner, Henry Rose, Bert Seidman, Jack Sheehan, Laurence Silberman, George Swick, the late James Tobin, Willard Wirtz, the late Leonard Woodcock, and Howard Young. In addition, Charles Ferris and the late Mike Mansfield responded to my inquiries about events in the Ninety-third Congress. I greatly appreciate their willingness to share their recollections and expertise with me. I began my research in 1993–94, when I was the Legal History Fellow at Yale Law School, and wrote drafts of several chapters in 1994–95, while I was a Golieb Fellow in Legal History at New York University School of Law. Besides providing a wonderful intellectual environment for my work, the School of Law at the State University of New York at Buffalo furnished financial support for research assistants, trips to several archives, and writing during the summers. The TIAA-CREF Institute provided a grant that freed me from teaching for a semester, and the Milbank Memorial Fund sponsored a conference on the book manuscript, at which I received valuable comments. I greatly appreciate the assistance I received from each of these institutions. Merton Bernstein, Guyora Binder, Michael Clowes, Martha Derthick, Daniel Fox, the late Michael S. Gordon, Andrew Gyory, Dan Halperin, Nell Hennessy, the late Paul Jackson, John Langbein, David Mayhew, David Moss, Bill Posner, Tom Paine, Robert Paul, John Rother, Dallas Salisbury, Steven Schanes, Jack Schlegel, Stephen Skowronek, Rogers Smith, and George Swick provided comments on the entire manuscript. Jim Atleson, Richard Bernstein, Jonathan Cedarbaum, Herbert Chabot, Frank Cummings, Frank Dobbin, Sharon Entress, John Erlenborn, Bill Gibb, Jill Horwitz, Deborah Malamud, Lynn Mather, Russell Mueller, Bill Nelson, Gail Radford, Steven Sass, Carol Sheriff, Norman Stein, Rob Steinfeld, Howard Young, Ed Zelinsky, and Julian Zelizer commented on one or more chapters. I also appreciate comments and suggestions I received when I presented earlier drafts of individual chapters at the Legal History Colloquium at New York University School of Law, the annual meeting of the Social Science History Association, and Faculty Workshops at the State University of New York at Buffalo. Marc Davies, Sharon Entress, Rich Filipink, Melissa Golen, and Christina Simanca-Proctor provided valuable research assistance. Sharon Entress also provided perceptive comments and suggestions on a number of chapters.

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I also received a great deal of moral support and encouragement from a number of mentors, friends, and colleagues. I would especially like to thank Daniel Fox and Dallas Salisbury. Writing the book has been a long and sometimes discouraging process. Their encouragement helped keep this project moving forward on several occasions when it appeared to have stalled. Thanks as well to Phyllis Borzi, Jonathan Cedarbaum, Doug Greenfield, Jacob Hacker, Nell Hennessy, John Langbein, Bill LaPiana, David Moss, Bill Nelson, and Steven Sass. Among my colleagues at the State University of New York at Buffalo, I appreciate greatly comments and encouragement I received from Jim Atleson, Guyora Binder, Shubha Ghosh, George Kannar, Fred Konefsky, Mike Meurer, Nils Olsen, Jack Schlegel, Nancy Staudt, and Rob Steinfeld. I owe a special debt to Jack Schlegel, who graciously responded to my frequent questions about editorial and substantive matters. Thanks finally to Lynne Withey, Elizabeth Berg, and Mary Severance of the University of California Press for their assistance and patience. One risk of taking a decade to write a book is that some friends and loved ones will not live to see the finished product. Like many in the employee benefits community, I was greatly saddened by Michael Gordon’s death. Getting to know Mike was one of the real pleasures of my research. Jean Lawson was my teacher, mentor, and a dear friend for almost thirty years. Finally, in December 2003, my father passed away. I greatly regret that they did not live to see the completion of this project. This book is a small thing compared to all I have received from my family. I dedicate it to my sister, Margaret F. Wooten, my mother, Margaret A. Wooten, and to the memory of my father, Dean Wooten. Portions of chapter 1 appeared in “The ‘Original Intent’ of the Federal Tax Treatment of Private Pension Plans,” Tax Notes, December 6, 1999, 1305–19. Portions of chapter 1 and a revised version of chapter 2 appeared as “ ‘The Most Glorious Story of Failure in the Business’: The StudebakerPackard Corporation and the Origins of ERISA,” Buffalo Law Review 49 (2001), 683–739. An earlier version of chapter 3 appeared as “Public Policy and Private Pension Programs: A Political History of the President’s Committee on Corporate Pension Funds,” New York University Fifty-ninth Annual Institute on Federal Taxation 2001—Employee Benefits and Executive Compensation, 11–1 to 11–63.

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Introduction: “A Minor Miracle”

On September 2, 1974, Labor Day, President Gerald Ford signed the Employee Retirement Income Security Act of 1974 (ERISA).1 ERISA was Congress’s attempt to devise a comprehensive regulatory program to protect millions of American workers who looked to private pension plans for financial support in their retirement years. By all accounts, it was landmark legislation. “I think this is really an historic Labor Day,” Ford said, “historic in the sense that this legislation will probably give more benefits and rights and success in the area of labor-management than almost anything in the history of this country.”2 Senator Jacob Javits (R, N.Y.), who played a decisive role in the campaign for pension reform, spoke in similar terms. “[T]he pension reform bill,” he told his Senate colleagues, “is the greatest development in the life of the American worker since social security.”3 Yet the enactment of ERISA presents a political puzzle. The Senate passed a pension reform bill in September 1973. When the House of Representatives followed suit in February 1974, the New York Times remarked that “fierce opposition . . . by most employer groups and the wavering support by much of organized labor made it a minor miracle that the reform measures . . . came through at all.”4 In fact, the Times understated the “miracle.” In the decade before Congress passed ERISA, most of organized labor opposed comprehensive pension reform legislation. According to conventional wisdom and much scholarly research, interest groups call the shots in the legislative process. This poses the question more starkly. Why would Congress endorse far-reaching regulation of private pension plans when the business community and most labor unions opposed these initiatives? The narrative that follows answers this question. The story is worth knowing because ERISA is an important law. After Social Security, employer-sponsored retirement plans are the single largest 1

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source of income for aged Americans.5 About fifty million private-sector employees, including a majority of year-round, full-time workers, participate in a retirement plan regulated by ERISA.6 ERISA also governs welfare plans sponsored by private-sector employers. Welfare plans, which provide such benefits as severance pay and health, life, and disability insurance, cover even more people than pension plans. In the United States, “most health care for the nonelderly is delivered through ERISA-covered employee benefit plans.”7 Finally, ERISA has had a large impact on legal practice beyond employee benefit law. In the words of the late Michael Gordon, a former Labor Department and congressional staffer and a leading ERISA attorney, ERISA “has resulted in a greater penetration into otherwise nonrelated fields of law—finance, insurance, securities, banking, marriage and divorce, real property, to name a few—than almost any other domestic reform before or since.”8 Indeed, a recent issue of the American Bar Association Journal warned readers that ERISA was “more places than you thought it could be,” parodying advertisements for a leading credit card.9 The political history of ERISA has both legal and policy significance. Because judges and lawyers commonly appeal to legislative intent and legislative history when they interpret statutes, a thorough account of ERISA’s enactment will make for more informed implementation of the law. Such an account has policy significance because ERISA was not the last word on the regulation of retirement and welfare benefits or on social provision more broadly. Congress has amended ERISA many times, and lawmakers continue to face critical choices about the future of social provision. In the last two decades, the private pension system and the healthcare industry have been transformed. Pension plans, which pay retirees an annuity until death, have given way in importance to savings plans in which individuals manage their own retirement funds. With the emergence of managed care, government, employers, and insurers have assumed a much larger role in medical provision. The political history of ERISA offers a longer perspective on these developments and, in doing so, provides benchmarks for gauging how well current law suits emerging needs. Finally, the political history of ERISA provides an important counterpoint to the conventional wisdom about policy-making in the United States Congress. Most citizens and many scholars take a jaded view of the legislative process. Eighty-six percent of respondents in a telephone poll conducted in 1992 agreed that “Congress is too heavily influenced by interest groups when making decisions.”10 A large and influential body of scholarship holds that “[t]he preferences of the ‘majority’ are virtually irrelevant in determining legislative outcomes.”11 This book tells a different

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story. Although “special interests” loom large in the political history of pension reform, they did not control the legislative process. The historical record shows that public officials developed proposals they believed were workable solutions to serious social problems and that lawmakers endorsed ERISA because they believed it was good public policy that voters would favor. A study of one law cannot—and should not—allay concerns about the role of interest groups in American politics, but the political history of ERISA suggests that Congress deserves a deeper and less cynical look than it generally receives.

what erisa did ERISA recast the federal government’s role in the private pension system. Before ERISA, federal law did not regulate the riskiness of pension promises. The tax and labor laws affected private pension plans in a variety of ways, but federal policy generally left it to the parties to the employment contract—employers, unions, and employees—to decide how risky pension promises would be. They could and often did subscribe to plans in which employees’ expectations were precarious. ERISA redefined the government’s role by making the security of pension promises a basic goal of federal policy. Employees should not participate in a pension plan for many years only to lose their pension as a result of a layoff or change of jobs, and employees should not fail to receive a pension because their plan did not have funds to meet its obligations. The major reforms in ERISA—fiduciary standards of conduct, minimum vesting and funding standards, and a government-run insurance program—aimed to ensure that long-service employees actually received the benefits their retirement plan promised. Employer-sponsored retirement arrangements exist in a niche defined by three institutions: the labor market, the system for raising government revenue, and the public pension system. Each of these institutions has its distinctive purposes and logic; each influences the contours of the private pension system. For employers, a pension plan is a tool for managing workers. By promising and providing retirement income, a firm can influence the sort of employees it attracts, how long employees stay, and when they retire. Governments have to raise revenue. For most of the twentieth century, the federal government’s principal source of revenue was the income tax. Besides raising revenue, income taxation creates behavioral incentives for or against pension plans. Finally, the Social Security system provides retirement income to most aged Americans. The availability and generosity

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of Social Security pensions influence the demand for employer-provided retirement benefits. This broader institutional environment influences but does not determine federal policy for private pension plans. The tax and labor laws also reflect ideas about how pension plans work and the purposes they should serve.12 Before ERISA, federal policy generally reflected the idea that pension plans were tools for managing workers. This personnel theory of pensions, as I call it, led lawmakers to take a permissive approach to retirement plans. The tax and labor laws proscribed wrongful conduct such as tax avoidance, fraud, and misuse or theft of plan funds. Short of evils such as these, employers and unions could run a pension plan much as they saw fit. Under this legal regime, pension plans were creatures of contract. With narrow exceptions, employees derived their right to retirement benefits from the contractual language in their pension plan rather than statutory law.13 Employers and unions were free to write plan terms that placed employees at considerable risk. If, as often happened, some risk materialized and an employee failed to receive a pension, there was little chance of redress in the courts. In the 1950s and 1960s, concern emerged about three risks that might prevent employees from receiving a pension.14 As chapter 1 explains, a pension plan is a financial intermediary. Plan managers act as agents who invest on behalf of the employees in the plan. Employees face agency risk because plan officials may misuse or steal assets, leaving the plan without funds to pay its obligations. Forfeiture risk is the risk that employees will lose their pension as a result of a layoff or change of jobs. Before ERISA, pension plans commonly required an employee to work many years with a firm or attain a specific age to qualify for a pension. Employees who had not satisfied the service and age requirements in their plan forfeited their pension if they quit or lost their job. Default risk is the risk that a plan will not have funds to meet its obligations. Ideally, an employer should set aside resources to meet pension obligations at the time employees earn their benefits. If a firm does not fund in advance, the plan will not have enough money to pay all of the benefits promised to employees. Before ERISA, employees in an underfunded plan risked losing their pension if their firm terminated the plan or went out of business. ERISA reflected a new conceptual framework for pension policymaking—the worker-security theory.15 According to this view, the overriding purpose of a pension plan is to promote employee welfare. The worker security theory led Congress to abandon the hands-off approach to private pensions.

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To address agency risk, Congress created fiduciary standards of conduct for officials who administer employee benefit plans. Drawing on the common law of trusts, ERISA defines plan managers as fiduciaries who must act “solely in the interest” of plan participants and exercise “care, skill, prudence, and diligence” in the performance of their duties.16 Besides this general standard of conduct, ERISA includes sharply focused rules that target conflicts of interest in plan administration. For example, the prohibitedtransaction rules strictly regulate transfers of property or services between an employee benefit plan and a related party such as an employer or union that sponsors the plan.17 The fiduciary standards protect employees by making it less likely that administrators will steal or squander plan assets. Congress addressed forfeiture risk by requiring pension plans to comply with minimum vesting standards. The vesting standards in ERISA force retirement plans to give employees a legal right to benefits after a statutorily specified period of service.18 More rapid vesting makes it less likely that employees will fail to receive retirement benefits as a result of a layoff or change of jobs. ERISA includes two initiatives that deal with default risk. First, ERISA requires pension plans to meet minimum funding standards.19 These standards force employers to set aside financial resources before employees retire so that pension plans will be more likely to meet their obligations. Second, ERISA requires pension plans to participate in a program of plantermination insurance that pays vested pension benefits if a plan cannot do so.20 The insurance program literally guarantees that pensions will be paid. The pages that follow trace the development of these reforms in considerable detail. I do so partly because I want to reach an audience of employeebenefits professionals who care about the details of federal pension policy. I also believe, however, that one cannot accurately portray the political history of pension reform without discussing ostensibly technical issues. As employers, unions, and employees have learned—sometimes from bitter experience—pension plans are anything but transparent. An observer who is not familiar with what Dan McGill calls the “fundamentals of private pensions” will be prone to misread the historical record. For example, when the Studebaker Corporation closed its auto production facility in South Bend, Indiana, the pension plan for production employees did not have enough funds to meet its obligations. Some observers have inferred—mistakenly—that Studebaker must have misused plan assets.21 As chapter 2 explains, the plan was underfunded for reasons that are less lurid, more complex, and more important than the conjecture.

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Moreover, technical issues shape policy outcomes. In his influential study, Agendas, Alternatives, and Public Policies, John Kingdon observes that “technical feasibility” is one of the “criteria for survival” for policy proposals.22 Sometimes it is impossible to assess a proposal’s feasibility without delving into the arcana of the program the proposal will affect. Failure to do so may give a misleading impression of the reasons for a decision. For example, in 1939 Congress exempted employer contributions to pension plans and other fringe benefits from the definition of “wages” subject to the Social Security payroll tax.23 Business groups endorsed this change, so it is easy to conclude, as some scholars have, that the change was the result of pressure from the business community.24 By failing to address the “technical feasibility” of imposing payroll tax on pension contributions, these scholars implicitly assume that this would have been a simple task. In fact, it would have been anything but simple. Then as now, Social Security gave employees credit toward old-age benefits based on the amount of their earnings that was subject to payroll taxation. In many pension plans, the employer did not contribute on behalf of individual employees; it contributed for the covered employees as a group. It would not have been consistent with the principles of Social Security to tax employer pension contributions and not give employees credit toward old-age benefits. To give credit, however, the government would have to apportion an employer’s pension contribution among the individual employees in the plan. This would have been an extremely difficult task. Similarly, in 1939 Social Security imposed tax on up to $3,000 of an employee’s earnings. Many pension plans included both employees who earned more than $3,000 and employees who earned less than $3,000. Unless lawmakers were willing to tax pension contributions without regard to how much individual employees earned, the government would have to calculate what share of a firm’s pension contribution was made on behalf of employees who earned more than $3,000. Again, this would not have been a simple task. These were two technical problems of applying the payroll tax to contributions to a private pension plan. There were more.25 These difficulties suggest that Congress may have chosen not to impose payroll tax on pension contributions because the task could not be accomplished in a manner that was consistent with such basic features of the Social Security program as the benefit formula and tax base. This example highlights an important methodological point. Policy-making often involves issues that are technically complex. When the complexities of a proposal affect its feasibility, they also may affect the success of the proposal. Policies that make sense in the

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abstract may fail because they are difficult or impossible to implement. An analyst who does not address the intricacies of such a proposal will have to look elsewhere to explain its failure. All too often, the potential causes that remain when technicalities are excluded are the preferences of an interest group. In this way, a complex policy decision can appear to be a relatively crude exercise in pressure politics.

who supported and opposed pension reform and why “Nothing happens in Congress,” writes political scientist R. Douglas Arnold, “unless someone plans for it and works for it.”26 It matters greatly for our understanding of American democracy who works for policies and why. Popular opinion holds that self-seeking “special interests” drive the legislative process. The political history of ERISA bears little resemblance to this view. Although interest groups were ubiquitous, they were not the most important characters in this story. The key actors were public officials who had little or no material stake in the enactment of pension reform legislation. These officials wanted to regulate private pension plans because they believed regulation was in the “public interest.” In their eyes, pension plans should serve a public purpose, and many plans were failing to do so. More importantly, government officials were not the only participants who appealed to norms and values. Interest groups did so as well. The campaign for pension reform was as much a debate over competing values as it was a struggle among conflicting interests. There was a lot of self-seeking behavior in the political campaign that produced ERISA. This is not surprising. Pension plans are tools for pursuing self-seeking goals. Businesses use pension plans to manage employees. For employees, pension plans promise financial security and lower taxes. For unions, pensions are valued benefits for members and tools for managing labor markets. Federal regulation would make it easier or harder for employers, employees, and unions to get what they wanted from pension plans. The major stakeholders in the private pension system—business and organized labor—took positions that reflected the costs or benefits they expected.27 Employers, who would bear the burden of complying with new regulations, opposed vesting standards, funding standards, and termination insurance until shortly before Congress passed ERISA. The labor movement was divided. Vesting and funding standards would require major changes in pension plans run by craft unions and needle trades unions. Like

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the business community, these unions and the AFL-CIO opposed pension reform until it was clear Congress would act. In contrast, the United Auto Workers (UAW) and United Steelworkers unions were the most important interest groups supporting pension reform. Collectively bargained pension plans in their industries were significantly underfunded. The UAW and Steelworkers needed an insurance program to protect their members from default risk. But there is a great deal more to the political history of ERISA than pressure groups and material interests. Government officials were critical actors at virtually every stage in the campaign for pension reform. They had little if any material stake in the passage of a pension reform bill. For interest groups, the payoff from the campaign for pension reform depended on the legislative outcome. If Congress passed a bill, there would be new costs and benefits for employers and unions. These payoffs gave interest groups a material incentive to mobilize. Public officials had no such inducement. They would not receive a bonus if Congress passed legislation, and they would not be fined or fired if Congress did not pass a bill.28 As David Mayhew puts it, for government officials, rewards and sanctions depended more on which side they took than on whether their side won or lost. That is, public officials might receive praise or material benefit for being on the right side of an issue, and they might get into trouble for being on the wrong side. But there was little or no material payoff for being on the winning or losing side.29 Why then did public officials aggravate business and organized labor by advocating pension reform? And why did they work so hard to pass a bill? The historical record is clear. Government officials wanted to regulate pension plans because they believed it was the right thing to do. In published statements and private communications, officials in the executive branch and Congress repeatedly appealed to a normative conception of the purposes pension plans should serve. Chapters 3, 4, and 5 chronicle more than a decade of hard work by public officials who sought to turn their values into a legislative reality. Their conduct only makes sense as an expression of their values. A still more important point, however, is that government officials were not the only ones who appealed to values. Interest groups did not simply throw their weight around, although they did this when circumstances seemed to warrant it. In hearings, reports, and private communications, “pressure groups” also argued their case by invoking a normative theory about the purposes pension plans should serve. When business groups argued against pension reform, they usually invoked the personnel theory of pensions. As I noted above, this view provided

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the conceptual foundation for federal policy before ERISA. Employer representatives reasoned as follows: Some firms can increase productivity by retiring older workers in an orderly fashion. In such a case, organizational exigency creates a situation of mutual advantage. The firm’s personnel needs converge with the employees’ desire for retirement income. By creating a pension plan, the firm can improve productivity and provide retirement security to workers. Business groups stressed, however, that this convergence of interest derived from the employer’s business needs. Businesses created a pension plan because of what the plan did for the firm, not what the plan did for employees. This fundamental economic constraint implied that pension reform was likely to harm workers. Regulation would make pension plans less useful to employers. As a result, fewer firms would adopt a pension plan, and some firms with a plan would reduce benefits or eliminate the plan. Union officials who opposed pension reform used a related argument that stressed the economic constraints on the employment relationship. Business representatives often made this argument as well. Employers, they observed, had limited funds to spend on a pension plan. Scarcity of resources meant that employers and unions had to balance the level of benefits, cost, and risks of a pension plan. Higher benefits made current retirees more secure but increased the cost of a plan. Earlier vesting made younger employees more secure by making it less likely that they would forfeit their benefits. If fewer employees forfeited, however, the plan would pay benefits to more employees. And if more employees received a pension and benefit levels remained the same, the cost of the plan would rise. A similar logic applied to funding. A plan that set aside more resources to meet future obligations would be less likely to default on those obligations. But money set aside to pay future benefits also might be used to pay higher benefits to current retirees. These tradeoffs forced employers and unions to allocate scarce resources where those resources would do the most good. The first priority was to pay a meaningful level of benefits, because there was no point in having a pension plan if benefits were too small to support retirees. Scarce resources prevented a plan from paying a generous pension to all employees, so eligibility for benefits had to be restricted to a subset of participants. This group generally comprised workers with longer service because they were most deserving. Following this line of reasoning, union and employer representatives argued that minimum vesting and funding standards would force some plans to spread their resources too thin. If a plan had to pay benefits to more employees or devote a larger share of funds to future obligations,

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Introduction

costs might rise to a level the employer could not afford or benefit levels might be cut too low to support retirees. Again, “protective” legislation might harm employees by forcing firms and unions to reduce benefits or drop a pension plan altogether. Reformers countered with arguments derived from the worker-security theory of pensions. One key premise of the worker-security theory was the idea that the Internal Revenue Code subsidized private pension plans. According to the subsidy theory, Congress had given preferential tax treatment to private pension plans in order to induce businesses to provide retirement income to their employees. The subsidy theory turned the personnel theory on its head. Instead of seeing pension plans as tools for serving the personnel needs of employers, the subsidy theory viewed plans as government-supported vehicles for promoting the welfare of employees. Through the lens of the subsidy theory, pension plans should be judged by what they did for workers, rather than what they did for firms. Reformers claimed that the federal tax subsidy did not reach its intended beneficiaries when workers forfeited as a result of strict vesting requirements or when a plan could not meet its obligations. They urged Congress to regulate pension plans so that employees received what the tax subsidy paid for. Reformers also rejected the scarcity argument advanced by union representatives who opposed pension reform. The scarcity analysis was premised on the belief that a risky plan that paid pensions to some workers was better than no plan at all.30 Reformers thought this line of reasoning ignored the plight of employees who participated in a plan but failed to receive benefits. In planning for retirement, employees in a pension plan assumed they would receive a pension. If they did not qualify for benefits, they faced retirement without resources they had planned on. Reliance on their pension plan arguably left these employees worse off than if their employer had not sponsored a plan. Moreover, an employer’s contributions to a pension plan might also have been paid to employees as wages. That meant that workers who did not receive a pension helped pay for the pensions of coworkers who did qualify. “The losses of many,” claimed one reformer, “provide the funds with which the pay-off is made to the lucky few—just as at any honest race track.”31 Reformers urged Congress to regulate pension plans to prevent this inequity and ensure that the pension promise was as secure as workers believed it to be. “The most important new policies of government,” writes political scientist James Q. Wilson, “are adopted only after there has been a change in opinion or a new perception of old arrangements sufficient to place on the public agenda what had once been a private relationship and to clothe a par-

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11

ticular program with legitimacy.”32 The enactment of ERISA involved just such a transition. During the five decades before John F. Kennedy’s inauguration in 1961, the personnel theory of pensions provided a blueprint that led lawmakers to take a permissive approach to private pension plans. The emergence of the worker-security theory, which is the subject of chapter 3, prompted a spirited and often bitter debate over the purpose of the private pension system. The enactment of ERISA signaled the ascendancy of the worker-security theory. ERISA was meant to ensure that private pension plans did what the worker-security theory said they ought to do.

accountability and deliberation in pension policy-making Two ideals coexist uneasily in thinking about democratic legislatures. One calls for lawmakers to be accountable to electoral constituencies; the other enjoins legislators to deliberate and select policies on the merits.33 The prevailing view is that Congress is neither accountable nor deliberative because members forsake their obligations and do the bidding of interest groups instead. Again, the political history of ERISA tells a different story. Here Congress appears to have been both accountable and deliberative. That is to say, members of Congress voted for ERISA because they believed it was good public policy that voters would favor. At the same time, however, the circumstances of ERISA’s enactment highlight the incongruity of accountability and deliberation as legislative ideals. In this case, the features of the legislative process that made Congress accountable appear to conflict with the deliberative ideal, while the features that facilitated deliberation make it possible for legislators to escape accountability. According to the ideal of accountability, “a government is representative if it acts on the wishes of voters.”34 Two facts of political life make this ideal difficult to achieve. One is rational ignorance. Most of the time, it makes sense for voters to ignore just about everything Congress is doing because the cost of finding out what Congress is doing is greater than the benefit a person will derive from this information. The other key fact is that people and groups that are active in policy-making usually pursue their own preferences, which may bear no relationship to the preferences of voters. In other words, policy advocates generally promote (or oppose) a policy initiative because they personally favor (or oppose) the initiative, not because the public favors (or opposes) the initiative. When these two facts of political life are introduced into the accountability model, the critical analytical issues

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Introduction

become whether, how, and how well the organization and procedures of a legislature channel advocates toward activities that induce lawmakers to “act on the wishes of voters.” By this standard, ERISA was a great success. As chapters 3 and 4 explain, the campaign for pension reform appeared to face long odds. In the 1960s, the coalition supporting the most controversial reforms—vesting and funding standards and plan-termination insurance—included officials in the executive branch, a few members of Congress, some professors, and the Auto Workers and Steelworkers unions. Set against them were the business community and most of the labor movement. After Richard Nixon’s inauguration in 1969, executive agencies that had previously supported pension reform left the coalition or changed sides. In the face of this lopsided array of forces, Jacob Javits concluded that Congress would not pass a comprehensive pension reform law unless new participants became involved in pension policy-making. In 1970, Javits prevailed upon Harrison Williams, the Democratic chair of the Senate Labor Subcommittee, to undertake a study to highlight the risks of the private pension system. The purpose of the study was to bring the press and the public into the coalition for pension reform. Javits’s legislative strategy relied on a basic truth of democratic politics. “[T]he outcome of every conflict,” E. E. Schattschneider observed, “is determined by the extent to which the audience becomes involved.”35 When Congress considers legislation, lawmakers generally must take actions that are visible to an audience.36 On important bills, they expect to face at least one recorded vote, and often they face a series of recorded votes. Legislators carefully consider their votes on important legislation because the audience, which may include interest groups and voters, may supply or withhold electoral support based on a lawmaker’s votes. Members of Congress especially need to know who makes up the audience for a particular vote. If only interest groups are watching, then prudence counsels legislators to follow the wishes of the interested groups. If voters care about an issue, however, legislators need to consider the position voters are likely to take.37 Javits hoped to show that voters cared about pension risks—that is, that voters would pay attention when Congress acted on pension reform—and that voters would punish legislators who opposed regulation to make pension promises secure. His effort was remarkably successful. As chapter 5 recounts, the Labor Subcommittee’s study and the hearings that followed transformed the public image of the private pension system and reversed the balance of power in pension policy-making. When the Ninety-third Congress convened in January 1973, there was strong support for a pension reform law. What is more, the Labor Subcommittee’s campaign persuaded

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13

state legislators to take up pension reform. In 1973, several states considered legislation to regulate pension plans, and New Jersey passed a potentially costly law. Confronted with the prospect of conflicting state laws, the business community and the AFL-CIO reversed their position and endorsed federal legislation in order to prevent the states from regulating. In September 1974, a little more than four years after Javits began his campaign, the House and Senate passed ERISA by overwhelming margins. The Senate Labor Subcommittee’s publicity campaign promoted accountability by demonstrating that voters were likely to punish members of Congress who voted against pension reform. Yet the tactics in the campaign seem difficult to square with the deliberative ideal. In the deliberative model, advocates use information and arguments to persuade lawmakers that a proposal is good public policy.38 Javits’s goal was less to persuade than, as a staffer put it, to “dramatize [the] problems [of the private pension system] to the maximum feasible extent.”39 And dramatize they did. The Labor Subcommittee’s study and hearings painted a very bleak picture of the private pension system. Javits and Williams published questionable statistics that were likely to be—and were—misunderstood by the press. Indeed, Robert Myers, the respected former chief actuary of the Social Security Administration, called the figures “appallingly misleading.”40 On closer inspection, however, Javits’s tactics were less at odds with the deliberative ideal than they appear. Although Javits and Williams exaggerated the hazards of the private pension system, government officials had good reason to be concerned about the risks pension plans created for workers. Beginning in the late 1950s, agencies in the executive branch and members of Congress received a steady stream of letters from employees who complained about losing a pension. As chapter 4 recounts, when concerns about the riskiness of private pension plans led public officials to ask about the need for regulation to protect employees, the business community and organized labor (except the UAW and Steelworkers) stonewalled. Javits began his campaign to “dramatize” pension risks only after it had become clear that the key stakeholders in the private pension system were unwilling to engage in a constructive debate about reform. Javits did not choose sensationalism over reasoned deliberation. He had to choose between sensationalism and failure. Moreover, Javits’s tactics did not prevent members of Congress from exercising independent judgment in their consideration of pension reform legislation. The Labor Subcommittee demonstrated that voters were likely to pay attention if the House or Senate voted on a pension reform bill, but Javits and Williams could not force such a bill to a vote. In Congress, the

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Introduction

members themselves decide what measures they will consider and what procedures they will use to consider legislation. And as R. Douglas Arnold has shown, the processes by which the House and Senate set their agenda and choose procedures are relatively opaque. What this means is that, while members of Congress may get into trouble with their electoral constituents for votes on legislation, lawmakers seldom risk electoral retribution for their role in deciding whether their chamber will consider a bill.41 Thus, contrary to the ideal of legislative accountability, members of Congress generally have considerable discretion when their chamber sets its legislative agenda or selects procedures for considering legislation. The discretionary character of the agenda-setting process places pension reform in an interesting light. Congressional consideration of pension reform legislation forced lawmakers to take a public position on three controversial measures—vesting standards, funding standards, and termination insurance. The Senate Labor Subcommittee had shown that legislators who voted against pension reform were likely to face electoral retribution from voters. Although business and organized labor had endorsed pension reform by the time Congress voted on the legislation, these groups had spent a decade fighting vesting and funding standards, and the business community remained hostile to termination insurance. This configuration of preferences raises questions. If members of Congress controlled their agenda, why would they put themselves in the position of having to vote for vesting standards, funding standards, and termination insurance (or face electoral retribution) when the business community and most labor unions had opposed some or all of these measures? Why would lawmakers force themselves to vote on controversial issues if they could avoid doing so? In this case, the most reasonable answer is that most members of Congress believed ERISA was a good law. As Arnold observes, because legislators exercise discretion when they establish their agenda and procedures, their personal beliefs about policy play a role in the legislative process.42 ERISA illustrates his point. When members of Congress decided to act on legislation with vesting standards, funding standards, and termination insurance, they were aware that voters were likely to punish legislators who voted against these proposals. Indeed, tallies on the final votes on pension reform—93–0, 376–4, 407–2, and 85–0—suggest that lawmakers believed public opposition was politically risky. If most members of the Senate or House believed that one or more of these proposals was bad policy or if members had wished to do the bidding of interest groups, they could have killed these reforms with little risk of punishment from voters. All legisla-

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15

tors had to do was to vote against or to let it be known that they would vote against consideration of a bill that included proposals offensive to them (or the interest groups they catered to). But Congress did not choose such a course of action. In both the House and Senate, lawmakers brought controversial pension reform initiatives to a vote. To reiterate, if members of Congress had wished to do what the business community and most unions wanted, they would not have brought legislation with vesting standards, funding standards, and termination insurance to a vote. Likewise, legislators would not have put themselves in the position of having to vote in favor of these proposals if they had not personally favored these reforms. Viewed in its procedural context, it seems most likely that Congress passed ERISA because members believed voters favored or would favor comprehensive pension reform and because members themselves believed ERISA was good public policy. It is worth adding two caveats. Although Congress appears to have done its work on pension reform in a relatively representative fashion, that does not mean that voters would approve every provision of ERISA. Undoubtedly, they would not. Lawmakers had evidence that voters cared about mismanagement of plan assets, benefit forfeitures, and plan defaults. This evidence persuaded and permitted them to pass a pension reform bill. Although legislators anticipated voters would favor the legislation, public opinion did not tell ERISA’s drafters precisely what policies to adopt.43 As chapters 5 through 8 show, legislators and their aides decided many matters of detail in consultation with one or another interest group. It is not surprising, then, that many details in ERISA reflect the concerns and preferences of interest groups. But particular instances of interest-group influence must be kept in perspective. Here interest groups were influencing the particulars of a broader regulatory framework that Congress adopted in a representative fashion. Likewise, although the legislative process appears to have operated in a creditable fashion, that does not mean that Congress made good public policy. This book looks at how and why people made policy, not whether or how well the policy has worked. Anyone familiar with ERISA can list many problems with the statute. But whether or not one believes ERISA is good policy, it matters greatly that the public officials who drafted ERISA and the legislators who voted for it believed they were making good public policy. They were not the greedy rascals that journalists and social scientists often depict. This more complicated account of lawmakers and lawmaking is important because it accords better with the empirical realities of the policy-

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Introduction

making process. But it is also important because it contests the simpleminded cynicism that pervades too much media and scholarly analysis of policy-making. I doubt that we make it easier for politicians to do their jobs by believing them to be better than they are, but I suspect we make it harder by believing them to be worse.

1

Policy-Making for Private Pensions The Genesis and Structure of a Policy Domain

By the time Congress passed ERISA in 1974, businesses in the United States had been pensioning employees for almost a hundred years. Over the course of a century, a few ad hoc arrangements had become a major institution of American life. The private pension system came to embrace complex networks of purposes, roles, and relationships that linked employers, unions, service providers, and millions of employees. These networks and the legal rules that governed them defined the “political topography” of pension reform.1 Government regulation would benefit some stakeholders in the private pension system and burden others. The structure and organization of the private pension system determined who would gain or lose from particular proposals. In this way, the institutional status quo defined patterns of political mobilization in the campaign for reform.2 The purposes, roles, and relationships that comprise the private pension system cluster around two functions of a retirement plan. One is the pension bargain.3 A pension plan is a contractual arrangement that employers and unions use to manage employees. By providing retirement income in the present, a pension plan allows an employer or union to influence employees’ decisions to leave the workforce. By promising retirement income in the future, a pension plan bonds employees to the firm or union that sponsors the plan. A second set of roles clusters around the relationship of intermediation a pension plan calls into being. A pension plan transfers claims to income from an employee’s working years to his or her retirement years. The transfer requires an intermediary that bears the claims for the period they are deferred. Over time, an industry of service providers, including banks, insurance companies, and consulting firms, grew up to perform this function. The federal tax and labor laws established a framework of incentives and 17

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Policy-Making for Private Pensions

rules that encouraged and shaped the private pension system.4 From the 1920s until Congress passed ERISA, federal policy generally embodied a personnel theory of pensions. According to this view, the function of a pension plan was to manage employees. Lawmakers sought to accommodate arrangements that served this purpose. In the sphere of tax policy, this proved to be a difficult task. The progressive rate structure of the federal income tax made (and still makes) it virtually impossible to tax a pension plan on equal terms with earnings received as wages or salary.5 In the 1920s the revenue laws overtaxed pension plans, so Congress created special rules to eliminate the bias. In the 1930s it became clear that these rules undertaxed pension plans and invited tax avoidance. Congress responded in 1942 by amending the revenue laws to deny favorable treatment to retirement plans that appeared not to serve a bona fide personnel purpose. Although the new regulations constrained plan design, employers retained a great deal of discretion, and the tax laws retained a strong bias in favor of deferred compensation. Like the tax laws, the labor laws placed few constraints on private prerogative. Federal policy generally left it to employers, employees, and unions to set the terms of the pension bargain. If employees were not represented by a union, the employer controlled the design and operation of a retirement plan. If employees were unionized, their employer had to bargain pension issues with the union. The labor laws were not completely permissive, however. Congress created regulatory standards and disclosure requirements to guard against the danger that managers of an employee benefit plan would mishandle or steal plan funds. In devising these protections, lawmakers took care to avoid measures that would restrict the scope of private bargaining. Congress tried to help employees get the benefit of their bargain without telling them or their employer what bargain to make. With few exceptions, employees derived their right to retirement benefits from their pension plan rather than statutory law. In the 1940s a new view of retirement plans emerged to challenge the personnel theory. According to the subsidy theory, the Internal Revenue Code gave preferential treatment to pension plans to encourage firms to provide retirement benefits to their employees. The subsidy theory justified a broader government role in the private pension system. A pension plan was not just a tool for managing employees. It was an instrument of public policy that allowed employers to spend federal funds. There was disagreement, however, about the policy implications of the tax subsidy for retirement plans. The Treasury Department argued for stricter tax regulations to ensure that federal funds were not wasted, while business and professional

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19

organizations sought to ease restrictions so that the subsidy would be available to more people. This debate helped shift the normative premises of pension policy-making from a focus on what pension plans did for employers to a focus on what plans did for employees. This worker-centered perspective became the conceptual foundation for the campaign that produced ERISA.

the pension bargain i: pensions as means of personnel administration The origins of the private pension system in the United States lie in basic changes in economic organization that accompanied the second industrial revolution.6 In the United States and abroad, the emergence of long-lived corporate enterprises with capital-intensive and physically intense production processes gave rise to new personnel problems and practices.7 One emergent dilemma was the “employer’s pension problem.”8 What were managers to do when it was no longer economical to employ an aged individual who had worked for a firm for many years and needed his wages to survive? In the United States, businesses adopted the pension bargain because it seemed to resolve the dilemma in a manner that was at once economically rational and socially acceptable. The firm would remove aged employees from the workforce and provide them with income in retirement. Before the Civil War, few businesses in the United States had a pension problem. In the mid-nineteenth century, the typical business organization was a small family firm in which the owner—a farmer or craftsman, for example—and other family members directly produced commodities for consumption or market. In this economy, an individual’s well-being in old age generally depended on the possession of real property, tangible personal property, or marketable skills. Skilled individuals commonly worked and supported themselves into old age, while owners of tangible property might continue to work in family enterprises or reduce their level of work and live on income from property. Individuals without property or marketable skills lived an uncertain existence in which their well-being depended on their health, support from family members, and the availability of work or relief.9 After the Civil War, family firms gave way in importance to corporate enterprises in which the relations among ownership, management, and labor were more attenuated and complex. “Rather than produce goods for sale,” writes Steven Sass, “households exchanged their ‘factors of production,’ their labor and capital, for wages, interest, and dividends.”10 In the

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Policy-Making for Private Pensions

emerging economy, more and more people were destined to spend their working lives as employees and depend on wages or salary for subsistence.11 The creators of large-scale enterprise adopted capital-intensive, highvolume methods of machine production that placed a premium on the availability of a stable workforce.12 Yet new production processes undermined labor-market structures “that had fostered self-discipline in skilled trades.” Managers imposed order by introducing new institutions—most importantly, internal labor markets in which “ranks were based largely on years of loyal service.”13 New patterns of business organization gave rise to what may be called the employee’s pension problem. The main economic asset most employees possessed was labor power. Aged workers had a pension problem because they could not support themselves if their “human capital” wore out. In some cases, the employee’s pension problem created a problem for employers. Beginning in the 1880s, some large corporations had aged workers who could no longer fulfill the requirements of their positions. Lee Squier, an early student of old-age dependency, described the dilemma: “To keep worn-out, incapacitated men on the pay roll,” he wrote, “is an economic waste. To turn such adrift is not humane and exercises a depressing influence upon workers still in the prime of life.”14 Confronted with this uncomfortable situation, some businesses adopted an informal practice of granting retirement allowances to prevent “worthy” individuals from falling into destitution.15 After the turn of the twentieth century, more and more firms and, in particular, the large enterprises that introduced the “visible hand” to American industrial management abandoned informal pensioning in favor of more formal and less reactive retirement arrangements.16 These firms made pensioning part of a broader system of personnel administration.17 The plan initiated in January 1900 by the Pennsylvania Railroad Company provides a useful illustration because it served as a model for many firms.18 Under the Pennsylvania’s system, the firm did not consider applicants who were over thirty-five years of age.19 Once hired, an employee’s compensation was governed by a detailed seniority system. If an employee age sixty-five or older with thirty years of service became disabled, he was eligible for an annual pension equal to one percent of his average salary over his last ten years of employment multiplied by his years of service with the firm. All employees were forcibly retired at age seventy. To ensure that the plan was “absolutely subject to company direction and control,” the Pennsylvania retained complete financial responsibility.20 This control was reflected in one of the most important features of the plan: the

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21

firm reserved the right to terminate the plan as a whole or any individual employee’s pension at any time.21 Employers took an instrumental view of a retirement plan. As Lee Squier reported, the new “systems of pensions” were “almost without exception inspired by economic motives.”22 Managers believed they could reduce labor costs by replacing older, high-wage workers with younger employees who received lower pay.23 A pension plan allowed a firm to move older workers out of a firm when managers wanted them to go.24 In addition, a pension served as a performance bond.25 An employee would receive retirement benefits if he stayed with the firm for many years and did not engage in conduct that led to dismissal. As Steven Sass puts it, employees received a pension for giving their employer a “proper career.”26 Finally, a pension plan produced a steady stream of retirements, which gave managers more flexibility in staffing, while the expectation of future promotions reinforced younger workers’ commitment to the firm.27

intermediation i: the advent of advance funding Although managers were quick to grasp the personnel functions of a pension plan, they often failed to appreciate another important characteristic. A pension plan is a financial intermediary. When employees earn credit toward a pension, they acquire financial claims against the plan. Decades may pass between the time an employee earns pension credit and the time the plan pays benefits. The long lag between accrual and payment of pension claims led managers to overlook the accumulating financial obligations represented by a retirement plan. In the years 1915 to 1930, plans began to mature, and the intermediary role became clearer. As employees retired in larger numbers, businesses found that pension payments escalated out of all proportion to expectations. Goaded by experience and by accountants, actuaries, and the insurance industry, some firms acknowledged the intermediary role of a retirement plan by calculating and funding pension claims when the claims accrued. In almost all early retirement plans, the sponsoring firm paid benefits out of current revenue.28 In pension argot, the plans were pay-as-you-go. Some managers thought the pay-as-you-go approach was appropriate because they expected a retirement plan to generate enough savings to finance pensions for retiring employees.29 But most firms likely adopted pay-as-yougo financing because it was the path of least resistance.30 Managers simply

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Policy-Making for Private Pensions

used the same financial practices for pensions as for wages and salaries.31 No financial arrangements were made before employees retired. After an employee retired, the employer made the payments called for by the plan and charged them against current revenue.32 In the second and third decades of the twentieth century, businesses discovered that pay-as-you-go pensioning was neither as safe nor as simple as it seemed.33 A researcher from the Labor Department described the characteristic pattern: “At first the expense is usually not serious. When a plan is initiated there are apt to be few employees who have reached the retiring age, and for some years pensioners may be few, but as new workers each year reach the age limit and are added to the roll, while those on it are apt to remain there for some time, the cost mounts rapidly.”34 In fact, the payas-you-go approach produces higher out-of-pocket costs than any other method of financing a retirement plan.35 In addition, pay-as-you-go financing “gives absolutely no flexibility for times of financial stress.”36 A firm has to make pension payments when they come due whatever its current financial circumstances. Pay-as-you-go plans ran into trouble because managers did not appreciate that a retirement plan is an intermediary. Managers acted as though pension obligations arose when a plan made payments.37 Actuaries and accountants disagreed. They drew a distinction between out-of-pocket payments to retirees and the liability to make the payments.38 A firm did not incur liability when it made payments; it incurred liability over an employee’s entire career. As one commentator put it, “Since pensions are given for service rendered by employees, and, more particularly, since the longer the service the greater the pension, it is apparent that a liability for future pensions accrues concurrently with service rendered.”39 In other words, if an employee retired at age sixty-five after a thirty-year career, the employee’s right to a pension and the plan’s liability to pay the pension accrued over the employee’s entire tenure, not after retirement, when the payments came due. Recognizing the validity of these arguments, some firms created an accounting reserve that acknowledged pension liabilities as employees earned pension credit. A balance-sheet reserve, as the practice was called, might help a firm plan for pension payments, but it did little to safeguard employees.40 Actuaries and accountants urged managers to protect employees and the firm by funding pension obligations in advance. An employer should calculate its pension liability as the liability accrued and transfer funds to meet the liability to an intermediary.41 Some firms created their own intermediary: a pension trust that held funds for the benefit of the em-

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23

ployees in the plan. The managers of the trust would use employer contributions and investment income to pay pensions to retired employees. Beginning in the mid 1920s, some firms funded their retirement plan by purchasing annuities from an insurance company.42 From the employee’s perspective, funding was desirable because it segregated assets to pay pension obligations. In theory, amounts contributed to a pension trust were not available to an employer’s other creditors. (The reality was usually less protective than the theory.)43 From the employer’s perspective, funding permitted a firm to manage its pension liability in the same rational and deliberate way it managed its personnel.44 One advantage was that funding spread the cost of an employee’s pension over a longer period of time. Instead of making payments after an employee retired, a firm could distribute the expense over the employee’s working and retirement years. In addition, funds held by an intermediary earned investment income that reduced the out-of-pocket cost of a pension plan.45 These two factors— cost spreading and investment income—mean that, other things equal, the out-of-pocket cost of an advance-funded pension plan is never as high as the out-of-pocket cost of a pay-as-you-go plan.46 Finally, advance funding gave a firm flexibility in meeting pension costs. A firm with a pay-as-you-go plan had to make payments when they came due. A firm that funded had a cushion that allowed it to defer contributions during hard times.47

taxation i: origins of the tax treatment of retirement saving Few employers had adopted responsible funding practices by the time Congress created the income tax in 1913.48 In its early years, the income tax did nothing to encourage funding and may have impeded it. One reason was that the tax rules for advance-funded plans were more complicated than the rules for pay-as-you-go plans. A more important reason was that the tax laws had a behavioral bias against deferred compensation. The bias occurred because the intermediary that financed a pension plan paid tax at higher rates than employees. The disparity existed whether a firm funded or not, but it was most apparent when a firm maintained a pension trust. Informed of the problem, Congress amended the tax laws in 1926 to exempt pension trusts from taxation. The exemption allowed an employer to escape the bias against deferred compensation by using a trust to fund pension obligations. A firm could achieve the same result by purchasing annuities from an insurance company.

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Policy-Making for Private Pensions

Only a handful of firms were funding when Woodrow Wilson signed the Underwood-Simmons Tariff of 1913. Section 2 of the tariff imposed a tax on the incomes of corporations and wealthy individuals.49 Initially rates of taxation were very low, so the income tax had little effect on business planning and behavior. With the onset of World War I, however, Congress raised rates to levels that gave real financial bite to arcane tax questions.50 Three issues were of particular importance in the taxation of private pension plans: When should an employer deduct its pension costs? When should employees pay tax on pension benefits? And what treatment should be given to the intermediary that financed a retirement plan? On the issue of the employer’s deduction, the revenue laws allowed a firm to deduct “all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business . . . .”51 This language made the proper treatment of a pay-as-you-go plan relatively clear.52 Like wages and salaries, pensions paid to retired employees were deductible when the firm made the payments.53 The same statutory language and logic applied when a firm funded a pension plan through an annuity contract. Premiums paid to a life insurance company were out-and-out expenditures. They were deductible in the year the firm made them.54 It was less clear what treatment was appropriate when a firm used a balance-sheet reserve. Under the accrual principles favored by critics of payas-you-go plans, amounts allocated to a pension reserve reflected an expense—the cost of benefits accrued by employees—“incurred during the taxable year.” The responsible practice was for a firm to reduce its income in recognition of the expense.55 Accountants argued that tax authorities should follow proper accounting practice.56 On the other hand, an employer retained possession and complete control over funds set aside in a pension reserve, and managers could rescind the reserve and recapture the funds if they chose to do so.57 Tax authorities generally took a skeptical view of reserves for future outlays.58 Pension reserves turned out to be no exception. In 1919 the Bureau of Internal Revenue ruled that a firm could not deduct amounts accrued to a pension reserve. Like a firm with a pay-as-you-go plan, an employer with a balance-sheet reserve could deduct only “the amount actually paid to the employee.”59 Contributions to a pension trust presented an intermediate and ambiguous case. Unlike a balance-sheet reserve, a pension trust was a separate legal entity from the employer. Yet a pension trust was by no means as separate as an insurance company because the employer created the trust and selected the trustees. Indeed, in some cases the trustees were employees of the

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plan sponsor. In 1919 the Bureau of Internal Revenue held that a firm could deduct contributions to a trust “organized entirely separate and distinct from the corporation, having its own set of books, making its own investments, and paying its own expenses, legal title of which does not remain in the corporation . . . .”60 If an employer retained too much control over a pension trust, it would receive no deduction until benefits were paid.61 Employees were subject to taxation when they “realized” compensation income by receiving pension payments or title to separate and identifiable property.62 In pay-as-you-go and balance-sheet-reserve plans, realization occurred when the employee received benefit payments.63 If an employer maintained a trust, taxation depended on the nature of the plan. In a defined-contribution plan—for example, a profit-sharing plan—the trust had individual accounts for employees. When an employee vested, he acquired a property interest in the assets in his account. Accordingly, the bureau imposed tax when an employee vested in previously forfeitable benefits or accrued nonforfeitable benefits.64 In 1921, Congress amended the tax laws to provide that an employee would not be taxed until assets were “distributed or made available “ to him.65 Defined-benefit plans do not have individual accounts, so an employee who vested did not acquire a property interest in specific assets. He acquired a right to receive pension payments, while the plan incurred an obligation to pay. Accordingly, the bureau did not tax employees in a defined-benefit plan until they received pension payments.66 The same logic applied to insured plans. The insurer had a legal obligation to pay an annuity to a vested employee, but the employee did not have a property interest in specific assets of the insurer. Again, the employee paid no tax until he received annuity payments.67 The third question—how to tax the intermediary for a pension plan— raised the most complicated issues. A pension plan creates financial claims on behalf of employees. The entity that pays these claims invests for the employees.68 Entities that may serve as an intermediary—the firm itself in a pay-as-you-go or balance-sheet-reserve plan, an insurance company if the firm purchases annuities, or a pension trust in a trusteed plan—may themselves be subject to income taxation. Their tax rates affect their viability as intermediaries. If income of one type of entity (say, an insurance company) is taxed more heavily than another (say, a pension trust), the entity that pays higher taxes is disadvantaged.69 Moreover, the employees in a pension plan are themselves subject to income taxation. The relative rates of taxation for employees and intermediaries affect the appeal of deferred compensation. If intermediaries pay higher rates than employees, there is an in-

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centive for employees to receive compensation immediately and invest on their own behalf. If intermediaries face lower rates, as qualified retirement plans do today, employees have an incentive to defer compensation and have an intermediary invest for them.70 In its early years, the income tax was biased against deferred compensation because two types of intermediary—employers and pension trusts— paid tax at higher rates than employees. At this time the income tax was a “class tax” that fell primarily on corporations and wealthy individuals. Few wage earners paid any income tax.71 Since most retirement plans were broad in coverage, it is likely that few employees in these plans paid income tax.72 In contrast, an employer or a trust that financed a retirement plan might pay a lot of tax. For example, a pension trust might invest on behalf of thousands of employees, but it was taxed under the same rate schedule as an individual.73 In effect, the trust took a large number of taxpayers, most of whom paid little or no tax, and turned them into one big taxpayer—the trust—that might pay a lot of tax.74 This problem also arose in Britain, where employers often used a trust to fund pension obligations. Parliament exempted pension trusts from taxation in 1921.75 Congress followed suit in 1926.76 Since few employees paid income tax, the exemption produced a rough correspondence between the taxation of a pension trust and the employees for whom it invested. A similar disparity existed if a firm maintained a pay-as-you-go plan or a balance-sheet reserve. In either case, employees essentially invested in their employer. The income earned on the investment was taxed at the employer’s rate. The great majority of employees who participated in a private pension plan worked for a large corporation, and large firms paid tax at substantially higher rates than all but very highly paid employees. As in the case of a pension trust, the intermediary—the employer—turned a large number of individuals, most of whom paid little or no tax, into a single taxpayer that might have a substantial tax liability.77 The tax consequences were different when a firm purchased annuities from an insurance company. Insurance companies were subject to special tax rules under which there was little or no bias against deferred compensation. Thus, Congress’s decision to exempt pension trusts from taxation established a rough parity between the taxation of trusteed and insured retirement plans.78 The resulting tax regime encouraged funding because a firm could escape the bias against deferred compensation by making contributions to a pension trust or purchasing annuities from an insurance company.

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the pension bargain ii: pensions as supplements to social security The Social Security Act of 1935 had a profound effect on private pension plans because it profoundly changed the employer’s pension problem. In the early years of the private pension system, most retirement plans covered a broad range of employees because high earners and low earners alike depended on employment compensation for support. A firm needed to provide an alternative source of income to retire employees whatever their level of compensation. The Social Security Act created a public program that would pay employment-based pensions to most private-sector workers. To the extent that government provided retirement income to employees, there was less reason for an employer to do so.79 Private pension plans were left with the job of filling the gap between the public pension employees expected and the level of retirement income employees desired. The gap was largest for high earners, so many firms redesigned their pension plan in the wake of the Social Security Act to focus on highly compensated employees. Title II of the Social Security Act created the Old-Age Insurance program (OAI).80 Beginning in 1942, OAI would pay an earnings-based pension to qualified employees age sixty-five or older.81 To finance these benefits, Title VIII of the act called for covered employees and their employer to pay a flatrate tax—initially 1 percent each but rising over time—on up to $3,000 of earnings.82 In its original design, OAI owed much to the model of private insurance. Employees were to receive a fair return on the taxes paid on their behalf.83 Before the program paid any benefits, however, Congress “radically altered” it in ways that took a large step away from the private model. The Social Security Act Amendments of 1939 added dependent and survivor benefits, accelerated the date when the program would begin paying pensions, increased benefits to the earliest retirees, and deferred scheduled tax increases.84 The 1939 amendments also renamed the program Old-Age and Survivors Insurance (OASI). Although business leaders generally opposed the Social Security Act, the public pension program did not have a uniform effect on private-sector employers.85 The impact depended on the characteristics of the employer. OASI did not do much for firms that derived little or no benefit from paying deferred compensation. For instance, one function of deferred compensation was to get employees to leave a firm when managers wanted them to go. Firms with high turnover had little need for this function because employees left without having to be paid to go. Similarly, many firms—for ex-

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ample, small businesses in the service sector—did not expect to be longlived. Why should a firm create a program to retire its employees when it was unlikely to be around when they reached retirement age? Tax considerations aside, employers of either sort were unlikely to create a pension plan. The Social Security Act forced them to earmark funds for a form of compensation they would not otherwise have provided. The act had a very different impact on large corporations that paid pensions, because OASI duplicated some of the functions of a pension plan. Large firms paid pensions in order to retire aged workers who were dependent on wages or salary. OASI made aged employees less dependent on earned income and thus diminished the need for employers to provide a pension as a quid pro quo for retiring an employee. Moreover, OASI established an official retirement age and a work test as a condition for receiving benefits. These features encouraged aged employees to leave the workforce.86 But OASI did more than perform these functions of a retirement plan. For many firms, it did so at lower cost.87 In a defined-benefit pension plan, older employees are more expensive than younger employees.88 OASI was a defined-benefit plan with a flat-rate premium—the payroll tax—that took no account of age. The flat rate of tax meant that OASI provided large transfers or subsidies to older workers. In addition, OASI pooled costs across firms. As Robert Myers observes, the pooling of costs allowed transfers to “occur beyond the walls of the particular employer.” In effect, employees in “young” firms subsidized employees in “old” firms. In a firm with a large concentration of high-cost, older employees, Myers writes, “the employees . . . might really be said to have allocable employer contributions from the other firms.”89 An “old” firm with a private pension plan could draw on this subsidy by substituting OASI for a portion of its private pension plan. This practice, known as integration, could reduce a firm’s costs because OASI provided pensions to older employees at a lower cost in payroll taxes than an insurance company would have charged for an annuity of the same amount.90 For many firms, then, OASI solved part of the employer’s pension problem at a lower cost than a private pension plan. It would not do the whole job, however. The public pension program provided a “floor of protection” that was too low to sustain a high earner’s standard of living. Employees received no credit for earnings in excess of the $3,000 wage base. Even for employees who earned less than $3,000 per year, OASI replaced a smaller percentage of preretirement earnings for employees with higher compensation.91 High earners would need other sources of retirement income. In-

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surance companies quickly recognized that private pensions could fill the gap. As an insurance company official explained in 1936, “As the Federal annuities decline as a percentage of earnings, the insurance company annuities step in and take up the slack necessary to attain the employee’s objective.”92 Perhaps because they wished to defuse business opposition, proponents of OASI seconded the view that public and private pensions played complementary roles.93 Recognizing this logic, many firms integrated their retirement plan with OASI.94 There were a variety of methods of integration, but the “pure excess” approach provides a simple illustration of the practice. The benefit formula under a pure-excess plan calculated pensions on the basis of an employee’s earnings in excess of the OASI wage base. For example, in 1939 U.S. Steel established a plan under which employees would contribute 3 percent of their annual earnings in excess of $3,000 and retire at age sixty-five with an annual pension of 1 percent of their aggregate annual earnings over $3,000.95 Employees who did not make $3,000 a year did not participate. The rationale was that U.S. Steel provided pensions to excluded employees through payroll taxes and OASI. As the example illustrates, integration “counteracted” OASI’s skew toward low earners “by providing relatively larger benefits for higher-paid employees.”96 Integration also led to narrower patterns of coverage. Plans adopted before 1935 usually covered a large majority of a firm’s employees. The scope of coverage in plans adopted in the late 1930s and early 1940s was generally narrower.97

taxation ii: pensions as a means of tax avoidance The tax laws reinforced the shift in focus toward highly compensated employees. The special tax treatment of retirement plans allowed high earners to reduce their income taxes by replacing salary with deferred compensation. The potential for tax avoidance became clear in the mid 1930s, when many firms adopted a retirement plan that skewed coverage and benefits toward high earners. Although Congress initially rebuffed the Treasury Department’s proposals for reform, World War II forced lawmakers to increase tax rates to levels that created intense incentives for tax avoidance. The Revenue Act of 1942 coupled rate increases with rules that denied favorable treatment to arrangements that were little more than tax shelters. Even with these reforms, employers possessed substantial discretion over the de-

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sign of a retirement plan. The incentives created by wartime tax rates produced a boom in retirement plans that mostly benefited employees at the top of the compensation scale. Lawmakers did not mean to create an incentive in favor of deferred compensation when they created special tax rules for pension plans in the 1920s. Their goal was to eliminate a bias against deferred compensation by harmonizing the tax treatment of pension plans with the treatment of employees. Since most pension plans covered a broad spectrum of employees and most employees paid little or no income tax, it made sense to exempt pension trusts from taxation. In the 1930s, officials at the Treasury Department discerned two critical flaws with this solution. Unlike wage earners, highly compensated employees did pay income tax.The special treatment of pension plans allowed them to avoid tax by deferring compensation. Moreover, the tax laws did not require a pension plan to cover a broad spectrum of employees. Before 1942, a pension plan could qualify for special treatment even though only a handful of highly compensated employees participated.98 Together, these two defects created great potential for tax avoidance. High earners had an incentive to substitute pension contributions for salary, and firms could create retirement plans that only covered high earners. The tax rules for retirement plans reduced a high earner’s tax liability in two ways. One advantage stemmed from the rate schedule of the income tax. In an income tax with progressive rates, an individual’s marginal rate of taxation—that is, the rate that applies to an incremental increase in income—rises as income rises.99 A pension plan reduced a high earner’s tax liability by shifting income from working years, when an individual was likely to have a larger income and pay higher rates, to retirement years, when a person usually had a smaller income and paid lower rates.100 A second advantage of deferred compensation was that the intermediary that financed a retirement plan—a pension trust or insurance company—paid tax on investment income at lower rates than highly compensated employees paid on their own income. The disparity in rates between high earners and intermediaries created a bias in favor of deferred compensation for the same reasons that the disparity in rates between low earners and intermediaries had created a behavioral bias against deferred compensation in the 1920s. The potential for tax avoidance became obvious when Franklin Roosevelt shifted tax policy leftward in the mid 1930s. In 1935 the president requested and Congress passed higher rates for individuals. A year later, Roosevelt proposed legislation to prevent individuals from using corporations to shelter income from taxation.101 The most controversial measure was a tax on corporate profits that were not distributed to shareholders.The undistributed-

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profits tax increased the marginal rate of tax on corporate income as the proportion of a firm’s income paid as dividends declined. For example, a corporation that paid out all but 10 percent of its net income as dividends paid a 7 percent tax on the undistributed amount, while a firm that retained more than 60 percent of its net income paid a 27 percent tax on the excess over 60 percent.102 As it turned out, the tax rules for retirement plans were perfectly adapted to allow corporations and highly compensated employees to escape the pincers movement of higher individual rates and the undistributedprofits tax. The opportunities for tax avoidance were most pronounced in closely held corporations in which managers were also the principal stockholders. These “key men,” as they were called, could manipulate a firm’s finances to minimize their tax liability. The revenue of a small corporation could be paid out in several ways. It might be used to pay salaries. In that case, the salary payments were deductible by the corporation and taxable to the recipient.103 Alternatively, corporate revenue might constitute profit, in which case it was taxable as corporate income.104 If the firm distributed its income as dividends, the dividends were taxed a second time as income of the shareholders.105 Retained profits were taxed a second time by the undistributed-profits tax.106 Deferred compensation received much more favorable treatment. The corporation received an immediate deduction for amounts contributed to a pension trust or used to purchase annuities, but the employee paid no tax until he received retirement income years, often decades, later.107 As a skeptical tax lawyer observed, “[T]he tax may be small if not eliminated altogether. . . . No wonder the idea of a pension trust for key men is appealing.”108 Interest in pension plans for executives took off when insurance companies publicized these tax savings in the late 1930s.109 The Treasury Department responded in 1937 by asking Congress to amend the tax laws to deny favorable treatment to plans that were limited to highly compensated employees.110 When Congress failed to act on this proposal, Treasury took matters into its own hands and amended the tax regulations to bring about the same result.111 This effort foundered, however, when the Board of Tax Appeals rejected Treasury’s interpretation of the relevant provision of the tax code.112 As a columnist in a legal publication observed in July 1942, “Keymen trusts [we]re condemned by the Commissioner [of Internal Revenue], approved by the Board [of Tax Appeals], and tolerated by Congress through disregard after the problem was submitted to it.”113 World War II soon forced lawmakers to address the potential for tax avoidance. The intensity of an individual’s incentive to defer compensation varies

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with his marginal rate of taxation. The higher an employee’s marginal tax rate, the more tax he can avoid by shifting wages or salary into a retirement plan.114 A similar relationship exists between the cost of a retirement plan and the employer’s tax rate. An employer receives a deduction for contributions to a retirement plan. If a firm has taxable income, the deduction reduces its taxable income and thus its tax liability. The after-tax cost of a pension contribution is the amount of the contribution minus the reduction in the employer’s tax liability from deducting the contribution. For example, if a firm pays a 50 percent marginal tax rate, a one-dollar contribution to a pension plan reduces the firm’s tax liability by fifty cents. The after-tax cost of the contribution is fifty cents. As a firm’s marginal rate of taxation rises, the tax savings from a deductible expense also rises. Thus, the after-tax cost of a pension plan falls as a firm’s marginal rate of taxation rises. These relationships between tax rates and tax savings meant that the incentive to create retirement plans intensified when Congress enacted tax increases to meet the revenue demands of World War II. The Second Revenue Act of 1940 imposed a corporate excess-profits tax with a top rate of 50 percent.115 The Revenue Act of 1941 further hiked corporate tax and surtax rates. Congress also increased rates for individuals.116 Not surprisingly, employers and highly compensated employees responded to these incentives by establishing pension plans at a more rapid pace than ever before. An attorney in the Treasury Department’s Office of Tax Legislative Counsel estimated that up to 60 percent of the pension plans in existence at the end of 1941 “had been adopted in 1940 and 1941 alone.”117 He also noted that many plans created in this period focused their benefits on employees who were stockholders.118 The experience of 1940 and 1941 provided the backdrop for the Revenue Act of 1942. The 1942 act raised individual and corporate tax rates to unprecedented levels. Surtaxes on individuals were as high as 82 percent with a top marginal rate of 94 percent.119 The excess profits tax on corporations rose to 90 percent, pushing the highest marginal rate for corporations to 85.5 percent.120 These rates gave individuals intense incentives to avoid taxes and made it very cheap for a corporation to pay for a pension plan. For a corporation in the 85.5 percent marginal bracket, a Treasury lawyer observed, “Every dollar contributed by the employer costs only 14 1/2 cents if it is deductible.”121 Businesses had an incentive to create a pension plan and fund it rapidly in order to squeeze as much of the cost as possible into the period when high wartime tax rates applied.122 In 1942 Treasury again proposed a slate of reforms to combat the use of pension plans for tax avoidance.123 Congress gave the agency much less than it wanted, but the 1942

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Revenue Act included several important changes in the tax treatment of pension and profit-sharing plans.124 One new provision targeted plans that covered few but highly compensated employees. A retirement plan would not receive favorable treatment unless it met a numerical coverage test or the Bureau of Internal Revenue determined that the requirements for participation in the plan did not discriminate in favor of owner-employees and other high earners.125 Congress backed up the coverage tests with a provision that denied favorable treatment if a plan tilted “contributions or benefits” too much toward high earners. A qualified plan had to provide benefits to all participants on terms that were not too much less generous than the benefits for “key men.”126 These amendments reflected the view that retirement plans were means of personnel administration. A plan that paid large benefits to high earners and little or nothing to other employees appeared not to serve a personnel purpose, so the 1942 act condemned it as a tax shelter. On the other hand, if a retirement plan appeared to serve a legitimate personnel purpose, the act granted favorable treatment even though the plan gave large tax savings to highly compensated employees.127 Even with these statutory changes, the tax laws gave employers and highly compensated employees huge incentives to defer compensation. Government initiatives to stem wartime wage and salary inflation reinforced the tax incentive. Less than three weeks before he signed the 1942 Revenue Act, Roosevelt signed the Stabilization Act of 1942. The Stabilization Act authorized the president “to issue a general order stabilizing prices, wages, and salaries affecting the cost of living.” The Stabilization Act specifically excluded “insurance and pension benefits in a reasonable amount” from the definition of “wages” and “salaries.”128 Regulations implementing the Stabilization Act appeared only four days after FDR signed the 1942 Revenue Act. The regulations provided that deductible contributions to a pension plan would be “considered as reasonable, regardless of the amount of such contributions.”129 In effect, United States News told its readers, “employers are barred from granting wage and salary increases under the stabilization law, but apparently are invited to set up trusts for future payments to employes [sic] under the tax law.”130 Together, the Revenue and Stabilization Acts produced a “bloom” in the population of private pension plans. A leading actuary estimated that the number of plans grew from 1,850 at the end of 1941 to 6,550 at the end of 1945.131 New plans continued to be skewed toward the affluent.132 This pattern emerged because the rules forbidding discrimination gave employers substantial latitude to focus benefits on high earners. The 1942 Revenue Act

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accommodated the widespread practice of integrating OASI and private pensions. Language added by the Senate Finance Committee explicitly stated that a pension plan that excluded employees who earned less than the OASI wage base or that provided higher levels of benefits to employees who earned more than the wage base was not necessarily discriminatory. Congress also accommodated the practice of providing pensions only to salaried personnel.133 The pairing of virtually unlimited inducements to tax avoidance and relatively limited restraints meant that the wartime surge in pension plans benefited rank-and-file employees far less than their bosses.134

the pension bargain iii: pensions as a means of managing labor markets Besides giving high earners greater incentives to defer compensation, the 1942 Revenue Act also expanded the income tax to rank-and-file employees. In doing so, the act created “mass” incentives for tax avoidance. After 1942, blue-collar workers could reduce their tax by deferring compensation.135 These “mass” incentives had little effect during the war because many employers integrated their pension plan with OASI and because unions generally steered clear of plans financed by an employer.136 Soon after the war ended, however, a confluence of events led the United Mineworkers union and several affiliates of the Congress of Industrial Organizations (CIO) to demand pensions for their members. So began a “pension stampede” that continued through the 1950s.137 By spring 1960, collectively bargained retirement plans “covered 11 million workers . . . . Coverage of the entire private pension institution had leaped from 19 percent of the workforce in 1945 to 40 percent in 1960, and this jump was almost entirely attributable to union initiatives.”138 The union drive for pensions introduced new kinds of plans (collectively bargained single-employer and multiemployer plans) and an important new stakeholder (organized labor) to the private pension system. Although the tax laws facilitated organized labor’s turn to pensions, unions were more concerned about the demographics of postwar labor markets than about taxes. During the war, many businesses encouraged older workers not to retire, and some firms asked retirees to return to work. As a result, a pension actuary observed in 1944, “Most companies . . . have a greater proportion of men over [age sixty-five] in their service than at any time in their history.”139 The war also produced major gains in the size and security of labor unions. At war’s end, many older workers were in a bar-

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gaining unit represented by a union.140 Finally, wartime inflation substantially diminished the value of OASI benefits.141 With only their public pensions to support them, many older workers did not want to leave the workforce. In unionized firms, efforts to dismiss older employees provoked grievances, strike threats, and litigation.142 This combination of circumstances created problems for employers and for unions. As Slichter, Healy, and Livernash explain in their classic study, The Impact of Collective Bargaining on Management, “Though unions were not very active in seeking pension plans during the war, they were indirectly magnifying the pension problem for employers.” CIO unions bargained for seniority systems that required an employer to lay off workers in reverse order of seniority. These unions also negotiated contractual provisions that allowed an employer to dismiss workers only for cause. Because age did not constitute an appropriate cause for discharge, “employers were faced with the dilemma of what to do with older employees.”143 It was not only a dilemma for employers. Layoffs were common in the heavy industries organized by the CIO.144 When workers were on layoff, jobs for older, long-service employees came at the expense of employment for younger, less senior union members.145 This trade-off gave union leaders a pragmatic as well as a humanitarian stake in the retirement options available to older workers.146 In 1946 a Congress controlled by the Democrats took what the CIO’s Committee on Social Security called “some slight steps with respect to a few aspects of the [Social Security] program, but left the basic and crying needs still to be remedied.”147 When the Republicans took Congress in the November 1946 election, a political environment that was not particularly friendly to public social programs became pronouncedly more hostile. Within days of the election, UAW president Walter Reuther told local union leaders, “In the immediate future, security will be won for our people only to the extent that the union succeeds in obtaining such security through collective bargaining.”148 As if to endorse Reuther’s forecast, on January 8, 1947, five days after the new Republican Congress convened, a trial examiner at the National Labor Relations Board (NLRB) held that the Inland Steel Company had committed unfair labor practices when it refused to negotiate with the Steelworkers union about retirement practices and a pension plan.149 The combination of demographics, congressional politics, and a legal mandate to negotiate pension issues prompted unions to pursue “social security” in the private sector.150 The signal event of the immediate postwar period was the creation of the United Mine Workers Health and Retirement Fund.151 Mine Workers pres-

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ident John L. Lewis turned to the idea of a welfare and pension plan because it promised to rationalize the industry and remedy the deficiencies of company-sponsored medical programs. Drawing on models developed by unions in the needle trades, Lewis saw the fund as a way to induce older employees to retire and thus to smooth the transition to a more mechanized and productive industry. Although Lewis failed to secure such a plan in 1945, when he raised the issue again in 1946 and struck to get it, the federal government seized the mines and negotiated the fund he sought.152 Lewis’s success established a benchmark for other unions, and the CIO quickly made pensions a standard demand in collective bargaining.153 In September 1948, a federal appeals court agreed with the NLRB that labor law required an employer to bargain about pension and retirement issues.154 Soon thereafter, the United Auto Workers and United Steelworkers unions moved pensions to the top of their collective bargaining agenda.155 The UAW demanded a retirement plan when negotiations began at Ford in June 1949. The Steelworkers did the same in bargaining with major firms in the steel industry.156 When the steel negotiations broke down and threatened a nationwide strike, President Truman appointed a fact-finding board to investigate the union’s demands. On September 10 the board issued a report endorsing the Steelworkers’ pension demand.157 Less than three weeks later, Ford and the UAW reached a groundbreaking agreement that committed the firm to establish a pension plan for hourly employees.158 After a strike, the steel companies too gave in.159 The report and the ensuing bargaining settlements precipitated what one cartoonist called “The Great Gold Rush of ’49,” as CIO unions at other firms and in other sectors of the economy battled to secure pensions.160 The plans negotiated by CIO affiliates resembled nonbargained plans but with several significant differences. Like nonbargained plans, most CIO plans were single-employer plans that covered employees at a single firm or a group of commonly controlled firms. Like many nonbargained plans, CIO plans were funded through a trust, with the sponsoring firm retaining most of the administrative functions.161 And CIO plans were defined-benefit plans that promised employees a pension based on a formula specified in the plan.162 But the benefit formulas in CIO plans differed from the formulas characteristic of nonbargained plans. Nonbargained plans generally based retirement benefits on an employee’s salary and length of service. A common formula provided a combined annual OASI benefit and private pension equal to 1.5 percent times years of service times average annual salary.163 CIO plans usually figured benefits based on a flat-dollar formula rather than wage levels. A retiree’s pension was computed by multiplying his years of

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service by the flat-dollar amount. For example, the GM plan that became the pattern in UAW negotiations in 1950 promised a pension of $1.50 per month per year for up to thirty years of service.164 Unions affiliated with the American Federation of Labor (AFL) initially held back from the push for employer-financed pension plans, but in the mid 1950s they too joined the stampede.165 AFL unions used retirement plans to serve similar purposes to the plans bargained by the CIO, but the AFL organized industries that required a different type of intermediary. Most AFL affiliates represented employees who worked for firms like restaurants and laundries or in industries like construction and trucking that were “characterized by seasonal and irregular employment, small establishments, and such frequent job changes that few workers remain[ed] with a single employer long enough to qualify for pensions.”166 Under these circumstances, single-employer plans were neither feasible nor desirable. Workers did not expect to stay with a firm long enough to qualify for a pension, and many firms were likely to be too short-lived for their pension promises to be credible. Moreover, economies of scale in plan administration made the cost of a pension plan more burdensome for small firms.167 Unions and employers accommodated these conditions by pooling risks and resources in a multiemployer pension plan that might be local, regional, or even national in scope.168 A characteristic pattern was for employers that negotiated with a particular union to agree to contribute to a central trust. Employees earned pension credit if they worked for any employer that contributed to the trust. When an employee quit or was laid off or if his employer went out of business, he could continue to earn pension credit by working for another employer in the plan.169 This structure freed employees from dependence on a particular firm, but workers usually lost their pension credit if they left the union or industry prior to retirement.170 The craft nature of many AFL unions meant that in industries like the building trades, in which “general contractors [might] employ several different crafts, such as iron workers, carpenters, bricklayers, operating engineers,” it was common for an employer to “contribute to different industry-wide pension funds for each of the several crafts.”171 The structure and administration of multiemployer pension and welfare plans differed from single-employer plans. In industries with multiemployer plans, the union was usually a more encompassing and stable organization than individual employers. As a result, the union played a much larger role in plan administration. In fact, it was common for early multiemployer plans to be controlled by a union.172 Backlash against John L.

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Lewis and the plan he negotiated in 1946 (as well as other exploits) led the Republican Eightieth Congress to outlaw unilateral union administration of employer-financed benefit plans.173 The Labor-Management Relations Act of 1947 generally barred a firm from contributing to a pension or welfare plan that was controlled by a union. 174 According to Senator Robert Taft (R, Ohio) and several colleagues, the act aimed to prevent benefit funds from being “a mere tool to increase the power of the union leaders over their men, and even be[ing] open to racketeering practices.”175 Rather than outlaw multiemployer plans, Congress required them to comply with organizational and administrative formalities that aimed to ensure that funds set aside to benefit employees were actually used for the intended purpose. The major organizational formality was that the plan be administered through a trust managed by a board on which the union and participating employers had equal representation.176 In most cases, the requirement of equal representation was a matter of form more than function. The union that sponsored a multiemployer plan almost always played the predominant role. One reason was employer indifference. Some managers did not want to be bothered with plan administration. A pension consultant noted in 1956 that “employers having agreed to contribute . . . too often have taken the position that their responsibility has ended with the agreement to contribute.”177 Another reason was union pressure. A management representative complained in 1955 that trustees appointed by employers “cannot successfully argue with the union trustees because the threat of picketing is there immediately.”178 Another important difference between single-employer and multiemployer pension plans was the financial commitment employers made. Under most collectively bargained single-employer plans, the firm and the union negotiated the size of the pension benefit retirees would receive. The employer was obliged to contribute the funds necessary to finance this level of benefits.179 In other words, single-employer arrangements defined the benefit earned by employees rather than the precise financial contribution to be paid by the employer. In contrast, an employer in a multiemployer plan agreed to make a specific contribution, usually “a percentage of payroll, or an absolute dollar amount for a certain period, that is man-hours, man-days, and so on.”180 For example, a firm might agree to contribute 2 percent of payroll costs or ten cents for every hour worked by covered employees. The employer’s contractual obligation was met when it made this contribution. While employers committed to a specific contribution, multiemployer plans generally promised employees a defined benefit upon retirement.181 Most plans promised a flat retirement benefit—fifty dollars per month, for

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example—or a benefit computed in terms of years of service—e.g., $1.50 multiplied by years of service.182 This pattern, in which employers agreed to defined contributions and the plan promised defined benefits, meant that trustees had to take employer contributions into account when they established benefit levels. Ideally, the trustees hired an actuary to assess a variety of factors, including the fund’s existing assets, the current and likely future levels of employer contributions, demographic characteristics of employees covered by the plan, mortality and turnover factors, and interest rates. On the basis of this assessment, the trustees determined the level of benefits the plan could support.183

taxation iii: pensions as a means of promoting retirement security Unions were not alone in vigorously pursuing retirement plans. Tax rates remained high in the 1950s, so the incentive to avoid taxes also remained strong.184 Not everyone, however, had access to the favorable tax rules for qualified retirement plans. People who were self-employed and employees whose firm did not sponsor a retirement plan were left out. The disparity would have raised objections under any circumstances, but it seemed particularly unfair in light of the Treasury Department’s claims that the tax laws subsidized pension plans to promote worker welfare. Together, the selfemployed and employees without pension coverage made up a majority of the private-sector labor force. How could the federal government subsidize retirement saving yet give access to less than half the people who needed the subsidy? Advocates for the self-employed spent the 1950s pushing for legislation to make tax-free retirement saving more widely available. No bill passed by the end of the decade, but debate about the tax subsidy prompted a shift in thinking about pension plans. In the emerging view, pension plans were more than tools for meeting personnel needs. They were vehicles for government to channel income to the aged. In the 1950s, the number of private-sector employees covered by a retirement plan roughly doubled. From 9.8 million in 1950, coverage grew to 18.7 million a decade later.185 The number of plans grew even faster. As of July 1, 1950, tax authorities had been asked to approve about thirteen thousand pension, profit-sharing, and stock-bonus plans. Less than six years later, the number was thirty thousand.186 Growth in the number of covered employees was largely attributable to a relatively small number of collectively bargained plans, some of which had thousands or even tens of thou-

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sands of participants. Growth in the number of plans had a different cause. High tax rates meant that a retirement plan remained an ideal tax shelter for owner-employees of a small corporation. The economics could be irresistible. Contributions to a pension plan reduced a corporation’s tax liability, while most of the benefits were likely to flow to highly compensated owner-employees. For some firms, the tax savings from deducting pension contributions were large enough to pay for all of the benefits allotted to employees other than the owner-employees. In such a case, the retirement benefits allotted to owner-employees were literally free. The after-tax cost to the firm and its owners was zero.187 As appealing as these tax savings were, they were not available to most private-sector workers. The tax code gave favorable treatment to a retirement plan maintained by “an employer for the exclusive benefit of his employees . . . .”188 An individual whose employer did not sponsor a plan was out of luck. So too were the self-employed. Qualified retirement plans were for “employees.” The Bureau of Internal Revenue did not consider selfemployed people to be employees, so they could not participate in a qualified plan.189 Many individuals sidestepped the bureau’s interpretation by incorporating their business and hiring themselves as employees of the corporation. This option was not open to everyone, however, because most states did not allow doctors, lawyers, and other professionals to incorporate.190 To make matters worse, for most of the 1950s a variety of selfemployed professionals were also excluded from OASI.191 Self-employed physicians were excluded until 1966.192 Not surprisingly, self-employed people thought this was “flagrantly unfair.”193 Efforts to expand access to tax-free retirement saving began in the mid 1940s, and legislation for this purpose was a staple of tax policy-making in the 1950s.194 Representatives of business and professional groups argued that the treatment of the self-employed was at odds with the Treasury Department’s claim that pension plans received a tax “subsidy” to promote retirement security. There was an irony here. Treasury officials did not propose the subsidy theory because they believed Congress intended to subsidize old-age security through the tax code. They saw the theory as a way to justify stricter limits on the design and operation of retirement plans. Advocates for the self-employed demonstrated that Treasury’s sword was double-edged. In doing so, they contributed to an important shift in thinking about private pensions. Treasury’s first clear statement of the subsidy theory occurred in 1942, when the agency urged statutory reforms to check the use of pension plans to avoid taxes. The theory advanced a new interpretation of the special tax

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treatment of retirement plans. The rules for retirement plans allowed employees to reduce their tax liability by substituting deferred compensation for wages or salary. Of necessity, smaller current tax liability for employees meant lower current tax revenues for the federal government. In testimony before the House Ways and Means Committee, Treasury advisor Randolph Paul described the lost revenues as “a tax subsidy” for retirement plans. “This subsidy,” he continued, “is at the expense of the general body of taxpayers. It was granted because of the desire to improve the welfare of employees by encouraging the establishment of pension trusts for their benefit.”195 As it turned out, Congress was less taken with the theory than Treasury. Legislators included several of Treasury’s proposals in the 1942 Revenue Act, but they made no mention of a “subsidy” for private pensions.196 Even so, Treasury officials stuck with the idea because it provided a rationale for stricter government oversight of retirement plans. If the tax laws subsidized pension plans, went the argument, the revenues lost to the special treatment of these plans were public funds. As guardian of the fisc, Treasury had an obligation and a right to see that the public got a fair return on its investment. “The propriety of setting up a tax provision which makes the Government so large a partner in the pursuit of private corporate interests and the personal interests of covered employees,” a Treasury lawyer claimed in 1944, “must depend to a great extent upon the degree to which the serving of these special interests coincides with the general national interest.”197 In the 1940s and 1950s, agency officials invoked this line of reasoning to justify regulations and rulings that placed greater constraints on qualified retirement plans.198 A tax lawyer complained in 1953 of “the sufferance concept” of private pension plans: “Because the legislative arm of government has subsidized the development of retirement plans . . . , the Treasury has presumed to exert direct control over the types of plans that may and may not be instituted.”199 But Treasury’s slogan had other uses. A subsidy is a means to an end. Treasury emphasized the means—forgone federal revenues. If one focused on the end—“the welfare of employees”—the benchmark of pension policy-making shifted. The personnel theory viewed pension plans as tools for serving the needs of employers. The subsidy theory viewed pension plans as publicly financed instruments for promoting old-age security. Speaking in 1946, a tax lawyer explained that the treatment of pension plans reflected “a social philosophy: ‘Mr. Employer, you take care of your employees when they attain a superannuated age, and we [government] won’t have to support them, and we will give you a deduction now.”200 Business

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and professional groups seized on this logic in their push for pension legislation for the self-employed. If the taxation of pension plans “stems from a feeling of social responsibility and a desire to make sure that everyone is assured of adequate income during his later years,” a lawyer wondered, “why should certain individuals be prevented from attaining such security, solely by reason of the form of doing business they choose to adopt?”201 As presidential candidate Dwight Eisenhower observed in 1952, the self-employed “get old and sick just as other people do.”202 Although Treasury officials sometimes admitted the inequity of giving favorable treatment only to employees whose firm sponsored a pension plan, the department consistently opposed proposals to make tax-free retirement saving available to uncovered employees and the self-employed.203 The resistance is best understood in terms of a broader concern that the tax base was being eroded by “preferences” like the one for pension plans.204 Experts worried that the income tax was caught in a perverse dynamic in which Congress narrowed the tax base by granting “generous deductions, exclusions and credits, special additional exemptions, and preferential rates” and then raised rates to maintain government revenues.205 As a Treasury representative put it in 1959, “Every time we [m]ake an exception and erode the tax base, we lose revenue, and have to make it up with rates, which is always difficult.”206 These higher rates, warned tax economist Joseph Pechman, could “impair work and investment incentives and, in the long run, . . . impede economic growth.”207 Of course, higher rates also gave taxpayers more reason to look for ways to avoid taxes.208 Treasury and policy experts in its orbit saw the movement for selfemployed pensions through this lens. A tax economist called the campaign for self-employed pensions “the best available illustration of how one special privilege in the tax law breeds another.”209 Treasury agreed. The treatment of the self-employed might seem unjust, but Congress should not address it in a piecemeal fashion. “[T]he attempt to remove the inequity,” Treasury argued, would create “new inequities and new discrepancies.” These, in turn, would “create pressure for still further modifications in the tax law to eliminate the new inequities created by this legislation.”210 Congress should consider the situation of the self-employed as part of a broader program of tax reform that would rationalize the tax laws, including the taxation of retirement savings.211 Besides these programmatic arguments, there was also a practical concern—cost. Proposals to allow self-employed and uncovered employees to deduct retirement savings would substantially reduce federal revenues.212 Although advocates for the self-employed pushed legislation through the House of Representatives in the Eighty-fifth

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and Eighty-sixth Congresses, they were still waiting for relief when John F. Kennedy was inaugurated in 1961.213

intermediation ii: the problem of agency risk As pension coverage grew, so too did the financial reserves to meet pension obligations. The rapid buildup of assets focused attention on the intermediaries that managed pension reserves. Some observers worried that pension funds were concentrating power in the hands of banks and investment managers. Although concerns of this sort surfaced sporadically in the 1950s, little came of them. Another aspect of intermediation—the relationship between employees and the officials who managed benefit plans—proved to be more troubling. Malfeasance in multiemployer health and welfare plans highlighted agency risk: the risk that plan officials would steal or mismanage assets. Worries about agency risk led Congress to pass the first federal law exclusively focused on employee benefit plans. The Welfare and Pension Plans Disclosure Act of 1958 required plan administrators to publish information that would help employees, unions, and the press police the operation of employee benefit plans. Lawmakers chose the disclosure approach because they hoped to protect employees without unduly constraining the scope of private bargaining. By the mid 1950s, the labor movement’s turn to pensions and the tax bias in favor of deferred compensation were having a profound effect on financial markets. “One of the newest and fastest-growing sources of new capital in the U.S. economy,” Time reported in 1954, “is the vast program of private pension funds.”214 In 1950 the book value of pension reserves held by insurance companies and pension trusts was $12.1 billion. Ten years later, it had grown to $52 billion.215 Insurance companies, banks, and pension consultants fought pitched battles for the job of managing these funds. Over the course of the decade, more and more firms opted to finance their plans through a bank-administered trust rather than annuity contracts.216 The rapid growth of pension reserves and the shift toward trusts meant that the increase in trust assets was especially striking. The book value of assets of noninsured private pension plans rose from about $6.5 billion to 1950 to $33.1 billion in 1960, while assets of insured plans increased from $5.6 billion to $18.8 billion.217 Banks had two big advantages in their contest with the insurance industry. One was the tax code. The investment income of a pension trust was exempt from taxation, while insurance companies had to pay tax on a portion

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of the income derived from investments that financed annuity contracts.218 Pension trusts also enjoyed greater flexibility in selecting investments. Although state law often restricted the types of investments a trustee could choose, in many states—most importantly, New York—the laws regulating trust investments were not compulsory. The creator of a trust could opt out of the state restrictions and grant a trustee broader investment authority by including appropriate language in the document that established the trust.219 In the early 1950s, pension trusts began investing heavily in stocks because equity investments promised superior long-term performance and a hedge against inflation.220 In contrast, state law strictly limited the amount of assets an insurance company could invest in stocks.221 Pension trusts quickly became a major force in the stock market. In 1956 a Senate subcommittee reported that private pension funds were “the largest single source of equity capital” in the U.S. economy.222 Since insurance companies could hold only a small amount of corporate stock, pension trusts had to be the major source of investments in equities. Anticipating the thesis he would expound two decades later, Peter Drucker noted the ironic results of this trend.223 By opening capital markets to “small people,” pension trusts and other institutional investors were producing “an unprecedented ‘democratization’ of business ownership” at the same time that they created “an unprecedented concentration of legal ownership” in the financial intermediaries that managed these investments.224 The prospect that these accumulations would grow rapidly for several decades raised fears among some observers that pension trusts or banks that managed pension investments might wield great economic power.225 The economic clout of intermediaries turned out to be less worrisome, however, than the risk of mismanagement or defalcation by the administrators of pension plans. In sporadic but widely publicized transactions, trust assets were used for questionable purposes. In 1955 Senator Paul Douglas (D, Ill.) described a case in which one company’s pension plan held a large block of shares in a second company that the first company wished to merge with still a third company. In another well-known case, the Michigan Conference of Teamsters Welfare Fund purchased shares of Montgomery Ward in an effort to induce the firm to sign a contract with the Teamsters.226 There was also concern when pension plans invested in or otherwise transacted with a plan sponsor.227 A Senate subcommittee found a number of instances in which pension plans made substantial investments in “securities, obligations, leasebacks, or other property of the employer.” In cases like these, plan officials seemed to be pursuing the interests of an employer or union rather than the interests of employees.228

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In fact, concerns about self-dealing had led the Bureau of Internal Revenue to require pension plans to report investments in employer assets since the early 1940s.229 The tax code required a pension trust to be operated “for the exclusive benefit of . . . employees and their beneficiaries.”230 The reporting requirement simplified the task of determining whether an investment in employer assets was for the benefit of plan participants. In 1954, Congress supplemented the exclusive-benefit requirement by adopting prohibited-transaction rules. These rules forbade a pension trust from transacting with a “related party,” such as the plan sponsor, on less favorable terms than the trust could obtain in an arm’s-length transaction. For example, a trust could lose its tax exemption if it loaned “any part of its income or corpus” to the plan sponsor “without the receipt of adequate security and a reasonable rate of interest.”231 Although self-dealing by pension plans was troubling, the main reason for public concern was a string of state and federal investigations that uncovered lurid examples of malfeasance in multiemployer health and welfare plans. The rapid growth of these plans in the late 1940s and early 1950s created a fertile environment for mismanagement and corruption.232 In the vivid words of a writer in the Harvard Business Review, “The huge sums involved . . . brought a swarm of hungry leucocytes to the scene of countless health and welfare programs . . . .”233 Beginning with the New York State Insurance Department in 1953, government investigators reported a distressing number of cases in which multiemployer welfare plans were rifled of funds by union officers, often in league with insurance agents or brokers.234 Likewise, a Senate subcommittee found “[m]any abuses and problems” among the multiemployer plans it examined.235 Revelations like these prompted calls for more extensive government oversight of pension and welfare plans. In January 1954, President Eisenhower recommended a study “with a view to enacting such legislation as will protect and conserve these funds for the millions of men and women who are the beneficiaries.”236 Later in the year, the Senate authorized a subcommittee of the Labor and Public Welfare Committee to undertake such a study.237 In January 1956, Eisenhower submitted legislation to require benefit plans to report to the Department of Labor.238 Three months later, the Senate subcommittee reported and urged the passage of a “registration, reporting, and disclosure act” for “all types of employee welfare and pension benefit plans.”239 In May 1956 Senators Paul Douglas, Irving Ives (R, N.Y.), and James Murray (D, Mont.), introduced legislation embodying these recommendations.240 In the meantime, regulatory initiatives moved forward at the state level. Beginning with Washington in 1955, six states en-

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acted laws to regulate welfare and pension plans by August 1958, when Congress passed a federal disclosure law.241 Lawmakers had several options for addressing agency risk. One was to establish standards of conduct that told plan managers what they should or should not do. The prohibited-transaction rules in the tax code illustrate this approach. The bills introduced by Eisenhower and by Douglas, Ives, and Murray rejected regulatory standards in favor of a different strategy: disclosure.242 Advocates of disclosure legislation believed federal law should protect employees. But employee benefit plans were too diverse and there was insufficient information for government to establish standards of conduct. Moreover, many legislators felt the federal government had no business telling employers and employees what bargains to make.243 Thus, the various disclosure bills forswore regulatory standards in favor of measures that would expose benefit plans to public view. “Sunlight,” Paul Douglas claimed, “is a great disinfectant.” He predicted that the reporting of information would allow “self-policing” by employees and unions as well as oversight by “the Argus-eyed press and voluntary organizations.”244 The Douglas-Ives-Murray bill would require employee benefit plans to register with or submit annual reports to the Securities and Exchange Commission (SEC).245 Plan officials would make the reports available for inspection at the plan’s principal offices and provide summaries to employees. The SEC would make the reports available at its public document room in Washington.246 The reports would be of little use if they were not accurate, so the bill made knowing misstatements or failures to disclose material facts punishable by a fine, imprisonment, or both.247 The measure also made theft from a plan a federal crime.248 The SEC would have authority to monitor and enforce compliance. If agency officials believed a violation might be occurring, they could subpoena witnesses, require a plan or employer to furnish documents, and obtain an injunction to compel compliance.249 Finally, the bill would establish an Advisory Council on Employee Welfare and Pension Benefit Plans comprised of labor, business, and public representatives, the secretaries of Labor and Health, Education, and Welfare, and the Commissioner of Internal Revenue. This group would advise the SEC on administering the disclosure law and other issues relating to employee benefit plans.250 As the Senate considered the Douglas-Ives-Murray bill and similar measures, two points of contention arose among groups that would be affected by the legislation. Both conflicts manifested lines of division that were deeply embedded in the political landscape of industrial-relations policy. First, there was sharp disagreement over the scope of government over-

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sight.251 Business groups contended that the disclosure law should not apply to single-employer (that is, employer-managed) plans because almost all known cases of mismanagement involved multiemployer plans in which unions played the predominant role in administration. Why regulate single-employer plans, business representatives asked, when they were not the problem?252 Organized labor supported disclosure legislation, but union leaders flatly rejected the idea that employer-managed plans should escape the disclosure requirements.253 AFL-CIO lobbyist Andrew Biemiller told House majority leader John McCormack (D, Mass.) that across-the-board coverage was “the most important issue involved in this legislation.”254 The second point of contention concerned which federal agency ought to administer the disclosure scheme. The Douglas-Ives-Murray bill chose the SEC; the administration bill chose the Department of Labor. Arguments existed for each agency. The SEC had the most experience with disclosure laws, while the Labor Department had regulatory jurisdiction over many aspects of the employment relationship.255 In reality, the dispute had less to do with expertise than with constituency relationships between interest groups and administrative agencies. As Paul Douglas explained: [W]e always face the difficulty that if reporting is placed in the Department of Labor the employers generally charge that since the Department of Labor is intended to promote the interests of labor that the administration will be biased in favor of labor. . . . If the administration is put in the Department of Commerce, the representatives of the employees will charge that the Department of Commerce is primarily designed to further the interests of employers; if it is given to Health, Education, and Welfare, it will be objected to that the social workers will run them.256

Not surprisingly, business representatives generally favored administration by the SEC or the Internal Revenue Service.257 Unions favored the Labor Department.258 Conflict over the scope of the disclosure requirements and agency jurisdiction might have slowed legislative action had it not been for the McClellan Committee. Beginning in February 1957, the Senate Select Committee on Improper Activities in the Labor or Management Field, of which John McClellan (D, Ark.) was chair, conducted 270 days of testimony over a period of about two and a half years.259 The hearings exposed instances of labor and management wrongdoing, but it was the iniquities of union officials and, in particular, Teamsters president David Beck and vice-president James Hoffa that aroused the greatest indignation.260 Labor historian Philip

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Taft later summed up the significance of the committee’s investigation: “From the point of view of its effect upon the views of the public and legislation by Congress, the investigation may be regarded as the most important labor event, aside from the merger of the AFL and the CIO, in the 1950s.”261 In March 1958, the McClellan Committee issued an interim report that urged Congress to act “expeditiously” on legislation “which will require the registration, reporting, and disclosure of administration of pension, health, and welfare funds.”262 The report created great pressure to pass legislation aimed at labor racketeering.263 Less than a month later, the Senate Labor Committee favorably reported S. 2888, a measure that struck a balance between the Douglas-Ives-Murray bill and the administration bill.264 The new bill followed Eisenhower’s proposal and placed administrative oversight in the Department of Labor.265 Both the Douglas-Ives-Murray bill and Eisenhower’s bill covered single-employer and multiemployer plans alike. S. 2888 did the same.266 The new measure did make an important change in the disclosure provisions of the Douglas-Ives-Murray bill. S. 2888 dropped the requirement that plans send employees summaries of information filed with the Labor Department. Under the new bill, plans needed only disclose to an employee if the employee requested information.267 Although the across-the-board coverage in S. 2888 provoked objections from business groups, the Senate passed the measure 88–0.268 In the House, the bill went to the Committee on Education and Labor. This committee was a sharply divided panel chaired by an autocratic Southern conservative, Graham Barden (D, N.C.).269 Barden was no fan of disclosure legislation, and he was no fan of Eisenhower’s Labor Department. When Education and Labor held hearings on pension and welfare legislation in 1957, Barden upbraided Labor secretary James Mitchell for the department’s administration of a variety of labor laws and its treatment of the committee.270 Barden might have been content to let the Senate bill die, but the response to the McClellan Committee’s interim report persuaded him that Congress must pass labor legislation in 1958.271 In the face of political necessity, Barden chose a minimalist strategy. As he told a correspondent, the committee “attempted to draw [a bill] that would involve a minimum amount of inconvenience and trouble for everyone concerned.”272 Paul Douglas later complained that the House “eviscerated” the Senate bill.273 The House bill retained the disclosure approach but denied the Labor Department the investigative and enforcement authority it would need to implement the law. Like the Senate legislation, the House bill required plan ad-

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ministrators to file a plan description and annual reports. The Labor Department would make the filings available to the public. The House bill also called for filings and other documents to be made available to participants upon request.274 But Barden’s bill did not give the Labor Department authority to investigate violations. One commentator described the agency as little more than a “custodian of the filed reports without the power to study or investigate their contents or to initiate legal action against suspected violators.”275 The House bill even took away the Labor Department’s authority to prescribe the form in which filings would be made.276 And it eliminated punishments for false statements, omissions in the reports, and embezzlement of plan assets.277 The bill did punish willful noncompliance, but Congresswoman Edith Green (D, Ore.) complained that the penalties were “so light as to be an open invitation to unscrupulous plan administrators.”278 Last, and probably least, the House bill eliminated the Advisory Council. The House substituted its bill for the provisions of the Senate measure and passed the amended bill on August 6, 1958.279 When the conference committee met to work out differences in the House and Senate bills, the House conferees, led by Barden, “told the Senate, in effect, that it could take the House version or leave it.”280 The Senate conferees, led by Senator John F. Kennedy (D, Mass.), chose to take it, so the House bill became the basis of the conference report.281 The conference committee reported on August 15, and both chambers approved the bill shortly thereafter.282 By virtually all accounts, the Welfare and Pension Plans Disclosure Act of 1958 was hopelessly flawed.283 The president’s signing statement was a catalogue of the bill’s shortcomings: “The Congress has failed to respond effectively to the pleas for action in this field, and I am sure that the public is as disappointed with it as I am.” Eisenhower approved the bill, he said, “because it establishes a precedent of Federal responsibility in this area. It does little else.”284 But Eisenhower’s frustration should not obscure the broader consensus about the federal government’s role in the private pension system. Officials in Congress and the executive branch agreed that federal policy should accommodate pension and welfare-benefit plans. They also agreed that government ought to help employees get the benefit of the bargain they made with their employer. But while federal law might guard against abuses such as tax avoidance, fraud, or misuse of plan assets, it would not and should not be a source of substantive rights to employee benefits. Substantive rights should derive from the terms of a pension plan, and federal policy should

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let employers, unions, and employees set those terms. In 1960, the tax and labor laws did just that. After passage of the Disclosure Act, as before, federal law weighed relatively lightly on private prerogative, and employees derived their pension rights from contractual provisions established in private bargaining.285

2

“The Most Glorious Story of Failure in the Business” The Studebaker-Packard Corporation and the Origins of ERISA

By many accounts, the road to ERISA began in December 1963, when the Studebaker Corporation shut down its auto production plant in South Bend, Indiana.1 When Studebaker closed the facility, the pension plan for hourly workers did not have enough funds to meet its obligations. Retirees and retirement-eligible employees received their full pension, but the plan defaulted on its obligations to younger workers. Some received a cash payment worth a fraction of the pension they expected, while others got nothing at all. The shutdown was a catalyst of the nascent campaign for pension reform. The plight of employees at Studebaker provided a vivid symbol of the hazards reformers hoped to redress. They invoked “the infamous Studebaker case” repeatedly in the decade before Congress passed ERISA.2 This chapter explains how Studebaker came to play its role in the political history of ERISA. The narrative focuses on two questions: Why was the Studebaker pension plan underfunded? And why did the shutdown become a “focusing event” for pension reform?3 Neither question is as simple as it seems. Some observers have claimed that the Studebaker pension plan failed because company officials misused plan funds. Congressman John Dent (D, Penn.) suggested in 1970 that the plan had invested in Studebaker stock, and a recent history of Studebaker avers “that the company had redirected its pension funds toward new acquisitions.”4 In fact, nothing of the sort occurred. The underfunded status of the Studebaker plan was a foreseeable consequence of the basic principles of pension funding. For reasons explained below, Studebaker and the United Auto Workers union agreed to plan terms that exposed younger workers to the risk that the plan would default. This default risk materialized when Studebaker closed the plant in South Bend. Likewise, Studebaker’s role as a catalyst for reform is not as simple as it 51

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appears to be. While it is not uncommon for calamitous events to trigger legislation, not every calamity becomes a catalyst for legislative reform. A calamity is more likely to draw attention to a social problem when people interested in the problem are prepared to take advantage of the opportunity the calamity presents.5 This is what happened in the Studebaker case. The UAW recognized default risk as a problem years before the shutdown in South Bend. In 1958, the Studebaker-Packard Corporation terminated a pension plan the UAW had negotiated for employees of the Packard Motor Car Company. The Packard plan was underfunded and defaulted on its obligations. The UAW responded by devising a legislative remedy to protect workers from default—a proposal for “pension reinsurance” that is a precursor to the termination insurance program created by Title IV of ERISA. The Studebaker shutdown gave union leaders an opportunity to push default risk and “pension reinsurance” onto the policy-making agenda. The success of this exercise in agenda-setting indelibly linked the Studebaker shutdown to the cause of pension reform. In the words of a Senate staffer, Studebaker became “the most glorious story of failure in the business.”6

negotiating retirement security and insecurity When a union negotiates a pension plan, it has to balance benefit levels, cost, and risk. To pay pensions, a firm must divert money that might be paid as wages. The size of the financial commitment depends on a variety of factors, including the level of pension benefits and the requirements an employee must meet to receive a pension. The UAW and other CIO unions bargained for relatively generous pensions because liberal benefits protected older workers and facilitated retirements that increased job security for younger employees. To hold down costs, these unions agreed to strict qualifications for benefit entitlement. When Studebaker, Packard, and other independent automakers that operated in the shadow of General Motors, Ford, and Chrysler ran into financial problems in the mid 1950s, it became apparent that this balancing of benefits, costs, and risks left younger employees at risk of forfeiting their pension. The Studebaker Corporation and the Packard Motor Car Company created pension plans for their production employees during the CIO “pension stampede” recounted in chapter 1.7 Officials at UAW Local 5 in South Bend began discussing pensions soon after the announcement in September 1949 that Ford would create a retirement plan.8 The precedent set by Ford made it clear that Studebaker too would adopt a plan. The principal issue for col-

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lective bargaining was whether Studebaker would follow the Ford pattern or the pattern set when GM and Chrysler settled with the union. Bargaining in South Bend dragged on for several months as management and Local 5 waited out negotiations at GM and a long strike at Chrysler, but they settled in June 1950.9 Packard took more persuading. Workers at Packard’s Detroit facility struck for eleven days, but in August 1950 Packard agreed to establish a retirement plan.10 Both firms adopted a defined-benefit pension plan patterned after GM’s.11 The Studebaker plan gave employees pension credit of $1.50 per month for each year of service up to a maximum of thirty years.12 Normal retirement age was sixty-five, but the plan’s early retirement provision allowed an employee with ten years of service to retire at age sixty. Retirement at sixtyfive was voluntary, but employees were forced to retire at age sixty-eight.13 As in the majority of plans, Studebaker did not accept direct contractual liability for paying retirement benefits; the plan promised to pay pensions to retirees. Studebaker promised to make regular contributions to a pension trust. Studebaker’s liability was limited to making the contributions called for by its collective bargaining agreement.14 When the UAW won pension plans from Studebaker, Packard, and other independent automakers, these firms appeared to be healthy.15 The end of World War II had unleashed a huge consumer demand for automobiles, and most independents responded effectively to the peacetime economy.16 Several even developed new postwar models before the Big Three. As a result, the independents captured a substantially larger share of passenger car sales than they had held before the war. “The group manufacturing such familiar makes as Studebaker, Packard, Nash, Hudson, and Willys,” a journalist observed, “accounted for about 10 per cent of the passenger-car market before the war, and after Kaiser-Fraser Corp. got into production in 1946 the independents’ share of the market was built to a high of 18.5 percent.”17 Hudson, Nash, Packard, and Studebaker gradually lost market share after 1946, but “unit production and sales expanded each year to a postwar peak in 1950; and throughout the period, the share of new car registrations held by their makes exceeded the share which they held in 1941.”18 Although it did not become clear for several years, the independents’ place in the auto industry was very precarious. During the Korean War, economic controls allowed the independents to maintain relatively stable shares of production and sales, and several profited handsomely from defense contracts. But 1953 was a turning point that brought cutbacks in defense production, the end of production controls, and recession. “Car output expanded rapidly to 3.3 million units in the second and third quarters

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of 1953, compared to 2.1 million units in the same period in 1952.” Then the postwar sellers’ market came to an end.19 When Ford and General Motors responded by maintaining high levels of production and cutting prices, their smaller competitors could not follow. The independents’ share of domestic auto production fell from over 14 percent in 1952 to 7.1 percent in the final quarter of 1953.20 Sales volume fell as well, and profits shrunk or disappeared. Nash, Hudson, and Packard showed losses over the last two quarters of 1953, and Studebaker showed a much-reduced profit of $600,000.21 The dramatic reversal in the automobile market gave new force to merger initiatives that had circulated among the independents since the late 1940s.22 Kaiser-Frazer purchased the assets of Willys-Overland in May 1953, “four months before the collapse of the market.”23 In the second half of 1953, Packard talked merger with Studebaker, Nash, and Hudson, while Nash and Hudson officials talked with each other.24 Nash and Hudson announced a deal in January 1954. In April they merged to create the American Motors Corporation.25 The “shotgun wedding” of Packard and Studebaker followed in October 1954.26 In the wake of these mergers, managers consolidated operations to reduce costs. As they did so, weaknesses in UAW retirement plans became visible. Sales and shutdowns of auto production facilities demonstrated that there was a critical difference between accruing credit in a pension plan and qualifying for a pension. Corporate restructuring revealed that the lack of vesting in UAW retirement plans exposed workers to substantial levels of forfeiture risk. The pension plans the UAW negotiated in 1949 and 1950 gave employees pension credit based on a flat-dollar amount and period of service—for example, $1.50 per month for up to thirty years of service with an employer. But accruing credit did not entitle a worker to receive a pension. The Studebaker plan specifically stated that “no employee” would receive a legally enforceable—or vested—right “except such rights, if any, as may accrue to him upon retirement as provided in the Plan.”27 In other words, an employee did not receive a legally enforceable right to a pension until he qualified to retire. If he quit or lost his job before he became eligible to retire, he forfeited his pension credit.28 The lack of vesting in these plans was not an oversight. Union bargainers appreciated the importance of vesting, but they also understood that it was a significant factor in the cost of a pension plan. A more liberal vesting provision means that more employees will qualify for benefits. If the amount of funds available for pensions is limited, more liberal vesting and lower levels of forfeitures require lower levels of benefits for employees

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who do qualify.29 Conversely, a plan with limited resources can pay higher pensions if fewer employees qualify. Seen in this light, the strict vesting requirements, like other features of UAW pension plans, reflected a conscious choice about budgeting the limited resources available to finance a retirement plan. UAW pension specialist Leonard Lesser explained the trade-off in 1952. When an employer and union establish a retirement plan, Lesser observed, they have to choose “whether to allocate the bulk of limited funds to assure maximum retirement security to older workers at the cost of generally foregoing [sic], for the present, such desirable features as vesting of benefits, transfer of rights and other provisions directed to the special needs of younger workers . . . .”30 Seniority systems and the demographics of postwar labor markets led unions to bargain for plans that paid relatively liberal benefits to employees at or near retirement age. As AFL-CIO benefits specialist Lane Kirkland put it, “[T]he immediate pension needs of those workers who were already approaching or had passed retirement age . . . had to be given priority” over “liberal vesting” provisions that would protect younger employees.31 More generous pensions would produce more retirements and thus more job security for younger workers. But liberal retirement benefits also came at the expense of greater risk of forfeiture for younger employees. The Kaiser-Frazer Corporation provided a compelling illustration of forfeiture risk when it sold its main production facility in November 1953. Kaiser had been founded after World War II, so few of its employees had long periods of service.32 The Kaiser plan, like the Studebaker plan, gave employees no rights “excepting the right of the employee to retirement benefits or retirement disability benefits as provided [in the plan].”33 Under this provision, employees forfeited their benefit accruals when Kaiser closed the plant. Although the plan also said that employees with five years of service could receive benefits if the plan terminated, Kaiser continued to operate the plan for employees at several smaller facilities. The large number of forfeitures and small number of remaining employees caused the plan to be overfunded—that is, to have more assets than were necessary to meet its pension obligations.34 Disgruntled former employees sued unsuccessfully to force plan trustees to terminate the pension trust and distribute the assets.35 Less than a year after the Kaiser shutdown, American Motors announced that it would move its Hudson assembly lines from Detroit to Milwaukee and Kenosha, Wisconsin, where the firm assembled its Nash models.36 When these lines shut down in October 1954, AMC allowed some employees to transfer to the Nash plants.37 But about three thousand Hudson work-

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ers who did not transfer were dropped from the company seniority lists. The Hudson plan also did not include a vesting provision, and in most UAW plans, including Hudson’s, workers forfeited their pension credit when they were dropped from seniority lists.38 Thus, many union members who had long periods of service at Hudson were threatened with forfeiture of their pension credit. The UAW avoided this by negotiating an agreement that provided pensions for Hudson workers.39 The Kaiser and Hudson shutdowns led the UAW to push for vesting in its next round of collective bargaining. In 1955 the union negotiated plan terms that vested an employee in 100 percent of his pension accruals when he accumulated ten years of service after age twenty-nine.40 The vesting provision provided an additional increment of security for employees who participated in a UAW retirement plan. As the union’s newsletter put it, the vesting provision established the “history-making principle” that “inactive, laid-off and displaced workers” would not forfeit their pension credit.41 Events at Studebaker-Packard soon proved that vested benefits were less secure than they seemed.

pension finance in a declining firm More liberal vesting provisions allow more employees to earn a legal right to a pension. But payment of retirement benefits depends on more than the existence of a legal claim. There also must be money to pay the claim. Ideally, an employer should fund pension obligations in advance of payment by setting aside assets as employees earn pension credit. In fact, employers and unions usually negotiated a retirement plan under circumstances that made it infeasible for a firm to immediately fund all of a plan’s obligations. Virtually all defined-benefit pension plans came into being with benefit obligations that far outstripped the assets reserved to pay those obligations. Moreover, in collectively bargained plans, employers and unions created additional unfunded liability each time they increased retirement benefits. Funding these liabilities required a large long-term financial commitment. If a firm ran into hard times, as Studebaker-Packard did, the expense of an underfunded pension plan became an onerous and potentially fatal burden. When Studebaker and Packard merged in 1954, they were in poor financial condition. “The new firm was threatened by bankruptcy even before it was born,” reports Packard historian James Ward. “The companies were losing money at an unbelievable rate in the third quarter of 1954. Studebaker’s loss was $13,825,000 and Packard . . . failed to meet its ex-

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penses by $11,755,000.”42 Managers believed operations at the Packard plant in Detroit were comparatively sound. They saw problems at Studebaker, which had labor costs well above the industry average, as the main obstacle to the firm’s survival.43 Management spent much of 1955 battling for concessions in South Bend. When workers there narrowly ratified a new collective bargaining agreement in January 1956, managers won changes in seniority rules and other work standards that substantially reduced labor costs.44 Just as the company secured these gains at Studebaker, however, Packard simply collapsed. Packard had moved into a new assembly facility in 1954 and experienced severe delays getting production underway. Once production started, there were quality-control problems. By the time the facility got “up to speed, demand for Packards slackened.”45 It never returned. In the first two months of 1956, Packard sales fell 67 percent from the 1955 level.46 Massive losses led the firm to cease production in June.47 StudebakerPackard teetered on the edge of bankruptcy for much of 1956. It narrowly averted liquidation by selling its defense business and leasing several manufacturing facilities to Curtiss-Wright Corporation for about $37 million.48 Henceforth, Studebaker-Packard’s U.S. production would be in South Bend. The South Bend plant was not healthy, but with $37 million and a new labor contract, managers believed they could turn the firm around. It would be an uphill path, though, and the firm soon encountered a financial problem that struck many declining firms that had an underfunded pension plan. An employer has a variety of options for financing the obligations of a defined-benefit pension plan. According to the ideal of full funding presented in chapter 1, an employer should set aside at least enough each year to finance the benefits employees accrue in that year.49 Newly created defined-benefit plans seldom, if ever, fit this ideal. Most employers did not get around to establishing a retirement plan until the firm had elderly employees whom managers or union leaders wished to retire. As a UAW actuary put it, “The primary purpose of a retirement plan is not only to provide pensions, but to provide them now.”50 The appeal of a defined-benefit plan was that it could immediately provide relatively generous benefits to employees who were at or near retirement age. A defined-benefit plan did this by giving employees credit toward a pension for “past service,” that is, for service performed before the employer adopted the plan.51 Giving pension credit for past service facilitated retirement of older workers, but it also created default risk. If a firm funds pension obligations as employees earn pension credit, there is little risk that the retirement plan will cease operation without enough assets to meet its obligations. Firms

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that created a defined-benefit plan usually could not do this because workers received credit for years of service before there was a plan to fund. As a result, most defined-benefit plans came into being with a large unfunded liability, sometimes called “past-service liability.” One expert likened pastservice liability to “the price [the plan sponsor] must pay for neglecting to initiate a pension plan when the first employee, who will ever come up for retirement, was hired.”52 The past-service liability of a new defined-benefit plan was often very large. After U.S. Steel negotiated a retirement plan with the Steelworkers union in 1949, management decided to make pensions available to the firm’s other employees as well. In testimony to Congress in 1950, consulting actuary George Buck estimated U.S. Steel’s “total past service cost for present employees” to be $560 million.53 Ford’s initial liability under the plan it negotiated with the UAW was put at $200 million.54 Studebaker’s past-service liability was smaller—about $18 million—but Studebaker was a much smaller firm than U.S. Steel or Ford.55 Packard also assumed a past-service liability when it created its pension plan. And since Packard had an older workforce than Studebaker, it probably had a relatively larger past-service liability.56 An employer had to finance past-service liability as well as liability based on future service from revenue generated after creation of the plan. How these costs were allocated over time depended on the actuarial cost method a firm adopted. Different actuarial cost methods produced different patterns of contributions and thus gave plan sponsors discretion over the incidence of pension costs. In the steel industry, which had a relatively older workforce and high past-service liabilities, many firms adopted what came to be known as “interest-only” funding.57 Under this approach, the employer contributed the plan’s “normal cost” (i.e., the expense attributed to retirement benefits earned in the current year) plus interest on the plan’s past-service liability.This funding schedule, which was the minimum an employer could contribute and receive favorable tax treatment, lightened the initial expense of a pension plan, but a plan financed in this manner would never have enough assets to meet its liabilities.58 The demographics in the auto industry were less constraining than in the steel industry, and the UAW placed greater emphasis on “sound” funding than the Steelworkers union did.59 A UAW negotiator told Studebaker representatives at a bargaining session in January 1950, “[W]e believe that it’s pretty clear in the minds of everybody now that the question of building a sound pension plan is just as important as getting a pension plan.”60 In fact, the “main issue” in the UAW’s strike at Chrysler in 1950 was whether

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Chrysler would establish a trust and fund its pension obligations in advance.61 “Sound” funding did not mean “full” funding, however. Even if it were feasible for an employer to pay the entire past-service liability when it created a retirement plan, the tax laws discouraged this course of action. An employer’s annual deduction for pension contributions was limited to the cost attributed to current accruals plus 10 percent of the past-service liability. In other words, if a firm created a plan with past-service liability of $1 million, it could deduct the cost of current accruals plus $100,000 in each year until the past-service liability was paid off. If an employer contributed more than this, the excess was “carried forward and deducted in future years.”62 The unpaid balance of a plan’s past-service liability accrued interest, so the shortest period over which an employer could pay off past-service liability and deduct its entire contribution each year was about twelve years.63 UAW plans called for an employer to pay off past-service liability over a considerably longer period—commonly thirty years.64 Like the vesting requirements in UAW plans, the funding schedule reflected a decision to budget limited resources in a manner that provided relatively liberal retirement benefits. Lengthening the period for paying off past-service liability allowed a plan to devote less of the employer’s contribution to pastservice liability and more to current retirement benefits.65 UAW officials later compared the practice to a home mortgage: “[I]n the same way that many persons would not be able to own their own homes except through the creation of mortgage type debt, most private pension plans could not provide an adequate level of benefits if the mechanism of gradually funding the cost of prior service credits were not used.”66 But higher retirement benefits came at the expense of greater risk. Until the employer paid off the mortgage, employees faced default risk. The funding schedule in UAW collective bargaining agreements projected that a pension plan would eventually attain full funding. In practice, this almost never occurred because the schedule did not take into account that the union would negotiate higher benefits in future rounds of collective bargaining. As noted above, UAW pension plans calculated an employee’s pension by multiplying his years of service by a flat-dollar amount. For a retirement plan with a flat-dollar benefit formula, the IRS calculated an employer’s maximum deductible contribution based on the current benefit formula. This discouraged employers from contributing enough funds to meet higher benefit levels that were likely to apply in the future.67 Yet the UAW negotiated benefit increases in each successive round of col-

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lective bargaining. The formula in the Studebaker plan, for example, went from $1.50 per month per year of service in 1950 to $1.75 in 1953 and then to $2.25 in 1955.68 One effect of these benefit improvements was to counteract inflation, but the increases went well beyond the rate of inflation. The union sought higher real benefit levels because more generous pensions induced more workers to retire voluntarily before reaching the age for mandatory retirement. This meant less reliance on mandatory retirement, which was unpopular with older workers, and more employment security for younger employees.69 But benefit improvements also reduced the level of funding in UAW retirement plans. When the union bargained for higher pensions, it commonly demanded an increase in the flat-dollar formula that applied to past service. This created an additional unfunded liability that had to be financed out of revenues generated after the improvement occurred.70 The tax laws allowed an employer to fund past-service liability created by a plan amendment over the same term—about twelve years—that applied to the initial liability when a plan was created. UAW contracts commonly called for a firm to amortize the liability on a thirty-year schedule from the date of the benefit increase.71 The decision to amortize past-service liability meant that an employer’s contribution to a UAW retirement plan had two parts. One part reflected the expense attributable to the current year; the other reflected the cost of retiring the plan’s past-service liability.72 For example, the pension agreement Studebaker and the UAW negotiated in 1950 called for Studebaker to contribute each year the cost attributable to the current year plus an additional amount that would amortize the plan’s past-service liability in level annual installments “over a period of not more than 30 years from the effective date of the plan.”73 Payments to amortize past-service liability were tolerable for a stable or growing firm, but they became increasingly burdensome as a firm declined and its operations contracted.74 The shutdown of the Packard plant reduced the scale of Studebaker-Packard’s operations, but it did not significantly affect the contributions the firm made to amortize past-service liability. In 1956, Studebaker-Packard contributed $1,773,397 on behalf of Packard employees. Of this amount, $1,157,268 was “past service cost” and $616,129 was for current accruals.75 For 1957, the first full year that Packard was out of production, the contribution on behalf of Packard workers was $1,012,610. Only $36,866 represented liability for current accruals. The remaining $975,744 funded the Packard past-service liability.76 With Packard

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out of production, this cost would be born by the South Bend plant. Of course, South Bend also continued to bear the expense of the past-service liability attributable to Studebaker employees.77 The immediate result of the shutdown at Packard, then, was a substantial increase in the firm’s hourly pension cost. “[T]he cost for 1956,” an executive informed Local 5, “has been established at 23.4 cents per hour.” “You will be interested to know,” he continued, “that an estimate of the cost for 1957 is 28.9 cents per hour,” an increase of over 23 percent.78 When CIO unions had bargained for retirement and insurance plans in 1949 and 1950, the combined cost was estimated to be ten cents an hour.79 In 1957 the cost of amortizing the Packard past-service liability alone threatened to exceed ten cents per hour.80 And this was a long-term obligation. In the words of one executive, it “would be a continuing obligation . . . amounting to approximately $1,000,000 per year over the next twenty-seven years, even though no employees covered by the Detroit labor contract are still employed by the company.”81

the termination and default of the packard pension plan Studebaker-Packard’s dire financial condition convinced managers that the firm could no longer bear the cost of Packard retirement benefits. Company executives decided to shed the liability by terminating the pension plan as it applied to Packard employees. Federal labor law and collective bargaining agreements made this a complicated course of action, but company officials perceived a conflict of interest at the UAW that worked to their advantage. With Packard out of production, Studebaker workers paid for Packard retirement benefits. Company executives devised a strategy that trapped the UAW International Union between the conflicting interests of the local unions at Studebaker and Packard. With assistance from Local 5 at Studebaker, the company terminated the plan for Packard employees in September 1958. Studebaker-Packard lost less money in 1957 than in 1956, but its competitive position continued to deteriorate.82 In 1957 the firm built 82,000 cars and trucks. This was a decline from production in South Bend in 1956, not to mention the combined production of the Studebaker and Packard divisions.83 In August 1957, executives began investigating ways to “minimize” the liability for Packard retirement benefits.84 Initially they considered freezing benefits at the current level. In other words, Packard

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employees would not gain when the firm granted benefit improvements to employees at Studebaker. But while this approach would not increase costs, the firm would remain obligated to pay off the Packard past-service liability.85 Managers abandoned this option when the firm had another brush with bankruptcy. Recession marked 1958, and Studebaker-Packard’s production fell again. In the fall, the firm was to make the first payments on $55 million of longterm debt, but it could not pay.86 Under an agreement announced in August, Studebaker-Packard avoided liquidation by refinancing its debt.87 This turn of events pushed executives toward a more drastic approach to pension liability. Late in 1957 or early in 1958, they decided to terminate the pension plan as it applied to Packard employees.88 This course of action would completely eliminate the obligation for Packard retirement benefits. It went without saying, however, that the UAW would fight an effort to walk away from union members at Packard. Recognizing this, company officials planned their actions with care. The termination strategy required management to navigate several legal obstacles. Studebaker-Packard had separate collective bargaining agreements with Local 190 at Packard and Local 5 at Studebaker. Local 190’s contracts ran through June 30, 1958, Local 5’s through August 31. The firm had to maintain the retirement plan for the duration of these agreements, so managers could not take action until September 1.89 The company also had duties under federal labor law. As noted above, the National Labor Relations Board had held that pension and retirement issues were “mandatory” subjects of collective bargaining.90 This meant that if employees were unionized, their employer could not unilaterally modify a retirement plan. The employer had to bargain changes in good faith with the union.91 In other words, company executives had to wait until both collective bargaining agreements expired, then they had to partially terminate the pension plan, all without falling foul of the duty to bargain in good faith. This promised to be difficult. In the normal course of industrial relations, management would begin negotiating a new collective bargaining agreement months before the old one expired. But 1958 was not a normal year. Laidoff workers at Packard were anxious about the firm’s plans for them and eager to negotiate issues relating to the pension plan.92 In April 1958, Cliff MacMillan, Studebaker-Packard’s Director of Industrial Relations, outlined a strategy for meeting the legal and practical obstacles to a partial termination. MacMillan intended to give notice to the UAW that Studebaker-Packard would not renew its collective bargaining agreements with Local 190. The firm no longer had active employees at

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Packard, MacMillan reasoned, so there was “obviously no reason to continue the working agreements” there.93 He recognized, however, that “[t]he union will wish to negotiate with the Company for the continuance of [pension and other benefit] programs.” The company’s in-house lawyers had concluded that Studebaker-Packard had no duty to bargain with Local 190 because there were no longer any active employees at Packard. Management’s position would be that the firm “will only discuss the problems of ex–Packard Division employees in our negotiations in South Bend.”94 It is not hard to understand MacMillan’s wish to negotiate Packard issues in South Bend rather than Detroit. The Packard shutdown created a zerosum relationship between the company’s former employees at Packard and its current employees at Studebaker. Money spent to finance Packard retirement benefits came out of revenues generated by production in South Bend. If this money were kept in the firm, jobs in South Bend would be more secure. Or the dollars spent on Packard benefits might be paid as wages or benefits to employees at Studebaker. This conflict of interest played an indispensable role in the firm’s plans. Although company officials believed they had no statutory duty to negotiate with Local 190, they worried that an ambiguous provision in the pension plan might force them to do so. Before Studebaker and Packard merged in 1954, each had used a pension trust to finance its retirement plan. After the two firms merged, the UAW demanded that the company also merge the Studebaker and Packard retirement plans. Management agreed and combined the two pension plans in 1955.95 The agreement with the UAW was ambiguous, however, about whether the two pension trusts must be merged. In fact, company officials maintained separate trusts with different banks serving as trustee. The firm’s actuaries continued to calculate separate pension liability for the Studebaker and Packard divisions. And the Packard trust paid pensions only to Packard retirees, while the Studebaker trust paid pensions only to Studebaker retirees.96 Managers were uncertain about how the contractual provisions that governed termination of the pension plan would apply to the two pension trusts. Like most retirement plans, the Studebaker-Packard plan included a procedure for distributing assets if the plan terminated. The termination clause ranked employees in terms of the relative priority of their claims against the assets of the plan. Assets would be allocated first to pay benefits to retirees; next, to active employees age sixty-five or older (employees eligible to retire under the normal retirement provision of the plan); then, to employees age sixty or older who had not retired (employees eligible under the early retirement provision of the plan); and so on.97

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An executive described the problem in a memo to the firm’s outside attorneys at Cravath, Swaine & Moore. If Studebaker-Packard terminated the pension plan with respect to Packard employees, he wondered, would the plan have to use money from the separate Studebaker trust to pay pensions owed to former Packard employees? This was an important question because the Packard trust did not have nearly enough assets to pay the benefits promised to Packard employees. At the end of 1957, the liability for Packard retirement benefits was about $27 million, while the Packard trust had only $9.6 million in assets.98 If the termination clause allowed Packard employees to “invade the Studebaker Trust Fund,” then a partial termination of the plan would divert millions of dollars reserved for Studebaker pensions. Management would have to negotiate with Local 190 to prevent this. “[I]s there any way,” the executive inquired, “to prevent Packard employees from being able to secure pensions from money paid by the Corporation into the segregated Studebaker Trust Fund?”99 By early June, company officials and attorneys at Cravath devised a way to protect the assets in the Studebaker trust. The safest course was to undo the merger of the Studebaker and Packard retirement plans. On September 2, one day after Local 5’s collective bargaining agreements expired, the firm would create separate retirement plans for Studebaker and Packard employees, each with its own pension trust. With separate plans and trusts, Packard employees could look only to the Packard trust to pay their pensions. The firm would “then terminate the Plan as to [Packard] employees on September 3,” a Cravath attorney explained.100 This strategy hinged on the conflict of interest between Packard and Studebaker workers. The firm had a statutory duty to bargain pension issues, so managers would need to inform Local 5 of their plans. As the Cravath attorney observed, “The announcement of your intentions to Local 5 prior to the expiration of your contract with that organization would fortify your defense as to any charges that the Corporation refused to bargain in good faith by subsequent unilateral action” affecting the plan.101 Plainly, company officials were relying on Local 5 to collaborate, at least implicitly, in the partial termination. The attorney noted, “There appears to be some possibility that Local 5 would be amenable to the proposal.”102 As managers and lawyers worked to resolve these legal issues, the firm moved forward with the termination strategy. At the end of April, Cliff MacMillan gave notice that Studebaker-Packard would not renew its collective bargaining agreement with Local 190.103 In June the UAW asked to negotiate issues relating to the Packard shutdown.104 MacMillan replied that management would not “negotiate” these issues with Local 190 or with the

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International Union, but management was willing to meet “for the purpose of discussing them.”105 There followed a series of meetings in which, according to company records, union representatives claimed the firm was obliged to negotiate and company officials replied that it was not, and union representatives asked what management planned to do about Packard’s retirement plan and managers said they had made no decisions.106 But the union knew something was up. “There is no doubt in my mind that the International Union is as well targeted in on questions of what can and cannot be done under the pensions . . . as we are,” MacMillan reported.107 But with no plant and no employees in Detroit, the union had no leverage. Local 190’s collective bargaining agreements lapsed at the end of June. On July 1, Studebaker-Packard and Local 5 began negotiating a new collective bargaining agreement for the Studebaker plant in South Bend.108 Bargaining proceeded desultorily through July and into August because Local 5 was waiting for negotiations with the Big Three auto manufacturers to establish the industry pattern.109 Management did not disclose the company’s proposal for separate pension plans until August 20. Company minutes report that Cliff MacMillan told representatives of Local 5, “The two funds are to be kept separate to avoid the possibility of Packard employees drawing from the Studebaker fund.”110 The next day, at a meeting in Detroit attended by representatives of the UAW International Union, Local 190, and Local 5, MacMillan described the proposal in more detail. The company would create “two separate plans,” he said, “one of which would be immediately terminated.” Studebaker-Packard was, “in effect, . . . reverting to the set-up as it originally existed several years ago.” And MacMillan clearly spelled out that he was making a “proposal to Local 5.”111 MacMillan’s announcement laid bare the conflict between Local 190 and Local 5 and put the International Union in a difficult position. The Packard trust had $9.6 million in assets. The pension liability to Packard workers who had already retired was $13.7 million. The company’s proposal threatened to reduce their benefits by 30 percent and leave nothing for other participants, including over four hundred employees age sixty or older with vested pension rights.112 Calling the company’s plan “completely unacceptable,” the International Union presented a counterproposal several days later. The International Union agreed with the proposal to create separate plans for Studebaker and Packard employees but insisted that the firm transfer enough assets to pay full pensions to Packard retirees and to former employees who had applied for a pension.113 The International Union’s proposal would require Studebaker-Packard to shift about $3.5 million (of $14 million) from the Studebaker pension trust

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to the Packard trust.114 This pushed Local 5 openly into alliance with management. The coalition was cemented on August 27, when company officials presented the International’s proposal to the Local 5 bargaining committee. Company minutes state that Local 5 representatives were “deeply concerned about the disbursement of the money funded for Studebaker employees under the Studebaker Pension Plan.”115 At the same meeting, the company and Local 5 finalized a contract extension under which Local 5’s collective bargaining agreement would lapse for several days to permit the company to terminate the Packard pension plan.116 On August 28, Local 5 approved the extension agreement without a dissenting vote.117 To split the pension plan and terminate the Packard plan, management needed the approval of Studebaker-Packard’s board of directors. On August 26, the board passed a resolution, effective September 2, that created two plans. Plan A would cover Studebaker workers; Plan B would cover former Packard employees. The board then passed a second resolution that would terminate Plan B on September 3.118 The timing of the board’s action counted on the conflict of interest between Local 190 and Local 5. By acting before Local 5’s collective bargaining agreement expired, the board arguably violated the statutory duty to bargain in good faith. When a Cravath attorney pointed out the problem, a company official dismissed it.119 “It is our feeling,” the official wrote, “that there is no reasonable likelihood that Local 5 would seize upon such contingency to seriously pursue such argument.”120 By September 4, when representatives of management and Local 5 executed the contract extension, the company had terminated the Packard pension plan. The International Union continued to argue that the termination was invalid, while, according to an internal company memorandum, Local 5 “urged the Company to resist ‘dilution’ of the pension funds available for Studebaker employees in the manner requested by the International Union.”121 Managers and the International Union debated the legality of the termination for several months. In November the International Union filed suit in federal court seeking to annul the company’s actions.122 Although management and Local 5 continued to bargain a new contract, the litigation stifled negotiation on the Studebaker pension plan. The Packard experience, however, led representatives of Local 5 to focus on the level of funding rather than the level of benefits. According to company minutes, they “wanted proof-positive that that money is there, and will be there regardless of the outcome of the Detroit problem.”123 In November Willard Solenberger, a pension specialist from the UAW International Union, told managers “that the Union is not so much concerned about the

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level of benefits, but they are concerned about the security of the present benefits for the present retirees and prospective retirees.”124 The company and Local 5 eventually agreed to maintain the terms of the plan unchanged until September 1, 1959.125 Packard retirees continued to receive their full pensions until January 1959, when Studebaker-Packard and the International Union agreed that benefits should be reduced pending the outcome of the litigation.126 Actuarial adjustments and investment performance improved the financial position of the Packard pension trust, but the assets still were not sufficient to pay the full pensions owed to retirees. In October 1959, Studebaker-Packard and the UAW reached a settlement that reduced benefits for retirees to 85 percent of the level prior to the termination. Employees who were eligible to retire when the plan terminated but did not submit pension applications until after September 2, 1958 received a lump-sum payment of about $43 per year of service. Others got nothing.127

“public reinsurance for private pension plans” Some press reports put a positive spin on the UAW’s settlement of the lawsuit. “Packard Pensions Assured,” read a headline in the Detroit News.128 But for union leaders, the termination powerfully manifested the default risk that union members faced. Like the earlier shutdowns at Kaiser-Frazer and Hudson, the Packard experience stirred the UAW to take steps to make employees’ expectations more secure. Union officials developed new demands for bargaining with individual employers, but they also concluded that default risk called for a collective solution that would require legislation. In the early 1960s, they came up with the idea of an insurance fund akin to the Federal Deposit Insurance Corporation. By guaranteeing the obligations of retirement plans, the fund would shift default risk away from employees in weak firms. The proposal posed a number of practical problems, however, because pension obligations differ materially from the risks covered by private insurers. Shortly after the UAW settled its litigation against Studebaker-Packard, union president Walter Reuther asked Nat Weinberg, who directed the Special Projects Department, to begin thinking about ways to protect employees “with respect to their pensions . . . if they have the Hudson-Packard experience where the plant goes out of existence.”129 In fact, shutdowns at smaller firms had led the UAW Social Security Department to take a hard look at default risk even before the Packard termination. In June 1958, UAW

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actuary Max Bloch described the union’s experience: “One of the first slogans used in our pension drives was that UAW negotiated plans are ‘fully funded.’ Without trying to define this nebulous concept, we soon woke up to the sad fact that ‘fully funded pension plans’ are among the rarest animals, and we have been waiting ever since to see one.” “When a pension plan is terminated,” wrote Bloch, “its funds are never better than inadequate, and in too many cases hopelessly inadequate.”130 Bloch devoted much of his discussion to an intractable and revealing problem—how to make vested rights meaningful when a pension plan terminated. His proposed solution is less important than the problem itself, for the problem illustrates another trade-off entailed by the UAW’s commitment to protecting older workers and retirees. “Vested rights,” Bloch said, . . . . were hailed as a great achievement when they were won.” But the “sad experience” of employees with vested rights was that “in the event of plan termination, the so-called vested right clauses are not worth the paper they are written on.” “To this date,” he observed, “they have not been translated into cash for the workers, and that is why they have not been talked about lately. . . . They must be made to stick, even in the event of a plan termination.”131 One reason “vested rights” did not “stick” was the procedure for allocating assets when a plan terminated. Most UAW plans included a termination clause like the one in the Studebaker-Packard plan.132 The clause sorted employees into classes and ranked the classes in terms of the priority of their claim to plan assets. Retirees came first, then active employees who qualified for normal retirement, and so on. All benefit obligations to a class with higher priority had to be paid before any assets were allocated to the next class in line. There was an incongruity between this allocation scheme and the contribution formula in UAW plans. The contribution formula required an employer to pay the cost of current accruals plus an amount that would amortize past-service liability. This made it appear that the firm was fully funding benefits earned in the current year and gradually paying off past-service credits.133 In fact, something very different was going on. The contribution formula determined how much an employer paid in to a pension plan. The termination clause determined who got something when a plan shut down. And as UAW actuary Howard Young later observed, the termination clause had the effect of “allocating all contributions to older employees first.”134 As the Packard termination illustrates, in the recently established plans of the 1950s the liability for pensions owed to the highest ranked class of plan participants—retirees—could consume all of the assets. In such a case,

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the termination clause made vesting meaningless. Active employees whose labor was the source of an employer’s pension contributions were likely to receive little or nothing if their plan terminated. This result, Bloch argued, did not jibe with employees’ sense of fairness. “All workers covered by a pension plan feel that they are contributing towards its costs by giving up wage increases,” he wrote. “When a fund is liquidated, they feel that all should participate.”135 The most direct means for tackling this problem was collective bargaining. The UAW had negotiated vesting provisions after the Kaiser-Frazer and Hudson shutdowns drew attention to the problem of forfeiture risk. After the Packard termination, union officials took similar steps to address “areas of weakness” in UAW retirement plans. In a November 1958 memorandum, a union official warned union negotiators about the dangers of demanding benefit increases in poorly funded plans. “In some situations,” he said, “it may be necessary to subordinate pension improvements to the safety of the benefits.” The memorandum also included proposed contractual provisions that would prevent an employer from amending a pension plan after a collective bargaining agreement had expired and limit an employer’s discretion when a pension plan was split as a result of a “plant closing,” “partial transfer of ownership,” or a “termination.”136 These contractual provisions would provide some additional security to union members, but they would not eliminate default risk. In the context of collective bargaining with an individual employer, the only way the UAW could eliminate default risk was to negotiate for full funding. To achieve higher levels of funding, the union would have to forgo benefit improvements, demand larger contributions from employers, or both.137 These options had significant costs. If unions postponed benefit increases, retirement plans would be less effective means of personnel administration. Inflation would erode the purchasing power of pension benefits, and employees would wait longer to retire. If unions demanded larger contributions, weak firms like Studebaker might not be able to pay. If an employer could afford more rapid funding, higher contributions would come at the expense of lower wages for active employees. In sum, if unions relied on collective bargaining alone, they could not eliminate the risk of default in the future without providing substantially less to retirees or active employees in the present. Dissatisfied with these choices, the UAW formulated a proposal that would alter the institutional framework of collective bargaining to accommodate the union’s funding practices.138 In March 1961, Nat Weinberg informed Walter Reuther that union pension experts were considering “the

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idea of establishing something like the Federal Deposit Insurance Corporation to backstop private pension plans.”139 The appeal of a government guaranty was that it would reconfigure the “incentive structure” in which employers and unions bargained for retirement plans.140 Insurance against default risk would make it unnecessary to eliminate underfunding. But insuring pension obligations was not a simple matter. As Weinberg told Reuther, there were “a number of technical problems that would have to be resolved to implement this idea.”141 The “technical problems” resulted from the fact that default risk differs markedly from the risks private insurers usually underwrite.142 Ideally, an insurance program involves entities that face relatively homogeneous levels of random or fortuitous risk that results in clearly definable losses. The entities transfer their individual risks to an insurer that combines the individual risks into a large pool. Pooling of risks allows the insurer to accurately predict losses for the group as a whole. The ease or difficulty of insuring a risk depends on how closely the risk corresponds to these ideal conditions. The more a risk diverges from the ideal, the harder it is to insure. At some point, the risk ceases to be insurable.143 That is, an insurer cannot create a stable pool of voluntary premium-paying policyholders. Risks that deviate from the ideal are harder to insure because they expose the insurer to “moral hazard” and “adverse selection.” As Carol Heimer observes, insurers face moral hazard because “it is not possible to transfer risk from a policyholder to an insurer without altering the incentives of the policyholder.”144 In other words, moral hazard refers to the possibility that the existence of insurance coverage will cause changes in conduct that increase the losses the insurer must pay. Adverse selection refers to the fact that insurance buyers are likely “to be a nonrandom selection from the population—more particularly, to be those who expect to have the highest expected claims.”145 If an insurer cannot or does not charge premiums that accurately reflect the risks posed by the entities in the insurance pool, then adverse selection may destabilize the pool because high-risk entities will stay in while low-risk entities will opt out. Default risk deviates from the ideal conditions of insurability in a number of respects that make it difficult to design a viable pension guaranty program. Union officials wrestled with these complexities as they fleshed out the proposal. One problem was delineating the losses the program would cover. As noted above, an insurance program is more stable if the insurer can clearly define the event that triggers liability.146 At first glance, it seemed obvious what event should trigger the pension guaranty. When a firm went out of business, the program would protect employees if the pension plan

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was not fully funded. But as the Packard case illustrates, a firm did not have to go out of business to terminate a pension plan. UAW pension specialist Willard Solenberger alluded to a variety of possibilities in his notes—for example, cases where a firm partially terminated a plan as a result of a plant closing, or where there had been a “Reduction in force making Plan costs ‘prohibitive.’ ”147 Yet broad insurance coverage might create its own problems. Union actuary Howard Young noted the possibility of what later became known as the “follow-on” plan.148 “[I]f a plan with a large past service liability could be abandoned with a major portion of the liability thrown on the Reinsurance Fund,” he observed, “the employer could then adopt a new plan covering only future service at much lower cost.”149 Concerns of this sort led Young to “question the feasibility of trying to cover every type of termination.”150 Even if legislators could clearly define the events the program would cover, it would be very difficult to estimate the risk presented by particular plans. For an individual plan, the expected loss depended on two factors: the liability or exposure if the sponsor terminated the plan and the likelihood that the sponsor would terminate the plan. The insurance program would pay the difference between the cost of some or all of the benefits the plan promised and the value of the plan assets available to pay those benefits. Computing the first factor would be difficult because plans used different benefit formulas and different actuarial cost methods.151 It would be even harder to estimate the risk that a firm would terminate its plan. “How assess variable risk presented by individual companies?” Solenberger wondered in his notes.152 Yet these calculations would provide the basis for computing premiums under the program. Solenberger suggested that it might require a “guess with crystal ball” to determine the charge for the first year.153 Even if administrators could accurately assess expected losses, the insurance program could not charge premiums that reflected the risks posed by particular retirement plans. Many plans would present little or no risk of loss. For example, a plan that was fully funded was not likely to default.154 Likewise, an underfunded plan sponsored by a large, stable firm—GM, for example—entailed little risk because the firm was unlikely to terminate the plan.155 In contrast, an underfunded plan sponsored by a struggling firm posed a much greater risk because there was a much greater likelihood that the plan would terminate. But a weak firm might not be able to pay a premium that accurately measured the expected liability. This meant that if the program was to protect all employees who participated in defined-benefit plans, there would have to be subsidies for weak employers. “Some of the

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insurance burden shifted to stronger companies,” Solenberger recorded in his notes.156 Yet if premiums did not accurately reflect expected losses, the insurance program would be exposed to adverse selection because low-risk firms would have an incentive to opt out. Finally, the loss covered by termination insurance was not random. An employer had substantial control over whether and when its pension plan terminated. In addition, an employer and often a union possessed control over benefit levels, actuarial assumptions, funding patterns, investments, and other factors that would determine the insurance program’s exposure. To the extent that an employer or union could affect the occurrence or amount of a default, the program faced moral hazard.157 One danger was that firms would cut back on funding because the insurance program would pay benefits if a plan defaulted. As Solenberger put it, “What safeguard against inadequate funding plus insurance as alternative to adequate funding? Both company and union might connive on this as being cheaper . . . .”158 Staffers debated whether to require plans to meet a funding standard to prevent this possibility.159 Solenberger also made note of other possible examples of moral hazard. “Employer with business failure looming on horizon, sets up plan and takes chance (perhaps under union pressure),” he speculated.160 Early in 1962, union officials circulated an outline of a program of “public reinsurance for private pension plans.” The draft sketched out a framework for a guaranty fund and attempted to address some of the problems the program would face.161 The proposal would insure pension benefits in case the sponsoring employer terminated a plan and the plan defaulted. Employers would be required to pay “premiums” that would have two components. Part of the charge would be based on the exposure that resulted from a plan’s level of funding. The higher the level of funding in a plan—that is, the larger the ratio of the plan’s assets to its liability—the lower this component of the premium would be. Thus, pay-as-you-go plans “would be subject to the highest premiums,” while fully-funded plans “would probably not be subject to any premium for insurance against this type of risk at all.”162 The second part of the premium would be based on the risk that a plan’s assets might depreciate in value. The charge for this risk “would be based on a computation involving the total assets insured and the estimated risk of depreciation.” Because this risk was “very slight,” the charge attributable to it was likely to be “minimal.”163 The proposal included a number of features addressed to adverse selection and moral hazard. The insurance program would face adverse selection because the premium formula would subsidize high-risk firms. UAW offi-

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cials devised an “exposure premium” that took account of a plan’s unfunded liability—the exposure if the plan terminated—but not the likelihood that the plan would terminate.164 Under this formula, a strong firm and a weak firm that sponsored plans with equal unfunded liability would pay the same premium even though the weak firm’s plan was much more likely to default. This would give strong firms an incentive to stay out of the insurance program. To ensure that they participated, the proposal made participation a requirement for favorable tax treatment.165 Other features of the proposal took aim at moral hazard. The draft recommended limiting the size of the pension the program would insure “to protect the reinsurance system against a run on its funds which would be precipitated by those one or two plans which provide relatively exorbitant pensions to their members.”166 The proposal also included a “suicide clause” that would require plans to “have been in operation a specified, reasonable number of years before the insurance will be applicable.”167 This provision aimed to prevent a firm and its employees from bilking the insurance program by adopting a plan or increasing benefits and then promptly terminating the plan. The designers of the termination insurance proposal continued their work through 1962 and 1963, but many difficult and politically sensitive issues remained to be resolved. Indeed, one of the most intractable questions was the problem that, in a sense, had set them to their task: How should the insurance program handle the case of a declining firm that could no longer afford to pay for its pension plan?168

“the most glorious story of failure in the business” While union officials worked on the termination insurance proposal, Studebaker continued its downward slide. In December 1963, Studebaker-Packard announced that it would close the plant in South Bend. When the plant shut down, the liability of the Studebaker pension plan exceeded the assets by $15 million. The shortfall made it obvious that the plan would default. The UAW could do little to change the lot of Studebaker employees, but the shutdown provided an opportunity to get policy-makers to seriously consider the insurance proposal. In the early 1960s, government officials and private-sector pension experts were discussing a variety of regulatory initiatives to make pension promises more secure. The shutdown was an ideal vehicle for injecting termination insurance into these policy debates. Working with Indiana senator Vance Hartke and his staff, union officials prepared

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legislation to create such a program. When Hartke introduced the bill in August 1964, Studebaker became a “poster child” for the cause of pension reform. More important from the UAW’s perspective, termination insurance moved squarely onto the policy agenda. Studebaker-Packard had avoided bankruptcy in 1958 by restructuring its debt, a move that passed “real control” of the firm into “the hands of New York bankers.”169 They began to diversify by purchasing profitable businesses so that the firm could derive tax benefits from the losses of the automotive division.170 The diversification strategy was briefly interrupted in 1959, when the firm underwent what appeared to be a remarkable reversal of fortune. In the fall of 1958, Studebaker introduced a new model—the Lark. One of only two domestic compact cars, it was a stunning success. “During the 1959 model year,” a journalist reported, “more than 138,000 Larks moved into dealer showrooms, against a mere 56,000 cars a year earlier.”171 The firm more than doubled its market share, and for the first time since the Packard merger, both the corporation and the automotive division made a profit.172 In 1958, management and Local 5 had postponed bargaining about the Studebaker pension plan because of the controversy surrounding the Packard termination. When they took up pension issues in 1959, the firm was in the midst of its revival. The seemingly rosy circumstances of 1959 made it difficult for management to deny Local 5 benefit increases the UAW had won at other firms.173 In September management and Local 5 agreed to increase benefit levels to the industry pattern. The new agreement gave retirees $2.35 per month per year of service (up from $2.25). Active employees would receive $2.40 per month for years before January 1, 1959 and $2.50 per month for service after January 1, 1959 (both up from $2.25).174 In return, the company got a new thirty-year funding period. The collective bargaining agreement negotiated in 1955 required the company to pay off past-service liability by 1985.175 The new agreement extended the funding schedule for all past-service liability to 1989.176 The new funding schedule reduced Studebaker-Packard’s pension contributions by about $82,000 a year, but it also meant less money and less security for employees if the plan terminated.177 Studebaker’s comeback came to an abrupt end in 1960. GM, Ford, and Chrysler introduced their own compacts in the fall of 1959 (when the 1960 model year began). “By the end of 1960, 11 domestically produced ‘compact’ cars competed for sales.”178 In such an environment, Studebaker’s poor dealer organization doomed it, and production again went into a slide. In

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1959 the company produced 154,000 cars at the South Bend plant. In 1960 production fell to 106,000 units and then to 79,000 in 1961.179 Although the diversification plan allowed Studebaker-Packard to report a small profit in 1960, the automotive division lost money.180 A “Collective Bargaining Report” prepared in 1961 observed that “profits are problematical for the Automobile Division” again.181 Not only was Studebaker weak; the pension fund was as well. As the UAW geared up for negotiations in 1961, UAW actuary Howard Young warned Willard Solenberger about the plan’s “inadequate depth of funding.” The book value of the assets held by the Studebaker pension trust was about $19.2 million. The plan’s liability to retirees was $13.1 million, and its liability to active employees who were eligible to retire was $8.9 million. “[I]f the plan had terminated as of 12/31/60,” Young observed, “we could have purchased only 87.3% of full benefits for those retired, assuming everyone eligible had retired.”182 Solenberger took this warning to heart. Local 5 initially demanded that pensions be increased to the industry-wide pattern of $2.80 per month per year of service.183 When Solenberger traveled to South Bend, he did not make such a proposal. According to company minutes, Solenberger “declared that looking at costs, [the union] had no intention of proposing that [the company] meet pattern at the benefit level.”184 Under the previous contract, benefits for active employees were $2.40 per month per year of service for years prior to September 1, 1959, and $2.50 thereafter. Solenberger asked only that Studebaker level off active workers’ benefits at $2.50 for all years. Studebaker agreed to this smaller benefit increase. Benefits for workers who had retired before September 1959 remained at $2.35 per month per year of service.185 Over the next two years, the automotive division continued to struggle and the board of directors continued to diversify. In 1962 and the first ten months of 1963, the board added five new acquisitions to the five companies Studebaker-Packard had acquired by the end of 1961.186 Diversification made the corporation much less dependent on automobile production. By 1962 the nonautomotive divisions accounted for 47 percent of StudebakerPackard’s total sales.187 The acquisitions allowed the firm to show a profit in 1962 despite losses in the automotive division, but diversification foreclosed modernization of the facility in South Bend. Although 1963 turned out to be “the best automotive model year in history,” the automotive division’s losses in the first half of the year “exceeded the profits made on all other operations by $7.5 million.”188 Writing in October 1963, a UAW analyst con-

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cluded, “The company’s inability to break even in the best automotive model year in history raises serious questions concerning its future as an automotive producer.”189 On December 9, Studebaker-Packard announced it would close the South Bend plant.190 Although Studebaker had been on the rocks for years—one wag called it “the best managed bankruptcy in the world”—the shutdown came as a shock to many employees.191 But as wrenching as the plant closing may have been, the fate of the pension plan was a foregone conclusion. It was clear that the plan would default. Two weeks after the company’s announcement, UAW Research Director Nat Weinberg told Walter Reuther, “I am advised that the average age of the South Bend Studebaker workers is 54 and that it is unlikely that the pension fund will have sufficient monies to pay pensions to workers under 60 years of age.”192 A month later a revised calculation revealed that retirees and retirement-eligible employees would receive 100 percent of their pension. But the pension trust was still “at least $15,000,000 short of being able to fulfill pension promises for the 4,392 present and former employees with vested rights.”193 Shortly after the first of the year, Local 5 called upon Studebaker-Packard to set aside enough additional money to pay the benefits owed to retirees and vested employees. “The pension plan,” union leaders claimed, “represents a private promise by the Studebaker Corporation which socially, morally and as a matter of equity they are obligated to keep.”194 When the company declined, there was little to be done.195 In January 1964, Walter Reuther asked the union’s attorney to see if it was possible to complicate Studebaker’s taxes “as a leverage to get favorable consideration of [an] additional company contribution to the pension and severance pay fund.”196 Later the UAW filed a grievance contending that the shutdown violated the collective bargaining agreement with Local 5.197 In light of the huge shortfall in the pension fund, these actions, even if successful, would not change the fate of Studebaker employees. In the spring and summer of 1964, Studebaker-Packard requested bids from life insurance companies to provide annuities to retirees.198 On October 15, 1964, after several months of negotiations, the company and Local 5 executed an agreement that terminated the plan along the lines set out in the 1961 collective bargaining agreement. The first three classes of participants—retirees, retirement-eligible employees over sixty-five, and retirement-eligible employees over sixty—received their full pension. Vested employees less than sixty years of age, a few of whom had forty years of service with the firm, received a lump-sum payment worth about 15 percent of the value of their pension. Employees

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whose benefit accruals had not vested—including all employees under age forty—got nothing.199 At this point, there was little the UAW could do to prevent the Studebaker pension plan from defaulting. But union officials saw immediately that the publicity surrounding the shutdown created an opportunity to promote termination insurance. In the late 1950s and early 1960s, public officials and private-sector experts had begun to give serious consideration to regulatory initiatives to protect participants in private pension plans. In 1958 Congress passed the Welfare and Pension Plans Disclosure Act.200 In the same year, the Pension Research Council at the University of Pennsylvania began a research project on the security of employees’ pension expectations.201 And in March 1962, John F. Kennedy established the President’s Committee on Corporate Pension Funds to study private pension plans in the United States and make legislative recommendations.202 UAW officials had tried several times to get the reinsurance proposal into the evolving debates over pension legislation. In 1962 Nat Weinberg and Leonard Lesser pitched the idea to agency staffers who were preparing the report of the President’s Committee on Corporate Pension Funds.203 When the committee submitted an interim report in November 1962, it did not recommend legislation to create a reinsurance program because of concerns about the feasibility of insuring private pensions. The committee did, however, urge further study of the idea.204 In January 1963 Kennedy asked another committee—the President’s Advisory Committee on LaborManagement Policy—to review the report of the Committee on Corporate Pensions.205 Walter Reuther was a member of the Advisory Committee, and Weinberg and Lesser spent much of 1963 acting as Reuther’s representatives in a group that reviewed the interim report. The Advisory Committee also stopped short of endorsing a pension guaranty fund and recommended further study.206 The Studebaker shutdown promised to make termination insurance much harder to ignore. In a memo written two weeks after StudebakerPackard announced the closing, Nat Weinberg told Walter Reuther, “The Studebaker situation dramatizes the urgent necessity for [pension reinsurance] legislation.”207 The union needed to move quickly to link the shutdown and the problem of default risk to the remedy—termination insurance—that union officials were already promoting. Reuther met with President Lyndon Johnson in January 1964 to discuss “matters relating to the shutdown of Studebaker operations in South Bend.” At Weinberg’s urging, Reuther raised the issue of termination insurance and passed along a description of the union’s proposal.208 But Johnson had political reasons for

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steering clear of termination insurance and other pension reform proposals.209 Failing to interest the president, the UAW turned to Congress. In the spring and summer of 1964, union officials worked with Indiana senator Vance Hartke to turn the proposal into legislation. Although UAW pension experts continued to struggle with the complexities of termination insurance, they recognized that the timing and presentation of the bill mattered more than its technical refinement. Willard Solenberger emphasized the need “to retain the already catchy tag of ‘reinsurance’” even though the proposal did not, technically, reinsure pension obligations.210 The objective was to get policy-makers and pension experts to pay attention. “[A] primary purpose of getting a bill introduced at this time,” said Solenberger, “is its public education aspect—a springboard for generating widespread discussion and serious consideration by actuaries, consultants and others with a professional stake in private pensions, as well as employers, unions and organizations.”211 On August 3, 1964, Hartke introduced S. 3071, the Federal Reinsurance of Private Pensions Act.212 Alluding to the work of the President’s Committee on Corporate Pension Funds and the President’s Advisory Committee on Labor-Management Policy, Hartke announced, “Proposals for other legislation in this field may well develop later, but the need [for termination insurance] has been evidenced by recent experience, such as was involved in the closing of the Studebaker plant in South Bend.”213 On the same day, assistant Treasury secretary Stanley Surrey asked a staffer to review S. 3071. Several days later, the staffer responded, “The Hartke proposal raises most of the questions and problems [of a termination insurance program] and solves few.”214 Notwithstanding the bill’s technical deficiencies, this exchange was the first evidence that the UAW’s exercise in agenda-setting was succeeding. Henceforth, default risk, the Studebaker shutdown, and the UAW’s insurance proposal were important topics in the debate over pension reform. Like the emergence of the subsidy theory, recognition of default risk as a social problem entailed a new way of thinking about pension plans. When Studebaker left South Bend, federal policy proscribed behavior that involved an illicit intent. The Internal Revenue Code targeted tax avoidance and self-dealing, and the labor laws sought to prevent plan officials from wasting or absconding with funds. Default risk was different. It was not a problem because someone acted with a wrongful motive. It was a problem because it threatened employees.215 Less than six months after Hartke introduced his insurance bill, Lyndon Johnson released the report of the Pres-

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ident’s Committee on Corporate Pension Funds. The report made this shift in premises explicit by proposing a worker-security theory of pensions. The Studebaker shutdown and the report of the President’s Committee put pension risks on the congressional agenda and launched the campaign for pension reform.

3

“The ‘Bible’ in This Field” The President’s Committee on Corporate Pension Funds and the Origins of ERISA

The reforms in ERISA embody a worker-security theory of pensions. This view received its most important early expression in the report of the President’s Committee on Corporate Pension Funds (Cabinet Committee). Titled Public Policy and Private Pension Programs, the report was both a blueprint and a catalyst for the campaign for pension reform.1 The Cabinet Committee argued that basic principles of fairness and the substantial federal tax “subsidy” for private pensions obliged pension plans to deliver the benefits they promised. The report urged Congress to establish federal minimum vesting and funding standards to ensure that pension promises were secure. The publication of Public Policy and Private Pension Programs in January 1965, less than four months after the termination of the Studebaker pension plan, helped push the worker-security theory, the committee’s recommendations, and the broader cause of pension reform onto the congressional agenda. In the words of the leading pension reformer in Congress, Senator Jacob Javits of New York, the Cabinet Committee’s report became “the ‘bible’ in this field.”2 Yet the drafting and reception of Public Policy and Private Pension Programs foreshadowed the long and contentious road to ERISA. President John F. Kennedy created the Cabinet Committee in March 1962. Eight months later, the group sent him a report that proposed a major expansion of the federal role in the private pension system. Worried that their recommendations would be controversial, committee members submitted the report on a provisional basis and urged Kennedy to have it reviewed by representatives from business and organized labor. In January 1963, Kennedy forwarded the document to his Advisory Committee on LaborManagement Policy (Advisory Committee), which included a number of business and union leaders. The response was harsh. In a reply submitted 80

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in December 1963, four weeks after Kennedy’s assassination, the Advisory Committee rejected the vesting standard. Most management and labor representatives also opposed the funding standard. Government, they claimed, had no business dictating the terms of the employment contract. Moreover, business and labor leaders warned that regulatory standards would increase pension costs and cause firms to reduce benefits or abandon their plan. In this way, federal regulation would harm rather than help employees. As it happened, neither the logic nor the intensity of the Advisory Committee’s objections swayed the Cabinet Committee. After President Lyndon Johnson sent the Advisory Committee’s comments to the Cabinet Committee, the Cabinet Committee had staffers make minor revisions to the report but kept the main proposals intact. In June 1964, Labor secretary Willard Wirtz, who chaired the Cabinet Committee, sent the revised report to the White House and urged Johnson to release it. When leaks to the press suggested the report might cause problems for Johnson’s presidential campaign, the White House decided to withhold the report until after the election. In December 1964, Wirtz again urged the president to release the report. Learning of this, Henry Ford II, Johnson’s friend and a key business ally, lobbied the president to kill the report. Although the president did finally release Public Policy and Private Pension Programs in January 1965, the White House disavowed the report and the Cabinet Committee’s recommendations.

pension policy on the new frontier There were two pension initiatives waiting for John F. Kennedy when he took office in 1961. Both were incremental measures that proposed to refine or extend existing government policies. The first was a bill introduced by the Eisenhower administration that aimed to put some teeth in the Welfare and Pension Plans Disclosure Act of 1958.3 Kennedy had political, personal, and policy reasons for backing this legislation, and his administration embraced it. The second initiative was the unflagging drive to allow self-employed individuals to participate in a tax-favored retirement plan. Although this proposal had strong grassroots support among business and professional groups, it conflicted with policies favored by Kennedy’s principal tax advisors. The administration opposed pensions for the self-employed as strongly as it supported revision of the Disclosure Act. Kennedy and secretary of Labor Arthur Goldberg wasted little time in

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introducing legislation based on the Eisenhower administration’s proposal to strengthen the Disclosure Act. Their quick action owed much to Kennedy’s role in the law’s passage. While in the Senate, Kennedy had chaired the Senate Subcommittee on Welfare and Pension Plan Legislation, and he was a sponsor of the bill the Senate passed.4 As recounted in chapter 1, the House struck major provisions of the Senate bill, and the House conferees “rolled” their Senate counterparts in the conference committee. Kennedy, who led the Senate conference delegation, appears to have been piqued by the treatment he received at the hands of the House. Moreover, during the presidential campaign, Senate Republicans criticized Kennedy for his handling of the conference committee and for his subcommittee’s failure to act on Eisenhower’s bill.5 These events made amendment of the Disclosure Act a high priority for the new administration. Kennedy sent a revised version of Eisenhower’s bill to Congress in May 1961.6 Like Eisenhower’s legislation, Kennedy’s bill proposed to amend the Disclosure Act by adding provisions the House had struck from the legislation the Senate had passed in 1958.7 The House had eliminated language that allowed the Labor Department to investigate and enjoin violations of the disclosure law. Kennedy’s 1961 bill provided this authority.8 The House had struck a provision that authorized the Labor Department to prescribe the form for filings under the act. The new bill gave the department this authority.9 And the House had eliminated provisions of the Senate bill that punished embezzlement from a benefit plan and false statements or omissions in filings. The 1961 bill included criminal sanctions for kickbacks or bribery of plan officials, theft from a plan, and false statements and omissions.10 Congress was poised to move on the legislation. In the House, Adam Clayton Powell (D, N.Y.), a liberal who was anxious to cooperate with the administration, had replaced Graham Barden (D, N.C.) as chair of the Education and Labor Committee.11 Powell’s committee held hearings in May and June of 1961.12 In the Senate, the Labor and Public Welfare Committee held a single hearing in July.13 Near the end of the summer, both committees reported legislation that “follow[ed] the same general outline and pattern” as the 1958 Senate bill.14 To Kennedy’s bill, both committees added a provision creating an Advisory Council on Employee Welfare and Pension Benefit Plans comprised of representatives of “interested groups,” such as management, organized labor, the insurance and banking industries, and the public.15 The House and Senate passed the reported bills in February 1962, and a conference committee quickly ironed out the differences. Both chambers approved the conference report on March 15.16 Signing the measure, Kennedy

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explained that the Disclosure Act Amendments gave the Labor Department the means to accomplish objectives Congress had endorsed in 1958. “In strengthening the law’s safeguards and providing the Department of Labor with investigative authority to assure compliance,” he said, “the new law will rectify the major weaknesses of the existing legislation.”17 Congress abjured “regulation,” however, stating that “nothing” in the revised law “authorize[d] the Secretary [of Labor] to regulate, or interfere in the management of, any welfare or pension benefit plan.”18 The other pension initiative facing the Kennedy administration was legislation to allow self-employed individuals to participate in a qualified retirement plan. Sponsored by Eugene Keogh (D, N.Y.), the bill was another in a succession of measures that stretched back to the late 1940s. In March 1959, the House had passed an earlier version of Keogh’s bill, which was numbered H.R. 10. That bill had proposed to allow a self-employed person to make a tax-deductible contribution to a qualified retirement plan on his own behalf up to the lesser of 10 percent of his earnings or $2,500.19 The Senate Finance Committee held hearings on the bill and favorably reported a revised version, but it did not come to a vote before the end of Eighty-sixth Congress.20 On the first day of the Eighty-seventh Congress, Keogh introduced a new version of the bill, which again became H.R. 10.21 Like its Republican predecessor, the Kennedy administration opposed H.R. 10. Three of Kennedy’s chief tax and economic advisors—assistant Treasury secretary Stanley Surrey, Council of Economic Advisors chair Walter Heller, and Commissioner of Internal Revenue Mortimer Caplin— were leading critics of tax “preferences.”22 They opposed H.R. 10 because they believed it was bad policy and because it conflicted with their commitment to fundamental tax reform. As members of a Taxation Task Force for Kennedy’s presidential transition, Surrey and Caplin had warned that preferential provisions were undermining the income tax.23 Preferences created inequities because they were not available to all taxpayers: individuals with the same income ended up with widely varying tax liabilities.24 And preferences produced inefficiency by “distort[ing] . . . the operation of market mechanisms.”25 The Task Force urged a thorough review of the revenue laws with an eye to eliminating preferences, reducing tax rates, and improving the fairness of the income tax. In April 1961, the president announced that Treasury would undertake such an initiative.26 Members of the Task Force knew Kennedy would have to take a position on H.R. 10 soon after he took office. They urged him to delay the bill until Treasury could prepare comprehensive tax reform legislation. Although the Task Force conceded that “the self-employed person . . . is treated in-

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equitably as compared with the corporate executive and shareholderemployee,” the group argued that H.R. 10 demonstrated the need for fundamental reform.27 Although Keogh’s bill would reduce the disparity between self-employed people and corporate executives, it would “leave the corporate executive still free to obtain much larger benefits.”28 The Task Force worried that passage of H.R. 10 would stimulate additional efforts to liberalize the taxation of retirement saving. That would lead to further contraction of the tax base, higher tax rates, and so on. In contrast, fundamental tax reform would lower tax rates for all upper-bracket taxpayers. With lower rates, the Task Force claimed, it would be “possible to consider the best method of achieving pension plan tax equality among the self-employed person, the shareholder-employee, and the corporate executive.”29 As in the preceding Congress, the House Ways and Means Committee acted quickly on H.R. 10. Dispensing with hearings, Ways and Means chair Wilbur Mills (D, Ark.) proceeded directly to executive sessions. Although Treasury officials criticized H.R. 10 and urged the committee to defer action, Ways and Means favorably reported the measure in May 1961.30 On June 5, the House suspended its rules and passed the bill “by voice vote with little opposition and with bipartisan support.”31 The Senate Finance Committee also acted quickly, holding hearings in July. Stanley Surrey reiterated Treasury’s objections and urged lawmakers to wait for the administration to submit “a comprehensive tax reform program” in 1962.32 The Finance Committee favorably reported a revised version of H.R. 10 in September, but the bill did not come up for consideration before the Senate concluded its first session. 33

the president’s committee on corporate pension funds Shortly after he signed the Disclosure Act Amendments, Kennedy launched an initiative that would have a much broader impact on federal pension policy. On March 28, 1962, he created a cabinet-level committee—the President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs—to review the nation’s public and private pension programs. This group proposed a variety of incremental reforms, but it also outlined a new and broader government role in the private pension system. The agency officials on the committee believed that the tax laws subsidized private pension plans and that the existence of the subsidy required the federal government to do more than guard against fraud and

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tax avoidance. It was not enough for government to ensure that pension plans were operated in good faith. Federal policy should ensure that employees actually received the pension their retirement plan promised. To this end, the committee proposed federal minimum vesting and funding standards that would directly reduce risks that threatened employees’ pension expectations. The Cabinet Committee was one of three interagency working groups Kennedy established to assess recommendations made by the Commission on Money and Credit.34 The commission was a blue-ribbon panel established by the Committee for Economic Development in 1958 to examine financial institutions in the United States.35 In the summer of 1961, the group issued a report with considerable fanfare.36 In June, commission chair and Connecticut General Life Insurance Company president Frazar Wilde presented Kennedy with the first copy of the report, Money and Credit: Their Influence on Jobs, Prices, and Growth.37 Kennedy asked Walter Heller, chair of the Council of Economic Advisors (CEA), “to determine what pieces [of the report] should be included in [the administration’s] 1962 economic program.”38 CEA member James Tobin coordinated staffers who worked with the Treasury Department to formulate positions on the commission’s recommendations.39 The commission devoted only about two of the 280 pages of Money and Credit to pension funds, and its recommendations focused on the problem of agency risk.40 Although most pension funds were well managed, the group worried about cases in which conflicts of interest, such as union pressure or a firm’s desire to hold down expenses, had led fund managers to make questionable investments.41 These examples showed that the regulatory strategy of the Disclosure Act, which relied on reporting of information and enforcement by employee lawsuits, was flawed. The commission urged Congress to give a federal agency the authority to establish and enforce standards of conduct for officials who invested plan assets. The group also recommended amendment of the Disclosure Act to require pension plans to disclose more financial information and provide disclosure directly to employees.42 Kennedy’s request for a review of the commission’s report gave officials at the CEA and the Treasury Department an opportunity to take up other pension issues of interest to them and their agencies.43 These officials expanded the inquiry well beyond the matters that concerned the Commission on Money and Credit. “The [commission’s] recommendations on corporate pension funds are all right as far as they go,” wrote James Tobin, but he thought it “desirable to add to these recommendations something on the

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importance of vested rights in private pension plans.”44 Treasury, which had undertaken a study of pension plans as part of its tax reform initiative, concurred.45 In December 1961, Heller advised the president to create an interagency committee to “study the important questions of tax treatment and vesting of rights (related to labor mobility)” in addition to the proposals in Money and Credit.46 Kennedy announced his intention to create the committee in his Economic Report to Congress in January 1962.47 The Cabinet Committee was chaired by the secretary of Labor and included the secretaries of Treasury and Health, Education, and Welfare (HEW), the director of the Bureau of the Budget, and the chairmen of the CEA, the Securities and Exchange Commission (SEC), and the Federal Reserve Board. At the urging of the Budget Bureau, Kennedy further broadened the group’s mandate.48 The agenda was to include a “review . . . of the implications of the growing retirement and welfare funds for the financial structure of the economy, as well as . . . the role and character of the private pension and other retirement systems in the economic security system of the nation, and consideration of how they may contribute more effectively to efficient manpower utilization and mobility.” The broad charge came with a short timetable, however. Kennedy wanted the committee to report by November 15, 1962, so the administration could consider the group’s recommendations for the administration’s legislative program for 1963.49 The Cabinet Committee convened on April 25 to establish procedural guidelines, and met again on June 5 to set an itinerary. The brunt of the work would be done by staffers, coordinated by a chief of staff from the Department of Labor.50 The staff representatives would pursue four principal research projects, each assigned to an agency with particular expertise in the issue under investigation. HEW, which was represented by the Social Security Administration (SSA), would examine the relationship between private pensions and Social Security. The SEC was tapped to analyze the investment practices of pension funds and to propose any additional regulation that was warranted. A representative of the Federal Reserve Board eventually joined the SEC staffer in this task. The committee designated Treasury to address tax issues and the Labor Department to look into the effect pension plans had on labor mobility and the employment opportunities of older workers.51 Over the next few months, staffers prepared memoranda on the issues assigned to them and met periodically to review background information on retirement plans. In September they began assessing the research reports and developing preliminary recommendations. This phase proved to be very time-consuming. A CEA staffer reported that the first research reports “were the subject of seemingly interminable discussions and, as a result, it

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was very difficult for the staff to reach any early conclusions.”52 Staffers considered vesting, funding, the relationship between Social Security and private pensions, and tax questions early in their deliberations and at considerable length. This left them little time to look into plan investments. Ironically, the issues that had worried the Commission on Money and Credit received the most hurried consideration. In late October and early November, the Cabinet Committee reviewed and generally endorsed the staff recommendations. These were hurriedly compiled and, on November 21, Willard Wirtz, who had succeeded Arthur Goldberg as Labor secretary, forwarded the committee’s report to the president.

Reforming the Tax Treatment of Private Pensions The Treasury Department was engaged in a long-term conflict with the private sector that bore (and continues to bear) a fair resemblance to trench warfare. Employers and high-compensation employees continually found new ways to use retirement plans to shelter income from taxation, while Treasury tried to ensure that qualified plans were used to provide a reasonable retirement income and no more. Treasury officials used the Cabinet Committee’s inquiry to propose incremental policy changes that would improve the agency’s capacity to pursue this mission. In particular, Treasury wanted retirement plans to do more for employees with moderate incomes and less for highly compensated employees. Congressional consideration of H.R. 10 gave these concerns particular urgency because pension legislation for the self-employed undermined Treasury’s policy assumptions and its goals for tax reform. Treasury officials had claimed since the 1940s that pension plans received a tax subsidy as a quid pro quo for providing retirement income to employees. Kennedy’s chief tax policy-maker Stanley Surrey fully shared this view.53 As a member of Kennedy’s Taxation Task Force, Surrey argued that preferential tax treatment should be granted “only if the end sought by the preference is clearly related to a desirable national goal whose importance outranks that of tax equity and only if the tax preference is the most effective means to accomplish that goal.”54 With this principle as its guide, in 1961 Treasury began investigating what the public was getting for its subsidy of private pensions. The agency quickly reached two conclusions: pension plans were not doing all they should for moderate-income employees, and they were providing highly compensated employees with benefits the public should not subsidize.55 Treasury officials seized upon the Cabinet Committee as a vehicle for promoting better tax policy.56 The principal tools for bringing retirement plans more into line with the

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subsidy theory were the rules plans had to meet to qualify for favorable tax treatment. If retirement plans were not doing things they should do or were doing things they should not, the most direct remedy was to change the qualification rules. Treasury representative Robert Wallace suggested just this at the Cabinet Committee’s first meeting. Minutes state that Wallace “expressed Treasury’s dissatisfaction with [the] present qualification regulations and asked for Committee review.”57 Over the next few months, Treasury proposed a variety of reforms that would require qualified plans to do more for middle- and lower-income employees and less for high earners. According to Treasury, the qualification rules gave businesses too much leeway to deny “the mass of employees” an adequate share of retirement benefits.58 The tax regulations were supposed to prevent plans from tilting coverage or benefits too much toward high earners. Treasury claimed they failed on both counts. The coverage rules allowed a plan to gain favorable tax treatment even though it excluded most of a firm’s workforce. The Internal Revenue Code explicitly stated that a plan would not be deemed to discriminate in favor of highly compensated employees “merely because it is limited to salaried or clerical personnel, or because it excludes temporary, part-time, or seasonal employees, or employees without a minimum service period.”59 This rule allowed a “typical manufacturing company” to exclude the production personnel (who “generally are not salaried”) and the sales force (if they “work on a commission basis”).60 The regulations also let a plan require up to five years of service for participation, so even salaried employees could be excluded for this period. The effect, said Treasury, was to allow “a plan to qualify [for favorable tax treatment] although it covers only a relatively small number of a firm’s employees.”61 Moreover, even when moderate earners participated in a plan, they often earned a small pension. The statutory provision forbidding discrimination allowed a firm to integrate its retirement plan and thus to treat the Social Security Old Age, Survivors, and Disability Insurance program (OASDI) as part of the plan. The tax regulations allowed a plan to exclude employees who earned less than the OASDI wage base—$4,800—or to pay a higher pension based on earnings above $4,800 as long as the firm’s cost for benefits based on earnings above $4,800 did not exceed the cost for benefits (including OASDI) based on earnings below $4,800.62 To apply this test, Treasury had to attribute a share of the cost of OASDI benefits to the employer. Although employers and employees paid equal rates of tax, the regulations gave the employer credit for paying for 78 percent of OASDI benefits. “The practical effect,” Treasury reported, “is that under some plans substantial private benefits are provided for the higher paid employees, while employ-

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ees with small incomes get little or no benefits over and above their social security benefits.”63 Finally, many employees would forfeit their small pension accruals because they would change jobs before they vested.64 Treasury addressed these concerns by offering proposals that would force pension plans to cover more “employees with small incomes,” give larger benefits to these employees, and vest employees more quickly. To expand coverage, Treasury recommended eliminating the statutory provision that permitted plans to limit participation to salaried employees.65 The agency also proposed that plans no longer be allowed to require five years of service before an employee could participate.66 To increase the benefits earned by employees with moderate incomes, Treasury recommended amending the integration regulations to give the employer credit for a smaller share of an employee’s OASDI benefits.67 And to ensure that more employees actually received a pension, Treasury proposed that qualified plans be required to vest employees after a specific period of service.68 The agency also proposed changes to reduce the tax benefits available to highly compensated employees. Treasury officials were particularly concerned that there was no fixed cap on the pension a qualified retirement plan could pay. The only constraints were that an executive’s pension not be “unreasonably” large and that the plan not discriminate in favor of high earners. A firm could deduct “contributions to fund a $100,000 benefit for one employee . . . so long as proportionate benefits are funded for the other covered employees,” Treasury explained.69 Should taxpayers subsidize so large a pension? Treasury thought not. “While employers should, of course, be free to provide substantial pensions to retired executives, it is questionable whether pensions exceeding a specified size should be financed in considerable measure by the special tax advantages accorded qualified plans.”70 Treasury proposed “[l]imits . . . on the amount of contributions or benefits that can be provided for any one particular employee under a qualified plan.”71 Another problem was lump-sum distributions. If an employee received retirement benefits in the form of an annuity, a large share of the payments were likely to fall into tax brackets on which little or no tax would be paid. In contrast, an employee who received his benefits in a single lump sum bunched all of his retirement income into a single year. If the employee were taxed on the entire amount in the year of the distribution, he would pay higher rates than an employee who received an annuity of the same value.72 Congress might have addressed the bunching problem by averaging the amount of a lump-sum distribution over several years. Instead, lawmakers provided for the entire amount to be taxed in the year of distribu-

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tion at the capital-gains rate of 25 percent.73 This treatment, however, allowed wealthy taxpayers who had substantial income in addition to their retirement benefit to avoid tax by taking a lump-sum distribution.74 Capitalgains treatment also undermined the goal of the tax subsidy by encouraging employees to receive a single payment rather than an annuity.75 Treasury marked this rule, as well as a provision that exempted retirement benefits from the gift and estate tax, for elimination.76 Developments in Congress complicated the staff’s consideration of this slate of proposals. Although the Senate Finance Committee had reported H.R. 10 in September 1961, majority leader Mike Mansfield (D, Mont.) delayed scheduling the bill, reportedly “to spare Mr. Kennedy the difficult decision of whether to veto a politically popular measure that his tax experts would rather see dead.”77 Worried that they might again miss their chance to pass self-employed pension legislation, supporters of H.R. 10 seized upon the Revenue Act of 1962 to force Mansfield’s hand. On August 23, Senate minority leader Everett Dirksen (R, Ill.) announced that he would offer H.R. 10 as an amendment to the Revenue Act.78 Concerned that Kennedy would veto the Revenue Act if it included H.R.10, Mansfield promised to allow separate consideration of H.R. 10 “immediately following passage of the tax bill” if senators would table Dirksen’s amendment.79 The Senate tabled the amendment, and Mansfield kept his promise. On September 7, the Senate passed H.R. 10 by a vote of 75–4.80 This turn of events disturbed Treasury officials because they viewed H.R. 10 as a “foot in the door” that would spur additional attempts to liberalize retirement saving for the self-employed.81 But the “foot in the door” principle cut two ways. In a position statement for the Cabinet Committee, Treasury claimed that H.R. 10 “invites reexamination of the more generous tax privileges accorded corporate and tax-exempt organizations’ plans.”82 Treasury and liberals and fiscal conservatives in Congress used H.R. 10 to devise strict rules for self-employed plans that might in turn be applied to corporate plans.83 For example, the House and Senate versions of H.R. 10 required self-employed plans to cover employees after three (rather than five) years of service.84 Both bills integrated self-employed plans with OASDI on terms that were more favorable to low earners than the corporate rules.85 Both bills required some or all employees to vest immediately in benefit accruals, and both capped the retirement benefit that could be set aside for owner-managers.86 Lump-sum distributions to a self-employed person were taxed according to an averaging formula rather than as capital gain.87 Finally, both bills provided that the benefits of self-employed individuals were not exempt from gift and estate taxes.88

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It became clear that the more stringent rules might apply to corporate plans when the Senate adopted Albert Gore’s (D, Tenn.) amendment to eliminate capital gains treatment for lump-sum distributions from any qualified retirement plan. The Senate also approved a Gore amendment that limited the contribution a firm could make on behalf of an individual employee to $5,000 per year.89 The conference committee later dropped both amendments after “business executives . . . flood[ed] Congress with protesting telegrams.”90 Even so, the stricter rules for self-employed plans showed how Congress might rein in the subsidy for retirement plans. In fact, when lawmakers finished with H.R. 10, some of its supporters felt they had won a Pyrrhic victory. According to one tax lawyer, “The benefits have been watered down and the restrictions imposed seem sufficiently burdensome so that in some cases it is not worthwhile to create a plan.”91 Agency staffers took up Treasury’s recommendations less than a week after House and Senate conferees filed their report on H.R. 10 and a week before the conference report on the Revenue Act of 1962 was filed.92 Work on these two bills prevented Treasury representatives from attending the first two meetings on tax issues, but the staff adopted tentative positions that generally endorsed Treasury’s proposals.93 The Cabinet Committee approved the staff recommendations on October 24, 1962, two weeks after Kennedy reluctantly signed H.R. 10.94 The subsidy theory of private pensions and Treasury’s recommendations for reform ended up in the Cabinet Committee’s provisional report very much as the agency presented them.

Vesting and Funding Standards for “Greater Assurance that . . . Benefits Will Be Paid” Although misdeeds in multiemployer welfare plans received more press coverage in the 1950s, some observers discerned other significant threats to employees. The recession of 1953 and 1954 highlighted the risk that employees who had not vested would forfeit their pension accruals. The default of the Packard retirement plan showed that even vested employees were at risk if their plan was not fully funded. The Cabinet Committee considered forfeiture risk and default risk at length and concluded that it was not fair for a forfeiture or default to deprive a long-service employee of the pension he expected. The tax subsidy gave the public a right to demand that pension plans actually deliver retirement security. The committee urged that security of pension promises should be a basic objective of federal policy. To this end, the group proposed that pension plans should receive favorable tax treatment only if they met minimum standards for vesting and funding retirement benefits.

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By 1960 pension specialists were vigorously debating whether forfeiture risk and default risk were serious problems, and what responses, if any, were appropriate. The most important institutional manifestation of these concerns was a research program initiated in 1958 by the Pension Research Council at the University of Pennsylvania’s Wharton School of Finance and Commerce. Directed by Dan McGill, the study culminated in a series of monographs that made what Business Week called “[d]rastic proposals for regulation of the handling of private pension funds.”95 Events in Canada also informed the evolving focus on benefit security in the United States. In 1960 the provincial government of Ontario appointed a Committee on Portable Pensions. In August 1961, this group issued a report and draft legislation that included vesting and funding standards.96 These issues and proposals were “in the air” when the Cabinet Committee began its work.97 Forfeiture risk was a major concern from the outset of the Cabinet Committee’s investigation, and the group was strongly predisposed toward a vesting standard as a remedy. This inclination owes something to the fact that professors and former professors played important roles on the Cabinet Committee.98 Most professors participated in TIAA-CREF, a pension plan in which participants vested in their retirement benefits as soon as they began to participate.99 Recounting the committee’s initial meeting, a staffer from the Council of Economic Advisors reported, “It was felt that the Committee should range broadly, but that underlying everything would be the question of vesting of pension rights.” “Great emphasis must be given this matter,” he continued, “since it underlies all of the questions to be studied . . . .”100 Vesting and forfeiture risk figured in the work of several agencies, but they were the principal issues in the Labor Department’s study of pension plans and labor mobility. The Labor Department’s study “Manpower Policy and Corporate Pension Plans” addressed an issue labor economists had raised during the pension stampede of 1949 and 1950. Economists worried that the concerns that led employers and employees to favor retirement plans might conflict with the public’s interest in efficient labor markets.101 Employers adopted a pension plan to improve personnel administration; employees looked to their plan for retirement security. If businesses adopted lengthy vesting requirements to retain employees and employees declined to change jobs to avoid losing their pension accruals, then pension plans might impair labor mobility.102 Under this line of reasoning, a vesting standard might increase mobility and make labor markets more efficient. Although plausible, this theory fizzled when the scarce and hard-to-interpret data available to staffers suggested that pension plans had little effect on the willingness of employ-

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ees to change jobs.103 As the Cabinet Committee later reported, a vesting standard could not be justified “solely as a means of increasing mobility.”104 The ambiguous findings on labor mobility pushed staffers toward other rationales for a minimum vesting standard. Treasury provided two important lines of argument. Treasury officials noted that lengthy vesting requirements facilitated discrimination in favor of highly compensated employees. Turnover was higher among low-paid workers, so they were more likely to forfeit. Consequently, “deductible contributions, ostensibly made to benefit rank and file employees, often go to the benefit of the owners and executives.”105 In addition, strict vesting requirements seemed inconsistent with the subsidy theory of pensions. The goal of the tax subsidy was to encourage firms to provide retirement income to employees. Yet employees who forfeited their pension accruals did not receive any retirement income. Thus, lengthy vesting requirements contributed to tax abuse at the same time that they frustrated the purpose of the tax subsidy for pension plans.106 The Internal Revenue Code, however, did not include a minimum vesting standard, and Treasury regulations did not require vesting until an employee qualified to retire.107 These points supported vesting, but the Cabinet Committee and staff were most swayed by commonsense notions of fairness and security. When a union bargained away “vesting in exchange for some other benefit,” a staffer observed, “. . . . it is hard to say that absence of vesting violates equity.”108 On the other hand, employees without a union seldom bargained about their pension. For them, a retirement plan was a take-it-or-leave-it proposition.109 In that case, the same staffer remarked, “The equity issue is clearer . . . .” Staffers also perceived a conflict between the security a retirement plan promised and the risk many employees faced. “[R]egardless of equity considerations,” a DOL staffer argued, “vesting is desirable to make the pension promise more secure.” Others agreed. A Treasury representative thought the federal government might establish “minimum standards” for pension plans “as is now done in the area of minimum wages under the Fair Labor Standards Act.”110 Fairness and security carried the day. Staffers agreed “that some Federal standard was essential both in terms of equity and to give greater certainty as to rights.”111 At the same time, however, the Cabinet Committee and staff understood that a minimum vesting standard would affect the level of benefits and cost of a pension plan. Plans that liberalized their vesting provision would pay benefits to more employees. If the level of benefits stayed the same, then costs would rise. Cost increases could not be taken lightly because employers did not have to sponsor a plan or pay a particular level of benefits. Higher

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costs might lead fewer firms to establish a plan, and firms that sponsored a plan might terminate it or reduce the level of benefits.112 Practical concerns of this sort led the committee to propose a vesting standard that represented “an absolute minimum.”113 Employees would vest on a graded schedule. The committee suggested 25 percent vesting after ten years of service or 50 percent after fifteen. In each succeeding year, the vested portion of an employee’s accrued benefit would increase by 5 percent until employees were 100 percent vested after twenty-five years of service. Because the proposal compromised equity and security to reduce cost, the committee viewed it “as a first step” and urged that “a stronger vesting requirement . . . be adopted later, after a reasonable interval.”114 The Cabinet Committee also considered the related issue of portability. A minimum vesting standard would protect employees from forfeiture, but it might leave them with another problem. If an employee worked for a number of different firms, he might find his “retirement income . . . fragmented into several bits and pieces.”115 This problem led the staff to consider a suggestion by Merton Bernstein, a lawyer, academic researcher, and former congressional staff member. Bernstein proposed a central clearinghouse that would allow pension accruals to follow an employee from job to job. When an individual left a firm, the former employer could transfer the value of his pension accruals to the clearinghouse. The clearinghouse would hold the funds until the individual got a new job, at which time the funds could be transferred to the new employer.116 The clearinghouse also might provide a vehicle for providing pension coverage to employees of small firms, much as multiemployer plans did.117 Although the complexities of a portability program made it “impossible to reach any definite recommendations . . . by November 15,” the staff and the Cabinet Committee endorsed “serious study” of the idea.118 The Cabinet Committee did not carry out a separate study of funding practices, but default risk was on the agenda from the beginning. In contrast to forfeiture risk and vesting, however, the staff did not begin with as clear an idea of a remedy for default risk. By 1962 the United Auto Workers union was well along on its insurance proposal. Agency staffers were aware of the union’s initiative and met with Nat Weinberg and Leonard Lesser of the UAW to discuss the idea.119 Merton Bernstein also contributed a paper on insurance.120 Staffers declined to recommend an insurance program, however, because it raised difficult technical problems. As in the case of portability, the provisional report recommended further study.121 Two events contributed to the committee’s decision to propose a minimum funding standard as a remedy for default risk. In April 1962 the prime

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minister of Ontario offered legislation that called for employers to pay off unfunded liabilities on a schedule that would fully fund pension obligations by the expected retirement date of the average plan participant.122 At about the same time, Dan McGill published Fulfilling Pension Expectations, his contribution to the Pension Research Council’s study of pension security.123 McGill offered two proposals that he had been promoting to industry groups for some time. Most firms structured their retirement plans so that the firm itself was not legally liable to pay pensions to employees. In the usual arrangement, the plan promised to pay pensions, and the employer promised to make contributions to the plan. As the Studebaker and Packard terminations illustrate, when a plan terminated, the employer’s liability was limited to the contributions it had already made. McGill urged employers to guarantee pension promises by accepting direct contractual liability for vested benefits. He believed that firms should fund benefits that had not yet vested, so he also proposed a funding schedule similar to the one in the Ontario legislation.124 McGill emphasized his proposal for employers to guarantee vested benefits. The committee declined this proposal as “a far-reaching change in the character of the [employer’s] legal obligation . . . .”125 Near the end of his book, however, McGill observed that “[c]ompliance with realistic standards of funding, accompanied by sound investment policies, would provide substantial assurance of benefit fulfillment, even without an employer guarantee of vested benefits.”126 Agency officials chose this course, appealing again to the tax subsidy for pensions and the need for expectations to be secure. At an October 5 meeting, one staffer argued “that if the public interest in private pensions is great enough to justify very substantial tax deductions, the public interest is also great enough to justify steps to assure that funds are actually available to pay such pensions when the time comes.”127 He pointed to the example of insurance regulation: “In general, insurance companies are required to set aside reserves sufficient to cover the actuarial cost of future benefits; public regulation then seeks to make sure that such funds are properly protected and maintained.”128 This argument appealed to a different policy goal than the existing tax rules on funding. Although Treasury regulations gave a retirement plan favorable treatment only if the employer complied with a minimum funding standard, this requirement did not aim to protect employees.129 As the IRS had explained in a submission to the Senate Labor Committee in 1957, the regulations denied favorable treatment if an employer’s contributions were “so inadequate as to portend early termination or curtailment of the plan, or to make it obvious that the fund will be unable to meet its obligations for

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the promised or contemplated benefits as they come due.” But tax authorities were not concerned about poor funding because it threatened employees. The IRS worried about funding levels because “the early termination or curtailment of a pension plan or failure to meet the cost of the contemplated benefits can result in discrimination in favor of employees who are officers, shareholders, supervisors, or highly compensated . . . .”130 In other words, the funding standard protected the fisc by preventing tax avoidance. Indeed, in remarks to the Society of Actuaries in 1963, Dan McGill reckoned that, “on balance, the [Internal Revenue] Service ha[d] been a negative factor in the pursuit of actuarial soundness.”131 Cabinet Committee staffers did not want a funding standard that prevented tax avoidance. They wanted a standard that protected plan participants. “The risk that employees will lose pensions due to unforeseen circumstances would be minimized,” declared an October 24 draft position statement, “if plans were fully funded, i.e., if assets held in the fund were sufficient, on each periodic valuation date, to cover the cost of accrued benefits based on service up to that date . . . .”132 In other words, a funding standard would make pension promises more secure by reducing default risk. Staffers recognized that immediate full funding was not feasible because retirement plans commonly granted pension credit based on past service. They recommended a funding standard that closely paralleled the Ontario legislation and McGill’s proposal. Pension plans should contribute the value of benefits accrued in the current year and “amortize all past service liabilities within a reasonable period such as the expected average years-ofservice of plan participants, but not more than 25 years.”133 Staffers appreciated the important step they had taken. On October 18, they decided to reorganize the report so that the discussions of vesting and funding would appear “in a separate section, instead of grouping them with tax issues.” According to minutes of the meeting, “There was fairly general agreement that such separate treatment would be desirable, since the issues on Funding and Vesting involve considerations related not only to taxes, but also to social security policy, future trends in the coverage and scope of private plans, labor mobility, and making the pension promise more secure.”134 The Cabinet Committee approved the vesting and funding proposals on October 24.135 When Wirtz sent the provisional report to the president, the committee left no doubt that it was endorsing a new goal for federal pension policy: “The Committee believes it is equally as important to protect the public interest in the solvency and integrity of qualified pension plans, as it is to prevent tax abuse . . . .”136 “A major objective,” the committee

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stated, “must be to achieve greater assurance that the promised benefits will be paid.”137

“Protecting the Interests of Employees in the Investments of Pension Funds” Staffers did not consider pension investments until relatively late in their deliberations. When they did take up this issue, they had to sort out conflicting policy pronouncements from the Commission on Money and Credit and from Congress. The commission had called for standards of conduct for plan administrators, agency oversight, and detailed disclosure of investments. Congress declined to adopt these recommendations when it amended the Disclosure Act in 1962. Hurried consideration of investment issues and conflicting signals from the commission and Congress led the Cabinet Committee to “[deal] with this area very gently.”138 The provisional report proposed limited reforms that developed or refined the existing tax and disclosure laws, but the committee declined to take the more far-reaching step of recommending standards of conduct—that is, regulation of pension investments—until existing law had been tested. The Cabinet Committee’s itinerary called for it to address two issues relating to pension investments. One was the effect pension funds were having on capital markets and corporate governance, the other, the need for additional regulation of plan investments to protect employees.139 The regulatory ramifications of the first project were scaled back early in the committee’s deliberations, after SEC chair William Cary observed that it was “somewhat beyond the province of the SEC.”140 Although the staff looked into the effects of pension funds on capital formation and financial markets, consideration of these issues was for the most part descriptive. The shift in focus likely contributed to the staff’s tardiness in addressing pension investments. Staffers from the SEC and the Federal Reserve Board appear not to have pursued their research as vigorously as staffers from other agencies.141 This may have owed something to the fact that the SEC and Federal Reserve did not have much of a stake in the regulation of pension investments. What jurisdiction there was in this area belonged to the Labor and Treasury Departments. For representatives of the SEC and Federal Reserve, then, the study of financial markets was a sideline. What is more, Congress and the Commission on Money and Credit sent the Cabinet Committee contrary signals about the regulation of pension investments. When the commission issued its report in 1961, three major bodies of law applied to the investments of pension trusts. The state common

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law of trusts charged the administrator of a trust to act solely in the interest of the beneficiaries and to exercise prudence in the execution of his responsibilities. These duties applied to investment decisions.142 The prohibited-transaction rules in the Internal Revenue Code regulated selfdealing between a pension trust and related parties.143 And the Disclosure Act required plans to file “a summary statement” of assets and “a detailed list” of investment transactions with related parties.144 The Commission on Money and Credit judged these protections to be inadequate. In its report, the group argued that Congress should require relatively detailed disclosure of pension investments and also authorize an agency to create and enforce standards of conduct for officials who managed pension investments. Congressional consideration of the Disclosure Act Amendments revealed that legislators had reached very different conclusions than the commission.145 In a colloquy in September 1961, Neal Smith (D, Iowa), a drafter of the House bill, noted that the commission had proposed guidelines to regulate pension investing. “We do not propose to go that far,” he declared.146 Congress codified this determination in § 9(h) of the Disclosure Act Amendments, which barred the Labor Department from regulating “any welfare or pension benefit plan.”147 And though the Disclosure Act Amendments required plans to provide more information about investments, legislators did not believe detailed reports were necessary. “There were people who wanted the Secretary of Labor to have the power to make the report include all types of investments—how much stock there was in General Motors or General Electric, or any other corporation,” Congressman Charles Goodell (R, N.Y.) said during debate in the House. “We resisted this move. We felt that what was necessary here was a general disclosure of the broad category of investments.”148 Disagreements over matters of policy and contrary directives from Congress and the commission led to conflict when the Cabinet Committee and staff took up investment issues. A position statement circulated in late October rejected the commission’s call for standards of conduct, arguing that the common law of trusts and the self-dealing rules in the tax code provided “[a] considerable degree of protection.”149 This drew objections from Treasury representatives, who believed the statement exaggerated the protections of existing law. The self-dealing rules required that the terms of a transaction between a pension trust and a related party be no less favorable than the trust could obtain in an arm’s-length deal. Treasury had argued in an earlier submission that the rule did not provide much protection.150 In fact, H.R. 10 had rejected the arm’s-length test in favor of an outright prohibition of self-dealing by self-employed pension plans.151 Treasury sug-

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gested that a less stringent version of the approach in H.R. 10 would better protect employees in corporate pension plans.152 Treasury also believed that state trust law offered employees little protection. Pension trusts commonly included a clause that allowed a trustee to “make investments without regard to the state restrictions.”153 And even when fiduciary standards applied, enforcement was often lax.154 On October 30, the staff endorsed the commission’s recommendation for stricter oversight of transactions where there was a conflict of interest. In cases of this sort—for example, when plan investments “aimed at control of an enterprise, or . . . involve possible conflicts of interest”—“regulation (or public disclosure) would be desirable.” Staffers also suggested that the prohibited-transaction rules in the tax code should be strengthened and that the Cabinet Committee’s report should clearly state “the need for disclosure of investment holdings and transactions.”155 Several members of the Cabinet Committee reiterated these policy concerns on November 1.156 CEA chair Walter Heller worried, however, that “the draft report, as it stands, is not sufficiently responsive to the [Commission on Money and Credit’s] recommendations . . . .”157 But if the Cabinet Committee moved too far toward the Commission on Money and Credit, it risked running afoul of Congress. A representative of the Labor Department admitted the shortcomings of the Disclosure Act but questioned whether the committee should push for detailed disclosure when Congress had recently decided otherwise.158 The committee dealt with the disagreements between Congress and the commission by splitting the difference. Congress had forsworn regulatory standards of conduct for plan administrators when it revised the Disclosure Act. The Cabinet Committee urged lawmakers to adopt stricter tax rules on self-dealing but otherwise accepted the view that there was no need for federal standards.159 With Treasury dissenting, the committee claimed there were already clear standards for pension investments: “The general standards of conduct for any trustee have long been established by law and custom.”160 The problem was not lack of standards; it was lack of enforcement. Employees could not protect themselves without information. Even after the 1962 amendments, the Disclosure Act “provide[d] little information relevant to the protection of employees in the investment transactions of the fund.”161 Accordingly, the committee endorsed the Commission on Money and Credit’s proposal for detailed disclosure of the “investment holdings and activities” of pension plans.162 The committee deferred broader reforms, such as the commission’s proposal of agency oversight, until there had been “a real test of the effectiveness of the disclosure approach.”163

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table 1. Recommendations in Cabinet Committee’s Provisional Report, 1962 Participation Standard

Vesting Standard

Funding Standard

Integration with Social Security

Coverage Limit on Benefits or Contributions

Lump-Sum Distributions Estate and Gift Taxes Investments of Pension Plans Self-Dealing

Require qualified plans to cover eligible employees after no more than 3 (rather than 5) years of service 25% vested after 10 years of service or 50% vested after 15 years of service, then 5% per year until participants are 100% vested after 25 years Fund current accruals and amortize unfunded past-service liability over not more than 25 years Amend integration rules to reduce credit given to employer for OASDI benefits from 78% to no more than 50% No longer allow a qualified plan to cover only salaried or clerical employees Cap the amount of benefits or contributions that a qualified retirement plan may pay to an individual employee Replace capital-gains tax treatment with an averaging formula Eliminate estate and gift tax exemptions for retirement benefits Require additional disclosure of investment holdings and activities Strengthen prohibited-transaction rules in the Internal Revenue Code

the president’s advisory committee on labor-management policy The Cabinet Committee’s recommendations were likely to be controversial, so members urged President Kennedy to have business and union representatives vet the report. Early in 1963, the president forwarded the report to his Advisory Committee on Labor-Management Policy (Advisory Committee), which included a number of important business and labor leaders. After studying the report for most of 1963, the Advisory Committee issued a strong rebuttal of the Cabinet Committee’s premises and key proposals. Importantly, most business and labor leaders on the Advisory Committee

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expressed great antipathy to regulatory standards and strong support for the status quo. They thought the federal government had no business dictating the terms of private pension plans. Moreover, many members of the Advisory Committee believed the Cabinet Committee’s proposals for vesting and funding standards would harm many workers. They argued that regulatory standards would prevent employers and employees from designing pension plans to suit the varied circumstances of different firms and industries. The result would be higher costs for employers and lower benefits or even no benefits at all for employees if employers could no longer afford a pension plan. Labor secretary Willard Wirtz sent the Cabinet Committee’s report to the White House on November 21, 1962. November 1962 was an inopportune time for Kennedy to announce a potentially controversial regulatory initiative. To this point, the administration’s relationships with the business community had been characterized by missteps, confrontations, and mutual suspicion.164 In April 1962, the president had locked horns with executives in the steel industry over price increases.165 This intrusion into privatesector pricing decisions and a rumor that Kennedy had “described all businessmen as ‘sons of bitches’” worsened the administration’s already sour relations with business.166 Several weeks later, stock prices in an already declining market began to fall more rapidly. On May 28, the stock market sustained its largest single-day drop since October 1929. Many blamed the moribund “Kennedy Market” on the president’s anti-business attitude.167 The administration spent the second half of 1962 trying to mend fences with the business community.168 The agency executives on the Cabinet Committee recognized that their report might impede this effort. Indeed, Labor secretary Arthur Goldberg had raised “the question of public relations posture” in June, when Kennedy was still in the midst of the imbroglio over the stock market. Goldberg told his colleagues “that discussions should be ‘kept in the family’ and that the agencies should say only that [they are] proceeding with the President’s mandate for the study.”169 Early in November, with the draft nearing completion, the Cabinet Committee considered how best to release the recommendations. “[S]ome of the Committee’s recommendations (e.g., on vesting, funding and coverage),” Social Security commissioner Robert Ball observed, “will have a major impact on the cost and future growth of private plans.” He thought “the Committee should have some discussions with representatives of industry and labor.”170 Others agreed, and the committee sent the report to the president “on a provisional basis pending possible consultation with a group of informed nongovernmental experts.”171

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There were other reasons for testing the political waters. In June 1962, in an effort to fend off a recession and conciliate business groups, Kennedy had proposed tax cuts.172 In the second half of the year, as agency staffers drafted the Cabinet Committee’s recommendations, the administration was bargaining with Ways and Means Committee chair Wilbur Mills over the president’s tax proposal. Negotiations with Mills continued into December. If the administration proposed legislation based on the pension report, the Ways and Means Committee would be distracted from tax proposals the president planned to announce in his State of the Union address in January.173 Pension issues took a back seat to the tax bill, so something had to be done with the provisional report in the interim. These considerations led Kennedy to send the report to the President’s Advisory Committee on Labor-Management Policy. Kennedy had created the Advisory Committee early in his administration to bring “the public interest” in wage and price determination before business and labor leaders whose decisions would affect price stability.174 The group had twenty-one members: seven representing business, seven representing labor, and seven, including the secretaries of Labor and Commerce, representing the public.175 The Advisory Committee was considering a variety of matters ranging from industrial relations to macroeconomic issues and trade. In its first two years, the group had sponsored several conferences on economic issues and issued reports on automation and collective bargaining.176 At a meeting on March 25, 1963, the Advisory Committee established a subcommittee to review the Cabinet Committee’s provisional report.177 The subcommittee included two members each from among the Advisory Committee’s management, labor, and public representatives. AFL-CIO president George Meany and UAW president Walter Reuther were the labor members. Joseph Block, chairman of the board of Inland Steel, and IBM president Thomas Watson represented management. The public representatives were Arthur Burns, who had chaired Eisenhower’s Council of Economic Advisors and was currently head of the National Bureau of Economic Research, and George E. Taylor, an industrial relations expert at the University of Pennsylvania. Taylor chaired the subcommittee.178 Most of the subcommittee’s work was done by a group of “technical representatives” appointed by the individual members. After meetings on April 17 and May 1, Dan McGill, who served as George Taylor’s representative on the technical group, drafted a response to the Cabinet Committee’s report.179 The Cabinet Committee’s recommendations echoed many themes of McGill’s recent book and adopted several of his proposals, so it is not sur-

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prising that his draft response agreed with the Cabinet Committee’s principal assumptions and recommendations. Most importantly, McGill’s first draft endorsed the idea that the tax subsidy for pension plans justified the creation of minimum standards. “In view of their critical social function,” he wrote, “private pension arrangements must be made to conform to minimum standards of soundness, and by virtue of the favored tax treatment accorded these arrangements, the Federal government has the moral right to insist upon minimum standards of excellence.”180 McGill’s draft endorsed minimum vesting and funding standards, stronger prohibitions against selfdealing, and additional reporting of plan investments.181 The technical group’s response to the Cabinet Committee’s proposals for expanding coverage and limiting tax avoidance was more ambivalent. The draft response agreed that the tax rules for integrating pension plans with Social Security ought to be changed and that retirement benefits should not be exempt from the gift and estate tax.182 The draft also expressed qualified support for the principle that pension plans should not be allowed to cover only salaried or clerical employees.183 On the other hand, the technical group rejected the Cabinet Committee’s proposal to shorten (from five years to three) the period of service a plan could require for participation.184 And while the draft admitted the logic of capping retirement benefits, there was “no great enthusiasm for a limitation on either contributions or benefits.”185 Likewise, the technical group admitted that there was “no logic in the capital gains treatment of lump-sum distributions” but believed this tax rule did not cause enough harm to warrant elimination.186 All in all, the Cabinet Committee’s provisional report stood up well in its initial review. Government staffers who were assisting the subcommittee worried, however, that the full Advisory Committee would take a more critical view. Peter Henle, an economist from the Labor Department, reported that the favorable view of the Cabinet Committee’s recommendations in the draft response was “largely the result of weak representation from the employer side of the table in the technical group.” He predicted—correctly— “that the work of the technical representatives will be carefully reviewed by both the principal members of the Subcommittee and the full Committee itself.”187 When Dan McGill prepared a second draft response, it included significant changes as well as other indications that the provisional report was headed for trouble. For one thing, the new draft revealed a disagreement on vesting. Every member of the subcommittee endorsed the principle of vesting, but Joseph Block of Inland Steel objected to a “legislative mandate.”188 The new draft also qualified the funding recommendation. While

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it endorsed a funding standard for single-employer defined-benefit plans, the new draft stated that a funding standard was not appropriate for multiemployer plans.189 Differences of opinion on the subcommittee led George Taylor to ask the full Advisory Committee to consider pension issues when it met on July 29.190 The meeting did little to settle questions about vesting and funding or concerns about the potential impact of the Cabinet Committee’s proposals. No one denied that it was desirable for retirement plans to provide liberal vesting and for employers to fund pension liabilities in advance. Members disagreed, however, about whether government should establish statutory vesting and funding standards.191 Taylor opposed a vesting requirement, and he had doubts about the Cabinet Committee’s funding proposal. Walter Reuther, on the other hand, “made a strong plea for minimum Federal standards in these areas.”192 Other members of the Advisory Committee worried about the higher costs that would result from vesting and funding standards.193 A staffer from the Council of Economic Advisors reported that “it may not be easy to reach quick agreement on the [Cabinet Committee] report.”194 After the meeting on July 29, the subcommittee prepared a third draft response that further qualified the position on vesting. Although the draft urged “that some minimum standards of vesting be required” for favorable tax treatment, it did not specify what the standard should be because most members of the subcommittee “do not feel that sufficient information on the cost of such a recommendation is presently available to make such a specific determination at this time.”195 Tentative though this recommendation was, it drew a dissent from George Taylor, who prepared a detailed explanation of his objection to a vesting standard. Taylor’s statement provided a thoughtful defense of the conceptual premises of the status quo in federal pension policy as well as a pragmatic critique of a statutory minimum vesting standard. According to Taylor, the Cabinet Committee’s proposal for a statutory vesting standard misunderstood the “inherent differences between public and private pension programs” and “the unique values which each type contributes to the overall program.” The Social Security Act was an appropriate means for protecting employees because it established a mandatory program that covered virtually all private-sector workers. By contrast, the virtue of voluntary arrangements was that they were flexible and could be adapted to the needs of particular firms and industries. Taylor illustrated his point by comparing pension policy with the federal role in regulating wages in the private sector. The Fair Labor Standards Act protected employees by

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establishing a minimum wage. Above this minimum, earnings were left to “private determination” according to conditions in different labor markets. Taylor applied the same logic to pension policy. The Social Security Act protected employees by mandating a “well-nigh universal” program through which private-sector employers provided a basic retirement income to their employees. Pensions above this level, Taylor argued, were like wages above the statutory minimum. They were products of voluntary contractual arrangements that varied “not only to meet the needs of particular groups of employees but also in consideration of ‘ability to pay’ factors fashioned by the economic circumstances of particular companies and industries.”196 Under this line of reasoning, the Cabinet Committee’s vesting recommendation was misguided because it would impede the private sector from using pension plans to do what voluntary arrangements did best—adapting to conditions in particular firms and industries. Taylor cited the example of multiemployer pension plans and, in particular, plans in the needle trades.197 The garment industry included many small firms for which it was not feasible to create a single-employer defined-benefit plan. The most these firms could do was contribute to a multiemployer pension trust.198 Their contributions created a finite pool of resources to pay pensions. The vesting and funding practices in multiemployer plans were based on calculated choices about how best to spend these limited resources. For example, many multiemployer plans did not vest pension accruals until an employee was eligible to retire. This practice, Taylor observed, was based on a conscious decision by plan trustees to use “limited funds . . . entirely for the needs of long-service employees in an industry and not to meet the problems of short-service employees in any company.”199 A statutory vesting standard would override the trustees’ judgment and force multiemployer plans to pay retirement benefits to more employees. As a result, plan trustees might have to reduce benefit levels to avoid imposing higher costs on the small, often marginal, employers that participated in the plan. Or firms might abandon a plan because the vesting standard made the plan too costly. In this way, Taylor warned, a vesting standard might deprive “large numbers of employees in certain industries of the opportunity to secure any private pension benefits at all.”200 And it would not be affluent workers whose plans were abandoned. If minimum standards forced plans to shut down, said Taylor, “the effect would be to restrict favorable tax treatment to relatively affluent workers who could afford the higher costs of the mandatory terms.”201 Noting that OASDI already provided workers with a basic retirement benefit, Taylor concluded that the tax subsidy for private pensions served an appropriate purpose when it en-

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couraged “private parties . . . to establish for themselves the kinds of private pension programs which seem to them to be most feasible under the particular circumstances to which they must adjust.”202 Taylor’s objection to a minimum vesting standard did not imply opposition to minimum funding standards. In fact, he endorsed such a standard for single-employer defined-benefit plans. But Taylor reached this position by different reasoning than the Cabinet Committee. The Cabinet Committee’s vesting and funding proposals were based on a new regulatory goal—the idea that pension promises should not be too risky. Lengthy vesting requirements and poor funding both placed employees at risk, so vesting and funding should be regulated. In contrast, Taylor derived his support for a funding standard from the existing premises of federal pension policy. When a firm created a defined-benefit plan, it promised employees a predetermined future benefit. While Taylor believed government had no business telling employers and employees what promises to make, he saw no reason that federal policy should not require an employer to set aside funds to keep the promises it made. A funding standard, he said, would not dictate “any substantive term of a private pension agreement but would be directed rather to assurance that the private agreement would be carried out.” “Mandatory vesting,” he pointed out, “is quite different; it relates to specifying what should be in any private plan; it would limit the latitude of private parties in solving an important problem within the context of the realities of their situation.”203 Taylor’s differences with the Cabinet Committee are clear from their views on funding standards for multiemployer plans. The Cabinet Committee’s stress on risk reduction implied that a funding standard should apply to single-employer and multiemployer plans alike. Taylor’s focus on the nature of the employer’s promise led him to a different conclusion. Unlike a firm that sponsored a single-employer defined-benefit plan, a firm in a multiemployer plan did not promise to pay employees a predetermined retirement benefit in the future; it promised to make a fixed contribution to a pension trust in the present. “There are no fixed employee benefits that must be funded.” Although Taylor cautioned that employees “entitled to only uncertain benefits [should] be fully advised about the limitations of [their] plan,” he thought it was not appropriate to create a statutory funding standard for multiemployer plans. His logic paralleled his analysis of vesting. Contributions to a multiemployer trust created a limited pool of assets to pay pensions. A minimum funding standard would override the trustees’ judgment and force them to adopt practices that might well harm employees.204

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When the third draft and Taylor’s dissent were circulated to the Advisory Committee, a Treasury lawyer warned his superiors that Taylor’s views on vesting were “probably of more consequence.” “[M]y guess (and also that of other staff people),” he wrote, “is that this will be the position taken by the full committee as regards vesting.”205 The judgment was prescient. The Advisory Committee met on September 23 and 24 and endorsed Taylor’s view. The group approved vesting in principle but urged “that the degree of vesting be left to the decision of the private parties involved and that no mandatory degree of vesting be included in the law.”206 The Advisory Committee also endorsed a funding standard, although on different terms than the Cabinet Committee had proposed. The Advisory Committee said the tax laws should require employers to fully fund liabilities attributable to current service and amortize “any past service liability . . . within 30 years after the event which created the liability.”207 The group made no exception for multiemployer plans.208 The Advisory Committee endorsed the Cabinet Committee’s recommendations on pension investments, while adding a proposal that would bar a plan from investing more than 10 percent of its assets in securities of the plan sponsor.209 Finally, the Advisory Committee reversed an earlier position and endorsed the Cabinet Committee’s proposal that plans should require no more than three (as opposed to five) years for participation.210 The Advisory Committee was scheduled to discuss pension issues again on October 29 and 30.211 As the meeting approached, several members expressed new reservations about the Cabinet Committee’s recommendations. In a letter to Willard Wirtz, Elliott Bell, the publisher of Business Week, wrote, “Frankly, the more I consider the Cabinet Committee’s Report, the more unhappy I am about it.” Bell agreed that the Advisory Committee was correct to reject a vesting standard. Upon further reflection, he concluded he could not support a funding standard either.212 Although Bell thought the Cabinet Committee’s provisional report was “basically naive rather than sinister,” he cautioned Wirtz that “its publication . . . could have a poisonous effect on the relations between the Administration and the business community.”213 Another member of the Advisory Committee, Henry Ford II, had even bigger doubts. The Cabinet Committee had justified its recommendations by appealing to the subsidy theory of retirement plans. To this point, the Advisory Committee had accepted this premise. Ford submitted a strongly worded memo that denied such a subsidy existed.214 Employer contributions to a pension plan, he observed, were legitimate business expenses and thus properly deductible. As for employees, they did not escape taxation. The

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revenue laws simply delayed taxation until workers retired and began receiving pension payments. This treatment reduced tax revenues by shifting income from higher tax years, when individuals were employed, to lower tax years after retirement, but Ford denied that this created a subsidy. The reduction in an employee’s taxes, he said, was no more than a “fair and just” form of “income averaging.” “In my opinion,” he concluded, “the present tax treatment of qualified pension plans does not afford reason for government interference in the details of pension plan arrangements established by collective bargaining or by employers for employees not represented by unions.”215 On October 29, the Advisory Committee debated what course to take in light of members’ increasing skepticism about the Cabinet Committee’s recommendations. One option was to “forge ahead with” the current—that is, the fourth—draft but allow individual members to file “statements of reservation and dissent.” Another option was to rewrite the response from scratch, laying out all the problems with the Cabinet Committee’s recommendations. In an attempt at damage control, Labor secretary Willard Wirtz proposed a third alternative: “[T]o merely issue a very short report (one or two pages) stating three or four general principles and nothing more.” Under this option, the Advisory Committee would say that it “favored the principle of vesting” and that there was disagreement about how to implement the principle, but it would not oppose a vesting standard as did the current draft.216 According to a Treasury official, the Advisory Committee rejected Wirtz’s proposal and opted to work with the existing draft because this course of action “indicat[ed] more strongly the Committee’s opposition to such things as compulsory vesting.”217 Even before the meeting on October 29, an official from the Commerce Department described the Advisory Committee’s draft response as “terribly watered down.”218 A new draft, dated November 1, was shorter still. And even with more watering down, many members filed dissents. By this time, most of the management representatives condemned most of the Cabinet Committee’s recommendations.219 Elliott Bell’s position was representative. He thought the fifth draft was “much improved.” Nonetheless, he wrote, “I do not think our [response] adequately reflects the degree of criticism of the Cabinet Committee’s recommendations and the assumptions underlying those recommendations, which the discussions in our Committee meetings developed.”220 The response from the Advisory Committee’s union representatives was almost as negative. Five labor leaders submitted comments, and four were critical of the Cabinet Committee’s recommendations. At one extreme,

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United Mine Workers president Anthony Boyle totally rejected the Cabinet Committee’s approach: “The proposed report to the President is based on the erroneous concept that Governmental specification of standards in private pension plans can be mandated by public law to a similar extent that such standards are fixed by law in public pension plans.”221 AFL-CIO president George Meany, International Ladies Garment Workers president David Dubinsky, and International Brotherhood of Electrical Workers president Joseph Keenan were more temperate, but all objected to vesting and funding standards for multiemployer plans.222 Of the labor representatives who submitted comments, only Walter Reuther endorsed the Cabinet Committee’s vesting and funding recommendations.223 On December 24, 1963, the Advisory Committee sent President Lyndon Johnson a brief response that had been trimmed so that it addressed only those recommendations of the Cabinet Committee that were “of utmost importance.”224 In the end, the Advisory Committee did endorse several of the Cabinet Committee’s proposals. The Advisory Committee agreed that employers should fund benefits, although on a different schedule than the Cabinet Committee proposed.225 It also endorsed more disclosure of pension investments and stricter tax rules on self-dealing.226 To these, the Advisory Committee added a proposal to limit investment by a plan in the sponsoring employer.227 The group also agreed with several of the Cabinet Committee’s recommended tax changes. Finally, like the Cabinet Committee, the Advisory Committee affirmed the need for further study of termination insurance.228 On the other hand, the Advisory Committee rejected the Cabinet Committee’s vesting recommendation, and support for funding was shaky. Ten of the thirteen members who submitted comments took issue with the Cabinet Committee’s funding proposal.229 In a draft memo outlining the Advisory Committee’s views, a Treasury official pointed out that the “range of disagreement between the President’s Committee on Corporate Pension Funds and the President’s Advisory Committee is much greater” than the Advisory Committee’s response suggested. Among the management and labor representatives, there was an “obvious lack of enthusiasm . . . for the substance of the [Cabinet Committee] report.”230 The Advisory Committee’s response suggested that legislation to provide for a larger federal role in the private pension system would meet with strong opposition from the private sector. The Treasury official agreed with and quoted the assessment offered by Joseph Block of Inland Steel: “The fact that the Advisory Committee refrained from commenting on many of the [Cabinet Committee’s] recommendations . . . indicates not only high disagreement on the merit of

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these suggestions but also, in my opinion, a strong belief that there should be a minimum of government intervention in this area.”231

public policy and private pension programs Despite the Advisory Committee’s harsh response, the Cabinet Committee stuck by its recommendations. Willard Wirtz and his colleagues continued to believe that Congress should regulate retirement plans to make employees’ expectations more secure. The Cabinet Committee directed staffers to draft a revised report that included cosmetic changes but preserved the principal recommendations in the provisional report. Wirtz sent the new draft to President Johnson in June 1964 and urged him to publish it. When leaks to the press suggested that the report might hamper Johnson’s presidential campaign, however, the White House decided the safest course was to put off the issue until after the election. In December 1964, Wirtz again asked the president to publish the report. Learning of this, Henry Ford II urged Johnson to kill the report. Although the president finally did release the report in January 1965, the administration took pains to distance itself from the Cabinet Committee’s recommendations. In February 1964 Willard Wirtz reconvened the Cabinet Committee to plan a future course of action.232 The Advisory Committee’s critical comments did not lead members of the Cabinet Committee to doubt their analysis or recommendations. Wirtz told his colleagues that the Advisory Committee’s assessment “left much to be desired” and that he “did not regard the President’s Committee as bound in any way by the Labor Management Report.”233 The Advisory Committee’s antipathy to the provisional report created a touchy situation, however. What was the point of having a presidential advisory committee if the administration ignored its advice?234 Moreover, several management representatives had “opposed making the report public or introducing legislation to carry it out.”235 The Cabinet Committee risked antagonizing them if it was too forthright in disregarding the views of the Advisory Committee. According to CEA chair Walter Heller, the Cabinet Committee should “throw a rose in [the Advisory Committee’s] direction.”236 Wirtz and his colleagues took this tack, directing staffers to “revise the . . . report to take into account the comments of the [Advisory Committee] without necessarily changing the substance of the [Cabinet] Committee’s recommendations.”237 Staffers completed a revised version of the report in May.238 The new draft included two changes proposed by the Advisory Committee. The Cab-

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inet Committee endorsed the Advisory Committee’s proposal to limit a pension plan’s investments in the sponsoring employer “to a maximum (perhaps 10 percent)” of plan assets.239 The Cabinet Committee also adopted the Advisory Committee’s funding proposal. To receive favorable tax treatment, the sponsor of a single-employer defined-benefit plan would have “to fund fully all current service liabilities” and amortize unfunded past-service liabilities over “the average work life of employees but not more than 30 years.”240 (Incongruously, this standard was virtually identical to the funding schedule in the Studebaker plan. The Cabinet Committee endorsed the change about six months after the Studebaker shutdown and five months before the plan would terminate and default.) Employers in a multiemployer plan would have to fund benefit obligations on a schedule that was “consistent with the funding standard” for single-employer plans.241 The revised report also made a minor change to the Cabinet Committee’s vesting standard and dropped the proposal to strengthen the tax rules on selfdealing.242 On June 1, the Cabinet Committee forwarded the revised report to the president “with the recommendation that it be published.”243 There was disagreement, however, about the timing of its release.244 Downplaying the possibility of an adverse reaction, the Labor Department argued for immediate publication. “We expect that most informed readers will approve the Report as a whole, including its approach and its direction,” the department stated.245 Treasury officials were more circumspect. Although they supported the Cabinet Committee’s recommendations, they warned that “the comments of the President’s Labor-Management Advisory Committee indicate pretty clearly that there is likely to be an unfavorable reaction from important segments of both labor and business to parts of the Report.”246 It being an election year, the administration should hold the report until after the election.247 Developments later in the month substantiated Treasury’s concern. On June 12, the Kiplinger Tax Letter warned that “a Presidential committee” was “looking into tighter controls” for pension plans. A week later, the Kiplinger Washington Letter reported a “very hush-hush” “scheme afoot to have gov’t regulate [private pension plans] severely” that would “create shock-waves when it’s finally announced.”248 Moreover, when Wirtz presented the revised report to the Labor-Management Advisory Committee at the end of June, the “reactions were similar to those expressed six months ago.” Several members of the Advisory Committee counseled against publication. And if the president did release the report, they wanted it made clear that the offensive proposals were not theirs.249 The misgivings of the

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table 2. Recommendations in Cabinet Committee’s Final Report, 1965 Participation Standard

Vesting Standard Funding Standard: Single-Employer Plans Funding Standard: Multiemployer Plans Integration with Social Security

Coverage Limit on Benefits or Contributions

Lump-Sum Distributions Estate and Gift Taxes Investments of Pension Plans

Self-Dealing

Require qualified plans to cover eligible employees after no more than 3 (rather than 5) years of service 50% vested after 15 years of service, then 10% per year (years 16 through 20) Fund current accruals and amortize unfunded past-service liability over not more than 30 years Fund in a manner consistent with the requirements for single-employer plans Amend integration rules to reduce credit given to employer for OASDI benefits from 78% to no more than 50% No longer allow a qualified plan to cover only salaried or clerical employees Cap the amount of benefits or contributions that a qualified retirement plan may pay to an individual employee Replace capital-gains tax treatment with an averaging formula Eliminate estate and gift tax exemptions for retirement benefits (1) Require additional disclosure of investment holdings and activities (2) Limit investment in employer securities to 10% of plan assets Dropped in final report

Advisory Committee and inquiries from members of Congress and business leaders stamped the report as a political liability. By late July, Wirtz had concluded—correctly—that “the White House intends to hold the report up until after the election . . . .”250 The administration’s decision to sit on the report did not stop the report from provoking inquiries and articles through the summer and fall of 1964.251 Indeed, a confluence of events elevated pension plans to public awareness in the summer of 1964. In April, Merton Bernstein published a highly critical and widely noticed study, The Future of Private Pensions. The book detailed a host of risks that jeopardized employees’ pension expectations.252 From April to July, Teamsters president Jimmy Hoffa was on trial

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in Chicago on charges of defrauding the Central States Teamsters pension fund of millions.253 And in October, Studebaker terminated the retirement plan for its former employees in South Bend. Hoffa’s trial and the Studebaker termination provoked considerable discussion in the press.254 Business representatives stayed nervous about the “secret pension report,” as the National Underwriter dubbed it.255 In November Dan McGill advised Willard Wirtz that “the fears of corporate executives and others associated with the private pension movement . . . have continued to mount with each succeeding reference to the report . . . .” Business and professional organizations had mobilized to carry out their own studies and to meet the government challenge they perceived. Some of these efforts, McGill thought, were likely to be useful. But he warned that some groups “may take steps that could be disruptive of efforts to strengthen the private pension movement.” McGill thought the administration should release the report “at the earliest possible moment” because publication would defuse “corporate discontent being generated by the many rumors which have their basis in the lack of information about what is really in the report.”256 Wirtz agreed. President Johnson’s landslide victory abated the political concerns that had led the White House to keep the report under wraps. On December 1, Wirtz sent the report to the president again and urged prompt publication.257 White House staffers remained concerned, however, about the political repercussions. “If we do release [the report],” a presidential assistant observed, “we should give the House and Senate Committees notice and make clear to them that the Administration has not yet decided what position it will take on the recommendations.”258 Wirtz also told the Advisory Committee that he was advising the White House to publish the report. Although Wirtz emphasized “that every precaution was taken to assure the reader that the Advisory Committee is not responsible for the final document” and that Congress was unlikely to act on pension legislation anytime soon, Henry Ford II was disturbed about this turn of events.259 He conveyed his feelings to the president, and on December 3, White House aides asked Wirtz “to meet with Henry Ford and his people and hear him out.”260 Political considerations prevented Johnson, and thus Wirtz, from discounting Ford’s concerns. Lyndon Johnson courted business leaders assiduously after he became president, and Ford played a key role in LBJ’s remarkably successful “romance with business.” Indeed, in September 1964 a journalist called Ford “Johnson’s biggest prize to date.”261 Moreover, Ford had been a leading business proponent of John F. Kennedy’s tax cut and a founder of the National Independent Committee for President Johnson and

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Senator Humphrey.262 In addition to these political considerations, Johnson held Ford in high personal regard. If they were not already good friends, the two men soon became so.263 Wirtz and several staffers met with representatives of Ford Motor Company late in December to discuss the report.264 Ford officials reiterated their boss’s criticism of the subsidy theory and his objection to “the imposition of additional mandatory requirements on qualified retirement plans.” Although Wirtz emphasized that the White House would not take a position on the Cabinet Committee’s recommendations, he also said it was “highly doubtful that any substantive changes would be made in the report prior to its release.”265 At Johnson’s suggestion, Wirtz met with Ford and Rod Markley, the chief lobbyist for Ford Motor Company, early in 1965, and they agreed on a procedure for publishing the report. “Under this approach,” a Treasury staffer wrote, “the statement by the President accompanying the report would indicate that it is being released for public information and there would be no transmittal of the report to Congress.”266 Wirtz told Stanley Surrey that he “did not think it desirable to disagree on this matter in view of the strong position taken . . . by Henry Ford.”267 After the meeting, Ford wrote the president and again urged him to kill the report. “[T]he recommendations in the report, as well as the tone of the document,” Ford told Johnson, “are certain to bring adverse reaction from large segments of the business community as well as from many labor leaders.” If the president felt that he had to release the report, however, Ford outlined the terms of the agreement with Wirtz. The report should “be issued merely as a background memorandum” and “not . . . officially transmitted to Congress.”268 Johnson chose the latter course. When Public Policy and Private Pension Programs finally appeared on January 29, 1965, almost three years after John F. Kennedy had appointed the Cabinet Committee, the White House took pains to dissociate itself from the document. “Although the report is scheduled for release today . . . ,” a Treasury staffer reported , “the press briefing has been cancelled by the White House—apparently, it wants as little official sanction as possible.”269 Public Policy and Private Pension Programs appeared six months after Vance Hartke introduced his bill to create a termination insurance program and less than four months after Studebaker terminated the pension plan for workers in South Bend. If Studebaker provided an arresting symbol of the risks faced by employees in private pension plans, the report presented a compelling case and a blueprint for addressing these risks. Together, they gave focus and direction to the nascent campaign for pension reform. In the months after the report appeared, the political history of pension reform en-

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tered a new phase. Officials in the executive branch and Congress began work on legislation to implement the Cabinet Committee’s recommendations, while business and professional organizations mobilized to counter their efforts. Debate about the goals of the private pension system and the security of pension expectations moved into congressional hearing rooms and other public venues.

4

“A New Legislative Era in This Country” Pension Reform from Blueprint to Bill

The public officials on the Cabinet Committee hoped to draft legislation based on their report, but this task posed a stubborn, though common, dilemma. The groups the committee proposed to regulate—employers and labor unions that ran private pension plans—said regulation would do more harm than good. Agency officials did not know enough about pension plans to assess these objections. And the groups that did have pension know-how were the very employers and unions that opposed the committee’s recommendations. Why should they help the administration prepare regulations they opposed? Faced with this quandary, the Cabinet Committee resolved to prepare legislation with or without private-sector assistance. Business and organized labor had pension expertise. If, as these groups claimed, pension reform was bad policy, they could prove it or live with the measures the administration devised on its own. In retrospect, the Cabinet Committee’s aggressive tactics were a great success. In three years’ time, agency officials turned the sketchy recommendations in Public Policy and Private Pension Programs into a detailed legislative proposal, which the Labor Department sent to Congress in May 1968.The bill that became ERISA was a later iteration of this Labor Department bill. At the time, however, the administration’s foray into pension reform was a political fiasco that revealed just how great the distance was between supporters and opponents of pension reform. In the course of drafting a bill, the members of the Cabinet Committee and their staff aides concluded that pension reform legislation would not achieve its employee-protective goals unless it included minimum vesting and funding standards and a termination-insurance program. Jacob Javits, who introduced a comprehensive pension reform bill in March 1967, reached the same conclusion. Business groups and most of organized labor categorically opposed some or all of these initiatives. 116

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In January 1968, the Cabinet Committee urged President Johnson to propose legislation with vesting and funding standards and termination insurance as part of the administration’s legislative program. As in 1964, the committee’s recommendation trapped the president between reformers in the executive branch and business leaders who objected to regulation of pension plans. Initially Johnson stalled. When congressional initiatives on pension reform forced him to act, he attempted to steer a middle course. The White House allowed Willard Wirtz to send the bill to Congress on behalf of the Labor Department rather than the administration. In the event, Johnson’s scheme failed miserably and brought the rift over pension reform clearly into focus. As the Ninetieth Congress drew to a close, business groups warned of a government takeover of the private pension system, while the Treasury and Labor Departments criticized private pension plans as a “flimsy foundation” that exposed employees to “an incredible list of ‘ifs’ and ‘maybes.’”1

“no danger of rash pension laws” The Johnson administration took up the issues in the Cabinet Committee Report when it began preparing its legislative program for 1966.2 In August 1965, the White House established a Task Force on Labor and Related Legislation whose mandate included the preparation, in conjunction with the Treasury Department, of “a position with respect to the recommendations of the President’s Committee on Corporate Pensions.”3 Willard Wirtz’s appointment as chair of the group guaranteed that the recommendations would receive sympathetic consideration.4 As the task force began its work, Wirtz asked Peter Henle, the Labor Department economist who had directed the staff group that wrote the Cabinet Committee report, to call staffers together again to develop “alternative suggestions for possible future action.”5 Renewed congressional interest in pension and welfare plans led agency officials to consider reforms that went beyond the Cabinet Committee’s proposals. Legislators had paid little attention to pension plans since 1962, when Congress passed the Disclosure Act Amendments and self-employed pension legislation. In the Eighty-ninth Congress, which began in January 1965, interest picked up. Around the time the White House began preparing its legislative program, John McClellan (D, Ark.), the Senate’s foremost investigator of union malfeasance, convened hearings on a subject that had received relatively short shrift from the Cabinet Committee—the conduct

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of plan administrators. Public Policy and Private Pension Programs recommended additional disclosure and limits on pension fund investments in employer securities, but the Cabinet Committee did not propose regulation of plan administration because Congress had recently amended the Disclosure Act. “[I]n the absence of sufficient facts as to the prevalence of abuses,” the committee thought the amended Disclosure Act should have a chance to prove itself.6 McClellan found facts aplenty. For some time, the Senate Permanent Subcommittee on Investigations, which McClellan chaired, had been investigating pension and welfare funds maintained by two local unions in the New York City area.7 The subcommittee’s inquiry revealed that George Barasch, the former president of both unions and trustee for life of their welfare and pension plans, had diverted several million dollars to corporations chartered in Liberia and Puerto Rico.8 In widely publicized hearings in July 1965, Barasch and his associates took the Fifth Amendment when asked about the administration of these plans.9 When McClellan asked agency officials why they had done nothing to stop Barasch, they replied that he appeared not to have violated any federal laws.10 These disclosures came less than a year after Teamsters president Jimmy Hoffa had been convicted of conspiracy and mail and wire fraud as a result of loans made for his benefit by the Central States Teamsters pension fund.11 Hoffa’s case also illustrated the limited reach of the federal laws regulating benefit plans. He was prosecuted for mail and wire fraud, observed a Labor Department report, “because this was the only way that Federal jurisdiction could be asserted . . . .”12 Undoubtedly with Hoffa as well as Barasch in mind, McClellan and his subcommittee reported “that existing laws . . . do not adequately safeguard the rights and interests of participants and beneficiaries of welfare and pension plans.”13 One member of the subcommittee, Jacob Javits, quickly prepared a bill to correct some of the “loopholes” Barasch had exploited. Javits introduced his bill just as the White House Task Force began its work.14 In the meantime, McClellan asked the Labor, Treasury, and Justice Departments to develop legislation to regulate plan administration, and himself introduced such a bill in October.15 A second agenda-setting event was the Studebaker shutdown. The provisional and published versions of the Cabinet Committee report urged further research on termination insurance.16 The United Auto Workers union and Senator Vance Hartke (D, Ind.) argued that the default of the Studebaker pension plan demonstrated the need for an insurance fund to guarantee defined-benefit plans.17 In August 1965, Peter Henle noted that Hartke’s bill to create such a program gave “the question of insurance . . . a

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greater degree of immediacy.” The Johnson administration would need to do further work on termination insurance, if for no other reason than to define a position on Hartke’s bill.18 The White House Task Force on Labor Legislation reported to the president in September, recommending action on fiduciary standards and termination insurance as well as “legislative implementation” of the Cabinet Committee report. Some members also urged further research on a portability program along lines Merton Bernstein had laid out in The Future of Private Pensions.19 With this mandate, Wirtz put Peter Henle in charge of an ad hoc Labor Department Planning Committee that spent the rest of the year assessing these proposals.20 In consultation with Bill Gibb, a Treasury lawyer who also had worked on the Cabinet Committee report, Henle developed a plan of action on pension reform.21 Whether, how, and how quickly agency officials developed legislation depended on the contentiousness and complexity of pension reform. So far, proposals to regulate private pensions had been controversial. When the President’s Labor-Management Advisory Committee reviewed the Cabinet Committee’s provisional report in 1963, most management and union representatives rejected the major recommendations. When the final report appeared, unions withheld comment, but business groups made their views heard loud and clear.22 At Senate hearings held in March 1965, management witnesses condemned the recommendations in the report.23 “Nothing . . . will blight the promising future of private plans so quickly as detailed Federal standards or regulations as to benefit amounts, vesting and funding,” claimed a representative of the National Association of Manufacturers.24 And business did more than talk. Several large corporations created an organization—the Washington Pension Report Group—to monitor reform initiatives.25 They meant to ensure that the business viewpoint was represented. One of the group’s first actions was to get the Commerce Department involved in executive branch deliberations on pension reform. To this point, Commerce had played a bit part in the administration’s consideration of pension reform.26 The agency had a place on the White House Task Force on Labor Legislation, however, and assistant Commerce secretary Alexander Trowbridge used his position to warn against precipitous action. Like his agency’s business constituency, Trowbridge agreed in principle with the Cabinet Committee. Vesting and funding were laudable practices. But that did not mean government should force firms to adopt them. Noting “concern within the business community” about “hastily developed legislative proposals,” Trowbridge urged a thorough investigation before legislation was prepared. “This would minimize the possibility of in-

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hibiting, rather than promoting, the extension and improvement of private pension plan coverage,” he claimed.27 Besides being controversial, pension reform also raised difficult technical issues. Retirement plans are complicated, and in 1965 there was little public data on their operation.28 Business representatives and some union leaders claimed that there was no need for additional regulation of retirement plans and that the Cabinet Committee’s proposals would do more harm than good. Until agency officials acquired more expertise and information, they could not assess the soundness of these objections.29 Yet the private-sector response to Public Policy and Private Pension Programs presented the administration with a sort of informational catch-22.30 Instead of providing detailed comments, critics generally made sweeping declarations against pension reform. Blanket denunciations did not help agency staffers acquire pension know-how. They needed to hear practical objections to specific proposals and suggestions about how to address those objections. Acquiring information and expertise would not be easy. Ostensibly neutral experts at universities and research institutions would be important resources, but the groups that knew the most about retirement plans—employers, unions, and service providers—were anything but disinterested. They had anxiously awaited the Cabinet Committee report. When it appeared, they gave serious and generally critical attention to the analysis and conclusions. By October 1965, the report had been discussed by a variety of business and professional groups.31 As agency staffers formulated a course of action, the National Association of Life Underwriters, the National Association of Manufacturers, the Chamber of Commerce, and the American Iron and Steel Institute requested meetings to make certain that the administration understood the importance they gave to pension issues.32 These circumstances led Treasury and Labor officials to recommend a cautious approach. The administration would ask for comments from privatesector groups and attempt to accommodate their concerns.33 In April 1966, Willard Wirtz reconvened the Cabinet Committee, now expanded to include the Commerce and Justice Departments, and the group approved this strategy. “The spirit of the meeting,” recounted a Commerce staffer, “was one of caution and a desire to make improvements in the Cabinet Committee Report.”34 Assistant Treasury secretary Stanley Surrey reported that “businessmen . . . were philosophically opposed” to additional regulation, but they believed the administration would push forward on pension reform and would be “willing to discuss technical problems.” The Cabinet Committee endorsed a plan to meet “with business, labor, and professional groups to seek

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practical advice on possible legislation” in the hope of formulating recommendations for the administration’s legislative program for 1967.35 Pressure from Senator McClellan led the committee to give first priority to fiduciary and disclosure issues. Vesting, funding, and other reforms were earmarked for further study.36 The administration made this plan of action public several weeks later, when the Fiscal Policy Subcommittee of the Congressional Joint Economic Committee held hearings on private pension plans. The hearings call to mind a good-cop-bad-cop routine, with administration witnesses as good cop and subcommittee chair Martha Griffiths (D, Mich.) as their foil. Griffiths’s questions, which Labor and Treasury officials helped to prepare, conveyed a skeptical view of private pensions.37 When a UAW witness admitted that an auto worker with nine years of service would lose his pension if he lost his job, Griffiths wondered whether this made the idea “that this is a fringe benefit to the employee . . . to a very great degree a delusion.”38 And Griffiths returned again and again to the “tax subsidy” for private pensions. Employer contributions to a pension plan, she said, were “a loan from the rest of us.”39 Although not a neutral observer, Business Week’s account of the hearings was accurate: “By questioning officials of [Studebaker and] half-a-dozen other plans of widely varying provisions, Mrs. Griffiths hopes to spotlight what she feels are defects of many plans.”40 In contrast to Griffiths, administration witnesses trod lightly. Business groups objected to the Cabinet Committee’s claim that pension plans received a tax subsidy.41 When Willard Wirtz explained how the tax laws created a public interest in pension plans, he “state[d] the tax implications in as neutral a form as I can, because there has been concern expressed at talk about ‘tax subsidies.’” “I have stated it considerably less neutrally,” Griffiths retorted.42 Wirtz also cautioned against hasty action on the Cabinet Committee’s recommendations. They “were not meant as specific legislative proposals suggested for immediate congressional reaction,” he said. There was not yet enough information to judge the need for reform, but the administration was working to fill the gap.43 Other government witnesses struck a similar note. In a report on the hearings, an insurance industry official stated that there was “no danger of rash pension laws.”44

“a positive stand for reform” An interagency task force of staffers implemented this cautious approach to reform in the second half of 1966. While one group of staffers drafted a bill

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with fiduciary and disclosure reforms, another set up meetings at which “outside groups” could comment on a variety of reform proposals. The premise of this legislative strategy was that private-sector groups would share their knowledge and expertise if government asked them to. This turned out not to be so. As in the past, interest groups offered blanket objections but little or no hard evidence of the ill effects of particular reform proposals. Stonewalling from the private sector pushed agency officials toward a more aggressive course of action. Business, labor, and their service providers knew more about pension plans than government did. If pension reform would not work, then the private sector ought to prove it. The administration would move forward until someone convinced agency officials that pension reform was a bad idea. The first order of business after Griffiths’s hearings was fiduciary standards. In late April, the staff created a Subcommittee on Fiduciary Responsibility that spent several months “redrafting” the bill McClellan had introduced in 1965.45 McClellan’s bill drew on the common law of trusts to create general standards for running an employee-benefit plan. Assets of a plan were considered a “trust” for the benefit of employees and their dependents.46 Individuals who handled plan assets were “fiduciaries” who must act “for the sole and exclusive” purpose of providing benefits to participants.47 To these general standards, McClellan added narrowly drawn rules addressed to specific situations that could be manipulated by an unscrupulous administrator. Fiduciaries were to avoid conflicts of interest.48 The Labor Department would oversee merger or dissolution of a benefit plan, foreign investments, and plan investments in the sponsoring employer.49 McClellan also regulated risky people. Individuals who had been convicted of certain crimes could not serve in a fiduciary position.50 The bill authorized plan participants and the Labor Department to sue to prevent violations and recover financial losses caused by a violation.51 Finally, the bill provided for criminal sanctions for willful or knowing violation of many of its standards.52 The Fiduciary Subcommittee completed a draft bill in August, and Wirtz promptly circulated it for agency comments.53 Like McClellan’s bill, the draft considered plan assets to be a trust and required administrators to comply with fiduciary standards of conduct.54 Staffers altered or eliminated several provisions that called for agency oversight of individual transactions because they believed case-by-case treatment would be time-consuming and intrusive.55 McClellan wanted the Labor Department to supervise foreign investments; staffers rewrote this provision to allow plans to invest

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abroad as long as “indicia of ownership” remained within the reach of state or federal courts. McClellan also wanted the Labor Department to oversee plan investments in the sponsoring employer. The draft replaced this provision with the Cabinet Committee’s proposal to limit investment in employer securities to 10 percent of plan assets.56 The staff also added the Cabinet Committee’s disclosure proposal. Current law required plans to file a general “statement of assets.”57 The draft called for a “detailed list” of “all investments,” “all purchases of investment assets,” “all sales of investment assets,” and “all loans made.”58 The draft also required plans to submit the opinion of a certified or licensed accountant with their annual report to the Labor Department.59 Finally, agency drafters dropped several provisions— for example, some criminal sanctions—that they believed were ill advised.60 While the Fiduciary Subcommittee worked on draft legislation, other staffers organized meetings with major stakeholders in the private pension system.61 In late June agency executives asked the principal trade and professional groups for employers, unions, and service providers to select representatives to meet with the task force. The National Association of Manufacturers and the Chamber of Commerce selected representative employers, the AFL-CIO chose representative unions, and so on. The meetings, which took place from August through October of 1966, focused on six topics: disclosure, fiduciary responsibility, vesting, broadening participation in pension plans, funding, and termination insurance. Agency officials prepared an agenda that outlined their thinking and posed questions they hoped would focus the meetings on “feasible proposals for implementing the [Cabinet] Committee’s recommendations or where it is believed that the Committee’s recommendations are not satisfactory, alternative solutions to the problems raised by the Committee.”62 The meetings were disappointing. Group representatives gave staffers practical advice on a couple of narrow issues, but the meetings mostly rehashed old arguments. The proposals on the task force’s agenda would require major changes in virtually every private pension plan. Not surprisingly, the organizations that would have to make the changes usually claimed that the proposals were unnecessary or should not apply to them. For example, union representatives endorsed “vesting as a principle and . . . some legislative requirement for vesting, provided room was left for exceptions in certain cases.” The “certain cases” were multiemployer plans, which had stringent vesting requirements.63 Likewise, Wilbur Daniels of the Garment Workers union objected to a statutory funding standard because it would require changes in the plans his union sponsored. Instead, labor rep-

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resentatives endorsed termination insurance. They “were unanimous . . . that a sound reinsurance program would make any legislative requirement of full funding unnecessary.”64 Business representatives were particularly adamant against pension reform. On the issue that was discussed in most detail—vesting—they raised familiar objections: “The rapid spread and improvement of vesting indicates that most of the needs in this area are being met; mandatory vesting will discourage adoption of new plans, reduce the rate of improvement of benefits in existing plans, and arbitrarily distort the structure of compensation while removing one area of freedom that business and labor have in collective long aiming settlements.”65 Business representatives were scarcely friendlier to other proposals. Repeating another familiar position, they observed that fiduciary “abuses” were concentrated among multiemployer plans. Single-employer plans were responsibly managed and did not need additional regulation.66 (Of course, labor representatives demanded that fiduciary standards apply to single-employer and multiemployer plans alike.)67 Managers thought disclosure legislation was premature because the Labor Department had recently amended the forms for filings under the Disclosure Act. Participation, funding, and termination insurance were discussed more briefly, but management representatives claimed all were misconceived or unnecessary.68 Staffers came away frustrated. The meetings did little to reduce the uncertainty surrounding pension reform because private-sector participants provided little factual support for their objections. This prompted skepticism and a shift toward a more aggressive strategy. “We know little about pension funds, an ignorance that prevails elsewhere,” an SEC representative argued, “and we should state ground rules to protect the public interest, and we should take a positive stand for reform.”69 The rationale for a more assertive approach was simple. Private-sector experts knew more than the administration did about pension plans, and they claimed pension reform would do more harm than good. If the objections were valid, then the private sector ought to back them up with evidence. The administration’s new message to the private sector would be, Help us or else. Agency officials would admit their need for information and expertise but make it clear that they would proceed with or without private-sector cooperation. Pension reform would go forward until someone persuaded the administration that private-sector objections were valid. So pension reform went forward. Willard Wirtz assigned the task of developing vesting and funding proposals to a small group of Labor and Treasury staffers.70 With assistance from Thomas Paine, a consultant at a promi-

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nent actuarial firm, the group drafted a position paper on these issues. Like the Cabinet Committee, the Labor-Treasury group appealed to norms of fairness and security to justify vesting and funding standards for retirement plans. Whether the cause was forfeiture or default, it was not fair for a longservice employee to lose the pension he expected. The critical policy problem was to devise regulatory standards that provided “the desired degree of equity” without creating “stringent restrictions or administrative complications.” To accomplish this goal, staffers chose three principles to guide their inquiry: (1) vesting and funding standards should impose “the least practicable burden on the operation of individual plans and on the growth of the private pension system”; (2) the standards should apply across the board; and (3) they should be “relatively easy to administer.”71 Like the Cabinet Committee, Treasury and Labor staffers gave serious thought to the cost of their proposals. The Cabinet Committee addressed cost concerns by adopting a vesting standard it regarded as an “absolute minimum.”72 Treasury and Labor staffers disagreed with this approach. The future growth of the private pension system, they wrote, required a stable regulatory framework. Government had to “maintain the confidence of private plan sponsors and administrators that the adoption of any standards is not the opening move in a campaign to subvert the basic public policy of encouraging the growth of private plans.” Because they believed plan sponsors would view weak standards as “first steps” in a succession of ever more stringent regulations, staffers concluded that ambitious standards would better promote stability. If strong standards were too costly for some firms, transition rules would ease the effect in the years immediately after enactment. By using transition rules, policy-makers could adopt a sound vesting standard that could be trusted not to change too much in the future.73 Following this logic, the group proposed a more ambitious standard than the Cabinet Committee had proposed. The committee recommended a standard of 50 percent vesting after fifteen years of service with an additional 10 percent vested each year until 100 percent vesting was reached at twenty years.74 Staffers thought this was too weak. They proposed a prospectively applied standard of 100 percent vesting after ten years of service. A prospective standard—that is, a standard that applied only to benefits earned after the effective date of the legislation—would be cheaper than a rule that vested benefits earned in the past. The lower cost of prospective vesting made it feasible to adopt a strong standard that would be both fair and easy to administer. The staff believed that ten years of service was “a sufficiently extended period of time for the value of an employee’s services to be explicitly recognized.” This schedule was also administratively practicable be-

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cause plans would not have to vest short-service employees (who had the highest levels of turnover).75 Developing a funding standard was a bigger challenge. Actuaries criticized the Cabinet Committee for being “mixed-up” about actuarial concepts.76 The committee proposed that each year a firm should contribute the cost attributable to the current year plus an amount that would pay off unfunded “accrued liability” in no more than thirty years.77 The proposal sought to reduce the risk that a plan would terminate without enough assets to meet its obligations. The actuarial concepts the committee used to express this goal, however, were not derived from the perspective of a plan termination.78 When actuaries calculated a firm’s pension contribution, they generally assumed that a plan would continue in the future. This led them to consider a variety of objectives—for example, providing the firm with a smooth pattern of contributions—that bore no necessary relationship to the security of expectations. Moreover, actuaries drew on a variety of different actuarial cost formulas that defined key concepts like “accrued liability” in different ways.79 Labor and Treasury officials conceded that these ambiguities made the Cabinet Committee’s funding recommendation “really . . . meaningless.”80 These criticisms led Treasury and Labor staffers to adopt “a completely different approach” to funding. Drawing on the work of Frank Griffin, a prominent actuary, they developed a funding standard that was geared to employees’ expectations.81 “The employee is not concerned with actuarial methods and rates of funding of accrued liabilities,” staffers observed.82 Employees cared about whether they would receive a pension if their plan terminated.83 Thus, the funding standard should not force a retirement plan to follow a particular actuarial method. It should ensure that, within a reasonable period of time, a plan accumulated enough assets to pay its vested liabilities in case of termination. This approach balanced the employee’s desire for security with managerial discretion. Employees would be able to rely on pension promises, and plan sponsors could choose the actuarial cost method they favored. The staff proposed ten years as the appropriate period for a plan to reach full funding.84 Three further points in the position paper are important. First, staffers’ commitment to uniformity implied that the vesting and funding standards should apply to single-employer and multiemployer plans alike.85 Second, staffers concluded that the enforcement options in the tax laws were not appropriate for the funding standard. Under current law, a plan that failed to comply with the tax regulations could lose its qualification for favorable tax treatment.86 “Disqualification,” as the remedy was called, was more likely

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to harm employees than help them. Staffers devised new remedies that better suited the protective purpose of the funding rule. A plan with unfunded vested benefits would disclose this fact to employees. When a plan failed to meet its funding target, the employer would either guarantee the shortfall (as Dan McGill had suggested) or reduce benefits to a level consistent with the plan’s funding status.87 The new methods of enforcement led to a third important change. The Cabinet Committee proposed to implement its vesting and funding standards through the tax laws. Labor and Treasury staffers believed this would work well for vesting but not for funding. The protective purpose and disclosure remedy made the Labor Department the appropriate agency to administer the funding standard. For this reason, the funding standard should be placed in the federal labor laws rather than the Internal Revenue Code.88

“a republican program” on pension reform The Cabinet Committee convened early in 1967 to decide whether to recommend the draft fiduciary and disclosure bill and the proposals in the Labor-Treasury position paper for the administration’s legislative program for 1967. The group easily approved the draft legislation, and President Johnson sent it to Congress in February. The Commerce Department objected to the position paper, however, because the Labor and Treasury Departments had prepared it without input from other agencies. This turn of events made the fiduciary and disclosure bill a threat to the proposals in the position paper. If Congress took up pension reform with its gaze narrowly focused on malfeasance by plan administrators, legislators might overlook forfeiture risk and default risk. This threat was neutralized only days after the administration submitted its bill when Jacob Javits introduced the first comprehensive pension reform legislation. Javits’s bill, which included vesting and funding standards, termination insurance, and a portability program, provided political cover that allowed agency officials to continue to develop more far-reaching legislation. In January 1967, Willard Wirtz circulated the draft fiduciary and disclosure bill and the Labor-Treasury position paper for consideration as part of the president’s legislative program.89 Wirtz had sent the draft out for agency comments in August, so by January most differences had been worked out. The major objection had been the requirement for detailed disclosure of all investment transactions. The Labor Department “drastically curtailed” this requirement.90 Instead of “a detailed list” of all purchases and sales of in-

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vestment assets, plans would submit a “statement of the aggregate” transactions.91 When the committee met on January 19, it endorsed the draft with little dissent.92 From there, action was quick. At the end of January, Wirtz forwarded the bill to the Bureau of the Budget for legislative clearance.93 Budget quickly approved the measure, and on February 16, the president announced the Welfare and Pension Protection Act of 1967 as part of his program “to protect the American consumer.”94 Four days later, Ralph Yarborough (D, Texas), who chaired the Labor Subcommittee of the Senate Labor and Public Welfare Committee, introduced the measure.95 The major difference between the first draft and the bill as introduced was the substantial scaling back of the reporting requirements. The regulatory framework based on trust principles, the requirement of an independent audit, and the limit on investment of pension plan assets in employer securities remained.96 And like the earlier draft, the bill would expand the Labor Department’s enforcement authority and give plan participants more remedies to protect themselves.97 These reforms, said the president, would “insure the worker and his family that their welfare and pension plans will be administered fairly and honestly” without “interfer[ing] with the discretion of plan managers in making legitimate investment decisions.”98 In contrast to the fiduciary and disclosure bill, there were objections to the Labor-Treasury position paper. Perhaps because they thought the Commerce Department would “drag its feet,” the Labor and Treasury Departments had developed their vesting and funding proposals without input from Commerce and other agencies.99 When Wirtz circulated the position paper, a Commerce staffer complained to his superiors: “The Interagency Staff Task Group was not informed of the Labor-Treasury-Paine study either while it was in progress or upon its completion.” In addition, Commerce staffers had opposed the approach adopted in the paper, as had most private-sector representatives who met with the task force.100 At the request of Commerce secretary John Conners, Wirtz sent the vesting and funding proposals back to the task force for further review.101 Although staffers went right to work on the vesting and funding standards, the fiduciary and disclosure bill posed a threat to these more ambitious proposals. Many agency officials believed that forfeiture risk and default risk were greater threats to employees than fiduciary malfeasance.102 Jimmy Hoffa and George Barasch had shown, however, that misconduct by fiduciaries was an attention-getter. The danger was that Congress would focus narrowly on fiduciary issues and overlook forfeiture risk and default risk.103 Willard Wirtz had cautioned against this possibility in 1966 in an appearance on Meet the Press. The “public interest” in pension plans, he said,

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should not be “drained off on a particular, narrow problem [i.e., fiduciary malfeasance], when we have got very real problems about the vesting of pension funds, about the funding of pension funds, about their effect on labor mobility.”104 The president’s introduction of legislation to establish fiduciary standards made this threat very real. As it turned out, help came quickly and fortuitously from Congress. On February 28, eight days after Yarborough introduced the fiduciary and disclosure bill, Jacob Javits introduced a much more ambitious measure, the Pension and Employee Benefit Act of 1967 (S. 1103).105 Javits’s bill exemplified the entrepreneurial style he brought to the Senate Committee on Labor and Public Welfare when he replaced Barry Goldwater (R, Ariz.) as ranking Republican. As political scientist David Price recounts, Javits immediately undertook “what frequently was termed the post-Goldwater housecleaning,” firing (or constructively discharging) the entire minority committee staff. In their place, Javits hired replacements more attuned to his conception of the minority’s role.106 Price describes that role as follows: “Javits strove to develop a Republican program which, far more than anything Goldwater had envisioned, matched majority proposals in scope.”107 Even in the Eighty-ninth Congress, the first in which Javits was ranking Republican, “No Senator had more bills before the [Labor] Committee than did the ranking minority member.”108 Clearly, S. 1103 put Javits right where he wanted to be—out in front of the administration and the Senate. Javits had taken up pension reform because a new committee staffer, Frank Cummings, convinced him of its importance. Before joining the Labor Committee staff, Cummings had practiced law at Cravath, Swaine & Moore, the law firm that represented Studebaker-Packard. Cummings’s specialty was pensions, and he had worked on the terminations of the Packard and Studebaker pension plans.109 These and other cases convinced him that employees needed statutory protections. As it turned out, Cummings’s arrival in Washington coincided with the publication of the Cabinet Committee report. Soon after joining the staff, he told Javits that legislation was needed to “insur[e] that persons interested in a pension plan get something, and that their reasonable expectations are fulfilled.”110 The issue appealed to Javits, and Cummings was soon talking with private-sector experts about how to formulate a comprehensive reform bill.111 Cummings spent most of his initial two-year tenure on the staff working on the bill. Javits introduced it on the day Cummings left the committee to return to law practice in New York.112 Javits’s remarks upon introducing S. 1103 advertised the fact that he had scooped the administration on pension reform.113 “[T]he President’s bill has

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barely scratched the surface,” he declared.114 Javits’s bill took on fiduciary malfeasance and much more. To address forfeiture risk, Javits proposed two vesting standards that were similar to the Cabinet Committee’s proposal.115 The bill also would create a voluntary portability program that, assuming that both firms agreed, would allow an employee who changed jobs to transfer his pension benefits to his new employer.116 To deal with default risk, Javits proposed a minimum funding standard much like the Cabinet Committee’s.117 To this he added an insurance program closely modeled on Vance Hartke’s bill.118 Another important innovation was Javits’s proposal to create an independent commission that would have jurisdiction over the new regulations as well as most existing federal oversight of employee benefit plans.119 The particular provisions of Javits’s bill were less important, however, than its scope and its referral to the Senate Committee on Labor and Public Welfare. Until Javits introduced S. 1103, pension reform legislation had been narrowly drawn. Hartke had proposed a pension guaranty fund. The administration bill addressed fiduciary and disclosure issues. And John Dingell (D, Mich.) had recently introduced a bill to establish a vesting standard.120 In contrast, S. 1103 was “drafted on the hypothesis that if it is desirable to deal with all the pension problems which have come to the surface in recent years, there is a way, a comprehensive way, to do it.”121 The broad scope of Javits’s bill was a boon to reformers in the executive branch because they too favored a comprehensive approach and because Javits’s bill made it less likely that Congress would focus on fiduciary malfeasance at the expense of vesting, funding, and termination insurance. In addition, Javits and his aides drafted S. 1103 so that all of its proposals would go in the federal labor laws. This was a significant shift in thinking that had important procedural consequences for the consideration of pension reform in Congress. To this point, proponents of vesting, funding, and termination insurance had generally assumed that their initiatives would be implemented through the tax code. The Cabinet Committee proposed vesting and funding standards as tax rules. Dingell did the same for vesting as did Hartke for termination insurance. The Labor-Treasury position paper proposed to put funding standards in the federal labor laws but left vesting in the tax code. Under the House and Senate rules, bills that proposed amendments to the Internal Revenue Code had to pass through the tax committees.122 Furthermore, the Constitution requires revenue measures such as tax legislation to originate in the House of Representatives.123 Together, the procedural and constitutional rules gave the House Ways and Means Committee a virtual monopoly over pension reform legislation that included tax provisions: Ways

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and Means had to report a bill before anything could happen.124 Although Javits’s bill mentioned the Internal Revenue Code, it did not propose to change the tax laws.125 As a result, S. 1103 went to the Senate Labor Committee. The referral to the Labor Committee was important for several reasons. For one thing, it circumvented the Ways and Means Committee’s monopoly control over the initiation of tax legislation. (The careful drafting of S. 1103 might avoid the Ways and Means Committee’s power to propose tax bills, but it would not necessarily avoid the committee altogether. Although the House jurisdictional rules were similar to the Senate rules, they were not identical. When companion versions of Javits’s bill were introduced in the House, they went to Ways and Means rather than the Education and Labor Committee.)126 The referral also shifted pension reform to a friendlier venue because the labor committees were much more liberal than the tax committees.127 Finally, the administration’s fiduciary and disclosure bill had been referred to the House and Senate labor committees. If the labor committees held hearings on the administration bill, Javits would push to have his bill considered too. And if Javits’s broad-ranging measure was on the agenda, the administration ought to have a comprehensive bill as well. In fact, a legislative specialist at the Budget Bureau complained to the White House in June 1967 that the Labor Department was “apparently . . . encouraging committees to defer hearings on [the administration’s fiduciary and disclosure bill], pending the development of the additional proposals relating to vesting, funding, and reinsurance.”128 In this way, Javits provided political cover that allowed Labor and Treasury officials to move forward on vesting, funding, and termination insurance with less concern that Congress would rush to take up the fiduciary and disclosure bill. The task force had taken up vesting shortly after the Cabinet Committee’s meeting on January 19, several weeks before Javits introduced S. 1103. The Labor-Treasury position paper recommended that plans be required to vest employees in 100 percent of their benefit accruals after ten years as a prerequisite for receiving favorable tax treatment. The Commerce Department submitted an alternative, but the task force endorsed the LaborTreasury proposal.129 The group then moved on to funding, but Commerce kept up a rearguard action on vesting. In March Commerce submitted another vesting proposal, this one devised by Denis Maduro, a New York lawyer who was a friend of Alexander Trowbridge. In late March, Trowbridge, now acting secretary of Commerce, discussed Maduro’s proposal with Stanley Surrey and assistant Labor secretary James Reynolds, but to no avail.130

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On funding, the task force followed the Labor-Treasury approach but chose a longer schedule. Staffers scrapped ten-year amortization of unfunded liability because this would require onerous payments for severely underfunded plans. Instead, the group proposed that firms fund vested benefits over twenty-five years. This schedule would roughly match contributions under the practice—common among collectively bargained plans—of amortizing unfunded liabilities (vested and nonvested) over thirty years.131 To ease the financial burden of a newly created plan, the funding standard would not apply until a plan had existed for ten years. Thereafter, the ratio of assets to vested liabilities should equal the age of the plan multiplied by 0.04 (4 percent). Thus, in year fifteen, 60 percent of vested benefits had to be funded, in year sixteen, 64 percent, and so on until year twenty-five, when all vested benefits would be funded (assuming that the plan had not been amended to increase benefits).132 If a plan increased benefits and created a new unfunded vested liability, the new liability would be funded over twenty-five years from the date of the increase. Staffers adopted a modified version of the enforcement scheme in the Labor-Treasury paper. A plan would disclose its unfunded vested liabilities to employees. If a plan did not meet its funding target, the sponsor would assume liability for the shortfall or freeze benefits until the target was met.133 The task force also took the important step of endorsing termination insurance. This was the most far-reaching, technically daunting, and politically controversial issue the group considered. The vesting and funding proposals involved a new policy goal (making expectations secure) and a new and more intrusive form of intervention (regulatory design standards). But they did not go as far as termination insurance. The insurance proposal would create an entirely new government program that would establish a new relationship between government and pension plans and new relationships among the plans in the insurance pool. Policy proposals are generally riskier and more contentious when they move farther from the status quo.134 Termination insurance was no exception. Staffers and their principals understood that it would be difficult to design a viable termination insurance program. When the Senate Finance Committee held a hearing on Hartke’s bill in August 1966, administration witnesses lauded Hartke’s intentions but questioned whether termination insurance would work without comprehensive regulation. In the absence of regulatory standards, insurance coverage might lead to irresponsible conduct. As Willard Wirtz put it:

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Perhaps the most important problem area involves the question of standards. If the Federal Government were to take upon itself the obligation of insuring private pension funds, compliance with certain minimum operating standards would appear to be required. Without standards to assure adequate funding, prudent investment practices, and competent, honest management of these plans, a reinsurance program could have the effect of subsidizing imprudent procedures and inadequate funding.135

In the months since the hearing, the administration had proposed fiduciary standards legislation, and the task force had developed a funding standard. These proposals would establish a regulatory framework that might make termination insurance viable. But termination insurance was extremely controversial. Business groups questioned the feasibility of an insurance program, and they opposed the regulatory standards that were needed to make it workable.136 What is more, business representatives denied that insurance was desirable even if it were feasible. Robert Royes of AT&T cogently presented the case against termination insurance in remarks to the New York University Conference on Labor in 1966. Far from proving the need for an insurance program, Royes claimed the Studebaker case proved the inequity of such a program. As Royes observed, the underfunding in the Studebaker pension plan was not an oversight. Studebaker and the UAW had agreed to pay generous pensions to employees who would retire soon after the plan came into being. The necessary result of this decision was that the plan incurred a large liability. The union could have insisted that Studebaker immediately fund this liability. But if it had, said Royes, “I cannot believe that a pension plan would ever have been agreed to by management or stockholders.”137 Instead, the UAW agreed that Studebaker would pay off the past-service liability over thirty years. This allowed the plan to pay higher benefits, but it also exposed employees to default risk.138 Royes favored more rapid funding than Studebaker and the UAW had chosen, but he did not fault them for choosing as they did. There were costs to attaining a higher level of funding. Retirees might receive smaller benefits, or active employees might have to accept lower wages in return for larger pension contributions from Studebaker. As it was, the union accepted “a certain amount of risk” so that retirees could have liberal pensions without taking too much out of the pockets of active employees. Royes thought no one was in a better position to make the decision than Studebaker and

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its employees. But those who made choices had to bear the consequences. To do otherwise was to invite employers and employees to make reckless decisions that someone else would have to pay for.139 Other business representatives echoed this concern. In testimony to the Senate Finance Committee, Ford Motor Company lobbyist Rod Markley asked, “Should well-managed, stable companies and plans in effect be charged with deficiencies created by inept operators who have overreached themselves?”140 Royes, Markley, and the business community answered this question with a resounding “No.”141 Despite this opposition, the task force believed termination insurance was necessary because many employees would face default risk even if Congress adopted the group’s funding proposal. Virtually all newly created defined-benefit plans were underfunded because employees received pension credit for past service. Under the funding proposal, a firm had twentyfive years to fund the vested liability of a new plan. Until that liability was funded, employees would be exposed to default risk. Moreover, even with a funding standard, some retirement plans would never attain full funding. As the Studebaker retirement plan illustrates, collectively bargained plans would stay underfunded because employers and unions usually increased benefits, thereby creating new past-service liability, in each successive round of bargaining. Termination insurance would protect employees in each of these circumstances.142 This line of reasoning led the task force to design a scheme to “fill the gap between the plan’s individual funding target and the 100 percent goal.”143 A plan with unfunded vested benefits would insure the lesser of its unfunded liability for vested benefits and the difference between its funding target and 100 percent funding.144 For example, a seventeen-year-old plan with a funding target of 68 percent would insure up to 32 percent of vested benefits. If exactly 68 percent of its vested liabilities was funded, the plan would insure the remaining 32 percent. If 75 percent of vested liabilities was funded, the plan would insure the unfunded 25 percent. The staff proposal would not insure all of the vested liabilities of a plan that failed to meet its funding target. A seventeen-year-old plan in which only 50 percent of vested liabilities were funded would be able to insure no more than 32 percent of vested liabilities.145 In such a case, the task force’s funding proposal would require the employer either to freeze benefit levels until the plan met its funding target or to guarantee the 18 percent of vested liabilities that was unfunded and uninsured.146 Like the UAW officials who prepared Hartke’s bill, agency staffers wrestled with moral hazard and adverse selection. One concern was that firms would use the insurance program as an excuse not to fund. The funding pro-

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posal countered this incentive by virtually forcing firms to fund. Another proposal prevented a firm from creating a plan or increasing benefits and then terminating the plan. This “suicide clause” set a five-year waiting period before a new plan or a benefit increase was covered.147 There was also the critical but difficult task of defining the event that triggered insurance coverage in a way that did not allow firms to dump liability on the program.148 This problem had flummoxed UAW officials. Agency staffers fashioned a definition that covered a plan termination only if “(1) the business or its assets are being sold, (2) the company is going out of business because of financial failure, (3) the particular plant is closing, or (4) the employer has a business necessity to terminate the plan.” “Terminations designed for profit at the expense of the guarantee fund,” staffers wrote, “should be prohibited by law.”149 The task force also had to address the difficulties of financing a guaranty fund. The underlying problem was that some firms would be unable to pay actuarially fair premiums. Like their UAW counterparts, agency staffers adopted an exposure premium that would force strong firms with an underfunded pension plan to subsidize weak firms with an underfunded plan. Staffers understood that the subsidy threatened the stability of the insurance pool. Strong firms had an incentive to opt out of the insurance program by funding all of their plan’s vested liabilities, in which case the plan would not have to “purchase” insurance.150 “If [underfunded plans] would provide a stable pool by themselves,” the draft observed, “it would seem preferable to ask for no premiums from plans which can pass the funding test.” If not, it might be necessary to require “a small premium” from fully funded plans.151

“internecine warfare within business groups”—and organized labor By the end of March 1967, the task force had settled on the general features of vesting and funding standards and an insurance program. At this point, agency executives scheduled a new round of meetings with business and union representatives. Even before the meetings occurred, the administration’s more aggressive stance had persuaded some business representatives to come forward in the hope of securing a compromise. Business groups and agency officials conferred into the summer of 1967, but they were too far apart to make a deal. Nor could business representatives agree among themselves on alternatives to the task force’s proposals. There was also a

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split in the labor movement. Most unions opposed the task force’s vesting and funding standards because of the impact on multiemployer plans. The Auto Workers and Steelworkers unions, on the other hand, were staunch supporters of reform. The task force tried to accommodate union objections, but the AFL-CIO wanted more than agency officials would give. If the administration proposed comprehensive pension reform legislation, it would do so against the wishes of business and most of organized labor. In the fall of 1966, agency officials abandoned their cautious approach to reform in favor of a more aggressive line of attack. The change in tactics produced results. A few weeks after the task force met with labor representatives, Willard Wirtz and assistant Labor secretary James Reynolds warned Wilbur Daniels of the Garment Workers union “that there was a likelihood that the administration would propose legislation dealing with vesting, funding and reinsurance.”152 Daniels advised Garment Workers president Louis Stulberg that the union should prepare “precise details” on the effect of different reforms “in preparation for what now appear to be inevitable questions we will face both from our own labor colleagues and from government bodies.”153 In January 1967, an insurance executive made the same point to a gathering of managers. Business, he said, should “learn from the lessons of Medicare and Medicaid and chart our strategy in terms of efforts to shape and direct what shall happen to us.”154 Others in the business community came to the same conclusion. As the task force deliberated on vesting, funding, and termination insurance, two groups of business representatives offered the Cabinet Committee part of what it wanted. Sometime in late 1966 or early 1967, Herman Biegel, a Washington attorney, contacted Stanley Surrey about the task force’s pension initiatives.155 Biegel was a highly regarded tax lawyer whom Surrey knew well.156 Biegel appears to have been personally sympathetic to the reforms the Cabinet Committee was pursuing.157 His client was the group of large corporations that had established the Washington Pension Report Group. These firms were less antagonistic to pension reform than many other businesses because compliance with vesting and funding standards would be less burdensome for them.158 They had been among the first companies to adopt a pension plan. Their plans were older than average and thus more likely to have relatively liberal vesting rules (as a result of incremental improvements) and relatively high levels of funding.159 Around the same time, Denis Maduro, a lawyer who was a friend of acting Commerce secretary Alexander Trowbridge, approached him with a vesting proposal.160 Like Biegel, Maduro was a prominent attorney closely associated with business and professional groups in the pension industry.

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His position as chair of the Pension and Profit Sharing Trusts Committee of the American Bar Association Section of Real Property, Probate, and Trust Law gave him particularly strong ties to the banking community. Maduro met with Commerce officials in February 1967 to discuss his vesting proposal.161 Commerce later submitted his idea to the task force. And Trowbridge discussed Maduro’s proposal with Stanley Surrey and Jim Reynolds on March 22. On March 21, one day before the meeting with Trowbridge, Surrey spoke to the Washington Pension Report Group.162 (Interestingly, Herman Biegel, who arranged for Surrey to address the group, also appears to have drafted much of Surrey’s speech.)163 Adhering to the Cabinet Committee’s “positive” stance, Surrey was conciliatory but firm. “I assure you that we do not feel that all wisdom in the world rests in the Government,” Surrey told the group. As evidence, he noted that the administration had dropped several proposals after private-sector experts persuaded agency staffers that the initiatives were not practicable. Unfortunately, the business community had not been as accommodating. “Many of us in Government were somewhat disappointed that most of the comments [from business] were negative in tone and merely indicated general opposition to any change,” he said.164 Surrey outlined the task force’s vesting, funding, and termination insurance proposals and invited his listeners’ “constructive thoughts.” But he concluded with a warning: “I wanted you to know that we are moving ahead towards recommendations in this field, and that you should not mistake our considered deliberations for any slackening in our desire to improve the statutes and regulations in this field.”165 Several weeks later, the task force met separately with the Pension Report Group and union representatives. As in prior meetings, business and labor were far apart, and neither was ready to accept all of the reforms the task force proposed. According to a Commerce official who attended the meetings, “The broad approach of the Paine [task force] plan found no support on any major point from both groups.”166 Unions asked for an insurance program that “went beyond” what the task force was proposing, while “employers were primarily opposed to” termination insurance. They reversed positions on funding: “The employer group was least opposed to the funding standard and the unions were most opposed to it.” The only point of agreement was that the task force’s vesting standard was too stiff. “Except for a plea from both union and employer groups that they wanted a lesser vesting standard,” wrote the Commerce official, “the two private groups were diametrically opposed.”167 Although Labor and Treasury officials hoped to accommodate the private

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sector, there were limits to how far they would go. Shortly before the meeting with business representatives, Surrey told Bill Gibb that “we should stick as closely as possible to our 10-year [vesting] standard.”168 After the meetings, a Commerce official suggested that the task force should reconsider Commerce’s vesting proposal because “the parties had basically rejected the Task Force majority plan.” Peter Henle and Bill Gibb flatly rejected the idea.169 Far from rethinking the vesting proposal, Henle said “the union opposition to vesting . . . only convinced him that he should support a short vesting period more strongly.” The exasperated Commerce official told secretary of Commerce Trowbridge, “Both employers and unions rejected the great moral issue to which Henle is so strongly committed.”170 Staffers tinkered with their proposals after the meetings with business and labor, but they did not give way on their basic principles.171 At the request of needle trades unions, the task force decided not to require plans to count service before age twenty-five toward vesting. This would allow a plan not to vest workers, mostly women, who began working in their teens or early twenties and left employment by their early thirties.172 Unions asked for broader insurance coverage. The staff proposal insured a plan when it had existed long enough to be subject to the funding standard. To bring more plans into the insurance program, the task force revised the funding schedule to apply five years (rather than ten years) after a plan came into being.173 Another change aimed to shore up the insurance fund. Under the original proposal, a plan in which all vested liabilities were funded would not have to purchase insurance. Full funding of vested liabilities, however, did not guarantee that a plan would not default. Adverse actuarial or investment experience might compromise a plan’s level of funding. To meet these risks (and also, one suspects, to make it harder for firms to fund their way out of the insurance program), the task force decided to require plans to insure 110 percent (rather than 100 percent) of vested liabilities.174 This would force some fully funded plans to contribute to the insurance program. Several days after the meeting with the Pension Report Group, Surrey spoke with James Newmyer, a consultant active in the group. The tone of the discussion appears to have been cordial. Newmyer said the Pension Report Group wanted to give employees more protection, particularly if this would preempt more sweeping government intervention. The sticking points were termination insurance and portability. These proposals, Newmyer predicted, would result in government-imposed standardization. “[C]an’t have reinsurance without standardizing actuarial assumptions +

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forms of investment,” Surrey recorded. Employers “would prefer tougher funding than reinsurance.” Surrey, Henle, and Gibb met again with representatives of the Pension Report Group, but no compromise materialized.175 Officials from the Commerce Department had grown steadily more impatient with the treatment their suggestions received from the Labor and Treasury officials who ran the task force. After the April meetings with business and organized labor, Commerce tried to get business representatives to coordinate their response to the task force. At the suggestion of Secretary Trowbridge, the agency arranged for Denis Maduro, the lawyer who had developed a Commerce vesting proposal, to discuss his idea with the Washington Pension Report Group. Commerce officials attended as “observers.”176 The task force wanted to require vesting after ten years of service as a prerequisite for favorable tax treatment. Maduro accepted the ten-year standard but proposed to modify its enforcement. Rather than require tenyear vesting for favorable tax treatment, he suggested that a firm be denied tax deductions for contributions that funded pension accruals that would not vest for more than ten years. Under this approach, a plan could require, say, twenty years for vesting, but the employer would not receive a deduction for contributions applied to benefit accruals for employees with less than ten years of service (because the accruals would not vest until more than ten years after the contribution).177 The appeal of this approach—to Maduro at least—was that it promoted vesting without forcing a vesting standard upon employers. When Maduro met with the Pension Report Group, Herman Biegel and his associates saw a serious problem with the idea. Biegel worried that Maduro’s approach would lead firms to cut back on funding. Would firms with a plan that required more than ten years for vesting continue to fund at the same level if they could not deduct a portion of their contribution? The task force’s insurance proposal made this a troubling question. If firms cut back on funding, then more pension plans would default. That would create more support for termination insurance. Moreover, Biegel believed that Maduro did, in effect, endorse a statutory vesting standard. Maduro’s proposal would give plans with ten-year vesting better treatment than plans with a longer vesting requirement. The difference in treatment undercut arguments against a statutory vesting standard.178 For his part, Maduro agreed that an employer might fund at a lower rate if less of its pension contribution were deductible. The point of his proposal was precisely to preserve this freedom of action for employers. As Maduro put it, he “prefer[red] not to ‘water down’ [his] proposal by depriving the em-

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ployer of his right to refuse to fund for the non-deductible benefits . . . .”179 Informed of these developments, Trowbridge worried about “internecine warfare within business groups.”180 Commerce officials exhorted Maduro and the Pension Report Group not to “be content with opposing any proposed legislation.” The business community should “come forth soon with counterproposals embodying the philosophy of the Department of Commerce.”181 A second meeting occurred in August, but the Pension Report Group remained critical of Maduro’s approach.182 The deterrent to funding was the main objection, but Biegel’s group also thought the task force’s vesting standard would be simpler to administer. In addition, the task force’s proposal might provide a basis for compromise with Surrey and the Cabinet Committee. A Commerce staffer recorded that Biegel was “ready to buy Surrey[‘s vesting proposal] + conform in exchange for dropping reinsurance.”183 Maduro died shortly after the meeting, and efforts to sustain his proposal failed.184 In September a Commerce official reported that the Pension Report Group “is organizing a ‘company only’ push to develop an ‘ultimate compromise’ to put forward when the private group locks horns with Stan Surrey.”185 By this point, however, Surrey and his colleagues in the executive branch appear to have concluded that they would not compromise enough to satisfy the business community. Labor leaders too reacted to warnings that the administration would soon offer proposals on vesting, funding, and termination insurance. On May 9, 1967, the AFL-CIO Executive Council considered a draft policy statement on legislative proposals to regulate pension and welfare plans.186 The document manifested the hegemony within the AFL-CIO of unions that sponsored multiemployer plans. In a collectively bargained single-employer plan, the union usually played little or no role in plan administration. This made pension reform the employer’s problem. In a multiemployer plan, the union usually controlled plan administration, so pension reform was the union’s problem. This difference between single-employer and multiemployer plans explains why much of the analysis in the draft policy statement might have come from the Chamber of Commerce or the National Association of Manufacturers. The position statement supported termination insurance, which business strongly opposed. But otherwise, the draft praised the status quo and urged Congress to leave employers and employees free to establish arrangements that suited the particular circumstances in their industries.187 After some discussion, the Executive Council appointed a subcommittee

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to consider pension reform at greater length. The makeup of the group ensured that it would be responsive to the problems of multiemployer plans. Four of the six members—Joseph Keenan of the International Brotherhood of Electrical Workers, David Sullivan of the Building Service Employees, former Garment Workers president David Dubinsky, and Paul Hall of the Seafarers International Union—represented unions that sponsored multiemployer plans. The subcommittee chair, however, was I. W. Abel, the president of the Steelworkers union. When the group met on May 23, apparently with George Meany and Stanley Surrey in attendance, Abel presented the single-employer side of the story.188 In the preceding decade, Abel observed, employment in the steel industry had declined significantly. “Thousands” of union members had lost their job and, with their job, their pension.189 Although the union had negotiated more liberal vesting rules, Abel stated, “they do not go far enough.”190 The Steelworkers needed a statutory vesting standard to protect its members. There were also severe funding problems in pension plans in the steel industry. In some cases, the union had negotiated contractual language that required a firm to pay off past-service liability, but the employer threatened to shut down if the union tried to enforce the contract.191 In other cases, the union had bargained for direct employer liability for pensions, but the employer guaranty had not led firms to fund adequately. “[T]here are today among the top companies of the industry,” Abel reported, “some which have pension fund assets less than the liability for pensioners who are currently in receipt of pensions.”192 To protect its members from default risk, the union badly needed a statutory funding standard and effective means for enforcing statutory and contractual funding standards. A funding requirement would not answer all the problems, however, so termination insurance too was “a highly desirable objective.”193 Abel warned of disaster if Congress did not legislate vesting and funding standards. Others predicted disaster if it did. According to Stanley Surrey’s notes, Keenan, Sullivan, and Dubinsky all said that the pension plans their union sponsored could not comply with the task force’s vesting and funding proposals. George Meany seconded these concerns.194 Abel’s subcommittee tapped a group of pension specialists to determine the impact that vesting and funding standards would have on collectively bargained pension plans.195 The group concluded that a vesting standard and, especially, a funding standard would materially increase the short-term cost of many multiemployer plans. The task force proposals “would double cost (or halve benefits) for some of the largest multi-employer plans.”196 In fact,

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when a Garment Workers plan in Canada had to comply with legislation creating vesting and funding standards, union officials estimated that the contribution rate for employers would roughly double.197 The single-employer versus multiemployer split also showed up in a poll conducted by AFL-CIO legislative director Andrew Biemiller.198 Industrial unions whose members were concentrated in single-employer plans—for example, the Steelworkers, Auto Workers, Rubber Workers, and Oil, Chemical, and Atomic Workers—favored vesting, funding, and termination insurance. Craft unions—for example, the Painters, Technical Engineers, Musicians, and Building Service Workers—and industrial unions with multiemployer plans—the Clothing Workers and Garment Workers—opposed vesting and funding. Altogether, opponents outnumbered supporters fourteen to nine on vesting and fifteen to eight on funding.199 Industrial unions with single-employer plans favored termination insurance, as did a number of unions with multiemployer plans. Some unions with multiemployer plans opposed termination insurance, however, because they feared it would lead lawmakers to adopt a funding standard.200 Supporters of termination insurance outnumbered opponents eleven to ten.201 One wing of the labor movement favored statutory vesting and funding standards, and another opposed them, but that did not mean there was no room for compromise. Unions that opposed vesting and funding standards for multiemployer plans did not deny that employees in single-employer plans needed protection. In fact, many supported vesting and funding mandates for single-employer plans. But representatives of unions with multiemployer plans also believed that single-employer and multiemployer plans were so different in design and operation that protections that would have salutary effects applied to single-employer plans were neither necessary nor appropriate for multiemployer plans. Compromise did not come easy. One obstacle was the task force’s idea that regulatory standards should apply across the board. If the Cabinet Committee insisted that standards apply to single-employer and multiemployer plans alike, then unions that sponsored multiemployer plans would oppose pension reform. As organized labor struggled to get its house in order (and perhaps because of the struggle), the task force rethought its proposals along lines that might facilitate compromise. Representatives of unions with multiemployer plans had long contended that participants in their plans already possessed the protections that vesting and funding standards were meant to provide.202 The purpose of a funding standard was to ensure that plans could pay vested obligations in case of termination. This rationale made sense for single-employer plans because

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they depended on a single firm. Multiemployer plans were different because they included more than one employer. Indeed, some multiemployer plans took in most of the firms in an industry. If the purpose of funding was to protect employees from default in case a plan terminated, policy-makers ought to consider the fact that large multiemployer plans were much less likely to terminate than most single-employer plans. At a meeting of the Labor Department Advisory Council on Employee Welfare and Pension Benefit Plans in September 1967, Wilbur Daniels of the Garment Workers union claimed “the risk of multi-employer plans terminating is nil when the plan is big enough.”203 Agency staffers had considered and rejected this argument in March.204 By October they were more receptive. “If the role of funding is . . . the accumulation of reserves to protect against benefit losses when plans terminate,” a staff memo observed, then “the low incidence of multiemployer terminations could be recognized in the funding standard.”205 Union representatives made a similar argument for exempting multiemployer plans from the vesting standard.206 Employees in a singleemployer plan needed the protection of a statutory standard because employees who had not vested lost their pension if they changed jobs. Again, multiemployer plans were different. Pension credit in a multiemployer plan was portable. An employee could change jobs many times yet continue to accrue benefits so long as he worked for a firm that had signed on to the plan.207 Union officials argued that the inherent portability of multiemployer pensions made vesting unnecessary. This led the task force to consider allowing a multiemployer plan to require more than ten years of service for vesting if the plan could show that “portability significantly increases the proportion of participants who ultimately receive pensions and significantly increases the proportion of total accrued benefit rights that are preserved.”208 In November the task force took a step toward accommodating organized labor on vesting by proposing to let a multiemployer plan require more than ten years service for vesting if the plan could demonstrate “widespread portability.”209 Staffers were less sure about special treatment on funding standards or termination insurance. “[M]ore broadly based multiemployer plans [did] involve less risk than the average single-employer plan,” a staff memo stated, but were they less risky than a single-employer plan sponsored by GM or AT&T? Also, many multiemployer plans were not broadly based, and some plans that were broadly based were in declining industries like “coal mining and full-fashioned hosiery.” These doubts led the task force to defer the issue “until [it] can be studied at greater length and dis-

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cussed with the interested parties.”210 In any case, the AFL-CIO soon demanded more than the task force would have been willing to concede. In December 1967, the Executive Council endorsed termination insurance and vesting and funding standards for single-employer plans, but called for multiemployer plans to be exempt from vesting and funding standards.211

the pension benefit security act of 1968 In 1968 the Cabinet Committee presented Lyndon Johnson with a dilemma like the one it had given him in 1964. After almost six years of work, the committee urged the president to propose far-reaching legislation to regulate private pension plans. As in 1964, business groups and most unions opposed the committee’s proposals. Initially Johnson stalled, but congressional action eventually forced him to make a decision. Johnson again tried to steer a path between the supporters and opponents of reform. The White House would not propose pension reform legislation, and it would neither approve nor reject the Cabinet Committee’s recommendations. Instead, Johnson would allow the Labor Department to introduce a bill as part of its own legislative program. As it turned out, this approach failed miserably. Business groups were furious when Willard Wirtz sent the Cabinet Committee’s bill to Congress. Here was further evidence that disagreements over pension reform would be difficult and perhaps impossible to resolve. As 1967 waned, time became a critical resource for pension reformers in the executive branch. If almost six years of work were to produce a bill in the Ninetieth Congress—and who knew what was beyond the Ninetieth Congress?—then the Cabinet Committee had to settle soon on proposals. In October Wirtz prodded staffers toward closure.212 The task force wrapped up its work, and Peter Henle sent Wirtz the group’s proposals near the end of November.213 Wirtz convened the Cabinet Committee on January 5, 1968 to make recommendations for the administration’s legislative program.214 Although it was clear that business and most unions would oppose some or all of the task force’s recommendations, the committee urged the president to make vesting, funding, and termination insurance “a priority part of the Administration’s legislative progr[am] for 1968.”215 The group also made several changes in the implementation of these reforms. By far the most important was a decision to put all three proposals in the federal labor laws rather than the tax code. Perhaps because Wilbur Mills, the powerful chair of the House Ways and Means Committee, was hostile to pension reform or perhaps because Ways and Means was too busy to consider pension

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reform, Stanley Surrey recommended that the legislation be drafted as a labor measure.216 As Surrey told Treasury Secretary Henry Fowler, this would put jurisdiction over pension reform “essentially outside of the Internal Revenue Service and instead in the Department of Labor.”217 The bill would fall within the jurisdiction of the congressional labor committees, which were certain to consider it more quickly than the tax committees. Wirtz forwarded the Cabinet Committee’s recommendations to the White House on January 11.218 His timing could not have been worse. Johnson was still thinking of running for reelection, and pension reform would raise the hackles of Henry Ford II and other business leaders.219 To make matters worse, the president was “nudging” Ford to head the National Alliance of Businessmen, an effort to mobilize the business community “to hire and train the hard-core unemployed.”220 Johnson formally announced the initiative on January 23.221 Finally, disagreements over labor policy and the Vietnam War had strained the Labor secretary’s relationship with the White House.222 Transmitting Wirtz’s request on the evening of January 22, Joseph Califano, the president’s chief domestic policy advisor, reminded Johnson “that Henry Ford and other big businessmen (as well as several big labor leaders) are bitterly opposed to this.” “I know your views on this,” Califano wrote in his memo, “but Secretary Wirtz wanted me to bring it to your attention again.”223 Several hours later, Johnson got word that North Korean naval vessels had attacked and captured the spy ship USS Pueblo.224 He understandably deferred the pension proposals until there was more time to consider them.225 But as the president put off pension issues, Congress took them up. A few days later, John Dent (D, Penn.), who chaired the House General Labor Subcommittee and whose constituents included a large contingent of steelworkers, announced hearings on the administration’s fiduciary and disclosure bill. Besides these reforms, Dent said he would also look into the proposals in Hartke’s and Javits’s bills. He expected the administration to address them as well.226 As the Labor Department dashed to complete a bill embodying the Cabinet Committee proposals, friction developed with the White House. Officials at the Budget Bureau thought the Labor Department’s “unseemly rush” was cutting other agencies out of the drafting process.227 There were also suspicions that the Labor Department had something to do with Dent’s interest in pension reform. “It’s my understanding,” White House aide James Gaither later reported to Joseph Califano, “that [assistant Labor secretary Thomas] Donahue has encouraged Dent to expand the scope of his hearings to cover vesting, etc.”228 Even with the rush, the Labor Department did not finish a bill before

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Donahue testified on March 20. He limited his testimony to fiduciary and disclosure reforms.229 When Donahue concluded, Dent again emphasized that he wanted to do more than amend the Disclosure Act: “[W]e may as well try to clear up now and not put off any longer the serious aspects of funding, the serious aspects of vesting, and perhaps the question of reinsuring.”230 Dent’s statement echoed the recommendation of the subcommittee’s first witness—Jacob Javits. “Be bold,” Javits told the subcommittee.231 Over the next few days, Dent gave every indication that he planned to be just that. “The question” of employees forfeiting pension accruals, Dent told a representative of AT&T, “is coming up more and more every year. Whether this committee does anything about it this year or not, I cannot say. I know that we are going to go into it because I don’t think we can push it under the rug any longer. It’s becoming too much of a problem.”232 Dent lauded AFL-CIO legislative director Andrew Biemiller when Biemiller testified in favor of funding and vesting rules for single-employer plans and a guaranty fund for all pension plans. Biemiller “set forth better than anyone else so far the broad lines upon which this committee is going to proceed,” said Dent.233 “[T]he representatives of the Chamber of Commerce and the National Association of Manufacturers,” Dent told Biemiller, ought to “put aside the pro forma arguments and look into the kind of things that you bring up today . . . .”234 Dent’s insistence that he wanted to address vesting and funding and his request for an administration position on these issues kept pressure on the executive branch to submit a bill.235 The Labor Department completed a draft early in April.236 “[U]rging rapid clearance,” Willard Wirtz sent pension reform back to a reluctant White House.237 On April 19, Califano again presented the matter to the president. Noting Dent’s request for the administration’s views, Califano offered three options: the president could approve the bill as part of his legislative program, he could allow the Labor Department to submit the bill without an endorsement from the administration, or he could deny clearance and direct the Labor Department not to support legislation along the lines laid out in the bill. Califano “recommend[ed] the middle ground.” Although employees needed greater protection, he said, “the bill will undoubtedly be controversial and, according to the agencies, is not likely to pass this year.”238 Johnson agreed, and on May 1 Wirtz sent the Pension Benefit Security Act (S. 3421) to Congress as a Labor Department bill.239 One day later, Ralph Yarborough introduced it in the Senate.240

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table 3. Provisions of S. 3421, Ninetieth Congress, Second Session, 1968 Administration Participation Standard Vesting: Minimum Standard

Benefits Covered Funding Standard

Termination Insurance: Benefits Covered Liability Insured Premium Formula

Employer Liability

Labor Department Later of 3 years of service and age 25 (1) 100% vested after 10 years of service (2) Multiemployer plans with broad coverage may apply for permission to require more than 10 (but no more than 15) years of service for vesting Benefits accrued after effective date (1) Ratio of assets to vested liabilities must equal age of plan multiplied by 0.04 (4%) (2) Funding schedule is adjusted when a plan is amended to increase benefits Vested benefits accrued before or after effective date Value of vested liabilities minus the greater of 90% of plan’s minimum funding ratio or 90% of plan assets Exposure premium based on insured unfunded vested liability of plan plus “other factors” deemed relevant by insurer Employer is liable for unpaid contributions due under the funding standard

No one expected business groups to like S. 3421, but the circumstances surrounding its introduction produced a harsher response than might otherwise have occurred.241 In his transmittal letter to Congress, Wirtz described the bill as “part of the legislative program of the Department of Labor,” and he and other department representatives said it was “a ‘Labor Department bill’ and not an ‘administration’ bill.”242 But they also said that S. 3421 “ha[d] the backing of the White House and all concerned government departments,” and the New York Times incorrectly called it an administration bill.243 Finally, Joseph Califano reportedly told representatives of the Washington Pension Report Group they could review the bill before it went to Congress. This did not occur, so business groups appear not to have been aware of the decision to draft the measure as a labor law rather than a tax law. Riled by the Times story and by the administration’s failure to let them see the bill, business representatives protested to the president, who in turn rebuked his aides.244 White House staffers then directed their

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wrath at the Labor Department. After the Times story appeared, assistant Labor secretary Thomas Donahue arrived at work to learn that an incensed Joseph Califano was trying to reach him.245 The Commerce Department came in for the harshest criticism. In press briefings, officials from the Labor Department said Commerce supported the bill.246 Business leaders perceived this as a betrayal.247 The officials who had represented Commerce on the Cabinet Committee and task force spent the next few months rationalizing their actions and mending fences.248 Initially, they defended their handiwork. Commerce had asked the business community for help, one reported, but “[a]ll industry groups with whom we worked (bankers, pension experts, Bar Associations, and companies) opposed all compromises and variations, apparently on the grounds that these could only make S. 3421 harder to defeat.”249 Commerce had no choice but “to protect business from the worst effects of the proposed regulations. This we have done to the best of our ability, and we have a bill that is not unreasonable or unworkable.”250 Over time, however, the pressure to mend fences overcame the impulse to justify the bill. When the Senate Labor Subcommittee held a hearing on S. 3421 in July, Commerce declined to appear with the Treasury and Labor Departments.251 In the meantime, Congress pressed forward. Near the end of May, John Dent announced that his subcommittee would hold hearings on the House version of S. 3421. Two weeks later, he canceled them.252 Early in July, Dent’s subcommittee reported an amended version of the administration’s fiduciary and disclosure bill to the full Education and Labor Committee.253 In the Senate, the Labor Subcommittee scheduled hearings on S. 3421 for late July, although only a single hearing took place. The hearing brought the split between reformers and defenders of the status quo clearly into public view. In press releases and public statements, in testimony and submissions to Dent’s subcommittee, and in submissions to the Senate Labor Subcommittee, business representatives broadcast their opposition to the Cabinet Committee’s reasons for reform and its major proposals. The business view was that pension plans reflected a convergence of the employer’s interest in an efficiently administered workplace and the employee’s interest in financial security. Congress had created a flexible regulatory environment that allowed employers and employees to make the most of the convergence, and private pensions had come to play a vital role in American life.254 Now government officials were proposing to abandon the permissive approach that had made past successes possible. “[A] sweeping set of direct Federal controls,” the National Association of Manufacturers warned, would impair the functions that pension plans served for employers and harm the employees

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that regulation purported to protect.255 Government threatened to destroy what private-sector actors had built. At the Senate hearing, Thomas Donahue of the Labor Department and Stanley Surrey of Treasury presented the other side. Agency officials had tempered their remarks in the past, but Donahue and Surrey did not mince words. “[T]he heart of this system,” Donahue asserted, “is the private pension promise,” and the system was not keeping its promises.256 Government officials had received “thousands” of letters from people who had not received the pension they expected. These people, Surrey observed, could not “retrace their steps and make other financial arrangements to fill the void.” “For them, the private pension system is a failure.”257 Donahue portrayed workers who were prey to a frightening series of contingencies. “In all too many cases,” he declared, “the pension promise shrinks to this: ‘If you remain in good health and stay with the same company until you are 65 years old, and if the company is still in business, and if your department has not been abolished, and if you haven’t been laid off for too long a period, and if there is enough money in the fund, and if that money has been prudently managed, you will get a pension.” “It is utterly indefensible in a society as affluent as ours,” Donahue continued, “that an individual’s economic security in his later years should rest on such a flimsy foundation and be so endangered by such an incredible list of ‘ifs’ and ‘maybes.’”258 With these battle lines drawn, pension reform submerged in the swirl of events that concluded the Ninetieth Congress. The Labor Subcommittee’s hearing was the last formal action in the Senate. Staffers pressed the executive branch for comments on S. 3421, but the comments were for use in the next Congress.259 In September the House Education and Labor Committee favorably reported an amended version of the administration’s fiduciary and disclosure bill.260 The amendments gave pause to officials at the Department of Labor because they significantly weakened the measure.261 The White House took a different view. The president’s aides urged Education and Labor Committee chair Carl Perkins (D, Kent.) to push for expedited consideration.262 There was little prospect that the Senate would vote on the bill, however, which diminished the likelihood that the House would act.263 The amended fiduciary and disclosure bill and S. 3421 died when Congress adjourned on October 14, 1968. It is less noteworthy that S. 3421 died at the end of the Ninetieth Congress, however, than that it was ever introduced at all. Business groups and organized labor had objected soon after the Kennedy administration began considering statutory vesting and funding standards, and the business community abhorred termination insurance. Even so, Lyndon Johnson let the

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Cabinet Committee prepare legislation that included these reforms. The administration’s course of action led James Attwood, an actuary at Equitable Life, to ask in December 1967 if “we are entering a new legislative era in this country.” The key players in pension policy-making—employers, organized labor, the insurance and banking industries, and so on—were not asking for a comprehensive program of pension reforms. These reforms were almost entirely the creation of government officials and academics. Attwood thought it “quite unusual . . . to find government people . . . , plus a few people in the academic community, as the main spearheads for legislation.”264 A few months after Attwood delivered his remarks, the “government people” even managed to get their bill before Congress. But it was one thing to get a bill introduced in Congress and quite another to get lawmakers to endorse it. Interest groups could be expected to exercise a great deal more sway in the legislative process than they had played in the drafting of the Cabinet Committee’s bill. Moreover, Richard Nixon’s election brought an administration that would be more attentive to business constituencies than its predecessor. In 1969 there would be fewer “government people” in the executive branch for whom a comprehensive pension reform bill was a priority. As a result, the initiative on pension reform shifted from the executive branch to Congress. The critical question in the next stage of the campaign for pension reform would be whether supporters could mobilize allies to counter the powerful interest groups that opposed comprehensive pension reform legislation.

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“A Major American Institution . . . Built upon Human Disappointment” Agenda Setting in the U.S. Senate

When the Ninety-first Congress convened in January 1969, pension reformers faced a tactical problem. The Cabinet Committee had provided conceptual foundations for pension reform, and Jacob Javits and the Labor Department had proposed legislation. The problem was that the opponents of pension reform had a great deal more political clout than its supporters. If pension reform was to become a reality, reformers had to bring new participants into their coalition. On the initiative of Jacob Javits, the Senate Labor Subcommittee undertook the task of “selling” pension reform to the media, the public, and the Senate. Through adroit use of “horror stories” and dubious statistics and with assistance from the press, Javits and Labor Subcommittee chairman Harrison Williams (D, N.J.) transformed the public perception of private pensions. By the close of the Ninety-second Congress, they had persuaded the public, the press, and their Senate colleagues that Congress should pass a comprehensive pension reform bill. Like the officials who drafted pension reform legislation during Lyndon Johnson’s presidency, Javits initially tried to persuade employers, labor unions, and other policy “insiders” to support federal regulation of pension plans.1 In spring 1970 he concluded these groups would never support the reforms he favored, so he adopted a new strategy that aimed to bring “outsiders” such as the media and voting public into pension policy-making.2 To reach this mass audience, Javits abandoned the subtleties of expert debate in favor of simple, even sensational, rhetoric. In March 1971 Javits and Williams published “shocking” figures that suggested few workers would receive a private pension. They followed up with hearings involving “horror stories” of workers who lost their pension. Pension experts were outraged by what they perceived as a slander of the private pension system, but the subcommittee’s strategy had its intended effect. By proving that the 151

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press and public cared about threats to pension expectations, Javits and Williams altered the balance of power in pension policy-making. Although Javits and Williams hoped to push a bill through the Senate in 1972, the Labor Committee was not the only committee that claimed authority over pension plans. The Finance Committee, which had long legislated on tax issues affecting pension plans, also had a claim. Indeed, one reason Javits and Williams wanted to pass a bill was to conclusively establish the Labor Committee’s jurisdiction to legislate on vesting, funding, portability, and termination insurance. When the Labor Committee reported a bill for consideration by the full Senate, Finance chair Russell Long (D, La.) made it clear he would not give way without a fight. Long had the bill referred to the Finance Committee, which struck everything but the fiduciary and disclosure provisions. Although Long’s efforts killed the bill, his actions drew a harsh response that attested to the broad support for pension reform. As the Ninety-second Congress drew to a close, Senate majority leader Mike Mansfield (D, Mont.) promised to expedite pension reform in the next Congress.

the polarization of a policy domain By the time Richard Nixon took office in 1969, some business representatives had concluded that fiduciary standards and increased disclosure might serve as an alternative to more intrusive reforms such as vesting and funding standards and termination insurance. This led the business community to moderate its position on fiduciary and disclosure reform. In the first year of Nixon’s presidency, the Labor and Commerce Departments, with input from business, prepared legislation that would require pension plans to disclose information about vesting and funding practices. As the administration pursued this course, however, the debate over pension reform became more antagonistic. Supporters and opponents of comprehensive pension reform legislation had conflicting theories about what pension plans ought to do. When new evidence about the performance of the private pension system appeared, their conflicting normative premises led them to give contrary interpretations. These clashes led to frustration and then hostility, which diminished the potential for cooperation. In congressional hearings in 1968, business representatives opposed vesting and funding standards, termination insurance, and portability.3 On fiduciary standards and disclosure reform, they left themselves room to maneuver.4 In September the House Education and Labor Committee reported

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a fiduciary and disclosure bill that made significant changes to the bill the Johnson administration had proposed. The Labor Department complained that the amendments weakened the measure, but the revised bill made fiduciary and disclosure reform seem less threatening to business.5 On September 30, the Labor Department Advisory Council on Employee Welfare and Pension Benefit Plans, which included representatives from management and from the insurance and banking industries, unanimously endorsed legislation to create federal fiduciary standards.6 As Nixon took office, legislative experts at the National Association of Manufacturers reported that fiduciary and disclosure legislation “is expected to pass with little controversy.”7 The Nixon administration took up pension reform as part of the presidential transition process. Arthur Burns, who had chaired Eisenhower’s Council of Economic Advisors and served on Kennedy’s LaborManagement Advisory Committee, headed a small group that drafted recommendations on a number of domestic policy issues.8 In February 1969, Burns’s proposals, including a recommendation on the Welfare and Pension Plans Disclosure Act, were sent to appropriate agencies for consideration.9 Labor secretary George Shultz and Commerce secretary Maurice Stans responded in mid March with a plan of action on pension reform. The report distinguished between “protection” measures, such as disclosure and fiduciary standards, and “security” measures, like vesting and funding standards, termination insurance, and portability.10 Shultz and Stans suggested that the administration should prepare a revised “protection” bill. Noting the private sector opposition to the “security” proposals, they urged further study of these issues.11 The president agreed, and in mid April Shultz and Stans created a task force to undertake the review.12 At roughly the same time, the Labor and Commerce Departments began drafting fiduciary and disclosure legislation, using as models the Johnson administration’s bill and the bill reported by the House Education and Labor Committee.13 By early June, the “security” study was “nearing completion.” “The pension security position,” a Commerce official reported, “will be that no legislation is called for at this time.”14 The administration would revise the disclosure rules to address forfeiture and default risk. The Labor and Commerce Departments worked out their new approach with advice from representatives of employers and pension consultants.15 Robert Lane of Mobil Oil explained the rationale in a letter to a Commerce official. If an employee was disappointed when he forfeited pension accruals or when his plan defaulted, said Lane, the problem was not the contractual provisions that created the risk. The problem was that the employee

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misunderstood the risks attendant to a retirement plan. “[M]ost of the shortcomings and problems which the Labor Department and some of our congressional friends have focused on,” Lane wrote, “are due substantially to a lack of understanding on the part of employees, and many times on the part of employers and unions, of the exact nature of the benefits and the conditions under which they can be paid under private welfare and pension plans.”16 If lack of understanding was the problem, it followed that the appropriate remedy was better communication. Employees should be warned about circumstances in which they might not receive benefits.17 The Commerce and Labor Departments cited this analysis when they explained their decision to defer action on vesting and funding standards and termination insurance. In the words of a Commerce official, “Our argument goes to the fact that Federal intrusion into pension security issues is not warranted until we are satisfied that all interested parties are adequately informed about the realities of pension rights and can take such actions on the basis of these facts as they see fit. Federal regulations of pension security issues would then follow only if the affected parties do not find it possible to arrive at satisfactory solutions without further Federal regulations.”18 Following this line of reasoning, Labor and Commerce added new disclosure requirements to their bill. Current law required the managers of a plan to file a description of the plan and annual reports with the Labor Department. To help employees understand forfeiture risk, Labor and Commerce proposed that the description should describe vesting requirements “in simple, non-technical language that would be understood by the average plan participant.”19 Another new provision called for the annual report to include information on the number of employees who terminated service during the year, their length of service, and the value of benefits forfeited by departing employees.20 The draft bill also allowed employees to request a statement of their total accrued benefit, the portion of the benefit that was vested, and the date forfeitable benefits would vest.21 The bill addressed default risk by requiring the annual report to state the ratio of a plan’s assets and liabilities so that participants would know a plan’s level of funding.22 These changes, the Labor Department later explained, would “enable a participant to find out where he stands with respect to the plan at any given time.”23 Although the Labor Department finished the revised bill in short order, the administration was slow to send the measure to Congress.24 The labor committees were busy with occupational safety legislation, so there was little pressure from legislators.25 Moreover, a dispute developed in the ex-

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ecutive branch over who should oversee fiduciary standards.26 The Johnson administration’s bill had chosen the Labor Department because it enforced the Disclosure Act. The draft bill did the same. Treasury was also a plausible candidate, however, because the IRS monitored pension trusts to enforce the tax rules on self-dealing.27 Two current developments bolstered Treasury’s claim. Congress was revising the rules regulating self-dealing by private foundations. The new rules, which became law after Nixon signed the Tax Reform Act of 1969, could (and eventually would) serve as a model for pension plans.28 Also, Treasury was reviewing the taxation of retirement plans and could consider whether fiduciary standards ought to be implemented through the tax laws as part of this review.29 When the Labor Department forwarded the draft bill to the Bureau of the Budget for legislative clearance, White House aide Peter Flanigan asked Treasury to look into the issue of agency jurisdiction.30 In January 1970, Treasury objected to Labor jurisdiction, arguing that problems of fiduciary misconduct were better dealt with by adapting the new self-dealing rules for private foundations to pension trusts. Since Treasury was already drafting legislation based on its review of pension plans, the administration should let Treasury consider the issue of fiduciary misconduct as well. “[W]e have no objection in broad principle to [fiduciary] provisions,” a Treasury official wrote, but “they should be deleted from this bill since they are more appropriately incorporated” in tax legislation.31 But as agencies squared off in the executive branch, Congress turned its attention back to pensions. In December 1969, John Dent’s House subcommittee began hearings.32 Dent expected to hear from the administration.33 In February 1970 the Senate Special Committee on Aging, chaired by Harrison Williams, held hearings on pension issues.34 And in January 1970 the Senate leadership tapped the Labor Subcommittee, also chaired by Williams, to investigate the 1969 United Mine Workers presidential election.35 One charge against UMW president Anthony Boyle was that he had engineered an increase in pensions to improve his chances in the election.36 Frank Cummings, now Jacob Javits’s administrative assistant, urged the White House to get a bill to Congress “before Senator Williams steals the show.”37 These initiatives pushed the administration forward on the fiduciary and disclosure bill. Overruling Treasury objections, the White House sent the Employee Benefits Protection Act of 1970 to Congress on March 13, in time for George Shultz’s testimony to Dent’s subcommittee.38 By the time Dent and Williams convened their hearings, the debate over pension reform had degenerated into a quarrel. Javits and other reformers endorsed the worker security view of retirement plans. The business com-

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munity and many labor unions followed a personnel theory. Their conflicting normative premises led supporters and opponents of pension reform to give contrary assessments of the performance of the private pension system. As the debate continued and the partisans repeatedly clashed, both sides questioned the motives and methods of their adversaries. The reception of a long-awaited study of pension funding by the Pension Research Council reveals the increasing polarization within the policy community. Directed by two respected actuaries, Frank Griffin of the Wyatt Company and Charles Trowbridge of Bankers Life, the study assessed funding levels in several thousand pension plans.39 Griffin and Trowbridge used data provided by actuarial firms and insurance companies to compute a “benefit security ratio”—ratio of assets to all liabilities—and a “vested benefit security ratio”—ratio of assets to vested liabilities—for a sample of slightly more than a thousand plans with about 4.5 million participants.40 What emerged was “a ‘snapshot’ of the status of private pension plan funding centered about the year 1966.”41 That snapshot showed a system in which pension benefits seemed reassuringly secure. More than 75 percent of the plans in the study, covering almost two-thirds of the participants, had a vested benefit security ratio greater than 100 percent.42 Considering that definedbenefit plans generally had an unfunded past-service liability when they were created and that the number of plans had risen dramatically in the recent past, these figures reflected significant progress. “As of the central date of this study,” the authors concluded, “a very high degree of benefit security had been accomplished by a vast majority of the plans included in the study.”43 Griffin and Trowbridge also provided suggestive information on vesting. To compute a benefit security ratio and a vested benefit security ratio, an actuary had to value the total accrued benefits of a pension plan and its vested accrued benefits. By comparing the two figures, the authors could make a rough estimate of the prevalence of vesting. Griffin and Trowbridge took pains to qualify their data but again offered a very reassuring picture: “With regard to the extent of vesting found under private pension plans in this study, the value of vested accrued benefits constitutes 81 percent of the value of all accrued benefits” in the plans in the study.44 The authors believed their data confirmed the ameliorative character of the status quo: “[D]uring the past several decades, while the climate has been favorable to the independent development of private plans, these plans have responded with a remarkably healthy growth, both in the evolution of benefits and benefit forms and in the enhancement of employee security through sound financing.”45 Griffin went further, claiming that the study

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vindicated the private pension system and refuted the need for statutory vesting and funding standards.46 Other defenders of the status quo agreed. The president of the Association of Private Pension and Welfare Plans said the study showed that vesting and funding standards were unnecessary. He thought the case no different for other proposed reforms: “When the other features of pending legislation are analyzed, it is apparent to me that the facts have not been laid out to prove either the need or desirability of such legislation.”47 But the study did not persuade the other side. Some reformers questioned Griffin and Trowbridge’s methods and findings, but the views of reformers who accepted the data are more revealing.48 Jacob Javits lauded the study and accepted the factual conclusions.49 But in contrast to Griffin, Javits said the study strengthened the case for pension reform. Most plans, it seemed, were already funding more rapidly than called for by Javits’s pension reform bill, so a funding standard would not put a strain on employers. High levels of funding also implied that plans could liberalize vesting “without any increase at all in the amounts which would have to be contributed to meet the funding standards” in Javits’s bill. The study “certainly belies the claims of those who have been saying that legislation . . . would discourage the further growth of the private pension system,” Javits concluded.50 On the contrary, Griffin and Trowbridge had shown that protective legislation and continued growth were perfectly compatible. Trowbridge was stoic about Javits’s use of his research. “The PRC study will be interpreted by different people in different ways,” he said.51 Griffin got mad. “One might better conclude that the study indicates very little need for pension regulation, unless one prefers the dubious logic of: ‘Since regulation would affect so few persons, it is therefore feasible,’ ” he protested.52 For their part, Javits and his staff got mad too. The squabble soured them on actuaries and other pension consultants, as it led Griffin to doubt the good faith of reformers, even Republican reformers.

“dramatize these problems to the maximum feasible extent” In the spring of 1970, Javits and his staff concluded that they would need a new legislative strategy to break the deadlock on pension reform. Business groups and unions with multiemployer plans opposed comprehensive reform, and they were unlikely to change their position. To overcome this opposition, reformers would have to enlarge their coalition. To this end, Jav-

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its and his staff sought to redefine pension issues in terms that would appeal to a mass audience. At the same time, Javits maintained his insistence that Congress address pension reform in a comprehensive fashion. By packaging pension reform as comprehensive legislation, reformers could link “sexy” issues like fiduciary standards to measures like vesting and funding standards, which drew considerable opposition but not much support.53 But the comprehensive approach required Javits to prevent potential allies from breaking rank to secure particular pieces of the larger reform package. When Javits proposed his first pension reform bill in 1967, he addressed it to the “insiders” of pension policy-making. Introducing the measure, Javits asked “those with specialized knowledge or significant experience in the field to give us their expert assistance so that this measure can be pragmatically evaluated and improved or modified.”54 Run-ins with Frank Griffin and other actuaries and criticism in the trade press convinced Javits and his staff that the experts were part of the problem with the private pension system rather than part of the answer. Since most insiders wanted no part of pension reform, Javits turned to outsiders—that is, the media and general public—for support. The shift to an “outside strategy” of coalition building required a new vocabulary. As Javits put it in remarks to the Senate in July 1970, “It is time we stopped thinking about pensions as an esoteric specialty reserved for a select ‘priesthood’ of actuaries, consultants, insurance experts, and other technicians, and started thinking about pensions in human terms.”55 The vehicle for the new strategy was the Senate Labor Subcommittee’s investigation of the United Mine Workers election. Union president Anthony Boyle was accused of abusing his position as a trustee of the Mine Workers Health and Retirement Fund.56 At Javits’s urging, Labor Subcommittee chair Harrison Williams asked the Senate for funds not only to investigate the election but also to undertake “a general study of pension and welfare funds with special emphasis on the need for protection of employees covered by these funds.”57 The majority staff focused on the election, so minority staffers had a relatively free hand with the pension study. It was “considered within the staff to be the ‘Javits’ pension study,” a majority staffer later observed.58 Michael Gordon had recently moved to Javits’s staff from the Labor Department, where he had been the chief draftsman of the bill the Labor Department sent to Congress in 1968.59 With help from United Steelworkers actuary Murray Latimer, Gordon and Frank Cummings drafted a questionnaire to gather information on pension plans.60 Gordon outlined their objectives in the spring of 1970. Among the prob-

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lems that beset pension plans, he observed, “fiduciary abuses . . . are relatively easy to grasp and lend themselves to graphic portrayal.” Forfeiture risk and default risk had “more profound consequences” than fiduciary malfeasance, but they were “relatively esoteric in nature.” As a result, the public had little appreciation of risks that posed a greater threat to pension security. What was needed, said Gordon, was a study that would “break down these barriers by developing and presenting material which will dramatize these problems to the maximum feasible extent.”61 Gordon and Cummings drafted the questionnaire with this objective in mind. As Gordon later told a majority staffer, “Since the ultimate test of any pension system in terms of social utility is whether it will provide pensions to the overwhelming bulk of the people covered by the system, the underlying theme of the survey is to test the hypothesis that the present system does not accomplish this objective.”62 Around the end of May, Gordon and Cummings sent the questionnaire to the committee majority and asked that it be sent out “as an act of the Committee.” Williams and his staff stalled for several weeks, until Javits threatened to send the form out under his own signature, at which point the majority acquiesced.63 In mid July the subcommittee mailed the questionnaire to about 1,500 retirement plans.64 Javits described the study in the Congressional Record as an effort to “pin down in precise detail essential facts relative to the adequacy of employee benefit protection under the private pension system.” He left little doubt about what he expected to find. The “self-perpetuating, self-destructive characteristics of the [private pension] system,” he declared, were “a social problem of . . . appalling dimensions.”65 July 1970 seemed an ideal time for the Labor Subcommittee to begin its study. Javits hoped to persuade the public and policy-makers to back legislation that would address risks that threatened employees. In the weeks before he announced the study, the president and Congress had been preoccupied with risks that threatened businesses and investors. On June 21, the nation’s largest railroad, the Penn Central, filed for bankruptcy.66 In the weeks before the filing, the administration and members of Congress scrambled to prevent the railroad from failing.67 In a televised address on June 17, the president urged Congress to enact “legislation that will enable the Department of Transportation to provide emergency assistance to railroads in financial difficulties.”68 In the same speech, Nixon also endorsed legislation to create an insurance fund akin to the Federal Deposit Insurance Corporation to protect investors when brokerage houses became insolvent.69 Two weeks after the speech, Leonard Woodcock, who had recently suc-

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ceeded as UAW president after Walter Reuther was killed in a plane crash, wrote the president and Congress to chide Nixon for doing more to protect investors than workers.70 The White House was willing to bail out Penn Central stockholders with federally guaranteed loans and securities investors with a government-run insurance fund, Woodcock remarked, but Nixon “made no reference to and indicated no support for a long-pending proposal to provide similar insurance to meet the urgent need of wageearners and lower-salaried workers who stand to lose the protection of privately negotiated pensions if the companies they work for should go out of business before their pension programs are fully funded.” Were the beneficiaries of Nixon’s proposals more at risk than “the poor, the unemployed, and millions of aging Americans for whom retirement brings a severe slash in income that frequently means ending their days in poverty”? Woodcock urged “at least as much consideration” for workers as for capitalists.71 To Javits and his staff, the timing of Woodcock’s letter seemed perfect. When Javits announced the Labor Subcommittee’s pension study, he praised Woodcock and inserted the letter in the Congressional Record.72 According to Javits, the “eloquent letter” “perceptively” described the “great danger in emphasizing the critical security needs of business . . . while ignoring the equally desperate security needs of the worker.”73 As it turned out, the letter landed Javits in a potentially embarrassing situation that threatened the pension reform coalition he hoped to build. Woodcock’s letter was the first step in a UAW plan to push termination insurance through the Senate by attaching Vance Hartke’s bill as an amendment to Edmund Muskie’s (D, Maine) bill to insure investors against brokerage insolvencies.74 When Woodcock wrote senators to advise them that Hartke would offer this amendment, Javits found himself in a tight spot.75 “[T]he Hartke amendment presents something of a dilemma,” Mike Gordon told the Senator.76 Javits supported termination insurance, and he had publicly praised Woodcock. Now he faced the prospect of opposing Hartke’s effort to add a worker security provision to a bill directed to “the security needs of business.” On the other hand, Hartke’s amendment undermined Javits’s own initiatives. The Labor Subcommittee’s pension study had just begun. Moreover, Javits had stated that the government could not run an insurance program unless it regulated the entities the program insured.77 Hartke’s bill did not do that. “[T]o vote for the Hartke amendment in its present form, might substantially diminish your credibility with respect to the case for comprehensive pension legislation,” Gordon warned.78 Finally, although Gordon’s memo does not address this issue, the key interest groups in favor of comprehensive reform—the UAW and the Steel-

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workers unions—primarily wanted termination insurance. If Hartke succeeded, Javits’s most powerful private-sector allies would have gotten what they most wanted from pension reform. If these groups became less zealous in their support of the rest of the reform agenda, it would be a serious blow to Javits’s legislative aims.79 When Hartke called up his amendment on December 10, 1970, Javits opposed him. There followed a testy exchange in which, in the words of a UAW lobbyist, Javits “ridicule[d] Hartke for bringing to the Senate such a poorly thought-out bill.”80 Javits began by asking Hartke if he “[c]ould . . . give us an estimate of the annual premium called for under his amendment?” When Hartke could not, Javits argued that Congress should not act in the face of such uncertainty.81 The ills of the private pension system needed a comprehensive solution based on in-depth research like the Labor Subcommittee’s study. When Hartke implied that Javits’s call for research was a stalling tactic and criticized the slow pace of the study, Javits was piqued. The subcommittee, Javits replied, was “trying to dig into something, instead of bringing some glittering amendment to the floor which does not have any basis in fact.”82 Harrison Williams seconded Javits’s concerns. Their criticisms carried the day, and Hartke’s amendment failed.83 Several days later, Nat Weinberg of the UAW characterized Javits as the “chief hatchet man” of the episode.84 For his part, Hartke nursed a grudge for years.85 It was less important that Javits’s intervention produced bad feeling, however, than that it sent a clear message. If the UAW planned to push termination insurance, it could push with the Senate Labor Committee or against it. Javits would not sit idly by while an ally or potential ally attempted to secure the particular piece of the pension reform package it favored. Pension reform had to be comprehensive.

“a major american institution . . . built upon human disappointment” The public and the press were more likely to pay attention to pension reform if the risks the legislation addressed were frightening. Recognizing this, Javits and his staff presented a dire portrait of the private pension system. In March 1971, Javits and Harrison Williams released statistics that suggested few employees would receive benefits from their pension plan. Although pension specialists assailed the figures, Javits and Williams’s claims received wide coverage in the press. Several months later, the Senate Labor Subcommittee held hearings to publicize the cases of workers who

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had lost a pension as a result of forfeiture or default. The subcommittee’s promotional campaign caused a profound shift in the media’s portrayal of the private pension system. Private pensions were “in the news” more often, and the news always seemed to be bad. The Labor Subcommittee questionnaire on pension plans was controversial from the moment it went in the mail. Pension experts saw immediately that the questions were “designed to develop ammunition for more regulation.”86 The subcommittee quickly received complaints. In a letter that was later published in several trade periodicals, Frank Griffin warned that many questions were ambiguous and “likely to be seriously misinterpreted.” Griffin was particularly concerned about the “maze of misleading statistics [that was] almost certain to result” from a series of questions that “appear to be directed” at forfeitures. He advised the subcommittee to seek assistance from experts: “Neither government statisticians nor legislative assistants can be expected to have a detailed knowledge of this specialized field.”87 Javits staffers bridled at Griffin’s attack. It was a “crumby letter,” wrote Mike Gordon. “Most of the criticism is just stupid if not outright venal.”88 Responses to the first mailing were due on August 15, 1970.89 The committee staff had neither the expertise nor the technology to tabulate the data, so the committee hired Leo Kramer, Inc., where Ewan Clague, former commissioner of the Bureau of Labor Statistics, would process the survey.90 As the firm coded the responses, it became clear that there were indeed problems with the questionnaire. Ambiguous questions led to responses that were difficult to code, and many questions were misunderstood.91 As an example, Clague pointed to a question on forfeitures. The questionnaire asked plans to report the “total number of participants . . . who left the scope of the Plan without entitlement to any retirement benefits . . . .”92 Clague worried that firms “reported . . . the complete count of all separations, not of individuals.” If firms reported separations, then “a seasonal worker coming back every year would be counted every time he left.” That would inflate the number of forfeitures by making it appear that many employees had forfeited when only one had. “We really can’t use those figures,” said Clague, “unless we can get some idea of the content of the answers.”93 It did not help that some plans refused to cooperate. “One respondent sent in a pile of documents and wrote on the form ‘The answers are in here; figure them out for yourselves’; we coded him as not responding,” Clague reported.94 These and other snafus troubled majority staffers, who began to play a larger role in the study near the end of the year. Still more distressing were the comments of Herbert Feay, an actuary from the General Accounting Of-

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fice (GAO) who was brought on to assist Clague.95 At the end of January 1971, Clague submitted a series of tables based on the forms Kramer had processed. He cautioned about the quality of the responses. The tables, Clague wrote, “are very uneven; some are very good and, when double checked, could be used for analysis and interpretation; others are probably not worth much.”96 Feay was less equivocal. The figures on forfeitures, he wrote, “have very limited use in arriving at any reliable conclusions regarding benefits granted to persons terminating employment before their normal retirement dates, but can be used for wrong comparisons and bad statements regarding pension benefits granted if employment is terminated before normal retirement.”97 “[T]he actuaries at GAO,” a majority staffer reported, “. . . . have preliminarily advised us that the present material cannot be utilized in its present form—that a complete reworking of the study starting with the original forms is required.”98 In other words, the actuaries thought the subcommittee should go back to square one. Feay’s comments provoked a crisis of sorts. The day after he prepared his comments, the Labor Committee asked the Senate for an additional $475,000 for the subcommittee study.99 Worried by Feay’s assessment, majority staffers considered having GAO prepare a revised questionnaire. Javits disagreed, arguing that the subcommittee had to produce results soon. Clague had suggested that “a (selected) quality sample” of data on forfeitures could be prepared.100 At his staff’s suggestion, Javits urged Williams to have the subcommittee go public with this information in March. “[I]n less than a month,” Javits wrote, “we would be able . . . to make a public presentation of this limited and selected sample, which would show at least the nature of the problem and demonstrate the frequency of forfeitures in what I suspect are the ‘best’ plans.” One of the tables Kramer had prepared showed levels of forfeitures that struck Javits as “really shocking.” Javits thought the subcommittee ought to have Clague tabulate these materials “to produce . . . some results which could then be released to the public, with appropriate comment from you and me, and perhaps even a joint press conference.”101 Despite his staff’s trepidation, Williams agreed. Figures were pulled together for a March 31 press conference that would be one of the defining moments in the campaign for pension reform. In the weeks before the event, newspaper articles appeared that highlighted pension forfeitures. On March 21, under the title, “The Pension Game: Many Sign Up but Few Collect,” the Philadelphia Inquirer told its readers, “An economic horror story involving the broken dreams of millions of older Americans is being pieced together by Senate investigators.”102 Two days later, readers of the Chicago

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Tribune learned that “[o]ne of the largest pension funds in the United States expects to pay pensions to only 1 of 10 employees in the fund.” “Senate investigators,” the Tribune reported, “. . . are amassing evidence and getting witnesses for a showdown soon in Congress on mythical retirement promises and legislation to curb pension abuses and guarantee protection for defenseless pensioners.”103 In a letter written March 29, Frank Griffin fretted that “[t]he wheels of publicity arranged in order to engineer a successful legislative coup for Senators Javits and Williams are likely to roll right over us.”104 Griffin’s comments could not have been more prescient. Although majority staffers were still concerned with the numbers, warning Williams to “stay as far away from the statistical analysis as possible,” the press conference had its intended effect.105 The often-cited first words of Javits’s press release set the tone: “It is a rare thing to find a major American institution—private pension plans—built upon human disappointment—a shocking thing, and something which should move us all to act with determination to make that institution deliver upon its promises.”106 Javits and Williams presented figures for two groups of pension plans. The first comprised fifty-one plans that required eleven or more years of service for employees to vest. The second group included thirty-six plans in which employees vested when they had participated for ten years or less. “Overall,” Williams announced, “the data indicates that only 5% of all participants who have left since 1950 in [the group of fifty-one] have received a benefit, and only 16% of all participants who have left since 1950 in [the group of thirty-six] have received a benefit.”107 Although the vesting standard in Javits’s bill would not eliminate forfeitures—Javits admitted that “more than half might well continue to forfeit”—it would protect many employees. “We can argue . . . where to draw the line,” said Javits, “but one thing is clear beyond question: As things now stand, only a relative handful of the estimated tens of millions of American workers under private pension plans will ever get anything from the plans on which they now stake their futures.”108 The press conference provoked a scornful response from pension experts. On April 1, a group of consultants led by Frank Griffin assailed the Senate study. “We unequivocally state that ‘conclusions’ elucidated by Javits and Williams are gross misrepresentations of the facts on any meaningful basis—due to inept or deliberate mishandling of the statistical interpretation,” charged Griffin.109 When Senate Labor Subcommittee staffers met with the American Pension Conference, an industry group, on May 13, the conference circulated a fact sheet that left no doubt about its opinion of the

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study: “Widespread concern has been expressed by the American Pension Conference (APC) members and others on the misleading, unfair, incorrect and derogatory comments on the private pension system that have been generated by the release of the Williams-Javits (W-J) Senate Labor Subcommittee Report on Pensions.”110 According to Robert Myers, the highly respected former chief actuary of the Social Security Administration, the Labor Subcommittee’s analysis was “appallingly misleading.”111 The anger is not hard to understand. The subcommittee’s questionnaire produced responses that were bound to present a very negative view of pension plans.112 While the experts found much to criticize, two points should be noted. Williams and Javits presented figures based on historical data. Although the subcommittee obtained information about the more recent experience of pension plans, Williams and Javits presented figures based on the years 1950 to 1970.113 As Paul Jackson, a leading actuary and Frank Griffin’s colleague at the Wyatt Company, later observed, facts need dates to be useful. Pension plans did not stand still between 1950 and 1970. Collectively bargained plans in the steel and auto industries, Jackson wrote, “have been amended on six or seven different occasions” during this period and their vesting provisions “considerably liberalized.”114 By using historical data, the subcommittee substantially overstated the degree of forfeiture in current plans. In effect, said Jackson, the subcommittee provided a sort of historical average, the “facts” for “pension plans as they stood in 1960, not 1971 . . . .” What use did such outdated information have for making sense of the present and future performance of private pension plans?115 The subcommittee also drew harsh criticism for using “the ‘flowthrough’ methodology” for assessing forfeiture risk.116 Williams and Javits presented data on vesting among employees who left a firm. “In terms of forfeitures,” Williams said, “92% of all active participants since 1950 who left the 51 plans [that required eleven or more years for vesting] forfeited without qualifying for benefits . . . .”117 Jackson and other actuaries bristled at this figure, first, because it did not distinguish between short-service and long-service employees. The great majority of employees who forfeited had less than five years of service. But more important, the subcommittee study only counted a participant as vested if the participant had ceased employment. Employees who still worked for a firm were not counted. Jackson noted the cases of three single-employer plans in which “25,000 employees had been granted vested rights on terminating employment in the period 1950–70,” while “some 382,000 employees who were still working had also accumulated sufficient service to be entitled to vested benefits.” The subcommittee’s questionnaire asked about the 25,000, but not the 382,000.

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“The failure to obtain factual information as to those on the current staff who meet the current requirements for vesting,” he said, “must be deplored.”118 Industry experts attempted to rebut the subcommittee’s numbers with figures from several sources. The most important and controversial source was a study of pension vesting that A. S. Hansen, Inc., an actuarial consulting firm, had furnished to the Treasury Department. Hansen took a different approach than the subcommittee. The subcommittee approached forfeiture risk from the perspective of employees who left a firm. Accordingly, the subcommittee asked what proportion of employees forfeited benefit accruals when they terminated employment. Hansen approached forfeiture risk from the perspective of individuals who were still working for the firm that sponsored their pension plan. This approach led Hansen to ask three questions: How many current (as opposed to former) employees were vested? How many current employees who were not vested were likely to vest in the future? How many unvested employees were likely to forfeit their pension accruals? Hansen’s answers to these questions depicted a private pension system that bore little resemblance to the one Williams and Javits described. Hansen found that roughly 30 percent of the active employees in the plans it reviewed were vested in their retirement benefits. “Thirty per cent,” a Hansen actuary observed, “is far different from 5 per cent . . . .”119 Even the 30 percent figure did not accurately gauge forfeiture risk. To gain a fair appraisal, one needed to know how many currently unvested participants would vest in the future. Hansen’s projections suggested that slightly more than half of unvested employees would vest. All in all, then, about twothirds of active employees in the plans Hansen reviewed either had vested or could be expected to vest.120 Obviously, a private pension system in which two-thirds of current plan participants would vest presented a very different picture than the “relative handful” Javits reported. Pension consultants also noted that the two-thirds figure might be unduly pessimistic because there was no way of knowing with certainty that the 34 percent of participants who were expected to forfeit would not receive a pension from another employer. Indeed, the fact that most forfeitures involved younger, more mobile employees suggested that many were likely to do so. To back up this point, consultants cited statistics developed by the Department of Health, Education, and Welfare. HEW conducted regular surveys to assess the sources of income available to new retirees. A March 1971 report stated that 51 percent of new male Social Security recipients “also had private pension coverage.” “Interestingly,” the American Pension

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Conference fact sheet observed, 51 percent “corresponds closely to the 50% of employees covered by private pension plans today.”121 Although the Hansen report highlighted important shortcomings in the Senate study, its impact was limited. For one thing, the press did not trust information supplied by industry. Reporters grilled Hansen representatives about “whether the Treasury had asked A. S. Hansen, Inc., to prepare the study or whether A. S. Hansen, Inc., had suggested to the Treasury that they would be glad to do it, and then the Treasury asked A. S. Hansen, Inc., to provide it.” Paul Jackson called it “a most unpleasant press experience.”122 Pension experts made matters worse by failing to appreciate that they had entered a realm in which the conventions of expert debate did not apply. For example, actuaries pointed out that it was a “misnomer” to say that an employee who lost his pension accruals suffered a “forfeiture.” In Frank Griffin’s words, “[A]n employee cannot lose anything before it is given to him, and the right to a vested pension does not exist prior to satisfaction of the requirements for this severance benefit.”123 Strictly speaking, Griffin was correct. But his view did not jibe with the expectations and fears of employees. Workers felt they lost something when they forfeited pension accruals. Would it console them to be told they had lost nothing because they never had any legal right to lose? The answer was no. As an insurance trade periodical commented, “Actuarial gobbledygook doesn’t do much to answer the horror stories of lost pension rights that pension fund critics recite repeatedly.”124 Moreover, even if the Labor Subcommittee’s study “was designed to develop shocking figures” and even if it played fast and loose with the facts (and it definitely was and did), criticisms from industry experts did not fully answer Javits and Williams’s claims that the pension system was failing many workers. When Javits and his staff reviewed the Hansen report, they saw “very little inherent inconsistency” because “the Hansen study is answering different questions, not giving different answers to the same questions.”125 The Hansen report focused on what the private pension system was doing. Javits and Williams focused on the people it failed. Some actuaries who were critical of the subcommittee’s methods agreed that employees needed protection. According to Herbert Feay, the GAO actuary who savaged the subcommittee’s questionnaire, “The fact that there is not a large number of horrible examples to present is not a good reason for opposing regulatory legislation for a classification of financial organizations that is now largely unregulated. Why wait until the people fall over the cliff and then call the ambulance—why not put a fence at the top to prevent such tragedies?”126

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Feay’s point is important. As misleading as Javits and Williams’s statistics may have been, the numbers would not have been credible unless they could be attached to “horrible examples.” “Horror stories” played a critical role in the next stage of Javits’s plan to expand the reform coalition. Frank Cummings explained the strategy several years later: “We discovered that the secret to passing reform legislation is the press. If the press doesn’t understand it, you’ll never get any popular ground swell of support. . . . For a year and a half, we forgot the technicalities . . . and decided to hold hearings on ‘the horror stories.’ ”127 In the wake of Javits and Williams’s press conference, staffers planned hearings as well as more press releases as data from the questionnaire was processed. They put together a “shopping list of potential subpoena hearing victims as well as a shopping list of issues that can be statistically reported periodically while the in-depth statistical analysis is proceeding.”128 Past congressional hearings on pension issues had drawn a predictable slate of witnesses. The Chamber of Commerce, the National Association of Manufacturers, and individual firms showed up, as did representatives of banks, insurance companies, and actuarial consulting firms. Officials from the AFL-CIO and its constituent unions also commonly testified. In May 1971, Javits proposed a new format that focused on individuals. As Frank Cummings put it, these would be “hearings on ‘horror stories,’ but not on a specific bill.”129 The hearings would proceed in two stages. First lawmakers would hear from “employees who have lost pension benefits due to restrictive qualification requirements.” Then would follow “the administrators of the very pension plans from which [the employees] lost these benefits.”130 Williams agreed with Javits’s plan. Over the next two months, staffers sought out individuals who had lost pensions as a result of forfeiture or default.131 The first stage began on July 27. Over three days, the subcommittee heard from a succession of people who had failed to receive a pension because they were laid off or fired before vesting or because their plan defaulted.Williams and Javits claimed these workers were representative of a large number of employees who had been betrayed. “We have received thousands of letters from every part of the country depicting individual and group hardships which have befallen aged workers and pensioners in the American labor market,” Williams stated.132 Javits said the hearings revealed “illusory expectations of the benefits to be attained through pensions” and “the absolute power of the employer to end those hopes at any moment, even almost minutes before the time for vesting in terms of retirement occurs.”133 The second stage took place in October, when representatives of pension

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plans and employers testified. Some witnesses were called to discuss the cases of employees who testified in July. Others were chosen based on answers to the subcommittee’s pension questionnaire or because the committee had received a complaint.134 Javits set the tone when he lamented that “the testimony of some of those witnesses actually had to be compelled through use of subpena [sic].” “[T]he necessity of this subcommittee to resort to subpena [sic],” he said, “is symptomatic of the fact that the pension industry is accustomed to ineffective supervision.”135 For two days, Williams, Javits, and subcommittee staff questioned plan and company officers about practices that threatened employees. In Javits’s words, the hearings gave “the public an intimate glimpse into private pension plan design and operation.” That glimpse made it clear that there was an urgent need for reform.136 The subcommittee’s study and hearings and the resulting press coverage refocused public perception of the private pension system. In the 1960s, articles in Business Week, Fortune, U.S. News, and the like reported on increases in benefit levels and in the coverage and assets of pension plans as well as proposals for regulation.137 What articles there were that questioned the private pension system appeared in the Nation or the New Republic. The Senate Labor Subcommittee sold the press on a new way of looking at pension plans; not what plans did, but what they did not do.138 The press helped the subcommittee promote this perspective to the public. In 1971 skepticism reached Sixty Minutes, Newsweek, Time, and Readers’ Digest.139 “Each year, thousands of Americans who think they are ‘covered’ fail to get the retirement benefits they’ve been counting on,” observed a writer in Readers’ Digest. “Foresight can save a lot of woe,” he said. “But in the end Congress will have to act if the pension rights of millions of Americans are to be protected.”140

the administration responds: the individual retirement benefits act of 1971 The increasing salience of pension issues was not lost on the White House. Pension reform moved back onto the White House agenda late in 1970, when Nixon’s aides became interested in a vesting proposal as part of a larger political initiative to lure blue-collar voters into the Republican Party. An interagency task force headed by presidential assistant Peter Flanigan spent much of 1971 putting together a pension program for the administration. Besides vesting, the group also spent several months working

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on a proposal to allow workers to make tax-deductible contributions to what would later be called individual retirement accounts (IRAs). By December 1971, when the president sent pension legislation to Congress, however, Nixon’s relationship with organized labor had soured and the blue-collar initiative had died. Instead of vesting, administration officials emphasized the IRA proposal as the key initiative in the president’s pension program. The press, by contrast, was much more concerned with what Nixon’s measures would do to protect employees from forfeiture risk. After Nixon sent his fiduciary and disclosure bill to Congress in March 1970, the Treasury Department returned to its review of the taxation of retirement plans. As in the past, the elusive goal was equity. Congress had passed H.R. 10 in 1962 to allow self-employed people to save tax-free for retirement. Although lawmakers liberalized H.R. 10 in 1966, the tax rules for self-employed plans and for plans sponsored by S corporations (generally small firms) were much stricter than the rules for large firms.141 The disparity reflected a concern that small owner-run businesses posed a greater risk of abuse. Vesting standards illustrate the point. When unvested employees terminated employment, they forfeited their accrued benefit, and the employer’s contributions on their behalf reverted to the plan. The tax regulations for corporate plans sought to prevent plans from reallocating forfeitures in a manner that discriminated in favor of highly compensated employees. Tax authorities worried, however, that these rules would not adequately police self-employed plans because the owner of a small business could fire or lay off employees and reallocate to himself contributions made on their behalf.142 To prevent this, the tax law required self-employed plans to immediately vest employees in their pension accruals. As compelling as these policy concerns may have been, the tax rules for self-employed plans were the subject of persistent criticism from professional groups and representatives of small business. Even Treasury officials admitted that the complaints were not without justification.143 It did not seem fair that a corporate plan could pay an executive a pension of $100,000 a year while a self-employed individual could set aside only a fraction of this amount. Disparities of this sort engendered a decades-long struggle in which professionals and self-employed businesspeople attempted to gain access to the more liberal pension rules for large firms, and Treasury fought them every step of the way.144 In 1970 Treasury officials met regularly with private-sector pension consultants to discuss ways to promote tax equity while protecting the public revenue.145 Treasury’s most controversial proposal called for relatively uni-

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form benefit limits for all pension plans. The consultants balked at this. They would support higher benefit limits for self-employed plans and lower limits for plans sponsored by closely held corporations, but they saw “no useful purpose in straight-jacketing plans of public corporations with additional limitations . . . .”146 Treasury also broached a vesting mandate. Here too the advisors defended the status quo. As desirable as vesting was, the consultants thought vesting provisions “should be adopted according to the needs, desires and priorities of the plan participants, employers and union officials on a voluntary basis.”147 Treasury also wanted to do something for workers without a retirement plan.148 Under existing law, employees could not save tax-free for retirement unless their employer sponsored a retirement plan. To Treasury staffers, this seemed perverse. Employees without a retirement plan generally earned less than employees whose firm did sponsor a plan, so the tax subsidy for retirement saving was not available to the people who needed it most. This seemed both irrational and unfair. As one Treasury official put it, “simple justice requires that all employees receive equality of treatment in providing for their economic security after retirement.”149 To address this inequity, Treasury proposed to allow employees to make tax-deductible contributions to their employer’s retirement plan or to an individual retirement account.150 While Treasury carried out its study of pension plans, the Labor and Commerce Departments followed much the same course they had pursued during the Johnson administration. In April 1970, the Labor Department’s Office of Policy, Evaluation, and Research circulated a memo recommending vesting and funding standards and further investigation of termination insurance and portability.151 Vesting standards and termination insurance were among the items proposed for inclusion in the agency’s legislative program for 1971. And like Treasury, the Labor Department was also looking into an IRA proposal.152 For their part, officials at the Commerce Department watched the Treasury and Labor initiatives with suspicion. Said one, “The only real abuses in sight . . . are those the advocates of Federal action seek to perpetrate.”153 Here matters stood when private pensions moved back onto the White House agenda. The prospect of congressional action was likely a consideration that led the White House to return to pension reform, but matters of broader political strategy also played a role. One of Richard Nixon’s major political objectives was to create a Republican ‘New Majority’ by winning over blue-collar voters from the Democrats.154 In October 1970, Nixon es-

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tablished a Committee on the Blue Collar Worker to consider measures that would further this effort. When the committee began work two months later, vesting and other pension issues were on its agenda. White House aide Peter Flanigan chaired an interagency task force that worked out pension proposals for the Blue Collar Committee. The task force, which included officials from the White House and the Commerce, Labor, and Treasury Departments, began working on an administration program on pensions in January 1971. The group considered a variety of issues besides vesting and resolved most of them relatively quickly. They decided with little ado that the administration should submit a slightly amended version of the fiduciary and disclosure bill.155 Proposals like funding, portability, and termination insurance were much more controversial. These died a couple of months into the group’s deliberations, when the Labor Department stopped pushing them.156 The group spent most of its time working on a vesting standard and a proposal to allow employees to make tax-deductible retirement contributions. Some White House aides believed vesting would be a potent political issue with “the ‘Blue Collar Worker’ or the worker in the $5,000 to $10,000 a year category whether his collar is blue or white.” They pushed Flanigan to move quickly, but disagreements within the task force and Flanigan’s own doubts slowed progress to a walk.157 Characteristically, the Labor Department took the most aggressive position, proposing 100 percent vesting of pension accruals after ten years of service.158 The Labor Department also wanted the vesting standard to apply retroactively to accruals earned before the law was passed.159 Commerce, characteristically, opposed a vesting standard on the grounds that it was unnecessary, expensive, and would discourage businesses from adopting a plan or from increasing benefit levels in an existing plan.160 Treasury took a different tack, drawing on the A. S. Hansen survey that would later be used to criticize the Senate Labor Subcommittee’s study. Treasury focused on “the incidence of vesting by age group” because this approach clearly identified the workers who were most threatened by forfeiture risk. Treasury divided workers into two classes, those younger than forty-five and those forty-five or older. Hansen’s data suggested that about 90 percent of the younger group was not vested. Moreover, most would not vest in their current plan because they would change jobs before meeting the vesting requirement. In contrast, “[a]lmost 60 percent” of employees age forty-five or older were vested. And because the remaining 40 percent of older unvested workers were less mobile than their younger counterparts, Hansen estimated “that almost 90 percent” would vest in their cur-

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rent plan. This meant that the great majority of older workers either had vested or would vest. The data also cast light on the circumstances of younger workers. Although most would forfeit accruals in their current plan, they were “highly likely to vest in plans of later employers.”161 Viewed from this perspective, the forfeitures that really mattered involved older workers because they were unlikely to earn a pension from a subsequent employer. The Hansen study suggested that this group was so small that the cost of a vesting standard would outweigh the benefits. “A mandatory vesting provision,” Treasury observed, “will raise production costs at a time when we are concerned about foreign competition, inflation, corporate profits, and the need for expanding investment in business enterprises. We are not convinced that the need for vesting has been demonstrated to be sufficiently great as to warrant a move at this time.”162 Treasury’s analysis also suggested that if the task force did endorse a minimum vesting standard, the rule proposed by the Labor Department was not the best means for addressing forfeiture risk. Older workers were most at risk, so the vesting standard should target them. To this end, Treasury suggested what became known as the “rule of fifty.” Under the rule of fifty, an employee would vest in a portion of his pension accruals—usually 50 percent—when the sum of his age and years of participation in his plan was fifty. If the employee remained in the plan, the vested share would increase each year by some figure—generally 10 percent—until he was 100 percent vested. For example, under the rule of fifty, an employee aged thirty-three with seven years participation would have no vested right, while an employee age forty-three with seven years participation would be vested in 50 percent of his accrued benefit. If the latter employee remained with the firm for another year, the vested share of his benefits accruals would increase to, say, 60 percent, and so on. Treasury officials argued that the rule of fifty had three advantages over the Labor Department’s proposal for 100 percent vesting after ten years. First, by putting age into the vesting equation, the rule of fifty provided protection where it was most needed. Older workers would vest after fewer years of participation. Second, the rule of fifty was less costly than the Labor Department’s proposal. Third, if the administration proposed a prospective, rather than a retroactive, vesting standard, the rule of fifty would protect employees age fifty and older right away, while the Labor Department’s rule would not vest anyone for a decade. The third point made the rule of fifty an appealing middle ground between the positions taken by Labor and Commerce. As it turned out, the task force compromised in July by endorsing a prospectively applied rule-of-fifty vesting standard.163

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With vesting out of the way, the group turned to Treasury’s proposal to allow employees to make tax-deductible retirement contributions. This issue raised a host of thorny questions. The basic idea was that employees who were not covered by a retirement plan should be permitted to make taxdeductible contributions to an individual retirement account. One issue was how large the contribution should be. If IRAs were to accomplish much, workers would need to make relatively large contributions. Treasury proposed limiting contributions to the lesser of 10 percent of earnings or $1,000. The Commerce and Labor Departments objected that Treasury’s proposal would not produce adequate retirement savings. They suggested $2,500 as a more appropriate figure.164 Allowing individuals to make relatively large deductions created problems, however. One was expense. Allowing a contribution of $2,500 would substantially increase the lost tax revenues from the proposal. There were also equity issues. Many pension plans provided low benefits. If employees without a pension plan could make large contributions to an IRA, they would be better off than employees in pension plans that provided small benefits. If the goal of allowing employee contributions was to increase fairness, then employees in pension plans with low benefits also should be allowed to make tax-deductible contributions. This expanded the issue from whether uncovered employees should be allowed to make tax-deductible retirement contributions to whether all employees ought to be able to do so.165 If the task force decided in the affirmative, it then had to decide how much covered employees should be able to deduct. This raised more equity issues. If employees with a pension plan could make the same contribution as uncovered employees, then the covered employees would again be better off than the uncovered employees. “To give the new benefits in full to group members as well as individuals,” Peter Flanigan observed, “would preserve the inequity we set out to solve . . . .” Of course, all these tax-deductible contributions would further reduce tax revenues. In this way, the goal of “restoring equity” landed Flanigan and his colleagues in a slough of tax technicalities and revenue estimates.166 As difficult as these questions were in their own right, they also had a bearing on Treasury’s effort to equalize the tax treatment of different forms of retirement saving. Allowing individuals to create tax-favored retirement accounts might undermine the incentive for self-employed people to create retirement plans. Under current law, a self-employed person could contribute up to $2,500 to a retirement plan on his own behalf. To get this tax benefit, however, he had to cover his employees as well. Commerce and the Labor Department recommended that individual retirement accounts have

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the same contribution limit as self-employed plans.167 But if self-employed and individual plans had the same contribution limit, then a self-employed person would no longer have to cover his employees to make a taxdeductible $2,500 retirement contribution on his own behalf. The incentive for self-employed people to adopt retirement plans that covered their employees would be gone.168 This technical problem forced the task force to spend time looking into self-employed plans. There were also political reasons for doing so. In 1969 Treasury told Congress it would submit “comprehensive legislative recommendations concerning all employee benefit plans” in 1970.169 Treasury had been studying these issues for well over a year and had developed a plan to replace the benefit limits for self-employed plans and plans sponsored by small corporations with an across-the-board limit applicable to all retirement plans. Although this proposal would substantially increase the benefits available under self-employed plans, it bogged down because of objections that it would cut back on the size of pensions a qualified plan could pay to corporate executives.170 Treasury undersecretary Edwin Cohen warned Flanigan that Congress expected the administration to do something about the taxation of retirement plans. It would be “a serious mistake,” Cohen wrote, “for the Administration to present a tax proposal regarding deductibility of voluntary contributions by employees and take no position on other subjects . . . after having promised publicly to do so.”171 If the administration was intent on the IRA proposal, it would have to raise the contribution limits for selfemployed plans to maintain the incentive for self-employed individuals to create a plan that also covered their employees. Treasury volunteered to drop its proposal for an across-the-board benefit limit. This, Cohen said, would allow large corporations “to continue with their existing benefits without affecting the proposals to increase the fairness of the system with respect to the self-employed.”172 The task force spent several months in the late summer and fall of 1971 considering these issues. Early in November, the group endorsed a proposal to allow uncovered employees to make a tax-deductible contribution of the lesser of 20 percent of earnings or $1,500 to an IRA.173 The proposal would allow an employee covered by a retirement plan to make a tax-deductible contribution to an IRA or to his employer’s plan, but the amount would be lower than for uncovered employees. To maintain the tax incentive for selfemployed plans, the task force recommended increasing the contribution limits from the lesser of 10 percent of earnings or $2,500 to the lesser of 15 percent of earnings or $7,500.174 These two proposals, together with a rule-

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of-fifty vesting standard and the revised fiduciary and disclosure bill, would be the major elements of Nixon’s pension program for 1971. As the administration prepared to send its program to Congress, an economist at the Office of Management and Budget wondered what connection these proposals had to the blue-collar campaign. He perceived, as Treasury officials had from the start, that giving individuals a tax incentive to save for retirement was no panacea and certainly not a blue-collar panacea.175 Even with a tax incentive, most employees could not afford to contribute. And the people who could afford to contribute would be more affluent. All of which meant that the benefits of the employee contribution proposal would be skewed to high earners. On top of this, the increase in benefit limits for self-employed plans would be “of great advantage to professions— doctors, lawyers, etc.—but of virtually no assistance to the blue collar worker.” This “was almost certain to be picked up by the press, labor unions, and those seeking grounds for criticism,” the economist warned. Such criticism “could easily nullify the value of the total package as a ‘blue collar’ initiative.”176 The comments were on point, but the White House was not of a mind to heed them. In August, Nixon had declared a freeze on wages and prices in an effort to ease inflationary pressures in the economy. The wage freeze opened a rift with organized labor that derailed the administration’s bluecollar initiative.177 When the White House rolled out its pension proposals on December 8, Peter Flanigan highlighted not vesting but individual retirement accounts as the “most important thing” in the package: “The President has proposed . . . for the first time [that] individuals be encouraged in the American tradition of helping individuals to help themselves provide for their own future by recommending to the Congress that they grant a tax deduction for contributions in this area.”178 Organized labor did indeed zero in on the proposals for IRAs and selfemployed plans. AFL-CIO secretary-treasurer Lane Kirkland called the bill “an exercise in deceit” that would “deliver nothing for today’s elderly and nothing in the future for those whose income is below $10,000 a year.”179 More revealing, however, was the response of the press, for it illustrates the shift in the public image of private pensions. Although Flanigan highlighted the proposal for individual retirement accounts, reporters at the press conference were more interested in the vesting provision and the bill’s effect on risks to workers’ expectations.180 The benchmark for pension legislation was whether it addressed risks that might deny workers a pension, not whether it promoted tax equity or “the American tradition of helping individuals to help themselves.”

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The reaction to Nixon’s vesting proposal among industry experts shows that they too had concluded that pension legislation had to go beyond fiduciary and disclosure reforms. Members of the American Pension Conference had been furious after the Senate Labor Subcommittee’s March 31 press conference on pension forfeitures. Yet when a Labor Department official told them in November 1971 that the White House would propose a vesting standard but not a funding standard or a portability or pension insurance program, Frank King of TIAA-CREF reported that the announcement “had a tranquilizing effect on the audience, normally hostile . . . to any idea of increased pension regulation.” Perhaps “they have been expecting more drastic proposals,” King speculated. “In any case, the members of the Pension Conference seemed ready to swallow it; far less jerking and twitching at the tables than I expected.”181

“the senate is where the action is” As the administration put the finishing touches on its pension program, the Senate Labor Subcommittee shifted its focus from selling pension reform to preparing a bill.182 In February 1972, Harrison Williams released an interim report urging “prompt enactment of a Federal law establishing minimum standards of vesting, funding and reinsurance, a uniform Federal standard of fiduciary responsibility, and a Federal law covering communication of plan provisions to workers” as well as the development of guidelines for a portability program and “the centralization in one agency of all existing as well as prospective regulation of private pension plans.”183 On the Republican side, Javits shifted Frank Cummings from his personal staff to a position as minority counsel of the Labor Committee so that Cummings could focus on pension legislation. The goal was to get a bill through the Senate in 1972.184 Support from organized labor would improve the prospects for achieving this goal, but it proved difficult to get the unions into line. The Steelworkers and Auto Workers were solidly behind the subcommittee’s proposals, but not the AFL-CIO. Unions with multiemployer plans continued to demand an exemption from vesting and funding standards. Some inside the labor movement even saw a hardening of this position after Nixon’s inauguration.185 In March 1971 AFL-CIO lobbyist Andrew Biemiller told a Senate Labor Committee staffer that with “one year to work with his people, he conceivably might bring them into line.”186 The Labor Subcommittee also would have to work to bring the AFL-CIO around.

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The subcommittee staff completed a draft bill in February 1972. Javits had long endorsed the idea of consolidating pension regulation in a single agency. The subcommittee’s soon-to-be-released interim report did the same. The draft bill attempted to meet organized labor halfway by giving jurisdiction to an “independent agency . . . housed at the Department of Labor.” There were no takers at the AFL-CIO.187 The labor movement had a history of unpleasant encounters with government investigators, so the AFL-CIO was wary of proposals to allow a government agency to monitor unions.188 And if such authority was to be given to an agency, it had to be the Labor Department. An advisor to Lyndon Johnson had emphasized this point in 1967, explaining the AFL-CIO’s “emotional reaction” to Johnson’s proposal to merge the Labor and Commerce Departments. Labor leaders “feel they must have ‘their man’ in the Cabinet to protect them against the possibilities of extreme action . . . .” 189 The same concern led the AFL-CIO to demand Labor Department oversight of pension regulation. An “independent agency . . . housed at the Department of Labor” would not do. The idea had to go and did.190 Labor Subcommittee staffers also had to address concerns about the effect vesting and funding mandates would have on multiemployer plans. Staffers handled funding by authorizing the Labor Department to “prescribe alternative funding requirements for fixed contribution multiemployer plans . . . .”191 An AFL-CIO pension specialist thought this “adequate assuming sympathetic administration.”192 Vesting was more of a problem. The subcommittee proposed a graded schedule under which an employee would vest in 30 percent of benefit accruals after eight years of service. Thereafter the vested portion would increase 10 percent each year until 100 percent was reached after fifteen years. AFL-CIO experts judged this “inadequate for single employer plans and too stringent for multiemployer plans.”193 In an effort to meet the objection, subcommittee staffers drafted a complicated provision that would allow a pension plan to be split into two plans.194 But this and other efforts to meet union objections did not satisfy the AFL-CIO.195 As the staff put the finishing touches on the draft, the subcommittee moved forward on other fronts. On May 1, it began hearings on plan terminations. This year lawmakers went on the road to St. Louis, Newark, Minneapolis, Cleveland, and Philadelphia to listen to workers and retirees whose plan had defaulted. Horror stories abounded. In St. Louis, for example, a lawyer representing former employees of the American Zinc Company told Senator Thomas Eagleton (D, Mo.) that when the firm shut down

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a local refinery, the pension plan had only about $2.3 million in assets to meet over $8.5 million in vested liabilities. This would pay benefits to retirees “for 6 or 7 years” but left nothing for employees who were too young to retire.196 The House too was busy with pension issues. On May 8, John Dent’s subcommittee published an interim report on pension reform, and the Ways and Means Committee began hearings on Nixon’s Individual Retirement Benefit Act. The hearings, the first Ways and Means had devoted exclusively to pension reform, produced few surprises. With one important exception, the usual participants took the usual positions. Businesses and service providers lauded Nixon’s proposals for tax-deductible employee contributions and liberalized rules for self-employed plans, while representatives of organized labor denounced them.197 Union officials criticized the administration for not going far enough in regulating single-employer plans, while the AFL-CIO complained that Nixon’s bill would interfere with the vesting rules in most multiemployer plans.198 Jacob Javits said Nixon’s bill did not do enough to protect employees, while business representatives and their consultants reiterated their previous objections to funding, termination insurance, and portability.199 What was new was that some witnesses from the business community changed their position on vesting. Many supported (or at least acquiesced in) the administration’s rule of fifty standard or a similar alternative. It was the first time many of these groups had publicly supported a vesting mandate.200 Although other business groups, most notably the Chamber of Commerce, continued to oppose vesting, the hearings made it clear that the Senate Labor Subcommittee’s promotional campaign had forced the business community to give ground.201 But the House was unlikely to produce legislation anytime soon. In March 1972, Nixon had urged Republican congressional leaders to “do all we can to get the pension bill out anyway we can.”202 Ways and Means Committee chair Wilbur Mills was in less of a hurry. Mills had already stated that Ways and Means would not produce a pension bill in the Ninetysecond Congress.203 After completing its hearings, the committee took no further action on pension reform. The House General Labor Subcommittee was also unsure of its direction. John Dent was caught between rival factions of the labor movement.204 He postponed action pending further study. As Frank Cummings observed in a review of congressional pension initiatives, “[T]he Senate is where the action is.”205 More precisely, the action was in the Senate Labor Committee.

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table 4. Provisions of S. 3598, Ninety-Second Congress, Second Session, 1972 (as introduced) Administration Reporting/Disclosure Definition of Fiduciary General Fiduciary Standard Self-Dealing Participation Standard Vesting: Minimum Standard Benefits Covered Portability Funding Standard: Single-Employer Funding Standard: Multiemployer

Termination Insurance: Benefits Covered Maximum Insured Benefit Premium Formula: SingleEmployer Plans Premium Formula: Multiemployer Plans Employer Liability

Labor Department Yes Person with any authority or control over plan assets Duties of loyalty and prudence General prohibition of self-dealing with exemptions for common transactions Later of 6 months of service and age 21 30% vested after 8 years of covered service, then 10% per year (years 9 through 15) Benefits accrued after effective date Centralized fund with voluntary participation Normal cost + 40-year amortization of unfunded past-service liability (1) Normal cost + 40-year amortization of unfunded past-service liability (2) Labor Department is to prescribe alternative standard Benefits accrued after effective date and vested under statutory minimum standard Lesser of 50% of highest 5-year average monthly salary or $500/month Exposure premium based on insured unfunded vested liability of plan Exposure premium based on insured unfunded vested liability of plan Insurance paid ⫻ (1 – [insurance paid ⫼ employer’s net worth])

On May 11, Williams and Javits introduced S. 3598, the Retirement Income Security for Employees Act, with twelve cosponsors from the Labor and Public Welfare Committee.206 The bill drew its basic structure from S. 2, a bill Javits had introduced in January 1971.207 Like S. 2, S. 3598 included fiduciary and disclosure reforms, vesting and funding standards, termination insurance, and a voluntary portability program. But S. 3598 differed from S. 2 in ways that reflected the Labor Subcommittee’s efforts to address

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political and technical concerns. As noted above, Williams and Javits’s effort to meet organized labor half way led them to give administrative oversight to the Labor Department rather than an independent commission. The bill also included language addressed to special problems of multiemployer pension plans. But the most important innovation was a provision that made employers liable for a portion of payouts by the insurance program when a pension plan defaulted. The employer-liability provision was an attempt to deal with the threat of moral hazard. Earlier bills had proposed waiting periods for coverage, maximum insurance limits, and minimum funding, but these left the insurance program exposed to a substantial degree of moral hazard. In an influential essay in 1967, Dan McGill observed that the most effective defense against moral hazard would be “to make the employer primarily responsible for any deficiency in plan assets, with the guaranty fund being only contingently liable.”208 A firm would think twice about terminating an underfunded pension plan if it had to pay much of the bill. Employer liability enhanced the viability of termination insurance, but it also fundamentally changed the legal structure of pension arrangements by forcing employers to accept a liability that most firms explicitly disclaimed. The Labor Subcommittee’s increasingly legislative focus led it to moderate its public pronouncements. The campaign to create a reform coalition had required divisive rhetoric. If Javits, Williams, and their staffs were to produce a technically and politically acceptable bill, they would need to negotiate with individuals and groups they had antagonized.209 Senators and staff attempted to counter these animosities as they wrote their bill and prepared for legislative hearings. “[W]e are determined, but not pigheaded,” Cummings told a meeting of pension administrators in December 1971. 210 Six months later he struck a similar note in remarks to the American Compensation Association, “remind[ing] the ACA members that both he and Javits are former corporate lawyers and that they have not set out to draft an anti-business bill.” Rather than “confrontation,” the subcommittee wanted “a dialogue with business to make pension reform legislation feasible and fair.”211 Ralph Nader’s entry onto the stage of pension policy-making aided the subcommittee’s effort to redefine itself as the responsible center of the policy spectrum. In May 1972, Nader delivered a sweeping attack on the private pension system. “In terms of dollar impact,” he declared, “the private pension system represents one of the most comprehensive consumer frauds that many Americans will encounter in their lifetime.” “And I use the term ‘fraud’ advisedly,” Nader added. “Those of you who sell, service and ad-

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minister private pension plans, as well as those who negotiate and establish plans, have seriously and deliberately misrepresented the nature of this pension system.”212 The failures of the private pension system, Nader warned, might leave its defenders with no answer when citizens asked, “Why the private pension system? Why not an expansion of the social security system?”213 Nader’s remarks allowed Javits to adopt the opportune role of defender of the private sector. Taking the Senate floor, Javits, who fourteen months earlier had called the private pension system an institution “built upon human disappointment,” bluntly rejected Nader’s claims. “[T]here is no consumer fraud involved,” said Javits, “and to create such an impression is itself a gross misrepresentation” that undermined rather than advanced the cause of “true, effective reform.” “It is one thing,” Javits argued, “to chastise the pension plans for being too slow to recognize the changed circumstances of modern industrial life and for failing to institute needed changes in light of these circumstances. It is quite another thing to crucify these plans on the cross of consumer fraud.” Private pensions did not need an impracticable “collectivization” of the sort Nader had proposed, said Javits. What was needed was “reform” that would bring retirement plans into line with contemporary economic conditions.214 The Senate Labor Subcommittee was pursuing responsible reform. On June 20 the subcommittee began six days of hearings on S. 3598. Again, organized labor, business, and other interest groups provided few surprises. But Javits and his staff emphasized that the time for resistance had passed. “This is a legislative hearing . . . . ,” Javits announced. “With this in mind, I trust that the witnesses . . . will present us with constructive testimony.”215 Witnesses who were not constructive heard about it. AFL-CIO legislative director Andrew Biemiller claimed that S. 3598 made “insufficient distinction . . . between single and multiemployer plans,” but Javits’s aides had emphasized the importance of “being tough-minded with [the AFL-CIO] about this.”216 Javits produced a “sheaf of letters” from workers who had forfeited benefits under multiemployer pension plans.217 The Labor Subcommittee was willing to accommodate multiemployer plans, Javits told Biemiller, but “I feel strongly that we should not exempt multiemployer plans.” “[I]f we have any technical questions we would like to get the federation’s view on,” Javits asked, “may we submit written questions to you?” Biemiller, not surprisingly, said yes.218 Frank Cummings gave similar treatment to William Bret of the A. S. Hansen consulting firm:

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mr. cummings: What do you consider bad vesting? mr. bret: I would consider no vesting bad vesting obviously. mr. cummings: Don’t you think it is fundamentally unfair to an employee to hire him at the age of 20 and to have him lose his job at the age of 60 and get no pension? mr. bret: Hansen does not have a single plan— mr. cummings: I did not say Hansen. I am sure Hansen is a highly competent, very ethical firm, and you advise your clients properly. But the world is not full of Hansen clients. mr. bret: Unfortunately.219

The Labor Subcommittee completed hearings on S. 3598 on June 29. It held a final hearing on plan terminations as staffers reviewed testimony and “arrang[ed] meetings with various organizations and individuals to clarify further the changes that can be incorporated in the Williams-Javits bill.”220 For example, staffers met with union officials to discuss a proposal to apply termination insurance and vesting to benefits earned before enactment of the bill.221 And they met with representatives of TIAA-CREF to discuss whether private colleges should be covered by the bill, as well as other problems pension reform might create for this pension fund.222 Senate majority leader Mike Mansfield and minority leader Hugh Scott spurred the subcommittee’s effort when they expressed interest in “see[ing] a pension portability bill considered.”223 On September 13 the subcommittee reported S. 3598 with several important changes.224 As introduced, the vesting rule applied prospectively “to service on or after the effective date of this title.”225 This drew criticism from many sources. “It would take a whole generation of workers to have their benefits preserved under the bill as presently drafted,” Dan McGill observed.226 The subcommittee amended the bill to vest benefits based on preenactment service for workers age forty-five or older.227 The insurance program in the original version of S. 3598 also covered vested benefits earned after enactment.228 The UAW and Steelworkers objected to the failure to insure pre-enactment obligations. The reported bill did so.229 The subcommittee also added an additional transition period for plans that could not comply with the vesting rule immediately.230 The provision was addressed principally to the cost concerns of multiemployer plans. It would not “satisf[y] the AFL-CIO,” Mike Gordon told Javits, but the subcommittee had gone as far as it could go. “When it comes to costs,” said Gordon, “. . . mul-

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tiemployer plans do not enjoy any unique status. In terms of relief from excessive cost, the bill deals uniformly and fairly with all plans.”231 The subcommittee also stiffened its funding standard by requiring plans to amortize unfunded liabilities over thirty rather than forty years.232 The subcommittee timed its action on S. 3598 to coincide with its report on plan terminations and with NBC-TV’s airing of “Pensions: The Broken Promise” on September 12. “[T]he opening show of a new prime-time documentary series,” “Pensions” drew heavily on horror stories supplied by the Labor Subcommittee.233 It also included segments of the subcommittee’s final hearing on plan terminations and interviews with Williams and Richard Schweiker (R, Penn.).234 The program painted a bleak portrait of the private pension system. “Senator, the way private pension plans are set up now, are the promises real?” asked NBC correspondent Edwin Newman. “The answer is, they are not,” Williams replied.235 “Pensions” garnered only the third-highest rating in its time slot in the Nielsens (it ran against Marcus Welby, M.D.), but it received wide and generally favorable coverage in the press.236 Pension experts protested what they saw as another smear of the private pension system. Reportedly, “the first complaint came at nine-thirty the morning after the broadcast by an executive in [NBC’s] own personnel office whose area of responsibility included pensions.”237 The general counsel of TIAA-CREF described his reaction: “I am gradually recovering from the shock of watching the hour-long TV program on private pensions broadcast by NBC last night. The distorted and one-sided presentation of the apparent evils of private pension plans kept going on and on, interspersed with pictures of pathetic elderly people.”238 Two months later, Accuracy in Media, a conservative media watchdog group, complained to the Federal Communications Commission that the program presented “a grotesquely distorted picture of the private pension system in the United States.”239 Thus began one of the most celebrated cases involving the FCC’s fairness doctrine.240 But “Pensions: The Broken Promise” was a perfect counterpart for S. 3598. It put pensions back in the news just as the Labor Committee marked up its bill. The committee moved quickly. Two days after the subcommittee completed work on S. 3598, the full committee favorably reported the bill with no dissents. The committee made only a few additional changes, including an amendment pushed by the auto industry that gave the Labor Department authority to allow a plan with a vesting provision “comparable” to the standard in S. 3598 to retain that provision even if it did not comply with standards in the bill.241 With the support of the majority and minority leaders, Williams and Javits were optimistic about getting the bill to the Senate

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floor. As they explained in a “Dear Colleague” letter on September 21, “It is our hope that the Senate will act on this vital legislation before the end of the current Congress.”242

“the detour to the finance committee . . . to kill the bill” There was no chance that the House would act on S. 3598 if the bill passed the Senate, but Williams and Javits had good reasons to push for a vote anyway. For one thing, Senate passage would give the bill momentum in the next Congress. “[I]f S. 3598 does pass the Senate this year,” Frank Cummings explained, “. . . . the die will be cast, and its chances for enactment in the next Congress will be excellent—indeed, its passage will be inevitable.”243 Senate passage of the measure also would resolve some ambiguities about committee jurisdiction. The Senate Labor Committee was not the only committee with a claim to jurisdiction over pensions. Many of the existing laws regulating pension plans—in particular, Treasury regulations that established funding and vesting standards—were tax laws. Tax jurisdiction belonged to the Finance Committee. Senate passage of S. 3598 would resolve any remaining doubts about the Labor Committee’s authority to regulate vesting and funding. Of course, these points were as clear to the enemies of S. 3598 as to its friends.244 Opponents mobilized when it appeared there might be a vote on the measure. In late August an official from the Office of Management and Budget warned that “we should consider possible means of derailing [Williams and Javits’s] effort such as attempting to have the bill referred to Senator Long’s committee or gathering the votes to defeat the bill on the floor.”245 As the Labor Subcommittee prepared to mark up the bill, Peter Flanigan cautioned the president not to criticize Congress for failing to act on pension legislation because, if he did, “it would be difficult not to support [S. 3598], however much we disliked it.”246 The same issues worried the Chamber of Commerce. A pension specialist at the Chamber telephoned the White House “a couple of times” to warn that Senate passage of S. 3598 “would create a precedent for Senate Labor Committee action on all aspects of pension proposals.” He urged “the Administration [to] try to have the bill referred to the Senate Finance Committee or . . . split up on the floor” to remove everything but the fiduciary and reporting provisions.247 As the Labor Committee prepared to report the measure, the administration and the Chamber reportedly allied to urge Fi-

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nance Committee chair Russell Long not to allow the Labor Committee to “usurp” matters within Finance’s jurisdiction.248 Long is likely to have needed little persuading. As Bernard Asbell has observed, jurisdictional conflicts are as near to a blood sport as exists in Congress.249 And the Finance Committee’s claim to jurisdiction was strong. Indeed, a story in the Daily Labor Report several years earlier averred that Javits’s first comprehensive pension reform bill, introduced in 1967, had been “referred to the Senate Labor Committee . . . with the understanding that it would be reviewed by Chairman Long . . . of the Senate Finance Committee after the Labor Committee [was] through with it.”250 Under these circumstances, Long would not cede jurisdiction without a fight. Citing the “dual regulation” that would result if Congress passed S. 3598, Long requested a referral to the Finance Committee. On September 19, S. 3598 went to Finance, with the proviso that it would be “deemed reported back to the Senate and take its place on the calendar” on September 26.251 Labor Committee staffers soon learned that Long would strip the vesting and funding standards, termination insurance, and portability and report the bill to the Senate with only the disclosure and fiduciary provisions intact. Supporters of S. 3598 could do little to stop Long, but they tried to make the bill’s death a noisy one. “The hope is that enough heat will be put on the Democratic members of the Finance Committee to ensure a large number of dissenting opinions from the Finance Committee’s report to the Senate,” said a Steelworkers official.252 As it happened, five members dissented.253 Moreover, Javits and Williams’s ties with the press stood them in good stead. Long’s action provoked angry stories and editorials in major dailies. The New York Times decried a “wrecker’s ball wielded by the Senate Finance Committee [that] threatens to smash the most thoughtful measure ever devised on Capitol Hill for correcting defects in the private pension plans that cover more than thirty million workers.” “The need for these provisions,” the Times continued, “has been so abundantly demonstrated by the careful studies on which the original bill was based and by testimony at the hearings held in Washington and other cities that it is inconceivable that the full Senate will bow to the tyranny of its Finance Committee.”254 Williams and Javits considered taking the issue to the Senate floor, as the New York Times suggested. The Finance Committee had never raised the jurisdictional issue when the Senate appropriated funds for the Labor Subcommittee to study pension plans. “It is important to set a precedent that this belongs before the Labor Committee and is a labor law,” Mike Gordon told a reporter.255 Williams and Javits asked majority leader Mike Mansfield

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for consideration of S. 3598 before the session ended. Javits claimed to have the votes to overturn the Finance Committee. On September 26, however, as Javits and Williams got ready to take on Russell Long, the Senate Democratic Policy Committee decided that the Senate would take up “only bills that have passed the House or have been taken up by it.”256 With the bill dead, Javits angrily attacked the Finance Committee’s action on the Senate floor.257 After years of work by the Senate Labor Committee, Javits declared, “in the 59th minute of the 11th hour, along comes the Committee on Finance, allegedly, according to the newspapers, at the request of the U.S. Chamber of Commerce, and asks that the bill be referred to it for a week.” “After 1 week, in a closed-door session, on a voice vote, and without any hearings, the Committee on Finance sent the bill back to the floor with the recommendation that every key provision in it be stricken. It will take a magician,” Javits argued, “to demonstrate how the action of the Finance Committee is a service to our country and the American workingman.” Addressing Long, Javits asked for a reply. “Let the Committee on Finance make its case,” he said. “Let the Committee on Labor and Public Welfare make its case. Let the Senate decide while the matter is hot, while the American people are thinking about it, and have it clearly in view, and understand who is for it and who is against it. The fact that this will come before an election will be a good and salutary thing.”258 In response, Long raised jurisdictional issues that would dominate consideration of pension reform in the Ninety-third Congress. The proposals stripped from S. 3598, he stated, “traditionally have been matters considered by the tax committees.” Nixon’s bill included vesting standards, and it was a tax measure on which the Ways and Means Committee had held hearings. “The House” believed the matters stricken from S. 3598 made it a revenue measure, and “revenue measures must originate in the House.”259 It was pointless to send S. 3598 to the House as reported by the Labor Committee. “[I]n all probability,” Long predicted, “if this measure should be sent to the House, it would not be agreed to on that side, because the Ways and Means Committee would insist upon opposing it. I would not be surprised, should it reach the President’s desk in the fashion being recommended, if the President vetoed it.”260 “We are not trying to muscle in on anybody else’s jurisdiction;” said Long, “we only think our jurisdiction should be respected, and that if we are going to handle this matter in the tax-writing committees, it ought to originate in the House of Representatives.”261 The proximity to the election made the Finance Committee’s action a

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partisan issue. Harrison Williams blamed the president for having Long kill the bill, a charge repeated by Democratic presidential nominee George McGovern.262 But why blame Nixon, asked minority staffers, when the Democrats controlled the Senate? Nixon could not prevent Senate Democrats from taking up the bill. “It seems to me,” Mike Gordon told Javits, “that the Democrats are having a fine time making a political football out of the pension issue but are doing everything they can to duck bringing the bill up.”263 Mike Mansfield could do little else, however, because Long promised a filibuster if S. 3598 came to the floor.264 When Javits and Robert Griffin (R, Mich.) challenged Mansfield to schedule the bill, he acknowledged the “tremendous amount of pressure” to call it up.265 Mansfield promised that if the Labor Committee reported the bill in the next Congress, “it would be one of the first orders of business . . . .”266 As Mansfield’s reference to a “tremendous amount of pressure” suggests, the Finance Committee’s actions produced a backlash in the Senate. By the close of the Ninety-second Congress, Javits and Williams had fortytwo cosponsors for S. 3598. Moreover, there was also evidence of an electoral response. One senator who did not dissent from the Finance Committee’s gutting of S. 3598 was Jack Miller, an Iowa Republican. Miller was up for reelection, and his Democratic opponent made pension reform a campaign issue.267 Miller was one of four “seemingly well-entrenched Republican incumbents” who lost his Senate seat in the November elections.268 The Finance Committee was worried enough at these developments that it contacted the Labor Committee after Congress adjourned. In December 1972 Mike Gordon met with Larry Woodworth, the chief of staff of the Joint Tax Committee, to discuss ways of overcoming the jurisdictional impasse.269 The meeting was exploratory, however, and nothing had been settled when the new Congress convened. By the end of the Ninety-second Congress, then, it was clear that lawmakers would address private pensions in the next session. What they would do was another question entirely. As a headline in the Daily Labor Report put it, “Interest in Pension Plan at Peak, but Outcome Is Unpredictable.”270 Much would depend on Ways and Means Committee chair Wilbur Mills. Russell Long had said that the Ways and Means Committee would consider pension reform in the Ninety-third Congress. A representative of Ways and Means confirmed this in December.271 But Wilbur Mills was renowned for keeping his cards close to his vest.272 If Mills opposed funding standards, termination insurance, and portability, as business rep-

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resentatives would urge him to do, he might well broker a more limited bill. Javits and Williams, on the other hand, were committed to comprehensive reform. If the Ninety-second Congress put pensions on the agenda, the Ninety-third promised a battle to control the legislative opportunity the Senate Labor Subcommittee had created.

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Less than a year after Russell Long killed S. 3598 and dealt Javits and Williams a bitter defeat, the Senate gave them a resounding victory. The turnabout owed everything to the Senate Labor Subcommittee’s promotional campaign. Simply put, Javits and Williams had persuaded their colleagues that Congress should pass a comprehensive pension reform bill. Soon after Congress convened, Russell Long realized that the Finance Committee risked losing jurisdiction if it dragged its feet. What is more, Javits and Williams’s promotional efforts prompted state legislators to look into pension reform. The prospect of state regulation led business groups to reverse course and endorse federal legislation as a means of preempting conflicting state laws. This development further strengthened the Labor Committee’s hand because the Labor Committee, rather than the Finance Committee, had legislative jurisdiction to preempt state employment laws. These advantages allowed Javits and Williams to secure legislation that included everything that had been in S. 3598 and more. When the Ninety-third Congress convened in January 1973, pension reform had momentum. Senate minority leader Hugh Scott told White House staffers who polled him for suggestions for the president’s State of the Union address, “This will be the year of health and pension legislation. These will be two gut issues for most Americans at this time.”1 Javits and Williams returned to Washington determined to press their advantage. On the first day of the new Congress, they introduced a bill identical to the measure Russell Long had killed several months earlier. By mid April, the Labor Committee held hearings, marked up, and reported this bill for action by the full Senate. Although Long again raised the Finance Committee’s jurisdictional claims, Javits and Williams had the Senate leadership and a majority of their Senate colleagues behind them. Astute politician that he was, Long 190

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quickly saw that the Finance Committee had to move it or lose it. In March Finance introduced its own pension reform bill and established a subcommittee to consider the issue. The content of any legislation the Senate passed would be determined in negotiations between the Labor and Finance Committees. Because Finance was the more conservative of the two committees, it would typically be expected to moderate the Labor Committee’s proposals. And since Finance was more powerful and prestigious, it would typically be expected to be a significant counterweight to the Labor Committee. But pension reform was not typical legislation. Spurred by the work of the Senate Labor Subcommittee, many state legislatures had begun to consider regulating pension plans. The prospect of conflicting state laws led business groups to support federal legislation to preempt the states. The business community’s desire for federal preemption greatly increased the Labor Committee’s influence because the Senate rules gave the Labor Committee jurisdiction over laws regulating employment. If business groups wanted preemption, they had to get it from the Labor Committee. In return, Javits and Williams demanded a bill that did what they believed pension reform ought to do.

the resurgence of congress January 1973 was an auspicious time for pension reformers to renew their campaign. The last months of 1972 convinced many legislators that Congress had to reassert its role in government. When Congress adjourned on October 18, lawmakers had not resolved a number of major issues, the most important of which was federal spending. Although the House and Senate agreed with President Nixon that federal expenditures should be cut, they could not agree on what reductions to make, and they did not authorize the president to make cuts.2 After Congress adjourned, Nixon took matters into his own hands, impounding funds though legislators had not authorized him to do so.3 Then, on December 18, Nixon ordered a resumption of heavy bombing in North Vietnam without consulting the congressional leadership.4 Political historian James Sundquist calls this “the low point in the modern history of congressional power vis-à-vis the president.”5 Nixon’s rhetoric and actions persuaded congressional leaders that they must reclaim their rightful place in government and put the president back in his. One thing Congress could do was seize the legislative initiative. When the Senate Democratic Conference held its first meeting of the Ninety-third Congress, majority leader Mike Mansfield “emphasize[d] that

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the Senate has a distinct mandate to assert its own concepts of priorities.”6 “This year,” he told committee chairs, “the Senate is abandoning the tradition of awaiting the President’s State of the Union address before commencing its legislative activity.”7 Instead, the Senate would immediately take up the backlog of legislation that Nixon had vetoed or that had been seriously considered but not passed in the previous Congress.8 Speaker of the House Carl Albert (D, Okla.) also struck a “defiant note,” promising to “ ‘work harder than I have ever worked in my life’ to re-establish respect for Congress as an equal partner in Government.”9 To gain the legislative initiative, the Democratic congressional leadership had to rein in committees that were out of step with party majorities.10 In the Senate, the target was Russell Long’s Finance Committee. “This committee,” an aide told Mansfield, “will be dealing with what is perhaps the most important domestic legislation the 93rd Congress will handle . . . . The Committee . . . has been a constant conservative bottleneck, out of step with both the Democratic Conference and the Senate as a whole.”11 With support from eastern and midwestern senators, Mansfield expanded the Democratic Steering Committee (which made committee assignments) from seventeen to nineteen members.12 With turnover, this opened four slots, which were assigned to three liberals, Joseph Biden (D, Del.), Dick Clark (D, Iowa), and Frank Church (D, Idaho), and one conservative, Russell Long. The Steering Committee in turn added one member to the Finance Committee, which, with turnover, created three Democratic slots. The new positions went to two liberals, Walter Mondale (D, Minn.) and Mike Gravel (D, Alaska), and moderate Lloyd Bentsen (D, Texas).13 A move was also afoot to give the Senate Democratic Policy Committee a larger role in setting legislative priorities.14 Developments in the House also strengthened the Democratic leadership and the party majority. In late January, the House Democratic Caucus adopted a rule that required every committee chair to be approved by secret ballot if 20 percent of the caucus requested such a vote.15 Although the caucus endorsed all incumbents, the new rule gave the party majority a credible threat against a recalcitrant committee chair.16 Turnover in the House membership also had important effects. The chair and three positions opened up on the Rules Committee. The chair went to Ray Madden (D, Ind.), a liberal whose district included the Steelworkers stronghold of Gary, Indiana.17 The three open positions went to members loyal to the leadership. According to Congressional Quarterly Weekly Report, these changes “[we]re expected to turn the committee into a virtual arm of the leadership.”18

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As the new Congress began, Javits and Williams believed their best strategy was to move quickly. Although Labor and Finance Committee representatives had conferred during the break, no accommodation had been reached. The wisest course of action was for Javits and Williams to seize the initiative and give up no ground to the Finance Committee. “[I]f we are going to work out a bill with the tax committees,” Mike Gordon urged Javits as the session opened, “it is essential that we not automatically give in to any Finance Committee request.”19 On the first day of the session, Williams and Javits introduced S. 4, which was identical to the bill the Labor Committee had reported in September 1972.20 In his introductory remarks, Javits linked the Senate’s handling of pension reform to the public’s declining regard for Congress. “The people cannot look with favor on a repeat performance of what transpired in the Senate in the closing days of the last session,” he said. S. 4 offered an opportunity to restore public confidence. Pension reform, Javits stated, is now an area where the Congress has both the motivation and the competence to act decisively. . . . If we are to restore confidence in the ability of the private pension plans to deliver on their promises and also maintain confidence in the capability of the Congress as an institution to deal responsibly with the important social needs of our people, then surely we can hesitate no longer on enacting effective pension and welfare reform legislation, and we should do it without any unnecessary legalistic delay.21

Williams held two days of hearings in mid February. By February 15, the date of the first hearing, he and Javits had fifty cosponsors.22 Williams made it clear that the Labor Committee would not dawdle. “There is nothing new in this legislation,” he told representatives of the Labor Department. The proposals in S. 4 had been thoroughly considered. “It would seem to me that the Department should be ready to be definitive, and quite soon. This is not going to delay us.”23 A Labor Department official told Peter Brennan, the newly appointed secretary, that “if you want your ideas considered before the Williams-Javits bill is reported out by the Subcommittee, your ideas will need to be submitted quickly because [Williams and Javits] are not disposed to wait.”24 They did not wait. The subcommittee completed its hearings on February 16 and reported the bill to the full Labor Committee on March 5.25 Events quickly convinced Russell Long that the Finance Committee had to act to protect its jurisdiction.26 Mike Mansfield signaled that he expected the Senate to pass a pension reform bill and would side with the Labor Com-

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mittee if Long stalled. Early in the session, Mansfield furnished each committee chair “with a list of priority measures which fall within his Committee’s jurisdiction.” The list included pension reform as a matter within the jurisdiction of the Labor and Public Welfare Committee.27 On February 23 Mansfield met with committee chairs to discuss the status of priority bills. When Williams reported “that the pension reform bill was nearing mark-up stage,” Long reiterated his claim that jurisdiction over pension plans belonged to Finance. Williams replied that S. 4 “related exclusively to non-tax aspects of pension reform” and “had been endorsed by 52 Senators.” Williams intended to proceed.28 Long now found himself in a difficult position. The Finance Committee’s jurisdiction derived from the taxing power, and the Constitution required tax bills to originate in the House. Presumably Finance ought to refrain from working on pension reform until the House passed a bill.29 The exchange with Williams apparently persuaded Long that he had to act. On February 26 Long established a Subcommittee on Private Pension Plans and named Gaylord Nelson (D, Wis.) as chair. Observers saw Nelson’s appointment “as showing a goodwill toward pension legislation.” Nelson was among the most liberal members of the Finance Committee, and he had dissented when Finance stripped the Labor Committee’s bill in September 1972.30 In addition, Nelson was a member of both the Finance and Labor Committees and a sponsor of S. 4. These affiliations put him in an ideal position to mediate negotiations between the committees.31 Long also tapped Lloyd Bentsen, whose experience running an insurance company gave him familiarity with pension issues, to draft a bill.32 On March 13, as the Labor Committee considered S. 4, Bentsen introduced the Finance Committee’s venture into pension reform.33 Bentsen’s bill provided further evidence that pension reform would “get respectful treatment by Chairman Russell Long.”34 The bill evinced that Bentsen and, by implication, Long accepted “the basic concepts of the Williams-Javits pension reform bill.”35 S. 1179 proposed vesting and funding standards.36 More importantly, it included an insurance program.37 For almost a decade, critics had condemned termination insurance as unworkable. Yet in S. 1179, a moderate member of a conservative committee endorsed it. In fact, Bentsen had grave reservations about termination insurance and included it only when representatives of the Labor Committee insisted that there could be no accommodation unless termination insurance was in the Finance Committee’s bill.38 Notwithstanding Bentsen’s acquiescence in the Labor Committee’s views on regulatory standards, there remained a sharp split over administrative

table 5. Principal Senate Bills in the Ninety–Third Congress S. 4 (as reported)

S. 1179 (as introduced)

Administration

Labor Department

Reporting/Disclosure Definition of Fiduciary General Fiduciary Standard Self-Dealing

Yes Person with any authority or control over plan assets Duties of loyalty and prudence General prohibition of selfdealing with exemptions for common transactions

Treasury: participation, vesting, funding Nonprofit corporation: insurance No No

Participation Standard Vesting: Minimum Standard

Later of 1 year of service and age 25

Benefits Covered

Portability Funding Standard: Single-Employer Plans Funding Standard: Multiemployer Plans

(1) 30% vested after 8 years of covered service, then 10% per year (years 9 through 15) (2) Plans in which employees are 100% vested after 10 years of service are grandfathered Benefits accrued before or after enactment

Centralized fund with voluntary participation Normal cost + 30-year amortization of unfunded past-service liability (1) Normal cost + 30-year amortization of unfunded past-service liability (2) Labor Department is to prescribe alternative standard

No No, but leaves in place the prohibited-transaction rules in the Internal Revenue Code Later of 1 year of service and age 30 25% vested after 5 years of covered service, then 5% per year (years 6 through 20)

(1) Employees 45 and older: benefits accrued before or after effective date (2) Employees 44 and younger: benefits accrued after effective date Rollover into individual retirement account Normal cost + 30-year amortization of unfunded past-service liability (1) Normal cost + 30-year amortization of unfunded past-service liability (2) Treasury Department may prescribe alternative standard

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table 5 (continued)

Termination Insurance: Benefits Covered Maximum Insured Benefit Premium Formula: Single-Employer Plans Premium Formula: Multiemployer Plans Employer Liability

Individual Retirement Accounts

S. 4 (as reported)

S. 1179 (as introduced)

Vested benefits accrued before or after enactment Lesser of 50% of highest 5-year average monthly salary or $500/month Exposure premium based on insured unfunded vested liability of plan Exposure premium based on insured unfunded vested liability of plan Lesser of insurance paid or 50% of employer’s net worth No

Vested benefits accrued before or after enactment Lesser of 50% of highest 5-year average monthly salary or $1,000/month Exposure premium based on insured unfunded vested liability of plan Exposure premium based on insured unfunded vested liability of plan No

(1) Individual may contribute lesser of $1,500 or 20% of earned income (2) Individual receives tax credit of 25% of contribution (3) Reduced credit available to covered employees

jurisdiction. Bentsen’s bill implemented vesting and funding standards and termination insurance through the Internal Revenue Code.39 Vesting and funding standards would be conditions of tax qualification administered by the IRS. Termination insurance would be run by a private nonprofit corporation rather than the Labor Department. Bentsen left disclosure out of his bill because disclosure fell within the labor laws and was conceded to the Labor Committee.40 But the Finance Committee’s tax jurisdiction allowed Bentsen to include provisions Javits and Williams could not put in their bill. Borrowing an idea from the administration, Bentsen included a proposal to allow individuals to create individual retirement accounts.41 Pension reform also got off to a fast start in the House, but action there was likely to be slower. In the first week of the session, John Dent introduced two bills, announced hearings, and promised to press for quick action.42 But Dent’s resolute manner belied his increasingly difficult relationship with

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organized labor. As Dent explained to Mike Mansfield, unions were “seriously divided on the specifics” of pension reform, and he was caught in the middle.43 Although Dent had held lengthy hearings in the Ninety-first Congress and conducted hearings and a study of pension plans in the Ninetysecond, his subcommittee did not report a bill. Impatient, the Steelworkers took steps to force his hand. In December 1972 an article in the union’s monthly newsletter lambasted Dent for his slow pace on pension reform. As a result, Dent told Mansfield, “I have been placed in a difficult and embarrassing position with my Steelworker constituents—who happen to represent the preponderance of my labor constituents . . . .”44 It would be difficult for Dent to appease the Steelworkers, however, without running afoul of the AFL-CIO and unions like the Garment Workers that opposed vesting and funding standards for multiemployer plans. The Ways and Means Committee also got a quick start on pension reform. Committee chair Wilbur Mills kicked off the session with a lengthy series of hearings and panel discussions on tax reform, including pension reform.45 But just because pensions were on Mills’s agenda did not mean his committee would act. Mills felt little urgency about pension reform. In November 1972 he told White House aides that he would address pension reform “during the tax hearings, not as a separate item on his agenda.”46 A White House staffer judged the “indifference to pensions in the Ways and Means Committee” to be one of the principal uncertainties affecting the political prospects for pension reform.47 Moreover, as in past Congresses, Ways and Means had a packed calendar.48 There was a good chance that other business would pull Mills away from tax reform and, with it, pension reform.

“a quid pro quo for labor” As the House and Senate moved forward on pension issues, the White House reassessed its own program. The salience of pension issues and the knowledge that Javits and Williams would move quickly forced the administration at least to resubmit the bills it had introduced in the Ninety-second Congress.49 There were other reasons for the White House to rethink its position on pension reform. A new round of negotiations under the General Agreement on Tariffs and Trade was scheduled for September 1973, and Nixon planned to offer major trade legislation to counter protectionist initiatives in Congress.50 The labor movement would be critical to this legislative effort because foreign competition had pushed unions more and more into the protectionist camp.51 White House aides thought pension reform

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might be a useful bargaining chip in negotiations with labor leaders over trade, so they proposed a logroll: “a proposal for a beefed-up system of unemployment insurance which, in conjunction with pension reform, would be included in the Administration’s trade package as a quid pro quo for labor.”52 The task of reviewing the administration’s pension program fell to a working group organized under the auspices of Nixon’s recently created Council on Economic Policy.53 The group was headed by Kenneth Dam, who was assistant director of the Office of Management and Budget (OMB) and assistant to Treasury secretary George Shultz in Shultz’s role as head of the council. Like the task force that formulated Nixon’s program for 1971, the working group included representatives from the White House, OMB, and the Treasury, Labor, and Commerce Departments. Dam’s group managed its task more rapidly and less contentiously than its predecessor. For one thing, the working group built on the proposals Nixon had sent to Congress in December 1971. The tight timetable for trade reform was also a factor. Dam and his colleagues did not have time to reopen previous policy decisions. Early in March, Dam laid out the group’s conclusions in a memorandum to the Council on Economic Policy.54 With two significant exceptions, the working group proposed relatively minor changes on matters addressed in past administration bills. One exception was Treasury’s suggestion to use IRAs to promote pension portability. The working group proposed that an employee who changed jobs be allowed to take a lump-sum distribution of his retirement benefits and “invest that distribution in an individual retirement plan . . . without being taxed on the amount of the distribution until he draws on it at retirement.” This proposal the working group agreed to with little fuss.55 The other exception—vesting—was more contentious. The Department of Commerce no longer objected outright to vesting standards, but it suggested that the administration’s bill should allow plan sponsors to choose among three standards—100 percent vesting after ten years, a graded schedule like the one Javits and Williams had proposed, and the rule of fifty—rather than forcing plans to adopt the rule of fifty.56 The biggest issue before the working group was default risk. Should the president propose a funding standard and termination insurance? The administration had rejected these proposals in 1971, but Nixon acknowledged the issue by directing the Labor and Treasury Departments to investigate plan terminations.57 One point of the study was to mollify unions that would not be satisfied with Nixon’s proposals. But there was also a real need for the study. There still was little reliable information on the number of plans that terminated each year and the effect terminations had on plan par-

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ticipants. Dam’s working group fleshed out an insurance proposal while waiting for the Labor and Treasury study to provide preliminary figures on plan terminations. When the figures came in, agency representatives drew conflicting conclusions. They disagreed on three issues that had long divided pension experts: Was default risk a big enough problem to warrant an insurance program? What should be the relationship between funding standards and termination insurance? And if the administration did propose an insurance program, should Labor or Treasury run it? The study was most relevant to the first question. It “indicate[d] that 5,000–9,000 workers each year lose a total of $20–$30 million in benefits because of pension terminations,” Dam reported.58 According to the Commerce Department, the considerable costs of setting up an insurance program outweighed the relatively small amount of lost benefits. Most workers, Commerce argued, could be protected by a minimum funding standard and “the remainder . . . handled through some private mechanism.” In contrast, the Labor Department saw the “modest size of the problem” as an advantage. It “makes it possible to deal with [the problem] without substantial new costs to the government or the private sector.” Here was a high-profile problem that the administration could solve “at an acceptable cost.” That made termination insurance “arguably both good policy and good politics.”59 The second area of dispute concerned the relationship between funding and termination insurance. Agency representatives took three positions. The Commerce Department claimed that a law forcing employers to fund would make insurance unnecessary. But was the converse true? Did insurance make funding unnecessary? Unions had often made this argument, and the Labor Department agreed. The reasoning was simple. The goal of funding was to protect employees from default. Why mandate more rapid funding when the insurance program protected employees from default risk?60 Others in the group viewed funding as a necessary protection against moral hazard.61 The working group endorsed the last approach, proposing “a moderate funding standard . . . (1) to help prevent abuse of the insurance program, and (2) to prevent a shift away from funding toward reliance on the insurance.” The group called for plans to “amortize liabilities for mandated vested benefits over a 20 year period.”62 The Council on Economic Policy adopted the working group’s idea for rollover IRAs but rejected Commerce’s proposal for three vesting standards. Thus, the proposals the administration had offered in 1971 would be included in the legislation for 1973 with few significant changes. On funding and termination insurance, every member of the council except Commerce

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secretary Frederick Dent urged Nixon to propose a funding standard and termination insurance. Secretary Dent thought insurance should be rejected unless it was “politically necessary” to support it. On the question of whether Treasury or Labor should administer funding standards and termination insurance, the council focused on the implications the choice would have in Congress. “The principal argument for choosing Treasury,” George Shultz explained, “is that such a choice will further the strategy of having the termination insurance issue handled by the Ways and Means and the Finance Committees rather than by the Labor Committees.” Jurisdiction in the Labor Committees, said Shultz, would “enhance the possibility that the bill as enacted would result in undesirable regulation of pension plans and investments.”63 Shultz put the issues of funding and termination insurance to Nixon on March 28, but the president deferred his decision. As the deadline for introducing the trade package neared, Treasury and Labor staffers frantically drafted statutory language to place termination insurance in their department, while White House aides devised strategies to send the insurance proposal to the tax committees. As in 1971, the administration would propose two bills. The bill with vesting and tax proposals would go to the tax committees, and the bill with disclosure and fiduciary standards to the labor committees. If Nixon chose Treasury to administer the insurance program, it would be easy to get the proposal to the tax committees. Termination insurance would “be combined with vesting and tax proposals in a single bill.” If Nixon chose the Labor Department, a referral to the tax committees would be harder to come by. Staffers from the Labor Department had assumed “that [the White House] would combine termination insurance with the fiduciary provisions in a single bill.” White House aides rejected this because such a bill would go to the labor committees. They instructed Labor Department staffers to finish drafting the combined insurance and fiduciary bill and “then immediately go to work on separating out the termination insurance provisions so that those provisions could be formulated into either a separate bill or . . . combined with the vesting and tax bill.”64 As it turned out, the scheming and the frantic labors of agency staffers were for naught. Nixon rejected the insurance proposal. When the president sent his trade package, which included the Trade Reform Act, the Job Security Assistance Act, and two pension reform bills, to Capitol Hill on April 10, 11, and 12, the funding standard was the only major change from his pension program for 1971.65 That made Nixon’s package timid by comparison to measures before the House and Senate Labor Committees and the Senate Finance Committee. Worse, Nixon’s bills were known to be timid

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compared to measures the administration had considered. The Wall Street Journal reported in late March that the administration was giving “surprisingly friendly consideration” to termination insurance.66 Javits, who had discussed the issue with Kenneth Dam in March, was “keenly disappointed that . . . the Administration chose at the last moment to disregard a more adequate set of proposals with respect to funding and plan termination insurance which . . . had been already drafted by the Treasury and Labor Departments.”67 Press reports that both Treasury and Labor had drafted insurance proposals undermined administration claims that the idea was not workable.68 In the end, Nixon’s pension program was more noteworthy for what it did not propose than for what it did.

the politics of preemption On March 29, as the administration finalized its pension package, the Senate Labor Committee unanimously approved S. 4.69 The committee reported the bill on April 18, a week after the president sent his proposals to Congress.70 As introduced, S. 4 followed the bill the Labor Committee had reported in September 1972. The reported version made several changes based on objections raised in hearings before the Labor Subcommittee. Most importantly, the committee responded to comments by the Auto Workers, Steelworkers, and actuarial firms by making the vesting standard retroactive for all workers rather than only for workers age forty-five and older.71 Years of service before enactment would be counted in determining vesting status for all workers. At Javits’s suggestion, the committee also added an antidiscrimination and antiretaliation provision. This provision gave an individual covered by a benefit plan the right to sue a person who acted to prevent the covered individual from receiving pension or welfare benefits or to punish the covered individual for exercising statutory or contractual rights.72 Normally S. 4 would have been scheduled for relatively quick floor action, but the Labor Committee reported the bill as the Senate began its Easter recess. When the Senate reconvened on May 1, Gaylord Nelson announced that his Subcommittee on Private Pensions would hold a series of hearings and panel discussions later in the month. The Senate leadership postponed consideration of S. 4 until the Finance Committee had time to consider pension reform.73 By May 21, when Nelson convened his hearings, there was a broad consensus on most reform proposals. “[I]n spite of the apparent differences among the panelists on most of the subjects,” observed tax lawyer Herman

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Biegel, “we are fairly well agreed that something should be done with vesting and funding . . . .”74 Even the National Association of Manufacturers, which had opposed a funding standard in testimony to John Dent’s subcommittee on March 1, reversed itself and endorsed a “reasonable and flexible” mandate implemented through the Internal Revenue Code.75 “[S]imilarly,” said Biegel, “[on] fiduciary responsibility and disclosure . . . I think you will not find very great disagreement among us.”76 Moreover, most witnesses and panelists agreed that the portability program should be dropped.77 That left termination insurance and agency jurisdiction as the major sticking points. On insurance, Biegel reported, there remained “a tremendous difference among industry, in particular, on the one hand and perhaps some labor on the other . . . .”78 Witnesses before Nelson’s subcommittee replayed patterns that had existed for years. The Steelworkers and Auto Workers strongly supported insurance, the AFL-CIO generally endorsed it but asked for separate treatment of multiemployer plans, and management representatives almost universally opposed it.79 The most significant occurrence on this issue was Javits and Williams’s appearance on June 12. Javits claimed that when the administration was preparing its pension program, the Treasury and Labor Departments had agreed that Labor should oversee funding and termination insurance.80 One day later, John Hall of Treasury rebutted Javits by offering to give John Dent’s House subcommittee a draft of Treasury’s insurance plan, which was to be run by Treasury.81 The implication was not lost on the National Underwriter: “[B]oth Treasury and Labor have agreed on reinsurance—but not on who will administer it.”82 Participants in Nelson’s hearings and panel discussions also split sharply over whether the IRS or the Labor Department should oversee the new regulations. One point of contention was which agency had the best enforcement tools for the job. If pension standards went in the tax code, firms that did not comply could be forced to pay excise taxes, additional income taxes, or tax penalties. If Congress put the standards in the labor laws, the Labor Department could go to court to force a scofflaw to conform. IRS supporters contended that tax sanctions were superior because few firms would risk the drastic consequences of noncompliance. “[M]y clients simply scamper to comply” when the IRS issues a new regulation, a tax lawyer noted.83 Partisans of the Labor Department wondered whether tax sanctions would work when a firm was in severe financial straits. In such a case, one said, you needed a court order that told a firm, “Never mind paying all of those other bills, pay that pension bill first.”84 Nelson’s panelists also disagreed about which agency had the appropri-

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ate expertise and organizational mission for the job. Supporters of the Labor Department depicted the IRS as a tax collector with no special knowledge of social policy or collective bargaining. “I don’t know that the Internal Revenue Service of the Treasury Department has infinite wisdom in determining what kinds of benefits should be provided to the American working man,” said one.85 Advocates of the Labor Department also wondered what would happen when the IRS’s responsibility for collecting taxes conflicted with the job of protecting employees. Suppose a firm with no profits and no tax liability failed to fund its pension plan, one said. “[A]s far as the Internal Revenue Service is concerned here is an employer who didn’t take a deduction, so isn’t that wonderful.” It simply was not realistic to expect the IRS to pursue the firm and force it to fund the plan.86 In response, advocates of the IRS noted that it already had more than thirty years of experience with pension plans.87 Moreover, the IRS would continue to deal with pension plans even if the Labor Department enforced regulatory standards because the IRS had to administer the income tax. Congress could avoid unnecessary duplication by putting pension reform in the tax code.88 Finally, Finance Committee chair Russell Long questioned whether the Labor Department would administer pension reform in a neutral fashion. “It is generally felt by the labor people, with considerable justification, that Labor is their Department,” he observed. “If you put it in the Labor Department, they are going to be partial to that side of the argument. . . . Now, if you put it in the Commerce Department, that would be the management’s friend. . . . If you put it in the Treasury, they are nobody’s friend. Nobody loves the tax collector. So they are impartial, and on th[at] basis it can be contended that they aren’t going to favor anybody because they are not supposed to.”89 Long’s candid remarks cut to the heart of the dispute. On the issue of agency jurisdiction, interest trumped policy. Business groups and the banking industry, among others, wanted nothing to do with Labor Department. The AFL-CIO would accept no one else. And as it happened, the positions interest groups took on agency jurisdiction paralleled and reinforced “the holier matter of committee jurisdiction.”90 If pension reform were drafted as a tax measure, it would belong to the Committee on Finance. If drafted as a labor law, it would belong to the Committee on Labor and Public Welfare. Long’s clash with Williams and Javits in the Ninety-second Congress showed that neither committee would give way without a fight. How they settled the matter would depend on the bargaining power the committees brought to bear. Nelson’s hearings brought to light events that greatly increased the Labor Committee’s leverage.

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The Senate Labor Subcommittee’s promotional efforts in the Ninetysecond Congress did more than convince members of Congress that pension issues were salient. State legislators got the message too.91 When Wisconsin insurance commissioner Stanley DuRose appeared before Nelson’s subcommittee on May 23, his state was considering vesting and funding standards, and “California, Connecticut, Illinois, New Hampshire, New Jersey, New York, and Pennsylvania also ha[d] legislation under consideration.”92 In fact, New Jersey enacted a pension reform law as Nelson’s subcommittee prepared for its hearings.93 And the Private Nonvested Pension Benefits Protection Tax Act, as the law was called, was very troubling. The New Jersey statute aimed to protect long-service workers who forfeited pension credit in a plant shutdown. When an employer closed a plant, the act imposed a tax equal to the value of pension accruals forfeited by employees with fifteen or more years of plan participation. The state would use the tax revenues to pay these employees their pension.94 Although lawmakers may have had the best of intentions, the act showed that they did not understand plan terminations. Federal tax law already required unvested participants to vest in their pension when a plan terminated if the benefits were funded.95 In other words, if there was money to pay the benefits, even employees who were not vested were protected. The problem was not vesting; it was funding. As a UAW actuary noted when he reviewed the New Jersey law, failure to understand the mechanics of a plan termination gave the law a different effect than lawmakers intended. The act taxed a firm to protect unvested employees but did nothing to protect vested workers. If a plan terminated without enough assets to pay vested benefits, the vested employees would be out of luck. In contrast, unvested “workers with less seniority have a guarantee that their pension will be fully met.”96 The New Jersey law and the prospect of action in other states fundamentally altered the stakes of pension policy-making. Before 1973, congressional inaction preserved a status quo in which the federal government and a few states minimally regulated employee benefit plans. Business groups and most labor unions preferred this state of affairs to a comprehensive federal law. When states began to look into reforms like vesting and funding, the calculus changed.97 Now the choice was between conflicting regulatory standards in the states and a uniform, though comprehensive, federal law. If the states regulated, Frank Cummings warned in his statement to Nelson’s subcommittee, “only chaos can result . . . .”98 The business community agreed. In May 1973, John Erlenborn (R, Ill.), the ranking Republican on the House General Labor Subcommittee, noted that “[i]n the eyes of business men, the need for federal legislation grows as various state

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legislatures show interest in pension problems.”99 Many firms and trade associations supported federal preemption in statements to Nelson’s subcommittee.100 Yet, as Javits and Cummings pointed out, the need to preempt state laws raised an arcane but important issue of committee jurisdiction. The Senate rules gave the Labor Committee authority over “measures relating to . . . labor . . . generally.”101 The Labor Committee’s authority over private-sector employment derived from Congress’s constitutional power to regulate interstate commerce. The Finance Committee had jurisdiction over measures based on Congress’s constitutional power to tax.102 Although the Labor Committee’s bill and Bentsen’s bill proposed similar regulatory standards, they implemented the standards in different ways that reflected differences in the jurisdictions of the Finance and Labor Committees. The interstate commerce power allowed the Labor Committee’s bill to command compliance with regulatory standards. A firm that maintained a pension plan covered by the bill would have to comply with the standards.103 In contrast, S. 1179 did not mandate compliance with its standards. It implemented them through the taxing power by granting favorable tax treatment to firms and plans that complied and assessing taxes against entities that did not comply.104 As Javits observed in his written statement to Nelson’s subcommittee, state initiatives to regulate pension plans raised the question of “whether [a uniform national set of standards] can be reached by exclusive reliance on the Internal Revenue Code.”105 Could legislation based on the taxing power prevent state governments from regulating private pension plans? The question was even more difficult for health plans and other welfarebenefit plans, on which Bentsen’s bill was silent. Could tax legislation prevent states from regulating welfare plans? If not, then the business community would have to look to the Labor Committee for protection from the states. Needless to say, that would substantially increase the Labor Committee’s bargaining power in negotiations over the content of pension reform legislation.

a “green light” in the senate When Nelson wrapped up his hearings on June 12, staffers from the Joint Tax Committee began preparing materials to aid the Finance Committee in devising a bill.106 Russell Long signaled that he planned to act quickly by scheduling executive sessions beginning July 11.107 There was much speculation about what would come out of these sessions. “The Senate Finance

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Committee is expected to offer a bill by mid-July that would keep pension controls in [the] IRS where they belong, which is good,” a Chamber of Commerce official reported. “But,” he warned, “the Finance Committee bill may also contain new funding or reinsurance provisions, which is bad.”108 But even as the National Underwriter warned of a “showdown” on pensions, a deal was in the works.109 Strong support for pension reform had convinced Russell Long that the Finance Committee’s bill had to have standards comparable to those in S. 4.110 In the Labor camp, Harrison Williams too was ready to bargain. Mike Gordon reported that Williams had “given ‘the green light’ ” to get a compromise bill as quickly as possible.111 Instead of working from an existing bill in its executive sessions, the Finance Committee chose policy principles. Later, staff members of the Finance and Joint Tax Committees and the Office of the Senate Legislative Counsel would draft a bill based on the principles.112 As the Finance Committee selected principles, Larry Woodworth, chief of staff of the Joint Tax Committee, met with Labor Committee staffers to ensure that Finance’s decisions were “acceptable to the Labor Committee.”113 Finance finished on July 23. The next day the committee voted to report a revised version of S. 1179 as soon as the staff could draft one.114 S. 4 was scheduled for floor consideration before the Senate began a month-long recess on August 3. Since staffers could not complete a draft before the recess, the leadership rescheduled S. 4 for consideration on September 11.115 The delay did not dismay reformers. As far as regulatory standards were concerned, the Finance Committee had given the Labor Committee just about everything it wanted. John Erlenborn expressed surprise at how far Finance had gone. “I expected them to be more conservative,” he said.116 The Finance principles on participation, vesting, and funding were quite similar to the standards in S. 4. Finance also endorsed a voluntary portability program under which an employee who left a firm could have his benefits under his former employer’s pension plan transferred to a central fund.117 Most importantly, Finance decided to require qualified pension plans to participate in an insurance program. Republicans on the committee told Treasury officials “they could not stop termination insurance.”118 Finance’s insurance proposal differed from the Labor Committee’s proposal in several respects. S. 4 put termination insurance in a governmental unit within the Labor Department.119 Finance proposed a “separate Federal corporation, with [the] Secretaries of Labor, Treasury, and Commerce as trustees.”120 Finance also came up with a new formula for calculating premiums. S. 4 called for an exposure premium under which plans with a larger unfunded vested liability would pay a higher charge.121 Finance proposed

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initially to charge a head tax of fifty cents per participant without regard to a plan’s level of funding.122 Finally, there were important differences on employer liability. Under the terms of S. 4, when an underfunded plan terminated, the sponsoring employer would be liable for payouts by the insurance program up to 50 percent of its net worth. To ease the burden on employers, Finance provided for a lower level of employer liability—the lesser of 10 percent of the insured loss and 50 percent of net worth—and offered firms the option of escaping this liability entirely by paying a slightly higher tax of seventy cents per participant.123 The Finance Committee also spent several days addressing the taxation of retirement plans. As a result of the efforts of Carl Curtis (R, Neb.), Finance adopted proposals for IRAs and self-employed plans that were much like those in Nixon’s legislation.124 The IRA proposal would allow an individual not in a pension plan to make a tax-deductible contribution of up to $1,000 per year to an IRA. The latter would change the contribution limits for plans in which “owner-managers” participated. The proposal—the lesser of 15 percent of earned income or $7,500—increased the limits for selfemployed plans and plans sponsored by S corporations, but Finance proposed also to apply the limit to professional corporations, which were not subject to contribution limits under current law. Finally, the committee proposed to limit contributions to some defined-contribution plans to 20 percent of earnings.125 Reviewing the Finance principles, Mike Gordon told Javits that Finance “has made constructive effort” to follow S. 4. That did not mean that compromise was at hand. “It is also clear,” Gordon wrote, “that they are determined to keep as much as possible in tax jurisdiction . . . .”126 In fact, the Finance principles went beyond Bentsen’s bill on this count. As introduced by Bentsen, S. 1179 did not address self-dealing. The principles did. Borrowing a provision from an administration bill, Finance proposed to replace the existing tax rules regulating self-dealing by pension trusts with the stricter rules that applied to self-employed plans and private foundations.127 Finance also borrowed the more flexible enforcement scheme in Nixon’s legislation. Under current law, a pension trust that engaged in a prohibited transaction could lose its favorable tax status. This sanction penalized employees rather than the parties to the illicit transaction.128 In place of this remedy, Finance wanted to impose an excise tax on the related party in the transaction.129 Gordon listed the proposal to use tax penalties to enforce fiduciary standards among the “[m]ajor deficiencies” in the Finance principles. The list of shortcomings also included the “apparent failure or inability to preempt state law.” Nonetheless, he concluded, “both Committees have endorsed

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comprehensive and substantial reform” so “every effort should be made to seek further accommodation . . . .”130 The Finance Committee’s decision to report S. 1179 gave rise to a complicated procedural question. According to Article I of the Constitution, revenue measures must originate in the House of Representatives.131 S. 4 and S. 1179 originated in the Senate. This would create a problem if the bill the Senate passed was determined to be a revenue measure that must be referred to the Ways and Means Committee. This prospect was not unlikely because, as a former House parliamentarian once observed, the House rules sent a bill to Ways and Means if it contained even “one itty bitty tax provision.”132 Larry Woodworth proposed to sidestep this obstacle by attaching the Senate bill to a House revenue measure currently under consideration in the Senate. He suggested H.R. 4200, a very brief bill—two pages—that addressed military pensions.133 Woodworth’s proposal gave the Senate three choices: attach S. 1179 to H.R. 4200, attach S. 4 to H.R. 4200, or pass S. 4 as a freestanding bill. Much turned on whether the Senate adopted Woodworth’s strategy and which bill the Senate attached to H.R. 4200. If the Senate made S. 1179 its “pending order of business,” Gordon told Javits, “we would be in the position of having to amend that bill.” If S. 1179 was approved and attached to H.R. 4200, Lloyd Bentsen, rather than Javits and Williams, would get credit for pension reform. But more than credit was at stake. There would be important policy and procedural consequences if the Senate adopted the Finance Committee’s bill. For one thing, the tax committees rather than the labor committees would have oversight jurisdiction of pension plans. Also, the Finance Committee would name the members of the conference committee that would work out the differences between the House and Senate bills. Javits and Williams would not be guaranteed a place. If S. 4 was the pending order of business, on the other hand, Javits and Williams would get credit, the Labor Committee would protect its jurisdiction, and Javits and Williams would be guaranteed a place on the conference committee.134 Another hazard of any compromise with Finance, even one that attached S. 4 to H.R. 4200, was Wilbur Mills. The House rules did not allow the Speaker of the House to refer a bill jointly to two committees. The rules also stated that a bill returned from the Senate with amendments had to be referred to the committee with jurisdiction over the original bill. This meant that the amended H.R. 4200 would go to Ways and Means.135 Mills’s practice of keeping his views unclear made it anyone’s guess what he would do with the revised bill.136 Mike Gordon urged caution: “[T]here is no point in accepting a tax-oriented version of S. 4 if Wilbur Mills is unsympathetic or

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noncommittal. If we are to secure the basic concepts of S. 4, no accommodation should be made with Finance unless Mills is on board all the way.”137 If Mills’s support was not forthcoming, the Labor Committee would have to wage a floor fight to pass S. 4 as an independent measure that hopefully would be referred to the House Education and Labor Committee. In fact, Russell Long and Larry Woodworth may well have been relying on Mills to extricate Finance from its problems in the Senate. Woodworth told assistant Treasury secretary Frederic Hickman that “there will be a ‘whole new ball game’ in the Ways and Means Committee.”138 “Ways and Means will not be under pressure to conform to S. 4,” Woodworth explained, “and . . . the questions of vesting and termination insurance may well be decided differently.”139 Gordon was correct to urge caution. There was much to be gained by compromise but much to be lost.

“a desperate situation” for the house education and labor committee Gordon’s warnings underscore another important point. The Senate Labor Committee was not the only potential loser in the negotiations over S. 4 and S. 1179. Resolution of the procedural tangle in the Senate might have a critical effect on consideration of pension reform in the House. If the Senate Labor Committee allowed pension reform to go forward as a revenue measure, the House Labor Committee might be bypassed completely.140 It is not surprising then that news of Woodworth’s plan drew sharp responses from John Dent and John Erlenborn. Dent reportedly had begun the session irritated at Mills for involving Ways and Means in pension reform in 1972.141 Negotiations in the Senate threatened to turn what Dent called jurisdictional “poaching” into complete dispossession.142 As John Erlenborn put it, “Suddenly, we have found ourselves in a desperate situation.”143 The jurisdictional threat was another in a series of misadventures that beset John Dent in 1973. Dent had begun the session on touchy terms with the Steelworkers. Then he made matters worse by adopting a legislative strategy that displeased the Steelworkers and the UAW. Dent introduced two pension reform bills when the Ninety-third Congress began. He put disclosure, fiduciary standards, vesting, and funding in H.R. 2 and portability and termination insurance in H.R. 462. As a policy matter, separate treatment made sense. The proposals in H.R. 2 did not go nearly as far as those in H.R. 462. As Dent explained, disclosure reforms, fiduciary standards, vesting, and funding did no more than “reorder the existing frame-

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work of private plans on a more equitable basis.”144 In contrast, portability and termination insurance would “mandate a linkage between all plans that does not exist now.” That made H.R. 462 a riskier policy intervention that required more study than H.R. 2.145 Dent suggested that his subcommittee would act quickly on H.R. 2, then turn to portability and termination insurance later in the Ninety-third Congress.146 There were also political reasons for introducing two bills. Portability and termination insurance were much more controversial than the measures in H.R. 2. Policy-makers and interest groups had long agreed that disclosure and fiduciary reforms were necessary, and opposition to vesting standards had dwindled. By 1973, many business groups either endorsed funding or acknowledged they could live with it. For example, in May 1972 Ford Motor Company actuary Marc Twinney had endorsed Nixon’s pension program because “it does not disturb the present funding rules which we believe have generally worked satisfactorily in the past.”147 Less than a year later, Twinney told Dent’s subcommittee, “Mandatory funding of vested liabilities over a reasonable time period should be acceptable.”148 Dent overhauled his proposals with this evolving political environment in mind. Reformers had been working for years, he observed, so maybe it was finally time to pass a bill.149 To this end, Dent adopted a strategy that, in the words of the Daily Labor Report, “may offer compromises between the approaches being taken by the Senate Labor Committee and by the Administration.”150 The prospect of compromise, however, was precisely what worried the Steelworkers and the UAW. Dent’s strategy seemed destined to bargain away termination insurance and portability as part of a grand legislative deal. “[I]f the Members of the House are asked to vote on two bills on the same general subject,” a UAW lobbyist warned, “they will act on the one that is less controversial and refuse to act on the other.”151 Indeed, several industry representatives approved Dent’s initiative for precisely this reason. Marc Twinney “commend[ed] the Chairman for recognizing that pension reinsurance and portability are controversial issues and for separating legislative proposals on these issues from H.R. 2.”152 Likewise, John Cardon, who had spoken for some of the nation’s largest firms in past hearings, told Dent, “I think that in making this division you provide a real opportunity for meaningful legislation. I am certain that an agreement can be reached on the areas covered by H.R. 2, namely, disclosure, fiduciary standards, vesting and funding.”153 Worried at what compromise might bring, UAW and Steelworkers representatives urged Dent to put termination insurance in H.R. 2.154 Steel-

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workers president I. W. Abel could not have been clearer when he appeared before Dent’s subcommittee: “I strongly oppose the division of what is an integral legislative solution to the pension protection problem. The concept of protection cannot be fragmented into separate parts for separate floor action. I urge your swift and resolute action in a single bill incorporating all the essential features of vesting, funding and reinsurance which are required to protect the private pension system.”155 Dent assured Abel that “[t]here was no intention of this committee to put reinsurancing under any basket,” but he did not modify his bills.156 As Dent brought his subcommittee’s hearings to a close, the UAW and the Steelworkers watched anxiously for signs that he would put termination insurance in H.R. 2. The final hearing, which took place on June 13, was devoted to insurance. John Hall of Treasury led off by explaining why the administration had scrapped termination insurance. “The unfortunate thing about it,” said Hall, “was when we had finished, we were not really too happy with it. Asking the question, is it better if we have this legislation or not—we did reach the conclusion that it would be better without it, even though this is the best we could come up with.”157 UAW actuary Claude Poulin followed Hall and presented the other side. “There were relatively few questions on [termination insurance],” a UAW official reported, “and the questioning indicated either confusion or reluctance on the part of the Chairman and Committee members to include such a proposal.”158 Other indications were no less troubling. When delegates from the UAW’s Independents, Parts and Suppliers Department visited Capitol Hill early in June, they found “there was a lack of knowledge and interest by Members of the House . . . .” A union lobbyist warned that termination insurance might fail “unless a considerable amount of heat is immediately generated among the House Members to insure that Insurance is included . . . .”159 These fears intensified as Dent prepared a revised version of H.R. 2 for a subcommittee markup scheduled for July 19.160 When the Daily Labor Report indicated that the revised bill would not include termination insurance, Steelworkers president I. W. Abel “blasted” Dent for his “total failure to honor your long repeated assurances of support for true pension reform and, most particularly, pension insurance . . . .”161 At the same time, Steelworkers lobbyist Jack Sheehan contacted members of Dent’s subcommittee to emphasize that termination insurance was the union’s “main objective.”162 Caught again between warring factions of the labor movement, Dent protested that he had cleared his strategy of introducing two bills with the AFL-CIO.163 As Dent pondered his predicament, legislators who had

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signed on to H.R. 2 reneged. At the urging of the Steelworkers, “approximately 40 Representatives submitted comprehensive bills identical to S. 4.”164 Here matters stood when the Senate threatened Dent with a jurisdictional disaster. With events threatening to overtake him, Dent completed and introduced a bill that included termination insurance as the House prepared to adjourn for its August recess. His subcommittee would mark up the bill when the House reconvened on September 5.165

compromise in the senate The Senate recessed August 3. As staffers labored on a new version of S. 1179, business representatives took stock of the situation. For some, the Finance Committee’s endorsement of termination insurance increased the appeal of a funding standard. If funding made insurance unnecessary, then it was a worthy reform. Alcoa president John Harper, who chaired the Business Roundtable, announced that “a majority of business leaders” supported vesting and funding but not termination insurance.166 But the business community could not create a united front. Although the Chamber of Commerce recognized “that a pension bill is going to pass,” it continued to oppose funding.167 Meanwhile, the Washington Pension Report Group circulated a report that proposed a private-sector insurance program as an alternative to a government program. A Treasury official grumbled that “the mere existence of the report and its wide circulation” “undercut [administration] contentions that satisfactory termination insurance is not feasible at this time.”168 On August 21, the Finance Committee reported a new version of S. 1179.169 Staffers had turned Bentsen’s forty-page bill into a 240-page behemoth that came with a 150-page report. Immediately after Labor Day, Labor Committee staffers began meeting with Larry Woodworth and staffers from the Joint Tax Committee to work out a compromise.170 As they negotiated, the Senate leadership rescheduled S. 4 for consideration on September 18, by which time it was hoped the committees could prepare a compromise bill to be offered as an amendment to the Labor Committee bill.171 Difficult as the jurisdictional issue was, the negotiators made headway. The Daily Labor Report said staffers were “optimistic” about making the September 18 deadline.172 As it turned out, the Finance and Labor Committees made their deadline with scarcely a moment to spare. There was “reportedly” a deal when the

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Daily Labor Report went to press on September 17, but the paper hedged its story: “[S]enators involved in earlier differences over the shape of a bill are understood to have reached agreement on majors [sic] aspects of the measure . . . .”173 As debate opened on September 18, Senators not involved in the negotiations learned there was an agreement, but no one had seen it yet. “It is my understanding,” said Carl Curtis of the Finance Committee, “that the language of the amendment . . . that incorporates the compromise that was entered into, will be here in a few moments; it is not here now.”174 The compromise was incorporated into two lengthy amendments to be offered by Gaylord Nelson. As a member of both the Finance and Labor Committees, Nelson could manage the bill on the Senate floor without the appearance that either committee was playing the leading role.175 The first amendment—496—covered vesting, funding, fiduciary standards, portability, termination insurance, and enforcement, issues over which the Labor Committee or both the Finance and Labor Committees claimed jurisdiction.176 Amendment 497 addressed tax issues that were dealt with only in S. 1179.177 As Senators got their first look at the compromise, Gaylord Nelson explained its terms. Amendment 496 resolved the jurisdictional issue by giving some responsibilities to the Labor Department, some to Treasury, and sharing others between the two. Although the vesting and funding standards in the compromise incorporated elements of S. 4, they followed the general approach of the Finance Committee bill and were placed in the tax code. Treasury would oversee these regulations.178 As in S. 1179, termination insurance would be administered by a government corporation, but as in S. 4, “the Secretary of Labor is to be the chief administrative officer and the Corporation will be a part of the Department of Labor.”179 The amendment followed the Finance approach on charges under the insurance program: a defined-benefit plan would pay a head tax of one dollar per participant (rather than an exposure premium tied to unfunded liability). On employer liability, the committees compromised. S. 4 made an employer liable for all insurance payouts up to 50 percent of the employer’s net worth: S. 1179 made an employer liable for 10 percent of payouts up to 50 percent of net worth. The amendment made an employer liable for all payouts up to 30 percent of net worth.180 The Pension Benefit Guaranty Corporation, as the corporation was called, also would administer the portability program.181 On fiduciary issues, the compromise adopted the general “prudent man” standard of conduct from S. 4. Amendment 496 proposed to include the standard in federal labor law and in the Internal Revenue Code, while giving the Labor Department enforcement authority.182 The compromise

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shared enforcement authority for prohibited transactions. As in S. 4, the Labor Department would have primary authority for pursuing a fiduciary (plan administrator) who caused a plan to execute a prohibited transaction.183 As in S. 1179, the IRS would collect excise taxes from the forbidden party in interest.184 “I believe,” Nelson concluded, “that through the careful work of the Members and the staff we have been able to pick and choose the best provisions in each bill and I believe we, in this amendment, have come up with a set of provisions which are better than those in either of the two bills.”185 Nelson’s second amendment—497—had four major provisions. It followed the Finance Committee principles by allowing an individual who was not in an employer-sponsored retirement plan to deduct up to $1,000 a year contributed to an individual retirement plan and by raising the contribution limits for self-employed plans to allow a business owner to deduct 15 percent of earnings up to a maximum of $7,500.186 The amendment dropped the Finance proposal that would have applied this limit to professional and closely held corporations, however, after professionals and owners of small corporations protested loud and long about it. “I have been lobbied to death on the subject,” Mike Gordon complained.187 Instead, the amendment would place a limit of $75,000 on the yearly pension that could be paid by a qualified plan sponsored by a professional or closely held corporation.188 Finally, the amendment would simplify taxation of lump-sum distributions.189 Nelson also offered two controversial amendments to Amendment 497. Under existing law, the only limits on pensions paid by a plan sponsored by a publicly held corporation were that benefits be “reasonable,” not exceed the retiree’s highest average preretirement compensation, and not discriminate in favor of high earners. Amendment 497 would not change this. The $75,000 limit would apply only to professional and proprietary corporations. Nelson’s Amendment 505 proposed an across-the-board cap of $45,000 for all qualified retirement plans. As Nelson explained, in contrast to Amendment 497, “the limit proposed in [Amendment 505] treats the largest and the smallest corporations exactly alike.”190 The amendment would not prevent a corporation from paying a pension higher than $45,000, said Nelson, “But they can only pay the first $45,000 out of a pension plan supported by tax-deductible dollars.”191 Nelson would offer his second amendment—506—only if Amendment 505 failed. Amendment 506 would apply the $75,000 benefit limitation in Amendment 497 to all corporate plans, large or small.192 Although the Senate debated several hours on September 18, it took no

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votes. “We have some very far-reaching legislation before us,” Carl Curtis observed, “so I do think that we ought to have at least 1 day to examine the newly drafted language.”193 Curtis was not alone in worrying that there was too little time to consider the bill. James Buckley (Cons., N.Y.) noted that the Finance bill had been reported while the Senate was in recess, then rewritten, “and the new version did not become available to us until just hours ago.”194 Vance Hartke, who had sniped at Javits and Williams through much of the Ninety-second Congress and persisted in the Ninety-third, also was unhappy about the manner in which the compromise had reached the Senate. “A small group of people,” Hartke complained, “have gotten together and presented, on the day of debate, a compromise measure, agreed to by a few of them.”195 In contrast to Buckley and Curtis, who lauded the senators who negotiated the compromise, Hartke was sharply critical. The compromise, he told his colleagues, “gives promise of performance without much reality. It freezes in the status quo.”196 As senators lauded the legislation and its authors, Hartke broke in time and again to protest. “What is there in the substitute or in any one of the bills which changes the status quo?” he asked. “Are we not still dealing with the status quo?”197 Hartke also proposed a number of amendments.198 When the Senate returned to pension reform on September 19, Hartke again took up his role as gadfly. Javits was stoic: “The Senator from Indiana (Mr. Hartke) has been a stimulant in this matter. . . . No matter how the managers of the bill, including myself, become vexed over having to fight amendments, it is only his duty. He was one of the first on the scene with the effort to insure pension funds.”199 When Hartke complained that no time had been allocated to opponents of the compromise, the floor managers gave him uninterrupted time to present his views. “All I am doing is taking the time of the proponents to try to educate them a little,” Hartke said, “I know they do not want to be educated. They want to pass the bill, but a little education does not hurt Senators.”200 The Senate deliberated with a large number of legislative staffers on the floor—a reflection of the complexity of S. 4 and the large role staffers had played in negotiating the compromise.201 Amendments not accepted by the Senators who negotiated the compromise went down to defeat with but one exception. That was Nelson’s amendment to impose an across-the-board benefit cap on pension plans, which was opposed on the floor by Finance Committee chair Russell Long. Nelson’s proposal to set the limit at $45,000 failed, but his proposal to apply a limit of $75,000 to all qualified plans passed by a large margin.202 Another change was an increase in the maximum IRA contribution from $1,000 to $1,500. James Buckley asked for a

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larger change, but when Russell Long offered him $1,500 as a compromise, he took it. “I have learned from sad experience,” Buckley reflected, “that any time the chairman does not accept an amendment, it has little chance of succeeding.”203 All of Hartke’s amendments failed. In some cases, sponsors of the compromise admitted the logic of Hartke’s position. When he proposed a vesting rule that would require that participants be 100 percent vested after five years of service in order better to protect highly mobile workers, especially women, Williams observed that “persuasive arguments have been made in favor of the amendment.” But amendments that prevented the compromise from passing or that made plans too costly would not benefit anyone. “We feel very consciously and earnestly that we will not have basic reform looking forward to even broader pension reform,” Williams told his colleagues, “if this amendment is agreed to.”204 Williams responded in like manner when Hartke proposed to make the portability program mandatory instead of voluntary: “Again, this is an area where we are making a beginning and it is a very complex area. I strongly suggest that the bill’s provisions are very sound, and I stand with the provisions of the legislation before us.”205 In each case, the Senate backed the negotiators. At the end of the day, the Senate had replaced S. 4 with the Labor/Finance compromise with a few, mostly minor, changes. There remained the other jurisdictional problem. As Russell Long told his colleagues, “In its action on S. 4, the Senate has approved major changes in our tax laws. If we were now to proceed to pass S. 4 under that number, the House would refuse to consider the bill on the constitutional grounds that revenue bills must originate in the House of Representatives.” But while “[t]he Senate may not originate revenue bills,” he continued, “. . . . it may amend them.” With that, he moved to add “everything the Senate has approved in its action on S. 4” to H.R. 4200.206 The Senate then approved H.R. 4200 93–0, insisted on its amendments, and named conferees.207 After years of work, Javits, Williams, and their staffs celebrated a legislative landmark: passage of the first comprehensive pension reform bill by one chamber of Congress. The bill they passed was just short of three hundred pages in length, and many of its provisions were extraordinarily complex. An unfolding battle in the House showed that pension reform still had a long way to go.

7

A Donnybrook in the House

Although there were tense moments when the Senate considered pension reform, the parties generally proceeded in a cooperative fashion. The House was another story entirely. At the behest of the AFL-CIO, John Dent sought to parlay the Labor Committee’s preemption power into exclusive jurisdiction over pension reform. This gambit led to a row with the Ways and Means Committee that stalled pension reform in the House. The standoff between the committees in turn triggered a clash within organized labor. The Steelworkers union, which badly wanted an insurance program, pressed for rapid passage of a pension reform bill. The AFL-CIO, which felt no such urgency, insisted that any bill must give the labor committees and the Labor Department sole jurisdiction. The deadlock ended and the House passed legislation only after the Steelworkers threatened to withdraw from the AFL-CIO unless the AFL-CIO reversed its position. In February 1974, the House passed H.R. 2, which provided for dual labor and tax jurisdiction over participation, vesting, and funding standards. In the Senate, Jacob Javits and Harrison Williams used the Labor Committee’s preemption power as leverage to secure the regulatory initiatives they favored. After the Finance Committee agreed to the major reforms in the Labor Committee’s bill, Javits and Williams yielded the participation, vesting, and funding standards to Finance. In the House, the Labor Committee demanded more. Strong support for pension reform convinced unions with multiemployer plans to abandon their demand for exemption from vesting and funding standards. These unions and the AFL-CIO insisted, however, that the congressional labor committees and the Department of Labor must have sole jurisdiction over the regulations. The AFLCIO told Dent to give no ground to Ways and Means on jurisdiction. Dent’s hard-line stand precipitated a bitter clash with Ways and Means. In less than 217

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a month, the momentum created by the Senate’s passage of H.R. 4200 gave way to gridlock in the House. This turn of events greatly distressed the Steelworkers union. The Senate had opened a window of opportunity for pension reform. Dent’s obduracy threatened to squander it. As Steelworkers officials worked diligently to broker a compromise, business groups and the Nixon administration began a concerted push to kill termination insurance. The threat to the insurance proposal led the Steelworkers to issue an ultimatum. The AFL-CIO would withdraw its objections to giving the tax committees and the IRS a role in pension reform and instruct Dent to do the same or the Steelworkers would reassess their affiliation with the AFL-CIO. After AFL-CIO president George Meany acceded to this threat, Dent and Al Ullman (Dent’s counterpart on the Ways and Means Committee) negotiated an uneasy truce that put the federal minimum standards on participation, vesting, and funding in both the federal labor law and the Internal Revenue Code and gave regulatory jurisdiction to both the Labor Department and the IRS.

getting to no The summer of 1973 was not kind to John Dent. In August he was taken to task by the president of the Steelworkers union. In September the House Labor Committee found its jurisdiction over pension reform in jeopardy. The threat arose because the House rules did not allow a bill to be referred to two committees. The Ways and Means Committee had handled H.R. 4200 in the House, so the bill should go back to Ways and Means. The impending passage of H.R. 4200 by the Senate forced Dent to move quickly to protect the Labor Committee’s jurisdiction. He returned from Congress’s August recess determined to mark up H.R. 2 at a brisk pace. Dent’s subcommittee began work on the measure on September 13 and reported on September 20, one day after the Senate passed H.R. 4200. Less than a week later, the full Education and Labor Committee voted 36–0 to report H.R. 2.1 The committee formally reported the bill on October 2.2 The reported version of H.R. 2 paralleled the Senate bill in many respects, but there were important differences. For obvious reasons, H.R. 2 included no tax provisions and gave administrative jurisdiction to the Labor Department. On vesting, H.R. 2 and H.R. 4200 were more alike than they seemed at first glance. H.R. 2 allowed a plan to choose from among three vesting schedules, while H.R. 4200 had a single standard. One of the choices in H.R. 2, however, was a graded schedule that was similar to the standard

table 6. H.R. 4200 (as passed by the Senate) and H.R. 2 (as reported by the House Education and Labor Committee)

Administration

Reporting/Disclosure Definition of Fiduciary

General Fiduciary Standard Self-Dealing

Participation Standard Vesting: Minimum Standard

Benefits Covered

H.R. 4200 (as passed by Senate)

H.R. 2 (as reported)

Labor: disclosure, reporting, fiduciary standards Treasury: participation, vesting, funding Labor and Treasury: selfdealing Public corporation: insurance, portability Yes Person with any authority or control over plan assets

Labor Department

Duties of loyalty and prudence General prohibition of selfdealing with exemptions for common transactions Later of 1 year of service and age 30 (1) 25% vested after 5 years of service, then 5% per year (years 6 through 10), then 10% per year (years 11 through 15) (2) Plans in which employees are 100% vested after 10 years of service are grandfathered Benefits accrued before or after enactment

Yes (1) Person with any authority or control over plan assets (2) Person with any authority or responsibility over plan administration (3) Person who provides investment advice for a fee Duties of loyalty and prudence Prohibits self-dealing unless for adequate consideration Later of 1 year of service and age 25 (1) 30% vested after 8 years, then 10% per year (years 9 through 15); (2) 100% vested after 10 years of service; or (3) employee with 5 years of service is 50% vested when age and service equal 45, then 10% per year Benefits accrued before or after enactment (continued)

table 6 (continued)

Portability

Funding Standard: Single-Employer Plans

Funding Standard: Multiemployer Plans

Termination Insurance: Benefits Covered Maximum Insured Benefit

Premium Formula: Single-Employer Plans Premium Formula: Multiemployer Plans Employer Liability

H.R. 4200 (as passed by Senate)

H.R. 2 (as reported)

(1) Centralized fund with voluntary participation (2) Rollover into individual retirement account Normal cost + 30-year amortization of unfunded past-service liability

No

Normal cost + 40-year amortization of unfunded past-service liability with extension of up to 10 years in hardship cases Vested benefits accrued before or after enactment Lesser of 50% of average monthly salary in 5 years preceding termination or $750/month Head tax of $1 per participant per year Head tax of $1 per participant per year Single-employer: lesser of insurance paid or 30% of employer’s net worth

Greater of (1) normal cost + 40-year amortization of unfunded past-service liability incurred before effective date + 30-year amortization of unfunded past-service liability incurred after effective date; or (2) liability for unfunded vested benefits divided by present value of an annuity certain of no more than 15 years Same as for single-employer plans

Vested benefits accrued before or after enactment Lesser of 50% of highest 5-year average monthly salary or $500/month Exposure premium based on insured unfunded vested liability of plan Exposure premium based on insured unfunded vested liability of plan Lesser of insurance paid or 50% of employer’s net worth

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table 6 (continued) H.R. 4200 (as passed by Senate)

Insurance for Employer Liability Individual Retirement Accounts

Multiemployer: lesser of employer’s share of insurance paid or 30% of employer’s net worth if plan terminates within 5 years of employer’s withdrawal Corporation authorized to maintain program to insure employer liability Individual not in a plan may deduct the greater of earned income up to $1,000 or 15% of earned income, but not more than $1,500

H.R. 2 (as reported)

No

No

in H.R. 4200. H.R. 2 also allowed a plan to choose a schedule that vested employees in 100 percent of their accruals after ten years of service. Although the Senate bill would not allow new plans to adopt ten-year “cliff” vesting, it grandfathered plans that already used this schedule. The major difference on vesting was that H.R. 2 allowed plans to adopt a rule of forty-five standard. Under this standard, an employee vested in 50 percent of his benefit accruals when he had five years of service and the sum of his age and service was forty-five. Thereafter, his vested benefit increased by 10 percent each year until he was fully vested. In contrast to H.R. 2, the Senate bill did not permit plans to adopt an age-based vesting standard.3 The Senate bill included both a portability program and termination insurance. Dent added termination insurance to H.R. 2 after his run-in with the Steelworkers, but he did not add a portability program. So the reported version of H.R. 2 did not propose a portability program. The insurance proposal in the reported version of H.R. 2 was almost identical with the proposal the Senate Labor Committee had reported in S. 4. For this reason, there were differences between the insurance proposals in H.R. 2 and H.R. 4200 wherever the Senate Labor Committee had compromised with the Finance Committee. Like the reported version of S. 4, H.R. 2 put insurance in the Department of Labor with the Secretary of Labor in charge.4 H.R. 4200

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located the insurance program in the Labor Department but called for a governing board comprised of the secretaries of Labor, Commerce, and Treasury. Other significant differences were the premium formula (a head tax under H.R. 4200 versus an exposure premium under H.R. 2), employer liability (up to 30 percent of net worth under H.R. 4200 versus 50 percent under H.R. 2), and a proposal to allow employers to avoid liability by paying a larger premium (H.R 4200 provided for this, H.R. 2 did not.).5 On funding, the reported version of H.R. 2 made an important change that brought the bill more into line with H.R. 4200. H.R. 2 was a descendent, several Congresses removed, of the bill Willard Wirtz had sent to Congress in 1968. When Dent introduced H.R. 2, the funding standard was drawn from Wirtz’s bill: the ratio of a plan’s assets to its liability for vested benefits in case of a plan termination should increase by 4 percent per year, beginning at 20 percent after five years and reaching 100 percent funding after twenty-five years.6 This standard had the advantage of being objective: similarly situated plans would have the same minimum contribution even if they used different actuarial cost methods. But there were also disadvantages. Most importantly, contribution obligations were closely tied to the investment performance of a pension plan. If a plan exactly satisfied the funding standard in one year and the value of its investments fell, the employer would have to contribute enough funds to offset the entire decline for the plan to comply with the standard in the next year.7 During a recession, employers might have a sharply higher funding obligation at a time when they were least able to pay. Staffers on Dent’s subcommittee concluded that this approach was unworkable. The reported version of H.R. 2 proposed a general funding standard that was similar to the schedule in H.R. 4200. Firms would contribute the cost attributable to current accruals plus an amount that would amortize the plan’s unfunded past-service liability over forty years for liability that existed before the law took effect and more than thirty years for liability created after the effective date.8 This approach would produce a smoother pattern of contributions for employers, but it sacrificed the objectivity of the old standard. Contribution obligations for similarly situated plans would vary depending on the actuarial cost method the plan sponsor used. In addition, actuaries would have discretion to define key variables in the calculation of a firm’s funding obligation.9 In addition to this general funding schedule, the reported version of H.R. 2 included a standard that would require larger contributions for plans that were significantly underfunded and had a high proportion of vested benefits.10 There were also significant differences on fiduciary standards. Both bills

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included a general fiduciary standard of conduct and rules to regulate selfdealing. The general standards were very similar: fiduciaries must exercise prudence and act for the “exclusive benefit” of plan participants.11 But H.R. 2 defined “fiduciary” in broader terms. H.R. 4200 followed the common law of trusts and limited fiduciary status to persons who possessed control over or responsibility for “any moneys or other property of any employee benefit fund.”12 H.R. 2 broadened the definition so that it also included persons who possessed “any authority or responsibility in the administration of an employee benefit plan.”13 The difference was important. Under the Senate bill, an insurance company official who decided benefit claims under an employer-sponsored group health plan would not be a fiduciary because there was no benefit fund for which the official could serve as a fiduciary.14 Under H.R. 2, the official would be a fiduciary because he had responsibility for administering a plan.15 The bills also adopted different approaches to self-dealing. The Senate bill was stricter, adopting the approach in the tax rules that regulated related-party transactions by self-employed plans and private foundations. It prohibited self-dealing but made exceptions for common transactions that posed little risk.16 For example, some retirement plans allowed employees to borrow from the plan. H.R. 4200 forbade “lending of money or other extension of credit between the [fund] and a party in interest” and defined an employee of the plan sponsor as a party in interest.17 To preserve the practice of making loans to employees, the bill created an exception for loans that met protective requirements set out in the bill.18 The Senate bill also authorized the Labor Department to exempt individual transactions or whole “classes” of transactions from the prohibition.19 H.R. 2 took a more permissive approach that followed the existing rules in the Internal Revenue Code. A plan administrator should not transfer plan assets to a related party “except in return for no less than adequate consideration” or buy property or services from such a party “except in exchange for no more than adequate consideration.”20 In other words, H.R. 2 prohibited self-dealing when the plan either received too little from or paid too much to the related party. The Labor Committee’s swift action on H.R. 2 forced Ways and Means to quicken its pace. As it happened, Ways and Means was operating in difficult circumstances. Although the committee held a panel discussion on pension reform early in the session, it had to put aside tax and pension issues to work on Nixon’s trade legislation.21 When the Senate passed H.R. 4200, Ways and Means was busy marking up the trade bill.22 More importantly, Ways and Means was without its chairman. At the end of August,

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Wilbur Mills underwent back surgery, which kept him away from the committee for more than two months.23 In Mills’s absence, Al Ullman (D, Ore.) was acting chairman. Ullman set a breakneck schedule on pension reform. There was no time for hearings, so Ullman asked interested parties to submit written comments on H.R. 4200 no later than October 1. At that point, Ways and Means, having completed work on the trade bill, would go into executive session with the aim of approving a pension bill by October 15.24 This timetable, ranking Republican Herman Schneebeli (R, Penn.) told Treasury officials, “is thought necessary in order to ‘beat out’ the House Labor Committee . . . .”25 The race between Labor and Ways and Means threatened the House leadership with a jurisdictional clash, but the rules of the chamber appeared to offer a way out. Although the Speaker could not refer a bill to two committees, it was possible for committees to merge bills on the floor.26 Such a procedure would allow both Labor and Ways and Means to maintain their claim to jurisdiction over pension reform. House Speaker Carl Albert took a step in this direction when H.R. 4200 arrived from the Senate on September 24. Instead of sending the bill to Ways and Means, Albert held it at the Speaker’s table.27 (Albert’s action also may have signaled disapproval of the Senate’s encroachment on the House’s constitutional prerogative on tax legislation.)28 Several days later, Dent and John Erlenborn took an apparent step toward cooperation, proposing to Ullman that Labor and Ways and Means appoint negotiators to hash out a compromise. Ullman demurred until Ways and Means began work on pension reform.29 In the meantime, Ullman introduced H.R. 10470, a bill that was identical to H.R. 4200 except that it did not include the initial two pages that addressed military pensions.30 H.R. 10470 gave Ways and Means a draft to work with as it prepared its own measure. When Wilbur Mills was at the helm, the Ways and Means Committee marked up tax legislation in executive sessions that were closed to the public. Ullman adopted a different practice and held open markup sessions on the pension reform bill.31 The sessions began with a chorus of complaints about the Senate bill and Ullman’s timetable. The time for submitting comments was so short that many people commented on H.R. 4200 without having seen it in final form. Several days before the markups began, assistant Treasury secretary Frederick Hickman complained to acting secretary William Simon, “The bill passed by the Senate is 300 pages long and is so complex and so technically deficient that the above schedule is totally unrealistic if decent legislation is to result.”32 Hickman repeated his objection to Ullman when Ways and Means began its deliberations: “We should take

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whatever time is necessary . . . I am not suggesting next year, only that two weeks is insufficient.”33 Business representatives also found much to criticize. According to the National Association of Manufacturers, “The provisions of [H.R. 4200] were conceived in such haste that they are conflicting, more punitive than regulatory and go beyond protective legislation to establish provisions which could ultimately eliminate the private pension plan system.”34 As in the past, business groups roundly condemned termination insurance and portability. But H.R. 4200 included new provisions that were equally objectionable. The benefit cap for corporate pension plans was particularly offensive. Large firms and their representatives agreed with AT&T that Gaylord Nelson’s “last minute virtually unexamined amendment . . . is extremely ill advised and shortsighted.”35 The disagreeable features of the Senate bill led some business groups to look more kindly on the House Labor Committee’s bill.36 The National Association of Manufacturers claimed that “a bill which combines H.R. 2 (without insurance)” with tax proposals authorizing IRAs and higher contributions to self-employed plans “would be the greatest benefit possible by the 93d Congress . . . .”37 As Ways and Means began choosing the provisions of its bill, Ullman attempted to allay tensions between Labor and Ways and Means by emphasizing “that he wanted to follow H.R. 2 . . . whenever that could be done.” On October 11, Ways and Means adopted the minimum participation standard in H.R. 2.38 One day later, the committee adopted the graded vesting standard in H.R. 4200, although Ullman later said he would consider switching to the different graded vesting schedule in H.R. 2.39 On October 16, Ways and Means adopted a funding standard that generally followed in H.R. 2.40 Tempers flared, however, when Labor Committee chair Carl Perkins urged the Rules Committee to send H.R. 2 to the House floor without waiting for Ways and Means.41 As Perkins pushed for action, it became clear that Ways and Means would not come close to meeting Ullman’s deadline of October 15. The complexity of the issues slowed the process, but the breadth of the Ways and Means Committee’s jurisdiction also placed great demands on Ullman and his colleagues. Ullman had to recess the pension deliberations intermittently as more pressing issues demanded attention.42 Efforts at compromise went nowhere. Dent and Ullman met on October 12, and Ullman said he thought they made progress. We agreed, he wrote to Dent, “that there are some areas where there really exists dual jurisdiction of the two committees over the same subject matter, depending upon the manner in which the legislative language is drafted.” In those areas, said

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Ullman, the two committees would attempt to negotiate compromise language. Dent saw things differently. “Although my own interpretation is much like yours,” Dent perceived critical points on which he and Ullman appeared to have different understandings. The Labor Committee did not wish to encroach on the jurisdiction of Ways and Means, but Dent did not see any intrusion. “I would very much appreciate your directing your staff to prepare for us a memorandum delineating the sections of H.R. 2 which do provide tax treatment, and thereby intrude into your jurisdiction,” he told Ullman.43 As relations became strained in the House, hostilities also broke out in the labor movement. By fall 1973, the AFL-CIO was moderating its position on pension reform. The position statement the AFL-CIO had adopted in 1967 called for multiemployer plans to be exempt from vesting and funding standards. The demand for exemptions grated on unions that favored pension reform because, as a Steelworkers official put it, it “gave Congressmen and Senators the impression that the AFL-CIO was opposed to any pension legislation.”44 As pension reform gathered momentum, the position statement came to seem imprudent even to the unions that had asked for it. If the AFL-CIO did not “present a positive stance for enactment of Federal standards that both single-employer and multi-employer could live with,” a union official observed, “. . . . we might face a harsh law that would be unsatisfactory to both single and multi-employer plans alike.”45 Concerns of this sort led the AFL-CIO Executive Council to abandon the demand that multiemployer plans be exempted from vesting and funding standards. Nonetheless, the AFL-CIO found much to fault in H.R. 4200. Unions with multiemployer plans wanted less stringent rules, so the AFL-CIO’s new policy statement endorsed legislation that “makes adequate distinction between single and multi-employer plans.”46 Pension legislation should allow multiemployer plans to receive variances from the vesting standard, something H.R. 4200 did not do.47 The funding standards in H.R. 4200 were more to the AFL-CIO’s liking, but lobbyist Andrew Biemiller asked for variances on funding too.48 The insurance program in H.R. 4200 put singleemployer and multiemployer plans in a common pool and charged them the same premium. The AFL-CIO rejected this, demanding “two risk pools or, at least, two separate premium rates—one for single-employer plans and another for multiemployer plans.”49 Biemiller also rejected the provisions of H.R. 4200 that gave the IRS jurisdiction over participation, vesting, and funding standards, telling Ways and Means that the AFL-CIO “will oppose most vigorously any pension reform proposal that places the main responsibility for administration in any Department other than the Department

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of Labor . . . .”50 Finally, Biemiller excoriated “the obnoxious tax features of the Senate bill.”51 Biemiller’s fastidiousness irritated the Steelworkers. “There are too many ostentatious reasons to take a negative attitude on action now,” Jack Sheehan told union president I. W. Abel. The AFL-CIO’s demands for administration by the Labor Department, for variances, and for elimination of the tax proposals for IRAs and self-employed pensions would only delay action in the House. Sheehan thought the treatment of multiemployer plans in H.R. 4200 was adequate. And the Senate had settled the jurisdictional issue. The AFL-CIO must accept that the Labor Department would share jurisdiction with Treasury, just as the labor committees would share jurisdiction with the tax committees. H.R. 4200 was not perfect, said Sheehan, but the Steelworkers could “live with” it. Holding out for an ideal bill only benefited the opponents of reform. “The longer we wait,” Sheehan warned, “the more opposition will build up with the result that jurisdictional lines will harden and the reinsurance section will be threatened.”52 As it turned out, the Steelworkers had a bigger problem than the AFLCIO’s “negative attitude.” On October 8, the Building and Construction Trades Department of the AFL-CIO “declare[d] war” on H.R. 4200.53 To this point, unions in the building trades had not paid much attention to pension reform. The Senate bill woke them up.54 At the department’s biennial convention, Robert Paul, the president of the Martin Segal Company, issued a call to arms. Paul had long been critical of statutory vesting and funding standards, and he was no friend of termination insurance.55 He painted a bleak picture of H.R. 4200’s effect on construction industry pension plans. The combination of vesting, funding, and termination insurance, he claimed, would increase costs “by an average of about 40 percent . . . and would therefore . . . require about $600 million of additional contributions to flow into multi-employer construction industry pension funds.”56 Building trades unions adopted a resolution flatly opposing “H.R. 4200 or any other similar bill that fails to take into account the unique circumstances of construction pension funds, particularly in the areas of funding, vesting, participation and reinsurance.”57

a donnybrook in the house Jack Sheehan was right to worry about delay. In the Ways and Means Committee’s markup sessions, the administration took aim at termination insurance.58 Joined by business groups, the administration opposed insur-

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ance but argued that if there was to be such a program, it should be run by the private sector.59 When several insurance companies put together an insurance proposal, Ways and Means endorsed termination insurance but gave the private sector the first shot at running it.60 On October 25, the committee proposed a private corporation and a public corporation, with the latter as “a back-up” to be implemented only “to the extent that the private corporation is not activated within two years after enactment of the bill.”61 The committee also sought to accommodate construction unions. Although these unions did not oppose “universal application of termination insurance,” they claimed there was little risk of default among multiemployer plans in the construction industry.62 Ways and Means proposed to defer insurance coverage for multiemployer plans for two years so that the need for coverage could be studied.63 According to the Journal of Commerce, Ways and Means took an “everyman’s” approach that attempted to meet everyone’s objections.64 Ways and Means followed its usual procedure for preparing legislation, choosing policy principles from which staffers from Ways and Means, the Joint Tax Committee, and the House Legislative Counsel’s Office would draft legislation.65 Consequently, when the committee finished selecting principles, the staff would still have to write a bill. As Dent and Erlenborn urged the Rules Committee on October 24 to send H.R. 2 to the House floor, sources on Ways and Means reported that they were unlikely to have a draft bill before the end of November.66 Ullman and Schneebeli appeared before the Rules Committee a week later. Although Rules wished to act quickly, Ullman and Schneebeli demurred. Wilbur Mills wanted a compromise, Ullman reported, and there would be “a Donnybrook” if H.R. 2 went to the floor without one. Ullman also warned that if the House acted too quickly, it would send an “irresponsible” bill to conference with “a pretty lousy bill from the Senate.” Although the Rules Committee obliged Ways and Means and deferred action on H.R. 2 until early December, Ullman’s testimony aggravated his conflict with Dent.67 At the beginning of November, the Journal of Commerce reported that Ullman and Dent “cannot even agree over whether they have plans to talk about compromise.”68 The Steelworkers watched these developments with great concern. Jack Sheehan had warned that delay would have negative consequences, and events were bearing out his prediction. The battle between the Labor and Ways and Means Committees had worsened, the labor movement was working at cross-purposes, and Ways and Means had chosen a private corporation to administer termination insurance. These events would produce more delay, during which more problems could occur. The danger was that

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Congress would turn to other business, and the window of opportunity for pension reform would pass.69 In October 1973 there were plenty of other things for Congress to attend to.70 The Yom Kippur War began on October 6. Vice President Spiro Agnew resigned on October 10. Two days later, Nixon nominated Gerald Ford to succeed Agnew. Then, on October 20, came the “Saturday Night Massacre.” Attorney General Elliot Richardson and Deputy Attorney General William Ruckelshaus resigned, and Nixon fired Watergate Special Prosecutor Archibald Cox.71 On October 23 and 24, members of Congress introduced more than twenty resolutions calling for Nixon’s impeachment or for investigation of impeachment.72 This was the context in which the Steelworkers learned that the Rules Committee had postponed H.R. 2. Steelworkers president I. W. Abel was reportedly “quite exercised” about the delay.73 He contacted House Speaker Carl Albert to underscore the importance of House action on pension reform before the end of the year.74 In the meantime, Jack Sheehan tried to put out the other fires that had broken out in October. The first was the Ways and Means Committee’s endorsement of private-sector administration of termination insurance. Sheehan wrote Ways and Means to register the Steelworkers’ disapproval and put the union’s actuary, Murray Latimer, to work on a memo condemning the idea for a private termination insurance program.75 The Steelworkers circulated Latimer’s analysis in the first week of November. Private insurers had no place in the insurance program, Latimer argued, because the program could not operate on the private insurance model. Private insurers charge premiums based on risk. That is, premiums reflect the magnitude of the loss an insured poses and the likelihood that the loss will occur. If the insurance program used a risk-based formula, weak firms would pay higher premiums because they were more likely to terminate their plan. But this was at odds with the basic goal of the program, said Latimer. High premiums would force weak firms to fail and thus produce the very “event against which the insurance is aimed to afford protection.”76 To avoid overwhelming weak firms, the program would need to charge premiums that were “as nearly uniform . . . as possible.”77 If premiums did not reflect risk, however, strong firms would subsidize weak firms, which would give the former an incentive to opt out of the program. A government insurer could counter this incentive by mandating participation. Introduction of private insurers might destabilize the program, however, because they would be inclined to offer low premiums to healthy firms and to avoid weak firms that most needed coverage. In this event, Latimer warned, “the government” would be left with all of “the undesirable risks.”78

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The Rules Committee’s decision to defer H.R. 2 gave Ways and Means until November 16, when the House recessed for Thanksgiving, to finish making decisions on its bill. The postponement allowed Ullman to adopt a slower pace and gave staffers time to begin drafting language based on decisions the committee had already made. Wilbur Mills returned from his convalescence in mid November but left Ullman in charge of pension reform.79 Ullman’s plan was to have a draft bill by November 26, when Congress returned from the Thanksgiving break. Even with additional time, the staff faced an onerous task. Ways and Means considered dropping the provisions on IRAs and the tax treatment of retirement plans to save time but abandoned this idea when the administration objected.80 As Ways and Means made its final decisions, Ullman promised to release drafts of pieces of the bill on November 21 but said he would ask the House leadership for more time.81 When the committee made its final major decisions on November 15, Ullman said he intended to get a bill to the floor by December 4, but others on the committee doubted it could be completed this quickly.82 In the meantime, Dent and Ullman, prodded by the Steelworkers, negotiated over jurisdiction. On November 15, Ullman announced a tentative settlement. Treasury would have primary jurisdiction over participation, vesting, and funding standards, but the standards would be placed in both the Internal Revenue Code and the federal labor laws and enforced by the Labor Department as well as the IRS. Again the parties appeared not to agree on what they had agreed to. Dent said there was an agreement, but along different lines than Ullman described. Erlenborn “said there was no such agreement as Ullman outlined.” Labor Committee staffers reported that “there had been no agreement of any kind.”83 By this time, the two committees had settled almost all differences on regulatory standards. The last major substantive disagreement was about whether the insurance program should be run by a public or private entity. During the Thanksgiving break, Ways and Means signaled its willingness to “defer to the Education and Labor Committee on this subject.”84 But compromise still seemed a long way away. The Labor Committee claimed “jurisdiction over any aspect of pension reform legislation which is to be implemented by a congressional exercise of the commerce clause power.”85 Ways and Means claimed “any aspect of pension reform legislation which is to be implemented by a congressional exercise of the taxing power.”86 Labor Committee staffers reasoned that their committee should have jurisdiction “except to the extent . . . necessary to protect the federal revenue and prevent abuse of special tax benefits extended to private retirement plans under the Internal Revenue Code.”87 Under this analysis,

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vesting and funding standards should go in the federal labor laws. All that was necessary in the tax code was a cross-reference to the regulatory standards in the labor laws. The standards themselves would not appear in the Internal Revenue Code, and the IRS would have no role in interpreting or enforcing them.88 Labor Committee representatives said they would agree to no more than this. The Ways and Means Committee was bound to reject this proposal. Russell Long and Larry Woodworth had compromised with the Senate Labor Committee to preserve tax jurisdiction over pension plans. Ullman and Woodworth were not about to lose in the House what Long and Woodworth had saved in the Senate.89 In a final effort at accommodation, Ways and Means brought its bill into what Ullman called “maximum conformity” with H.R. 2 by adopting H.R. 2’s vesting standard and striking termination insurance.90 Ullman ceded jurisdiction over insurance to the Labor Committee, but he aimed “to preserve a Ways and Means interest in vesting standards, participation in plans, and funding.”91 He wrote Rules Committee chair Ray Madden to ask that the procedural rule on H.R. 2 “provide an opportunity for amendments . . . on the floor of the House by the representatives of the Committee on Ways and Means.”92 But the Rules Committee was unwilling to let jurisdictional bickering spill onto the House floor. On November 28, Madden told Carl Albert that he did not have the votes to send H.R. 2 to the floor. The leadership postponed consideration until January and admonished the committees to settle their differences.93 Again the Labor Committee had refused to give ground, and again pension reform was delayed. Although the House leadership promised pension reform would be the first item taken up in the second session, once more the Steelworkers’ apprehensions about delay had materialized. Steelworkers and UAW officials tried to reverse the decision, and Jack Sheehan met with Dent, Madden, and Labor Committee chair Carl Perkins. According to Sheehan, Dent said that he could not agree to concessions on jurisdiction “because the AFL-CIO does not agree to IRS enforcement of the new vesting and funding standards.” The implication was that if organized labor could settle its differences on jurisdiction, the House could do the same. Sheehan went to AFL-CIO lobbyist Andrew Biemiller and asked him to review a memo in which Al Ullman had outlined the terms on which Ways and Means would compromise. Sheehan thought the memo “could reasonably be described as a total surrender . . . .” It was not enough for the AFLCIO. Biemiller responded “that the AFL-CIO could not accept the incorporation of the vesting and funding standards into the tax code.” As Sheehan saw it, the only way Ways and Means could satisfy the AFL-CIO was “to

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completely withdraw its objections to HR-2.” That simply was not going to happen.94 For the Steelworkers, this was the last straw. Sheehan told Biemiller that the AFL-CIO’s position on jurisdiction might “result in the Steelworkers reevaluation of its position as an affiliate of the AFL-CIO.”95 This threat drew AFL-CIO president George Meany into the matter. At a meeting on December 5, Meany agreed that the jurisdictional dispute should not hold up pension reform and told Biemiller “to inform Congressman Dent that the AFL-CIO did not object to the proposed memo of understanding submitted by Ullman to Congressman Dent.”96 When the Wall Street Journal reported that the AFL-CIO had agreed to Treasury jurisdiction over funding standards, however, Biemiller denied that the AFL-CIO had changed its position.97 Several days later the Journal published a correction, and Sheehan complained again to I. W. Abel. Sheehan could not get a straight answer from the AFL-CIO, and Dent was out of the country. The terms of the settlement were not yet on paper, and it was not clear when they would be.98 As the 1973 congressional session ended, agreement remained elusive. In the meantime, staffers hurried to complete the Ways and Means bill. They circulated a draft on December 21.99 Majority leader Tip O’Neill (D, Mass.) announced over the break that if the Rules Committee granted a rule on H.R. 2, the bill could go to the House floor on January 23, 1974.100 But Rules would not act until Ullman and Dent settled their differences, and they had not done so when Congress convened on January 21. The Rules Committee again deferred the bill.101 George Meany cleared the way for a compromise by announcing that he was willing to accept the Ways and Means Committee’s proposal for joint Treasury/Labor jurisdiction over participation, vesting, and funding standards. On January 22, Ullman announced that he and Dent had made a deal. Ways and Means would offer its bill as an amendment to H.R. 2 when the latter came up for floor action. The Ways and Means amendment would include participation, vesting, and funding standards. Since the Labor Committee’s bill also included these matters, Ullman’s amendment would put identical standards in the federal labor laws and the Internal Revenue Code.102 Although this jurisdictional settlement was not the complete withdrawal Dent had demanded, it was remarkable nonetheless. The Labor Committee, a fractious group that was well to the left of the House membership, had faced down the most powerful committee in Congress.103 A number of factors likely contributed to the Labor Committee’s success. Wilbur Mills’s illness deprived the committee of a leader whose political skills were legendary.104 Moreover, many House Democrats believed that the Ways and

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Means Committee’s jurisdiction was too broad. In December 1973 a House select committee had proposed taking several important policy issues out of the committee’s purview.105 Finally, the White House had allied with the tax committees on jurisdiction over pension plans in 1972. By the fall of 1973, Richard Nixon’s political capital had plunged, and he was too busy with Watergate to bother with matters like pension reform.106 Nonetheless, as was the case in the Senate, a key factor in the jurisdictional settlement was the rule that gave the Education and Labor Committee control over legislation that proposed to regulate the employment relationship by means of Congress’s constitutional authority over interstate commerce. “Without the vesting and funding standards in the Labor bill,” Dent later asked, “could we accomplish preemption of State laws in this field?”107 Dent’s aide Vance Anderson had the answer: “It would be very difficult to pre-empt state regulation of pension plans under the IRS code provisions. What is needed is some sort of commerce clause basis keyed on a labor act provision.”108 The need for a “commerce clause basis” was even clearer when it came to preempting state laws regulating welfare benefit plans. And since commerce-clause jurisdiction over the employment relationship belonged to Education and Labor, Dent and the Labor Committee exacted terms that Jack Sheehan characterized, with only a little exaggeration, as “a total surrender.”

“cut the baby in half”: compromise in the house Dent and Ullman’s deal on jurisdiction avoided a political brawl, but no one tried to defend it as good policy. The agreement—if it could be called that— was fundamentally different from the Senate compromise. H.R. 4200 gave the Labor Department a minor role in overseeing participation, vesting, and funding standards. The standards would appear only in the tax code, and the IRS would play the primary role in administration. As John Erlenborn later observed, Dent and Ullman’s deal called for the House to pass “what amounts to two bills.”109 There would be identical participation, vesting, and funding standards in the tax and labor laws, and both the IRS and the Labor Department would have enforcement authority. Erlenborn immediately denounced the deal as “completely and utterly unworkable.”110 Dent himself hardly offered a ringing endorsement when he testified before the Rules Committee on January 29. “I personally have doubts we can administer this in two different departments,” he said. “I never said we would get together,” he added, “you ordered me to.”111

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On January 31, the Rules Committee again postponed pension reform, this time because Ways and Means’s draft bill and a revised version of H.R. 2 were not ready. On February 4, Ullman at last introduced the Ways and Means bill—H.R. 12481. Dent and Ullman had agreed that the measure would be offered as an amendment when the House considered H.R. 2. Ullman had requested a closed rule that strictly limited floor amendments to the Ways and Means amendment to H.R. 2.112 When the Democratic Steering and Policy Committee met on February 5 to consider this request, Dent opposed the closed rule. The “House has to make a decision on whether to take Dent bill—or W+M bill,” he told the committee. “[We] can’t have dual jurisdiction; [we] can’t have 2 sets of vesting + funding rules.” Dent asked for a rule “open on all points,” apparently to force a floor vote on the issue. The Steering Committee overruled him and recommended a rule that placed strict limits on amendments to the Ways and Means Committee’s portion of the pension reform package.113 The Rules Committee was set to address pension reform on February 6 but again put off consideration, this time until February 19.114 The postponement was lengthy because the House would not be in session from Friday, February 8 to Wednesday, February 13. The next full week the House would be in session began Monday, February 18. On that date, however, the AFL-CIO Executive Council assembled in Bal Harbour, Florida, so floor action was put off until February 26.115 This gave Labor Committee staffers more time to bring their bill into conformity with the Ways and Means bill. Dent introduced the substitute bill—H.R. 12781—on February 14.116 Dent’s new bill included a number of changes from the reported version of H.R. 2. The most important were in the preemption provision and the termination insurance program. A major goal of pension reform legislation was to create a uniform body of federal law that would save employee benefit plans from having to comply with conflicting state mandates.117 To this end, the reported version of H.R. 2 provided that federal law would override state laws that regulated aspects of benefit plans regulated by H.R. 2.118 State laws regulating matters not touched by H.R. 2, however, would not be preempted. The reported version of H.R. 2 also provided that state laws regulating “insurance, banking, or securities” would not be preempted.119 The exception from preemption for insurance laws reflected a long-standing federal policy, embodied in the McCarran-Ferguson Act of 1945, of allowing the states, rather than the federal government, to regulate “the business of insurance.”120 Recent events led John Dent to expand the scope of federal preemption to override state insurance laws in some instances. This change later proved to be enormously important.121

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In the 1960s state regulators became concerned about the increasing number of employee benefit plans that self-insured their benefit obligations.122 In a self-insured plan, the sponsoring employer or the plan itself retains legal liability for paying benefits rather than purchasing an insurance policy. Self-insurance of employee benefit plans was expanding because self-insured plans escaped state taxes on insurance premiums and state laws that regulated insurance companies.123 Not surprisingly, insurance companies and insurance regulators resented the fact that self-insured plans did not have to comply with state insurance laws. Regulators lobbied state legislatures unsuccessfully for authority to regulate the practice of selfinsuring.124 Moreover, insurance authorities in several states sued employers that maintained a self-insured health plan, claiming that the plan was an insurance company that must comply with state law. In January 1973, a trial court in Missouri gave regulators their first victory. The court ruled that Monsanto had violated Missouri insurance laws by operating a self-insured health plan without obtaining proper certification.125 The ruling suggested that self-insured plans that operated in more than one state might have to comply with the insurance laws in every state in which they operated. Initiatives for state regulation of prepaid legal services plans gave rise to similar concerns. In August 1973 Congress had amended the LaborManagement Relations Act of 1947 (LMRA) to allow employers to contribute funds to jointly managed benefit trusts that would provide legal services to employees (much as health plans paid for medical services).126 The National Association of Insurance Commissioners took the position that prepaid legal services plans were a form of insurance, and created an advisory committee to prepare a model state law to regulate these plans. Late in 1973 a dispute developed in the advisory committee about whether the model law should cover collectively bargained plans. Robert Connerton, the general counsel of the Laborers union and sometime representative of the AFL-CIO on the advisory committee, argued that plans covered by the amendment to the LMRA should be exempt.127 Others on the committee disagreed.128 Unions were also at odds with the American Bar Association (ABA) over legal services plans. Many collectively bargained legal services plans were closed-panel plans. In a closed-panel plan, an employee was restricted to lawyers chosen by the plan, much as some health maintenance organizations (HMOs) limit participants to doctors selected by the HMO. General practitioners, who constituted a large share of the ABA’s membership, generally favored open-panel plans. Open-panel plans work like traditional indemnity insurance. Employees go to the lawyer of their choice, and the plan

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then pays the lawyer’s fee. When the House of Representatives passed legislation to allow for collectively bargained legal services plans, the bill required these plans to be open-panel plans. The conference committee subsequently amended the bill to nullify the House language.129 General practitioners struck back in February 1974, when the ABA amended its model rules of conduct for attorneys. The ABA endorsed stricter rules for closed-panel plans than for open-panel plans.130 These developments led Connerton and Laborers union lobbyist Jack Curran to ask John Dent to add language to H.R. 2 that would prevent states from regulating self-insured plans.131 Dent’s new bill included the provision that saved state insurance laws from preemption, but he added a clause that prohibited a state from considering an employee benefit plan to be an insurance company or to be engaged in the business of insurance. If a state passed a law that would regulate a self-insured plan as if the plan were an insurance company, the new clause overruled the language that saved the state law from preemption.132 As the National Association of Insurance Commissioners’ advisory committee noted in March 1974, the new language appeared to exempt employee benefit plans from state regulation “when the fund or plan itself is a risk bearer.”133 In other words, if the employer or the plan retained legal liability for paying benefits, the state apparently could not regulate the plan. Dent’s new bill also made changes in the insurance proposal. The reported version of H.R. 2 proposed a more favorable premium for multiemployer plans but put single-employer and multiemployer plans in a single insurance fund.134 This was not enough for unions with multiemployer plans, so H.R. 12781 created separate insurance funds.135 Another revision addressed concerns that employer liability would slow the growth of the private pension system. Like the reported version of H.R. 2, the new bill made a firm liable for benefits paid by the insurance program up to 50 percent of the firm’s net worth.136 This provision aimed to counteract moral hazard, but critics said it created a bigger problem. Businesses generally structured a pension plan so that the plan, rather than the firm, was liable for pensions. Critics claimed that if employers had to assume direct liability for pensions, fewer firms would adopt a plan and the level of benefits in plans would be lower. Moreover, banks might be reluctant to lend to a firm with an underfunded plan.137 Dent met this concern by adding a second level of insurance to his proposal. H.R. 12781 provided for an Optional Trust Fund that would allow firms to buy insurance against employer liability by paying a higher premium.138 The Senate bill included a similar provision.139 Even with the jurisdictional dispute settled, the House leadership had to

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traverse procedural obstacles to assemble a bill. The House rules would give jurisdiction to Ways and Means if the component parts of the pension reform bill were merged before the measure came to the floor. This forced the Rules Committee to devise a procedure for merging the Labor and Ways and Means proposals on the floor. On February 19, Rules granted what John Anderson (R, Ill.) later called “a most unusual rule.”140 When the House took up H.R. 2, H.R. 12906 (an amended version of H.R. 12781) would be offered as a substitute that would become Title I (the labor law title) of H.R. 2. The Ways and Means Committee’s bill—H.R. 12855 (an updated version of H.R. 12481)—would be offered as a substitute that would become Title II (the tax law title) of H.R. 2. The rule also established procedures for amending H.R. 12855 or H.R. 12906. In accordance with the usual practice in the House, there was no restriction on amendment of the Labor Committee’s proposed amendment (H.R. 12906). Amendments to the Ways and Means title (H.R. 12855) were limited to those offered by the Ways and Means Committee and amendments to the section that set contribution limits for self-employed plans.141 Several issues remained that were controversial enough to threaten a serious challenge when H.R. 2 went to the floor. One was the jurisdictional compromise. Although Dent and Ullman publicly supported their settlement, they did not like it. Many members thought it a serious mistake, an arrangement that, in Erlenborn’s words, “cut the baby in half” and left each committee with “half this dead child.”142 The Rules Committee rejected Erlenborn’s request to allow an amendment that would give the Labor Department sole jurisdiction over participation, vesting, and funding standards.143 The procedural rule for H.R. 2 would allow an amendment to give Treasury sole jurisdiction (because H.R. 12906 was open to amendment) but not an amendment to give the Labor Department jurisdiction. To offer his amendment, Erlenborn would have to defeat the resolution that would establish the floor procedure for H.R. 2. He mobilized the House Republican Policy Committee in an effort to do so.144 Also, when the Labor Committee considered H.R. 12906, Erlenborn tried and failed to amend the employer liability provisions.145 As February 26 approached, he and the Republican Policy Committee readied for an assault on termination insurance.146 Finally, several Democrats thought the proposal to increase the contribution limit for Keogh plans to $7,500 a year was too liberal. They promised to offer amendments to eliminate or moderate the increase.147 When the House took up H.R. 2 on February 26, Erlenborn tried to amend the procedural rule for H.R. 2 to allow the House to choose between labor and tax jurisdiction. Dual jurisdiction would cause great trouble and

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annoyance. “No doubt we all know how bureaucrats can look at laws and regulations and have differing interpretations,” he said. When this happened, “[i]t would be virtually impossible to satisfy both at the same time since both have jurisdiction in the same area.” If the House rejected the rule, Erlenborn would offer an amendment to eliminate dual jurisdiction.148 Forced to defend the jurisdictional settlement, Dent downplayed the possibility of conflict between the Labor and Treasury Departments. His principal argument, however, was that dual jurisdiction and the complex rule that preserved it were “the only way by which I know we can get this legislation before the House . . . .”149 Bill Archer (R, Tex.), who served on the Ways and Means Committee, agreed with Erlenborn about the dangers of dual administration. Archer promised to offer an amendment that would vest authority over participation, vesting, and funding exclusively in the Treasury Department.150 Erlenborn’s effort failed by a wide margin.151 With the rule adopted, the House took up the bill. Much of February 26 was devoted to “the congratulatory rhetoric that politicians utilize in speaking publicly with one another” and to creating legislative history.152 Erlenborn sounded the most critical note, questioning whether the optional trust fund Dent had added to the insurance program would accomplish anything. “[I]f we do have this type of optional account,” Erlenborn warned, “those employers who are anticipating terminating their plans will pay the higher premium and then will dump all of their liability on the insurance corporation, free and clear of any rights of the employees to look to the employer.”153 But these criticisms prefaced a significant concession. Though Erlenborn would offer an amendment to shore up the insurance program, he would not attempt to kill it. There was no stopping termination insurance. “[I]f it is going to be in the bill,” he said, “let us see that it is drawn in a way that will not allow unscrupulous employers to dump their liabilities on other employers and employees who are participants in the insurance trust.”154 With these preliminaries taken care of, the House put over pension reform until February 27. Action on February 27 was brief but hair-raising. When the House took up H.R. 2, Bill Archer offered his amendment to eliminate dual jurisdiction. “My amendment is simple,” he explained. “It would provide that the Secretary of the Treasury would be solely responsible for the administration and enforcement of vesting, funding, and participation provisions of plans which qualify for special tax treatment under the Internal Revenue Code.”155 Things went awry for Dent when Erlenborn unexpectedly supported Archer.156 While Erlenborn “would have preferred to see primary jurisdiction in the Department of Labor,” the rule on H.R. 2 foreclosed this op-

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tion. Archer’s proposal, said Erlenborn, was “the only way” to avoid a jurisdictional arrangement that was “a prescription for utter chaos.”157 When the chair put the question to a voice vote, Archer’s amendment appeared to prevail. Dent demanded a recorded vote but did not have enough support to obtain one. At that point, he raised a point of order that the Committee of the Whole did not have a quorum. This gambit succeeded. When a quorum had been obtained, Dent requested a teller vote. This time Archer’s amendment failed 111–158. After this close call, Dent quickly suspended consideration of the bill for the day.158 The House again took up the labor title on February 28. Besides minor changes endorsed by Dent and Erlenborn, proposals to amend the labor title of H.R. 2 failed. H.R. 2 required defined-benefit plans to offer joint and survivor annuities, which would continue to pay a retiree’s spouse if the retiree died first. Elizabeth Holtzman (D, N.Y.) offered an amendment to require plans to provide a spouse a survivor annuity “if her husband dies before retirement age.”159 Managers of the bill opposed the amendment as too costly, and it failed.160 When the House turned to termination insurance, Erlenborn proposed amendments to restructure management of the program and prevent firms from “dump[ing] their liabilities onto the insurance corporation.” Dent replied that the bill included safeguards to prevent this from happening, and the amendment failed, 179–217.161 Bill Steiger (R, Wis.) then proposed to amend the insurance program to follow the Senate bill and allow the secretaries of Labor, Treasury, and Commerce to oversee the guaranty program.162 This amendment too was rejected.163 Finally, the House rejected Herman Badillo’s (D, N.Y.) proposal to add the portability provisions of H.R. 4200 to H.R. 2.164 With the failure of Badillo’s amendment, the House moved to H.R. 12855, which would become Title II of H.R. 2. H.R. 12855 proposed to increase the contribution limit for self-employed plans from $2,500 to $7,500. Henry Reuss (D, Wis.) offered an amendment that “would keep [the limit] where it now is.”165 According to Reuss, the higher limit would cost the government $175 million a year in lost tax revenues. Those benefits would flow to high-bracket professionals like doctors, dentists, accountants, and lawyers. Reuss admitted that the self-employed did not receive the “bonanza offered very wealthy people under corporate pension plans,” “but the answer” to the difference in treatment “is not to pile loophole upon loophole.”166 Reuss’s amendment was rejected on a voice vote. Gillis Long’s (D, La.) amendment to raise the contribution limit for self-employed plans to $6,000 (rather than $7,500) failed, as did Barber Conable’s (R, N.Y.) proposal to index the contribution limit for self-employed plans to inflation (as were

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the corporate limits).167 With these preliminaries out of the way, the House then passed H.R. 2 by a margin of 376–4.168 When H.R. 2 reached the Senate on March 4, the Senate quickly substituted the provisions of H.R. 4200 for the language of the House bill.169 The Senate, which had appointed conferees when it passed H.R. 4200 in September, insisted on its version of the bill and reappointed its conferees.170 “Historic Act Goes to Conference,” declared a headline.171

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Enacting ERISA

The House and Senate versions of H.R. 2 were similar in purpose and in many particulars, but there were also significant differences. Reconciling the two bills would have been difficult under any circumstances, but the conference on H.R. 2 promised to be especially trying. The issues were extraordinarily complex, the composition of the conference committee (which drew members from four committees) was very unusual, and tempers were short after the wrangle in the House. Most important, however, the conference on H.R. 2 began just as the various judicial and congressional proceedings prompted by the Watergate break-in reached their denouement. After the conference got off to a slow start, it appeared that the impeachment proceedings against Richard Nixon might kill pension reform. This threat led the conferees to set a grueling pace that did not let up until Nixon resigned on August 9. H.R. 2, now christened the Employee Retirement Income Security Act of 1974, was among the first measures Gerald Ford signed after assuming the presidency.

preparing for an “interesting conference” The House and Senate bills evinced “general philosophical agreement” because they were products of a long process of consensus building. Reformers had spent a decade moving lawmakers and interest groups from a consensus against federal regulation to a consensus that supported or at least grudgingly accepted the initiatives in H.R. 2 and H.R. 4200. Nonetheless, disagreements remained on many important issues. Jacob Javits had been promoting a portability program since 1967, but the House rejected the idea. Differences in the jurisdictional provisions were particularly contro241

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versial. And there were significant differences on issues like vesting and self-dealing. Mike Gordon told reporters, “The difficulties I find with the (House) bill are just too numerous to mention. Let me just say there are problems with literally every title of the bill.”1 Despite “general philosophical agreement,” then, the conferees and their staff aides, who would do the lion’s share of the work, had much to settle. The complexity of the legislation and bad feelings among legislators and staff made the task more daunting. Together, the House and Senate bills were almost 650 pages long. They included provisions as complex as any Congress had ever written, and there was great uncertainty about how the legislation would play out in practice. A member of the Ways and Means Committee reportedly quipped that H.R. 2 “will do something to someone but we aren’t sure what and to whom.” “Confusion both inside the Congress and among corporate pension fund officials and their consultants is still very evident,” reported Pensions and Investments.2 There was also considerable ill feeling among the people who had to deal with these complexities. Ullman and Dent reportedly were not speaking to each other.3 Lawmakers and staffers had been sniping at their counterparts in the other chamber for months. And Treasury was angry with Ullman for downgrading its role when Ways and Means considered pension reform.4 The unusual makeup of the conference committee promised further complications. The committee structures of the Senate and House of Representatives generally correspond, so the run-of-the-mill conference committee involves “senior members of one specialist committee meeting once again old combatants from the corresponding committee of the other chamber.”5 Indeed, it may not make sense to call the conferees combatants. The parallel committee structures in Congress mean that participants in a conference committee may well have more in common with each other than with other legislators in their respective chambers.6 In any case, the pattern of repeated interactions among parallel committees gives stability to the conference process.7 This pattern did not apply to pension reform. The conferees would be drawn from four committees. This was not unprecedented, but it was quite unusual. An “11-year veteran” staffer reported that this “was the first ‘four way’ conference he could recall in his experience.”8 Without a “common committee context,” intercommittee tensions might exacerbate interchamber rivalry.9 Staffers soon began cataloguing differences between the two bills and devising compromise provisions. Jurisdiction quickly emerged as a sticking point. A Senate source called the House approach “inefficient, cumbersome, and expensive.” “We’ll want to see some darn good reasons why we should

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change our bill before we do,” a Senate aide told reporters.10 When Speaker Carl Albert named the House conferees on April 2, it became clear that the House was no less committed to its resolution of this issue.11 Both chambers drew conferees from their labor and tax committees. The Senate made no attempt to restrict the matters over which members of its delegation might confer, but the House adopted an “unusual procedure.”12 The House appointed separate slates of conferees for the two titles of its bill and restricted members to matters included in the title for which they were appointed.13 Conferees on Title I—the labor law title of H.R. 2—were drawn from the Education and Labor Committee and could discuss only matters in that title. Conferees on Title II—the tax law title—were drawn from Ways and Means and could discuss only matters in Title II.14 The House action invited conflict. As the Senate saw it, the House was attempting to force the Senate conferees to accept the House jurisdictional settlement before any negotiations occurred. A staffer told House Majority Whip John McFall (D, Cal.) “that the Senate is nettled by [the House’s] appointment of separate sets of conferees for Titles I and II” because senators viewed it “as a ‘hard line’ stand” in favor of the House approach.15 Also, the participation, vesting, and funding standards in the House bill appeared in both the labor and tax titles. How could the Senate conferees negotiate on these provisions when there were separate House conferees for each title? It seemed the House was trying to limit the issues that Senate conferees could consider by restricting the matters its own conferees could discuss. Finally, the House action threatened to cut conferees from the Senate Finance Committee out of negotiations on matters like termination insurance that were in the labor title of the House bill.16 Staffers and their principals also took hard-line positions on regulatory standards. The most important involved the rules on self-dealing. A House staffer reported in April that differences over prohibited transactions were a “sticky problem” but “capable of resolution.” He continued: “Our side seems to feel that the Senate standards are too detailed and too tight and that we have accomplished as much with less language.”17 Positions hardened, as bankers and other business groups converged on the conferees and staff to lobby for the House approach.18 But Williams, Javits, and their staffs were adamant in support of the Senate approach. The provisions of the House bill, they pointed out, were virtually identical to standards that had been in the Internal Revenue Code since 1954. Those rules, Javits observed, had not prevented “the conflict of interest abuse which we have seen evidenced in the Senate hearings.”19 These and other disputes slowed negotiations, and the initial meeting of

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the conference committee was postponed several times in March and April.20 Democratic leaders in Congress kept an eye on these developments. In a meeting on March 6 with Democratic National Committee chair Robert Strauss, House Speaker Carl Albert and Senate majority leader Mike Mansfield agreed to highlight several proposals, including pension reform, as part of a “concerted effort . . . on the part of the Party as a whole to call attention to the important work of the Congress and its leadership in meeting the needs and wants of the American people.”21 On April 10, Mansfield and Albert reaffirmed Democratic support for pension reform. Their statement subtly pressured the conferees by highlighting that the bill was in their hands: “Pension reform legislation is presently in House-Senate conference and the leadership is hopeful that differences will be worked out soon so that this measure will be cleared expeditiously for the White House.”22 Mansfield and Albert reiterated this message in letters to committee chairs.23 On March 28, staffers from the House and Senate labor committees announced that the conferees would not meet before Congress returned from its Easter recess on April 22.24 When it was announced on April 18 that there would be “no serious conferences” before May 3, Steelworkers and Auto Workers officials became impatient.25 The House bill set the effective date for termination insurance as June 1. “Our Union appreciates the complexities between the versions passed by the Senate and House,” Jack Sheehan told the conferees, but “expeditious action” was necessary if that date was to be met.26 When April ended and the conference committee still had not met, Sheehan and other observers perceived a new threat—the accelerating impeachment initiative that had grown out of investigations of the Watergate break-in. By February 28, 1974, when the House passed H.R. 2, Watergate had evolved into a full-scale consideration of whether to impeach the president of the United States. The House Judiciary Committee’s consideration of this question had begun cautiously after Nixon fired Watergate special prosecutor Archibald Cox in October 1973. The inquiry picked up momentum as revelations about Nixon’s conduct and White House battles with the Senate Select Committee and Cox’s successor, Leon Jaworski, undermined the president’s credibility and public standing.27 On February 6, the House voted by an overwhelming margin to grant the Judiciary Committee subpoena authority in the impeachment inquiry.28 On February 25, as the House prepared to debate H.R. 2, the Judiciary Committee requested materials the White House had supplied to the Watergate Special Prosecutor.29 One day after the House passed H.R. 2, a grand jury indicted seven former

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presidential advisors, including White House chief of staff H. R. Haldeman, presidential assistant John Ehrlichman, and Attorney General John Mitchell.30 As staffers prepared for the conference, the nation was engrossed in prosecutions of the president’s advisors, struggles over taped conversations, and revelations about Nixon’s taxes. Impeachment gave a threatening cast to the successive deferrals of the pension conference. When a meeting scheduled for May 14 was postponed, UAW lobbyist Jack Beidler explained the danger to union leaders. “Let me give you this scenario,” he wrote. “The House votes impeachment on June 21. The Senate immediately begins a trial of the President. The trial lasts four months and then the Congress adjourns. No substantive legislation is passed in the Congress after June 21. Pension reinsurance is dead. It may not happen that way, but it could.”31 Beidler was not alone in this prognostication. At about the same time, an insurance executive proposed a similar scenario. Although he believed pension legislation would be enacted, the executive “cautioned his audience to temper any remarks or predictions he made as to legislation with the possibility that no activity would take place if impeachment proceedings did go forth.” “Such a trial, plus the fact of 1974 being an election year,” he said, “would bring all legislative matters to a screeching halt. You could probably wipe out all legislative activity from about July or August until the end of the year.”32 More than two months after the House passed H.R. 2, House and Senate staffers appeared still to be deadlocked on a number of issues. When Mike Gordon and House Labor Committee staffer Russell Mueller discussed the progress of the conference committee early in May, Mueller was “decidedly less optimistic” than Gordon. The going was slow, said Mueller, because the House and Senate were proceeding on “different premises.” “[T]he House’s objectives were to set up minimum standards to make pension reform technically sound, while the Senate wanted to draft ‘the perfect plan’ for everyone.”33 The standoff owed much to the dissimilar roles committees had played in getting H.R. 2 and H.R. 4200 to conference. The principals of the Senate Labor Subcommittee, Williams and Javits, were much closer in philosophy and politics than their counterparts in the House, Dent and Erlenborn.34 The other Republicans on the Senate Labor Committee also tended to be more liberal than their counterparts on the House Labor Committee.35 Bipartisan consensus on pension policy allowed the Senate Labor Committee to play the leading role in forcing pension reform onto the legislative agenda. As political instigators, Javits, Williams, and their staffs fought battles that made pension reform an article of faith. In contrast, other committees were

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responding to circumstances that were forced upon them by the Senate Labor Committee. Less invested in the bill and in particular reforms, some legislators and staffers viewed the Senate Labor Committee’s positions— and especially the positions of Javits and Gordon—as impractical and overly pious.36 Thus Mueller’s complaint that the Senate “wanted to draft ‘the perfect plan’ for everyone.” Ironically, the procedural sequence of pension reform cut the Senate Labor Committee out of the legislative process when critical deals were struck in the House. Larry Woodworth of the Joint Tax Committee represented the Ways and Means Committee in the House negotiations. As a practical matter, Woodworth was also acting as an agent of the Senate Finance Committee.37 Thus, the House settlement involved not two but three of the four committees in the conference.38 These circumstances forced representatives of the Senate Labor Committee to balance their commitment to strong legislation against the risks of adhering too rigidly to principle. After all, who had more to lose than the Senate Labor Committee if pension reform died in conference?39

the conference begins On April 30, as representatives of the Senate Labor Committee struggled with this calculus, Nixon released edited transcripts of taped conversations at the White House. The transcripts appalled even his supporters and gave further impetus to the impeachment inquiry. A little more than a week later, the House Judiciary Committee began formal impeachment proceedings.40 These events crystallized the threat Watergate posed to pension reform. The conferees decided they must move forward.41 On May 15, more than ten weeks after the House passed H.R. 2, the conference committee met for the first time.42 The staff presented the conferees with the first installment of a four-part summary of the differences between the House and Senate bills.43 The summary explained conflicting provisions and usually proposed a compromise. The Treasury and Labor Departments also submitted almost a hundred pages of recommendations on behalf of the administration.44 The conference process inevitably brings details to the fore. The conference committee is usually the last chance to influence the content of legislation, so lawmakers, the executive branch, and interest groups zero in on specific issues or provisions. Moreover, the prospect of enactment elicits appeals for special treatment and jockeying to get the most (or lose the least) from the transition to a new legal regime. Beginning with the meeting on

table 7. Bills before the Conference Committee

Administration

Reporting/Disclosure Definition of Fiduciary

General Fiduciary Standard Self-Dealing

Participation Standard

Vesting: Minimum Standard

H.R. 4200/H.R. 2 (Senate)

H.R. 2 (House)

Labor: disclosure, reporting, fiduciary standards Treasury: participation, vesting, funding Labor and Treasury: selfdealing Public corporation: insurance, portability Yes Person with any authority or control over plan assets

Labor: disclosure, reporting, fiduciary standards, selfdealing, insurance Labor and Treasury: participation, vesting, funding

Duties of loyalty and prudence General prohibition of selfdealing with exemptions for common transactions Later of 1 year of service and age 30

(1) 25% vested after 5 years of service, then 5% per year (years 6 through 10), then 10% per year (years 11 through 15) (2) Plans in which employees are 100% vested after 10 years of service are grandfathered

Yes (1) Person with any authority or control over plan assets (2) Person with discretionary authority or control over plan administration (3) Person who provides investment advice for a fee Duties of loyalty and prudence Prohibition on self-dealing unless for adequate consideration Later of 1 year of service and age 25, but employee with 3 years service participates even if less than age 25 (1) 25% vested after 5 years of service, then 5% per year (years 6 through 10), then 10% per year (years 11 through 15); (2) 100% vested after 10 years of service; or (3) employee with 5 years of service is 50% vested when age and service equal 45, then 10% per year

table 7 (continued)

Benefits Covered Portability

Funding Standard: Single-Employer Plans

Funding Standard: Multiemployer Plans

Termination Insurance: Benefits Covered Maximum Insured Benefit

Premium Formula: Single-Employer Plans

Premium Formula: Multiemployer Plans

H.R. 4200/H.R. 2 (Senate)

H.R. 2 (House)

Benefits accrued before or after enactment (1) Centralized fund with voluntary participation (2) Rollover into individual retirement account Normal cost + 30-year amortization of unfunded past-service liability

Benefits accrued before or after enactment Rollover into individual retirement account

Normal cost + 40-year amortization of unfunded past-service liability with extension of up to 10 years in hardship cases Benefits vested under vesting standard in plan Lesser of 50% of average monthly salary in 5 years preceding termination or $750/month Head tax of $1 per participant per year

Head tax of $1 per participant per year

Greater of (1) normal cost + 40-year amortization of unfunded past-service liability incurred before effective date + 30-year amortization of unfunded past-service liability incurred after effective date; or (2) contribution necessary to amortize liability for unfunded vested benefits over 20 years Normal cost + 40-year amortization of unfunded past-service liability with extension of up to 10 years in hardship cases Benefits vested under statutory minimum standards No more than $20 per month per year of service

Exposure premium based on insured unfunded vested liability of plan + charge based on total (funded and unfunded) insured benefits Exposure premium based on insured unfunded vested liability of plan + charge based on total (funded and unfunded) insured benefits (continued)

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table 7 (continued)

Employer Liability

Insurance for Employer Liability Individual Retirement Accounts

H.R. 4200/H.R. 2 (Senate)

H.R. 2 (House)

Single-employer: lesser of insurance paid or 30% of employer’s net worth Multiemployer: lesser of employer’s share of insurance paid or 30% of employer’s net worth if plan terminates within 5 years of employer’s withdrawal Corporation authorized to maintain program to insure employer liability Individual not in a plan may deduct the greater of earned income up to $1,000 or 15% of earned income, but not more than $1,500

Lesser of insurance paid or 50% of employer’s net worth (only singleemployer plans)

Corporation authorized to maintain program to insure employer liability Individual not in a plan may deduct the lesser of $1,500 or 20% of compensation included in gross income

May 15, the conferees met nineteen times over about six weeks. As recounted below, they proceeded methodically, generally taking up issues in the order presented in the staff summary but deferring controversial matters to keep the conference moving.45 (The headings below identify the key issues discussed in particular meetings of the conference committee.) By June 27, when the nineteenth meeting took place, the conferees had hashed out compromises on all but a few of their differences. On that date, the conferees passed the baton back to the staff, who would prepare a draft that the conference committee would approve at a final meeting.

Vesting The first installment of the staff summary covered jurisdiction, vesting, funding, and portability. The conferees took up vesting on May 21. Both H.R. 2 and H.R. 4200 included a schedule under which employees would vest in 25 percent of their accrued benefit after five years of service. Employees would vest in an additional 5 percent (years six through ten) or 10 percent (years eleven through fifteen) each year until they reached 100 percent vesting after fifteen years of service. Both bills also recognized a rule

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under which employees vested in 100 percent of their pension accruals after ten years. H.R. 2 allowed plans to choose this option, while H.R. 4200 grandfathered this schedule for plans that already used it. The staff recommended that the conference committee adopt both standards, and the conferees did so. The conferees deferred consideration of the rule of forty-five standard that was not in the Senate bill.46

Funding The bills took similar approaches to funding, the major difference being a provision in the House bill that called for larger contributions for plans with a high level of unfunded vested benefits.47 Although the administration endorsed the accelerated funding standard, the staff dropped it and reconciled the remaining differences.48 The summary proposed that employers with a single-employer plan should fund the cost attributable to the current year and amortize past-service liability over forty years for liability incurred before the legislation took effect and over thirty years for liability incurred after the effective date. The rule for multiemployer plans was similar except that employers would fund all past-service liability over forty years.49 There was no controversy about these recommendations, and the conferees accepted them.50 There was a disagreement about when the funding standards should take effect, so the conferees postponed the issue.51

Jurisdiction Controversial issues could only be put off for so long, and the conferees began with the biggest one—jurisdiction. The major dispute concerned authority over the minimum standards on participation, vesting, and funding. The Senate bill put the standards in the Internal Revenue Code and gave the IRS the primary enforcement role. The House bill placed participation, vesting, and funding standards in both the tax and labor laws and gave both the Labor and Treasury Departments authority to issue regulations and enforce compliance.52 The prohibited-transaction rules also raised jurisdictional issues, but here the House and Senate approaches were closer. H.R. 4200 put regulations on self-dealing in both the tax and labor laws and divided responsibility for enforcement. The Labor Department would have primary responsibility for enforcement against the plan official or fiduciary involved in a prohibited transaction, and Treasury would collect an excise tax on the related party.53 The House bill addressed self-dealing only in its labor title but would leave the existing rules in the Internal Revenue Code in place.54 That meant that H.R. 2, like H.R. 4200, would create a regulatory frame-

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work in which the Labor and Treasury Departments shared responsibility for enforcement. No one believed shared jurisdiction made sense as a matter of policy. The Senate conferees, the administration, and business groups all denounced it.55 To eliminate shared jurisdiction, however, either the House Labor or Ways and Means Committee had to give up its claim. Neither committee would, so the staff proposed an arrangement that left the labor and tax committees each with a stake in the regulation of participation, vesting, and funding.56 At the same time, staffers tried to minimize the complexities of shared jurisdiction. Parallel statutory standards did not require shared responsibility in every aspect of implementation, so staffers coordinated the responsibilities of the IRS and Labor Department. The summary proposed that the Labor Department should have authority to draft “regulations on preemption, the definition of year of service, the definition of break in service, [and] the variances which are subject to the discretion of the Secretary of Labor . . . .” These were all matters of particular importance to organized labor. The IRS should draft the regulations on most other points, except prohibited transactions, on which the agencies would coordinate regulations.57 The staff also tried to coordinate the roles Labor and Treasury played at different stages of administration. The “initial stage” was the determination whether a pension plan qualified for favorable tax treatment. As under existing law, the staff gave the IRS the primary role in this process. But the Labor Department and the Pension Benefit Guaranty Corporation (PBGC), which would oversee the termination insurance program, also were given a variety of functions.58 If a question arose about a plan’s compliance with the participation, vesting, or funding rules after the IRS approved a plan—what staffers called the “operational stage”—the Labor Department would have responsibility for protecting the “individual benefits” of employees, while the IRS would handle “broader issues which relate to the issue as to whether the plan is operating according to qualified standards.”59 On prohibited transactions the staff recommended the “joint regulation” approach in the Senate bill.60 At their June 4 meeting, the conferees agreed to jurisdictional provisions that were “fundamentally the same as those suggested by the staff.”61

Portability With jurisdiction settled, the conferees moved to another disputed issue— portability. The Senate bill included a proposal for a centralized governmentrun fund that would accept transfers of funds on behalf of employees who

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changed jobs. The goal, the staff summary observed, was to allow such an employee to “consolidate all of his vested retirement benefits in a single account . . . .”62 Although Javits had long advocated a portability program, the idea had many critics. Business groups and the administration opposed it, as had such Javits allies as the Steelworkers and Auto Workers unions.63 John Dent had left portability out of H.R. 2, and the House rejected a floor amendment on the issue.64 Moreover, both bills included a proposal that would permit an employee to take a lump-sum distribution of accrued pension benefits and roll it into an individual retirement account. Although some staff supported the central portability fund, the summary noted that the rollover proposal could be used to provide portability.65 On June 5, over Javits’s objections, the conferees rejected the Senate measure and adopted the staff’s solution.66

Termination Insurance From portability, the conferees moved to termination insurance, which was the first issue in the second installment of the staff summary.67 The House and Senate agreed on the need for a termination insurance program, but they disagreed on many of the particulars. Both bills created an insurance program to be administered by a public corporation located in the Department of Labor, but they differed on who would run the corporation. Under the House bill, the governing board included the secretary of Labor and two other representatives of the Labor Department. The Senate’s board was comprised of the secretaries of Commerce, Labor, and the Treasury. The administration generally supported the Senate approach. Noting the insurance corporation’s “deep involvement . . . in matters of private corporation finance, money management, and other matters affecting private business,” the administration argued that it was “essential that a business perspective be represented on the board of directors.”68 Business groups agreed.69 The staff summary adopted the Senate approach, and the conferees followed the staff recommendation.70 Another key design issue was whether there should be separate insurance pools for single-employer and multiemployer plans. The Senate bill provided for a single Pension Benefit Guaranty Fund, to which both singleemployer and multiemployer plans would contribute. Unions in the building trades objected to a common fund.71 At their behest, the House Labor Committee had amended its bill to provide for separate trust funds for single-employer and multiemployer plans. Some business representatives voiced support for the House approach.72 Although staffers were not in complete agreement, they generally followed the House approach and rec-

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ommended separate funds for single-employer and multiemployer plans.73 The conferees adopted the staff recommendation.74 There was an important discrepancy in how H.R. 2 and H.R. 4200 defined the benefits the insurance program would cover. Both bills insured vested benefits, but the Senate bill covered benefits vested under the terms of a pension plan, while the House bill insured benefits vested under the statutory vesting standards. The Senate approach was more liberal. When a plan had a more generous vesting provision than was required by law, H.R. 4200 would insure benefits vested under the plan “even though they exceed the statutory minimum vesting requirements . . . .”75 H.R. 4200 was also less ambiguous. The conferees had already agreed to allow plans to choose between two vesting standards—five-to-fifteen-year graded vesting and tenyear cliff vesting—and they still had to consider the rule of forty-five option. How would the House definition of insured benefits apply when a terminated plan had a vesting provision that was more liberal than the vesting schedules in the statute? Which vesting standard should be used to determine the insured benefit? As the administration noted, “Coverage of vested plan benefits will minimize disruptions and hardships and will tend to produce less arbitrary results.”76 The staff recommended the Senate approach, and the conferees endorsed it.77 The House and Senate bills also adopted different formulas for capping the insured pension benefit. The Senate covered an employee’s pension up to the lesser of $750 per month or 50 percent of a participant’s average monthly wages in the five years before the plan terminated. The House capped the insured benefit at the employee’s number of years of service multiplied by the actuarial equivalent of a single-life annuity of twenty dollars per month beginning at age sixty-five.78 The administration favored the House approach because the year-by-year benefit limit protected the insurance program from abuse.79 The House limit, however, might result in benefit reductions for workers who retired under the subsidized early retirement arrangements the Steelworkers and UAW had negotiated.80 These unions favored the Senate approach.81 The staff proposed a more liberal version of the Senate limit that was very generous to early retirees.82 The program would insure up to the lesser of $750 per month or 100 percent of an employee’s average monthly wages over his highest five years of compensation.83 Again, the conferees followed the staff recommendation.84 H.R. 2 and H.R. 4200 used different formulas to set the premiums charged to pension plans. The Senate formula was easier to administer. It called for single-employer and multiemployer plans to pay one dollar per participant per year in the initial years of the program. The advantage of a

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simple premium structure was that it would allow more rapid implementation of the insurance program and, thus, an earlier effective date. The Senate bill authorized the PBGC to move to a more complicated premium formula linked to exposure after the program was up and running. Under H.R. 2, premiums would vary with the exposure a plan created for the program. Part of the premium was based on a plan’s unfunded insured vested liabilities and part on the plan’s total insured vested liabilities.85 The House bill also provided that multiemployer plans would pay lower premiums. Staffers recommended an amalgamation of the two approaches. Initially premiums would be one dollar per participant for single-employer plans and fifty cents per participant for multiemployer plans. After two years, the insurance fund would have discretion to move to a premium based on insured liabilities.86 Here too, the conferees adopted the staff recommendation.87 Although the employer liability provisions of the House and Senate bills were not too different, the matter was contentious. The underlying policy issue was simple. If an employer was not liable for the shortfall in its underfunded plan, it made economic sense to terminate the plan and dump liabilities on the insurance program. At the same time, employer liability might compromise an ailing firm’s access to capital and thus hasten the demise of the firm and its pension fund. The bills struck a balance between these competing concerns by capping a firm’s liability for payouts by the insurance program. H.R. 4200 limited employer liability to 30 percent of a firm’s net worth, H.R. 2 to 50 percent. Business groups and the administration recommended the lesser figure.88 According to a recommendation submitted on behalf of leading business groups, “The 30% figure is high enough to discourage employers from abandoning plans merely to collect from the Insurance Corporation and yet it is a more reasonable rate so far as the employer’s ability to obtain credit is concerned.”89 Staffers recommended the lower figure, and the conferees approved it.90 The Senate bill provided for employer liability for firms in singleemployer and multiemployer plans alike. If a multiemployer plan terminated, H.R. 4200 made a participating employer or a firm that had withdrawn within five years of the termination liable for a share of insurance payouts up to 30 percent of the firm’s net worth.91 In contrast, the House bill provided for employer liability only for firms with a single-employer plan.92 The House provision drew criticism because it created an incentive for firms to desert a multiemployer plan and leave the burden of unfunded liabilities to the remaining employers. The administration warned that “[e]mployer liability in multiemployer plans is essential to the viability of

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the termination insurance program.”93 The staff generally followed the Senate bill. A firm that had participated in a multiemployer plan within five years of the time the plan terminated would be liable up to 30 percent of its net worth for a share, as calculated under a formula in the bill, of amounts paid by the insurance program.94 The conferees adopted the staff proposal.95 A final set of obscure but important issues concerned the phase-in of insurance coverage. When would new plans and benefit increases be insured? Like earlier bills, H.R. 4200 and H.R. 2 sought to prevent firms from bilking the insurance program by creating a plan or increasing benefits and then terminating the plan. The Senate bill did not cover plans or benefit increases until three years after they took effect.96 H.R. 2 did not require the PBGC to insure a plan that had existed for less than five years, but the agency would have discretion to cover a share of the vested benefits of such a plan. For each year a plan had existed, the PBGC could cover up to 20 percent of the maximum insured benefit. H.R. 2 made the maximum insured benefit $20 per month per year of service. Accordingly, if a plan terminated two years after it was created, the PBGC could insure vested benefits up to $8 per month per year of service (40 percent of $20).97 The House bill did not give the PBGC similar discretion to cover plan amendments. A benefit increase created by a plan amendment was not insured unless it “took effect more than five years immediately preceding termination . . . .”98 The staff summary recommended that neither new plans nor plan amendments be insured until five years after they took effect. The conferees adopted the staff recommendation.99 There was a similar transition issue for plans that existed when the insurance program took effect. Under the Senate bill, plans that had existed for thirty-six months would be covered as soon as the legislation took effect. Newer plans would be covered when they satisfied the three-year waiting period.100 H.R. 2, on the other hand, provided that existing plans would not be covered until they had participated in the insurance program for five years. The PBGC, however, would have discretion to insure a plan that had participated for less than five years if the plan had existed for at least five years and “was in substantial compliance with the provisions of this Act.”101 Existing plans that were less than five years old would be covered by the same rule that applied to plans created after enactment: the PBGC would have discretion to insure the plan but coverage would be limited to 20 percent of the maximum insured benefit multiplied by the number of years the plan had existed.102 Although the staff splintered on this issue and proposed a variety of transition rules, all of the proposed rules called for a phase-in of coverage for existing plans. The conferees tentatively endorsed a rule that

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would phase in coverage for all plans, so that no plan would be fully insured until five years after the law was enacted.103

Effective Dates With these decisions made, the conferees deferred the issue of effective dates for termination insurance. On June 12, they endorsed the staff recommendations on reporting and disclosure “in five minutes” and turned back to effective dates.104 The basic policy issue on effective dates was straightforward. The conferees had to balance the burdens to plan administrators and government officials who would implement the new standards against the protective purposes of the legislation. The longer the transition period, the longer it would be before employees enjoyed the protections in the legislation.105 As it turned out, the conferees adopted tentative effective dates for the participation, vesting, and funding standards with little fuss. Plans created after enactment would have to comply immediately. Existing plans not covered by a collective bargaining agreement generally would begin complying in 1976. Compliance for collectively bargained plans was postponed until the expiration of the collective bargaining agreement that governed the plan but not beyond December 31, 1980. The conferees again put off effective dates on termination insurance.106

Preemption On June 17, the conferees took up the third installment of the staff summary, which covered fiduciary and enforcement issues. With one significant exception, the staff had devised compromises on enforcement with little controversy. On these points, the conferees again adopted principles that were “almost identical” to the staff recommendations.107 The issue that produced conflict was federal preemption. Both H.R. 2 and H.R. 4200 provided that federal law would override state laws regulating the matters they addressed. Also, both bills created an exception from federal preemption for state laws regulating banking, insurance, and securities. The key difference was the provision in H.R. 2 that would prohibit states from applying banking, insurance, and securities laws to self-insured plans. For pension plans, the conferees agreed to adopt the House rule: states would be forbidden to regulate pension plans in the guise of regulating banking, insurance, or securities. There was disagreement about whether preemption should apply to state regulation of self-insured welfare-benefit plans, so the conferees put off the issue.108

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Fiduciary Standards This brought the conferees to the contentious issue of fiduciary standards. The House and Senate bills created similar general standards of conduct for “fiduciaries.” Both required a fiduciary to exercise prudence and “to act exclusively for the purpose of providing benefits to participants and beneficiaries and for defraying reasonable plan administrative expenses.”The House, however, defined “fiduciary” in broader terms. Not only persons who managed plan assets but also those who possessed discretionary authority over plan administration were fiduciaries under the House definition. Although the Senate minority staff initially objected, staffers eventually agreed on compromise language that used the House definition. The conferees accepted the compromise on June 18.109 Differences over self-dealing transactions were more difficult to resolve. The two bills made contrary assumptions about the propriety of self-dealing. H.R. 2 generally permitted related-party transactions, prohibiting only the presumedly exceptional transactions in which a plan paid more than or received less than fair consideration. The Senate bill reversed the presumption. It banned all self-dealing, then exempted common or necessary transactions.110 Williams, Javits, and their staffers strongly opposed the House approach, but the Senate approach also drew objections. House conferees and staffers thought the Senate rules were needlessly restrictive.111 Banks and investment firms complained because they commonly provided multiple services to pension plans. For example, an investment bank might manage investments for a plan while also serving as its broker.112 Such an arrangement was presumptively illegitimate under the Senate bill, and financial service providers lobbied hard against the Senate approach.113 Finally, the Senate rules hampered employee stock ownership plans, which were favorites of Senate Finance chair Russell Long.114 He favored the House approach.115 But the Senate rules also had supporters. At the instance of the Labor Department, the administration “strongly” endorsed the Senate standards.116 Treasury secretary George Shultz and Labor secretary Peter Brennan reiterated this position in letters to the conferees.117 And Larry Woodworth supported the stronger Senate rules.118 The staff was still deadlocked when the conferees received the third installment of the summary.119 At the meeting on June 18, Javits emphasized a connection between the fiduciary rules and federal preemption. A day earlier, the conferees had voted to preempt state laws that regulated matters covered in their bill. Under state law, officials who invested the assets of a benefit plan were sub-

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ject to the common law of trusts. State trust laws regulating self-dealing by a fiduciary were much stricter than the rules in the House bill.120 Javits objected to preemption of state trust law unless the conferees adopted the stronger Senate rules on prohibited transactions.121 As in the past, Javits emphasized that the regulatory standards in the House bill were already in the tax code. The Senate Labor Committee had demonstrated that existing law was not strict enough to prevent malfeasance. To clinch his point, Javits circulated a “rogues gallery” of abuses that would not be reached by the House rules.122 The conferees endorsed the Senate approach, but provided or promised exceptions to meet objections from bankers, investment firms, and Russell Long.123

Preemption Having cleared the “major hurdle” of prohibited transactions, the conferees resolved most remaining questions relating to plan administration and enforcement on June 19 and 20. The most contentious issue was whether Congress should prevent states from regulating self-insured welfare-benefit plans. There was a compelling reason to preempt state regulation of pension plans. The conference committee had approved extensive new controls for pension plans, and state law had to give way to the federal regime. But H.R. 2 and H.R. 4200 had far less to say about health and welfare-benefit plans. In light of this, should the states be allowed to regulate these plans? Both bills answered ‘yes’ for plans that purchased coverage from an insurance company. Since H.R. 2 and H.R. 4200 allowed the states to continue to regulate insurance companies, the states could indirectly regulate welfarebenefit plans that purchased coverage from an insurance company. The disagreement concerned the “deemer clause” in the House bill, which negated state regulation of self-insured welfare-benefit plans.124 On one side were insurance companies and the National Association of Insurance Commissioners. For years, they had urged state legislatures to regulate self-insured welfare plans.125 Insurers and insurance regulators were joined by the legal community, which opposed closed-panel legal services plans. On the other side were large employers and labor unions that feared the effect state regulation would have on multistate welfare plans. They were joined by the banking industry because banks commonly administered self-insured employee-benefit plans.126 In the four months since John Dent had added the deemer clause to the House bill, insurance regulators and the American Bar Association continued to push for regulation of collectively bargained legal services plans. In remarks to a Senate subcommittee in May 1974, the general counsel of the UAW criticized “irre-

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sponsible elements” within the American Bar Association for undermining the labor movement’s efforts to create legal services plans.127 Laborers union general counsel Robert Connerton warned that state bar associations were trying “to stamp out present plans and prevent any new plans from being started.”128 Then, in June the National Association of Insurance Commissioners adopted a model bill to regulate legal services plans over objections from union representatives.129 “The unions are furious about these developments,” Mike Gordon told Javits. “They see the actions of the state insurance commissioners . . . as an outright power grab and as an effort to stimulate more business for insurance companies. The banks feel the same way since if non-insured plans can’t avoid premium taxes, employers might as well have insured plans.” Insurance regulators objected, however, that Congress should not foreclose state regulation of welfare plans because “unlike pension plans there are not comprehensive federal regulatory standards for welfare plans (aside from disclosure and fiduciary standards).”130 Staffers disagreed about the House language, but some proposed a compromise that called for the conferees to adopt the House language with a three-year sunset clause. Under this approach, federal preemption of state regulation of self-insured welfare plans would lapse after three years unless Congress took action to preserve it. In the meantime, a congressional task force would investigate whether the states should be allowed to regulate these plans.131 The conferees reportedly adopted this recommendation on June 20.132

Vesting, Funding, Preemption The decisions on June 20 completed the conference committee’s work on pension reform except for issues the conferees had deferred. On June 24, they revisited vesting to consider the rule-of-forty-five standard in the House bill. Jacob Javits had criticized age-graded vesting schedules because they were unfair to younger workers and might lead to discrimination against older workers. Some labor unions joined him in opposing this standard.133 On the other hand, the administration had advocated an age-graded rule-of-fifty approach, and it endorsed the rule of forty-five.134 Business groups and some unions did as well.135 And John Erlenborn had pushed hard for a vesting provision that would give plans more choices. Erlenborn urged the conferees to retain the rule of forty-five, and they agreed to do so.136 The conferees made two additional decisions that were of considerable importance. In response to heavy lobbying by unions in the needle trades, the conference committee adopted special rules that would ease the effect of mandatory funding on needle trades pension funds.137 Still more important,

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the conferees “clarified” their June 20 decision on preemption of state regulation of self-insured welfare plans. A congressional task force would look into preemption, but there would be no three-year sunset provision for the deemer clause.138

Taxation of Retirement Plans On June 26, the conference committee moved to the fourth installment of the staff summary, which addressed the “pure tax provisions” in H.R. 2 and H.R. 4200.139 The conferees’ close adherence to the provisions in the House bill illustrates the Joint Tax Committee’s role as a go-between for the Ways and Means and Finance Committees. Since Larry Woodworth represented the Finance Committee when Ways and Means developed tax proposals, there was little left to settle in the conference. The conferees placed contribution limits for self-employed and S-corporation plans at the lesser of $7,500 or 15 percent of earned income.140 The benefit limit for other qualified defined-benefit plans was set at the lesser of $75,000 a year or 100 percent of the employee’s final average salary over the highest three years of compensation. The annual contribution limit for defined contribution plans would be the lesser of $25,000 or 25 percent of compensation.141 And as in the House bill, individuals not covered by a retirement plan would be allowed to make a tax-deductible contribution of the lesser of $1,500 or 15 percent of earned income to an individual retirement account.142 On June 27, with the hour late and the July 4 break approaching, the conferees deferred a final decision on effective dates until after the recess.143

impeachment versus pension reform? At the end of the meeting on June 27, the conferees put H.R. 2 back “in the hands of the legislative technicians who [would] actually draw up the bill.” This initiated one of the most intense, exhausting, and invisible periods in the development of the pension reform bill.144 John Dent suggested that a final bill might be prepared “by mid-July,” but officials at the Labor Department more realistically estimated that “[t]he bill could . . . be passed and ready for signing by Labor Day.”145 For well over a month, staffers from Congress and the executive branch put in long days turning the conference committee’s decisions into legislative text. “Counting time in the car pool,” one recalled, “we worked 12- to 14-hour days, 7 days a week, with no weekends or holidays off.”146 But as the staff moved forward, the pace of the im-

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peachment proceeding also quickened. Worried observers wondered if pension reform was in a race with impeachment. In an interview published on June 27, House majority whip John McFall announced that the House leadership had tentatively scheduled two weeks of debate on impeachment with a vote on Friday, August 23.147 According to this schedule, the impeachment debate would begin on Monday, August 12.148 When Jack Sheehan wrote the conferees on July 9 to discuss several open issues, he emphasized that time was of the essence: “Because of impeachment processes it is imperative that final floor action on the pension bill be completed by August 1. Otherwise, there is the risk of deferral until after the impeachment votes and conceivably expiration of the legislation at the end of the Congress.”149 Several days later Larry Woodworth announced that the staff would not have a draft bill for the conferees until Monday, August 12.150 John Dent and Al Ullman quickly dispatched telegrams alerting labor leaders that impeachment threatened pension reform. “Certain activities beyond the control of the House conferees are seriously jeopardizing the effective dates of the pension reform legislation,” they warned. “House impeachment debate is scheduled to commence August 12. Unless [the] pension conference report is adopted before then all may be lost.”151 Woodworth responded by putting H.R. 2 on an even faster track. “I would suggest,” he stated, “that a substantially complete version of the conference agreement could be available on July 31 and that the conferees might meet at that time to complete their action on the conference report.” That would allow the House to take up the conference report “toward the end of the week of August 5,” before the Judiciary Committee sent articles of impeachment to the full House.152 Even with the speedup, the timing would be close. The House managers of H.R. 2 would need a waiver of the House rules for the bill to be considered before the House began debating impeachment.153 Woodworth’s new schedule caused “mass absences of speakers” at a conference on July 24 because “staff members had to remain at the drafting sessions.”154 “The committee staffs are working constantly on the bill . . . ,” Jack Sheehan reported.155 But the pace of impeachment picked up too.156 On July 24, the Supreme Court issued a decision that forced Nixon to produce White House tapes subpoenaed by the Watergate grand jury. Later the same day, the House Judiciary Committee began televised consideration of draft articles of impeachment.157 Although the debate was often rancorous, it soon became clear that the committee would vote to impeach the president. Tens of mil-

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lions of Americans watched on July 27 as the Judiciary Committee approved its first article of impeachment.158 The committee completed debate on July 30, having approved two additional articles of impeachment. At the end of July, House majority leader Tip O’Neill pushed back by several days the date the House would begin debating impeachment.159 Staffers working on the pension reform bill needed the time. They could not have a bill ready for action in the House on August 5. Even if the conferees finalized their recommendations on July 31, drafters could not complete a bill and get it printed before August 7 or 8.160

Termination Insurance On July 31, one day after the House Judiciary Committee finished debating impeachment, the conference committee on H.R. 2 held its twentieth and final meeting.161 The principal issue was one the conferees had deferred on June 27—effective dates. In particular, they had to choose effective dates for termination insurance. There were three key issues: When would plans begin paying premiums? When would employees be covered? And when would employers become liable for amounts the insurance program paid to bail out an underfunded plan? As with the other effective dates, resolving these issues required the conferees to balance the protective purpose of termination insurance against the practicalities of implementing the program. The staff recommended that premiums, insurance coverage, and employer liability for single-employer plans all take effect on December 31, 1974.162 The recommendation produced a barrage of criticisms and counterproposals. On one side were business groups and the administration; on the other, the Steelworkers and the UAW. The administration said the PBGC could not have the insurance program up and running by year’s end. The corporation “will . . . be faced with an almost impossible implementation task if it must establish, by the proposed effective date, both the organization and operating systems necessary to carry out the forecasted workload.” The administration urged June 30, 1975 as a more reasonable date.163 On the basis of similar arguments, business groups favored the effective date in the Senate bill, December 31, 1976.164 The Steelworkers, on the other hand, argued that insurance should take effect on the earliest possible date. “[T]he appropriate guide for effective dates is the losses which will be suffered by employees as a consequence of delay,” Jack Sheehan declared.165 “Employees covered by pension plans which terminate before the effective date for plan termination insurance will suffer losses which can never be recovered.”166 The Steelworkers and the UAW urged a retroactive effective date,

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July 1, 1974.167 Not surprisingly, business representatives objected to retroactive application of employer liability.168 “I expect that this matter may well have to come to a vote,” Gordon told Javits, “since the staff has been unable to reach an agreement in this area.”169 Debate on effective dates was long and intense, taking up most of the four hours the committee met.170 The conferees agreed to a retroactive starting date for insurance coverage. Employees who participated in plans terminated between July 1 and the date of enactment would be covered if the Department of Labor received notice of the termination within ten days of enactment.171 Other provisions, including premiums and employer liability, would take effect on the date of enactment. Thus, a plan sponsor would not be liable unless it terminated its plan after the president signed the bill. “Employers in the plans folding immediately,” the Daily Labor Report observed, “will escape the liability for 30 percent of their assets that will fall on other employers.”172 These effective dates applied to single-employer plans. The conferees had to address multiemployer plans as well. Here too the staff had been unable to settle on effective dates. Disagreements among the staff probably reflected the fact that representatives of unions that sponsored multiemployer plans remained skeptical of termination insurance. They asked the conferees “to make the insurance coverage discretionary for [multiemployer plans] until January 1, 1978 . . . .”173 The conferees agreed. Premiums would be payable immediately. Until January 1, 1978, however, the PBGC could, but would not be required to, insure benefits of a terminating multiemployer plan.174 The Steelworkers and Auto Workers also pressed the conferees to phase in insurance coverage for benefit increases. On June 10, the conferees chose not to cover a plan amendment that increased benefit levels until five years after it took effect.175 The Steelworkers and UAW protested that this rule adversely affected their plans. Collectively bargained single-employer plans usually paid a pension based on a flat-dollar amount and the employee’s period of service. The union and employer generally increased the flat-dollar formula in each round of collective bargaining. For example, the UAW cited a plan in which the benefit went from $5.75 per month for each year of service in 1967, to $7.50 in 1970, and then to $9.50 in 1973. If insurance coverage did not take effect for five years, benefit levels might be substantially reduced when a UAW plan terminated. For example, if the plan above terminated in 1974, the insured benefit would be cut back to the level in the 1967 contract.176 In contrast, the waiting period would have little effect on

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nonbargained plans because they generally based benefit levels on an employee’s salary. Pension benefits rose as salary levels rose with less need for benefit increases (and thus no amendments to phase in). The UAW and Steelworkers urged the conferees to phase in coverage to mitigate the disparity. The unions proposed and the conferees adopted a rule that generally phased in coverage of plan amendments in increments of 20 percent per year.177 Finally, the Steelworkers and Auto Workers urged the conferees to reconsider their earlier decision to phase in coverage for existing plans. On June 11, the conferees tentatively decided to phase in coverage for existing plans at a rate of 20 percent per year.178 Under this approach, no pension plan would be fully covered until five years after the legislation took effect. Predictably, the conferees’ decision drew objections from the Steelworkers and Auto Workers. “We are assuming,” Jack Sheehan told John Dent, “that on the effective date of reinsurance all the benefits of existing plans (subject to the dollar limitations) shall be protected. There should be no transitional coverage of such benefits similar to new plans.”179 The conferees reversed their earlier decision, so that plans that had existed for more than five years would be fully covered as of July 1, 1974.180

Preemption Lengthy deliberations on termination insurance did not prevent the conference committee from effecting what turned out to be a momentous expansion of the preemption provision. The conferees had agreed on language that would prevent states from regulating many aspects of pension and welfare plans. But there was still some room for state action. As Mike Gordon explained to Javits, “The pre-emption provisions in both the Senate and House bills had been universally construed as pre-empting the states from regulating in those areas regulated by the bill. They were not (except in the area of certain welfare plans) construed to prevent a state from regulating in those areas not touched by the bill in any manner, shape, or form.”181 A pension reform measure before the California Senate suggested that state regulation could still cause problems. Most provisions of the California bill addressed aspects of pension plans, such as vesting requirements, that were also regulated by H.R. 2. Federal law would preempt these provisions if California legislators passed the bill. But the California bill also called for mandatory cost-of-living adjustments for private pension plans operating in California.182 The conferees’ bill would not address this issue. So if the California bill did pass, the provision that required cost-of-living adjustments apparently would not be preempted.

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Unions in the building trades opposed the California bill, and the Segal Company had drawn attention to the legislation in March 1974 in comments submitted on behalf of the AFL-CIO Building and Construction Trades Department.183 According to Segal, the California bill proved that anything less than the “broadest possible preemption of state law” would “invite endless complication for multi-state plans.” “A federal law which preempts only particular aspects of pension and welfare plans,” Segal claimed, “will leave a two-fold effect: (1) states will seek out for legislation aspects not specifically preempted, and (2) endless litigation will emerge from disputes over whether a particular aspect has, or has not, been preempted.”184 Union and management representatives concurred with Segal’s analysis. Steelworkers actuary Murray Latimer agreed “in the str[o]ngest terms.”185 In May E. S. Willis of General Electric pronounced “[n]either of the clauses in the bills . . . satisfactory” because they were not broad enough.186 Segal’s proposal had not come up earlier in the conference, apparently because a committee of the California Senate had killed the bill in mid June.187 The legislation was revived, however, “after ‘thousands of letters’ poured in on state legislators urging its passage.”188 As the final meeting of the conference approached, representatives of building trades unions demanded that preemption be broadened to meet the threat posed by the California law. In response, staffers expanded the preemption provision so that it would override a state law that did no more than “relate to [an] employee benefit plan” covered by the federal legislation.189 Explaining the change, Mike Gordon noted that the revised language “with some exceptions, now has the effect of occupying the field completely so that no state can regulate a private pension plan in any manner whatsoever.” Gordon believed the change was “sound policy,” but “this latest expansion of pre-emption to the point of choking-off progressive state legislation will agitate [state legislatures and regulatory authorities] greatly.”190 Subsequent events suggest that unions in the building trades also wanted to guarantee that states could not regulate collectively bargained legal services plans. The conferees agreed to the change. The lengthy debate over effective dates for termination insurance had the conferees “ready to quit after meeting four hours.” Abandoning remaining issues, they disbanded and gave the bill back to the staff. The House leadership had again pushed back the debate on impeachment, so drafters were less under the gun than they had been in late July. In the first week of August, Nixon’s predicament worsened. On August 5, he released transcripts of conversations that included the “smoking gun” that established

table 8. Employee Retirement Income Security Act of 1974 Administration

Reporting/Disclosure Definition of Fiduciary

General Fiduciary Standard Self-Dealing Transactions Participation Standard Vesting: Minimum Standard

Benefits Covered Portability Funding Standard: Single-Employer Plans

Funding Standard: Multiemployer Plans Termination Insurance: Benefits Covered Maximum Insured Benefit Premium Formula: Single-Employer Plans Premium Formula: Multiemployer Plans Employer Liability

Labor: disclosure, reporting, fiduciary standards Labor and Treasury: participation, vesting, funding, self-dealing Public corporation: insurance Yes (1) Person with any authority or control over plan assets (2) Person with discretionary authority or control over plan administration (3) Person who provides investment advice for a fee Duties of loyalty and prudence General prohibition of self-dealing with exemptions for common transactions Later of 1 year of service and age 25 (1) 25% vested after 5 years of service, then 5% per year (years 6 through 10), then 10% per year (years 11 through 15); (2) 100% vested after 10 years of service; or (3) employee with 5 years of service is 50% vested when age and service equal 45, then 10% per year, but employees vest in 50% of benefits after 10 years of service regardless of age Benefits accrued before or after enactment Rollover into individual retirement account Normal cost + 40-year amortization of unfunded past-service liability incurred before effective date + 30-year amortization of unfunded past-service liability incurred after effective date Normal cost + 40-year amortization of unfunded past-service liability Benefits vested under vesting standard in plan Lesser of 100% of highest five-year average monthly salary or $750/month Head tax of $1 per participant per year Head tax of 50¢ per participant per year Single-Employer: lesser of insurance paid or 30% of employer’s net worth (continued)

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table 8 (continued)

Individual Retirement Accounts Limit on Benefits or Contributions

Multiemployer: lesser of employer’s share of insurance paid or 30% of net worth if plan terminates within 5 years of employer’s withdrawal Individual not in a plan may deduct the lesser of $1,500 or 15% of earned income Defined Benefit: lesser of $75,000 or 100% of high3-years average salary Defined Contribution: lesser of $25,000 or 25% of compensation Self-Employed: lesser of $7,500 or 15% of earned income

his involvement in the Watergate cover-up.191 At that point, House and Senate Republicans who had staunchly defended the president announced that they would vote for impeachment.192 Although Nixon declared as late as August 6 that he would not resign, his position had become untenable. After meeting with the president on August 7, House minority leader John Rhodes (R, Ariz.) called impeachment “a foregone conclusion.”193 At 9 P.M. on August 8, Nixon announced his resignation. As the president’s position weakened, the intense pressure on staffers subsided.194 Even before Nixon announced his resignation, H.R. 2’s supporters recognized that the bill was safe. On August 7, a UAW official reported, “It now seems virtually certain that a pension reform bill will soon be a reality.”195 The House conferees filed their report on August 12. Although originally scheduled for August 15, the House pushed back a vote until the following week. The impending passage of pension reform legislation initiated a new set of exigencies related to implementation. This was especially true of the insurance program. A Pension Task Force in the Department of Labor had been working for some time to establish procedures to implement the retroactive coverage in H.R. 2.196 As officials from the Labor Department met with actuaries and other private-sector consultants, unions mobilized. H.R. 2 covered terminations that occurred before enactment if the Labor Department received notice within ten days of enactment.197 On August 31, as the White House prepared for a signing ceremony on Labor Day, an “urgent” memorandum told Steelworkers officials “how some Steelworkers, whose pension plans have terminated prior to the enactment of the Retirement Income Security Act of 1974, can by proper and timely notice, be cov-

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ered by the pension guarantees of the new law.” Timely notice to the Labor Department, the memo stated, was “absolutely vital.”198 ERISA was expected to and did pass by overwhelming margins, but consideration of the conference report was not without controversy. The conferees had agreed to new statutory language that would restrict an employer’s ability to integrate its pension plan with Social Security. The provision, which did not appear in H.R. 2 or H.R. 4200, prohibited an employer from amending its plan to take account of recent increases in Social Security benefits until Congress completed a study of the practice.199 The restriction provoked “a letter-writing and lobbying blitz” from business groups. When lawmakers passed a concurrent resolution to make technical corrections to the conference report, the resolution also struck the integration freeze.200 On a lighter note, in several cases in which an interest group asked for special treatment, staffers drafted the relevant provision so that the caption had the same acronym as the group that made the request. For example, a section that protected pension plans sponsored by the International Ladies Garment Workers Union from tax disqualification if they did not meet the participation, vesting, or funding standards in the legislation was titled “Interim Law Granting Waiver of Underfunding.”201 The concurrent resolution provided an anonymous new heading for this section and a couple more like it.202 The floor debate on the conference report also reprised the clash over prepaid legal services plans. The Laborers union had demanded broad preemption language to thwart the American Bar Association’s effort to use the professional rules of conduct for lawyers to regulate collectively bargained legal-services plans. When the House took up the conference report on August 20, John Dent created legislative history to establish the intent of Congress on this issue. Dent highlighted “what is to many the crowning achievement of this legislation, the reservation to Federal authority [of] the sole power to regulate the field of employee benefit plans.” “[W]ith the narrow exceptions specifically enumerated,” he explained, the preemption provision applied “in its broadest sense to foreclose any non-Federal regulation of employee benefit plans.” Dent made it clear that federal preemption applied to state regulation of collectively bargained legal-services plans. “[T]he provisions of section 514 would reach any rule, regulation, practice or decision of any State, subdivision thereof or any agency or instrumentality thereof—including any professional society or association operating under code of law—which would affect any employee benefit plan” covered by the bill.203 Dent’s expansive language led officials at the American Bar Association

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to worry that courts would interpret the preemption provision as not only forbidding states from using professional rules of conduct to regulate collectively bargained legal services plans but also preventing disciplinary authorities from applying rules of conduct to attorneys who provided services through such a plan.204 A Senate colloquy was arranged to clarify the matter, but the senators misspoke.205 When the Senate took up the conference report on August 22, Robert Taft Jr. asked Javits, “[D]oes this section 514 . . . seek to preempt State bar associations from adopting ethical rules or guidelines generally and/or from disciplining its [sic] members? Some question arises in regard to that because of the remarks made indicating that the preemption doctrine extended to rules of professional organizations.” Javits replied that it did not: “Since the plans subject to Federal supervision would include plans providing prepaid legal services, it is intended that State regulation—but not bar association ethical rules, guidelines or disciplinary actions—in regard to such plans be preempted.”206 Williams confirmed Javits’s explanation.207 Among those seated in the Senate gallery were a representative of the American Bar Association and a representative of the Laborers union. Both recognized immediately that the exchange suggested that H.R. 2 did not preempt professional rules of conduct even if the rules were being used to regulate legal services plans and not just attorneys. The Laborers union official immediately complained to Javits and Williams, and a Senate staffer prepared corrective language. When the Congressional Record appeared, there were two new sentences in the colloquoy. In the Record, Javits followed the statement quoted above with: “But the State, directly or indirectly through the bar, is preempted from regulating the form and content of a legal service plan, for example, open versus closed panels, in the guise of disciplinary or ethical rules or proceedings.”208 To Williams’s remarks, the Record added: “This is an area that will not give to bar associations the authority to undo what we, in Congress, have permitted to be done, that is, giving employers and unions the freedom to develop and operate legal service plans of their choice.”209 The ABA official protested the changes several days later but to no avail.210 But the flaps over integration and preemption were only minor disturbances. Enactment of the pension reform law was a “foregone conclusion.”211 On August 20, the House passed the conference report 407–2. Two days later, the Senate endorsed the measure without a dissenting vote, 85–0. In the wake of events that many regarded as a constitutional crisis, the bill seemed to have great significance. Nixon’s successor, Gerald Ford, wanted to sign the measure quickly, but he deferred to Javits’s “adamant” request for

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a Labor Day signing ceremony.212 On September 2, 1974, legislators and committee staff, officials from the executive branch, and representatives of labor and management gathered at the White House. The “massive bill,” Ford said, affirmed the vitality of the nation’s political institutions. The pension reform law was “a good reflection on the relationship between the executive branch on the one hand and the legislative branch on the other.” “[T]he long labors of many, many people,” he continued, “. . . . have produced the kind of result that is good for America and, primarily, for those who will be the ultimate beneficiaries of the legislation.” 213 The Employee Retirement Income Security Act of 1974 was law.

Epilogue

As I have emphasized at many points in the book, ERISA introduced a new conceptual frame of reference for federal pension policy. Before the mid 1960s, lawmakers generally thought of pension plans as tools for managing employees. This view entailed a permissive approach to private-sector practices. In particular, the federal government left it to the parties to the employment contract—employers, employees, and unions—to establish the terms of the pension promise. In contrast, ERISA reflects a worker-security conception of private pension plans. According to this view, pension plans are tax-subsidized vehicles for providing retirement income to workers. The reformers who championed the worker-security theory claimed the federal government should take a more assertive role in the private pension system. Most importantly, they argued that pension promises had to be secure. In passing ERISA, Congress established a comprehensive regulatory framework to promote this goal. Since 1974, federal policy has evolved along lines broadly delineated by the worker-security theory. One strain of development involves ERISA’s protective policies. ERISA aims to make pension expectations secure. Congress has acted several times to refine or extend the measures that implement this protective goal. Another line of development involves tax policy. Here action has been anything but consistent. Congress has seesawed between measures that expand and contract access to tax-free retirement saving. The only consistent pattern is that the tax laws get more complicated. The most important development since ERISA, however, has been a profound shift in the composition of the private pension system. In 1974, defined-benefit plans dominated the private pension system. In the last two decades, defined-contribution plans and, in particular, 401(k) plans have surpassed defined-benefit plans to become the primary retirement savings ve271

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hicle for private-sector workers. This shift raises important policy issues and may be changing the function of the private pension system. Although ERISA was known as the “pension reform law,” it has also had a major effect on medical provision in the United States. ERISA fundamentally altered regulatory jurisdictions in health care at a time when the industry was entering a period of transition. While the preemption language in ERISA greatly narrowed state authority, federal courts have interpreted ERISA to provide few federal protections to health plan participants. The result was a “regulatory vacuum” as the health-care industry began the shift to managed care. The splintering of regulatory oversight and a political backlash against managed-care organizations have created a patchy, disjointed regulatory regime. Whether and how long this state of affairs persists depend to a great extent on how federal courts interpret ERISA’s preemption provision. The political history of ERISA suggests that, without the threat of conflicting state laws, employers and unions that sponsor multistate health plans will oppose initiatives to create federal minimum standards for health plans or expand the liability of such plans.

the evolution of protective policies The legislators who drafted ERISA expected Congress to revisit the statute soon after enactment.1 Because ERISA was a big step in a new direction, lawmakers tried not to take a bigger step than was needed. On a variety of regulatory issues, Congress chose less stringent measures than it might have because legislators believed a less stringent rule might suffice or because legislators worried that stricter regulation would overburden plan sponsors. Over the last three decades, Congress has amended ERISA on a number of occasions to refine or extend the provisions that implement ERISA’s protective goals. These revisions force lawmakers to address the same tradeoff ERISA’s drafters confronted. Protective measures increase costs, which may lead employers to shut down a plan or reduce benefits. At the same time, federal policy is committed to the view that pension plans should not make promises they cannot keep. The economic downturn that began in 2000 has made this tradeoff particularly compelling. ERISA’s minimum vesting and funding standards and the termination insurance program are the principal reforms that implement the statute’s protective goals. Congress has revised the vesting and participation standards several times. Today, employees must participate earlier in their retirement plan and vest more quickly.2 Indeed, former Javits staffer Frank

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Cummings, now a leading ERISA attorney, suggests that Congress may have “over-solved” the problem of forfeiture risk.3 His observation highlights a tension between ERISA’s goals of promoting equity—that is, ensuring that workers get something from their plan—and promoting retirement security. As a result of successive liberalizations of ERISA’s vesting rules, employees often vest in benefits that are small in value. When employees in this situation change jobs, they usually receive a lump-sum distribution of their benefits. Although an employee must pay income and excise taxes if she does not roll the distribution into an individual retirement account or a new retirement plan, part or all of most small distributions gets spent on current consumption.4 When this occurs, the tax subsidy for retirement saving is not promoting retirement security. (Mea culpa: a small lump-sum distribution helped finance the archival research for this book.) The other major development in ERISA’s vesting rules involves spousal rights to pension benefits. ERISA required defined-benefit plans and some defined-contribution plans to allow employees to receive benefits in the form of a joint and survivor annuity, which makes payments over the life of the employee and his or her spouse. Otherwise, the statute was silent about spousal rights to pension benefits.5 The treatment of pension rights in divorce proceedings quickly emerged as a subject of litigation.6 Although ERISA includes a broad preemption provision and language that specifically prohibits employees from transferring their pension rights to another person, federal judges were loath to overrule orders in which a state court gave pension rights to an ex-wife.7 In the absence of federal preemption, pension plans were forced to comply with domestic relations orders drafted by attorneys and judges who had little understanding of pension plans. The result was an administrative nightmare for plan officials and the makings of a legislative logroll. Employers and unions that sponsored pension plans wanted uniform procedures for handling spousal rights in a divorce.8 Advocates for women wanted additional statutory protections for spouses. For example, they objected to the fact that ERISA gave the employee (usually a husband) rather than the nonemployee spouse (usually a wife) the right to choose whether to receive a joint and survivor annuity.9 The Retirement Equity Act of 1984 gave something to both groups. Plan sponsors got uniform rules for domestic relations orders. For women’s advocates, the act liberalized vesting and participation rules, required plans to offer preretirement survivor annuities, and gave nonemployee spouses the right to waive a survivor annuity.10 The rule granting waiver rights to the nonemployee spouse has in fact produced an appreciable increase in the

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number of retirees opting for a joint and survivor annuity. The result is more protection for nonemployee survivors—generally widows.11 Termination insurance was the most far-reaching and controversial reform in ERISA. Not surprisingly, it has required the most fine-tuning. ERISA left a big part of the job—insurance coverage for multiemployer plans—undone. Multiemployer plans began paying premiums in 1974, but coverage was not to take effect until January 1, 1978. Lawmakers postponed the effective date for coverage several times, but flaws in the employer liability provision eventually forced them to act. If a multiemployer plan terminated and defaulted, ERISA made an employer in the plan liable up to 30 percent of net worth for its share of payouts by the insurance program. Firms that withdrew from a plan also were liable, but their liability declined as time passed. After five years, they were not liable at all.12 This rule gave firms an incentive to withdraw quickly and leave the remaining employers with the burden of funding unfunded liabilities. Concern with this problem led Congress to pass the Multiemployer Pension Plan Amendments Act of 1980, which substantially revamped the insurance program for multiemployer plans.13 The insurance program for single-employer plans also had its share of problems. The premium—one dollar per participant per year—turned out to be wildly optimistic, and ERISA did not do nearly enough to guard against moral hazard. But ERISA also created a framework for redressing these weaknesses. Like the Social Security trust fund, the trust fund that finances the single-employer insurance program provides a quantitative indicator of the program’s performance.14 Weaknesses in the insurance program or in ERISA’s funding rules produce a deficit in the trust fund. When the deficit ballooned in the 1980s and early 1990s, Congress shored up the insurance program. Among other reforms, lawmakers revised the premium formula, limited the ability of employers to terminate a plan, increased employer liability for insurance payouts, and stiffened ERISA’s funding standards.15 These measures put the program on a much sounder footing. The strong economy of the 1990s even allowed the single-employer trust to show a surplus.16 The economic slump that began in 2000, however, has forcefully revealed the insurance program’s exposure to systematic risk.17 Ideally, the individual risks in an insurance pool should be independent: events that cause a loss for one insured should not increase the likelihood that other insureds will suffer a loss. Termination insurance deviates from this ideal because broad economic conditions have similar effects on many pension plans.18 Recessions increase the likelihood of termination for many plans. Falling stock

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prices reduce funding levels across the board, while declining interest rates boost liabilities across the board. The downturn that began in 2000 combined all three, with the result that the insurance program for singleemployer plans had its largest loss ever in 2002. Underfunding also reached a new high.19 But measures to bolster the insurance program, such as stiffer funding standards or higher premiums, would create new costs for employers when they can least afford to pay. The steady decline of definedbenefit plans, which is discussed more fully below, makes the dilemma particularly compelling.20

evolution of tax policy for retirement saving In contrast to the relatively consistent development of ERISA’s protective policies, tax policy has oscillated between measures that broaden and narrow access to tax-free retirement saving. In part this pattern reflects swings in fiscal policy and electoral politics, but it also owes something to the way lawmakers think about retirement saving. ERISA enshrined the view that retirement plans receive a “subsidy” to promote old-age security. The tax rules for retirement plans, however, are poorly suited to this task. As a result, there is always a big gap between theory (what a “subsidy” for old-age security should do) and reality (what retirement plans actually do). Because this gap is ever-present, whenever political or fiscal conditions change advocates can plausibly claim that Congress should change the tax laws to make retirement plans do a better job. And since retirement plans are viewed as recipients of public funds, Congress is licensed and even obliged to act. This way of thinking has justified incessant tinkering, which has made “a complicated mess” of the tax rules for retirement saving.21 As many scholars have observed, giving special tax treatment to occupational pension plans is a clumsy way to promote old-age security.22 To accomplish the objective, a large majority of workers would need to participate in a pension plan. Yet firms vary widely in their inclination to provide retirement income to their employees. Some businesses have compelling reasons to pay pensions, but the practice does not make sense for many— probably most—firms.23 Since many firms have no business reason to operate a retirement plan, Congress must furnish a nonbusiness reason—a subsidy for deferred compensation. Yet the income tax is a poor instrument for providing the subsidy. Low-income employees, who most need help saving for retirement, are less inclined to take advantage of the subsidy because they need their earnings for current consumption. At the same time, the

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progressive rates under the federal income tax channel the biggest percapita savings to high earners, who least need help saving for retirement.24 History explains the origins of this inept “subsidy.” As chapter 1 recounts, Congress did not create special rules for pension plans with the aim of subsidizing old-age security. The special treatment of pension plans responds to an awkward problem in tax administration. Like some other collective enterprises, defined-benefit pension plans do not mesh with the concepts and logic of an income tax. An income tax operates by allocating flows of wealth to individual taxpayers. For example, when a firm pays wages, wealth flows out and the firm generally receives a deduction. When an employee receives wages, wealth flows in and the employee has taxable income. In a traditional defined-benefit pension plan, it is all but impossible to accurately allocate flows of wealth to individual employees before they actually receive pension payments. And because employees pay tax at different rates, there is no neutral tax rate to apply to the plan. For this reason, an income tax with more than one tax rate will either overtax or undertax traditional defined-benefit plans. In the 1920s this clash between tax logic and pension logic became apparent, so Congress adopted special rules to avoid taxing pensions more heavily than wages or salary. Necessarily, the decision not to overtax pensions had the collateral effect of taxing pensions less heavily than wages and salaries. As became clear in the late 1930s, the disparity in treatment gave employers and highly compensated employees an incentive to create pension plans solely to shelter income from taxation. Treasury officials proposed the subsidy theory of retirement plans in the early 1940s to counter tax avoidance. The undertaxation of pension plans, Treasury claimed, reflected an intentional choice by Congress to channel public funds through private-sector employers. Under this interpretation, the revenues lost as a result of the tax treatment of retirement plans were public funds. Treasury had a duty to see that the “subsidy” served its purpose. To this end, the agency proposed strict regulations to force pension plans to provide benefits to a broad range of employees, not just the highly paid. It quickly emerged, however, that the subsidy theory was open to an alternative interpretation with very different policy implications. The tax treatment of pension plans created a significant disparity in the tax laws. Employees of a firm with a pension plan, including corporate executives, could save tax-free for retirement, while self-employed people and workers whose firm did not sponsor a plan could not. High tax rates after World War II gave representatives of small business and professionals a big incentive to contest this disparity. The subsidy theory provided an opening. The the-

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ory attributed a “global” purpose—promoting old-age security—to the tax treatment of retirement plans. The breadth of this goal made it difficult to justify the treatment the tax laws gave to self-employed people and uncovered employees. If Congress subsidized old-age security for corporate executives, as Treasury claimed, then equity dictated that self-employed people should receive comparable treatment. These rival interpretations of the subsidy theory create a predicament that roils tax policy-making for retirement plans to this day. Advocates of Treasury’s narrower interpretation of the subsidy theory argue for tighter regulations that will give favorable treatment only to plans that channel a significant amount of the tax savings to low earners.25 Proponents of the expansionist interpretation respond, correctly, that tighter regulations will harm some low earners because some employers will abandon their plans.26 To which proponents of the narrow interpretation reply that the plans that will terminate are not performing their subsidy function well enough to merit favorable tax treatment.27 The expansionists’ rejoinder is that if Congress has seen fit to subsidize old-age security for some, including highly compensated executives of large corporations, it ought to make similar treatment available to all who depend on earned income for support.28 Over the last three decades, the upper hand in this debate has shifted with the fiscal and political winds. As conditions change, the drift of tax policy changes as well. Indeed, the subsidy theory seems designed to produce frequent shifts in policy. Because the tax rules for retirement plans are poorly suited to subsidizing old-age security, the private pension system is always doing things the subsidy should not do (i.e., providing relatively large tax savings to highly compensated employees) and failing to do many things the subsidy should do (i.e., providing coverage to low earners). The disparity between what the “subsidy” should do and what the tax code can do means that there always will be many features of the tax treatment of retirement saving that need fixing. And since the subsidy theory views retirement plans as beneficiaries of congressional largesse, Congress can tinker as it pleases. In this way, the theory that there is a subsidy for retirement plans has justified incessant legislative activity, which has made the tax laws too complicated for even experts to understand.29

evolution of the private pension system By far the most important development in pension policy since ERISA has been a sweeping change in the composition of the private pension system.

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When Congress passed ERISA, defined-benefit plans dominated the private pension system. As late as 1979, more than 80 percent of individuals who participated in a private retirement plan were in a defined-benefit plan. In the same year, private trusteed defined-benefit plans held assets valued at roughly two and one-half times the value of assets held by private trusteed defined-contribution plans.30 Less than two decades later, the make-up of the private pension system was greatly changed. By the mid 1990s more private-sector workers looked to a defined-contribution plan as their primary retirement savings arrangement, and contributions to definedcontribution plans far outstripped contributions to defined-benefit plans. In 1997 financial reserves held by private trusteed defined-contribution plans surpassed reserves held by private trusteed defined-benefit plans.31 Scholars and pension experts have highlighted a number of causes for this trend.32 In part, the shift toward defined-contribution plans is the result of changes in federal law. ERISA created new regulatory standards for defined-benefit and defined-contribution plans, but the funding rules and insurance program affect only defined-benefit plans.33 Later revisions of ERISA’s protective policies—for example, the increase in insurance premiums and the toughening of funding standards—further increased the cost difference between defined-benefit and defined-contribution plans.34 Similarly, as the rules retirement plans must meet to qualify for favorable tax treatment became more complex, employers had to spend more money on high-priced legal, actuarial, and accounting services. Moreover, legislation passed in the 1980s cut back on the tax savings that highly compensated employees in small firms could obtain through a defined-benefit plan. These regulatory and tax changes produced a sharp decline in defined-benefit plans sponsored by small employers.35 Significantly, ERISA also greatly reduced the stake corporate executives have in their firm’s defined-benefit plan. Before ERISA, there was no fixed limit on the benefit a qualified pension plan could pay. Firms could not deduct the cost of a pension that was unreasonably large, and plans could not discriminate in favor of the highly paid. But a plan could provide an executive with a very large pension as long as lower-paid employees received benefits that were proportional to their earnings. Also, defined-benefit plans commonly based benefits on average salary over an employee’s final years of employment. This formula was very advantageous for executives because they generally have steep compensation increases late in their careers. ERISA capped the pension a qualified plan could pay with the result that many corporate executives now receive the lion’s share of their deferred compensation from plans that cover only highly compensated employees.

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The decline of qualified defined-benefit plans likely owes something to the fact that the corporate officers who select compensation programs do not stand to gain much from such a plan. Developments in the labor market have reinforced the effects of the federal law. As I noted in chapter 1, patterns of work organization give some firms compelling business reasons to create a pension plan. For this reason, defined-benefit plans are not distributed evenly across the labor market. Unionized workers are more likely to be covered by a defined-benefit plan than are nonunion workers. Manufacturing employees are more likely to have a defined-benefit plan than are employees in the retail and service industries. And large employers are more likely than small employers to sponsor a defined-benefit plan. In the three decades since Congress passed ERISA, private-sector union membership has stagnated, the number of workers in manufacturing has declined, and large firms have come to employ a smaller share of the employees who are covered by a retirement plan.36 Where job growth has occurred, firms and workers do not expect or desire the pattern of employment—long tenure in a single firm—that traditional defined-benefit plans reward.37 Finally, the trend toward defined-contribution plans owes much to the availability of a new savings arrangement—the 401(k) plan—that did not exist when Congress passed ERISA. Retirement plans are tools for avoiding taxes, and 401(k) plans are effective vehicles for targeting tax savings to the most desirous employees.38 To take one example, a 401(k) plan allows individual employees to reduce their current wages or salary and make voluntary contributions to a retirement plan on a pretax basis. Although there are limits, this feature of a 401(k) plan allows a firm to provide a tax-free savings vehicle to employees while also accommodating variation in employees’ preferences for saving. Employees who choose not or cannot afford to contribute need not participate. In contrast, defined-benefit plans and traditional defined-contribution plans cannot vary pretax contributions and benefits to fit the savings preferences of individual employees. This and other features have made 401(k) plans the savings arrangement of choice for the last two decades. They account for the bulk of the growth of definedcontribution plans in this period.39 The growth of 401(k) plans raises important issues in regulatory and retirement policy. The drafters of ERISA devoted most their attention to defined-benefit plans. When defined-contribution plans came up, it was usually because a proposal to regulate defined-benefit plans—for example, limits on investments in employer securities—threatened to disrupt practices in defined-contribution plans. Also, when Congress passed ERISA, defined-

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contribution plans generally played a different role than they do today. In 1974, a defined-contribution plan was usually a supplement to a definedbenefit plan. Today, more and more employees rely on a definedcontribution plan as their primary source of retirement income. Increasing reliance on 401(k) plans is a matter for concern because, in contrast to defined-benefit plans, 401(k) plans and other definedcontribution plans expose employees to investment risk. An employee’s retirement benefit under a 401(k) plan depends on the performance of the investments in his or her account. In most 401(k) plans, employees manage the assets in their account. Many studies suggest that most employees do not invest in a manner that is likely to maximize their investment return. To take the most obvious example, recent events at Enron illustrate that many employees invest a substantial portion of their retirement savings in employer securities, when virtually all analysts agree this is a bad idea.40 In addition, 401(k) plans expose employees to longevity risk. Traditionally, defined-benefit plans have required employees to receive their benefits in the form of an annuity. Most 401(k) plans do not allow employees to receive an annuity, while few if any 401(k) plans require employees to receive their benefits as an annuity.41 This means that an increasing number of retirees will face the complex task of managing their retirement savings so as not to outlive those savings. Finally, the growth of 401(k) plans and other savings vehicles with individual accounts makes it worth asking to what extent the tax subsidy for retirement savings truly subsidizes retirement saving. In a traditional defined-benefit plan, employees have little control over contributions or distributions. Money goes into a plan based on a formula that applies to employees as a group, and benefits take the form of an annuity. In contrast, 401(k) plans and individual retirement accounts give employees control over what goes into their account and when and how funds come out. As defined-contribution arrangements become more flexible, they look less like vehicles for retirement saving and more like vehicles for tax-free accumulation of funds that may be used for preretirement consumption or passed to heirs at death. And because retirement savings arrangements receive protection under federal bankruptcy law and state exempt-property statutes, these funds enjoy substantial protection from claims of third-party creditors.42 In this way, the shift toward defined-contribution plans appears to be moving the private pension system away from its role as a provider of retirement income and toward a role as a shelter for wealth that may be used for a variety of purposes but that is free from the claims of the tax collector and creditors.

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erisa and the evolution of health provision In the political history of pension reform, there was little discussion of employer-sponsored health plans. ERISA imposed “virtually no substantive regulation other than the reporting and disclosure and fiduciary duty rules” on welfare plans.43 Nonetheless, ERISA has powerfully influenced the evolution of health provision in the United States. Together, ERISA’s limited regulation of welfare plans and its sweeping preemption provision produced a healthcare system in which there are different rules for plans sponsored by public- and private-sector employers and different rules for privatesector plans depending on whether a plan purchases insurance or selfinsures. On top of this, the Supreme Court’s narrow interpretation of the remedies available under ERISA has left plan participants with few federal claims to replace the state-law claims ERISA preempts. Finally, the preemption provision has hampered healthcare reforms attempted by the states. The preemption provision also may cast light on the failure of and prospects for national health insurance in the United States. ERISA created a state of affairs that Daniel Fox and Daniel Schaffer call “semi-preemption.”44 The preemption language in § 514 includes three key clauses. The first broadly preempts state law, the second (the so-called “savings clause”) creates an exception to preemption for state laws that regulate insurance, banking, and securities, and the third (the “deemer clause”) creates an exception to the exception that prevents a state from applying insurance, banking, or securities laws directly to an employee-benefit plan.45 Because a state can regulate the policies insurance companies sell, it can indirectly regulate welfare-benefit plans that purchase an insurance policy. The deemer clause prevents a state from applying insurance laws directly to an employee-benefit plan, however, so plans that do not purchase insurance avoid state regulation. As chapters 7 and 8 show, key legislators and their staff aides as well as union and insurance industry lobbyists were aware that the deemer clause would have this effect. Although the practice of self-insuring welfare plans was becoming more prevalent when Congress passed ERISA, it was generally limited to large plans. Firms and unions initially self-insured to escape premium taxes. These taxes continued to increase after 1974. Moreover, state legislatures have passed an increasing number of laws that require group health insurance policies to include specific procedures or provide coverage for particular conditions or individuals.46 As tax and regulatory burdens on insured plans have grown, the trend toward self-insurance has accelerated. Recently, even relatively small firms have begun to self-insure. Self-insurance could

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be risky for small businesses because a few large claims could ruin a firm. The availability of “stop-loss” coverage greatly diminishes this threat. Under a stop-loss arrangement, a firm retains liability for benefits promised by its health plan (rather than buying a policy that insures the plan’s liability to employees), then purchases insurance that reimburses the firm’s liability (in excess of a moderate deductible) to pay benefits under the plan. The firm is “self-insured” as a legal matter (and thus exempt from state regulation) but bears little risk.47 By the end of the 1980s, self-insured plans were “the leading underwriters of group coverage in the United States . . . .”48 The expansion of selfinsurance has had several important consequences. Most obviously, it has allowed many plans to operate in an environment that is virtually regulation-free. Moreover, as more health plans have self-insured, the share of a state’s population that is affected by state regulation of insurance companies declines.49 But the effect of self-insurance reaches beyond plans and participants in plans that self-insure. Since state insurance laws do not reach self-insured plans, political pressure for legislation to mandate the content or practices of health plans has shifted to Congress.50 Beginning with continuation coverage requirements included in the Consolidated Omnibus Budget Reconciliation Act of 1985, Congress has passed a series of initiatives that mandate particular practices or coverage. ERISA’s second major effect on health policy arises from the relationship between the preemption provision and § 502, which creates remedies for plan participants (among others). The preemption provision is, as the conferees on H.R. 2 intended it to be, very broad. The Supreme Court initially gave it a very broad interpretation. At the same time, the Court interpreted the remedial provision narrowly. As a result, ERISA often preempted legal claims based on state law but gave no replacement remedy. “In such cases,” write Langbein and Wolk, “a participant or beneficiary who is wronged by a plan fiduciary, plan employee, service provider to a plan, or the employer or its agents is left with no cause of action.”51 Jacob Javits’s often-cited remark that federal courts should develop “a body of Federal substantive law . . . to deal with issues involving rights and obligations under private welfare and pension plans” suggests his concern about the consequences of the conferees’ expansion of preemption.52 The evolution of health provision appears to have produced just the sort of situation that worried him. When Congress passed ERISA, health plans generally operated on a traditional fee-for-service or indemnity-insurance model.53 The patient would visit a provider who would make a diagnostic decision and deliver the appropriate care. The patient or provider would then submit a claim to the in-

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surer. The insurer would decide whether the claim was covered by the plan and then reimburse or not reimburse accordingly. In the traditional indemnity model, it was relatively easy to distinguish diagnostic decisions from payment decisions. Diagnostic decisions occurred before a provider delivered services. Payment decisions occurred after a patient received treatment. Also, when Congress passed ERISA, insurers and employers generally deferred to the judgment of healthcare providers. As Rosenbaum and her colleagues observe, “Traditionally insurers considered care and services medically necessary whenever treating physicians said they were necessary.”54 Likewise, employers that sponsored health plans “acted primarily as passive purchasers of health insurance.”55 Steep inflation of healthcare costs in the 1980s led insurers and employers to adopt a more aggressive stance. In particular, they abandoned the traditional indemnity model in favor of arrangements that consciously managed provider and patient incentives and decisions.56 One new practice was utilization review.57 Utilization review differs from the traditional indemnity model in ways that muddy the distinction between diagnostic and payment decisions. In contrast to the retrospective review of provider decisions under the traditional indemnity model, under a utilization-review arrangement coverage decisions usually occur before services are provided. In addition, oversight of provider decisions under a utilization-review arrangement is much more probing than under the traditional indemnity model. For both of these reasons, payment decisions under utilization review often look like diagnostic decisions.58 And because adverse decisions under utilization review often occur before treatment and may result in a patient not receiving care, disputes about coverage take on a much more threatening cast.59 ERISA played an important role in the development of utilization review and other managed-care arrangements because the preemption and remedial provisions shielded utilization reviewers from liability for mistakes. The administration of benefit claims is a core function of an employeebenefit plan, so courts understandably interpreted ERISA to preempt state law remedies against utilization reviewers. Often the only meaningful remedy available to a plan participant was to sue for medical benefits due under the plan. Yet as many observers have noted, this limited remedy left health plans with little or no incentive (besides reputation) to approve benefit claims. The worst that could happen if a plan denied a claim was that the participant would bring a lawsuit and force the plan to pay the claim (and, perhaps, attorneys’ fees).60 Moreover, in a number of highly publicized cases involving allegations that a mistake by a utilization reviewer or other plan

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official resulted in a death, courts held that the plaintiff had no remedy at all.61 Horror stories like these triggered a political backlash against managed care that led to state and federal legislative initiatives. Reform proposals generally involve one or both of two basic strategies: creating procedures that allow plan participants to appeal to a neutral decision-maker and holding managed-care providers liable for errors that harm a participant. More than forty states have created external review procedures, and in 2002 the Supreme Court held that an Illinois law creating such a procedure for HMOs was saved from preemption under ERISA’s exception for state laws that regulate insurance.62 But states still may not require a self-insured plan to adopt an external review procedure. A considerably smaller number of states have passed statutes that impose liability on managed-care providers, but state common law also may create liability.63 In Pegram v. Herdrich, decided in 2000, the Supreme Court suggested that ERISA does not preempt a state law claim against a utilization reviewer who makes a decision involving diagnosis or treatment.64 Several courts have taken this cue and allowed plaintiffs to pursue state law malpractice claims against a utilization reviewer.65 At the federal level, managed-care legislation moved onto the agenda soon after the demise of the Clinton healthcare plan in 1994. Although patients’ rights bills had a high priority in three successive Congresses and although legislation cleared the House in 1998 and the House and Senate in 2000 and 2001, at this time Congress seems unlikely to make major changes to the legal regime for private health plans.66 To this point, the pattern of mobilization on federal health initiatives has mirrored the pattern on pension reform before 1973. Advocates for participants are on one side, employers and unions that sponsor health plans are on the other.67 As chapter 6 explains, state legislatures helped break the impasse on pension reform. When it appeared to employers and labor unions that their benefit plans would have to comply with conflicting state mandates, they abandoned their opposition to a federal pension reform law. ERISA’s preemption provision has prevented state legislatures from triggering a similar dynamic in the sphere of health policy. The potential for states to pass conflicting regulations for ERISA-covered health plans depends on the scope of the first clause in the preemption provision. That clause—§ 514(a)—overrides state laws that “relate to” an ERISA-covered plan. If a state law “relates to” an employee health plan, the plan may avoid complying with the law by self-insuring.68 That is, even if the insurance savings clause saves a state law from preemption, the deemer

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clause bars the law from applying directly to a self-insured plan. As long as the Supreme Court interprets section 514(a) broadly (so that states have little room to regulate self-insured health plans), and absent a broader collapse of the system of employer-financed health plans, the stalemate on patient’s rights legislation and national health insurance seems likely to continue. The Court’s recent decisions give the states more room to maneuver. Its future decisions will tell us just how much.

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Notes

The following archival sources are cited in abbreviated form throughout the notes: AFL-CIO Legislation Department Records of the American Federation of Labor–Congress of Industrial Organizations, RG21: Legislation Department, Records, 1906–1978, The George Meany Memorial Archives, Silver Spring, Md. Albert Collection Carl Albert Collection, Carl Albert Congressional Research and Studies Center, University of Oklahoma, Norman, Ok. Brennan Papers

Budget Records

Burns Files

General Records of the Department of Labor, National Archives, Record Group 174, Records of Secretary of Labor Peter J. Brennan, 1973–75 Records of the Office of Management and Budget, National Archives, Record Group 51, Records of the Bureau of the Budget, Series 61.1a, Director’s Office Office Files of Arthur Burns, White House Central Files, Nixon Presidential Papers, National Archives 287

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Notes

Commerce Records

Daniels Collection

Dubinsky Collection

Erlenborn Collection

Files of the Joint Committee on Internal Revenue Taxation

Files of the Secretary of the Treasury, 1933–1956

Ford Presidential Papers

Gaither Files

Records of the U.S. Department of Commerce, Department of Commerce, Records Management, 1401 Constitution Avenue N.W., Washington D.C. Wilbur Daniels Papers, International Ladies Garment Workers Union Records, #5780, Kheel Center for Labor-Management Documentation and Archives, Martin P. Catherwood Library, Cornell University, Ithaca, N.Y. David Dubinsky, President’s Records, International Ladies Garment Workers Union Records, #5780, Kheel Center for LaborManagement Documentation and Archives, Martin P. Catherwood Library, Cornell University, Ithaca, N.Y. Congressman John N. Erlenborn Collection, Benedictine Library, Benedictine University, Lisle, Ill. Records of the Joint Committees of Congress, National Archives, Record Group 218, Joint Committee on Internal Revenue Taxation General Records of the Department of the Treasury, National Archives, Record Group 56, Central Files of the Office of the Secretary of the Treasury, 1933–1956 Presidential Papers of Gerald R. Ford, Gerald R. Ford Library, Ann Arbor, Mich. Office Files of James Gaither, Lyndon Baines Johnson Library, Austin, Tex.

Notes Goldberg Papers

Gordon Papers Greenough Office Files

Heller Papers Hodgson Papers

Javits Collection

Johnson Presidential Papers

Kennedy Presidential Papers

Labor Department Advisory Council Collection

Latimer Papers

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General Records of the Department of Labor, National Archives, Record Group 174, Records of Secretary of Labor Arthur J. Goldberg, 1961–1962 Papers of Kermit Gordon, John F. Kennedy Library, Boston, Mass. Office Files of William Greenough, Insurance and Annuity Series, TIAA-CREF Historical Archives, New York, N.Y. Papers of Walter W. Heller, John F. Kennedy Library, Boston, Mass. General Records of the Department of Labor, National Archives, Record Group 174, Records of Secretary of Labor James D. Hodgson, 1970–73 Senator Jacob K. Javits Collection, Special Collections Department, Frank Melville, Jr. Memorial Library, Stony Brook University, Stony Brook, N.Y. (All materials cited are from series 4, subseries 3 of the collection.) Presidential Papers of Lyndon B. Johnson, Lyndon Baines Johnson Library, Austin, Tex. Presidential Papers of John F. Kennedy, John F. Kennedy Library, Boston, Mass. General Records of the Department of Labor, National Archives, Record Group 174, Advisory Council on Employee Welfare and Pension Benefit Plans, Agendas and Minutes, 1962–1979 Murray Webb Latimer Papers, George Washington University,

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Notes Melvin Gelman Library, Special Collections Department, Washington, D.C.

Long Papers

Russell Billiu Long Papers, Mss. 3700, Louisiana and Lower Mississippi Valley Collections, LSU Libraries, Baton Rouge, La.

Mansfield Papers

The Mike Mansfield Papers, Maureen and Mike Mansfield Library, The University of Montana, Missoula, Mont.

McPherson Files

Office Files of Harry McPherson, Lyndon Baines Johnson Library, Austin, Tex.

Nixon Presidential Papers

Nixon Presidential Materials, National Archives

OMB Records

Records of the Office of Management and Budget, National Archives, Record Group 51

OTP Files

Records of the Department of the Treasury, National Archives, Record Group 56, Office of Tax Policy, Subject Files, 1936–1972

Reuther Collection

United Auto Workers President’s Office: Walter Reuther Collection, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich.

Scott Papers

Hugh Scott Papers (#10200), in the Albert and Shirley Small Special Collections Library, University of Virginia Library, Charlottesville, Vir.

Senate Finance Committee Records

Records of the U.S. Senate, National Archives, Record Group 46, Records of the Senate Committee on Finance

Notes Shultz Papers

Silberman Files

Simon Papers

Studebaker Collection Studebaker-Packard Litigation Papers

Stulberg Collection

Surrey Papers

UAW Local 5 Collection

UAW Research Department Collection

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General Records of the Department of Labor, National Archives, Record Group 174, Records of Secretary of Labor George Shultz, 1969–1970 General Records of the Department of Labor, National Archives, Record Group 174, Records of Under Secretary Laurence H. Silberman, 1970–1972 William E. Simon Papers 1972–1977, Special Collections, Skillman Library, Lafayette College, Easton, Penn. Collection of the Studebaker National Museum, South Bend, Ind. Studebaker-Packard Litigation Papers, Collection of the Studebaker National Museum, South Bend, Ind. Louis Stulberg, President’s Records, International Ladies Garment Workers Union Records, #5780, Kheel Center for LaborManagement Documentation and Archives, Martin P. Catherwood Library, Cornell University, Ithaca, N.Y. Papers of Stanley Surrey, Harvard Law School Library, Cambridge, Mass. UAW Local 5 Collection, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich. United Auto Workers Research Department Collection, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich.

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Notes

UAW Research Department— Unprocessed

UAW Social Security Department—Unprocessed

Ullman Papers

USWA Legislative Department

Williams Papers

Wirtz Papers

Woodcock Collection

Young Collection

United Auto Workers Research Department Collection, Accession 646, June 3, 1974, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich. UAW Social Security Department Collection, Unprocessed Materials, accession date March 23, 1978, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich. Albert C. Ullman Papers, Collection 40, Special Collections and University Archives, University of Oregon Libraries, Eugene, Ore. United Steelworkers of America, Legislative Department, Historical Collections and Labor Archives, Pattee Library, Pennsylvania State University, State College, Penn. Papers of Harrison Williams, Special Collections and Archives, Rutgers University Libraries, New Brunswick, N.J. General Records of the Department of Labor, National Archives, Record Group 174, Records of Secretary of Labor W. Willard Wirtz, 1962–1969 United Auto Workers President’s Office: Leonard Woodcock Collection, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich. Howard Young Collection, Archives of Labor and Urban Affairs, Wayne State University, Detroit, Mich.

Notes to Pages 1–4

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introduction 1. Employee Retirement Income Security Act of 1974, Public Law 406, 93d Cong., 2d sess. (September 2, 1974) (ERISA). 2. Senate Committee on Labor and Public Welfare, Legislative History of the Employee Retirement Income Security Act of 1974: Public Law 93–406, 94th Cong., 2d sess., Committee Print (Washington: GPO, 1976) (hereafter ERISA Leg. Hist.), 5321. 3. Ibid., 4747. 4. “Pension Security,” New York Times, March 6, 1974, p. 36. 5. Ken McDonnell, “Income of the Elderly: 2001,” EBRI Notes 24 (June 2003), 4–5, 7–8. 6. Craig Copeland, “Employment-Based Retirement and Pension Plan Participation: Geographic Differences and Trends,” EBRI Issue Brief Number 256 (April 2003), 6–7. 7. John H. Langbein and Bruce A. Wolk, Pension and Employee Benefit Law, 3d ed. (New York: Foundation Press, 2000), 892. 8. Michael S. Gordon, “The Social Policy Origins of ERISA,” Introduction to Section of Labor and Employment Law, American Bar Association, Employee Benefits Law, 2d ed. (Washington: Bureau of National Affairs, Inc., 2000), lxxxi. 9. “ERISA: It’s More Places Than You Thought It Could Be,” American Bar Association Journal 83 (December 1997), 62. 10. John R. Hibbing and Elizabeth Theiss-Morse, Congress as Public Enemy: Public Attitudes Toward American Political Institutions (Cambridge: Cambridge University Press, 1995), 63–64, 163. 11. Jonathan R. Macey, “Public Choice and the Law,” The New Palgrave Dictionary of Economics and the Law, ed. Peter Newman (New York: Stockton Press, 1998), 3: 177. 12. See generally Janet A. Weiss, “The Powers of Problem Definition: The Case of Government Paperwork,” Policy Sciences 22 (1989), 97–121; Paul A. Sabatier, “Policy Change over a Decade or More,” in Paul A. Sabatier and Hank C. Jenkins-Smith, Policy Change and Learning: An Advocacy Coalition Approach (Boulder, Colo.: Westview Press, 1993), 13–39; and John W. Kingdon, “Politicians, Self-Interest, and Ideas,” Reconsidering the Democratic Public, ed. George E. Marcus and Russell L. Hanson (University Park: Pennsylvania State University Press, 1993), 73–89. 13. The exception was rights imputed to employees based on the mandatory trusteeship imposed by § 302(c)(5) of the Labor-Management Relations Act of 1947. See Richard P. Donaldson, “Responsibility of Trustees of Joint LaborManagement Employee Benefit Funds under Existing Laws: Is Federal Fiduciary Standards Legislation Really Necessary,” Proceedings of the New York University Twenty-Second Annual Conference on Labor (1970), 374–76. 14. John Langbein suggested the idea of focusing on these three forms of risk. 15. In “Rethinking Retirement Income Policies: Nondiscrimination, Inte-

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Notes to Pages 5–6

gration, and the Quest for Worker Security,” Tax Law Review 42 (1987), 454–56, Nancy Altman discusses the importance of “taxpayer abuse” and “worker security” approaches to pension policy-making. According to Altman, a worker security perspective “spotlights the vulnerable worker and the policies designed to correct shortcomings of unregulated employment relations.” Ibid., 438. Altman characterizes the Wagner Act, Taft-Hartley, the Welfare and Pension Plans Disclosure Act, and ERISA (along with the Social Security Act and Fair Labor Standards Act) as “worker security” measures. Ibid., 443, 455. I distinguish between the Wagner Act, Taft-Hartley, and the WPPDA, on the one hand, and ERISA, on the other, on the basis of the goals and regulatory means employed in these measures. The former regulate the contracting process and the organizations that participate in it. They do not regulate the substantive terms of pension contracts. ERISA does this and more. 16. ERISA, §§ 3(21), 404(a)(1). See also Langbein and Wolk, Pension and Employee Benefit Law, 678–82. 17. ERISA, § 406(a)(1). 18. ERISA, § 203(a). 19. ERISA, § 302. 20. ERISA, §§ 4001–4068. 21. At a hearing in 1970, Congressman John Dent (D, Pa.) suggested that the Studebaker retirement plan defaulted because it was invested in Studebaker stock. See House Committee on Education and Labor, Private Welfare and Pension Plan Legislation: Hearings on H.R. 1045, H.R. 1046, and H.R. 16462, 91st Cong., 1st and 2d sess., 1969–70, 188. United Auto Workers president Walter Reuther corrected Dent. See ibid., 198. In 1994 the author of a retrospective on the twentieth anniversary of ERISA suggested that the retirement plan defaulted because Studebaker invested plan assets in the firm’s automotive operations. See Tom Leswing, “The Story of ERISA: Conceived of Hardship, Laced with Myth,” Money Management Letter, April 25, 1994, Special Supplement, p. 2. In a recent history of Studebaker, Donald Critchlow states that “it was revealed that the company had redirected its pension funds toward new acquisitions.” Studebaker: The Life and Death of an American Corporation (Bloomington: Indiana University Press, 1996), 184. 22. John W. Kingdon, Agendas, Alternatives, and Public Policies, 2d ed. (New York: HarperCollins College Publishers, 1995), 131–32. 23. See Social Security Act Amendments of 1939, Public Law 666, 76th Cong., 1st sess. (August 10, 1939), §§ 201 (amending section 209(a)(3) of the Social Security Act) and 603 (amending section 1426(a)(2) of the Internal Revenue Code). 24. See Jacob S. Hacker, The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States (New York: Cambridge University Press, 2002), 115; Jennifer Klein, For All These Rights: Business, Labor, and the Shaping of America’s Public-Private Welfare State (Princeton, N.J.: Princeton University Press, 2003), 110–11. 25. For example, some employers did not fund their pension plan but instead

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operated the plan on a pay-as-you-go basis. If Congress imposed payroll tax on contributions to advance-funded plans but did not levy payroll tax on pensions paid to retirees under pay-as-you-go plans, the payroll tax would be biased against advance funding of pension obligations. 26. R. Douglas Arnold, The Logic of Congressional Action (New Haven, Conn.: Yale University Press, 1990), 88. 27. Patterns of mobilization on pension reform conform to the patterns in James Q. Wilson’s typology of policy issues. See his Political Organizations (Princeton, N.J.: Princeton University Press, 1995 [1974]), 327–37. 28. David Mayhew observes that a reelection-minded legislator has no intrinsic interest in passing legislation that does not provide particularistic benefits. Congress: The Electoral Connection (New Haven, Conn.: Yale University Press, 1974), 114. I owe the example of bonuses to Gregory Wawro, Legislative Entrepreneurship in the U.S. House of Representatives (Ann Arbor: University of Michigan Press, 2000), 22. See also E. E. Schattschneider, The Semisovereign People: A Realist’s View of Democracy in America (Harcourt Brace Jovanovich College Publishers, 1988 [1960]), 25–26. 29. See Mayhew, Congress: The Electoral Connection, 118. 30. See, e.g., Senate Special Committee on Aging, Economics of Aging: Toward a Full Share in Abundance: Part 10B—Pension Aspects, 91st Cong., 2d sess., 1970, 1659. Opponents of pension reform made a similar argument about the Studebaker pension plan. While some employees failed to receive pensions as a result of the default of the Studebaker plan, many employees did receive a pension. If there had been no pension plan at Studebaker, no employees would have received a pension. 31. Senate Special Committee on Aging, Economics of Aging: Toward a Full Share in Abundance: Part 10A—Pension Aspects, 91st Cong., 2d sess., 1970, 1477. 32. Wilson, Political Organizations, 330. 33. See generally Roger H. Davidson and Walter J. Oleszek, Congress and Its Members, 9th ed. (Washington: CQ Press, 2004), 7–9; Jane Mansbridge, “Motivating Deliberation in Congress,” E Pluribus Unum: Constitutional Principles and the Institutions of Government, ed. Sarah Baumgartner Thurow (Lanham, Md.: University Press of America, 1988), 59–63. 34. Bernard Manin, Adam Przeworski, and Susan C. Stokes, “Introduction,” Democracy, Accountability, and Representation, ed. Adam Przeworski, Susan C. Stokes, and Bernard Manin (Cambridge: Cambridge University Press, 1999), 2. 35. Schattschneider, The Semisovereign People, 2 (original italics dropped). 36. My analysis in this and later paragraphs follows the model in Arnold, Logic of Congressional Action. 37. Ibid., 64–71. 38. Mansbridge, “Motivating Deliberation in Congress,” 62–63; Joseph M. Bessette, The Mild Voice of Reason: Deliberative Democracy & American National Government (Chicago: University of Chicago Press, 1994), 46–55.

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39. Tentative Study Plan, no date, Javits Collection, box 122, Pension Reform—Pension Bills 1969–1970 folder. 40. Discussion of “Pension Developments,” Transactions of the Society of Actuaries 23, pt. 2 (1971), D303–04. 41. See Arnold, Logic of Congressional Action, 120–22. 42. Ibid., 121. 43. See Paul Burstein, Discrimination, Jobs, and Politics (Chicago: University of Chicago Press, 1985), 93–94.

1. policy-making for private pensions 1. For “political topography,” see R. Douglas Arnold, The Logic of Congressional Action (New Haven, Conn.: Yale University Press, 1990), 85. 2. See generally James Q. Wilson, Political Organizations (Princeton, N.J.: Princeton University Press, 1995 [1974]), 327–37. 3. Although he uses the term differently than I do, I got the idea for the phrase pension bargain from Steven Sass. See “Pension Bargains: The Heyday of US Collectively Bargained Pension Arrangements,” Workers versus Pensioners: Intergenerational Justice in an Ageing World, ed. Paul Johnson, Christoph Conrad, and David Thompson (Manchester: Manchester University Press, 1989), 92–112. 4. See generally Douglass North, “Institutions,” Journal of Economic Perspectives 5 (1991), 97. 5. See Nancy J. Altman, “Rethinking Retirement Income Policies: Nondiscrimination, Integration, and the Quest for Worker Security,” Tax Law Review 42 (1987), 449; Edward A. Zelinsky, “The Tax Treatment of Qualified Plans: A Classic Defense of the Status Quo,” North Carolina Law Review 66 (1988), 335–60; and Robert L. Clark and Elisa Wolper, “Pension Tax Expenditures: Magnitude, Distribution, and Economic Effects,” Public Policy toward Pensions, ed. Sylvester J. Schieber and John B. Shoven (Cambridge, Mass.: MIT Press, 1997), 55–59. 6. Steven A. Sass, The Promise of Private Pensions: The First Hundred Years (Cambridge, Mass.: Harvard University Press, 1997), 4–17. 7. Leslie Hannah, “Similarities and Differences in the Growth and Structure of Private Pensions in OECD Countries,” in Private Pensions and Public Policy (Paris: Organization for Economic Cooperation and Development, 1992), 22; Leslie Hannah, Inventing Retirement: The Development of Occupational Pensions in Britain (Cambridge: Cambridge University Press, 1986), 21–29. 8. See M. B. Folsom, “Company Annuity Plans and Federal Old-Age Insurance,” Law and Contemporary Problems 3 (April 1936), 232. 9. Sass, Promise of Private Pensions, 4–6; Carol Haber and Brian Gratton, Old Age and the Search for Security (Bloomington: Indiana University Press, 1994), 93–98. 10. Sass, Promise of Private Pensions, 7. 11. Ibid., 6–8, 13–14, 29, 32–33; Alexander Keyssar, Out of Work: The First

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Century of Unemployment in Massachusetts (Cambridge: Cambridge University Press, 1986), 40–47. 12. Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: Harvard University Press, 1977), 240–83; Sanford M. Jacoby, Employing Bureaucracy: Managers, Unions, and the Transformation of Work in American Industry, 1900–1945 (New York: Columbia University Press, 1985), 40–44; Haber and Gratton, Old Age and the Search for Security, 99. 13. Haber and Gratton, Old Age and the Search for Security, 107. See also Sanford M. Jacoby, Modern Manors: Welfare Capitalism since the New Deal (Princeton, N.J.: Princeton University Press, 1997), 15–16 and 269 n. 19. 14. Lee Squier, Old Age Dependency in the United States (New York: MacMillan Company, 1912), 105. 15. Murray W. Latimer, Industrial Pension Systems in the United States and Canada (New York: Industrial Relations Counselors, 1933), 1: 4, 19; Sass, Promise of Private Pensions, 23–25; Brian Gratton, “ ‘A Triumph in Modern Philanthropy’: Age Criteria in Labor Management at the Pennsylvania Railroad, 1875–1930,” Business History Review 64 (winter 1990), 637–38. Many firms in Britain followed a similar practice. Hannah, Inventing Retirement, 8–9. 16. Sass, Promise of Private Pensions, 23–25; Gratton, “ ‘A Triumph in Modern Philanthropy,’ ” 631 and n. 2. 17. Sass, Promise of Private Pensions, 28–37, 46–55; Gratton, “ ‘A Triumph in Modern Philanthropy,’ ” 639–45. 18. Sass, Promise of Private Pensions, 28–37, 38–40; Gratton, “ ‘A Triumph in Modern Philanthropy,’ ” 631 and n.2. 19. The following sentences rely on Sass, Promise of Private Pensions, 33–35; and Gratton, “ ‘A Triumph in Modern Philanthropy,’ ” 644–45. 20. Sass, Promise of Private Pensions, 34. 21. For a perceptive contemporary analysis of the control issue, see Henry S. Pritchett, “Contributory and Non-Contributory Pension Systems,” Carnegie Foundation for the Advancement of Teaching, Seventh Annual Report of the President and of the Treasurer 59–63 (1912). 22. Squier, Old Age Dependency, 106. See also Hannah, Inventing Retirement, 22. 23. Gratton, “ ‘A Triumph in Modern Philanthropy,’ “ 640; Sass, Promise of Private Pensions, 33–34; Roger L. Ransom, Richard Sutch, and Samuel H. Williamson, “Inventing Pensions: The Origins of the Company-Provided Pension in the United States, 1900–1940,” Societal Impact on Aging: Historical Perspectives, ed. K. Warner Schaie and W. Andrew Achenbaum (New York: Springer Publishing Company, 1993), 16–19. 24. Steven Sass, “Crisis in Pensions,” Regional Review 3 (spring 1993), 14; Sass, Promise of Private Pensions, 33–34. 25. See Richard A. Ippolito, Pension Plans and Employee Performance: Evidence, Analysis, and Policy (Chicago: University of Chicago Press, 1997), 4. 26. Sass, “Crisis in Pensions,” 14.

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Notes to Pages 21–23

27. Sass, Promise of Private Pensions, 30. 28. Latimer, Industrial Pension Systems, vol. 2, 580. 29. Sass, Promise of Private Pensions, 34–35. 30. Charles Trowbridge, “ABCs of Pension Funding,” Harvard Business Review 44 (March/April 1966), 116. 31. Dan M. McGill et al., Fundamentals of Private Pensions, 7th ed. (Philadelphia: University of Pennsylvania Press, 1996), 589. 32. Trowbridge, “ABCs of Pension Funding,” 116: M. B. Folsom, “Old Age in the Balance Sheet,” Atlantic Monthly 143 (1929), 401. 33. Sass, Promise of Private Pensions, 56–61. 34. Mary Conyngton, “Industrial Pensions for Old Age and Disability,” Monthly Labor Review 22 (January 1926), 50–51. 35. McGill et al, Fundamentals of Private Pensions, 7th ed., 589. See also Sass, Promise of Private Pensions, 80–82. 36. Trowbridge, “ABCs of Pension Funding,” 119. 37. Ingalls Kimball in Pensions: A Problem of Management: Annual Convention Series: No. 75 (New York: American Management Association, 1928), 27. See also McGill et al., Fundamentals of Private Pensions, 7th ed., 589–90. 38. See Carnegie Foundation for the Advancement of Teaching, Thirteenth Annual Report of the President and of the Treasurer (1918), 114. See also E. L. Hicks and C. L. Trowbridge, Employer Accounting for Pensions: An Analysis of the Financial Accounting Standards Board’s Preliminary Views and Exposure Draft (Homewood, Ill.: Richard D. Irwin, 1985), 16–17. 39. Bryce M. Stewart, Financial Aspects of Industrial Pensions: General Management Series: No. 87 (New York: American Management Association, 1928), 16. 40. Senate Committee on Finance, Revenue Act of 1928: Hearings on H.R. 1, 70th Cong. 2d sess., 1928 (hereafter 1928 Senate Finance Hearings), 209, 215; James H. Bliss, Management through Accounts (New York: Ronald Press, 1924), 270; Folsom, “Old Age in the Balance Sheet,” 405. 41. Latimer, Industrial Pension Systems, 1: 233–34; Stewart, Financial Aspects of Industrial Pensions, 16; Sass, Promise of Private Pensions, 68–69. See generally McGill et al., Fundamentals of Private Pensions, 7th ed., 590–94. 42. On the development of insured plans, see Sass, Promise of Private Pensions, 67–76. 43. See Latimer, Industrial Pension Systems, 2: 662, 664–72. 44. See McGill et al., Fundamentals of Private Pensions, 7th ed., 593–94. 45. For an enthusiastic discussion, see Gurden Edwards, “The Way Out of the Industrial Pension Crisis,” Annalist, November 27, 1925, pp. 667–68, 681. 46. McGill et al., Fundamentals of Private Pensions, 7th ed., 593–94; Sass, Promise of Private Pensions, 80–83. 47. Folsom, “Old Age in the Balance Sheet,” 402. 48. Although I sometimes disagree with their conclusions, I have benefited greatly from the research and analysis in Rainard B. Robbins, Impact of Taxes on Industrial Pension Plans (New York: Industrial Relations Counselors, 1949);

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Altman, “Rethinking Retirement Income Policies”; and Ridgeley A. Scott, “Rabbis and Other Top Hats: The Great Escape,” Catholic University Law Review 43 (1993), 1. 49. Tariff of 1913, Public Law 16, 63d Cong., 1st sess. (October 3, 1913), § II. 50. See Robert H. Montgomery, Fifty Years of Accountancy (New York: Ronald Press, 1939), 414–21. 51. Revenue Act of 1918, Public Law 254, 65th Cong., 2d sess. (February 24, 1919), § 214(a)(1). 52. I say “relatively” because the Bureau of Internal Revenue initially held that an employer should not deduct pension payments at all because pensions were “gifts” and gifts were not deductible under the income tax. The bureau quickly reversed this rule. See James A. Wooten, “The ‘Original Intent’ of the Federal Tax Treatment of Private Pension Plans,” Tax Notes 85 (December 6, 1999), 1311. 53. Treasury Department, Treasury Decisions under the Internal Revenue Laws of the United States, vol. 20 (Washington: GPO, 1919), 195 [Art. 136, ¶ 438]. 54. Robbins, Impact of Taxes, 78. 55. James H. Bliss, Management through Accounts (New York: Ronald Press, 1924), 705. 56. See the discussion of reserves for bad debts in Robert H. Montgomery, Income Tax Procedure 1918 (New York: Ronald Press, 1918), 337–40. 57. See Bliss, Management through Accounts, 270; 1928 Senate Finance Hearings, 209. 58. See Randolph E. Paul and Jacob Mertens, Jr., The Law of Federal Income Taxation (Chicago: Callahan and Company, 1934), 1: 583 [§ 11.92]. 59. Treasury Decisions, vol. 20, 195 [Art. 136, ¶ 439]. For a contemporary criticism of this ruling, see Robert H. Montgomery, Income Tax Procedure 1919 (New York: Ronald Press, 1919), 420–21. 60. Treasury Department, Bureau of Internal Revenue, Cumulative Bulletin No. 1 (Washington: GPO, 1922), 224 [O. D. 110]. 61. Ibid. [S. 965]. 62. For a discussion of the early application of the realization principle to employment compensation, see Thomas S. Adams, “When Is Income Realized,” The Federal Income Tax, ed. Robert Murray Haig (New York: Columbia University Press, 1921), 41–42. 63. Treasury Decisions, vol. 20, 134 [Art. 4, ¶ 49]. 64. See O.D. 763 and O.D. 791, both in Treasury Department, Bureau of Internal Revenue, Cumulative Bulletin #4 (Washington: GPO, 1921), 76–77. 65. Revenue Act of 1921, Public Law 98, 67th Cong., 1st sess. (November 23, 1921), § 219(f). 66. See Treasury Department, Bureau of Internal Revenue, Internal Revenue Bulletin: Cumulative Bulletin II-2 (Washington: GPO, 1924), 70–71 [I.T. 1810]. 67. Ibid.

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Notes to Pages 25–26

68. This is so even in a pay-as-you-go plan. Employees’ pension credits are essentially investments in the employer that create claims against its future revenue. See Ransom et al., “Inventing Pensions,” 14–15. 69. See Robert Charles Clark, “The Federal Income Taxation of Financial Intermediaries,” Yale Law Journal 84 (July 1975), 1615–16; Eric M. Zolt, “Taxation of Investment Funds,” in Tax Law Design and Drafting, ed. Victor Thuronyi (Washington: International Monetary Fund, 1998), 2: 974–75; and Sass, Promise of Private Pensions, 152–53. 70. See Daniel I. Halperin, “Interest in Disguise: Taxing the ‘Time Value of Money,’ “ Yale Law Journal 95 (January 1986), 519–24; Zolt, “Taxation of Investment Funds,” 984. 71. W. Elliott Brownlee, Federal Taxation in America: A Short History (Cambridge: Cambridge University Press, 1996), 47–48. See also John E. Witte, The Politics and Development of the Federal Income Tax (Madison: University of Wisconsin Press, 1985), 125–27, figs. 6.2 and 6.3. 72. For discussion of coverage under early plans, see Anice L. Whitney, “Establishment Disability Funds, Pension Funds, and Group Insurance for Employees,” Monthly Labor Review 6 (1918), 444, 452; Conyngton, “Industrial Pensions for Old Age and Disability,” 44–45; Latimer, Industrial Pension Systems, 1: 63, table 10; Robbins, Impact of Taxes, 7–8. 73. See, e.g., Revenue Act of 1918, § 219(a). Trust income also might be taxed to the employer if the employer exercised too much control over the trust. See Treasury Department, Bureau of Internal Revenue, Bulletin “I”: Income Tax, dated May 1, 1922 (Washington: GPO, 1922), 16. 74. The petitioner makes this point in Sears, Roebuck & Co. Employees’ Savings and Profit Sharing Pension Fund v. Commissioner of Internal Revenue, 17 BTA 22, 27–28 (1929). For the year 1920, the commissioner imposed surtax of $113,621.65 on the fund’s income of $260,186.08. Supplemental Brief for Petitioners, Sears, Roebuck & Co. Employees’ Savings and Profit Sharing Pension Fund v. Commissioner of Internal Revenue, case no. 4352, United States Circuit Court of Appeals for the Seventh Circuit, 1930, 2–3. 75. Hannah, Inventing Retirement, 20. 76. Revenue Act of 1926, Public Law 20, 69th Cong., 1st sess. (February 26, 1929), § 219(f). For a more detailed discussion, see Wooten, “The ‘Original Intent’ of the Federal Tax Treatment of Private Pension Plans,” 1314–18. 77. Wooten, “The ‘Original Intent’ of the Federal Tax Treatment of Private Pension Plans,” 1315–16. 78. See 1928 Senate Finance Hearings, 218; Robbins, Impact of Taxes, 31. There was one important difference between the tax treatments of insured and trusteed plans. Before Congress passed the Revenue Act of 1942, a firm that sponsored an insured plan could pay off liability based on past service in a single lump sum and deduct the entire amount. For trusteed plans, deductions for payments to fund past-service liability were stretched out over ten years. The 1942 Act eliminated this “discrimination against banks.” See Lau-

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rence G. Hanmer, “Pension Trust Business for Banks,” Trusts & Estates 75 (1942), 473–74. 79. On the “relative substitutability” of public and private pensions, see Alicia Munnell, The Economics of Private Pensions (Washington: Brookings Institution, 1982), 16. On the relationship between public and private pensions, see John Myles, “Social Policy in Canada,” North American Elders: United States and Canadian Perspectives, ed. Eloise Rathbone-McCuan and Betty Havens (New York: Greenwood Press, 1988), 41; John Turner and Noriyasu Watanabe, Private Pension Policies in Industrialized Countries: A Comparative Analysis (Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 1995), 11; and E. Philip Davis, Pension Funds, Retirement-Income Security, and Capital Markets: An International Perspective (Oxford: Clarendon Press, 1995), 56–60. 80. Social Security Act, Public Law 271, 74th Cong., 1st sess. (August 14, 1935), §§ 201–10. 81. Paul H. Douglas, Social Security in the United States: An Analysis and Appraisal of the Federal Social Security Act (New York: McGraw-Hill, 1936), 159. 82. Social Security Act, §§ 801, 804, 811(a). 83. For example, pension benefits were based on the total tax payments on a worker’s covered wages. Individuals who died before retirement or did not qualify for a pension had a “money-back guarantee.” They would receive a lump-sum payment that returned the taxes paid on their behalf with interest. See Sass, Promise of Private Pensions, 95; Robert Myers, Social Security, 4th ed. (Philadelphia: University of Pennsylvania Press, 1993), 245–46; Derthick, Policymaking for Social Security, 213–14. 84. Edward Berkowitz and Kim McQuaid, Creating the Welfare State: The Political Economy of Twentieth-Century Reform, 2d ed. (New York: Praeger Publishers, 1988), 134–36. 85. For discussion of business opposition, see Theda Skocpol and Edwin Amenta, “Did Capitalists Shape Social Security?” American Sociological Review 50 (1985), 572–75; Edwin Amenta and Sunita Parikh, “Capitalists Did Not Want the Social Security Act: A Critique of the ‘Capitalist Dominance’ Thesis,” American Sociological Review 56 (1991), 124–29. 86. Sass, Promise of Private Pensions, 98–99. 87. Jill Quadagno makes this point in The Transformation of Old Age Security: Class and Politics in the American Welfare State (Chicago: University of Chicago Press, 1988), 117. 88. Myers, Social Security, 4th ed., 502. See also William C. Greenough and Francis P. King, Pension Plans and Public Policy (New York: Columbia University Press, 1976), 183–87. 89. Myers, Social Security, 4th ed., 503. 90. For contemporary recognition of this point, see J. Douglas Brown, “The Basic Philosophy of the Federal Old-Age Security Program,” Practical Aspects of Unemployment Insurance and Old-Age Security: Personnel Series: No. 23 (New York: American Management Association, 1936), 41; J. Douglas Brown,

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Notes to Pages 28–30

“Revisions in Social Security Legislation and Industrial Benefit Plans,” Company Problems under Wages and Hours Legislation: Personnel Series: No. 38 (New York: American Management Association, 1939), 30; Folsom, “Company Annuity Plans and Federal Old-Age Insurance,” 232; Murray W. Latimer and Karl Tufel, Trends in Industrial Pensions (New York: Industrial Relations Counselors, 1940), 43. Increases in the OASI benefit formula continued to have this effect long after 1935. The subsidy may not have inspired executives to man the barricades in support of higher public pensions, but as Shieber and Shoven have recently argued, it may account for the “conservative passivity” that allowed liberals, organized labor, and agency executives to expand the public-pension program. See Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven, Conn.: Yale University Press, 1999), 134–38. For “conservative passivity,” see Derthick, Policymaking for Social Security, 142. 91. See Brown, “Revisions in Social Security Legislation and Industrial Benefit Plans,” 27–29; M. B. Folsom, “Coordination of Pension Plans with Social Security Provisions,” Personnel 16 (1939), 44–45. 92. Edwin C. McDonald, “Current Business Opinion on Group Protection and an Outlined Program of Complete Group Protection,” Group Protection and Social Insurance: Insurance Series: No. 26 (New York: American Management Association, 1936), 7. See also Meyer M. Goldstein, “The Importance and Necessity for Corporate Pension Trusts,” reprinted in Joint Committee on Tax Evasion and Tax Avoidance, Tax Evasion and Tax Avoidance: Hearings before the Joint Committee on Tax Evasion and Avoidance, 75th Cong., 1st sess., 1937, 294. 93. See Brown, “The Basic Philosophy of the Federal Old Age Security Program,” 42; Brown, “Revisions in Social Security Legislation and Industrial Benefit Plans,” 27–31; John B. St. John, “Social Security Act Changes,” Trends in Pension Plans/The Future of Casualty Insurance Rates: Insurance Series: No. 41 (New York: American Management Association, 1941), 6–8. 94. See Latimer and Tufel, Trends in Industrial Pensions, 10–14; National Industrial Conference Board, Company Pension Plans and the Social Security Act: Studies in Personnel Policy, No. 16 (New York: National Industrial Conference Board, 1939), 24–26. 95. Senate Committee on Labor and Public Welfare, Welfare and Pension Plans Investigation, 84th Cong. 2d sess., 1956, S. Rpt. 1734, 163. 96. John B. St. John, “Social Security Act Changes,” 8. 97. John J. Corson and John W. McConnell, Economic Needs of Older People (New York: Twentieth Century Fund, 1956), 288; F. Beatrice Brower, “Significant Developments in Pension Plans,” National Industrial Conference Board Management Record, May 1948, 279; Robbins, Impact of Taxes, 7–8. 98. Albert W. Harris et al., 1939 Board of Tax Appeals Memorandum Decisions (New York: Prentice-Hall, 1945), ¶ 39,472. See also Albert Handy, “Private Pension Plans and the Federal Revenue Act,” New York University Law Review 16 (1939), 425–26.

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99. See generally Joel Slemrod and John Bakija, Taxing Ourselves: A Citizen’s Guide to the Great Debate over Tax Reform (Cambridge, Mass.: MIT Press, 1996), 30–31. 100. See Senate Committee on Finance, Revenue Act of 1942: Hearings on H.R. 7378, 77th Cong., 2d sess., 1942, 94. 101. Brownlee, Federal Taxation in America, 74–75, 77–79. 102. John B. Martin, Jr., “Taxation of Undistributed Corporate Profits,” Michigan Law Review 35 (November 1936), 60–61;Witte, Politics and Development, 102–103. The tax was dramatically reduced in 1938, and finally repealed in 1939. Ibid., 106–107. 103. Revenue Act of 1936, Public Law 740, 74th Cong., 2d sess. (22 June 1936), §§ 23(a) and 22(a). See also Robert H. Montgomery, Federal Income Tax Handbook 1936–37 (New York: Ronald Press, 1936), 101, 438–39. 104. Revenue Act of 1936, § 22(a). 105. Ibid. See also Montgomery, Tax Handbook 1936–37, 338. The Revenue Act of 1936 made an important change in the tax treatment of dividends. In the early years of the income tax, the revenue laws imposed a “normal tax” and a “surtax” on the income of individuals. From 1913 to 1936, individuals paid surtax on dividends but not normal tax. The 1936 Act subjected dividend income to normal tax and surtax. Ibid.; Scott A. Taylor, “Corporate Integration in the Federal Income Tax: Lessons from the Past and a Proposal for the Future,” Virginia Tax Review 10 (1994), 275, 283. 106. Revenue Act of 1936, § 14(b). See also Montgomery, Tax Handbook 1936–37, 701–705. 107. Revenue Act of 1936, §§ 23(p) and 165. See also Montgomery, Tax Handbook 1936–37, 109. 108. George T. Altman, “Pension Trusts for Key Men,” Taxes 15 (1937), 325. 109. Hearings on Tax Evasion and Avoidance, 293; Altman, “Rethinking Retirement Income Policies,” 450–52. 110. Hearings on Tax Evasion and Avoidance, 294; Robbins, Impact of Taxes, 27–29. 111. Legislators accepted one of Treasury’s proposals. In 1938 Congress amended the tax laws to prevent assets of a pension trust from being “used for, or diverted to, purposes other than for the exclusive benefit of [the sponsor’s] employees” until “all liabilities with respect to employees under the trust” were satisfied. Revenue Act of 1938, Public Law 553, 75th Cong., 3d sess. (May 28, 1938), § 165. For the amended regulations, see Treasury Department, Bureau of Internal Revenue, Regulations 101 Relating to the Income Tax under the Revenue Act of 1938 (Washington: GPO, 1939), 409 [Art. 165–1(a)]. 112. Albert W. Harris et al., 1939 Board of Tax Appeals Memorandum Decisions (New York: Prentice-Hall, 1945), ¶ 39,472. The bureau acquiesced in 1940 by reversing the change in the regulations. Treasury Department, Bureau of Internal Revenue, Internal Revenue Bulletin: Cumulative Bulletin 1940–1 (Washington: GPO, 1940), 65–66 [T.D. 4973].

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Notes to Pages 31–33

113. “Washington Tax Talk,” Taxes 20 (July 1942), 435. 114. See Daniel I. Halperin, “Special Tax Treatment of Employer-Based Retirement Programs: Is It ‘Still’ Viable as a Means of Increasing Retirement Income? Should It Continue?” Tax Law Review 49 (1994), 16–21. 115. Witte, Politics and Development, 111–12; Anita Wells, “Legislative History of Excess Profits Taxation in the United States in World Wars I and II,” National Tax Journal 4 (September 1951), 245. 116. Witte, Politics and Development, 111–14. 117. Adrian W. DeWind, “Federal Regulation of Pension Plans,” Designing a Company Pension Plan: Studies in Personnel Policy, No. 67 (New York: National Industrial Conference Board, 1944), 10. 118. See Adrian W. DeWind, “Special Wartime and Other Problems with Respect to Pension and Profit-Sharing Plans under the Federal Income Tax,” Proceedings of the New York University Third Annual Institute on Federal Taxation (1945), 91. See also Beatrice Brower, “Significant Developments in Pension Plans,” 279, tbl. 1. 119. Norman D. Cann, “How the Commissioner Handles Pension Plans,” Taxes 23 (1945), 919. 120. DeWind, “Special Wartime and Other Problems,” 89–90. 121. DeWind, “Federal Regulation of Pension Plans,” 10. 122. See Robbins, Impact of Taxes, 23; William F. Marples, Actuarial Aspects of Pension Security (Homewood, Ill.: Richard D. Irwin, 1965), 75. 123. See House Committee on Ways and Means, Revenue Revision of 1942: Hearings before the House Ways and Means Committee, 77th Cong., 2d sess., 1942, 1004–1005. 124. See Leon L. Rice, Jr., “Employee Trusts under the Revenue Act of 1942,” Taxes 20 (1942), 721. 125. Revenue Act of 1942, Public Law 753, 77th Cong., 2d sess. (October 21, 1942), § 162 (adding § 165(a)(3) to the Internal Revenue Code of 1939). 126. Ibid. (adding § 165(a)(4)). 127. As Nancy Altman has argued, the legislators who drafted the 1942 act were concerned about “taxpayer abuse.” Legislators did not consider a plan that served a legitimate personnel function to be an abuse. Altman, “Rethinking Retirement Income Policies,” 450–54. See also Rice, “Employee Trusts under the Revenue Act of 1942,” 721–22. 128. Stabilization Act of 1942, Public Law 729, 77th Cong., 2d sess. (October 3, 1942), §§ 1, 2, and 10. 129. Treasury Department, Bureau of Internal Revenue, Internal Revenue Bulletin: Cumulative Bulletin 1942–2 (Washington: GPO, 1943), 352 [§ 1002.8]. 130. “Pension Trusts: Liberal Clauses in New Tax Law,” United States News, November 6, 1942, p. 48. 131. Maurice Lipton, “Insured Plans,” Trends in Retirement Planning: Insurance Series: No. 73 (New York: American Management Association, 1948), 18.

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132. See Wales to Elliott, February 6, 1945, Files of the Secretary of the Treasury, 1933–1956, Tax—Pension Trusts 1945 folder. See also Cann, “How the Commissioner Handles Pension Plans,” 922. 133. See Revenue Act of 1942 (as reported by Senate Finance Committee), 77th Cong., 2d sess., H.R. 7378, § 164 (adding § 165(a)(5)), in Bernard D. Reams, ed., Internal Revenue Acts of the United States 1909–1950, Legislative Histories, Laws, and Administrative Documents (Buffalo: William S. Hein & Co., 1979), vol. 86. 134. Sass, Promise of Private Pensions, 117–19. 135. Brownlee, Federal Taxation in America, 89–100; Richard A. Ippolito, Pensions, Economics and Public Policy (Homewood, Ill.: Dow Jones-Irwin, 1986), 24–26. 136. See Jack Barbash, “The Structure and Evolution of Union Interests in Pensions,” in Joint Economic Committee, Subcommittee on Fiscal Policy, Compendium of Papers on Old Age Income Assurance: Part IV: Employment Aspects of Pension Plans, 90th Cong., 1st sess., 1967, Joint Committee Print, 64; Donald F. Farwell, “Bargaining on Pensions,” in Pensions and Profit Sharing, 3d ed. (Washington: Bureau of National Affairs, 1964), 207. 137. For “pension stampede,” see “Pensions Still No. 1 Labor Problem,” Steel 2 (January 1950), p. 102. 138. Sass, Promise of Private Pensions, 139. 139. M. F. Lipton, “Trends in Company Pension Plans,” Designing a Company Pension Plan, Studies in Personnel Policy, No. 67 (New York: National Industrial Conference Board, 1944), 8. 140. See Robert H. Zieger, American Workers, American Unions, 1920–1985 (Baltimore: John Hopkins University Press, 1986), 63–69, 92–94, 100–101. 141. Steven Sass, Promise of Private Pensions, 120; Eugene Steuerle and John M. Bakija, Retooling Social Security for the 21st Century: Right and Wrong Approaches to Reform (Washington: Urban Institute Press, 1994), 92–94. 142. F. Beatrice Brower, “Postwar Pension Problems,” National Industrial Conference Board Management Record 8 (November 1946), 362–63, mentions actions taken by the Steelworkers, Auto Workers, and Mine Workers when employers attempted to retire union members who wished to remain at work. See also Melvin K. Bers, Union Policy and the Older Worker (Westport, Conn.: Greenwood Press, 1976), 71–74. 143. Sumner H. Slichter, James J. Healy, and E. Robert Livernash, The Impact of Collective Bargaining on Management (Washington: Brookings Institution, 1960), 374. 144. See Sanford M. Jacoby, “Pacific Ties: Industrial Relations and Employment Systems in Japan and the United States since 1900,” Industrial Democracy in America: The Ambiguous Promise, ed. Nelson Lichtenstein and Howell John Harris (Cambridge: Cambridge University Press and Woodrow Wilson Center Press, 1993), 226–32.

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Notes to Pages 35–36

145. This trade-off shows up most clearly in the fact that CIO unions negotiated pension plans with compulsory retirement despite professed opposition to this policy. See Bers, Union Policy and the Older Worker, 74–76; Lane Kirkland, “Discussion,” Proceedings of the Fifth Annual Meeting of the Industrial Relations Research Association, ed. L. Reed Tripp (1953), 106; and Slichter et al., The Impact of Collective Bargaining on Management, 389–90. 146. Bers, Union Policy and the Older Worker, 83. 147. Congress of Industrial Organizations, Final Proceedings of the Eighth Constitutional Convention (Washington: Congress of Industrial Organizations, 1946), 82. 148. Alan Derickson, “Health Security for All? Social Unionism and Universal Health Insurance, 1935–1958,” Journal of American History 80 (1994), 1344. See also David L. Stebenne, Arthur J. Goldberg: New Deal Liberal (Oxford: Oxford University Press, 1996), 62–63. 149. Inland Steel Co., 77 NLRB 1, 35 (1948); F. Beatrice Brower, “A Significant Pension Ruling,” National Industrial Conference Board Management Record 9 (February 1947), 25–26. 150. Murray W. Latimer, “Social Security in Collective Bargaining,” Proceedings of New York University First Annual Conference on Labor, ed. Emanuel Stein (1948), 3–9; Barbash, “The Structure and Evolution of Union Interests in Pensions,” 63–67. 151. Sass, Promise of Private Pensions, 127–29. 152. Melvyn Dubofsky and Warren Van Tine, John L. Lewis: A Biography, abridged edition (Urbana: University of Illinois Press, 1986), 330–32; Richard P. Mulcahy, “Serving the Union: The United Mine Workers Welfare and Retirement Fund, 1946–1978,” Ph.D. diss., West Virginia University, 1988, 16–17. 153. Martin Halpern, UAW Politics in the Cold War Era (Albany: State University of New York Press, 1988), 187; Sass, Promise of Private Pensions, 131–33. 154. N.L.R.B. v. Inland Steel Co., 170 F.2d 247 (7th Cir. 1948). 155. See “New Union Demands,” Fortune, January 1949, 150; “Turning Point,” Fortune, April 1949, 189; Benjamin H. Selekman, Sylvia K. Selekman, and Stephen H. Fuller, Problems in Labor Relations (New York: McGraw-Hill, 1950), 324–30. 156. Selekman et al., Problems in Labor Relations, 331–39. 157. Frederick H. Harbison and Robert C. Spencer, “The Politics of Collective Bargaining: The Post-War Record in Steel,” American Political Science Review 44 (1954), 708–12; Sass, Promise of Private Pensions, 133. 158. Sass, Promise of Private Pensions, 135–36. 159. Harbison and Spencer, “The Politics of Collective Bargaining,” 709–10. 160. “The Great Gold Rush of ‘49” appears in “Pensions: Less Worry for Boss,” U.S. News & World Report, December 2, 1949, p. 39. 161. See Kenneth H. Ross, “Characteristics of Trusteed Pension Plans,” Pensions: Problems and Trends, ed. Dan M. McGill (Homewood, Ill.: Richard D. Irwin, 1955), 181.

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162. See Sass, Promise of Private Pensions, 136. 163. This example is taken from National Industrial Conference Board, Handbook on Pensions: Studies in Personnel Policy, No. 103 (New York: National Industrial Conference Board, 1950), 11–12. 164. See “Wage Chronology No. 9: General Motors Corp.,” Monthly Labor Review 72 (1951), 406. GM’s collective bargaining agreement with the UAW also guaranteed a retiring employee a minimum benefit including the employee’s OASI benefit of four dollars per month multiplied by the employee’s years of service. The minimum benefit was fully integrated with OASI. If an employee’s OASI benefit increased, the payment obligation of the pension plan decreased by the amount of the increase in OASI. 165. Sass, Promise of Private Pensions, 139. 166. Department of Labor, Bureau of Labor Statistics, Multiemployer Pension Plans under Collective Bargaining, Spring 1960, Bulletin No. 1362 (June 1962), 1. See also Sass, Promise of Private Pensions, 138. 167. Robert Tilove, “Welfare and Pension Funds in Multi-Employer Bargaining,” Proceedings of the New York University Ninth Annual Conference on Labor, ed. Emanuel Stein (1956), 102–103. 168. Robert Tilove, “Multi-Employer Pension Plans,” Proceedings of the New York University Seventh Annual Conference on Labor, ed. Emanuel Stein (1954), 642–44; Joseph Melone, Collectively Bargained Multi-Employer Pension Plans (Homewood, Ill.: Richard D. Irwin, 1963), 8. 169. Tilove, “Multi-Employer Pension Plans,” 643. 170. Slichter et al., Impact of Collective Bargaining on Management, 394. 171. Tilove, “Multi-Employer Pension Plans,” 639. 172. See Robert J. Rosenthal, “Union-Management Welfare Plans,” Quarterly Journal of Economics 62 (November 1947), 77–80 and tbl. 1. 173. For Lewis’s role, see Dubofsky and Van Tine, Lewis, 338; Melvyn Dubofsky, The State and Labor in Modern America (Chapel Hill: University of North Carolina Press, 1994), 202. 174. Labor Management Relations Act, 1947, Public Law 101, 80th Cong., 1st sess. (June 23, 1947), § 302(a). The LMRA included an exception for multiemployer plans created before January 1, 1946. Ibid. § 302(g). 175. Senate Committee on Labor and Public Welfare, Federal Labor Relations Act of 1947, 80th Cong., 1st sess., 1947, S. Rpt. 105, 52. 176. Labor Management Relations Act, 1947, § 302(c)(5). 177. Meyer M. Goldstein, “Problems in Multi-employer Negotiated Pension Plans,” Ninth Annual New York University Conference on Labor, ed. Emanuel Stein (1956), 93. See also Burton A. Zorn, “The Responsibility of the Employer as Contributor and Trustee,” Ninth Annual New York University Conference on Labor, ed. Emanuel Stein (1956), 119; House Committee on Education and Labor, Welfare and Pension Fund Legislation: Hearings before the House Comm. on Education and Labor, 85th Cong., 1st sess. (hereafter 1957 House Labor Hearings), 1957, 43–44.

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Notes to Pages 38–41

178. Senate Report 84–1734, 300. See also Sass, Promise of Private Pensions, 181. 179. Melone, Collectively Bargained Multi-Employer Pension Plans, 89. 180. Ibid., 51. 181. Tilove, “Multi-Employer Pension Plans,” 645; Melone, Collectively Bargained Multi-Employer Pension Plans, 20. 182. Melone, Collectively Bargained Multi-Employer Pension Plans, 20; Goldstein, “Problems in Multi-Employer Negotiated Pension Plans,” 91. 183. Tilove, “Multi-Employer Pension Plans,” 646–48; Melone, Collectively Bargained Multi-Employer Pension Plans, 89–95. 184. Julian E. Zelizer, Taxing America: Wilbur D. Mills, Congress, and the State, 1945–1975 (Cambridge: Cambridge University Press, 1998), 86–96. 185. Laurence J. Kotlikoff and Daniel E. Smith, Pensions in the American Economy (Chicago: University of Chicago Press, 1983), 29, tbl. 3.1.2. 186. Senate Committee on Finance, Self-Employed Individuals Retirement Act of 1959: Hearings on H.R. 10, 86th Cong. 1st sess., 1959 (hereafter 1959 Senate Finance Hearings), 22, tbl. 1. The 30,000 figure does not include terminated plans. 187. See Alvin D. Lurie, “Qualified Pension and Profit-Sharing Retirement Plans for Small Companies,” Proceedings of the New York University Twelfth Annual Institute on Federal Taxation (1954), 328–31, 349. 188. Revenue Act of 1942, § 162 (amending § 165(a)). 189. Treasury Department, Bureau of Internal Revenue, Internal Revenue Bulletin: Cumulative Bulletin 1940–1 (Washington: GPO, 1940), 64–65 [I.T. 3350]. See also Leslie M. Rapp, “The Quest for Tax Equality for Private Pension Plans: A Short History of the Jenkins-Keogh Bill,” Tax Law Review 14 (1958), 55–56; Herman C. Biegel, “Equity of Tax Treatment of Retirement Allowances,” in Joint Committee on the Economic Report, Federal Tax Policy for Economic Growth and Stability, 84th Cong., 1st sess., 1955, Joint Committee Print, 765–67. 190. See, e.g., John R. Nicholson, “Pension for Partners: Tax Laws Are Unfair to Lawyers and Firms,” American Bar Association Journal 33 (1947), 303–304. 191. See Social Security Act Amendments of 1950, Public Law 734, 81st Cong., 2d sess. (August 28, 1950), § 104(a)(adding § 211(c)(5)); and Social Security Act Amendments of 1956, Public Law 800, 84th Cong., 2d sess. (August 1, 1956), § 104(d)(amending § 211(c)(5)). 192. Social Security Amendments of 1965, Public Law 97, 89th Cong., 1st sess. (July 30, 1965), § 311(a)(1) (amending § 211(c)(5)) and (c) (effective date). 193. John R. Nicholson, “Mr. Nicholson Comments on Mr. Rudick’s Plan and Replies to His Strictures,” American Bar Association Journal 33 (1947), 1005. 194. See Rapp, “The Quest for Tax Equality for Private Pension Plans,” 57–76. 195. House Committee, Revenue Revision of 1942, 2405–406. 196. A contemporary appraisal was that the pension provisions of the 1942

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Revenue Act were “hardly recognizable when compared with Paul’s original suggestions.” Rice, “Employee Trusts under the Revenue Act of 1942,” 721. 197. DeWind, “Special Wartime and Other Problems,” 90 (italics added). 198. Regulations issued in 1943 governing integration of OASI with private pension plans were particularly contentious. See Biegel to Surrey, May 11, 1943, and Barker to Surrey, December 21, 1943, both in Files of the Secretary of the Treasury, 1933–1956, Tax—Pension Fund Contributions folder; Forster to Stam, June 15, 1943, Files of the Joint Committee in Internal Revenue Taxation, box 218, Pensions and Trusts 1942 folder; Senate Committee on Finance, Pension Trusts: Hearings on an Amendment to the Bill (H.R. 4464) to Increase the Debt Limit of the United States, 78th Cong., 2d sess., 1944. In another controversial ruling in 1944, the Bureau of Internal Revenue held that a plan might fail to qualify for favorable treatment if “more than 30 percent of total employer contributions . . . could be used to finance benefits for stock-holder employees who own[ed] directly or indirectly 10 percent of the voting stock.” This ruling was later rejected by the Tax Court. See 1959 Senate Finance Hearings, 19. 199. Lurie, “Qualified Pension and Profit-Sharing Retirement Plans for Small Companies,” 337–38. 200. Samuel J. Foosaner, “Pension and Profit Sharing Trust Conference,” Proceedings of New York University Fourth Annual Institute on Federal Taxation (1946), 358. 201. Nicholson, “Pensions for Partners,” 303. 202. House Committee on Ways and Means, General Revenue Revision: Hearings before the House Committee on Ways and Means, 83d Cong., 1st sess., 1953, 1817. 203. See House Committee on Ways and Means, Postponement of Income Tax on Income Set Aside for Retirement: Hearings on H.R. 4371, H.R. 4373, H.R. 3456, H.R. 1173, H.R. 5847, and H.R. 7426, 82d Cong, 2d sess., 1952, 39; 1959 Senate Finance Hearings, 12–13; Senate Committee on Finance, Pension Plans for Owner-Managers of Corporations: Hearings before the Committee on Finance, 86th Cong., 2d sess., 1960, 11. 204. See Zelizer, Taxing America, 96–100, 113, 136–41; Joint Committee on the Economic Report, The Federal Revenue Systems: Facts and Problems, 84th Congress, 1st sess. (Washington: GPO, 1956), 7–12, 111–13. 205. Joseph A. Pechman, “Erosion of the Individual Income Tax Base,” National Tax Journal 10 (1957), 2–3. 206. 1959 Senate Finance Hearings, 38. 207. Pechman, “Erosion of the Individual Income Tax Base,” 2. 208. Ibid. 209. Harold Groves, “Special Tax Provisions and the Economy,” Joint Committee on the Economic Report, Papers on Federal Tax Policy for Economic Growth and Stability, 84th Cong., 1st sess., 1957, Committee Print, 297. 210. 1959 Senate Finance Hearings, 12–13. 211. Ibid., 15, 48. 212. See, e.g., ibid., 15.

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213. Congressional Quarterly Almanac: 87th Congress 2d Session 1962 (Washington: Congressional Quarterly, 1963), 531. 214. “20,000 Pension Funds,” Time, November 22, 1954, 92. 215. Alfred M. Skolnick, “Private Pension Plans, 1950–74,” Social Security Bulletin 39 (June 1976), 4. 216. Steven A. Sass, Promise of Private Pensions, 145–78. 217. Skolnick, “Private Pension Plans, 1950–74,” 4. 218. See House Committee on Ways and Means, Taxation of Life Insurance Companies: Hearings before the House Ways and Means Committee, 83d Cong., 2d sess., 1955, 316–20. 219. See Note, “Trust Investment Clauses: A Problem for Draftsmen,” Yale Law Journal 58 (1949), 288–306. 220. Bascom H. Torrance, “Legal Background, Trends, and Recent Developments in the Investment of Trust Funds,” Law and Contemporary Problems 17 (1952), 153–55; Sass, Promise of Private Pensions, 166–67. 221. See Mark J. Roe, Strong Managers, Weak Owners: The Political Roots of American Corporate Finance (Princeton, N.J.: Princeton University Press, 1994), 88. 222. Senate Report 84–1734, 2. 223. Peter F. Drucker, The Unseen Revolution: How Pension Fund Socialism Came to America (New York: Harper & Row, 1976). 224. Peter F. Drucker, “The New Tycoons,” Harper’s Magazine, May 1955, p. 39. 225. See, e.g., Adolph A. Berle, Jr., Economic Power and the Free Society (Santa Barbara, Cal.: Center for the Study of Democratic Institutions, 1957); Adolph A. Berle, Jr., “Freedom and the Corporation,” Saturday Review, January 18, 1958, 40–42, 44, 62–63; Paul L. Howell, “A Re-Examination of Pension Fund Investment Policies,” Journal of Finance 13 (1958), 273–74; Paul P. Harbrecht, S.J., Pension Funds and Economic Power (New York: Twentieth Century Fund, 1959). 226. The two examples are from Robert Tilove, Pension Funds and Economic Freedom (New York: Fund for the Republic, 1959), 67. 227. Note, “Protection of Beneficiaries under Employee Benefit Plans,” Columbia Law Review 58 (1958), 87–88. 228. Senate Report 84–1734, 52. 229. Treasury Department, Bureau of Internal Revenue, Internal Revenue Bulletin: Cumulative Bulletin 1943 (Washington: GPO, 1944), 481 [§ 19.165(a)(1)–1(a)]. 230. Revenue Act of 1942, § 162 (amending section 165(a); italics added). 231. Internal Revenue Code of 1954, Public Law 591, 83d Cong., 2d sess. (August 16, 1954), § 503(c)(1). 232. Philip Taft, Organized Labor in American History (New York: Harper & Row, 1964), 694–95; “Labor Airs Some Dirty Linen,” Fortune, August 1952, 81, 190, 192. 233. R. A. Imberman, “Racketeering in Health and Welfare Funds,” Harvard Business Review 32 (November–December 1954), 73.

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234. Adelbert Straub, Jr., Whose Welfare? A Report on Union and Employer Welfare Plans in New York (State of New York, Insurance Department, 1954), 15–17, 19–22. 235. Senate Report 84–1734, 24. 236. James T. O’Connell, “Legislating Proper Controls for Pension and Welfare Plans,” Commercial and Financial Chronicle, April 10, 1958, p. 1620; Congressional Record, 83d Cong., 2d sess., 1954, 100, pt. 1: 129. 237. Senate Report 84–1734, 2, 4. 238. Senate Committee on Labor and Public Welfare, Welfare and Pension Plans Legislation: Hearings on S. 1122, S. 1145, S. 1813, S. 2137, S. 2175, 85th Cong., 1st sess., 1957 (hereafter 1957 Senate Labor Hearings), 80. 239. Senate Report 84–1734, 71. 240. Congressional Record, 84th Cong., 2d sess., 1956, 102, pt. 6: 8,335–37. 241. On state legislation, see Bureau of National Affairs, Federal-State Regulations of Welfare Funds (Washington: Bureau of National Affairs, 1958), 14–17. 242. On disclosure regimes, see Stephen Breyer, Regulation and Its Reform (Cambridge, Mass.: Harvard University Press, 1982), 161–64. 243. See, e.g., 1957 House Labor Hearings, 63, 72, 102, 132, 136. 244. 1957 Senate Labor Hearings, 48, 45. 245. Plans that covered twenty-five or more employees had to register with the SEC. Plans that covered one hundred or more employees also would submit annual reports. Welfare and Pension Plans Disclosure Act of 1957, 85th Cong., 1st sess., S. 1122, §§ 5 and 6. 246. Ibid., § 7(a). 247. Ibid., § 11. 248. Ibid., § 11(c). 249. Ibid., § 10. 250. Ibid., § 8. 251. Sar A. Levitan, “Welfare and Pension Plans Disclosure Act,” Labor Law Journal 9 (November 1958), 832–33. 252. 1957 Senate Labor Hearings, 220–21, 270, 315, 376–77, 468, 471. 253. Ibid., 140–41, 185, 328–30, 406. 254. Biemiller to McCormack, June 23, 1958, AFL-CIO Legislation Department, box 29, folder 51. 255. See Senate Report 84–1734, 75; 1957 Senate Labor Hearings, 83. 256. 1957 Senate Labor Hearings, 60. 257. Ibid., 239, 273–74, 291, 319–20, 381. 258. 1957 House Labor Hearings, 185; 1957 Senate Labor Hearings, 197, 332, 406, 492. 259. Taft, Organized Labor in American History, 703. 260. R. Alton Lee, Eisenhower & Landrum-Griffin: A Study in Labor Management Politics (Lexington: University of Kentucky Press, 1990), 51–73; Taft, Organized Labor in American History, 698–99, 703–704.

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Notes to Pages 48–49

261. Taft, Organized Labor in American History, 685. For a similar assessment, see Alan K. McAdams, Power and Politics in Labor Legislation (New York: Columbia University Press, 1964), 11–13. 262. Senate Select Committee on Improper Activities in the Labor or Management Field, Interim Report, 85th Cong., 2d sess., 1958, S. Rpt. 1417, 451. 263. Elmer L. Puryear, Graham A. Barden: Conservative Carolina Congressman (n.p.: Campbell University Press, 1979), 190. 264. Welfare and Pension Plans Disclosure Act of 1958, 85th Cong., 2d sess, S. 2888. See also Levitan, “Welfare and Pension Plans Disclosure Act,” 829; Mitchell to Hill, December 6, 1957, in Senate Committee on Labor and Public Welfare, Welfare and Pension Plans Disclosure Act, 85th Cong., 2d sess., 1958, S. Rpt. 1440 (hereafter Senate Report 85–1440), 22. 265. Senate Report 85–1440, 21. 266. Ibid., 12–16. 267. Ibid., 20, 30. 268. Congressional Quarterly Almanac: 85th Congress, 2d Session, 1958 (Washington: Congressional Quarterly, 1959), 201. 269. See Richard F. Fenno Jr. Congressmen in Committees (Boston: Little, Brown and Company, 1973), 77, 128–29; Andree E. Reeves, Congressional Committee Chairmen: Three Who Made an Evolution (Lexington: University Press of Kentucky, 1993), 24–34. 270. 1957 House Labor Hearings, 123. 271. Puryear, Barden, 192. 272. Ibid. 273. Joint Economic Committee, Review of Report of the Commission on Money and Credit: Hearings before the Joint Economic Committee, 87th Cong., 1st sess., 1961, 315. 274. Welfare and Pension Plans Disclosure Act, 85th Cong., 2d sess., H.R. 13507, §§ 5(a) and 8. The bill is printed at Congressional Record, 85th Cong., 2d sess., 1958, 104, pt. 13: 16,448–50. 275. Levitan, “Welfare and Pension Plans Disclosure Act,” 832. 276. See House Committee on Education and Labor, Welfare and Pension Plans Disclosure Act, 85th Cong., 2d sess., 1958, H. Rpt. 2283, 20. 277. Congressional Quarterly Almanac: 85th Congress, 2d Session, 1958, 203. 278. House Committee, Welfare and Pension Plans Disclosure Act, 26. 279. Congressional Quarterly Almanac: 85th Congress, 2d Session, 1958, 204. 280. Ibid.; McAdams, Power and Politics in Labor Legislation, 43. 281. See Senator Kennedy’s remarks in Congressional Record, 85th Cong., 2d sess., 1958, 104, pt. 14: 17,964. 282. Congressional Quarterly Almanac: 85th Congress, 2d Session, 1958, 204. 283. Welfare and Pension Plans Disclosure Act, Public Law 836, 85th Cong., 2d sess. (August 28, 1958).

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284. Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1958 (Washington: GPO, 1959), 663. Many commentators noted the Disclosure Act’s shortcomings. See Levitan, “Welfare and Pension Plans Disclosure Act,” 833–34; William J. Isaacson, “Employee Welfare and Pension Plans: Regulation and Protection of Employee Rights,” Columbia Law Review 59 (1959), 121–24; Benjamin Aaron, Legal Status of Employee Benefit Rights under Private Pension Plans, (Homewood, Ill.: Richard D. Irwin, 1961), 107–108. 285. See Aaron, Legal Status of Employee Benefit Rights, 4–5.

2. “the most glorious story of failure in the business” 1. See, e.g., Thomas Marsh, “The Journey May Just Be Beginning,” Money Management Letter, April 25, 1994, Special Supplement, p. 1; Michael Allen, “The Studebaker Incident and Its Influence on the Private Pension Plan Reform Movement,” in John H. Langbein and Bruce A. Wolk, Pension and Employee Benefit Law, 3d ed. (New York: Foundation Press, 2000), 68–72; James H. Smalhout, The Uncertain Retirement: Securing Pension Promises in a World of Risk (Chicago: Irwin Professional Publishing, 1996); Donald T. Critchlow, Studebaker: The Life and Death of an American Corporation (Bloomington: Indiana University Press, 1996), 183–84; Karen Ferguson and Kate Blackwell, Pensions in Crisis: Why the System Is Failing America and How You Can Protect Your Future (New York: Arcade Publishing, 1995), 7. 2. The quoted phrase is from Remarks of U.S. Senator Harrison A. Williams, Jr., May 26, 1972, Williams Papers, box 1862, 5–26–72, 6th Annual Conf. Emp. Bebefits [sic] P&W News Mag N.Y.C. folder. 3. See John W. Kingdon, Agendas, Alternatives, and Public Policies, 2d ed. (New York: HarperCollins College Publishers, 1995), 94–95. 4. House Committee on Education and Labor, Private Welfare and Pension Plan Legislation: Hearings on H.R. 1045, H.R. 1046, and H.R. 16462, 91st Cong., 1st and 2d sess., 1969–70 (hereafter 1969–70 House Labor Hearings), 188; Critchlow, Studebaker, 184. United Auto Workers president Walter Reuther corrected Dent. See 1969–70 House Labor Hearings, 198. See also Tom Leswing, “The Story of ERISA: Conceived of Hardship, Laced with Myth,” Money Management Letter, April 25, 1994, Special Supplement, p. 2. 5. See Kingdon, Agendas, Alternatives, and Public Policies, 98, 142–43. 6. Projection of Pension Fund Activities, February 22, 1971, Williams Papers, box 127, no folder, 3. 7. For “pension stampede,” see “Pensions Still No. 1 Labor Problem,” Steel 2 (January 1950), 102. 8. See Minutes of Meeting, January 31, 1950, Studebaker Collection, drawer 1834, Pension Plans—Minutes of Meeting with Union folder. 9. “Chrysler’s Hundred Days,” Fortune, June 1950, 70–72; “GM Gambles on Peace with Union,” U.S. News & World Report, June 2, 1950, 38–39; Studebaker

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Notes to Pages 53–55

Local No. 5 Weekly News, June 14, 1950, Studebaker Collection, drawer 1825, Board of Administration folder. 10. Packard Motor Car Company, 1950 Annual Report (Detroit, Mich.: 1951), 5. 11. For the terms of the GM plan, see “Wage Chronology No. 9: General Motors Corp.,” Monthly Labor Review 72 (1951), 406. 12. Pension Agreement between Studebaker Corp. and UAW Local No. 5, June 23, 1950 (hereafter “1950 Pension Plan”), Studebaker Collection, drawer 1825, Pension Plan Materials folder, 19, 28–29. 13. Ibid., 17, 18–20, 34–35. 14. Ibid., 8–9, 45–47. For a discussion of provisions relieving sponsors from direct liability, see Dan M. McGill, Fulfilling Pension Expectations (Homewood, Ill.: Richard D. Irwin, 1962), 275; and Sass, The Promise of Private Pensions (Cambridge, Mass.: Harvard University Press, 1997), 189. 15. Critchlow, Studebaker, 123; William B. Harris, “Last Stand of the Auto Independents?” Fortune, December 1954, p. 115. 16. Charles E. Edwards, Dynamics of the United States Automobile Industry (Columbia: University of South Carolina Press, 1965), 13. 17. Harris, “Last Stand,” p. 114. 18. Edwards, Dynamics of the United States Automobile Industry, 16. 19. Lawrence J. White, The Automobile Industry since 1945 (Cambridge, Mass.: Harvard University Press, 1971), 13. 20. Ibid., 14. 21. Ibid.; James A. Ward, The Fall of the Packard Motor Car Company (Stanford, Cal.: Stanford University Press, 1995), 110–11. 22. Critchlow, Studebaker, 133–34. 23. Harris, “Last Stand,” 206. 24. Ward, Fall of Packard, 144–48. 25. Ibid., 148; Harris, “Last Stand,” 206. 26. Ward, Fall of Packard, 158–59. 27. 1950 Pension Plan, 49. 28. Evan K. Rowe and Thomas H. Paine, “Pension Plans under Collective Bargaining,” Monthly Labor Review 76 (March 1953), 237; National Industrial Conference Board, Pension Plans and Their Administration: Studies in Personnel Policy, No. 149 (New York: National Industrial Conference Board, 1955), 32. For a general discussion of problems created by lack of vesting at this time, see “Will Pension Plans Go Sour?” U.S. News & World Report, January 15, 1954, pp. 79–81. 29. See William W. Fellers, “Pension Costs and Cost Experience,” in Pensions and Profit Sharing (Washington: Bureau of National Affairs, 1953), 157; William F. Marples, Actuarial Aspects of Pension Security (Homewood, Ill.: Richard D. Irwin, 1965), 17, 54–55. 30. Leonard Lesser, “Problems in Pension Contributions and Benefits,” Proceedings of the Fifth Annual Meeting of the Industrial Relations Research Association, ed. L. Reed Tripp (1953), 89.

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31. Lane Kirkland, “Pensions and the Pensioner,” in Proceedings of the New York University Ninth Annual Conference on Labor, ed. Emanuel Stein (1956), 153. 32. A few employees had retired by 1953, apparently based on service with corporate predecessors. David A. Lamoreaux, “Kaiser’s Terminated Fund—A Case Study,” Pension & Welfare News 8 (September 1972), 72–73. 33. Article 10, quoted in George v. Haber, 343 Michigan Reports 218 (1955). 34. Report on Partial Termination of Kaiser Motors UAW-CIO Retirement Plan for Benefit of Employees on Lay-Off From Willow Run and Jackson Plants, Latimer Papers, box 35, Kaiser Motors Corporation Retirement Trust Fund 6/30/53 Valuation, Dissolution folder. 35. Merton C. Bernstein, The Future of Private Pensions (Glencoe, Ill.: Free Press, 1964), 117. Several years after the Willow Run plant closed, the terms of the retirement plan were amended to allow employees with five or more years of service to receive a pension. Even after this expansion of benefit eligibility, only about 40 percent of the employees covered by the plan met this requirement. Latimer to Bernstein, October 30, 1961, and Latimer to Haber, February 29, 1960, both in Latimer Papers, box 35, Kaiser Motors Corporation Retirement Trust Fund, Correspondence 1960 folder. 36. “Hudson Assembly to Leave Detroit,” New York Times, May 29, 1954, p. 22. 37. “UAW Wins Preferential Hiring for Unemployed Hudson Workers,” United Automobile Worker, February 1955, p. 7. 38. Leonard Woodcock, interview by author, October 25, 1994; “Will Pension Plans Go Sour?” U.S. News & World Report, January 15, 1954, p. 80. 39. “UAW Expected to Offer ‘Concessions’ to Studebaker, Kaiser in Line with American Motors Agreement,” Wall Street Journal, September 6, 1955, p. 3; “It’s Full Pattern for AMC; Pensions for Hudson Force,” United Automobile Worker, September 1955, p. 4. 40. “The 1955 Ford and General Motors Union Contracts,” Monthly Labor Review 78 (August 1955), 880. 41. “It’s Full Pattern for AMC; Pensions for Hudson Force,” 4. 42. Ward, Fall of Packard, 158. 43. Ibid., 168; Robert M. MacDonald, Collective Bargaining in the Auto Industry (New Haven, Conn.: Yale University Press, 1963), 270. 44. Ward, Fall of Packard, 170–73; MacDonald, Collective Bargaining in the Auto Industry, 282–83. 45. Ward, Fall of Packard, 177. 46. Ibid., 212. 47. Ibid., 239–40. 48. Ibid., 243. 49. Dan M. McGill et al., Fundamentals of Private Pensions, 7th ed. (Philadelphia: University of Pennsylvania Press, 1996), 589. Under a variety of actuarial funding methods, employer contributions may exceed the value of a plan’s legal liability for pension benefits.

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Notes to Pages 57–59

50. Bloch to Brindle, June 17, 1958, UAW Social Security Department—Unprocessed, box 4 of 7, Staff Collective Bargaining folder, 4. 51. Robert Paul emphasized the importance of this point. Robert D. Paul, telephone interview by author, June 15, 1999. See also Frank L. Griffin, “The Private Pension Hullabaloo,” Pension & Welfare News 3 (April 1967), 18, and M. B. Folsom, “Old Age on the Balance Sheet,” Atlantic Monthly 143 (1929), 399, 403. 52. A. J. Meuche, “Past Service Benefits,” Proceedings of the New York University Tenth Annual Conference on Labor, ed. Emanuel Stein (1957), 75. See also McGill et al., Fundamentals, 7th ed., 520–22. 53. Joint Committee on the Economic Report, December 1949 Steel Price Increases: Hearings before the Joint Committee on the Economic Report, 81st Cong., 2d sess., 1950, 27, 44–45. 54. Peter Drucker, “The Mirage of Pensions,” Harper’s, March 1950, p. 33. 55. Michael Allen, “The Studebaker Incident,” 69. 56. The pension plans at U.S. Steel, Studebaker, and Ford were integrated with Social Security. For this reason, when Congress increased Social Security benefits in August 1950, their respective past-service liabilities were reduced, perhaps substantially. 57. For discussion of funding practices in several steel industry plans, see George Buck, “How Much Do Employee Benefits Cost?” Handbook on Pensions: Studies in Personnel Policy, No. 103 (New York: National Industrial Conference Board, 1950), 45–47. For a discussion of “interest only” funding, see Dorrance Bronson, Concepts of Actuarial Soundness in Pension Plans (Homewood, Ill.: Richard D. Irwin, 1957), 97–101. 58. McGill et al., Fundamentals, 7th ed., 533–34. 59. Sass, Promise of Private Pensions, 103; Drucker, “The Mirage of Pensions,” 33. 60. Minutes of Meeting, January 31, 1950, Studebaker Collection, drawer 1834, Pension Plans—Minutes of Meeting with Union folder (emphasis in original). 61. Bronson, Concepts of Actuarial Soundness, 27; Senate Committee on Finance, Federal Reinsurance of Private Pension Plans: Hearing on S. 1575, 89th Cong., 2d sess., 1966, 48; Sass, Promise of Private Pensions, 184. 62. William N. Haddad, “Impact of Tax Policy on Private Pensions,” Pensions: Problems and Trends, ed. Dan M. McGill (Homewood, Ill.: Richard D. Irwin, 1955), 70–71. 63. See John B. St. John, “Financing a Pension Plan,” Pensions & Profit Sharing, 3d ed. (Washington, D.C.: Bureau of National Affairs, 1964), 107. 64. J. Perham Stanley, “Pension Plans Negotiated by the UAW-CIO,” Monthly Labor Review 77 (January 1954), 14–15. 65. Buck, “Actuarial Solvency of a Pension Plan,” 130. 66. Public Reinsurance for Private Pension Plans, attached to Young to Weinberg, October 23, 1962, UAW Research Department—Unprocessed, box 12, UAW–Social Security Dept.: Howard Young Correspondence and reports, 1962–1967 folder, 2.

Notes to Pages 59–61

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67. See John Turner and Noriyasu Watanabe, Private Pension Policies in Industrialized Countries: A Comparative Analysis (Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 1995), 98–99. See also Richard A. Ippolito, The Economics of Pension Insurance (Homewood, Ill.: Irwin, 1989), 56. 68. Joint Economic Committee, Private Pension Plans: Hearings before the Subcommittee on Fiscal Policy of the Joint Economic Committee, 89th Cong., 2d sess., 1966 (hereafter 1966 JEC Hearings), 104. 69. See Melvin K. Bers, “Equity and Strategy in Union Retirement Policy,” Industrial Relations 4 (1965), 43–45. For figures on mandatory and normal retirements at GM, Ford, and Chrysler, see Charles E. Odell, “The Case for Early Retirement,” Industrial Relations 4 (1965), 16 tbl.1. 70. For early recognition of this problem, see Weinberg to Reuther, November 19, 1951, Reuther Collection, box 150, folder 5. See also McGill et al., Fundamentals, 7th ed., 522; Sass, Promise of Private Pensions, 185–86. 71. Studebaker-Packard’s 1953 agreement required it to fund its new pastservice liability over a thirty-year period from the date the liability was created: in other words, by June 1, 1983. The past-service liability under the 1950 pension agreement would continue to be funded on the schedule under the 1950 plan—by 1980. Supplemental Pension Agreement, June 1, 1953, Studebaker Collection, drawer 1834, Pension Plan—Hourly Rated folder, 1. The pension agreement for 1955 established a new amortization schedule pursuant to which all past-service liability (including liability created in 1950 and 1953) would be funded by 1985. See Exhibit “A,” Supplemental Agreement (Pension Plan), November 9, 1955, Studebaker Collection, drawer 3725, Exhibit A—Pension Plan Agreement folder. 72. McGill et al, Fundamentals, 7th ed., 534–35. 73. 1950 Pension Plan, 8–9. 74. Sass, Promise of Private Pensions, 206. 75. Bassett to Bryar, April 1, 1957, Studebaker Collection, drawer 3725, Pension Plans—Gen. Correspondence folder. 76. Actuarial Report by Towers, Perrin, Forster & Crosby, Inc., for Studebaker-Packard Corp., UAW-CIO Pension Plan tbl. 57–4, June 24, 1958, UAW Local 5 Collection, box 28, Pension Plan—1956–1958 folder. 77. Wray to MacMillan, March 24, 1958, Studebaker Collection, drawer 710, Fringe Benefits Costs folder. 78. MacMillan to Hill, August 27, 1957, drawer 3725, Pension Plans—General Correspondence folder. 79. Frederick H. Harbison, “The General Motors—United Auto Workers Agreement of 1950,” Journal of Political Economy 58 (1950), 401. 80. In 1958, hourly employees in South Bend worked slightly less than eight million hours. If the $931,000 per year figure calculated by Studebaker’s actuaries is used, the cost of amortizing Packard pensions in that year would have exceeded 11.5¢ per hour if Studebaker had not shed this obligation in July 1958. See Studebaker-Packard Corporation, Base Wages and Fringe Benefits—

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Notes to Pages 61–64

Hourly Rated Employees for the Calendar Year 1958, notebook No. 91.51.188F, Costs tab, SNMA. 81. Memo from M. L. Milligan, August 22, 1958, Studebaker-Packard Litigation Papers, box 42, Pension Plan-Amendment and Partial Termination folder. 82. Rosdolsky to Berndt, October 24, 1963, Reuther Collection, box 168, folder 7. 83. Ibid. 84. Milligan to Porta, August 27, 1957, Studebaker Collection, drawer 710, Administration of Studebaker-Packard Corporation UAW-AFL-CIO Pension Plan Agreement folder. 85. Feuer to Victor, October 22, 1957, Studebaker Collection, drawer 710, Administration of Studebaker-Packard Corporation UAW-AFL-CIO Pension Plan Agreement folder; McNerney to MacMillan, S. B. Feuer, & W. P. Wray, no date, Studebaker Collection, drawer 1290, Local 190 notebook, Minutes tab. 86. See Richard Hammer, “Welcome, Sherwood Egbert,” Fortune, December 1961, p. 158. 87. See “New Try for S-P,” Business Week, August 9, 1958, p. 32; “Studebaker-Packard Bets It All,” Business Week, September 6, 1958, pp. 148, 150, 152. 88. MacMillan to Churchill, April 25, 1958, Studebaker Collection, drawer 1290, Local 190 folder, 2. 89. Feuer to Victor, May 14, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab; and memorandum, Local 190 Collective Bargaining Agreement Negotiations, no date, Studebaker Collection, drawer 1290, Local 190 notebook, Minutes tab, 2. 90. Inland Steel Co. v. NLRB, 77 NLRB 1, enf’d, 170 F.2d 247 (7th Cir. 1948), cert. denied, 336 U.S. 960 (1949). 91. More precisely, an employer could not take unilateral action until it had bargained to impasse with the union. See generally J. Gilmer Bowman Jr., “An Employer’s Unilateral Action—An Unfair Labor Practice?” Vanderbilt Law Review 9 (1956) 500–503. 92. Wray to MacMillan, April 23, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab. 93. MacMillan to Churchill, April 25, 1958, Studebaker Collection, drawer 1290, Local 190 folder. 94. Ibid. 95. History of Pension Plan and Showing of Business Necessity for Curtailment, 1–4, exhibit A to Feuer to Director of Internal Revenue, Pension Trust Division, Indianapolis, Ind., July 7, 1958, Studebaker-Packard Litigation Papers, box 42, Pension Plan-Amendment and Partial Termination folder; Supplemental Agreement (Pension Plan), Studebaker Collection, drawer 3725, Exhibit A— Pension Plan Agreement folder, 3–4. 96. History of Pension Plan and Showing of Business Necessity for Curtailment, 4. 97. 1950 Pension Plan, 49–51. See also Block to Brindle, June 17, 1958, 1. 98. Memorandum, Studebaker-Packard Corp., UAW-CIO Pension Plan Ac-

Notes to Pages 64–66

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tuarial Liabilities as of Dec. 31, 1957, dated June 20, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab. 99. Memorandum, Local 190 Collective Bargaining Agreement Negotiations, 3. 100. Christensen to Milligan, June 10, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab, 2. 101. Ibid., 3. 102. Ibid. 103. MacMillan to Morris, April 28, 1958, Studebaker Collection, drawer 1290, Local 190 folder. 104. Morris to MacMillan, June 11, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab. 105. MacMillan to Morris, June 17, 1958, Studebaker Collection, drawer 1290, Local 190 folder. 106. Minutes, Meeting with International Union—190 Agreement, June 20, 1958, 1–2; memorandum, Telephone Conversation with Ken Morris, June 23, 1958; and MacMillan to Churchill, June 26, 1958, all in Studebaker Collection, drawer 1290, Local 190 folder. 107. MacMillan to Churchill, June 26, 1958. 108. MacMillan to Mariner, July 2, 1958, Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Correspondence tab. 109. MacMillan to Churchill, August 13, 1958, Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Correspondence tab. 110. Contract Negotiations, Meeting #25, August 20, 1958—9 a.m., 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Minutes tab. 111. Minutes, Company-Union Meeting—Detroit Phase-Out Problems, Local 190, August 21, 1958, drawer 1290, Local 190 folder. 112. Berndt and Morris to McMillan, August 26, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab. 113. Ibid. 114. Memorandum, UAW-CIO’s Claims on Behalf of Packard Pensioners, October 1, 1958, Studebaker-Packard Litigation Papers, box 42, Pension PlanAmendment and Partial Termination folder, 4. 115. Minutes, Meeting #28: Contract Negotiations, August 27, 1958, Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Minutes tab. 116. Ibid. 117. MacMillan to Braner, August 29, 1958, Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Minutes tab; Minutes, Membership Meeting, August 28, 1958, Local 5 Collection, box 10, Minutes of Executive Board and Membership Meetings—1958 folder. 118. Amendment to UAW-CIO Pension Plan, August 27, 1958, Studebaker Collection, drawer 1290, Local 190 notebook, Correspondence tab, 2.

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Notes to Pages 66–69

119. Nolan to Feuer, July 23, 1958, Studebaker-Packard Litigation Papers, box 42, Pension Plan—Amendment and Partial Termination folder, 1. 120. Feuer to Christensen, August 1, 1958, Studebaker-Packard Litigation Papers, box 42, Pension Plan-Amendment and Partial Termination folder. 121. Memorandum, UAW-CIO’s Claims on Behalf of Packard Pensioners, October 1, 1958, 4. 122. Complaint, Int’l Union, United Automobile Workers of Am. v. Studebaker-Packard Corp. (E.D. Mich. filed 17 November 1958) (No. 18577), Studebaker-Packard Litigation Papers, box 41, The International Union, United Automobile, Aircraft and Agricultural Implement Workers of America folder. 123. Minutes, Meeting #63: Contract Negotiations, October 22, 1958, Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Minutes tab. 124. Minutes, Meeting #67: Contract Negotiations, November 7, 1958, Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Minutes tab. 125. Minutes, Meeting #79: Contract Negotiations, November 27, 1958, and Collective Bargaining Agreement Memorandum of Understanding, November 27, 1958, both in Studebaker Collection, 1958 Negotiation Minutes and Proposals notebook [No. 91.51.184], Minutes tab. 126. “Studebaker, UAW Slate Pension Cut for Packard Workers Pending Shift,” Wall Street Journal, February 2, 1959, in Studebaker-Packard Litigation Papers, Studebaker Collection, box 42, Pension Plan—Amendment and Partial Termination folder. 127. Memorandum, UAW v. Studebaker-Packard Corp., Negotiations for Settlement, October 28, 1959, Studebaker-Packard Litigation Papers, box 41, The International Union, United Automobile, Aircraft and Agricultural Implement Workers of America folder; Asher Lauren, “Packard Pensions Assured,” Detroit News, December 11, 1959, in Studebaker-Packard Litigation Papers, box 42, Pension Plan—Amendment and Partial Termination folder. 128. Lauren, “Packard Pensions Assured.” 129. Nat Weinberg, WPR Note, no date, UAW Research Department—Unprocessed, box 107, Pension Investments folder. 130. Bloch to Brindle, June 17, 1958, 1. 131. Ibid., 4. 132. Ibid., 2. 133. Sass, Promise of Private Pensions, 185. 134. Young to Brindle, September 15, 1961, Young Collection, box 1, 1961 chronological file. 135. Bloch to Brindle, June 17, 1958, 2. For discussion of the apparent unfairness of this termination arrangement, see Sass, Promise of Private Pensions, 184; and Langbein and Wolk, Pension and Employee Benefit Law, 73. 136. Brindle to Regional Directors and Department Heads, November 6, 1958, UAW Research Department—Unprocessed, box 62, UAW—Pensions 1960–70 (2 of 2) folder, 2.

Notes to Pages 69–72

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137. For a discussion that follows the logic of this paragraph, see Solenberger to Lesser, February 28, 1964, UAW Research Department—Unprocessed, box 106, Pension Reinsurance Corres.—Prior to 1970 folder. 138. See Victor P. Goldberg, “Institutional Change and the Quasi-Invisible Hand,” Journal of Law and Economics 17 (1974), 461. 139. Weinberg to Reuther, March 22, 1961, Reuther Collection, box 164, folder 13. 140. For “incentive structure,” see Douglass North, “Institutions,” Journal of Economic Perspectives 5 (1991), 97. See also Sass, Promise of Private Pensions, 210. 141. Weinberg to Reuther, March 22, 1961. 142. My discussion of the problems with a pension guaranty fund generally follows Dan M. McGill, “Guaranty Fund for Private Pension Obligations,” in Subcommittee on Fiscal Policy, Joint Economic Committee, Report on Old Age Income Assurance: Part V: Financial Aspects of Pension Plans, 90th Cong., 1st sess., 1967, Committee Print, 199–247. For discussion of the persistent problems with ERISA’s termination insurance program, see Ippolito, Economics of Pension Insurance; Steven Sass, “Risk at the PBGC: The Public Guarantee of Private Pension Benefits,” Regional Review (spring 1996), 19–24. 143. See James L. Athearn, Risk and Insurance, 2d ed. (New York: AppletonCentury-Crofts, 1969), 35–41. 144. Carol A. Heimer, Reactive Risk and Rational Action: Managing Moral Hazard in Insurance Contracts (Berkeley: University of California Press, 1985), 1. 145. Paul Milgrom and John Roberts, Economics, Organization and Management (New York: Prentice-Hall, 1992), 595. 146. “Guaranty Fund for Private Pension Obligations,” 207, 218. 147. Willard E. Solenberger, Notes on Pension Reinsurance Scheme, March 22, 1962, UAW Research Department—Unprocessed, Pension Reinsurance Corres.—Prior to 1970 folder (hereafter “Solenberger Notes on Pension Reinsurance Scheme”), 1. 148. See Ippolito, Economics of Pension Insurance, 69–73. 149. Young to Lesser, April 16, 1962, Young Collection, box 1, 1962 chronological file. 150. Ibid. 151. See Solenberger, Notes on Pension Reinsurance Scheme, 3. 152. Ibid. 153. Ibid. 154. Public Reinsurance for Private Pension Plans, attached to Young to Lesser, April 16, 1962, Young Collection, box 1, 1962 chronological file, 6. 155. Cf. Young to Weinberg, July 15, 1963, Young collection, box 1, 1963 chronological file,1–3. 156. Solenberger, Notes on Pension Reinsurance Scheme, 6. 157. Sass, Promise of Private Pensions, 209–10. 158. Solenberger, Notes on Pension Reinsurance Scheme, 4.

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Notes to Pages 72–75

159. Young to Lesser, April 16, 1962, 3. 160. Solenberger, Notes on Pension Reinsurance Scheme, 2. 161. See generally Public Reinsurance for Private Pension Plans, 6; Young to Lesser, April 16, 1962. 162. Public Reinsurance for Private Pension Plans, 5. Pay-as-you-go plans were later dropped from the proposal. 163. Ibid., 6. 164. For “exposure premium,” see Ippolito, Economics of Pension Insurance, 92. 165. Public Reinsurance for Private Pension Plans, 1. 166. Ibid., 4 n. *. 167. Ibid., 7–8. For the phrase “suicide clause,” see Solenberger, Notes on Pension Reinsurance Scheme, 3. 168. Weinberg to Lesser, February 7, 1964, and attachment, Possible Method for Applying Pension Re-Insurance to Declining Firm, Research Department— Unprocessed, box 106, Pension Reinsurance Corres.—Prior to 1970 folder. 169. Hammer, “Welcome, Sherwood Egbert,” 158. 170. See Critchlow, Studebaker, 169–74. 171. Hammer, “Welcome, Sherwood Egbert,” 160. 172. See Studebaker Corporation, attached to Rosdolsky to Berndt, October 24, 1963, Reuther Collection, box 168, folder 7, 2–3, tbl. II (hereafter “Rosdolsky Memo on Studebaker Corporation”); see also Critchlow, Studebaker, 168. 173. See MacMillan to Churchill, April 16, 1959, Studebaker Collection, Negotiations 1959 notebook, Correspondence tab. 174. See MacMillan to Churchill, September 2, 1959, Studebaker Collection, Negotiations 1959 notebook, Correspondence tab. 175. See 1966 JEC Hearings, 104. 176. Ibid. 177. In 1958 the cost of the Studebaker’s bargained pension plans, of which Local 5’s was far and away the largest, was $2,573,000. If the increased benefits in the 1959 Agreement were funded by 1985, the annual cost would have increased to $2,825,000. Under the extended amortization schedule, the annual cost would be $2,743,000. See Annual Pension Plan Costs, attached to Bush to Rieffel, June 18, 1959, Studebaker Collection, Negotiations 1959 notebook, Pensions tab. 178. Rosdolsky Memo on Studebaker Corporation, 3. See also Critchlow, Studebaker, 172. 179. Rosdolsky Memo on Studebaker Corporation, 3. 180. Rosdolsky to Berndt, October 24, 1963; Rosdolsky Memo on Studebaker Corporation, 3–4. See also Hammer, “Welcome, Sherwood Egbert,” 160. 181. Memorandum from MacMillan, September 28, 1961, Studebaker Collection, drawer 3693, Negotiations—1961 folder, 1. 182. Young to Solenberger, October 24, 1961, Young Collection, box 1, 1961 chronological file.

Notes to Pages 75–77

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183. Memorandum, 1961 Contract Negotiations, October 31, 1961, Studebaker Collection, 1961–1962 Negotiation Index [No. 43] notebook [No. 91.51.165], Special Topics tab. 184. Memorandum, 1961 Contract Negotiations, November 30, 1961, Studebaker Collection, 1961–1962 Negotiation Index [No. 43] notebook [No. 91.51.165], Special Topics tab. 185. Memorandum, 1961 Contract Negotiations, December 13, 1961, Studebaker Collection, 1961–1962 Negotiation Index [No. 43] notebook [No. 91.51.165], Special Topics tab; 1966 JEC Hearings, 104. 186. See Rosdolsky Memo on Studebaker Corporation, 4. 187. Ibid., appendix, 3. 188. Ibid., 4, 6. 189. Ibid., 6. 190. Frederick Taylor, “Studebaker Corp. Will Stop Making Autos in U.S.: Plans to Import Cars From Canadian Assembly Plant,” Wall Street Journal, December 10, 1963, p. 3. 191. “Automobiles: Studebaker’s Problems,” Newsweek, November 25, 1963, p. 93 (quote); Critchlow, Studebaker, 181; “Workers and Dealers Are Stunned by Studebaker Plan,” Wall Street Journal, December 10, 1963, p. 3. 192. Weinberg to Reuther, December 28, 1963, UAW Research Department—Unprocessed, box 64, Studebaker, 1963–64 folder. 193. Solenberger to Mazey, January 29, 1964, Reuther Collection, box 168, folder 8. 194. Letter from Frick and Fox, January 7, 1964, Local 5 Collection, box 28, Pension Plan 1964–65 folder. 195. Statement Made to Union in Response to Their Request for Additional Pension Funding, January 20, 1964, Local 5 Collection, box 28, Pension Plan 1964–65 folder. 196. WPR Note, January 27, 1964, Reuther Collection, box 117, folder 7. 197. Special Meeting—Company Given General Grievance #214, October 8, 1964, Studebaker Collection, 1964 Negotiations notebook [No. 91.51.192], Meeting Minutes tab. 198. Solenberger to Bush, July 22, 1964, Studebaker Collection, drawer 1834, Pension Plan Termination (Local #5) folder. 199. Studebaker Corporation Pension Plan Termination Agreement, October 15, 1964, Studebaker Collection, drawer 1834, Pension Plan Termination (Local #5) folder; 1966 JEC Hearings, 108–109, 123–28. 200. Welfare and Pension Plans Disclosure Act, Public Law 836, 85th Cong., 2d sess. (August 28, 1958). 201. Dan M. McGill, “Pensions: Current Developments,” Transactions of the Society of Actuaries 13, pt. 2 (1961), D101. See also “How Safe Are Pension Plans?” Business Week, December 10, 1960, p. 126. 202. Kennedy Memo, March 28, 1962, Appendix C to President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Pro-

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Notes to Pages 77–82

grams, Public Policy and Private Pension Programs: A Report to the President on Private Employee Retirement Plans (Washington: GPO, 1965) 203. Weinberg to Reuther, March 23, 1963, UAW Research Department— Unprocessed, box 53, Govn.-Labor-Mgt. Advisory Comm.; Corres.; Mar–June 1963 folder. 204. President’s Committee on Corporate Pension Funds, Provisional Report, November 15, 1962, Heller Papers, box 37, March 25, 1963-Labor-Management Advisory Committee folder, 18. 205. Kennedy to Hodges, February 5, 1963, WHCF, LA9, box 466, WelfarePensions-Retirement Feb. 11, 1963 thru folder, Kennedy Presidential Papers. 206. Report to the President from the President’s Advisory Committee on Labor-Management Policy on the Recommendations by the Cabinet Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, Appendix D to Public Policy and Private Pension Programs, 10. 207. Weinberg to Reuther, December 28, 1963. 208. See Public Reinsurance of Private Pension Plans, WHCF, EX LE/LA6, box 136, Railroad 6/26/67 folder, Johnson Presidential Papers. 209. Johnson’s reasons are discussed in chapter 3. 210. Solenberger to Lesser, June 24, 1964, UAW Research Department— Unprocessed, box 106, Pension Reinsurance Corres.—Prior to 1970 folder. 211. Ibid. 212. S. 3071, 88th Cong., 2d sess. The bill is printed at Congressional Record, 88th Cong., 2d sess., 1964, 110, pt. 13: 17,725–26. 213. Congressional Record, 88th, 2d sess., 1964, 110, pt. 13: 17, 725 214. Surrey to Zeitlin, August 3, 1964, and Zeitlin to Surrey, August 6, 1964, both in Surrey Papers, box 107, Pensions–Cabinet Committee (2) 1964–1967 folder. 215. The distinction I draw here owes something to the discussion in Alan David Freeman,“Legitimizing Racial Discrimination through Antidiscrimination Law: A Critical Review of Supreme Court Doctrine,” Minnesota Law Review 62 (1978), 1052–57; and Deborah A. Stone,“Causal Stories and the Formation of Policy Agendas,” Political Science Quarterly 104 (summer 1989), 281–300.

3. “the ‘bible’ in this field” 1. President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, Public Policy and Private Pension Programs: A Report to the President on Private Employee Retirement Plans (Washington: GPO, 1965) (hereafter Public Policy and Private Pension Programs). 2. Congressional Record, 90th Cong., 1st sess., 1967, 113, pt. 4: 4,651. 3. Welfare and Pension Plans Disclosure Act Amendments of 1959, 86th Cong., 1st sess., H.R. 7489; Congressional Record, 86th Cong., 1st sess., 1959, 105, pt. 7: 9,614–15. 4. Alan K. McAdams, Power and Politics in Labor Legislation (New York: Columbia University Press, 1964), 41.

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5. See Congressional Record, 86th Cong., 2d sess., 1960, 106, pt. 12: 16,253–54, and pt. 14: 18,498–500. 6. Welfare and Pension Plans Disclosure Act Amendments of 1961, 87th Cong., 1st sess., S. 1944. Printed at Congressional Record, 87th Cong., 1st sess., 1961, 107, pt. 7: 8,593–96. 7. Anthony A. Abato, Jr., “The Welfare and Pension Plans Disclosure Act,” George Washington Law Review 30 (1962), 682, 692–93. 8. S. 1944, 87th Cong., § 15 (1961). See also Congressional Record, 87th Cong., 1st sess., 1961, 107, pt. 7: 8,595–96. Compare Welfare and Pension Plans Disclosure Act of 1958, S. 2888, 85th Cong., § 12 (1958). The version of S. 2888 passed by the Senate is printed at Congressional Record, 85th Cong., 2d sess., 1958, 104, pt. 6: 7,524–28. 9. S. 1944, § 8. Compare S. 2888, § 6(b). 10. S. 1944, § 17. Compare S. 2888, § 13. 11. See Charles V. Hamilton, Adam Clayton Powell, Jr.: The Political Biography of an American Dilemma (New York: Atheneum, 1991), 338–59. 12. Congressional Quarterly Almanac: 87th Congress 1st Session 1961 (Washington: Congressional Quarterly, 1962), 286. 13. Ibid., 287. 14. Senate Committee on Labor and Public Welfare, Welfare and Pension Plans Disclosure Act Amendments of 1961, 87th Cong., 1st sess., 1961, S. Rept. 908 (hereafter Senate Report 87–908), 3 (quote); House Committee on Education and Labor, Welfare and Pension Plan Disclosure Amendments of 1961, 87th Cong., 1st sess., 1961, H. Rept. 998 (hereafter House Report 87–998). See also Congressional Quarterly Almanac: 87th Congress 1st Session 1961, 287. 15. House Report 87–998, 8 (quote), 15; Senate Report 87–908, 21. 16. Congressional Quarterly Almanac: 87th Congress 2d Session 1962 (Washington: Congressional Quarterly, 1963), 521. 17. Public Papers of the Presidents of the United States: John F. Kennedy, 1962 (Washington: GPO, 1963), 249. 18. Welfare and Pension Plans Disclosure Act Amendments of 1962, Public Law 87–420, 87th Cong., 2d sess. (March 20, 1962), § 15 (adding § 9(h)). 19. Congressional Quarterly Almanac: 86th Congress, 1st Session 1959 (Washington: Congressional Quarterly, 1960), 199. 20. Senate Committee on Finance, Pension Plans for Owner-Managers of Corporations: Hearings before the Committee on Finance, 86th Cong., 2d sess., 1960; Senate Committee on Finance, Self-Employed Individuals Tax Retirement Act of 1960, 86th Cong., 2d sess., 1960, S. Rpt. 1615. 21. See Congressional Record, 87th Cong., 1st sess., 1961, 107, pt. 1: 35. 22. See Stanley S. Surrey, “The Congress and the Tax Lobbyist—How Special Tax Concessions Get Enacted,” Harvard Law Review 70 (1957), 1145; Walter W. Heller, “Some Observations on the Role and Reform of the Federal Income Tax,” in House Committee on Ways and Means, Tax Revision Compendium, 86th Cong., 1st sess., 1959, Committee Print, 181; Statement of Mortimer Caplin, in House Ways and Means Committee, General Revenue Re-

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Notes to Pages 83–85

vision, Part 3: Hearings Before the Committee on Ways and Means, 85th Cong., 2d sess., 1958, 2439. 23. Julian E. Zelizer, Taxing America: Wilbur D. Mills, Congress, and the State, 1945–1975 (Cambridge: Cambridge University Press, 1998), 180–82. 24. Taxation Task Force, Tax Policy for 1961, December 31, 1960, PrePresidential Papers of John F. Kennedy, box 1072, Task Force Reports, Taxation Task Force folder, JFK Library, 93–94. 25. Ibid., 98. 26. Public Papers of the Presidents of the United States: John F. Kennedy, 1961 (Washington: GPO, 1962), 290–91. 27. Tax Policy for 1961, 115. See also Senate Committee on Finance, SelfEmployed Individuals’ Retirement Act: Hearings on H.R. 10, 87th Cong., 1st sess., 1961 (hereafter 1961 Senate Finance Hearings), 21–25 (1961). 28. Tax Policy for 1961, 118. 29. Ibid., 113. See also 1961 Senate Finance Hearings, 25. 30. House Committee on Ways and Means, Self-Employed Individuals Tax Retirement Act of 1961, 87th Cong., 1st sess., 1961, H. Rept. 378 (hereafter House Report 87–378). For Treasury criticism in executive sessions, see the remarks of Eugene Keogh (D, N.Y.) and John Byrnes (R, Wis.) in Congressional Record, 87th Cong., 1st sess., 1961, 107, pt. 7: 9,469. 31. Congressional Quarterly Almanac: 87th Congress, 2d Session 1962, 534. 32. 1961 Senate Finance Hearings, 25. 33. Senate Committee on Finance, Self-Employed Individuals Tax Retirement Act of 1961, 87th Cong., 1st sess., 1961, S. Rept. 992 (hereafter Senate Report 87–992). 34. Public Papers of the Presidents: John F. Kennedy, 1962, 54–55; “Kennedy Appoints 3 Economic Panels,” New York Times, April 3, 1962, p. 23. 35. “C.E.D. Completes Formation of National Monetary and Credit Commission,” Commercial and Financial Chronicle, June 5, 1958, p. 2526. 36. Commission on Money and Credit, Money and Credit: Their Influence on Jobs, Prices, and Growth (Englewood Cliffs, N.J.: Prentice-Hall, 1961). 37. “C.E.D. Completes Massive Money and Credit Study,” Commercial and Financial Chronicle, August 3, 1961, p. 495. 38. Heller to JFK, June 21, 1961, Heller Papers, box 5, Memos to JFK, 6/61 folder; Heller to JFK, October 6, 1961, Heller Papers, box 5, Memos to JFK, 10/4/61–10/16/61 folder. 39. Tobin to Professional Staff, November 1, 1961, Gordon Papers, box 27, Commission on Money and Credit folder. 40. Money and Credit, 175–77. 41. Ibid., 176. 42. Joint Economic Committee, Review of Report of the Commission on Money and Credit: Hearings before the Joint Economic Committee, 87th Cong., 1st sess., 1961, 282. The Disclosure Act did not require a plan to disclose information to an employee unless the employee submitted a written request.

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43. In the argot of the garbage-can theory of organization, Kennedy’s request provided a “choice opportunity.” See John W. Kingdon, Agendas, Alternatives, and Public Policies, 2d ed. (New York: HarperCollins College Publishers, 1995), 85. 44. Comments on the Report of the Commission on Money and Credit, Gordon Papers, box 27, Commission on Money and Credit folder, 22. 45. See Suggestions for research in the pension area, September 14, 1961, and other materials in OTP Files, box 48, folder 45. See also the materials in Surrey Papers, box 99, Pension–Profit Sharing Plan folder. 46. Heller to Sorensen, December 14, 1961, Gordon Papers, box 27, Commission on Money and Credit folder. 47. Public Papers of the Presidents: John F. Kennedy, 1962, 54–55. 48. Labor and Welfare Division to the Director, April 24, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #1. 49. Kennedy Memo, March 28, 1962, Appendix C to Public Policy and Private Pension Programs. 50. Meeting of the President’s Committee on Corporate Pension Funds, April 25, 1962, Surrey Papers, box 100, Pensions—Cabinet Committee 1962– 1964 folder. 51. Proposed Working Outline of Study and Report for Meeting No. 2, June 5, 1962, included in President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, June 5, 1962, Agenda (hereafter “June 5 Documents”), Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee, Agendas and Minutes of Meetings; Simler to Heller, October 25, 1962, Gordon Papers, box 37, Norman J. Simler folder. 52. Simler to Heller, October 25, 1962. 53. In fact, Surrey probably helped develop this view. He held a position in the Treasury Department when the agency used the subsidy theory to justify controversial regulations for integrating private pension plans with OASI. See Biegel to Surrey, 11 May 1943, and Barker to Surrey, 21 December 1943, both in Files of the Secretary of the Treasury, 1933–1956, Tax—Pension Fund Contributions folder. 54. Tax Policy for 1961, 98. 55. See Suggestions for research in the pension area, September 14, 1961. 56. See Surrey to Brazer, April 9, 1962, Surrey Papers, box 100, Pensions— Cabinet Committee, 1962–1964 folder. 57. Minutes, Meeting No. 1, April 25, 1962, in June 5 Documents. 58. Memorandum re: Tax treatment of retirement plans, August 27, 1962, OTP Files, box 48, folder 47, 6. 59. Ibid., 4. 60. Ibid., 9. 61. Issues Regarding Tax Treatment of Pension Plans, attached to President’s Committee on Corporate Pension Funds and Other Private Retirement and

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Notes to Pages 88–90

Welfare Programs, April 25, 1962, Agenda (hereafter “April 25 Documents”), Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee, Agendas and Minutes of Meetings, 2. 62. Herman C. Biegel and William B. Harman, Jr., “Tax Aspects of Pension Plans,” in Pensions and Profit Sharing, 3d ed. (Washington: Bureau of National Affairs, 1964), 49–50. 63. Tax Treatment of Pension, Profit-Sharing, and Stock Bonus Plans, August 27, 1962, OTP Files, box 48, folder 47, 8. 64. Ibid., 7. 65. Ibid., 6. 66. Memorandum re: Tax treatment of retirement plans, 13. 67. Tax Treatment of Pension, Profit-Sharing, and Stock Bonus Plans, 8–9. 68. Ibid., 7–8. 69. Memorandum re: Tax treatment of retirement plans, 21. 70. Tax Treatment of Pension, Profit-Sharing, and Stock Bonus Plans, 10. 71. Ibid., 9. 72. Isidore Goodman, “Legislative Development of the Federal Tax Treatment of Pension and Profit-Sharing Plans,” Taxes 49 (1971), 234. 73. Ibid.; Memorandum re: Tax treatment of retirement plans, 35. 74. Memorandum re: Tax treatment of retirement plans, 36. 75. Minutes, Staff Meeting No. 14, October 1, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee, Agendas and Minutes of Meetings, 3. 76. Tax Treatment of Pension, Profit-Sharing, and Stock Bonus Plans, 10. 77. “Dirksen Plans Rider to Tax Revision Bill to Give Some Tax Relief to Self-Employed,” Wall Street Journal, August 24, 1962, p. 5. 78. Congressional Record, 87th Cong., 2d sess., 1962, 108, pt. 13: 17,426. 79. Congressional Quarterly Almanac: 87th Congress 2d Session 1962, 534. 80. Congressional Record, 87th Cong., 2d sess., 1962, 108, pt. 14: 18,847. 81. Joseph P. Mulhern, “Executive Compensation and Fringe Benefits,” Taxes 40 (1962), 944. 82. Tax Treatment of Retirement Plans and Retirement Income, October 24, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #3, 2. 83. Agenda for meeting on tax reform regarding qualified pension plans and H.R. 10, October 27, 1961, OTP Files, box 48, folder 45; Mulhern, “Executive Compensation and Fringe Benefits,” 943–44. 84. House Report 87–378, 6; Senate Report 87–992, 4, 11. The House bill generally proposed less stringent requirements for self-employed persons with three or fewer employees. 85. House Report 87–378, 9–10; Senate Report 87–992, 15–16. 86. House Report 87–378, 7–9; Senate Report 87–992, 13–15. 87. House Report 87–378, 14; Senate Report 87–992, 24. Like employees in a corporate plan, employees who participated in a self-employed plan received capital gains treatment.

Notes to Pages 90–93

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88. House Report 87–378, 14; Senate Report 87–992, 24. 89. Congressional Quarterly Almanac: 87th Congress 2d Session 1962, 535. 90. Ibid. The quote is from “A Tax Move That Could Really Hurt,” U.S. News and World Report, September 24, 1962, p. 112. 91. Mulhern, “Executive Compensation and Fringe Benefits,” 947. See also Charles C. Hinckley, “Keogh-Smathers Act—Take Another Look before Condemning It,” Taxes 41 (1963), 263, 266. 92. Congressional Quarterly Almanac: 87th Congress 2d Session 1962, 508–35. 93. Minutes, Staff Meeting No. 13, September 24, 1962; Minutes, Staff Meeting No. 14, October 1, 1962; Minutes, Staff Meeting No. 15, October 5, 1962, all in Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee, Agendas and Minutes of Meetings. 94. Congressional Quarterly Almanac: 87th Congress 2d Session 1962, 536. 95. Comments of Dan M. McGill, “Current Developments,” Transactions of the Society of Actuaries 13, pt. 2 (1961), D101; “How Safe Are Pension Plans?” Business Week, December 10, 1960, p. 126. 96. Hilary L. Seal, “Ontario’s Pension Benefits Bill,” Trusts and Estates 100 (1961), 816, 816–817; Donald MacGregor, “New Pension Approach,” Trusts and Estates 102 (1963), 420–21. See also Sass, Promise of Private Pensions, 195–96. 97. See Dorrance Bronson, “Current Developments,” Transactions of the Society of Actuaries 13, pt. 2 (1961), D104. 98. I owe this point to a conversation with James Tobin. Paul Jackson made the same observation in 1969. Paul Jackson, “Discussion and Comments on Papers by Mr. Siegfried and Mr. Myers,” Private Pensions and the Public Interest (Washington: American Enterprise Institute, 1970), 55. Academics and former academics who played a role in the Cabinet Committee included Walter Heller, James Tobin, Stanley Surrey, Willard Wirtz, and William Cary, as well as a number of staffers. 99. On vesting of TIAA-CREF pensions, see William C. Greenough, It’s My Retirement Money, Take Good Care of It: The TIAA-CREF Story (Homewood, Ill.: Irwin, 1990), 87–88. 100. Fein to CEA and Ulman, April 26, 1962, Heller Papers, microfilm reel 75. 101. See Clark Kerr, “Social and Economic Implications of Private Pension Plans,” Commercial and Financial Chronicle, December 1, 1949, p. 2201; Arthur M. Ross, “The New Industrial Pensions,” Review of Economics and Statistics 32 (1950), 133, 137. 102. Proposed Working Outline of Study and Report, dated May 31, 1962, and Outline of Study, Manpower Policy and Corporate Pension Plans, in June 5 Documents; Suggested Method of Proceeding for Working Group, dated May 14, 1962, Budget Records, R3–3 Corporate Pension Funds Committee #1. 103. See Labor and Welfare Division to the Director, October 23, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #1.

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Notes to Pages 93–95

104. President’s Committee on Corporate Pension Funds, Provisional Report, November 15, 1962, Heller Papers, box 37, March 25, 1963—Labor-Management Advisory Committee folder, 22. 105. Memorandum re: Tax Treatment of Retirement Plans, 24. See also Minutes, Staff Meeting No. 12, September 17, 1962, 2. 106. Memorandum re: Tax Treatment of Retirement Plans, 6, 25–26, 27. 107. Ibid., 25–26. 108. Minutes, Staff Meeting No. 12, September 17, 1962, 2. 109. This point is noted in Edwin W. Patterson, Legal Protection of Private Pension Expectations (Homewood, Ill.: Richard D. Irwin, 1960), 238. 110. Minutes, Staff Meeting No. 12, September 17, 1962, 2. 111. Ibid., 4. 112. For this concern, see John P. Jones, Costs of Vesting in Private Pension Plans, August 6, 1962, Wirtz Papers, 1962—Committee—President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs. 113. Minutes, Meeting No. 3, October 24, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #1, 3. 114. Ibid. See also Provisional Report, 27–28. 115. Minutes, Staff Meeting No. 10, September 11, 1962, 2. 116. Ibid., 2–3; Provisional Report, 32–33. 117. Minutes, Staff Meeting No. 10, September 11, 1962, 3; Provisional Report, 32. 118. Minutes, Staff Meeting No. 10, September 11, 1962, 3; Provisional Report, 32. 119. Regulation to Protect Beneficiaries, in April 25 Documents; Weinberg to Reuther, January 24, 1963, Reuther Collection, box 165, folder 1. 120. Merton Bernstein, Reinsurance, Guarantee and Special Loan Fund Proposals for Pension Plans, August 20, 1962, Budget Records, R3–3 Corporate Pension Funds Committee #2. 121. Provisional Report, 34. 122. John P. Jones, Costs of Vesting in Private Pension Plans, August 6, 1962, 3–4. 123. Summary of ‘Guiding Principles for Enhancement of Benefit Security’ by Professor Dan McGill, July 24, 1962, Wirtz Papers, 1962—Committee— President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs. 124. Dan M. McGill, Fulfilling Pension Expectations (Homewood, Ill.: Richard D. Irwin, 1962), 274–89, 292. 125. Provisional Report, 34. 126. McGill, Fulfilling Pension Expectations, 298. 127. Minutes, Staff Meeting No. 15, October 5, 1962, 2. 128. Ibid. 129. Ibid.

Notes to Pages 96–98

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130. Senate Committee on Labor and Public Welfare, Welfare and Pension Plans Legislation: Hearings on S. 1122, S. 1145, S. 1813, S. 2137, S. 2175, 85th Cong., 1st sess., 1957, 497, 498. 131. Dan McGill, “Panel Discussion: Security of Private Pension Expectations,” Transactions of the Society of Actuaries 15, pt. 2 (1963), D275. 132. Tax Treatment of Retirement Plans and Retirement Income, Draft for discussion, October 24, 1962, 10. 133. Ibid. 134. Minutes, Staff Meeting No. 17, October 18, 1962, 2. The new section also included discussion of the tax proposals on coverage, nondiscrimination, and integration. 135. Minutes, Meeting No. 3, October 24, 1962, 3–4. 136. Provisional Report, 29. 137. Ibid., 19. 138. Dan M. McGill, “Highlights of the Recommendations of the President’s Committee,” Trusts & Estates 104 (1965), 215. 139. Proposed Working Outline of Study and Report, May 31, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #1, Agendas and Minutes of Meetings, 2. 140. Ibid.; Minutes, Meeting No. 2, June 5, 1962, Wirtz Papers, 1962—Committee—President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, 5. 141. Labor and Welfare Division to the Director, October 23, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #3. 142. Austin W. Scott, The Law of Trusts (Boston: Little, Brown and Company, 1956), 3: 1660–63; Patterson, Legal Protection of Private Pension Expectations, 164–65. 143. Internal Revenue Code of 1954, § 503(c). 144. Welfare and Pension Plans Disclosure Act, Public Law 836, 85th Cong., 2d sess. (August 28, 1958), § 7(f)(1)(B), (C). 145. See Notes on Substantive Discussion at First Meeting April 25, 1962, attached to March to Carey and Sutton, May 2, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #1, 2. 146. Congressional Record, 87th Cong., 1st sess., 1961, 107, pt. 14: 18,265. 147. Welfare and Pension Plans Disclosure Act Amendments of 1962, § 15. 148. Congressional Record, 87th Cong., 2d sess., 1962, 108, pt. 2: 1,735. 149. Financial Aspects of Pension Plans (short form), October 29, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #3, 4. 150. Memorandum re: Tax treatment of retirement plans, 32. 151. Self-Employed Individuals Tax Retirement Act of 1962, Public Law 792, 87th Cong, 2d sess. (October 10, 1962), § 6 (adding 26 U.S.C. § 503(j)).

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Notes to Pages 99–102

152. Memorandum re: Tax treatment of retirement plans, at 33–34. See also Strengthening the Prohibited Transaction Rules Applicable to Pension Plans, December 13, 1962, OTP Files, box 48, folder 51. 153. Memorandum re: Tax treatment of retirement plans, 33. 154. Ibid., 33. 155. Minutes, Staff Meeting No. 19, October 30, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee, Agendas and Minutes of Meetings, 3. 156. Minutes, Meeting No. 4, November 1, 1962, p. 8. 157. Ibid., 7. 158. Ibid., 8. 159. Provisional Report, 46–49. 160. Ibid., 43. 161. Ibid., 47. 162. Ibid. 163. Ibid., 48. 164. David Vogel, Fluctuating Fortunes: The Political Power of Business in America (New York: Basic Books, 1989), 16–18. 165. Allen J. Matusow, The Unraveling of America: A History of Liberalism in the 1960s (New York: Harper & Row, 1984), 39–42. 166. Vogel, Fluctuating Fortunes, 20; David L. Stebenne, Arthur J. Goldberg: New Deal Liberal (New York: Oxford University Press, 1996), 294–300. 167. Jim F. Heath, John F. Kennedy and the Business Community (Chicago: University of Chicago Press, 1969), 74. 168. Vogel, Fluctuating Fortunes, 20. 169. March to Director, Bureau of the Budget, June 6, 1962, Budget Records, R3–3 Corporate Pension Funds Committee #2. 170. Minutes, Meeting No. 4, November 1, 1962. 171. Recommendations of the President’s Committee on Corporate Pension Funds, December 18, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #4, 4. 172. Matusow, Unraveling of America, 49. 173. Surrey to the Files, December 20, 1962, and Surrey to the Files, December 28, 1962, both in Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder; Zelizer, Taxing America, 193–200. 174. “J.F.K. Reassures Business in Appeal for Economic Growth,” Commercial and Financial Chronicle, February 23, 1961, p. 870; Stebenne, Goldberg, 253–56. 175. Jack Stieber, “The President’s Committee on Labor-Management Policy,” Industrial Relations 5 (1966), 4–5. See also William T. Moye, “Presidential Labor-Management Committees: Productive Failures,” Industrial and Labor Relations Review 34 (1980), 53–54. 176. Stieber, “The President’s Committee on Labor-Management Policy,” 6–16. 177. Minutes, President’s Advisory Committee on Labor-Management Pol-

Notes to Pages 102–104

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icy, Meeting No. 19, March 25, 1963, Commerce Records, Accession 40–69A6828, box 61 of 117, Labor-Mgt. Comm. Meeting March 25, 1963 folder; Reuther to Weinberg, March 28, 1963, UAW Research Department—Unprocessed, box 53, Govn.-Labor-Mgt. Advisory Comm.; Corres., Mar–Jun 1963 folder. 178. Macaluso to Taylor, April 9, 1963, Surrey Papers, box 100, Pensions— Cabinet Committee, 1962–1964 folder. 179. The first draft of the report was distributed in two parts: Draft memo, the President’s Advisory Committee on Labor-Management Policy to the President of the United States, 1 May 1963, re Provisional Report of the President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, and Concluding Section of Tentative Report of the Subcommittee on Private Pension Plans to the President’s Advisory Committee on Labor-Management Policy, May 10, 1963. Both are in Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder. The two parts are paginated consecutively and are hereafter cited as “First Draft.” 180. First Draft, 3. 181. Ibid., 5, 8, 15–16, 17, 21, 23. 182. Ibid., 26–27, 30. 183. Ibid., 25–26. 184. Ibid., 24. 185. Ibid., 28–29. 186. Ibid., 29–30. 187. Henle to Reynolds, May 2, 1963, Wirtz Papers, 1963—Committee— President’s Advisory Committee on Labor-Management Policy (April–May). See also Gibb to Lubick, May 2, 1963, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder. 188. Report of the Subcommittee on Private Pension Plans, Second Draft, July 1, 1963, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder, at iii, 7–8. 189. Ibid., v, 15–17. 190. Reynolds to Committee Members, July 23, 1963, Heller Papers, microfilm roll 84. 191. Simler to the Council, July 1963, 21st Meeting of the LaborManagement Advisory Committee, July 29, 1963, Heller Papers, microfilm roll 84. 192. Ibid.; Minutes, Meeting No. 21, July 29, 1963, President’s Advisory Committee on Labor Management Policy, March 21, 1961–October 30, 1963 folder, microfilm copies of Records of the Department of Labor, roll 72, JFK Library, 6–7, 9–11. 193. Minutes, Meeting No. 21, July 29, 1963, 4, 8–10, and 12. 194. Simler to the Council, July 30, 1963. 195. Report of the Subcommittee on Pension Plans, September 4, 1963, attached to Reynolds to All Committee Members, no date, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder, 5.

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Notes to Pages 105–108

196. Statement by Dr. George W. Taylor, no date, attachment B to Report of the Subcommittee on Pension Plans to the President’s Advisory Committee on Labor-Management Policy, September 4, 1963, (hereafter “Taylor Statement”), Surrey Papers, Pensions—Cabinet Committee, 1962–1964 folder, 1. 197. Ibid., 3; Minutes, Meeting No. 21, July 29, 1963, 3. For a discussion of the actuarial status of pension plans negotiated by the International Ladies Garment Workers Union at the time of Taylor’s memorandum, see Joseph J. Melone, Collectively Bargained Multi-Employer Pensions (Homewood, Ill.: Richard D. Irwin, 1963), 111–13. 198. Minutes, Meeting No. 21, July 29, 1963, 3. 199. Taylor Statement, 3–4. 200. Ibid., 4. 201. Ibid., 2–3. 202. Ibid., 2. 203. Ibid., 4–5. 204. Ibid. 205. Gibb to Surrey and Lubick, September 10, 1963, Surrey Papers, Pensions—Cabinet Committee, 1962–1964 folder. 206. Draft of Report to the President by the Advisory Committee on LaborManagement Policy on the Recommendations by the Cabinet Committee on Corporate Pension Funds, October 11, 1963, UAW Research Department—Unprocessed, box 53, Govt.-Labor-Mgt. Advisory Com. Corres. Sept.–Dec. 1963 folder, 11. 207. Ibid., 8. 208. Ibid., 8–9. 209. Ibid., 10–11. 210. Ibid., 11–12. 211. James Reynolds to All Committee Members, October 11, 1963, Wirtz Papers, 1963—Committee—President’s Advisory Committee on LaborManagement Policy (September–October). 212. Bell to Wirtz, October 23, 1963, Surrey Papers, box 100, Pensions— Cabinet Committee, 1962–1964 folder. 213. Ibid.; Power to Wirtz and Hodges, October 28, 1963, Wirtz Papers, 1963—Committee—President’s Advisory Committee on Labor-Management Policy (September–October). 214. Henry Ford II, Comments on: Report of Pension Subcommittee, President’s Advisory Committee on Labor-Management Policy, October 23, 1963, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder. See also Powers to Wirtz and Hodges, October 28, 1963, Wirtz Papers, 1963—Committee—President’s Advisory Committee on Labor-Management Policy (September–October). 215. Henry Ford II, Comments on: Report of Pension Subcommittee. 216. Gibb to Surrey and Lubick, October 31, 1963, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder; Minutes, Meeting No. 23, October 29–30, 1963, Wirtz Papers, 1963—Committee—President’s

Notes to Pages 108–111

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Advisory Committee on Labor-Management Policy (November–December), 2–4. 217. Gibb to Surrey and Lubick, October 31, 1963. 218. Burke to Secretary, October 23, 1963, Commerce Records, Accession 40–69A-6828, box 60 of 117, Labor-Mgt. Comm. Meeting, Sept. 23–24, 1963 folder. 219. Report to the President from the President’s Advisory Committee on Labor-Management Policy, Appendix C, Public Policy and Private Pension Programs (hereafter “Advisory Committee Response”), 12, 14, 17–18. 220. Bell to Reynolds, November 22, 1963, Wirtz Papers, 1963—Committee—President’s Advisory Committee on Labor-Management Policy (November–December). 221. Advisory Committee Response, 12. 222. Ibid., 14, 16. 223. Ibid., 16–17. 224. Ibid., 3. 225. Ibid., 7–8. 226. Ibid., 9. 227. Ibid., 9–10. 228. Ibid., 10–11. 229. Joseph to Heller, February 7, 1964, Heller Papers, Events File, 1961– 1964, box 41, 2/13/64 folder, 2. 230. Draft Memo to Wallace, February 12, 1964, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder. 231. Ibid. 232. Wirtz to Heller, January 31, 1964, Heller Papers, microfilm roll 23, Labor, Department of (Correspondence with). 233. Surrey to the Secretary, February 14, 1964, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder. 234. See Joseph to Heller, February 7, 1964, 2. 235. Draft Memo to Wallace, February 12, 1964. 236. Handwritten notes “Pensions,” February 13, 1964, Surrey Papers, box 100, Pensions—Cabinet Committee, 1962–1964 folder. 237. Minutes, Meeting No. 6, February 13, 1964, Budget Records, Director’s Office—Correspondence 1964, T2–2 Corporate Pension Fund Committee. 238. See March and Swain to the Director, May 26, 1964, Budget Records, Director’s Office—Correspondence 1964,T2–2 Corporate Pension Fund Committee. 239. Public Policy and Private Pension Programs, 76. 240. Ibid., 52. 241. Ibid., 52–53. 242. Public Policy and Private Pension Programs, 42–43; LaborManagement Advisory Committee Response, 9 n. 3. 243. Surrey to Files, June 1, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 244. Public Policy and Private Pension Programs: Controversial Issues and

336

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Notes to Pages 111–113

Anticipated Opposition, June 9, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 245. Summary of Anticipated Opposition to the Report of the President’s Committee on Corporate Pension Funds, June 2, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. I am inferring that this is a Department of Labor draft because the Labor Department objected to the June 9 draft, which appears to have been drafted by Treasury. 246. Controversial Issues and Anticipated Opposition. 247. See Surrey to the Files, June 26, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 248. Henle to the Secretary, July 22, 1964, Wirtz Papers, 1964—Committee—President’s Committee on Labor-Management Policy. 249. Zeitlin to Surrey, July 1, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder; “U.S. Panel to Offer Automation Book,” New York Times, July 4, 1964, p. 5. 250. Memo to Roosevelt, July 23, 1964, Wirtz Papers, 1964—Committee— President’s Committee on Labor-Management Policy (July–December). 251. See Robert B. Mitchell, “Secret Pension Report Seen as Aid to Insurers,” National Underwriter, August 8, 1964, p. 1; “Looking Hard at Pension Funds,” Business Week, July 18, 1964, p. 32. 252. Merton C. Bernstein, The Future of Private Pensions (New York: Free Press of Glencoe, 1964); Robert Metz, “Workers Finding Pensions Empty,” New York Times, August 16, 1964, section 3, p. 1; Merton Bernstein, personal communication to author, March 26, 2001. 253. Arthur A. Sloane, Hoffa (Cambridge, Mass.: MIT Press, 1991), 305–12. 254. See “Why Government Is Looking at Private Pension Funds,” U.S. News and World Report, August 31, 1964, pp. 86–88; Robert Metz, “Workers Finding Pensions Empty,” p. 1; Murray Teigh Bloom, “Is Your Pension Safe?” New Republic, October 31, 1964, pp. 13–15. 255. Mitchell, “Secret Pension Report Seen as Aid to Insurers,” p. 1. 256. McGill to Wirtz, November 19, 1964, Wirtz Papers, 1964—Committee—Cabinet Committee on Pension Funds and Other Private Retirement & Welfare Programs (July–December). 257. Wirtz to the President, December 1, 1964, WHCF, LA box 34, EX LA9 Welfare-Pensions-Retirement 11/22/63–4/4/66 folder, Johnson Presidential Papers. 258. Feldman to Valenti, December 1, 1964, WHCF, LA box 34, EX LA9 Welfare-Pensions-Retirement 11/22/63–4/4/66 folder, Johnson Presidential Papers. 259. Burke to Secretaries of Commerce and Labor et al., December 10, 1964, Wirtz Papers, 1964—Committee—President’s Committee on LaborManagement Policy. 260. Valenti to Wirtz, December 3, 1964, WHCF, EX FG box 374, FG628 Committee on Corporate Pension Plans folder, Johnson Presidential Papers.

Notes to Pages 113–118

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261. Harold B. Meyers, “L.B.J.’s Romance with Business,” Fortune, September 1964, p. 132. 262. Ibid.; Vogel, Fluctuating Fortunes, 24; Matusow, Unraveling of America, 151. 263. See Booton Henderson, Ford (New York: Weybright and Talley, 1969), 25–26, 386; Robert Dallek, Flawed Giant: Lyndon Johnson and His Times (New York: Oxford University Press, 1998), 604, 606. This was not the only time Ford objected directly to Johnson about a policy matter. See David M. Welborn, Regulation in the White House: The Johnson Presidency (Austin: University of Texas Press, 1993), 28–30. 264. Henle to the Secretary, December 23, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 265. Report by William Gibb, December 22, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 266. Gibb to Files, January 7, 1965, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 267. Surrey to Files, January 8, 1965, Surrey Papers, box 107, Pensions— Cabinet Committee (2) 1964–1967 folder. 268. Ford to the President, January 7, 1965, Wirtz Papers, 1965—President’s Committee on Corporate Pension Funds & Other Private Retirement & Welfare Programs (February–December). See also Ford to Wirtz, January 7, 1965, Wirtz Papers, 1965—President’s Committee on Corporate Pension Funds & Other Private Retirement & Welfare Programs (February–December), and Gibb to Files, January 7, 1965. 269. Handwritten note, Gibb to Surrey, January 29, 1965, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder.

4. “a new legislative era in this country” 1. Senate Committee on Labor and Public Welfare, Pension and Welfare Plans: Hearing on S. 3421, S. 1024, S. 1103, S. 1255, 90th Cong., 2d sess., 1968 (hereafter 1968 Senate Labor Hearing), 217. 2. Bureau of the Budget, 1966 Legislative Program Proposals, Preliminary Annotated Check List, May 14, 1965, Gaither Files, box 300, BOB 1966 Legislative Program Proposals folder. 3. Califano to Wirtz, August 9, 1965, McPherson Files, box 16, Task Force (General) folder. 4. Moyers to McPherson, July 23, 1965, WHCF, LA box 1, EX LA Labor Management Relations folder, Johnson Presidential Papers. 5. Gibb to Files, August 12, 1965, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 6. President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, Public Policy and Private Pension Programs: A Report to the President on Private Employee Retirement Plans (Washington: GPO, 1965), 77–79 (quote 79).

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Notes to Pages 118–119

7. See generally Senate Committee on Government Operations, Diversion of Union Welfare-Pension Funds of Allied Trades Council and Teamsters Local 815, 89th Cong., 2d sess., 1966, S. Rpt. 1348 (hereafter Senate Report 89–1348). 8. Ibid., 7–13. 9. Senate Committee on Government Operations, Diversion of Union Welfare-Pension Funds of Allied Trades Council and Teamsters Local 815: Hearings before the Committee on Government Operations, 89th Cong., 2d sess., 1965 (hereafter Government Operations Hearings), 69–72. 10. Ibid., 472–74, 483–84; Senate Report 89–1348, 25–27. 11. Arthur A. Sloane, Hoffa (Cambridge, Mass.: MIT Press, 1991), 310. 12. Report of the Department of Labor Planning Committee on Private Pension and Welfare Plans, Wirtz Collection, 1966—Committee—President’s Committee on Corporate Pension and Other Private Retirement Programs (January–July), 5. 13. Senate Report 89–1348, 33. 14. Congressional Record, 89th Cong., 1st sess., 1965, 111, pt. 14: 19,071–73. 15. Gibb to Files, August 12, 1965; Congressional Record, 89th Cong., 1st sess., 1965, 111, pt. 20: 26,629–38. 16. Provisional Report to the President, President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs, November 15, 1962, Heller Papers, box 37, March 25, 1963—Labor—Management Advisory Committee folder, 34, 50; Public Policy and Private Pension Programs, 58, 80. 17. Report of the Task Force on Labor and Related Legislation, Study Paper No. 9, Private Pension Plans, Gaither Files, box 76, IX-G. 18. Questions Raised by Reaction to Report, Public Policy and Private Pension Programs, attached to Gibb to Files, August 12, 1965, p. 2. 19. Chairman’s Summary, Report of the Task Force on Labor and Related Legislation, Gaither Files, box 76, pp. 11–12. See also Study Paper No. 9: Private Pension Plans. 20. Wirtz to Reynolds et al., October 29, 1965, Appendix A to Report of the Department of Labor Planning Committee on Private Pension and Welfare Plans, December 30, 1965, Wirtz Papers, 1966—Committee—President’s Committee on Corporate Pension and Other Private Retirement Programs (January–July). 21. Gibb to Surrey, November 4, 1965; Notes for luncheon with Assistant Secretary Reynolds and Mr. Henle, November 8, 1965; and Gibb to Surrey and Stone, November 12, 1965, all in Surrey Papers, box 106, Social Security—Integration with Pension Plans (1) 1965–1966 folder. 22. See Gibb to Surrey, July 28, 1965, Surrey Papers, box 107, Pensions— Cabinet Committee (2) 1964–1967 folder; Senate Special Committee on Aging, Extending Private Pension Coverage: Hearings before the Special Committee on Aging, 89th Cong., 1st sess., 1965, 114. 23. Extending Private Pension Coverage, 88–91, 116–19, 138, 140–41. 24. Ibid., 138.

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25. Background Information on the Washington Pension Report Group,April 3, 1969, attached to Newmyer to Hamilton,April 3, 1969, Commerce Records,Accession 40–73–035, box 3 of 9, Pension Data—March–April 1969 folder. 26. Commerce was peripherally involved when the President’s LaborManagement Advisory Committee considered the Cabinet Committee’s provisional report in 1963. 27. Private Pension Plans, attachment to Trowbridge to Cook, September 16, 1965, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1966 folder. 28. See Peter Henle and Raymond Schmitt, “Pension Reform: The Long, Hard Road to Enactment,” Monthly Labor Review 97 (November 1974), 4. 29. As Stephen Breyer observes, this problem is very common. See Regulation and Its Reform (Cambridge, Mass.: Harvard University Press, 1982), 102–103, 109–12. See also Keith Krehbiel, Information and Legislative Organization (Ann Arbor: University of Michigan Press, 1991), 20, 66–68. 30. See Gibb to Surrey, July 28, 1965, and attached memo, July 20, 1965, Public Reaction to Report: Public Policy and Private Pension Programs, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 31. Committees of the National Association of Manufacturers, the Chamber of Commerce, the Society of Actuaries, the American Bar Association, the American Life Convention, and the Life Insurance Association of America were examining the report. See Comments of Ray M. Peterson, “Forum: Report of the President’s Committee on Corporate Pension Funds,” Proceedings of the Conference of Actuaries in Public Practice: 1965–1966 15 (no date), 188–90; Report of Committee on Pension and Profit-Sharing Trusts, Trusts and Estates 104 (October 1965), 1027; “AMA Briefing Session: Public Policy and Private Pensions,” Pension & Welfare News 3 (March 1965), 24. 32. King to Surrey, November 3, 1965; Stone to Surrey, November 5, 1965; Roche to Surrey, January 4, 1966, all in Surrey Papers, box 99, Pension-ProfitSharing Plan folder; Fowler to Gullander, October 4, 1965; Surrey to the Secretary, November 23, 1965; Surrey to the Secretary, December 2, 1965; handwritten notes, Chamber of Commerce, Pension Plans, December 16, 1965; and Surrey to Secretary, December 20, 1965, all in Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder, and Hardy to Valenti, November 9, 1965, WHCF, Gen LA8 2/15/68, box 34, LA9 8/1/65–4/21/66 folder, Johnson Presidential Papers. 33. Gibb to Surrey, November 4, 1965, Surrey Papers, box 106, Social Security—Integration with Pension Plans (1) 1965–1966 folder. 34. Abstract of Secretarial Correspondence, April 20, 1966 Meeting on Regulation of Private Pension, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1966 folder. 35. Cabinet Committee, Minutes, Meeting No. 8, April 20, 1966, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1966 folder. See also Surrey to the Secretary, April 22, 1966, Surrey Papers, box 107, Pensions— Cabinet Committee (2) 1964–1967 folder.

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Notes to Pages 121–123

36. Minutes, Meeting no. 8, April 20, 1966. 37. See Gibb to Surrey et al., April 19, 1966, Surrey Papers, box 99, PensionProfit Sharing Plans folder. See also Surrey to the Secretary, September 1, 1965, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. 38. Joint Economic Committee, Private Pension Plans: Hearings before the Subcommittee on Fiscal Policy of the Joint Economic Committee, 89th Cong., 2d sess., 1966 (hereafter 1966 JEC Hearings), 120. 39. Ibid., 121. See also ibid., 1–2, 148, 149–50, 171, 262, 333, 369, 391–92. 40. “More Reins on Pension Plans?” Business Week, April 30, 1966, p. 136. 41. See, e.g., Gullander to Wirtz, September 27, 1965, Wirtz Papers, 1965— President’s Committee on Corporate Pension Funds and Other Private Retirement & Welfare Programs (February–December). 42. 1966 JEC Hearings, 358–59. 43. Ibid., 361. 44. “No Danger of Rash Pension Laws, Says Glendon Johnson,” National Underwriter, May 28, 1966, p. 10. 45. Report of Participation from Benson Soffer, April 29, 1966; and Hockersmith to Collins, July 14, 1966, both in Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1966 folder; Gibb to Field, June 13, 1966, Javits Collection, box 119, Pension Reform: Inter-Agency Task Force on Private Pension Plans—1966–1969 folder. For “redraft,” see Report of Interagency Task Force on WPPDA Amendments, attached to Wirtz to Members of the President’s Committee on Corporate Pension Funds, August 16, 1966, Wirtz Papers, 1966—Committee—President’s Committee on Corporate Pension Funds and Other Private Retirement Programs. 46. S. 2627, 89th Cong., 1st sess., §§ 202(3) and 203(a). S. 2627 is printed at Congressional Record, 89th Cong., 1st sess., 1965, 111, pt. 20: 26,330–33. The bill did not apply to plans financed through insurance contracts. See § 202(3). 47. Ibid., §§ 203 and 206. 48. Ibid., § 206(b), (d). 49. Ibid., §§ 204, 205, 206(c), and 208. 50. Ibid., § 207. 51. Ibid., §§ 210–12. 52. See ibid., §§ 203(f), 205(d), and 206(j). 53. Wirtz to Members of the President’s Committee on Corporate Pension Funds, August 16, 1966. 54. A Bill to amend the Welfare and Pension Plans Disclosure Act, attached to Wirtz to Members of the President’s Committee on Corporate Pension Funds and Other Private Retirement Programs, August 16, 1966, § 7 (adding § 14(b) and (d) to the Disclosure Act). 55. Report of Interagency Task Force on WPPDA Amendments, 2. 56. Ibid., 5; A Bill to amend the Welfare and Pension Plans Disclosure Act, § 7 (adding § 14(g)(4)(A)). Profit-sharing plans were exempt from this provision. 57. Welfare and Pension Plans Disclosure Act Amendments of 1962, Public

Notes to Pages 123–126

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Law 87–420, 87th Cong., 2d sess. (March 20, 1962), § 9(b) (amending § 7(b) of the Welfare and Pension Plans Disclosure Act of 1958). 58. A Bill to amend the Welfare and Pension Plans Disclosure Act, § 3 (amending § 7(f)(1)). 59. Ibid., § 3 (amending § 7(h)). 60. Report of Interagency Task Force on WPPDA Amendments, 2, 5. 61. Gibb to Surrey and Stone, June 7, 1966, Surrey Papers, box 107, Pension Plans—Cabinet Committee (2) 1964–1967 folder. 62. Interagency Task Force on Private Pension Plans, Meetings with Outside Groups, July–September 1966, Agenda, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1966 folder. 63. Daniels to Stulberg, October 7, 1966, Stulberg Collection, box 5, folder 5. 64. Ibid. See also Young to Lesser, September 30, 1966, Young Collection, box 1, 1966 Chronological File, 5. 65. Minutes of Meeting, Interagency Task Force on Private Pension Plans and the National Association of Manufacturers and U.S. Chamber of Commerce, August 17, 1966, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1966 folder. 66. Ibid. 67. Daniels to Stulberg, October 7, 1966. 68. Minutes of Meeting, August 17, 1966. 69. Hansen to Brannon, October 28, 1966, OTP Files, box 47, folder 28. 70. Gibb to Surrey, November 28, 1966, Surrey Papers, box 106, Social Security Integration with Pension Plans (1) folder. See also Henle to the Secretary, August 22, 1966, Wirtz Papers, 1966—Committee—President’s Committee on Corporate Pension Funds & Other Private Retirement & Welfare Programs (August–September). 71. Proposed Vesting and Funding Standards for Private Pension Plans, attached to Henle and Gibb to Reynolds and Surrey, December 20, 1966, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 3–4. 72. Minutes, Meeting No. 3, October 24, 1962, Budget Records, Director’s Office—Correspondence 1961–1962, R3–3 Corporate Pension Funds Committee #1, 3. 73. Proposed Vesting and Funding Standards for Private Pension Plans, 3. 74. Public Policy and Private Pension Programs, 42–43. 75. Proposed Vesting and Funding Standards for Private Pension Plans, 4–5. 76. Frank L. Griffin, Jr., “An Unhealthy Passion for Regulation,” Proceedings of the Conference of Actuaries in Public Practice, 1965–1966 15 (no date), 204–205 (quote); Carl H. Fischer, “Is Governmental Regulation Inevitable?” Proceedings of the Conference of Actuaries in Public Practice, 1966–1967 16 (no date), 378. 77. Public Policy and Private Retirement Programs, 53. 78. The committee’s definition of full funding—sufficient assets to pay

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Notes to Pages 126–128

benefits due at plan termination—accords with the “unit credit” cost method. See Fischer, “Is Governmental Regulation Inevitable?” 378. 79. See ibid., 377–78; Griffin, “Unhealthy Passion for Regulation,” 204–205; Frank L. Griffin Jr., “Concepts of Adequacy in Pension Plan Funding,” Transactions of the Society of Actuaries 18, pt. 1 (1966), 55. 80. Henle and Gibb to Reynolds and Surrey, December 20, 1966, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 4. 81. Ibid. See also Willard Wirtz’s remarks at 1966 JEC Hearings, 371. 82. Proposed Vesting and Funding Standards for Private Pension Plans, 6. 83. Ibid. 84. Ibid., 6, 7. 85. Ibid., 8, 14. 86. See Herman C. Biegel and Williams B. Harman Jr., “Tax Aspects of Pension Plans,” in Pensions and Profit Sharing, 3d ed. (Washington: Bureau of National Affairs, 1964), 75–76. 87. Proposed Vesting and Funding Standards for Private Pension Plans, 17–18. See Dan M. McGill, Fulfilling Pension Expectations (Homewood, Ill.: Richard D. Irwin, 1962), 275–78. 88. Proposed Vesting and Funding Standards for Private Pension Plans, 18. 89. Wirtz to Conner, Commerce Records, January 10, 1967, Accession 40–73–035, box 4 of 9, Cabinet Meeting—Private Pension Funds 1/19/67 folder. 90. Borum to Collins, January 16, 1967, Commerce Records, Accession 40–74–0030, box 8 of 39, Pension Plans—Interagency Task Force folder. 91. Compare A Bill to amend the Welfare and Pension Plans Disclosure Act, § 3 (amending § 7(f)(1) (D) and (E)) with Welfare and Pension Protection Act of 1967, 90th Cong., 1st sess., S. 1024, § 7(a)(1)(D). 92. Borum to Collins, January 31, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1967 folder. 93. Wirtz to Schultze, January 31, 1967, OMB Records, Public Laws—93d Congress, 1973–1974 (73.1), box 101, T2–9/73.1 (T2–6/69.4), volume 1. 94. Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1967 (Washington: GPO, 1968), 199–200. 95. Congressional Record, 90th Cong., 1st sess., 1967, 113, pt. 3: 3,922, 3,934–25. 96. Welfare and Pension Protection Act of 1967, 90th Cong., 1st sess., S. 1024, §§ 7(h) and 14. 97. Ibid., § 9. 98. Public Papers of the Presidents: Lyndon B. Johnson, 1967, 200. 99. Bill Gibb complained in June 1966 that Commerce seemed “anxious to drag its feet on the vesting and coverage proposals.” Gibb to Surrey and Stone, June 7, 1966, Surrey Papers, box 107, Pension Plans—Cabinet Committee (2) 1964–1967 folder. 100. Borum to Collins, January 16, 1967. 101. Secretary of Commerce to Wirtz, no date, Wirtz Papers, 1967—Com-

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mittee—President’s Committee on Corporate Pension and Other Private Retirement & Welfare Programs. 102. See Government Operations Hearings, 477. 103. See generally John W. Kingdon, Agendas, Alternatives, and Public Policies, 2d ed. (New York: HarperCollins College Publishers, 1995), 4, 184–86; R. Douglas Arnold, The Logic of Congressional Action (New Haven, Conn.: Yale University Press, 1990), 110. 104. “Adoption of ‘Prudent Man’ Rule for Pension Trustees Part of Larger Study, Wirtz Says,” Daily Labor Report, February 28, 1966, p. A-8. 105. Pension and Employee Benefit Act of 1967, 90th Cong., 1st sess., S. 1103. 106. David E. Price, Who Makes the Laws? Creativity and Power in Senate Committees (Cambridge, Mass.: Schenkman Publishing Company, 1972), 284–85. 107. Ibid., 285. 108. Ibid., 264. 109. Frank Cummings, personal communication to the author, October 9, 1996; Richard L. Gordon, “Victory for a Comprehensive Reform Law Comes after a Tortuous 7-Year Struggle,” Pensions & Investments, September 9, 1974, pp. 1, 12. 110. Cummings to Senator, April 21, 1965, Javits Collection, box 92, Pension Reform—Pension Background—1965–1970 folder. This file includes two memos of the same date. 111. See FC to SK & PB, May 12, 1965, Javits Collection, box 92, Pension Reform—Pension Background—1965–1970 folder; Comments of Ray M. Peterson, October 4, 1965, attached to Henle to Reynolds, October 5, 1965, Surrey Papers, box 106, Social Security—Integration with Pension Plans (1) 1965–1966 folder; Latimer to Cummings, May 28, 1965, and Cummings to Latimer, June 1, 1965, both in Latimer Papers, box 4, folder 1. 112. Congressional Record, 90th Cong., 1st sess., 1967, 113, pt. 4: 4,650. 113. Ibid. 114. Ibid., 4651. 115. The vesting standards in S. 1103 included an age requirement. See § 107(a)(1)(A) and (B). The Cabinet Committee had rejected age requirements. Public Policy and Private Pension Programs, 43. 116. S. 1103, §§ 301–307. 117. Ibid., § 108. Compare Public Policy and Private Pension Programs, 52. 118. S. 1103, §§ 201–204. Compare Federal Reinsurance of Private Pensions Act, 89th Cong., 1st sess., 1965, S. 1575. 119. S. 1103, §§ 3–6. 120. On Dingell’s bill, see “Pension Bills Will Be Side-Tracked This Year, but Re-introduced in 1967,” Daily Labor Report, August 16, 1966, pp. A-8–A-12. 121. Congressional Record, 90th Cong., 1st sess., 1967, 113, pt. 4: 4651. See also Sass, Promise of Private Pensions, 211. 122. On the jurisdiction of the Ways and Means Committee, see David C.

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Notes to Pages 130–133

King, Turf Wars: How Congressional Committees Claim Jurisdiction (Chicago: University of Chicago Press, 1997), 98. The House rules did not allow a bill to be referred to more than one committee. The Senate rules provided for sequential referral to more than one committee. Walter J. Oleszek, Congressional Procedures and the Policy Process (Washington, D.C.: Congressional Quarterly Press, 1978), 57–58. 123. U.S. Const, Art. I, §7. See John F. Manley, The Politics of Finance: The House Committee on Ways and Means (Boston: Little, Brown and Company, 1970), 252–63. 124. On the importance of this gatekeeping function, see Kenneth A. Shepsle and Mark S. Bonchek, Analyzing Politics: Rationality, Behavior, and Institutions (New York: W. W. Norton & Company, 1997), 327. 125. See S. 1103, § 106(b). 126. See H.R. 13544, 90th Cong., 1st sess., Congressional Record, 90th Cong., 1st sess., 1967, 113, pt. 21: 29136–37, 29138, and H.R. 15244, 90th Cong., 2d sess., Congressional Record, 90th Cong., 2d sess., 1968, 114, pt. 3: 2786, 2819. See also “Halpern Introduces Broad Pension Bill, Referred to Ways and Means,” Daily Labor Report, February 8, 1968, p. A-7. 127. Both the House and Senate labor committees had a reputation for being “stacked” with liberal Democrats. See Richard F. Fenno, Jr., Congressmen in Committees (Boston: Little, Brown and Company, 1973), 74, 169. On the importance of “shopping” for a favorable venue, see Frank R. Baumgartner and Bryan D. Jones, Agendas and Instability in American Politics (Chicago: University of Chicago Press, 1993), 35–37. 128. Rommel to Gaither, June 1, 1967, OMB Records, Public Laws—93d Congress, 1973–74. (73.1), T2–9/73.1 (T2–9/69.4), volume 1. 129. Proposed Vesting Standard for Private Pension Plans, January 23, 1967, Wirtz Papers, 1967—Committee—President’s Cmte. On Corporate Pension Funds & Other Private Retirement & Welfare Programs, 3–4; Gibb to Surrey, February 6, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1964–1967 folder. 130. Abstract of Secretarial Correspondence, March 17, 1967, with attachments, Commerce Records, Accession 40–74–0030, box 8 of 39, Pension Plans— Interagency Task Force folder; Surrey to Trowbridge, March 20, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Date—1967 folder. 131. Providing Greater Assurance of Private Pension Plan Benefits, March 1, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1964–1967 folder, 6 and table A. 132. Ibid., 6. 133. Ibid., 8. 134. See James Q. Wilson, Political Organizations (Princeton, N.J.: Princeton University Press, 1995), 330. 135. Senate Committee on Finance, Federal Reinsurance of Private Pension Plans: Hearing on S. 1575, 89th Cong., 2d sess., 1966 (hereafter Senate Finance Reinsurance Hearing), 12.

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136. Ibid., 75–76, 95, 114. 137. Robert E. Royes, “Pension Plan Funding,” Proceedings of Nineteenth Annual New York University Conference on Labor, ed. Thomas G. S. Christensen (1967), 320. 138. Ibid., 320–21. 139. Ibid., 323. 140. Senate Finance Reinsurance Hearing, 120. 141. Ibid., 75, 94, 102, 105, 114. 142. Providing Greater Assurance of Private Pension Plan Benefits, March 1, 1967, 4. 143. Ibid., 6. 144. Ibid., 7. 145. Ibid., 7 and table B. 146. Ibid., 8. 147. Ibid., 12. 148. See Dan M. McGill, “Guaranty Fund for Private Pension Obligations,” in Subcommittee on Fiscal Policy, Joint Economic Committee, Report on Old Age Income Assurance: Part V: Financial Aspects of Pension Plans, 90th Cong., 1st sess., 1967, Committee Print, 207, 218–21; Richard A. Ippolito, The Economics of Pension Insurance (Homewood, Ill.: Irwin, 1989), 40–41. 149. Providing Greater Assurance of Private Pension Plan Benefits, March 1, 1967, 13. 150. See Dorrance C. Bronson, “Panel Discussion: Private Pensions in the United States and Canada,” Transactions of the Society of Actuaries 18, pt. 2 (1966), D477. 151. Providing Greater Assurance of Private Pension Plan Benefits, March 1, 1967, 12 (italics added). 152. Daniels to Stulberg, October 26, 1966, Daniels Collection, box 11, folder 19. 153. Ibid. 154. “A.M.A. Meeting Hears Discussion of Threat of Restrictive Legislation for Pensions,” Daily Labor Report, January 12, 1967, p. AA-2. The executive who made the speech attended the Task Force’s meeting with representatives of the insurance industry. See Johnson and Kimble to Surrey, August 16, 1966, Surrey Papers, box 106, Social Security—Integration with Pension Plans (1) folder. 155. Gibb to Surrey, February 6, 1967, Surrey Papers, box 107, Pensions— Cabinet Committee (3) 1967–1968 folder; Surrey to Files, February 23, 1967, Surrey Papers, box 106, Social Security—Integration with Pension Plans (1) folder. 156. See, e.g., Biegel to Surrey, May 11, 1943, Files of the Secretary of the Treasury, 1933–1956, Tax—Pension Fund Contributions folder; Zeitlin to Surrey, May 28, 1964, Surrey Papers, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder, 3; Surrey to Biegel, July 15, 1968, Surrey Papers, box 107, Pension Plans—Integration with Social Security (4) folder.

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Notes to Pages 136–139

157. See Gibb to Surrey, March 16, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. 158. Biegel’s initiative illustrates two important points: (1) “regulation via standards will not normally impose costs uniformly across firms,” and (2) firms that face lower cost increases from regulation have incentives to break off and support reform if this course of action forestalls more costly proposals. Michael T. Maloney and Robert E. McCormick, “A Positive Theory of Environmental Quality,” Journal of Law & Economics 25 (1982), 105. See also Peter B. Pashigian, “The Effect of Environmental Regulation on Optimal Plant Size and Factor Shares,” Journal of Law & Economics 27 (1984), 3, 25–26. 159. Surrey to Files, February 23, 1967, Surrey Papers, box 106, Social Security—Integration with Pension Plans (1) folder. 160. Memorandum for Mr. McQuade, February 10, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 161. Trowbridge to Wirtz, March 10, 1967, Commerce Records, Accession 40–74–0030, box 8 of 39, Pension Plans—Interagency Task Force folder. 162. Biegel to Surrey, March 9, 1967, Surrey Papers, box 107, Pensions— Cabinet Committee (3) 1964–1967 folder. 163. See Suggested Outline of Remarks by Secretary Surrey, March 21, 1967, attached to Biegel to Surrey, March 9, 1967. 164. Remarks by the Honorable Stanley Surrey, March 21, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1964–1967 folder, 2. 165. Ibid., 9. 166. McQuade to Trowbridge, April 14, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1967 folder. 167. Ibid. See also the similar assessment in Gibb to Surrey, April 14, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1964–1967 folder. 168. Surrey to Gibb, March 27, 1967, Surrey Papers, box 107, Pensions— Cabinet Committee (3) 1967–1968 folder. 169. McQuade to Trowbridge, April 14, 1967. 170. Ibid. 171. Henle to Interagency Task Force on Private Pension Plans, April 27, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. 172. Proposed Vesting Standard for Private Pension Plans, March 20, 1967, New section, ¶5; Gibb to Surrey, April 14, 1967, 2; Proposed Vesting Standard for Private Pension Plans, June 5, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 3–4. 173. Providing Greater Assurance of Private Pension Plan Benefits, June 5, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 5, 6. 174. Ibid., 6. 175. Handwritten notes, Cabinet Pension Plans, April 17, 1967, and hand-

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written notes, May 1, 1967, both in Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1964–1967 folder. 176. Handwritten note, Trowbridge to McQuade, April 22, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1967 folder; Soffer to Collins and McQuade, May 3, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 177. See Vesting proposal, attached to Trowbridge to Wirtz, March 10, 1967; Maduro to Biegel, May 18, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 178. Maduro Alternative to Task Force Vesting Proposal, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 179. Maduro to Biegel, May 18, 1967, paragraph 6; Maduro to Soffer, June 1, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67— New York City folder. 180. Handwritten note, ABT to McQuade, June 7, 1967, written on copy of a letter from Maduro to Soffer, June 1, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 181. Feer to McQuade, May 25, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 182. Maduro to Trowbridge, July 25, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 183. Handwritten notes, Maduro Proposal Meeting, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 184. Lane to Buck et al., August 31, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67—New York City folder. 185. Handwritten draft, Walter Hamilton to the Secretary, September 11, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Meeting 8/9/67— New York City folder. 186. Minutes, AFL-CIO Executive Council, 8–9 May 1967, George Meany Memorial Archives, 18. 187. AFL-CIO Executive Council Draft Statement, May 8, 1967, Dubinsky Collection, box 413, folder 2, 4. 188. See handwritten notes, AFL-CIO, May 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. 189. Statement by I. W. Abel to Subcommittee of AFL-CIO Executive Council on Health and Welfare and Pension Legislation, May 23, 1967, Dubinsky Collection, box 413, folder 1, 1. 190. Ibid., 2. 191. Ibid., 3. 192. Ibid., 5. 193. Ibid., 8. 194. Surrey handwritten notes, AFL-CIO, May 1967. 195. Seidman to Rolnick, May 24, 1967, Dubinsky Collection, box 413, folder 2.

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Notes to Pages 141–144

196. Summary of Technical Consultants Meeting, July 6, 1967, attached to Shoemaker to Members of the Subcommittee of the Executive Council on Health, Welfare and Pension Plans, July 24, 1967, Dubinsky Collection, box 413, folder 1. 197. Rolnick to Stulberg, June 9, 1967, Stulberg Collection, box 5, folder 5; Summary of Technical Consultants Meeting on Pension Plans, June 5, 1967, attached to Shoemaker to Members of the Subcommittee of the Executive Council on Health and Welfare and Pension Plans, Dubinsky Collection, box 413, folder 2, 2. 198. Biemiller to Sir and Brother, May 10, 1967, Dubinsky Collection, box 413, folder 2. 199. Check List of Replies, attached to Biemiller to Dubinsky, July 17, 1967, Dubinsky Collection, box 413, folder 1. 200. See, e.g., Summary of Alternatives in Regard to Proposals to Regulate Health, Welfare and Pension Plans by Legislation, August 23, 1967, Dubinsky Collection, box 413, folder 2. 201. Check List of Replies, attached to Biemiller to Dubinsky, July 17, 1967. 202. See, e.g., Joseph J. Melone, Collectively Bargained Multi-Employer Pensions (Homewood, Ill.: Richard D. Irwin, Inc. 1963), 28–29, 88–89; Robert Tilove, “The Adequacy of Private Pension Plans—Another View,” Proceedings of the New York University Eighteenth Annual Conference on Labor, ed. Thomas G. S. Christensen (1966), 424–25. 203. Conference—September 20, 1967—Advisory Council on Employee Welfare and Pension Benefit Plans—Department of Labor, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. See also Daniels to Stulberg, September 21, 1967, Daniels Collection, box 11, folder 19. 204. Providing Greater Assurance of Private Pension Plan Benefits, March 20, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 18. 205. Treatment of Multiemployer Pension Plans under Federal Standards, October 29, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1967 folder, 4. 206. See Conference—September 20, 1967—Advisory Council on Employee Welfare and Pension Benefit Plans. 207. Treatment of Multiemployer Pension Plans under Federal Standards, 1. 208. Ibid., 3. 209. Proposed Vesting Standard for Private Pension Plans, November 22, 1967, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 8. 210. Providing Greater Assurance of Private Pension Plan Benefits, November 22, 1967 Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder, 21. 211. See Policy Resolution on Proposals for Federal Legislation to Regulate Health, Welfare, Pension and Profit-Sharing Plans in House Committee on Education and Labor, Private Welfare and Pension Plan Protection Act: Hearings

Notes to Pages 144–145

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on H.R. 5741, 90th Congress, 2d sess., 1968 (hereafter 1968 House Labor Hearings), 182. 212. See Henle to Interagency Task Force on Private Pension Plans, October 31, 1967, Javits Collection, box 119, Pension Reform: Inter-Agency Task Force on Private Pension Plans—1966–1969 folder. 213. Henle to Interagency Task Force on Private Pension Plans, November 27, 1967, Javits Collection, box 119, Pension Reform: Inter-Agency Task Force on Private Pension Plans—1966–1969 folder. 214. Wirtz to Trowbridge, December 28, 1967, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Meeting Held in Labor Department—1968 (Jan. 5, 1968) folder. 215. Hamilton to the Secretary, March 12, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 216. Wilbur Mills was generally cautious, preferring to move slowly or to oppose controversial measures until his committee could reach a consensus. Fenno, Congressmen in Committees, 114–18. Michael Gordon states that the administration introduced pension reform as a labor measure after Mills refused to consider it because of business opposition. Michael S. Gordon, “Overview: Why Was ERISA Enacted?” in Senate Committee on Aging, An Information Paper on the Employee Retirement Income Security Act of 1974: The First Decade, 98th Cong., 2d sess., 1984, Committee Print, 14. Mills had told Surrey in 1965 that he disagreed with “most of the recommendations in the Cabinet Committee Report.” Surrey to Files, October 25, 1965, box 107, Pensions—Cabinet Committee (2) 1964–1967 folder. A Commerce official reported that the bill was drafted to avoid “the Ways and Means [Committee] which has a docket overcrowded with other matters.” Benson Soffer, Report of Participation, January 5, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Cabinet Meeting—Private Pension Funds 1/19/67 folder. This is the reason Surrey gave to Treasury secretary Henry Fowler. Surrey also reported that he had cleared the change with Mills and Larry Woodworth, the chief of staff of the Joint Tax Committee. Surrey to the Secretary, January 5, 1968, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. 217. Surrey to the Secretary, January 5, 1968. 218. Wirtz to Califano, January 11, 1968, WHCF, WE box 15, EX WE6 1/1/68–6/30/68 folder, Johnson Presidential Papers. Telephone interviews with Joseph A. Califano Jr. and James Gaither were particularly helpful in stitching together the events recounted in this paragraph. 219. Robert Dallek, Flawed Giant: Lyndon Johnson and His Times 1961– 1973 (New York: Oxford University Press, 1998), 524–28. 220. Joseph A. Califano Jr., The Triumph & Tragedy of Lyndon Johnson (New York: Simon & Schuster, 1991), 224. 221. Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1968–69 (Washington, D.C.: GPO, 1970), 50. 222. Califano to the President, March 13, 1967, WHCF, Confidential Files FG 160, box 30, Johnson Presidential Papers; Michael Gordon, personal com-

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Notes to Pages 145–147

munication to the author, July 16, 1999. On Wirtz’s doubts about Vietnam and the tension this created with Johnson, see Doris Kearns, Lyndon Johnson and the American Dream (New York: Harper & Row, 1976), 318–19; George Christian, The President Steps Down: A Personal Memoir of the Transfer of Power (New York: MacMillan Company, 1970), 71. 223. Califano to the President and handwritten note, January 22, 1968, WHCF, LA box 34, EX LA9 4/5/66- folder, Johnson Presidential Papers. 224. Dallek, Flawed Giant, 514; Califano, Triumph & Tragedy, 257. 225. Johnson’s handwritten note on handwritten note, Califano to the President, January 22, 1968. 226. “Pension Insurance Plan Bill Introduced; Subject to Be Explored in Labor Hearings,” Daily Labor Report, January 26, 1968, p. A-4–A-5; Rommel to Califano, no date, re Labor draft bill to regulate and insure private pension plans, WHCF, LE/LA box 136, EX LE/LA9 folder, Johnson Presidential Papers. 227. Hamilton to Smith, March 18, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 228. Gaither to Califano, April 12, 1968, WHCF, LA box 1, EX LA LaborManagement Relations folder, Johnson Presidential Papers. 229. 1968 House Labor Hearings, 51–58. 230. Ibid., 59. 231. “Javits Urges House Subcommittee to ‘Be Bold’ in Writing a Pension Law,” Daily Labor Report, March 19, 1968, p. AA-1. 232. 1968 House Labor Hearings, 214. See also ibid., 145, 177–78, 216. 233. Ibid., 193. 234. Ibid., 192. See also ibid., 242–44, 245–48. 235. Dent’s request is noted in Gaither to Califano, April 12, 1968. See also Hamilton to Smith, March 22, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 236. Abstract of Secretarial Correspondence, April 11, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 237. Rommel to Califano, no date, Labor draft bill to regulate and insure private pension plans. 238. Califano to the President, April 19, 1968, WHCF, LE/LA box 136, EX LE/LA9 folder, Johnson Presidential Papers. 239. Ibid.; Surrey to the Files, April 23, 1968, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. 240. Congressional Record, 90th Cong., 2d sess., 1968, 114, pt. 9: 11,543, 11,544–51. 241. Hamilton to Smith, no date, Industry vs. Commerce views of S. 3421, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 242. Wirtz to Humphrey and McCormack, May 1, 1968, Surrey Papers, box 107, Pensions—Cabinet Committee (3) 1967–1968 folder. 243. “Pension Reform Bill Submitted,” Journal of Commerce, May 6, 1968,

Notes to Pages 147–149

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p. 21; Gaither to Califano, May 8, 1968, Gaither Files, box 236, 1968 Pension Plan Legislation folder. 244. Short History of S 3421—Pension Benefit Security Act of 1968, May 31, 1968, Commerce records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. This turn of events would have been in keeping with Johnson’s relationship with his staff. James Gaither, telephone interview with author, December 6, 1997. 245. Thomas Donahue, interview with author, October 24, 1997. 246. “Pension Plan Standards Bill Sent to Congress by Labor Department,” Daily Labor Report, May 2, 1968, p. AA-4. 247. Abstract of Secretarial Correspondence, May 28, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 248. See handwritten note, Smith to Hamilton, May 31, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 249. Hamilton to Smith, attached to Abstract of Secretarial Correspondence, May 28, 1968. 250. Borum to McQuade, June 10, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 251. See 1968 Senate Labor Hearing. See also Abstract of Secretarial Correspondence, July 8, 1968, Commerce Records, Accession 40–73–035, box 4 of 9, Pension Plan Data—1968 folder. 252. “Hearings on Pension Security Legislation Begin May 29 before Dent Subcommittee,” Daily Labor Report, May 17, 1968, p. A-10; “Dent Puts Off New Pension Bill Hearings until after July 4th,” Daily Labor Report, June 10, 1968, p. A-7. 253. “House Subcommittee Approves Pension Protection Bill with Some Amendments,” Daily Labor Report, July 3, 1968, p. AA-1. 254. 1968 House Labor Hearings, 60, 205–206, 285–87. 255. Memo of Law Department, National Association of Manufacturers on Proposed Pension Benefit Security Act (S. 3421), Daily Labor Report, June 7, 1968, G-1. See also 1968 House Labor Hearings, 126, 208–11, 223–24, 297, 307–308, 313; 1968 Senate Labor Hearing, 291–93. 256. 1968 Senate Labor Hearings, 219. 257. Ibid., 277. 258. Ibid., 217. 259. North to Rommel, October 4, 1968, OMB Records, Public Laws—93d Congress, 1973–1974 (73.2), T2–9/73.1 (T2–9/69.4), volume 1. 260. House Committee on Education and Labor, Welfare and Pension Plan Protection Act of 1968, 90th Cong., 2d sess., 1968, H. Rpt. 1867. 261. Minutes, Seventeenth Meeting—Advisory Council on Employee Welfare and Pension Benefit Plans, September 30, 1968, Labor Department Advisory Council Collection, box 1, December 4, 1968 folder, 1. 262. Sanders to the President, September 9, 1968, Ex LA2, box 9, WHCF, LBJ Library.

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Notes to Pages 149–153

263. “Houses [sic] Passes Bill on Bargaining for Day Care Centers: Outlook on Safety, Pensions Doubtful,” Daily Labor Report, September 4, 1968, p. AA-1. 264. James A. Attwood, discussion of Pension Funds: Issues and Alternatives, Journal of Finance 23 (1968), 347.

5. “a major american institution . . .” 1. On inside strategies, see generally Frank R. Baumgartner, Conflict and Rhetoric in French Policy-Making (Pittsburgh: University of Pittsburgh Press, 1989), 1–19; Ken Kollman, Outside Lobbying: Public Opinion and Interest Group Strategies (Princeton, N.J.: Princeton University Press, 1998), 28–57. 2. E. E. Schattschneider, The Semi-Sovereign People: A Realist’s View of American Democracy (Harcourt Brace Jovanovich College Publishers, 1988 [1960]); R. Douglas Arnold, The Logic of Congressional Action (New Haven, Conn.: Yale University Press), 68–71; Baumgartner, Conflict and Rhetoric, 1–19; Kollman, Outside Lobbying, 28–57. 3. See House Committee on Education and Labor, Proposed Welfare and Pension Plan Protection Act: Hearings on H.R. 5741, 90th Cong., 2d sess., 1968 (hereafter 1968 House Labor Hearings), 60, 126, 223–24; Senate Committee on Labor and Public Welfare, Pension and Welfare Plans: Hearings on S. 3421, S. 1024, S. 1103, S. 1255, 90th Cong., 2d sess., 1968 (hereafter 1968 Senate Labor Hearing), 291–94. 4. See 1968 House Labor Hearings, 60, 125, 144, 160, 161, 217–18, and 221–22. 5. Minutes, 17th Meeting—Advisory Council on Employee Welfare and Pension Benefit Plans, September 30, 1968, Labor Department Advisory Council Collection, box 1, December 4, 1968 folder, 1. 6. Ibid., 3. 7. “NAM Sees Chance Congress May Act on Job Safety and Pensions: T-H Unlikely,” Daily Labor Report, January 21, 1969, p. A-2. 8. A. James Reichley, Conservatives in an Age of Change: The Nixon and Ford Administrations (Washington: Brookings Institution, 1981), 69. 9. Nixon to Stans, February 18, 1969, WHCF, LA box 24, EX LA9 WelfarePensions-Retirement 1969–70 folder, Nixon Presidential Papers. 10. Shultz and Stans to the President, March 19, 1969, Burns Files, box 3, XVI-4 Pension and Welfare Disclosure Act folder. 11. Ibid. 12. Shultz and Stans to Usery and Davis, April 14, 1969, Shultz Papers, LL2–3 Pension and Welfare Plans 1969 folder. 13. Rose to Rommel, November 6, 1969, OMB Records, Public Laws—93rd Congress, 1973–74 (73.1), T2–9/73.1(T2–9/69.4), volume 2. 14. Hamilton to Davis, June 3, 1969, Commerce Records, Accession 40–73–035, box 3 of 9, Pension Data—June 1969 folder 15. See Lane to Hamilton, April 28, 1969, and other materials in Commerce

Notes to Pages 154–155

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Records, Accession 40–73–035, box 3 of 9, Pension Data—March–April 69 folder. 16. Lane to Hamilton, April 28, 1969. 17. For early suggestions along these lines, see Edwin W. Patterson, Legal Protection of Private Pension Expectations (Homewood, Ill.: Richard D. Irwin, 1960), 246–47; Dan McGill, Fulfilling Pension Expectations (Homewood, Ill.: Richard D. Irwin, 1962), 259–60. 18. Hamilton to Davis, June 3, 1969. See also “Commerce Official Gives Fedl. View on Pension, Profit-Sharing Plans,” National Underwriter, December 6, 1969, p. 1. 19. Usery to Shultz, June 4, 1969, Shultz Papers, LL-2–3 Pension and Welfare Plans 1969 folder. See Employee Benefits Protection Act, 91st Cong., 2d sess., H.R. 16462, § 6(b). 20. H.R. 16462, § 7(e)(7). 21. Ibid., § 8(d). 22. Usery to Shultz, June 4, 1969. See H.R. 16462, § 7(e)(3), (4), and (5). 23. Statement by Labor Department Explaining “Employee Benefits Protection Act” Amendments to Welfare and Pension Plans Disclosure Act, Daily Labor Report, March 13, 1970, p. E-3. 24. Usery to Shultz, June 4, 1969. The Nixon administration got off to a relatively slow start on its legislative agenda on domestic policy. See Paul C. Light, The President’s Agenda: Domestic Policy Choice from Kennedy to Reagan, rev. ed. (Baltimore, Md.: Johns Hopkins University Press, 1991), 44–45. 25. See “Congress Clears Comprehensive Coal Mine Safety Bill,” Congressional Quarterly Almanac: 91st Congress 1st Session 1969 (Washington: Congressional Quarterly, 1970), 735–46; “Occupational Safety,” ibid., 568–570. 26. Paul Light reports that there was a good deal of infighting over domestic policy issues early in Nixon’s presidency. Light, President’s Agenda, 47. 27. Internal Revenue Code of 1954, Public Law 591, 83d Cong., 2d sess. (August 16, 1954), § 503(a) and (c). 28. Tax Reform Act of 1969, Public Law 172, 91st Cong., 1st sess., 1969 (30 December 1969), § 501 (adding § 4941). 29. See Congressional Record, 91st Cong., 1st sess., 1969, 115, pt. 28: 37,929. 30. Flanigan to Shultz, November 13, 1969, WHCF, LA Box 24, EX LA9 Welfare-Pensions-Retirement [1969–70] folder, Nixon Presidential Papers. 31. Eggers to Mayo, January 14, 1970, OMB Records, Public Laws—93d Congress, 1973–1974 (73.1), T2–9/73.1(T2–9/69.4), volume 3. 32. House Committee on Education and Labor, Private Welfare and Pension Plan Legislation: Hearings on H.R. 1045, H.R. 1046, and H.R. 16462, 91st Cong., 1st and 2d sess., 1969–70 (hereafter 1969–70 House Labor Hearings). 33. See Senate Special Committee on Aging, Economics of Aging: Toward a Full Share in Abundance: Part 10B—Pension Aspects, 91st Cong., 2d sess., 1970 (hereafter 1970 Senate Aging Hearings Part 10B), 1583. 34. See Senate Special Committee on Aging, Economics of Aging: Toward a

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Notes to Pages 155–158

Full Share in Abundance: Part 10A—Pension Aspects, 91st Cong., 2d sess., 1970 (hereafter 1970 Senate Aging Hearings Part 10A); and 1970 Senate Aging Hearings Part 10B. 35. “Senate Leaders Give UMW Probe to Labor Committee: Shultz Called Again,” Daily Labor Report, January 23, 1970, p. A-10. 36. Richard Patrick Mulcahy, “Serving the Union: The United Mine Workers of America Welfare and Retirement Fund, 1946–1978” (Ph.D. diss., West Virginia University, 1988), 326–29; Michael S. Gordon, “Overview: Why Was ERISA Enacted?” in Senate Committee on Aging, An Information Paper on the Employee Retirement Income Security Act of 1974: The First Decade, 98th Cong., 2d sess., 1984, Committee Print, 15. 37. Cummings to Cowen, February 12, 1970, WHCF, LA Box 24, EX LA9 Welfare-Pensions-Retirement [1969–70] folder, Nixon Presidential Papers (emphasis in original). 38. “President Sends Up Employee Benefits Bill Limited to Fiduciary Standards, Reporting,” Daily Labor Report, March 13, 1970, p. AA-1. 39. Frank L. Griffin Jr. and Charles L. Trowbridge, Status of Funding under Private Pension Plans (Homewood, Ill.: Richard D. Irwin, 1969). 40. Ibid., 20. 41. Ibid., 84. 42. Ibid., 47. 43. Ibid., 77. 44. Ibid., 80 (emphasis in original). 45. Ibid., 85. 46. Frank L. Griffin Jr., “Adequacy of Private Pension Plan Funding—Fact and Fiction,” Pension and Welfare News 4 (August 1968), 20–22, and (September 1968), 69. 47. Richard A. Van Deuren, “Proposed Federal Legislation Affecting Qualified Employee Benefit Plans,” Proceedings of the New York University Twentysecond Annual Conference on Labor, ed. Thomas G. S. Christensen and Andrea S. Christensen (1970), 397–99. 48. Peter Henle, the economist who chaired the interagency task force on pensions during the Johnson years, was the earliest and most important critic of the findings of Griffin and Trowbridge’s study. See “Information on Pension Plans May Become Issue in Coming Congressional Hearings,” Daily Labor Report 16 (January 1970), pp. A-16–A-18; Private Pensions and the Public Interest (Washington: American Enterprise Institute, 1970), 164–68. 49. Congressional Record, 91st Cong., 1st sess., 1969, 115, pt. 13: 18,006–07. 50. Ibid., 18,006. 51. “Pension Benefit Security Bill,” Transactions of the Society of Actuaries 21, pt. 2 (1969), D571. 52. “Information on Pension Plans May Become Issue in Coming Congressional Hearings,” p. A-16. See also 1969–70 House Labor Hearings, 337–39. 53. Mike Gordon refers to fiduciary abuse as “sexy” in Gordon to Lowenwarter, May 17, 1971, Javits Collection, box 94, Pension Reform—CBS News

Notes to Pages 158–159

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Coverage—1971 folder. See also John Erlenborn, Congress and the Pension Bills, speech to Industrial Relations Association of Wisconsin, May 17, 1974, Erlenborn Collection, shipment 1, box 51, Congress & the Pension Bills folder, 10. 54. Congressional Record, 90th Cong., 1st sess., 1967, 113, pt. 4: 4,651. See also the remarks of Frank Cummings in May 1969 in Private Pensions and the Public Interest, 238. 55. Congressional Record, 91st Cong., 2d sess., 1970, 116, pt. 19: 25,594. 56. Mulcahy, “Serving the Union,” 326–29. 57. Senate Committee on Labor and Public Welfare, Authorizing Additional Expenditures by the Committee on Labor and Public Welfare for Inquiries into the United Mine Workers Election of 1969 and Pension and Welfare Plans Generally, 91st Cong., 2d sess., 1970, S. Rpt. 708, 1. See also Gordon, “Overview: Why Was ERISA Enacted?” 15. 58. General Pension and Welfare Fund Study, attached to Feder to the Senator, December 7, 1970, Williams Papers, box 252, untitled folder. 59. Mike Gordon, personal communication to author, July 16, 1999. 60. See handwritten memo, Frank C to Senator, June 17, 1970, and Javits handwritten response on the same note, Javits Collection, box 138, Pension Reform: Pension Plan Questionnaire 1970 folder; and General Pension and Welfare Fund Study, attached to Feder to the Senator, December 7, 1970, Williams Papers, box 252, untitled folder. 61. Tentative Study Plan, no date, Javits Collection, box 122, Pension Reform—Pension Bills 1969–1970 folder. 62. Gordon to Arrigo, August 24, 1970, Javits Collection, box 120, Pension Reform: Javits-Williams Pension Study—1971 folder. 63. Handwritten memo, Frank C. to Senator, June 17, 1970, and Javits handwritten response on the same note, and Frank C. to Senator, June 22, 1970, Javits Collection, box 138, Pension Reform: Pension Plan Questionnaire 1970 folder. 64. “Drive for Pension Protection Law Comes to Life Again with Action at Capitol, UAW Appeal,” Daily Labor Report, July 13, 1970, p. A-12; Senate Committee on Labor and Public Welfare, Interim Report of Activities of the Private Welfare and Pension Plan Study, 1971, 92d Cong. 2d sess., 1972, S. Rpt. 634 (hereafter Senate Report 92–634), 29–30. 65. Congressional Record, 91st Cong., 2d sess., 1970, 116, pt. 19: 25,594. 66. Vera Hirschberg, “Transportation Report/Penn Central Troubles Revive Talk of Railroad Nationalization,” National Journal, October 10, 1970, p. 2209; “Penn Central: Bankruptcy Filed after Loan Bill Fails,” Congressional Quarterly Almanac: 92d Congress, 1st Session, 1971 (Washington: Congressional Quarterly, 1971), 811. 67. Joseph R. Daughen and Peter Binzen, The Wreck of the Penn Central (Boston: Little, Brown and Company, 1971), 287–88. 68. Public Papers of the Presidents of the United States: Richard Nixon, 1970 (Washington: GPO, 1971), 507. 69. Ibid.

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Notes to Pages 160–162

70. Woodcock’s letter is printed at Congressional Record, 91st Cong., 2d sess., 1970, 116, pt. 19: 25,596–97. 71. Ibid., 25,596. 72. Ibid., 25,596–97. 73. Ibid., 25,594. 74. Weinberg to Dodds, July 2, 1970, UAW Research Department—Unprocessed, box 13, UAW-Washington Office: Miscellaneous Personnel—Correspondence and Reports, 1970–1973 folder. 75. See, e.g., Woodcock to Inouye, September 25, 1970, UAW Research Department—Unprocessed, box 106, Pension Reinsurance Sept. 27, 1970 ltr. to Sen’s and replies folder. 76. Mike G. to the Senator, November 13, 1970, Javits Collection, box 121, Pension Reform: Hartke Pension Amendments—1966–1971 folder. 77. See, e.g., Remarks of Senator Jacob K. Javits of New York at Convention of AFL-CIO Industrial Union Department, Daily Labor Report, September 26, 1969, p. F-1–F. 2. 78. Mike G. to the Senator, November 13, 1970. 79. For Gordon’s later reflections, see “Overview: Why Was ERISA Enacted?” 16. 80. Bedell to Woodcock, December 11, 1970, Woodcock Collection, box 39, folder 2. 81. Congressional Record, 91st Cong., 2d sess., 1970, 116, pt. 30: 40,882. 82. Ibid., 40,888. 83. Ibid., 40,888–89. 84. Weinberg to Woodcock, December 14, 1970, Woodcock Collection, box 39, folder 2. 85. See Leah Young, “Senate Unit, Hartke End Pension Feud,” Journal of Commerce, February 16, 1973, p. 3. 86. Willis to Harlow, September 22, 1970, WHCF, LA box 25, GEN LA9 Welfare-Pensions-Retirement [1969–70] folder, Nixon Presidential Papers, 2. See also George Swick, “The Legislative Scene, 1970,” Proceedings of the Conference of Actuaries in Public Practice, 1970–1971 20 (no date), 161. 87. “Actuary Views with Jaundiced Eye Senate Pension Study Questionnaire,” National Underwriter, October 24, 1970, pp. 1, 8. 88. Mike to Frank, September 28, 1970, Javits Collection, box 132, Pension Reform: Staff Memos 1970–1971 folder. 89. “Drive for Pension Protection Law Comes to Life Again with Action at Capitol, UAW Appeal,” p. A-11. 90. Mike G. to Frank C., October 6, 1970; Frank to Senator, no date; and Frank C. to Mike G., October 7, 1970, all in Javits Collection, box 140, Pension Reform: Pension Study Questionnaire—1970 folder. 91. Clague to Elisburg, December 8, 1970, Javits Collection, box 120, Pension Reform: Javits-Williams Pension Study—1971 folder, 2. 92. Senate Report 92–634, 44 (question 22). 93. Clague to Elisburg, December 8, 1970.

Notes to Pages 162–165

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94. Clague to Elisburg, January 28, 1971, Javits Collection, box 138, Pension Reform: Pension Plan Studies—1970–1971 folder. 95. Gerry to Don, December 7, 1970, Williams Papers, Box 127, no folder. 96. Clague to Don Elisburg, January 28, 1971, 2. See also Clague to Elisburg, February 8, 1971, Javits Collection, box 138, Pension Reform: Pension Plan Studies—1970–1971 folder. 97. Feay to Elisburg, February 17, 1971, Javits Collection, box 138, Pension Reform: Pension Plan Studies—1970–71 folder, 2–3. 98. Projection of Pension Fund Activities, February 22, 1971, Williams Papers, box 127, no folder, 2. 99. See Senate Committee on Rules and Administration, Authorizing Additional Expenditures by the Committee on Labor and Public Welfare for Inquiries and Investigations, 92d Cong., 1st sess., 1971, S. Rpt. 12, 2–4. 100. Clague to Elisburg, February 10, 1971, Javits Collection, box 138, Pension Reform: Pension Plan Studies—1970–71 folder, 3. 101. Javits to Williams, February 22, 1971, Javits Collection, box 131, Pension Reform: Pension Study Leo Kramer, Inc.—1971 folder. 102. Williams Papers, Box 127, no folder. 103. Williams Papers, Box 127, no folder. 104. Griffin to Schanes, March 29, 1971, Commerce Records, Accession 40–76–045, box 9 of 10, Pensions folder. 105. Feder to the Senator, March 30, 1971, Williams Papers, box 127, no folder. 106. “First Results of Senate Study Show Very Few Workers Ever Get Pensions,” Daily Labor Report, March 31, 1971, p. A-12. 107. Ibid., A-11. 108. Ibid., A-13 (emphasis in original). 109. James Strong and Ronald Koziol, “Pension Consultants Hit Senate Probe as Malicious, Misleading,” Chicago Tribune, April 2, 1971, in Commerce Records, Accession 40–76–045, box 9 of 10, Pensions folder. 110. Fact Sheet: To Members of the American Pension Conference, May 11, 1971, attached to Schanes to Flanigan, Pension Vesting, no date, Commerce Records, Accession No. 40–76–045, box 9 of 10, Pensions folder, 1. 111. Discussion of Pension Developments, Transactions of the Society of Actuaries 23, pt. 2 (1971), D303–304. 112. See Paul Jackson, “Senate Labor Subcommittee Study of Private Pension Plans—An Actuarial Appraisal,” Proceedings of the Conference of Actuaries in Public Practice, 1971–1972 21 (no date), 93. 113. See Fact Sheet: To Members of the American Pension Conference, May 11, 1971, 3. 114. Jackson, “Senate Labor Subcommittee Study,” 97 (quotes), 115. 115. Ibid., 115. 116. Ibid., 98. 117. “First Results of Senate Study Show Very Few Workers Ever Get Pensions,” A-11 (emphasis added). See also Senate Report 92–634, 64–65.

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Notes to Pages 166–169

118. Jackson, “Senate Labor Subcommittee Study,” 98. 119. Richard C. Keating comments in Proceedings of the Conference of Actuaries in Public Practice, 1971–1972 21 (no date), 120. 120. Ibid. See also A. S. Hansen, Inc., Survey of Private Pension Plans, Javits Collection, box 142, Pension Reform: Survey of Pvt. Pension Plans, A. S. Hansen, Inc. Dec. 1970 folder. 121. Fact Sheet: To Members of the American Pension Conference, May 11, 1971, 2. 122. Proceedings of the Conference of Actuaries in Public Practice, 1971–1972 21 (no date), 119. 123. Reply to Questionnaire Submitted to Frank L. Griffin, Jr., Commerce Records, Accession 40–76–045, box 9 of 10, Pensions folder, 1–2. For additional examples, see 1969–70 House Labor Hearings, 773; 1970 Senate Aging Hearings Part 10B, 1661. 124. “An Uneven Contest,” Business Insurance, May 24, 1971, in Javits Collection, box 132, Pension Reform: Staff Memos 1971 folder. 125. Javits to Nolan, April 6, 1971, Javits Collection, box 142, Pension Reform: Survey of Pvt. Pension Plans, A. S. Hansen, Inc. Dec. 1970 folder. 126. Transactions of the Society of Actuaries 23, pt. 2 (1971), D119. 127. Richard L. Gordon, “Victory for a Comprehensive Reform Law Comes after a Tortuous 7-year Struggle,” Pensions & Investments, September 9, 1974, p. 12. 128. Feder to Noto, April 9, 1971, Williams Papers, box 27, no folder. See Gordon to Noto, April 16, 1971, Javits Collection, box 132, Pension Reform: Staff Memos, 1970–71 folder. 129. See Frank Cummings, “The Future of Fringe Benefits: How Much & How Soon?” Proceedings of the New York University Twenty-fifth Annual Conference on Labor (1972), 187. 130. Javits to Williams, May 14, 1971, Javits Collection, box 139, Pension Reform: Pension Hearings Subcomm. on Labor 10/71 folder; Hearings Format, Javits Collection, box 120, Pension Reform: Javits-Williams Pension Study— 1971 folder. 131. Chris R. to Cummings, July 13, 1971, Javits Collection, box 132, Pension Reform: Staff Memos 1971 folder; Feder to Noto, May 28, 1971, Williams Papers, box 143, Staff Memos folder. 132. Senate Committee on Labor and Public Welfare, Private Welfare and Pension Plans Study, 1971: Hearings before the Committee on Labor and Public Welfare, 92d Cong., 1st sess., 1971, 5 (hereafter 1971 Senate Labor Hearings). 133. Ibid., 362. 134. Senate Report 92–634, 77. 135. 1971 Senate Labor Hearings, 394, 395. 136. Ibid., 881. 137. The discussion in the paragraph is based on a review of entries under “Pension Trusts” and “Pensions” in the Reader’s Guide to Periodical Literature from the mid 1950s through 1975. Excluding articles in the Monthly Labor Re-

Notes to Pages 169–172

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view, the Reader’s Guide lists six articles about private pension plans under these headings in 1969, six in 1970, then a jump to twenty in 1971, and twentythree in 1972. 138. To use a term developed by Frank R. Baumgartner and Bryan D. Jones, the Senate Labor Subcommittee gave pension plans a new “policy image.” See Agendas and Instability in American Politics (Chicago: University of Chicago Press, 1993), 25–27. 139. See Fred W. Friendly, The Good Guys, the Bad Guys and the First Amendment: Free Speech vs. Fairness in Broadcasting (New York: Random House, 1976), 143; “Pensions: Pitfalls in the Fine Print,” Time, August 23, 1971, p. 48; Irwin Ross, “What You Should Know about Your Pension,” Reader’s Digest, April 1971, p. 31. 140. Ross, “What You Should Know about Your Pension,” pp. 31, 37. 141. Congress liberalized deductions available in self-employed pension plans in Foreign Investors Tax Act of 1966, Public Law 809, 89th Cong., 2d sess. (November 13, 1966), § 204(a)(repealing § 404(a)(10) of the IRC). 142. Some Proposals Relating to Qualified Retirement Plans, July 19, 1971, OTP Files, box 47, folder 28, 3. 143. See, e.g., John S. Nolan, “Tax Reform Legislation in 1969,” Tax Executive 22 (1969), 20. 144. See John R. Lindquist, “Important Trends in Pension and ProfitSharing Plans,” Taxes 44 (1966), 831–32; Brief Report on Treasury Studies of Retirement Plans and Taxation of Retirement Income, August 7, 1970, OTP Files, box 47, folder 27. 145. See C. G. Rudney, Brief Report on Pensions and Related Areas for Secretary, July 31, 1970, OTP Files, box 47, folder 27, 5. 146. Albright et al. to Segall, December 9, 1970, OTP Files, box 48, folder 33. 147. Ibid. 148. Nolan to Johnson, February 19, 1970, OTP Files, box 48, folder 29. 149. Rudney to Nolan, February 20, 1970, OTP Files, box 47, folder 28. 150. For Discussion at Pension Consultants Meeting, October 15, 1970 and Albright et al. to Joel Segall, December 9, 1970, both in OTP Files, box 48, folder 33. 151. Fulfilling the Pension Promise, April 3, 1970, Shultz Papers, LM-3 Labor-Management & Welfare—Pension Reports. 152. Proposed Legislative Program 1971, attached to Nash to the Secretary and Undersecretary, November 12, 1970, Silberman Files, box 41, 1971 Legislative Program folder. 153. Hamilton to Murane, April 2, 1970, Commerce Records, Accession 40–73–035, box 3 of 9, Pension Data—1970 folder, 2. 154. Allen J. Matusow, Nixon’s Economy: Booms, Busts, Dollars, and Votes (Lawrence: University Press of Kansas, 1998), 1–2, 79–81. 155. Flanigan to Connally et al., June 17, 1971, WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/71– folder, Nixon Presidential Papers. 156. Flanigan to Shultz, April 9, 1971, WHCF, IS box 1, EX IS: 4/1/71–6/30/71 folder, Nixon Presidential Papers.

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Notes to Pages 172–176

157. Cole to Flanigan, January 27, 1971, and Cole to Flanigan, March 8, 1971, both in WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/71– folder, Nixon Presidential Papers. 158. See Silberman to Flanigan, May 5, 1971, Commerce Records, Accession 40–76–045, box 9 of 10, Pension folder. 159. Attachment to Silberman to Flanigan, no date, re Private Pensions, WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/71– folder, Nixon Presidential Papers. 160. Stans to Flanigan, May 14, 1971, Commerce Records, Accession 40–76–045, box 9 of 10, Pensions folder. 161. Incidence of Non-vesting in Pension Plans: Results of the Survey of Private Pension Plans by A. S. Hansen, Inc., March 10, 1971, OTP Files, box 48, folder 30, 3. 162. Segall to Flanigan, May 13, 1971, Commerce Records, Accession 40–76–045, box 9 of 10, Pensions folder. 163. Ibid.; Flanigan to Connally et al., July 30, 1971, Commerce Records, Accession 40–76–045, box 9 of 10, Pensions folder. 164. Flanigan to Connally et al., August 10, 1971, WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/71– folder, Nixon Presidential Papers. 165. Ibid. 166. Ibid. 167. Ibid. 168. See Gold to Rudney, September 18, 1970, OTP Files, box 48, folder 33; Cohen to Flanigan, October 14, 1971, WHCF, FI box 66, Ex FI11–4 Taxation/Income [17 of 26, September–December 1971] folder, Nixon Presidential Papers. See also Edwin S. Cohen, A Lawyer’s Life Deep in the Heart of Taxes (Arlington, Va.: Tax Analysts, 1994), 535. 169. Cohen to Sen. Hruska, November 21, 1969. 170. Some Proposals Relating to Qualified Retirement Plans, July 19, 1971, OTP Files, box 47, folder 28, 7; Cohen to Flanigan, October 14, 1971. 171. Cohen to Flanigan, October 14, 1971, 3. 172. Ibid., 4. 173. Cohen, A Lawyer’s Life, 536. 174. Crawford to Cole, November 3, 1971, WHCF, LA box 24, LA9 WelfarePensions-Retirement 1/1/71– folder, Nixon Presidential Papers. 175. For Treasury’s doubts, see Gold to Rudney, September 18, 1970, OTP Files, box 48, folder 33. 176. Niskanen (by Merck) to the Director, December 2, 1971, OMB Records, Public Laws—93rd Congress, 1973–1974 (73.1), box 102, T2–9/73.1 (T2– 9/69.4), volume 3. 177. Matusow, Nixon’s Economy, 157. 178. Transcript of Press Conference, December 8, 1971, Hodgson Papers, PE4–2 Silberman, Laurence (Undersecy. of Labor), 1971, 1. 179. “Mixed Reactions Develop Early on President’s Pension Recommendations,” Daily Labor Report, December 9, 1971, pp. A-12 to A-13.

Notes to Pages 176–179

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180. Transcript of Press Conference, December 8, 1971, 5–8. 181. King to Greenough, November 17, 1971, Greenough Office Files, box 1, Pension legislation, 1971–1974 folder. 182. Frank C. to Senator, November 19, 1971, Javits Collection, box 138, Pension Reform: Pension Study Reports 1971 folder. 183. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 5: 6,238. See also Senate Report 92–634, 113. 184. “Senate Minority Staff Shifts Made in Preparation for Pension Law Drive,” Daily Labor Report, February 28, 1972, p. A-3. 185. Daniels to Stulberg, July 3, 1969, Daniels Collection, box 11, folder 20. 186. Feder to Files, March 23, 1971, Williams Papers, box 143, Staff Memos folder. 187. Seidman to Biemiller, February 29, 1972, Latimer Papers, box 75, folder 3, 1 (emphasis added). 188. Pension Reform Report, attached to Sheehan to Abel, October 9, 1973, USWA Legislative Department, box 50, folder 3. 189. Reedy to the President, March 10, 1967, WHCF, Confidential File FG 160, box 30, Department of Labor (1964–67) folder, Johnson Presidential Papers. 190. Seidman to Biemiller, February 29, 1972, Latimer Papers, box 75, folder 3, 1. 191. Retirement Income Security for Employees Act, 92d Cong., 2d sess., S. 3598 (May 11, 1972), § 217(d)(1). 192. Seidman to Biemiller, February 29, 1972, 2. 193. Ibid., 1. 194. S. 3598 (May 11, 1972), § 215; “Reason for Option Between ‘Old’ and ‘New’ Pension Plans in Williams/Javits Bill Given,” Daily Labor Report, May 12, 1972, p. A-16; Cummings and Gordon to Noto, April 20, 1972, USWA Legislative Department, box 50, folder 14. 195. See Sheehan to Abel, April 24, 1972, USWA Legislative Department, box 49, folder 6. 196. Senate Committee on Labor and Public Welfare, Private Welfare and Pension Plan Study, 1972: Hearings before the Committee on Labor and Public Welfare, 92d Congress, 2d sess., 1972 (hereafter 1972 Senate Labor Study Hearings), 375–76. 197. House Committee on Ways and Means, Tax Proposals Affecting Private Pension Plans: Hearings before the Committee on Ways and Means, 92d Cong., 2d sess., 1972 (hereafter 1972 Ways and Means Hearings), 289, 294, 402–403, 432–33, 509–10, 516, 558–59, 572, 634. 198. Ibid., 404–405, 510–11, 633–37, and 638. 199. Ibid., 118–21, 280, 435–36, 519–20, 560–62, 575–78, and 578–81. 200. Ibid., 288, 295–96, 571, and 835. 201. Ibid., 568. 202. Minutes of Leadership Meeting, March 7, 1972, Scott Papers, box 2, Leadership Meeting Notes—January–December folder.

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Notes to Pages 179–183

203. “Mills Tells Life Underwriters No New Tax, Pension Laws Slated for ‘72,” Journal of Commerce, February 15, 1972, attached to Sheehan to Abel, February 23, 1972, USWA Legislative Department, box 49, folder 6. 204. See Mike G. to the Senator, August 3, 1972, Javits Collection, Box 132, Pension Reform: Staff Memos 1971–74 folder. See also Gifford to Flanigan, March 15, 1971, WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/71– folder, Nixon Presidential Papers, and Gifford to Flanigan, May 19, 1971, OMB Records, Public Laws—93rd Congress, 1973–74 (73.1), T2–9/73.1(T2–9/69.4), volume 3. 205. Frank Cummings, “The Future of Fringe Benefits: How Much & How Soon?” 188. 206. “Williams, Javits Introduce Pension Reform Bill, With 12 CoSponsors,” Daily Labor Report, May 11, 1972, p. A-17. 207. Pension and Employee Benefit Act, 92d Cong., 1st sess., 1971, S. 2. See Michael Gordon, Speech to Investment Management Seminar in Minneapolis, Daily Labor Report, June 16, 1972, p. E-1. 208. Dan M. McGill, “Guaranty Fund for Private Pension Obligations,” in Joint Economic Committee, Subcommittee on Fiscal Policy, Compendium of Papers on Old Age Income Assurance: Part V: Financial Aspects of Pension Plans, 90th Cong., 1st sess., 1967, Joint Committee Print, 224. See also Steven A. Sass, The Promise of Private Pensions (Cambridge, Mass.: Harvard University Press 1997), 217. 209. In Douglas Arnold’s terms, the subcommittee was shifting from what was primarily a strategy of persuasion to what was primarily a strategy of modification. Arnold, Logic of Congressional Action, 91–92. 210. “Legislation Affecting Private Pension Plans,” Daily Labor Report, December 23, 1971, p. D-6. 211. “Pension Reform Law Will Pass in Next Few Years, Senate Aide Says,” Daily Labor Report, May 22, 1972, p. A-11. 212. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 16: 21,002. 213. Ibid., 21,004. 214. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 15: 18,937. 215. Senate Committee on Labor and Public Welfare, Retirement Income Security for Employees Act, 1972: Hearings on S. 3598, 92d Cong., 2nd sess., 1972 (hereafter S. 3598 Hearings), 93. 216. Ibid., 1110; Mike to Senator, June 29, 1972, Javits Collection, box 132, Pension Reform: Staff Memos, 1971–74 folder. 217. S. 3598 Hearings, 1116. 218. Ibid., 1115. 219. Ibid., 1043. 220. Mike G. to the Senator, July 24, 1972, Javits Collection, box 132, Pension Reform: Staff Memos 1970–1971 folder. 221. Sheehan handwritten notes, July 25, 1972, USWA Legislative Department, box 50, folder 13; Glasser to Woodcock, July 31, 1972, Woodcock Collection, box 39, folder 3.

Notes to Pages 183–185

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222. Greenough to Willard et al., August 2, 1972, and King to S. 3598 file, August 2, 1972, both in Greenough Office Files, box 1, Pension legislation, 1971–1974 folder. 223. “Scott, Mansfield Express Interest in Pension Bill This Year; Senate Unit to Work on Measure,” Daily Labor Report, July 24, 1972, p. A-13. 224. “Senate Unit Reports Pension Bill to Full Labor Committee for MarkUp,” Daily Labor Report, September 13, 1972, p. A-7. 225. S. 3598 (May 11, 1972), §202(a). 226. S. 3598 Hearings, 194. 227. Senate Committee on Labor and Public Welfare, Retirement Income Security for Employees Act of 1972, 92d Cong., 2d sess., 1972, S. Rpt. 1150 (hereafter Senate Report 92–1150), pp. 30–31. See also Mike G. to Senator, September 7, 1972, Javits Collection, box 124, Pension Reform Leg., S. 3598, Retirement Income Security for Employes Act folder, 1. 228. S. 3598 (May 11, 1972), § 402(b)(1). 229. Senate Report 92–1150, 34–35. See also Sheehan handwritten notes, July 25, 1972; Mike G. to Senator, September 7, 1972, 3–4. 230. Senate Report 92–1150, 33. 231. Mike G. to Senator, September 7, 1972, 3. 232. Senate Report 92–1150. See also Mike G. to Senator, September 7, 1972, 2. 233. Friendly, The Good Guys, 143. 234. Transcript of “Pensions: The Broken Promise,” Appendix A to National Broadcasting Company, Inc. v. F.C.C., 516 F.2d 1101, 1134–46 (D.C. Cir. 1975). Compare Transcript, 1137–38, with 1972 Senate Labor Study Hearings, 1124–25, 1130, 1133, and 1134. 235. Transcript of “Pensions: The Broken Promise,” 1136. 236. See National Broadcasting Company, Inc. v. F.C.C., 516 F.2d at 1108; “Summary of Description of ‘Pensions’ Program Appearing in Reviews in Newspaper TV Columns Shortly after Broadcast,” Appendix B, ibid., 1147–51. 237. Friendly, The Good Guys, 149–50. 238. Galston to Newton, September 13, 1972, Greenough Office Files, box 1, Pension legislation, 1971–1974 folder. 239. Kalish to Ray, November 27, 1972, in Joint Appendix, National Broadcasting Company, Inc. v. F.C.C., case no. 73–2256, U.S. Court of Appeals, District of Columbia. 240. See Friendly, The Good Guys, 142–66. 241. Senate Report 92–1150, 18. See also Mike G. to the Senator, September 15, 1972, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder. 242. Williams and Javits to Colleague, September 21, 1972, Mansfield Papers, series 22, box 31, folder 6. 243. “Cummings Predicts Administration Pension Bill Will Not Pass; Advises Bargainers to Work on Vesting,” Daily Labor Report, May 25, 1972, p. A-3.

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Notes to Pages 185–188

244. Gunning to Johnson, August 25, 1972, and Gunning to Flanigan, September 12, 1972, both in WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/71– folder, Nixon Presidential Papers; “Williams-Javits Pension Bill Is Sent to Finance Committee after U.S. Chamber Request,” Daily Labor Report, September 20, 1972, p. AA-2. 245. Gunning to Johnson, August 25, 1972. 246. Flanigan to the President, September 8, 1972, WHSF, Subject Files: Confidential Files, 1969–74, box 38, LA9 Welfare-Pensions-Retirement [1971–74] folder. 247. Gunning to Flanigan, September 12, 1972. 248. Morton Mintz, “Pension Plan Reform Bill Appears Dead,” Washington Post, September 9, 1972, in USWA Legislative Department, box 49, folder 5. 249. Bernard Asbell, The Senate Nobody Knows (Garden City, N.Y.: Doubleday, 1978), 119, 231. See also David C. King, Turf Wars: How Congressional Committees Claim Jurisdiction (Chicago: University of Chicago Press, 1997), 11–14. 250. “Halpern Introduces Broad Pension Bill, Referred to Ways and Means,” Daily Labor Report, February 8, 1968, p. A-7. 251. “Williams-Javits Pension Bill Is Sent to Finance Committee after U.S. Chamber Request,” p. AA-1; Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 24: 31,284 (quote). 252. Bernie to Jack, September 21, 1972, USWA Legislative Department, box 49, folder 5. 253. See Senate Committee on Finance, Retirement Security for Employees Act, 92d Cong., 2d sess., 1972, S. Rpt. 1224, 9–12. 254. “Spiking Pension Reform,” New York Times, September 26, 1972, in USWA Legislative Department, box 52, folder 2. 255. Leah Young, “Early Vote on Pension Bill Asked,” Journal of Commerce, September 27, 1972, in USWA Legislative Department, box 52, folder 2. 256. “Mansfield Sees Little Chance of Pension Action This Year; Subject Debated on Floor,” Daily Labor Report, September 27, 1972, p. A-18. 257. Gordon, “Overview: Why Was ERISA Enacted?” 23. 258. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt.25: 32,417. 259. Ibid. See John F. Manley, The Politics of Finance: The House Committee on Ways and Means (Boston: Little, Brown and Company, 1970), 260–62. 260. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt.25: 32,422. 261. Ibid. 262. “McGovern Changes Pension Stand, Comes Out for Union Instead of Nader Plan,” Daily Labor Report, October 2, 1973, p. A-13. 263. Gordon to the Senator, October 5, 1972, Javits Collection, box 140, Pension Reform: Pension Reform—Where Do We Stand? 1972 folder. 264. Mansfield to Dent, February 19, 1973, Mansfield Papers, series 9, box 249, folder 1. 265. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 25: 33,616;

Notes to Pages 188–192

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Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 26: 34,293, 34,412 (quote). 266. Congressional Record, 92d Cong., 2d sess., 1972, 118, pt. 27: 35,865. 267. Dick Clark for U.S. Senate, News Release, October 3, 1972, USWA Legislative Department, box 51, folder 3. 268. “Senate: Increase of 2 Seats in Democratic Majority,” Congressional Quarterly Weekly Report, November 11, 1972, p. 2951. 269. Mike Gordon, personal communication to author, July 16, 1999; Gordon, “Overview: Why Was ERISA Enacted?” 24. 270. “Interest in Pension Legislation at Peak, But Outcome Is Unpredictable,” Daily Labor Report, December 6, 1972, p. A-9. 271. Ibid. 272. Manley, Politics of Finance, 108–109.

6. a green light in the senate 1. Scott to Timmons, December 20, 1972, WHCF, LA box 24, EX LA9 Welfare-Pensions-Retirement 1/171– folder, Nixon Presidential Papers. See also Mike Mansfield, remarks to Senate Democrats, Congressional Quarterly Weekly Report, January 6, 1973, p. 11. 2. James L. Sundquist, The Decline and Resurgence of Congress (Washington: Brookings Institution, 1981), 1–4; “Congressional Review: The Issue Was Federal Spending,” Congressional Quarterly Weekly Report, October 21, 1972, pp. 2707–708. 3. Sundquist, Decline and Resurgence of Congress, 4; Stanley I. Kutler, The Wars of Watergate (New York: W. W. Norton & Company, 1990), 135–36. 4. Sundquist, Decline and Resurgence of Congress, 1; “The Vietnam Bombing: Senate Opposition Grows,” Congressional Quarterly Weekly Report, December 23, 1972, pp. 3171–72. 5. Sundquist, Decline and Resurgence of Congress, 4. 6. Mike Mansfield, remarks to Senate Democrats, 10–11. 7. See Mansfield letters to Senate Committee Chairs, January 3, 1973, Mansfield Papers, series 22, box 93, folder 3. 8. Untitled statement, December 27, 1972, Mansfield Papers, series 28, box 8, folder 4. 9. “An Introspective and Angry Congress Begins Its Work,” Congressional Quarterly Weekly Report, January 6, 1973, p. 5; James M. Naughton, “Congress Opens: Democrats Plan Antiwar Action,” New York Times, January 4, 1973, p. 1. 10. See Roger H. Davidson and Walter J. Oleszek, Congress against Itself (Bloomington: Indiana University Press, 1977), 63–64. 11. Memorandum for Senator Mike Mansfield, December 19, 1972, Mansfield Papers, series 22, box 92, folder 8, 2. See also John F. Manley, The Politics of Finance: The House Committee on Ways and Means (Boston: Little, Brown and Company, 1970), 295–307; and Richard F. Fenno, Jr., Congressmen in Committees (Boston: Little, Brown and Company, 1973), 157–59.

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Notes to Pages 192–194

12. See Memorandum for Senator Mike Mansfield, December 19, 1972, and Adlai Stevenson et al. to Mike Mansfield, December 22, 1972, Mansfield Papers, series 22, box 92, folder 8. 13. “An Introspective and Angry Congress Begins Its Work,” p. 8. 14. Mike Mansfield, remarks to Senate Democrats, p. 12; Minutes of the Senate Democratic Conference, January 3, 1973, Mansfield Papers, series 22, box 91, folder 1, 18–22. 15. “Seniority Rule: Change in Procedure, Not in Practice,” Congressional Quarterly Weekly Report, January 27, 1973, p. 137; Norman J. Ornstein and David W. Rohde, “Political Parties and Congressional Reform,” Parties and Elections in an Anti-Party Age: American Politics and the Crisis of Confidence, ed. Jeff Fishel (Bloomington: Indiana University Press, 1978), 284–85. 16. Ornstein and Rohde, “Political Parties and Congressional Reform,” 285; Davidson and Oleszek, Congress against Itself, 47; Sundquist, Decline and Resurgence of Congress, 379. 17. See Michael Barone et al., The Almanac of American Politics: The Senators, the Representatives—Their Records, States and Districts 1974 (Boston: Gambit, 1973), 314–16. 18. “Seniority Rule: Change in Procedure, Not in Practice,” p. 138. See also Ronald M. Peters, Jr., The American Speakership: The Office in Historical Perspective, 2d ed. (Baltimore, Md.: Johns Hopkins University Press, 1997), 177. 19. Mike G. to the Senator, January 3, 1973, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder (emphasis in original). 20. Retirement Income Security for Employees Act, 93d Cong., 1st sess., 1973, S. 4, in U.S. Senate, Committee on Labor and Public Welfare, Legislative History of the Employee Retirement Income Security Act of 1974: Public Law 93–406, 94th Cong., 2d sess., Committee Print (Washington: GPO, 1976) (hereafter ERISA Leg. Hist.), 90, 93. 21. Ibid., 206. 22. Senate Committee on Labor and Public Welfare, Retirement Income Security for Employees Act, 1973: Hearings on S. 4 and S. 75, 93d Cong., 1st sess., 1973 (hereafter 1973 Senate Labor Hearings), 1. 23. Ibid., 179. 24. Usery to the Secretary, February 21, 1973, Brennan Papers, LM-4 LaborManagement Relations Policy 1973. 25. “Senate Labor Subcommittee Reports Pension Reform Bill with Amendments,” Daily Labor Report, March 5, 1973, p. A-10. 26. See Hickman to Shultz, August 9, 1973, re Pension Legislation, Simon Papers, box 16, folder 37. 27. Statement for Chairman’s Meeting, February 21, 1973, Mansfield Papers, series 22, box 93, folder 3, 2. 28. Committee Chairmen Luncheon, February 23, 1973, Mansfield Papers, series 2, box 93, folder 3, 1–2. 29. Hon. Herbert Chabot, interview with author, September 13, 1999. See also Manley, The Politics of Finance, 260–62.

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30. “Long Sets Up Pension Subcommittee with Pro-reform Member as Chairman,” Daily Labor Report, February 27, 1973, pp. A-21–A-22; Senate Committee on Finance, Retirement Security for Employees Act, 92d Cong., 2d sess., 1972, S. Rpt. 1224, 10–12. 31. Michael S. Gordon, interview with author, March 21, 1997. 32. Arlen J. Large, “Congress, Administration Weigh Legislation to Assure Workers of Security in Retirement,” Wall Street Journal, March 26, 1973, p. 28. On Bentsen’s experience, see ERISA Leg. Hist., 217. 33. Comprehensive Private Pension Security Act of 1973, 93d Cong., 1st sess., S. 1179, at ERISA Leg. Hist., 210, 230. 34. Large, “Congress, Administration Weigh Legislation to Assure Workers of Security in Retirement,” 28. 35. Bentsen to Sheehan, March 16, 1973, USWA Legislative Department, box 49, folder 7. 36. S. 1179 (as introduced), §§ 322, 323, ERISA Leg. Hist., 234–46. 37. Ibid., §§ 325, 401–407, ERISA Leg. Hist. 246–47, 263–72. 38. Michael S. Gordon, personal communication to author, July 16, 1999. 39. See ERISA Leg. Hist., 220. 40. Ibid., 216–17, 229. 41. In contrast to Nixon’s bill, S. 1179 granted employees a tax credit for a portion of contributions instead of a deduction. Ibid., 216. 42. ERISA Leg. Hist., 1; Employee Benefit Security Act, 93d Cong., 1st sess., 1973, H.R. 2, ERISA Leg. Hist., 3; Employee Retirement Benefit Security Act, 93d Cong., 1st sess., 1973, H.R. 462, ERISA Leg. Hist., 67. 43. Dent to Mike Mansfield, February 7, 1973, Mansfield Papers, series 9, box 249, folder 1. 44. Ibid. 45. See House Committee on Ways and Means, General Tax Reform: Panel Discussions before the Committee on Ways and Means: Part 7 of 11, 93d Cong., 1st sess., 1973. 46. Cook to the President, November 21, 1972, Commerce Records, Accession 40–77–072, box 2 of 2, Pension and Welfare Funds folder. 47. Gunning to Dam et al., January 4, 1973, WHCF, LA box 24, LA9 Welfare-Pensions-Retirement 1/1/73– folder, Nixon Presidential Papers. This memo is incorrectly dated 1972. 48. See Cook to the President, November 21, 1972. See also Davidson and Oleszek, Congress against Itself, 105; Randall Strahan, New Ways and Means: Reform and Change in a Congressional Committee (Chapel Hill: University of North Carolina Press, 1990), 33. 49. Scott to Timmons, December 20, 1972. 50. Richard S. Frank, “Administration Torn between Domestic, Oversees Interests in Drafting Trade Bill,” National Journal, January 13, 1973, pp. 44–45. 51. Ibid., 49–53; George P. Shultz and Kenneth W. Dam, Economic Policy beyond the Headlines (New York: W. W. Norton & Company, 1977), 134. 52. Paulson to Cole, February 19, 1973, WHCF, IS box 1, EX IS Insurance

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Notes to Pages 198–201

1/1/73– folder, Nixon Presidential Papers; Shultz and Dam, Economic Policy beyond the Headlines, 139. See also Gunning to Dam et al., January 4, 1973. 53. On the Council, see Shultz and Dam, Economic Policy beyond the Headlines, 176–77; and Linda Charlton, “Nixon Designates Shultz to Guide Economic Policy,” New York Times, December 2, 1972, pp. 1, 8. 54. “Administration Pension Program Background and Options Paper,” attached to Dam to Ash et al., March 2, 1973, WHCF, LA box 24, EX LA9 WelfarePensions-Retirement 1/1/73– folder, Nixon Presidential Papers. 55. Gunning to Clarke, February 14, 1973, WHCF, IS box 3, EX IS-1: 2/1/73–12/31/73 folder, Nixon Presidential Papers. 56. “Administration Pension Program Background and Options Paper.” 57. Public Papers of the Presidents of the United States: Richard M. Nixon, 1971 (Washington, D.C.: GPO, 1972), 1172. 58. “Administration Pension Program Background and Options Paper,” 2. 59. Ibid. 60. Rodgers to the Secretary, February 2, 1973, Brennan Papers, LM-4 Labor Management Relations Policy 1973. 61. See Funding Options, attached to Gunning to Interagency Pension Group, February 1, 1973, WHCF, LA box 24, EX LA9 Welfare-PensionsRetirement 1/1/73– folder, Nixon Presidential Papers, 1. 62. Pension Plan Termination Insurance and Funding Standards, Report by Interagency Planning Group (Commerce, Labor, Treasury and OMB), February 16, 1973, attached to Shultz to the President, March 28, 1973, WHCF, LA box 24, EX LA9 Welfare-Pensions-Retirement 1/1/73– folder, Nixon Presidential Papers, 6. 63. Shultz to the President, March 28, 1973, 3–4. 64. Gunning to Dam, April 4, 1973, WHCF, LA box 24, EX LA9 WelfarePensions-Retirement 1/1/73– folder, Nixon Presidential Papers. 65. The two pension bills were the Employee Benefits Protection Act, 93d Cong., 1st sess., S. 1557, ERISA Leg. Hist., 280; and the Retirement Benefits Tax Act, 93d Cong., 1st sess., S. 1631, ERISA Leg. Hist., 325. 66. See Large, “Congress, Administration Weigh Legislation to Assure Workers of Security in Retirement,” 28. 67. Mike G. to the Senator, March 14, 1973, Javits Collection, box 140, Pension Reform: Pension Reinsurance (1973) folder; Mike G. to the Senator, April 4, 1973, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder; “Williams, Javits Disappointed in President Nixon’s Pension Proposals,” Daily Labor Report, April 11, 1973, p. AA-4 (quote). 68. Leah Young, “Pension Legislation Sent to Congress by Nixon Has Only One New Feature,” Journal of Commerce, April 12, 1973, pp. 1, 20; “Nixon to Offer Revised Package on Pension Bills,” Wall Street Journal, April 12, 1973, p. 2; “The Status of Proposed Legislative Reform for Private Welfare and Pension Plans,” Remarks of Michael S. Gordon at the Midwest Pension Conference, May 3, 1973, USWA Legislative Department, box 52, folder 14.

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69. Leah Young, “Panel Votes for Pension Reform Bill,” Journal of Commerce 30 (March 1973), p. 1. 70. ERISA Leg. Hist., 388, 587; “S. 4 Reported but Future Is Uncertain: Finance Subcommittee Plans Hearings,” Daily Labor Report, April 20, 1973, p. A-2. 71. 1973 Senate Labor Hearings, 217, 386, 636; Mike G. to Senator, March 2, 1973, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder. 72. Mike G. to Senator, March 2, 1973; “Senate Labor Subcommittee Reports Pension Reform Bill with Amendments,” Daily Labor Report, March 5, 1973, pp. A-10–A-11. See also S. 4 (as reported), § 610, ERISA Leg. Hist., 585. 73. Congressional Record, 93d Cong., 1st sess., 1973, 119, pt. 11: 13,738–39; “Finance Subcommittee Hearings Are Scheduled on Pension Bills, Including S. 4 ‘Principles,’ ” Daily Labor Report, May 2, 1973, p. A-3. 74. Senate Committee on Finance, Private Pension Plan Reform: Hearings before the Committee on Finance, 93d Cong., 1st sess., 1973 (hereafter 1973 Senate Finance Hearings), 858. 75. House Committee on Education and Labor, Welfare and Pension Plan Legislation: Hearings on H.R. 2 and H.R. 462, 93d Cong., 1st sess., 1973 (hereafter 1973 House Labor Hearings), 407–408; 1973 Senate Finance Hearings, 398–99. 76. 1973 Senate Finance Hearings, 858. 77. Ibid., 218, 264, 276, 399, 503, 546, 858. 78. Ibid., 858. 79. Ibid., 218, 249–50, 276, 376, 399, 468, 473, 503. Several witnesses representing insurers that marketed pension plans to small employers supported termination insurance. They argued, however, that termination insurance ought not to apply to small plans. See ibid., 306, 311–12. 80. Ibid., 1087. 81. House Committee on Education and Labor, Welfare and Pension Plan Legislation: Hearings on H.R. 2 and H.R. 462, Part 2, 93d Cong., 1st sess., 1973 (hereafter 1973 House Labor Hearings, Part 2), 767, 775; “Legislative Committees Study Pension Bill Draft that Administration Rejected,” Daily Labor Report, June 15, 1973, p. A-8. 82. “Showdown at Hand on Pension Reform,” National Underwriter, July 7, 1973, pp. 1–2. 83. 1973 Senate Finance Hearings, 635. 84. Ibid., 623. 85. Ibid., 628. 86. Ibid., 850. 87. Ibid., 620–22, 633–34. 88. Ibid., 634, 635. 89. Ibid., 627.

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Notes to Pages 203–206

90. Bernard Asbell, The Senate Nobody Knows (Garden City, N.Y.: Doubleday, 1978), 231. 91. This connection is noted in “It’s Time to Rally behind Federal Preemption,” Pensions & Investments, April 22, 1974, p. 12. 92. 1973 Senate Finance Hearings, 531. 93. The Private Nonvested Pension Benefits Protection Tax Act, 1973 N.J. Laws, ch. 124; “Cahill Signs Pension-Safety Bill for Those Whose Plants Close,” New York Times, May 11, 1973, p. 84; “N.J. Governor Signs Two Pension Measures,” National Underwriter, May 19, 1973, p. 6. 94. The Private Nonvested Pension Benefits Protection Tax Act, §§ 3, 8. 95. See Dan M. McGill, Fundamentals of Private Pensions, 2d ed. (Homewood, Ill.: Richard D. Irwin, 1964), 107. 96. Poulin to Glasser, July 3, 1973, UAW Social Security Department—Unprocessed, box 5 of 7, Pension Reform-1973 Williams-Javits S. 4 folder. 97. Elliott, Ackerman, and Millian argue that analogous circumstances facilitated enactment of federal air pollution legislation. See E. Donald Elliott, Bruce A. Ackerman, and John C. Millian, “Toward a Theory of Statutory Evolution: The Federalization of Environmental Law,” Journal of Law, Economics, and Organization 1 (1985), 330–33. 98. 1973 Senate Finance Hearings, 1031. 99. “Pension Legislation? When? and How Much?” Erlenborn Collection, Shipment 1, box 50, Pension Legislation—Assoc. of Priv. Pension & Welfare Plans, May 23, 1973 folder, 3. In an interview in 1998, Erlenborn noted that the prospect of state regulation produced a dramatic reversal in the position business groups took on pension reform. Hon. John Erlenborn, interview with author, March 4, 1998. 100. See 1973 Senate Finance Hearings, 217, 240, 263, 398, 412, 473, 1114, 1158, and 1252. 101. Floyd M. Riddick, Senate Procedure: Precedents and Practices, 93d Cong., 1st sess., 1973, S. Doc. 93–21, 259. 102. Ibid., 255. On the jurisdiction of the Finance Committee, see Senate Temporary Select Committee to Study the Senate Committee System, The Senate Committee System: Jurisdictions, Referrals, Numbers and Sizes, and Limitations of Membership, 94th Cong., 2d sess., 1976, Committee Print, 51. 103. See, e.g., S. 4 (as reported), § 601(3), ERISA Leg. Hist., 577–78. 104. See S. 1179 (as introduced), §§ 321–25, ERISA Leg. Hist., 234–47. 105. 1973 Senate Finance Hearings, 1085, 1104 (quote). See also William Lieber, “An IRS Insider’s View of ERISA,” Tax Notes, November 7, 1994, p. 751. 106. “Senate Pressed to Act Quickly on Pension Bill,” National Underwriter, June 30, 1973, p. 1. 107. “Senate Finance Committee to Hold Executive Sessions on Pension Bills July 11, 12, 13,” Daily Labor Report, June 25, 1973, p. A-17. 108. Davis to CAC Chairmen and Executives, June 25, 1973, USWA Legislative Department, box 50, folder 31.

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109. “Showdown at Hand on Pension Reform,” National Underwriter, July 7, 1973, p. 1. 110. Hickman to Shultz, August 9, 1973, Simon Papers, box 16, folder 37. 111. Mike G. to Senator, July 20, 1973, Javits Collection, box 125, Pension Reform S. 4—Staff Memos 1973 folder. See also Hickman to Shultz, July 18, 1973, Simon Papers, box 16, folder 37. 112. “Dent Introduces Revised Pension Bill with Termination Insurance,” Daily Labor Report, August 6, 1973, A-8. 113. Hickman to Shultz, July 18, 1973, Simon Papers, box 16, folder 37, 1. 114. “Finance Committee Finishes Decision-Making, Will Vote on Reporting Pension Bill July 24,” Daily Labor Report, July 23, 1973, p. A-10; “Finance Committee Orders Pension Bill Reported; Action Expected after Recess,” Daily Labor Report, July 24, 1973, p. A-11. 115. ERISA Leg. Hist., 778–79. 116. “Mansfield to Work for Solution of Pension Bill Problem and Early Action,” Daily Labor Report, July 25, 1973, p. A-10. 117. See Finance Committee Summary of Decisions on Pension Bill, Daily Labor Report, July 24, 1973, p. X-1. 118. Ibid., pp. X-1–X-2; Hickman to Shultz, July 18, 1973, 2. 119. S. 4 (as reported), § 401(a), ERISA Leg. Hist., 531–32. 120. See Finance Committee Summary of Decisions on Pension Bill, p. X-2. 121. S. 4 (as reported), § 403(b)(1), ERISA Leg. Hist., 534. 122. See Finance Committee Summary of Decisions on Pension Bill, p. X-2. Herman Biegel suggested this approach at 1973 Senate Finance Hearings, 860. 123. See Finance Committee Summary of Decisions on Pension Bill, p. X-2. 124. Hickman to Shultz, August 9, 1973, Simon Papers, box 16, folder 37, 3, 9. 125. Finance Committee Summary of Decisions on Pension Bill, pp. X-2–X-3. 126. Mike G. to the Senator, 25 July 1973, Javits Collection, box 125, Pension Reform S. 4—Staff Memos 1973 folder, 4. 127. See S. 1631, 93d Cong., 1st sess., § 6(b), ERISA Leg. Hist., 369–70 (adding § 4971(d) to the IRC). 128. See Strengthening the Prohibited Transaction Rules Applicable to Pension Plans, December 13, 1962, Treasury, OTP Files, box 48, folder 51. 129. Finance Committee Summary of Decisions on Pension Bill, p. X-2. See S. 1631, 93d Cong., 1st sess., § 6(b), ERISA Leg. Hist., 368–69 (adding § 4971(a) and (b) to the IRC). 130. Mike G. to the Senator, July 25, 1973, 4–5. 131. U.S. Const., Art. I, § 7. 132. Quoted in David C. King, Turf Wars: How Congressional Committees Claim Jurisdiction (Chicago: University of Chicago Press, 1997), 98. 133. “Finance Committee Orders Pension Bill Reported, Action Expected after Recess,” p. A-12. 134. Mike G. to the Senator, July 25, 1973, 1–2. David King discusses the stakes of such jurisdictional questions in Turf Wars, 16–17.

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Notes to Pages 208–211

135. Asher C. Hinds, Hinds’ Precedents of the House of Representatives of the United States, vol. 4 (Washington: GPO, 1907), §§ 4372 and 4374. See also Lewis Deschler, Constitution, Jefferson’s Manual, and Rules of the House of Representatives of the United States, Ninety-third Congress, 93d Cong., 1st sess., 1973, H. Doc. 384, § 676. 136. See Steelworkers Legislative Newsletter, September 6, 1973, USWA Legislative Department, box 49, folder 3, 2. 137. Mike G. to the Senator, July 25, 1973, 2 (emphasis in original). 138. Hickman to Shultz, August 9, 1973. 139. Hickman to Shultz, July 18, 1973. 140. See Hickman to Shultz, August 9, 1973. 141. Beidler to Woodcock, February 8, 1973, Woodcock Collection, box 39, folder 4. 142. See 1973 House Labor Hearings, 287. 143. “A Desperate Situation for Pension Reform as Senate Acts Hurriedly,” news release, October 15, 1973, Erlenborn Collection, shipment 2, box 60, Labor: JNE Statements 1973 & 1974 folder. See also John Erlenborn, Congress and the Pension Bills, speech to Industrial Relations Association of Wisconsin, May 17, 1974, Erlenborn Collection, shipment 1, box 51, Congress & the Pension Bills folder, 15. 144. 1973 House Labor Hearings, 28. 145. Ibid., 29. 146. “Dent Bills Offer Compromises on Pension, FLSA Legislation,” Daily Labor Report, March 21, 1973, p. A-10. 147. House Committee on Ways and Means, Tax Proposals affecting Private Pension Plans: Hearings before the Committee on Ways and Means, 92d Cong., 2d sess., 1972, 574. 148. 1973 House Labor Hearings, Part 2, 504. 149. Ibid., 285, 412. 150. “Dent Bills Offer Compromises on Pension, FLSA Legislation,” p. A-10. 151. Edwards to International Officers, etc., June 27, 1973, Woodcock Collection, box 39, folder 4. 152. 1973 House Labor Hearings, Part 2, 497. 153. 1973 House Labor Hearings, 459. 154. Beidler to Woodcock, February 8, 1973, Woodcock Collection, box 39, folder 4; 1973 House Labor Hearings, 757. 155. 1973 House Labor Hearings, 757. 156. Ibid., 765. 157. 1973 House Labor Hearings, Part 2, 775. 158. Glasser to Woodcock, July 5, 1973, Woodcock Collection, box 39, folder 5. 159. Edwards to International Officers, etc., June 27, 1973. 160. “House Unit Puts Off Pension Markup; Mrs. Chisholm Asks Break for Women,” Daily Labor Report, July 16, 1973, p. A-12.

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161. “Erlenborn Introduces Compromise Pension Bill Permitting Three Choices in Vesting,” Daily Labor Report, July 12, 1973, p. A-15; “Senate Finance Agrees on Pesnion [sic] Insurance; Abel Blasts Dent for Not Including Insurance,” Daily Labor Report, July 18, 1973, p. A-16. 162. Sheehan to Honorable, July 16, 1973, USWA Legislative Department, box 50, folder 3. 163. Report from Buddy Davis, no date, USWA Legislative Department, box 50, folder 29. 164. Sheehan to Abel, July 31, 1973, USWA Legislative Department, box 50, folder 3; Report from Buddy Davis, no date, and Ken to Jack, July 19, 1973, both in USWA Legislative Department, box 50, folder 29; Steelworkers Legislative Newsletter, September 6, 1973, USWA Legislative Department, box 49, folder 3, p. 3 (quote). 165. Employee Benefit Security Act, 93d Cong., 1st sess., 1973, H.R. 9824, ERISA Leg. Hist., 686; “Dent Introduces Revised Pension Bill with Termination Insurance,” Daily Labor Report, August 6, 1973, p. A-8. 166. “Pension Reform Legislation Backed by Business Roundtable,” Daily Labor Report, August 8, 1973, p. A-15. 167. “Mansfield to Work for Solution of Pension Bill Problem and Early Action,” p. A-11 (quote); “U.S. Chamber Worried at Short Time for Analyzing ‘Complex’ Pension Bill,” Daily Labor Report, August 28, 1973, p. A-8. 168. Hickman to Shultz, September 16, 1973, Simon Papers, box 16, folder 37; Erlenborn interview, March 4, 1998. See also John Erlenborn, Congress and the Pension Bills, speech to Industrial Relations Association of Wisconsin, May 17, 1974, Erlenborn Collection, shipment 1, box 51, Congress & the Pension Bills folder, 25. 169. ERISA Leg. Hist., 779. 170. “Speaker Lists Pension Reform for House Action; Senate Debate May Be Delayed,” Daily Labor Report, September 5, 1973, p. A-6. 171. ERISA Leg. Hist., 1225–26; “Senate Pension Debate Reset for Sept. 18; House Unit Will Start Its Markup Sept. 13,” Daily Labor Report, September 10, 1973, p. A-11. 172. “Senate Finance Committee Meeting on S. 1179: House Starts Moving Toward Pension Legislation,” Daily Labor Report, September 13, 1973, p. A-17. 173. “Senators Reportedly Reach Pension Bill Agreement as Debate Begins September 18,” Daily Labor Report, September 17, 1973, p. A-13. 174. ERISA Leg. Hist., 1580. See also ibid., 1756. 175. Chabot Interview, September 13, 1999. 176. Amendment No. 496 made no changes in the reporting and disclosure provisions of S. 4. ERISA Leg. Hist., 1623. 177. Ibid., 1623, 1655. 178. Ibid., 1624–27. For vesting, see Amdt. No. 496, 93d Cong., 1st sess., § 221 (adding § 411(a) to the IRC), ibid., 1288–92. For funding, see Amdt. No. 496, § 241 (adding § 4971 to the IRC), ibid., 1307–18. 179. Ibid., 1628. See Amdt. No. 496, § 402, ibid., 1360–63.

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Notes to Pages 213–216

180. Ibid., 1628–29. For the premium, see Amdt. No. 496, § 403(c), ibid., 1365–66. For employer liability, see Amdt. No. 496, § 462(b), ibid., 1396. 181. Ibid., 1627. Amdt. No. 496, § 302, ibid., 1342. 182. Ibid., 1630–31. See Amdt. No. 496, § 504(a) (amending § 9(d) of the Disclosure Act), ibid., 1434–35, § 511 (adding § 15(a), (b)(1), and (d) to the Disclosure Act), ibid., 1441–42, 1449, and § 521(a)(3) and (b), ibid., 1455–56. 183. Ibid., 1630–31. See Amdt. No. 496, § 692, ibid., 1489–90. 184. Ibid., 1630–31. See Amdt. No. 496, § 522(b) (adding § 4974(a) and (b) to the IRC), ibid., 1459. Under certain circumstances, the Labor Department could proceed against a party-in-interest. See Amdt. No. 496, §§ 511 (adding § 15(h) to the Disclosure Act) and 692, ibid., 1450, 1489–90. 185. Ibid., 1632. 186. Ibid., 1656–58. For individual retirement accounts, see Amdt. No. 497, 93d Cong., 1st sess., § 701(a) and (b)(adding §§ 219 and 408 to the IRC), ibid., 1499–1510. For self-employed pensions, see Amdt. No. 497, § 704(a)(amending § 404(e) of the IRC), ibid., 1542–43. 187. Mike to Senator, September 13, 1973, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder, 3. 188. ERISA Leg. Hist., 1658–59. See Amdt. No. 497, § 702(a)(3) (adding new § 401(j)(2) to the IRC), ibid., 1526–27. 189. Ibid., 1662–63. See Amdt. No. 497, § 703, ibid., 1537–42. 190. Ibid., 1190–91, 1708–709, 1732 (quote). See Amdt. No. 505, 93d Cong., 1st sess., ibid., 1675. See also ibid., 1736, where Nelson amends Amendment No. 505 so that it corresponds to his explanation on the Senate floor. 191. Ibid., 1743. See also ibid., 1190–91. 192. Ibid., 1709–10. See Amdt. No. 506, 93d Cong., 1st sess., ibid., 1676–77. 193. Ibid., 1580. 194. Ibid., 1704. See also Buckley interview in Asbell, The Senate Nobody Knows, 140. 195. ERISA Leg. Hist., 1594. 196. Ibid., 1593. 197. Ibid., 1638. 198. See Amdts. Nos. 481, 482, 483, 484, 485, and 508, 93d Cong., 1st sess., ibid., 1234–58, 1680–91. 199. Ibid., 1825. 200. Ibid., 1770. 201. Michael S. Gordon, personal communication to author, August 20, 2003. 202. ERISA Leg. Hist., 1748, 1789–90. 203. Ibid., 1820–21. 204. Ibid., 1827. 205. Ibid., 1847. 206. Ibid., 1879. 207. Ibid., 1881–82.

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7. a donnybrook in the house 1. “Labor Subcommittee Reports Pension Bill; Ways & Means Taking Statements on H.R. 4200,” Daily Labor Report, September 20, 1973, p. A-8; “House Labor Committee Reports Pension Bill; Ways and Means to Start Work on Bill Oct. 1,” Daily Labor Report, September 25, 1973, p. AA-1. 2. U.S. Senate, Committee on Labor and Public Welfare, Legislative History of the Employee Retirement Income Security Act of 1974: Public Law 93–406, 94th Cong., 2d sess., Committee Print (Washington: GPO, 1976) (hereafter ERISA Leg. Hist.), 2180. 3. H.R. 2 (as reported), § 203(a), ibid., 2304–307. 4. H.R. 2 (as reported), § 401(a), ibid., 2320. 5. H.R. 2 (as reported), §§ 403(b), ibid., 2322–24, and 405(b), ibid., 2326. See also “Provisions of Pension Bill Clarified,” Journal of Commerce, September 27, 1973, p. 3. 6. H.R. 2 (as introduced), § 302(a)(2), ERISA Leg. Hist., 59–60. 7. Suppose a plan that had existed for seventeen years exactly met its funding obligation—i.e., the value of plan assets equaled 68 percent of the plan’s liability for vested benefits. To comply in year eighteen, the value of the plan’s assets would have to equal 72 percent of its liability for vested benefits. If the value of the plan’s investments fell, say, by 3 percent of the plan’s total vested liabilities, then the employer’s next contribution would have to be 7 percent of the plan’s total liability for vested benefits or the plan would not comply with the funding schedule. 8. H.R. 2 (as reported), § 302(b)(1), ERISA Leg. Hist., 2314–15. 9. Funding obligations employed concepts like “normal cost” and “accrued liability” that were defined differently under different actuarial cost methods. See H.R. 2 (as reported), § 3(29), (31), and (34) and § 302(b), ERISA Leg. Hist., 2257–58, 2314–15. See also Vincent Amoroso et al. “Deductible Limits for Qualified Pension Plans: Yesterday, Today, and Tomorrow,” New York University Fiftyseventh Institute on Federal Taxation: Employee Benefits and Executive Compensation (1999), 1–19–1–20; John H. Langbein and Bruce A. Wolk, Pension and Employee Benefit Law, 3d ed. (New York: Foundation Press, 2000), 356–579, 918. 10. H.R. 2 (as reported), § 302(b)(2), ERISA Leg. Hist., 2314–15. See also House Committee on Education and Labor, Employee Benefit Security Act of 1973, 93d Cong., 1st sess., 1973, H. Rpt. 533, in ibid., 2371. 11. H.R. 4200, § 511 (adding § 15(a) and (b)(1) to the Disclosure Act), ibid., 2055–57; H.R. 2 (as reported), § 111(a)(1) and (3) and (b)(1), ibid., 2283–86. 12. H.R. 4200, § 502(a)(adding § 3(25) to the Disclosure Act), ibid., 2030 (italics added). 13. H.R. 2 (as reported), § 3(21), ibid., 2252 (italics added). See also Martin E. Segal Company, Comments on H.R. 2 as Passed by the House and as Amended by the Senate, March 19, 1974, Latimer Papers, box 71, Building Trades Comments on Pension Reform Legislation and M.W.L. Comments folder, 40.

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Notes to Pages 223–224

14. H.R. 4200 explicitly distinguished between an “employee benefit plan” and an “employee benefit fund” and generally excluded insurance premiums “received or retained by an insurance carrier” from the definition of “employee benefit fund.” H.R. 4200, § 502(a) (adding § 3(16) and (17) to the Disclosure Act), ERISA Leg. Hist., 2026–27. 15. See Memorandum on Fiduciary & Disclosure Provisions in H.R. 2, Javits Collection, box 127, Pension Reform Leg. S. 4, Retirement Income Sec. Act— Prohibited Transactions 1974 folder, 3–6; Staff Discussions, March 17–27, 1974, Javits Collection, box 126, Pension Reform Leg.—Pension Conference—1974 folder. 16. H.R. 4200, § 511 (adding § 15(b)(3) and (4) and (c) to the Disclosure Act), ERISA Leg. Hist., 2058–62. 17. H.R. 4200, §§ 502(a) (amending § 3(13) of the Disclosure Act) and 511 (adding new § 15(b)(3)(B) to the Disclosure Act), ibid., 2031, 2059. 18. H.R. 4200, § 511 (adding new § 15(c)(1) to the Disclosure Act), ibid., 2060. 19. H.R. 4200, § 511 (adding new § 15(b)(4) to the Disclosure Act), ibid., 2059–60. 20. H.R. 2 (as reported), § 111(b)(2)(D) and (E), ibid., 2286–87. See also Steve Sacher, “U.S. Retirement Policy: $50 Billion Here, $50 Billion There . . . Pretty Soon We’re Talking Real Money,” Tax Notes, November 28, 1994, p. 1124. 21. See “Nixon Offers Tax Simplification, New Minimum Tax,” Congressional Quarterly Weekly Report, May 5, 1973, p. 1092. 22. See “Senate Finance Committee Meeting on S. 1179; House Starts Moving toward Pension Legislation,” p. A-17. 23. “Chamber Asks Senate Not to Act Hastily on Pension Legislation,” Daily Labor Report, September 4, 1973, p. A-14. 24. “Labor Subcommittee Reports Pension Bill; Ways and Means Taking Statements on H.R. 4200,” Daily Labor Report, September 20, 1973, p. A-10. 25. Hickman to Simon, September 27, 1973, Simon Papers, box 16, folder 37. 26. “Labor Subcommittee Reports Pension Bill: Ways & Means Taking Statements on H.R. 4200,” p. A-9. The House rules were amended to allow multiple referrals in 1975. See Walter J. Oleszek, Congressional Procedure and the Policy Process, 4th ed. (Washington: Congressional Quarterly, 1996), 101–102. 27. See Congressional Record, 93d Cong., 1st sess., 1973, 119, pt. 24: 31,189; “House Labor Committee Reports Pension Bill: Ways and Means to Start Work on Bill Oct. 1,” p. AA-1. 28. Hon. Herbert Chabot, interview with author, September 13, 1999. See also John F. Manley, The Politics of Finance: The House Committee on Ways and Means (Boston: Little, Brown and Company, 1970), 252–63. 29. “Dent, Erlenborn Seek to Work with Ways and Means for Compromise Bill,” Daily Labor Report, September 26, 1973, p. AA-1.

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30. See Retirement Income Security for Employees Act, 93d Congress, 1st sess., 1973, H.R. 10470. 31. “Treasury Dept. Official Asks Ways and Means to Take Insurance, Portability Out of Pension Bill,” Daily Labor Report, October 2, 1973, p. A-14. See also “Senate and House Open Up Their Sessions in 1973,” Congressional Quarterly Almanac, 93d Cong., 1st Sess., 1973 (Washington: Congressional Quarterly 1974), 1077. 32. Hickman to Simon, September 27, 1973, Simon Papers, box 16, folder 37. 33. “Treasury Dept. Official Asks Ways and Means to Take Insurance, Portability Out of Pension Bill,” p. A-14. 34. House Committee on Ways and Means, Written Statements Submitted by Interested Organizations and Individuals on H.R. 10470, Retirement Income Security for Employees Act, 93d Cong., 1st sess., (1973) (hereafter Written Statements), 769. 35. Ibid., 392. See also ibid., 323, 474–77, 504–505, 505–506, 509, 510, 527–28, 572, 590, 609–10, 773, etc. 36. “Employer Groups Poring over House Labor Committee Pension Bill with New Interest,” Daily Labor Report, September 28, 1973, p. A-3. 37. Written Statements, 770–71. 38. “Ways and Means Starts Making Policy Decisions for Pension Bill, with Age 25 Eligibility Rule,” Daily Labor Report, October 11, 1973, p. AA-1. 39. “Ways and Means Committee Will Try to Finish Policy Decisions for Pension Bill This Week,” Daily Labor Report, October 15, 1973, p. AA-1. 40. “Ways-Means Decides on 40-Year Funding of Past Service Credits in Pension Bill,” Daily Labor Report, October 16, 1973, p. A-12. 41. “Perkins Asks for Rule on Labor Committee Pension Bill (H.R. 2),” Daily Labor Report, October 12, 1973, p. A-11; “Ways and Means Committee Will Try to Finish Policy Decisions for Pension Bill This Week,” p. AA-1. 42. “Disruptions Due in Ways-Means Consideration of Pension Bill,” Daily Labor Report, October 17, 1973, p. A-8. 43. “Exchange of Letters Shows Full Accord on Pension Jurisdiction Still Lacking,” Daily Labor Report, October 18, 1973, p. A-7. 44. Summary of Discussion at the Meeting of Interested Affiliates on Pension Reform Legislation, May 3, 1973, AFL-CIO Legislation Department, box 38, folder 23, 3–4. 45. Ibid., 1. 46. Written Statements, 363; “AFL-CIO to Seek Changes in Pension Bills; Foundation Gives Multi-Employer Plan Data,” Daily Labor Report, August 22, 1973, p. A-12. 47. Written Statements, 356–57. 48. Ibid., 357–58. 49. Ibid., 358. 50. Ibid. 51. Ibid., 354.

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Notes to Pages 227–228

52. Sheehan to Abel, October 9, 1973, USWA Legislative Department, box 50, folder 3. 53. “AFL-CIO Building Trades Department Adopts Resolution against Pension Bill,” Daily Labor Report, October 9, 1973, p. AA-1. 54. Robert Connerton, interview with author, March 9, 1998. 55. See, e.g., Meeting with outside consultants on April 15, 1964, Surrey Papers, box 100, Pensions—Cabinet Committee 1962–1964 folder. 56. Report by Robert Paul, President, Martin Segal Company, on H.R. 4200 to AFL-CIO Building and Construction Trades Department Convention, Daily Labor Report, October 16, 1973, p. F-2. 57. “Ways-Means Committee Mystified by Cost Estimate in Union Pension Resolution,” Daily Labor Report, October 10, 1973, p. A-11. 58. Hickman to Simon, September 27, 1973, Simon Papers, box 16, folder 37; “Treasury Dept. Official Asks Ways and Means to Take Insurance, Portability Out of Pension Bill,” p. A-15. 59. Written Statements, 371–72, 478–79; “Ways-Means Votes to Defer Pension Insurance for Multi-Employer Plans,” Daily Labor Report, October 23, 1973, pp. A-12–A-13. 60. “Reinsurance Pension Bill Plan Voted,” Journal of Commerce, October 24, 1973, p. 1; “Controversy over Pension Legislation Still Rife as Ways and Means Prepares to Issue Draft,” Daily Labor Report, November 20, 1973, pp. A-12–A-13; Thomas to Ullman, October 5, 1973, Ullman Papers, box 192, HR 10470 September 24, 1973 folder; Thomas to Ullman, October 29, 1973, Ullman Papers, box 171, folder 6; Draft Plan Termination Insurance proposal, October 26, 1973, Latimer Papers, box 75, Pension Plan Termination Insurance—Metropolitan Life Proposal folder. 61. “House Ways and Means Committee Nearing End of Decisions on Pension Reform Bill,” Daily Labor Report, October 25, 1973, p. A-13; “WaysMeans Summarizes Its Decisions on Insurance, Reporting, and Disclosure,” Daily Labor Report, October 26, 1973, p. A-4. 62. Statement of AFL-CIO Building and Construction Trades Department on Proposed Pension Legislation, Daily Labor Report, October 29, 1973, p. F-2. 63. “Ways-Means Summarizes Its Decisions on Insurance, Reporting, and Disclosure,” p. A-4. The Building and Construction Trades Department was “pleased” with this decision. Memorandum to the Ways and Means Committee, November 7, 1973, USWA Legislative Department, box 49, folder 12, 2. 64. “Reinsurance Pension Bill Plan Voted,” Journal of Commerce, October 24, 1973, p. 1. 65. See Richard F. Fenno Jr., Congressmen in Committees (Boston: Little, Brown and Company, 1973), 205–206; Michael J. Graetz, “Reflections on the Tax Legislative Process: Prelude to Reform,” Virginia Law Review 58 (1972), 1396–97. 66. “House Ways and Means Committee Nearing End of Decisions on Pension Reform Bill,” p. A-13.

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67. “Rules Committee Defers Action on H.R. 2 to No Later than December 2,” Daily Labor Report, October 30, 1973, p. A-10–A-11. 68. Leah Young, “Battle Rages on Pension Bill in House,” Journal of Commerce, November 1, 1973, p. 1. 69. See John W. Kingdon, Agendas, Alternatives, and Public Policies, 2d ed. (New York: HarperCollins College Publishers, 1995), 168–70. 70. See Ronald M. Peters Jr., The American Speakership: The Office in Historical Perspective, 2d ed. (Baltimore: Johns Hopkins University Press, 1997), 187. 71. Stanley I. Kutler, The Wars of Watergate: The Last Crisis of Richard Nixon (New York: W. W. Norton & Company, 1990), 406–407. 72. See Stephen E. Ambrose, Nixon: Ruin and Recovery, 1973–1990 (New York: Simon & Schuster, 1991), 252; “Watergate: A Hard Look at Presidential Impeachment,” Congressional Quarterly Weekly Report, October 27, 1973, p. 2838. 73. Glasser to Woodcock, November 1, 1973, Woodcock Collection, box 39, folder 5. 74. Abel to Albert, November 6, 1973, USWA Legislative Department, box 49, folder 5. 75. Private versus Government Insurance of Pension Plan Terminations, November 7, 1973, USWA Legislative Department, box 49, folder 12; Phone or Office Contact Note with Jim Attwood, November 11, 1973, UAW Social Security Department—Unprocessed, box 5 of 7, Pension Reform—1973 WilliamsJavits S. 4 folder; Sheehan to the Honorable, November 7, 1973, USWA Legislative Department, box 50, folder 3. 76. Private versus Government Insurance of Pension Plan Terminations, 4. 77. Ibid. 78. Ibid., 6; Sheehan to the Honorable, November 7, 1973. 79. “Mills Back, Drops Reins on Pensions,” Journal of Commerce, November 14, 1973, p. 3. 80. “Ways-Means Makes Decisions on Title VII, Works for Agreement with Labor Committee,” Daily Labor Report, November 15, 1973, pp. AA2–AA-4. 81. “Ways-Means First Pension Draft Available Nov. 21: Delay Sought in House Debate,” Daily Labor Report, November 14, 1973, p. AA-1. 82. “Ways-Means Makes Decisions on Title VII, Works for Agreement with Labor Committee,” p. AA-1. 83. Ibid., p. AA-1–AA-2. 84. Ways and Means Committee Staff Paper, November 23, 1973, Daily Labor Report, December 21, 1973, p. X-4. 85. Education and Labor Committee Staff Paper, November 22, 1973, Daily Labor Report, December 21, 1973, pp. X-1–X-2. 86. Ways and Means Committee Staff Paper, p. X-3. 87. Education and Labor Committee Staff Paper, p. X-2. 88. Ibid.; “Pension Bill Due in Rules January 22 or 23: Ways-Means Issues Complete Draft of its Bill,” Daily Labor Report, December 21, 1973, p. A-8.

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Notes to Pages 231–233

89. “Ullman Says Two Pension Bills May Be Taken to Floor of House” Daily Labor Report, November 26, 1973, p. AA-1. 90. “Ways-Means Bows to Labor Committee, Changes Vesting Rules, Drops Termination Insurance,” Daily Labor Report, November 27, 1973, p. AA-1. 91. Leah Young, “Provisions Dropped from Pension Bill,” Journal of Commerce, November 28, 1973, p. 4. 92. Ullman to Madden, November 27, 1973, USWA Legislative Department, box 49, folder 5. 93. “Pension Reform Legislation Put Off to January on Rules Committee Initiative,” Daily Labor Report, November 28, 1973, p. AA-1; “Dent Regrets Pension Bill Delay; Madden Says Only ‘Skim Milk’ Bill Possible in ‘73,” Daily Labor Report, November 30, 1973, p. A-18. 94. “Pension Legislation: Current Status,” no date, USWA Legislative Department, box 49, folder 9 (emphasis in original), 1, 3. See also Madden to Kerns, December 10, 1973, attached to Sheehan to Abel, January 9, 1974, USWA Legislative Department, box 50, folder 5. 95. “Pension Legislation: Current Status,” 3. 96. Sheehan to Abel, December 19, 1973, USWA Legislative Department, box 49, folder 9; handwritten memo, Jack to Mr. Abel, no date, USWA Legislative Department, box 52, folder 24. 97. Sheehan to Abel, December 19, 1973. 98. Ibid. 99. “Pension Bill Due in Rules January 22 or 23: Ways-Means Issues Complete Draft of Its Bill,” Daily Labor Report, December 21, 1973, p. A-7. 100. “H.R. 2 Pension Bill Put on House Agenda for Jan. 23, If It Has Rule,” Daily Labor Report, December 26, 1973, p. A-8. 101. “House Puts Off Pension Legislation: Ways-Means to Work on Final Draft,” Daily Labor Report, January 21, 1974, p. A-6. 102. “Ways-Means Committee Works on Tax Provisions of Pension Bill: Rules Hearing Expected Jan. 30,” Daily Labor Report, January 22, 1974, p. A-13. 103. See Fenno, Congressmen in Committees, 74–79, 226–42. 104. See Roger H. Davidson and Walter J. Oleszek, Congress against Itself (Bloomington: Indiana University Press, 1977), 154. 105. Ibid., 144–45. 106. See Kutler, Wars of Watergate, 437–38; Paul C. Light, The President’s Agenda: Domestic Policy Choice from Kennedy to Reagan, rev. ed. (Baltimore: Johns Hopkins University Press, 1991), 41. 107. Congressional Record, 93d Cong., 2d sess., 1974, 120, pt. 4: 4,280. 108. “Historic Act Goes to Conference,” Pensions & Investments, March 11, 1974, p. 1. 109. Pension Reform: It Won’t Be Long Now! July 24, 1974, Erlenborn Collection, shipment 1, box 51, Pension Reform: Int’l Foundation of Employee Benefit Plans folder, 5.

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110. “Pension Legislation Now Scheduled for Rules Committee Jan. 29, House Jan. 30,” Daily Labor Report, January 25, 1974, p. AA-1. 111. “Rules Committee Delays Pension Bill to Feb. 6; House Action Possible Week of Feb. 11,” Daily Labor Report, January 29, 1974, p. A-8. 112. Congressional Record, 93d Cong., 2d sess., 1974, 120, pt. 1: 1,189. See also Walter J. Oleszek, Congressional Procedure and the Policy Process (Washington: Congressional Quarterly, 1978), 91. 113. Handwritten notes, Democratic Steering Comm., February 5, 1974, Albert Collection, Legislative Files, box 182, folder 4. 114. “Rules Committee Postpones Hearing on Pension Bills to February 19,” Daily Labor Report, February 5, 1974, p. A-9. 115. “Ullman Introduces Pension Reform Bill Approved by Ways-Means Committee,” Daily Labor Report, February 4, 1974, pp. A-11–A-12; “Ullman and Dent Say They Are Asking House to Take Up Pension Bill Feb. 26,” Daily Labor Report, February 6, 1974, p. A-13. 116. “Dent Introduces New Pension Bill with 3 Employer Insurance Funds,” Daily Labor Report, February 14, 1974, p. AA-1. 117. ERISA Leg. Hist., 2364. 118. H.R. 2 (as reported), § 514(a), (c), and (d), ibid., 2345–46. 119. H.R. 2 (as reported), § 514(b)(1), ibid., 2345. 120. See generally Lee R. Russ, Couch on Insurance 3d (West Group, 1997), § 2:4 (pages 2–11–2–14). 121. For an earlier discussion of the legislative history of the “deemer clause” that emphasizes its implications for health policy, see Daniel M. Fox and Daniel C. Shaffer, “Semi-Preemption in ERISA: Legislative Process and Health Policy,” American Journal of Tax Policy 7 (1988), 47–69. 122. For previous treatments of this issue, see Werner Pfennigstorf and Spencer L. Kimball, “Employee Legal Service Plans: Conflicts between Federal and State Regulation,” American Bar Foundation Research Journal (1976), 796; Jay Conison, “ERISA and the Language of Preemption,” Washington University Law Quarterly 72 (1994), 648–49. 123. Thomas J. Butters, “State Regulation of Noninsured Employee Welfare Benefit Plans,” Georgetown Law Journal 62 (1973), 340. 124. Ibid., 343; Raymond Goetz, “Regulation of Uninsured Employee Welfare Plans Under State Insurance Laws,” Wisconsin Law Review 1967 (1967), 347–48. 125. Butters, “State Regulation of Noninsured Employee Welfare Benefit Plans,” 344. 126. Public Law 95, 93d Cong., 1st sess. (August 15, 1973) in Senate Committee on Education and Labor, Legislative History of Joint Labor-Management Trust Funds for Legal Services, Public Law 93–95, 93d Cong., 2d sess., Committee Print (Washington: GPO, 1974), 151. 127. Minutes, Prepaid Legal Expense (D5) Industry Advisory Committee, November 2, 1973, 1974 Proceedings of the National Association of Insurance

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Notes to Pages 235–237

Commissioners (National Association of Insurance Commissioners, 1974), 1: 634. 128. Report: The Advisory Committee and Its Activities, December 5, 1973, 1974 Proceedings of the National Association of Insurance Commissioners (National Association of Insurance Commissioners, 1974), 1: 630. 129. Compare S. 1423 (June 12, 1973), 93d Cong., 1st sess., in Legislative History of Joint Labor-Management Trust Funds for Legal Services, 123–24 with P.L. 93–95, 93d Cong., 1st sess., in ibid., 151. 130. See Annual Report of the American Bar Association: 1974 (Chicago, Ill.: American Bar Association, 1978), 166–74. See also Senate Committee on the Judiciary, Hearings on Prepaid Legal Services Plan: Hearings before the Senate Committee on the Judiciary, 93d Cong., 2d sess., 1974, 54–93; Conison, “ERISA and the Language of Preemption,” 650. 131. The union role is noted in Mike G. to Senator, June 20, 1974, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder. 132. H.R. 12781, Special Supplement, Daily Labor Report, February 14, 1974, § 514(b), p. 54. 133. Minutes, Prepaid Legal Expense (D5) Industry Advisory Committee, March 27, 1974, 1974 Proceedings of the National Association of Insurance Commissioners (National Association of Insurance Commissioners, 1974), 2: 645. 134. H.R. 2 (as reported), §§ 403(b)(2)(D) and 406, ERISA Leg. Hist., 2323–24, 2327–28. 135. H.R. 12781, § 404(a), p. 39. See also ERISA Leg. Hist., 3346–47. 136. H.R. 2 (as reported), § 405(b), ERISA Leg. Hist., 2326. 137. See John Erlenborn, “Termination Insurance, the Beginning of the End of Private Pensions,” January 25, 1974, USWA Legislative Department, box 52, folder 5. Erlenborn also discusses the “dilemma” created by employer liability at Congressional Record, 93d Cong., 2d sess., 1974, 120, pt. 2: 4,285. 138. See H.R. 12781, §§ 404(a), 405(c)(8), and 414(e). 139. See H.R. 4200 (September 19, 1973), § 423, ERISA Leg. Hist., 1990–91. 140. Ibid., 3352. 141. Committee on Rules, Notice of Action Taken, February 19, 1974, Albert Collection, Legislative Files, box 186, folder 34; ERISA Leg. Hist., 3351. 142. ERISA Leg. Hist., 3489. 143. “Rules Committee Clears Way for Pension Bill: Move for Rival Insurance Plan Petering Out,” Daily Labor Report, February 19, 1974, p. AA-1. 144. Erlenborn to Colleague, February 22, 1974, USWA Legislative Department, box 51, folder 32; “GOP Policy Committee Will Seek New Pension Bill Rule, Chamber of Commerce Issues Warning,” Daily Labor Report, February 22, 1974, p. AA-1. 145. “Rules Committee Clears Way for Pension Bill: Move for Rival Insurance Plan Petering Out,” p. AA-3; “House to Get US Pension Reform Bill,” Journal of Commerce, February 20, 1974, pp. 1, 4. 146. “Pension Reform Legislation,” Memo from Republican Policy Com-

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mittee, February 22, 1974, Albert Collection, Legislative Files, box 158, folder 24; “Republican Policy Committee Will Seek New Pension Bill Rule, Chamber of Commerce Issues Warning,” pp. AA-1, AA-3. 147. “Republicans, Democrats Prepare for House Debate on Pension Reform,” Daily Labor Report, February 25, 1974, p. A-17. 148. ERISA Leg. Hist., 3356–57. 149. Ibid., 3357–59 (quote 3359). 150. Ibid., 3359–60. 151. Ibid., 3361–66. 152. Davidson and Oleszek, Congress against Itself, 86. 153. ERISA Leg. Hist., 3392. 154. Ibid., 3393. 155. Ibid., 3485. 156. “House Democrats Foil GOP Attempt to Destroy Pension Bill Compromise,” Journal of Commerce, February 28, 1974, p. 4; Hon. John N. Erlenborn, interview with author, March 4, 1998; Russell Mueller, interview with author, March 6, 1998. 157. ERISA Leg. Hist., 3489–90. 158. Ibid., 3502–504; “House Defeats Amendment for Exclusive Treasury Jurisdiction in Pension Bill,” Daily Labor Report, February 27, 1974, p. AA-1. 159. ERISA Leg. Hist., 3512 (italics added). 160. Ibid., 3515–18. 161. Ibid., 3527–39 (quote 3531). 162. Ibid., 3539. 163. Ibid., 3540. 164. Ibid., 3543–48. 165. Ibid., 3550. 166. Ibid., 3550–51, 3561 (quotes 3551). 167. Ibid., 3561–70. 168. Ibid., 3593–96. 169. Ibid., 3598–99. 170. Ibid., 3896. 171. “Historic Act Goes to Conference,” p. 1.

8. enacting erisa 1. “Historic Act Goes to Conference,” Pensions & Investments, March 11, 1974, p. 1. 2. Ibid. See also “Dissatisfactions Aired at Washington Meeting on Pension Legislation,” Pensions & Investments, March 11, 1974, p. 32. 3. Henry Rose, interview with author, November 16, 1995. 4. Leah Young, “Both Bills on Pension under Fire,” Journal of Commerce, March 6, 1974, p. 1. 5. Lawrence D. Longley and Walter J. Oleszek, Bicameral Politics: Conference Committees in Congress (New Haven, Conn.: Yale University Press, 1989), 111.

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Notes to Pages 242–243

6. For this suggestion, see Kenneth A. Shepsle and Barry R. Weingast, “Penultimate Power: Conference Committees and the Legislative Process,” Home Style and Washington Work: Studies of Congressional Politics, ed. Morris P. Fiorina and David W. Rohde (Ann Arbor: University of Michigan Press, 1989), 202. 7. Longley and Oleszek, Bicameral Politics, 111. 8. “Pension Reformers Fight Crowded Schedules to Start Key Meetings,” Pensions & Investments, May 20, 1974, p. 2. John Erlenborn later “said it was considered extraordinary in 1974 when a conference on pension legislation drew negotiators from four committees.” Janet Hook, “In Conference: New Hurdles, Hard Bargaining,” Congressional Quarterly Weekly Report, September 6, 1986, p. 2082. I owe this cite to Charles Tiefer, Congressional Practice and Procedure: A Reference, Research, and Legislative Guide (New York: Greenwood Press, 1989), 798 n. 71. See also Steven S. Smith, Call to Order: Floor Politics in the House and Senate (Washington: Brookings Institution, 1989), 211–12. 9. Longley and Olseszek, Bicameral Politics, 109 n. 3. On interchamber rivalry, see ibid., 91–107. For discussion of the difficulties created by rivalries within a chamber’s delegation, see ibid., 115–16. 10. “Senate-House Pension Reformers Predict ‘Interesting’ Conference,” Pensions & Investments, March 25, 1974, p. 2. 11. Senate Committee on Labor and Public Welfare, Legislative History of the Employee Retirement Income Security Act of 1974: Public Law 93–406, 94th Cong., 2d sess. (Washington: GPO, 1976) (hereafter ERISA Leg. Hist.), 4276. 12. “Congress Clears Bill to Regulate Pensions,” Congressional Quarterly Weekly Report, August 24, 1974, p. 2326. See also Smith, Call to Order, 212–14. 13. This practice too was unusual but not without precedent. See Lewis Deschler, Constitution, Jefferson’s Manual, and Rules of the House of Representatives of the United States, Ninety-Third Congress, 93d Cong., 1st sess., 1973, H. Doc. 384, § 536. 14. ERISA Leg. Hist., 4276; Memorandum for the Secretary from Benjamin Brown, April 2, 1974, Legislative Alert 74–37, Brennan Papers, General Subject Files, 1974–1975, Legislative Alert Reports. 15. Fulton to McFall, April 9, 1974, Albert Collection, Legislative Files, box 185, folder 2. See also Mike G. to Senator, April 5, 1974, Javits Collection, box 129, Pension Reform Leg. HR2 Employee Benefit Security Act—Cong. Notes— 1974 folder. 16. Michael S. Gordon, interview with author, March 12, 1998. 17. Fulton to McFall, April 9, 1974. 18. “ABA Backs House Bill on Pensions,” Journal of Commerce, April 19, 1974, p. 1; Mike G. to Senator, June 18, 1974, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder. 19. Remarks of Senator Jacob Javits to Meeting of International Foundation of Employee Benefit Plans, Daily Labor Report, December 4, 1973, p. X-3. See

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also “Javits to Risk Managers: ‘Pioneering Pension Law’ to Be Signed This Summer,” National Underwriter, May 11, 1974, p. 7. 20. “Last Few Days of March Seem to be Earliest Conferences on Pension Measures Can Begin,” Daily Labor Report, March 13, 1974, p. A-14; “Week of April 1 Target Date for Pension Reform Bill Conferences,” Daily Labor Report, March 19, 1974, p. A-15; “No Conferences on Pension Reform Bills Are Likely before April 22,” Daily Labor Report, March 28, 1974, p. A-8; “No Serious Conferences Are Expected on Pension Reform Bills for Two More Weeks,” Daily Labor Report, April 18, 1974, p. A-1. 21. Strauss to Albert, March 11, 1974, Albert Collection, Legislative Files, box 185, folder 2. See also Minutes, Joint Congressional Leadership Meeting, March 6, 1974, Mansfield Papers, series 22, box 117, folder 11, 1. 22. Joint Statement on Pension Plan Reform and National Health Insurance, April 10, 1974, Albert Collection, Legislative Files, box 185, folder 2. 23. Mansfield to Williams, April 10, 1974, and Mansfield to Long, April 10, 1974, both in Mansfield Papers, series 22, box 91, folder 5; Albert to Perkins, April 10, 1974, and Albert to Mills, April 10, 1974, both in Albert Collection, Legislative Files, box 185, folder 2. 24. “No Conferences on Pension Reform Bills Are Likely before April 22,” p. A-8. 25. “No Serious Conferences Are Expected on Pension Reform Bills for Two More Weeks,” p. A-1. 26. Sheehan to Perkins, Mills, Williams, and Long, April 23, 1974, USWA Legislative Department, box 50, folder 3. 27. “Watergate: House Committee Moves to Center Stage,” Congressional Quarterly Weekly Report, February 23, 1974, pp. 487, 490–91. 28. Congressional Quarterly Almanac, 93d Congress, 2d Session, 1974 (Washington: Congressional Quarterly, 1975), 867. 29. “Watergate 7: Indictments May Assist House Inquiry,” Congressional Quarterly Weekly Report, March 2, 1974, p. 538. 30. Ibid., pp. 531–32. 31. Beidler to International Executive Board and CAP Representatives, May 14, 1974, Woodcock Collection, box 39, folder 5. 32. David C. Jones, “Watergate, Impeachment Hold Fate of Ins. Bills,” National Underwriter, May 11, 1974, p. 21. 33. “Senate, House Pension Experts Talk about Roadblocks in Law’s Passage,” Pensions & Investments, May 20, 1974, p. 18. 34. See John Erlenborn, Congress and the Pension Bills, speech to Industrial Relations Association of Wisconsin, May 17, 1974, Erlenborn Collection, shipment 1, box 51, Congress and the Pension Bills folder. 35. Richard F. Fenno Jr., Congressmen in Committees (Boston: Little, Brown and Company, 1973), 175–76. 36. The Senate Minority appears to have been much more likely to dissent during the staff negotiations. See Staff Discussions, March 17–27, 1974, Javits Collection, box 126, Pension Reform Leg.—Pensions Conference—1974.

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Notes to Pages 246–250

37. John Manley calls this linking of the Ways and Means and Finance Committees the “most obvious, and in some ways most important, function of the Joint Committee staff.” John F. Manley, The Politics of Finance: The House Committee on Ways and Means (Boston: Little, Brown and Company, 1970), 309. 38. Russell J. Mueller, interview with author, March 6, 1998. 39. Gerald Strom and Barry Rundquist note that the chamber that acts first on legislation generally has more invested and thus has “an incentive to grant the second acting chamber’s marginal adjustments in order to pass as much of its original compromise as possible.” “A Revised Theory of Winning in HouseSenate Conferences,” American Political Science Review 71 (June 1977), 450. 40. “Watergate: Disintegrating Support for the President,” Congressional Quarterly Weekly Report, May 11, 1974, pp. 1151–52. 41. The precise chain of events is unclear. Former Senate staffer Mike Gordon understood that the Senate leadership ordered the Labor Committee to give (Michael S. Gordon, interview with author, March 12, 1998), and House Labor Committee staffer Russell Mueller recalled that the Senate Labor Committee “simply folded” (Mueller Interview, March 6, 1998). The theory that the Senate caved is consistent with the fact that the conferees adopted the House approach on a range of major issues, including jurisdiction, vesting, and portability. On the other hand, my research in Mike Mansfield’s papers at the University of Montana did not turn up any evidence of an order from the Senate leadership for the Labor Committee to yield. In response to my inquiry, Mansfield, through his secretary, indicated that he had not given such an order. Moreover, it may be that the conference committee’s resolution of the key dispute—jurisdiction—should not be viewed as a victory for the House. Herbert Chabot, then a staff member of the Joint Tax Committee, suggested that the jurisdictional rules in ERISA provided the semblance of a victory for the House (because participation, vesting, and funding standards were placed in the tax and labor laws and both the tax and labor committees retained their jurisdiction on these issues) but that the practical implementation of administrative jurisdiction more closely resembled the Senate approach. Hon. Herbert Chabot, interview with author, September 13, 1999. 42. Congressional Record, 93d Cong., 2d sess., 1974, 120, pt. 33: D331–32. 43. See ERISA Leg. Hist., 5151–204. 44. See ERISA Leg. Hist., 5047–149. 45. “Controversial Areas of Pension Reform Are Deferred by Conference,” Pensions & Investments, June 3, 1974, p. 2. 46. ERISA Leg. Hist., 5164–65; “Conferees Agree to 5-to-15 Year Graded Vesting and Fully after 10 Years’ Service,” Daily Labor Report, May 21, 1974, p. A-13. See ERISA, § 203(a)(2)(A) and (B). 47. See H.R. 2 (House), § 302(b)(2)(C), ERISA Leg. Hist., 3999–4000. See also ibid., 3335. 48. Ibid., 5088. 49. Ibid., 5184–86.

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50. “Conferees on Pension Reform Bill to Take Up Jurisdiction Issue June 4,” Daily Labor Report, May 30, 1974, pp. A-13–A-14. See ERISA, § 302(b)(2). 51. “Controversial Areas of Pension Reform Are Deferred by Conference,” p. 2. 52. See ERISA Leg. Hist., 4252, 5162, 5193–94. 53. H.R. 2 (Senate), §§ 511 (adding § 15 to the Disclosure Act), 522(b) (adding § 4974 to the IRC), and 692, ibid., 3775–79, 3786–99, 3815–16. See also ibid., 4267, 5056. 54. H.R. 2 (House), § 111(b)(2), ibid., 3950–51. See also ibid., 4267, 5056. 55. For the administration’s position, see ibid., 5054–55. Positions of major business groups are set out in Recommendations for Resolving Differences between H.R. 4200 and H.R. 2, attached Harper to Flanigan, April 9, 1974 (hereafter “Business Recommendations”), WHCF, LA box 25, GEN LA9 WelfarePensions-Retirement 1/1/73 folder, Nixon Presidential Papers, 1–2; National Chamber Recommendations on H.R. 2 House-Senate Conference, attached to Davis to Javits, March 25, 1974 (hereafter “Chamber of Commerce Recommendations”), Javits Collection, box 131, Pension Reform Leg., Technical Comments on Pending Legislation 1974 folder, 2; Comparison of H.R. 4200 and H.R. 2 and NAM Preferences, attached to Johnson to Javits, March 27, 1974 (hereafter “NAM Recommendations”), Javits Collection, box 131, Pension Reform Leg., Technical Comments on Pending Legislation 1974 folder, 1. 56. See Senate Temporary Select Committee to Study the Senate Committee System, The Senate Committee System: Jurisdictions, Referrals, Numbers and Sizes, and Limitations of Membership, 94th Cong., 2d sess., 1976, Committee Print, 136. 57. ERISA Leg. Hist., 4530, 4626–27, 4770, 5198 (quote). See ERISA, §§ 505, 3002(c). 58. ERISA Leg. Hist., 4624–25, 5198–99. See ERISA, § 3001. 59. ERISA Leg. Hist., 4625–26, 5199–200 (quote 5199). See ERISA, § 3002. 60. ERISA Leg. Hist., 5200. Javits characterized it as “joint regulation.” Ibid., 4770. See ERISA, § 3003. 61. “Pension Conferees Agree on Jurisdiction for Labor Dep’t, IRS on Vesting and Funding,” Daily Labor Report, June 4, 1974, p. AA-1. See also Conference Day, June 4, 1974, Javits Collection, box 127, Pension Reform Leg., Pension Conference 1974 folder. 62. ERISA Leg. Hist., 5200. 63. “Business Recommendations,” 1; ERISA Leg. Hist., 5136–37; 1973 House Labor Hearings, 754; 1973 House Labor Hearings: Part 2, 417; 1973 Senate Finance Hearings, 470. 64. ERISA Leg. Hist., 3548. 65. Ibid., 5200–203. 66. “Conferees Reject Pension Portability Fund, Favor Benefits Transfer by Tax-Free ‘Rollovers,’ ” Daily Labor Report, June 5, 1974, p. AA-1. See ERISA, § 2002(g)(5) and (6). 67. See ERISA Leg. Hist., 5205–47.

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Notes to Pages 252–254

68. Ibid., 5063–5064. 69. See Business Recommendations, 10. See also Positions on House and Senate Versions of H.R. 2, Proposed Pension Legislation, Erlenborn Collection, shipment 2, box 3, no folder, 13–14. 70. ERISA Leg. Hist., 5207; “Conferees Reject Pension Portability Fund, Favor Benefits Transfer by Tax-Free ‘Rollovers,’ ” p. AA-2. See ERISA Leg. Hist., 4630; and ERISA, § 4002(d). 71. Statement of AFL-CIO Building and Construction Trades Department on Proposed Pension Legislation, Daily Labor Report, October 29, 1973, p. F-2. 72. Johnson to Javits, March 27, 1974. 73. ERISA Leg. Hist., 5211–12. 74. “Conferees Reject Pension Portability Fund, Favor Benefits Transfer by Tax-Free ‘Rollovers,’ ” p. AA-1. See ERISA Leg. Hist. 4633; and ERISA, § 4005(a). 75. ERISA Leg. Hist., 5214. 76. Ibid., 5093 (emphasis in original). 77. Ibid., 5215. See ibid., 4635; and ERISA, § 4022(a). 78. H.R. 2 (House), § 409(d)(1), ibid., 4025–26. See also ibid., 5215–5216. 79. Department of the Treasury and Department of Labor, Memorandum for the Conference Committee on H.R. 2, June 10, 1974, USWA Legislative Department, box 50, folder 22, 3. 80. Pension Plan Termination Insurance, March 29, 1974, USWA Legislative Department, box 50, folder 6. 81. Comparison of Major Provisions of Private Pension Plan Reform, attached to Beidler to Javits, March 22, 1974 (hereafter “UAW Comments”), Javits Collection, box 131, Pension Reform Leg., Technical Comments on Pending Legislation 1974 folder, 8. 82. See Richard A. Ippolito, The Economics of Pension Insurance (Homewood, Ill.: Irwin, 1989), 75–77. 83. ERISA Leg. Hist., 5216. 84. “Limitation on Insured Benefits Agreed to by Pension Conferees,” Daily Labor Report, June 10, 1974, p. A-16. See ERISA, § 4022(b)(3). 85. H.R. 2 (House version), § 405(c)(1), ERISA Leg. Hist., 4016–17. See also ibid., 4261, 5116. 86. ERISA Leg. Hist., 5209–10. 87. “Conferees Reject Pension Portability Fund, Favor Benefits Transfer by Tax-Free ‘Rollovers,’ ” p. AA-2. See ERISA, § 4006(a). 88. ERISA Leg. Hist., 5096–97; Business Recommendations, 12–13; Chamber of Commerce Recommendations, 3. 89. Business Recommendations, 13. In fact, employer liability up to 30 percent of net worth did not create an adequate disincentive. See Ippolito, Economics of Pension Insurance, 80–82. 90. ERISA Leg. Hist., 5222; “Limitation on Insured Benefits Agreed to by Pension Conferees,” p. A-17. See ERISA, § 4062(b). 91. H.R. 2 (Senate version), §§ 463 and 464(b), ERISA Leg. Hist., 3729–34.

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92. ERISA Leg. Hist., 5220–21. 93. Ibid., 5101. 94. Ibid., 5222. 95. “Limitation on Insured Benefits Agreed to by Pension Conferees,” p. A17. See ERISA, §§ 4063(b), (c), and (d). 96. H.R. 2 (Senate version), § 422(b)(1) and (2), ERISA Leg. Hist., 3702–703. See also ibid., 5214. 97. H.R. 2 (House version), § 409(d)(5), ERISA Leg. Hist., 4028. See also ibid., 4259, 5228. 98. H.R. 2 (House version), § 409(d)(3), ERISA Leg. Hist., 4027. See also ibid., 3348, 4259, 5214. 99. Ibid., 5215; Conference Day, June 10, 1974, Javits Collection, box 128, Pension Reform Leg. House/Sen. Conf. on H.R. 2, 1974 folder, 1. 100. H.R. 2 (Senate version), § 422(a) and (b)(1), ERISA Leg. Hist., 3702–03. 101. H.R. 2 (House version), § 409(d)(2), ibid., 4026–27. See also ibid., 5214. 102. Ibid., 5228. 103. “Pension Conferees Conclude Work on Termination Insurance Sections,” Daily Labor Report, June 11, 1974, p. A-16; Conference Day, June 11, 1974, Javits Collection, box 128, Pension Reform Leg. House/Sen. Conf. on H.R. 2, 1974 folder, 4. 104. “Conferees Agree on Pension Reporting, Disclosure Rules,” Daily Labor Report, June 12, 1974, p. A-13; “Consultant Believes Most Pension Plans Will Have to Be Rewritten under New Law,” Daily Labor Report, July 25, 1974, p. A-4 (quote). 105. Michael Gordon, Reflections on Senate-House Pension Reform Conference, USWA Legislative Department, box 50, folder 5, 3. 106. “Pension Conferees Fix Effective Dates for Participation, Vesting, and Funding Rules,” Daily Labor Report, June 13, 1974, p. A-13. See ERISA, §§ 211 and 306. 107. “Conferees Agree on Pension Bill Enforcement Provisions,” Daily Labor Report, June 17, 1974, p. A-14. 108. Mike G. to Senator, June 18, 1974, Javits Collection, box 132, Pension Reform: Staff Memos 1971–1974 folder; Leah Young, “Conferees Agree Pension Rules Should Pre-Empt States’ Actions,” Journal of Commerce, June 18, 1974, p. 4; “Conferees Agree on Pension Bill Enforcement Provisions,” p. A-14. 109. ERISA Leg. Hist., 5253. See ERISA, § 3(21). 110. Ibid., 5255–56. 111. Fulton to McFall, April 9, 1974; Mueller interview, March 6, 1998. 112. For this example, see ERISA Leg. Hist., 4576, 4744. See also Mike G. to the Senator, March 2, 1973, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder. 113. Boggs to Long, February 25, 1974, Long Papers, box 164, folder 23; Jenrette to Gordon, March 21, 1974, Javits Collection, box 131, Pension Reform Leg., Technical Comments on Pending Legislation 1974 folder; Statement of the American Bankers Association Submitted to Conferees on the Pension Bill,

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Notes to Pages 257–259

H.R. 2, March 29, 1974, Ullman Papers, box 171, folder 3, 2–3; “ABA Backs House Bill on Pensions,” p. 1; Long to Bentsen, July 19, 1974, Long Papers, box 163, folder 4. 114. Russell B. Long to Conference Committee on Pension Reform Legislation, re Reference Communication regarding Administration Recommendation favoring prohibited transaction provisions of H.R. 4200 over fiduciary standards of H.R. 2, Long Papers. 115. Ibid. 116. ERISA Leg. Hist., 5122; “ABA Backs House Bill on Pensions,” p. 1. 117. Long to Conference Committee, re Administration Recommendation favoring prohibited transaction provisions of H.R. 4200 over fiduciary standards of H.R. 2. 118. Theodore Rhodes, “The Transformation of an Excise Tax on Bells,” Tax Notes, December 19, 1994, p. 1397. 119. ERISA Leg. Hist., 5256. 120. Javits to Erlenborn, June 11, 1974, Erlenborn Collection, shipment 2, box 3, no folder. 121. “Conferees Ban Pension Self-Dealing,” Journal of Commerce, June 19, 1974, pp. 1, 19; Mike G. to Senator, June 18, 1974, Javits Collection, box 132, Pension Reform: Staff Memos 1971–1974 folder. 122. Javits to Erlenborn, June 11, 1974; Richard L. Gordon, “Conferees Are Tough on Self-Dealing,” Pensions & Investments, July 1, 1974, p. 1; “Conferees Ban Pension Self-Dealing,” Journal of Commerce, June 19, 1974, p. 19; Gordon interview, March 12, 1998. 123. “Pension Conferees Agree to Senate Rule on Restriction for Fiduciaries,” Daily Labor Report, June 18, 1974, p. A-17; ERISA Leg. Hist., 4573–80, 4743–44. See ERISA, §§ 406, 407, and 408. See also Steve Sacher, “U.S. Retirement Policy: $50 Billion Here, $50 Billion There . . . Pretty Soon You’re Talking Real Money,” Tax Notes, November 28, 1994, p. 1124. 124. Mike G. to Senator, June 20, 1974, Javits Collection, box 132, Pension Reform: Staff Memos 1971–74 folder. 125. Thomas J. Butters, “State Regulation of Noninsured Employee Welfare Benefit Plans,” Georgetown Law Journal 62 (1973), 343. 126. Mike G. to Senator, June 20, 1974. 127. 1974 Senate Judiciary Hearings, 5. 128. Ibid., 21. 129. Minutes of First Plenary Session, June 7, 1974, 1974 Proceedings of the National Association of Insurance Commissioners (National Association of Insurance Commissioners, 1974), 2: 8. See also “Model Bill on Prepaid Legal Bows,” Journal of Commerce, June 20, 1974, p. 9. 130. Mike G. to Senator, June 20, 1974. See Shamberger to Gordon, March 5, 1974, and Bell to Javits, March 15, 1974, both in Javits Collection, box 131, Pension Reform Leg., Technical Comments on Pending Legislation 1974 folder. 131. ERISA Leg. Hist., 5283–84.

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132. “Pension Conferees Wrap Up Decisions on Fiduciary Standards, Enforcement,” Daily Labor Report, June 21, 1974, p. A-10. 133. See Mike G. to Senator, June 26, 1974, Javits Collection, Pension Reform: Staff Memos 1971–1974 folder. 134. ERISA Leg. Hist., 5073. 135. NAM Preferences, 1; UAW Comments, 3. 136. Mike G. to Senator, June 18, 1974, Javits Collection, box 132, Pension Reform: Staff Memos 1971–1974 folder; “Pension Conferees Adopt House’s ‘Rule of 45’ on Vesting Rights,” Daily Labor Report, June 24, 1974, p. A-13. See ERISA, § 203(a)(2)(C). 137. “Pension Conferees Adopt House’s ‘Rule of 45’ on Vesting Rights,” p. A-13; Mike G. to Senator, June 26, 1974; Rolnick to Stulberg, June 27, 1974, Stulberg Collection, box 8, folder 1A; ERISA Leg. Hist., 4555. See ERISA, § 305. 138. “Pension Conferees Adopt House’s ‘Rule of 45’ on Vesting Rights,” p. A-14. See ERISA, § 3022(a)(4). 139. ERISA Leg. Hist., 5289–319; “Pension Conferees Agree to Substantial Hikes in Deductible Contributions to HR 10 Plans,” Daily Labor Report, June 26, 1974, pp. AA-1–AA-3. 140. See ERISA, § 2001(a) and (b). 141. See ERISA, § 2004(a) and (b). 142. See ERISA, § 2002(a) and (b). 143. “Marathon Pension Conference Nears End: Conferees Agree on All but Effective Dates,” Daily Labor Report, June 28, 1974, AA-1. 144. Richard L. Gordon, “Reform Takes Final Shape,” Pensions & Investments, July 15, 1974, p. 1. 145. “Dent Calls Pension Bill ‘Good Compromise,’ Hopes for Final Version in Two Weeks,” Daily Labor Report, July 1, 1974, p. A-12; Memorandum to William Timmons, June 28, 1974, Brennan Papers, General Subject Files, 1974–1975, Legislative Alert Reports. 146. See William Lieber, “An IRS Insider’s View of ERISA,” Tax Notes, November 7, 1994, p. 751–753. 147. Congressional Quarterly Weekly Report, July 6, 1974, p. 1740. 148. Dent and Ullman to Meany, July 17, 1974, AFL-CIO Legislation Department, box 38, folder 40. 149. Sheehan to Conferees, July 9, 1974, USWA Legislative Department, box 50, folder 3. 150. “Pension Bills Expected to Be Ready August 12: Relationship to Social Security Is Weighed,” Daily Labor Report, July 12, 1974, p. A-10. 151. Dent and Ullman to Meany, July 17, 1974. 152. Woodworth to Schneebeli and Ullman, July 20, 1974, Ullman Papers, box 171, folder 2. 153. “Pension Reform Bill Conferees to Meet July 31 in Move to Get to House Ahead of Impeachment,” Daily Labor Report, July 24, 1974, p. A-9; Deschler, Jefferson’s Manual and Rules of the House of Representatives, § 912(a).

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Notes to Pages 261–263

154. “Pension Reform Bill Conferees to Meet July 31 in Move to Get to House Ahead of Impeachment,” p. A-9. 155. Sheehan to Abel, July 25, 1974, USWA Legislative Department, box 50, folder 5. 156. “Impeachment: Moving Toward a Decision,” Congressional Quarterly Weekly Report, July 27, 1974, p. 1923. 157. Kutler, The Wars of Watergate, 516. 158. Ibid., 525–26, 531; “Impeachment: 3 Articles Sent to House Floor,” Congressional Quarterly Weekly Report, August 3, 1974, p. 2009. 159. Congressional Quarterly Weekly Report, August 3, 1974, p. 2026. 160. “Pension Reform Bill Will Not Be in Final Form until August 7 or 8,” Daily Labor Report, July 29, 1974, p. A-9. 161. Brown for the Secretary, August 1, 1974, Brennan Papers, General Subject Files, 1974–1975, Legislative Alert Reports. 162. ERISA Leg. Hist., 5229. 163. Memorandum for the Conference Committee on H.R. 2, June 10, 1974, Recommendations on Abuse Control, Employer Liability, and Program Administration, USWA Legislative Department, box 50, folder 22, 5. 164. “Business Recommendations,” 13–14. 165. Sheehan to the Honorable, June 10, 1974, USWA Legislative Department, box 50, folder 3. 166. Discussion of Points Relevant to Effective Dates in the Employee Benefit Security Act, 3, attached to Letter, Sheehan to the Honorable, June 10, 1974. 167. Sheehan to Dent, July 22, 1974, USWA Legislative Department, box 50, folder 6; Pension Reform Legislation, Comments on Termination Insurance Provisions, USWA Legislative Department, box 50, folder 7. 168. Mike G. to Senator, July 30, 1974, Javits Collection, box 132, Pension Reform: Staff Memos, Reports, “Dear Colleagues” 1973–1974 folder. 169. Ibid. 170. “Pension Plan Termination Insurance Is Made Retroactive to July 1 in Conferees’ Last Meeting,” Daily Labor Report, August 1, 1974, p. AA-3. 171. See ERISA, § 4082(b)(4). 172. “Pension Plan Termination Insurance Is Made Retroactive to July 1 in Conferees’ Last Meeting,” p. AA-2. See ERISA, § 4082(a). 173. “Consultant Believes Most Pension Plans Will Have to Be Rewritten under New Law,” Daily Labor Report, July 25, 1974, p. A-4. 174. “Pension Plan Termination Insurance Is Made Retroactive to July 1 in Conferees’ Last Meeting,” p. AA-2; ERISA Leg. Hist., 4648–49. See ERISA, § 4082(c). 175. “Limitation on Insured Benefits Agreed to by Pension Conferees,” p. A16. 176. Glasser to Woodcock, July 31, 1974, Woodcock Collection, box 39, folder 5; UAW statement, Pension Reform Legislation, Comments on Ter-

Notes to Pages 264–265

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mination Insurance Provisions, USWA Legislative Department, box 50, folder 7. 177. Sheehan to Dent, July 10, 1974, USWA Legislative Department, box 50, folder 3; “Pension Plan Termination Insurance Is Made Retroactive to July 1 in Conferees’ Last Meeting,” p. AA-2. See ERISA, § 4022(b)(8). See also ERISA Leg. Hist., 4635–36. 178. “Pension Conferees Conclude Work on Termination Insurance Sections,” p. A-16. 179. Sheehan to Dent, July 22, 1974, USWA Legislative Department, box 50, folder 6 (emphasis in original). 180. “Pension Plan Termination Insurance Is Made Retroactive to July 1 in Conferees’ Last Meeting,” p. AA-1. 181. Mike G. to Senator, July 30, 1974, Javits Collection, box 132, Pension Reform: Staff Memos, Reports, “Dear Colleagues” 1973–75 folder, 5. 182. Richard Baker, “California Lawmakers Attacking Alleged Abuses of Pension Funds,” Journal of Commerce, December 17, 1973, p. 9. 183. “California Pension Bill Sparks Battle,” Journal of Commerce, April 23, 1974, p. 9; “Senate Panel Kills Pension Reform Bill,” Los Angeles Times, June 18, 1974, p. 20. 184. Martin E. Segal Company, Comments on H.R. 2 as Passed by the House and as Amended by the Senate, March 19, 1974, Latimer Papers, box 71, Building Trades Comments on Pension Reform Legislation and M.W.L. Comments folder, 48. As Jay Conison notes, the irony that the preemption provision was broadened to prevent “endless litigation” will not be lost on lawyers who practice in the area. Jay Conison, “ERISA and the Language of Preemption,” Washington University Law Quarterly 72 (1994), 620. See also John H. Langbein and Bruce A. Wolk, Pension and Employee Benefit Law, 3d ed. (New York: Foundation Press, 2000), 496. 185. United Steelworkers of America Comments on Pension Reform Legislation as a Response to Martin Segal Comments, March 27, 1974, USWA Legislative Department, box 50, folder 6, 18. See also Martin E. Segal Company, Follow-up to Comments on H.R. 2 as Passed by the House and as Amended by the Senate, April 12, 1974, Latimer Papers, box 74, folder 1, 20. 186. “Pension Reform Will Lower Investment Returns,” Pensions & Investments, June 3, 1974, p. 12. 187. “Senate Panel Kills Pension Reform Bill,” Los Angeles Times, June 18, 1974, p. 3. 188. “Federal Reform Delays California Pension Bill,” Pensions & Investments, August 26, 1974, p. 15; “California Reform Legislation Folded Because of Federal Reform Passage,” Pensions & Investments, September 9, 1974, p. 33. 189. See ERISA, § 514(a). 190. Mike G. to Senator, July 30, 1974, Javits Collection, box 132, Pension Reform: Staff Memos, Reports, “Dear Colleagues” 1973–75 folder, 5. See also

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Notes to Pages 267–269

Jack Sheehan’s handwritten notes, July 26, 1974, USWA Legislative Department, box 50, folder 7. 191. Kutler, Wars of Watergate, 534. 192. Ibid., 536–538; “The Transition: Nixon Resigns, Ford Takes Over,” Congressional Quarterly Weekly Report, August 10, 1974, pp. 2071–72. 193. Kutler, Wars of Watergate, 539. 194. “Filing Time for Pension Bill and Managers’ Report Put Off to Aug. 9,” Daily Labor Report, August 7, 1974, p. A-11. 195. Edwards to Officers and Board Members, August 7, 1974, Woodcock Collection, box 39, folder 5. 196. See, for example, DOL Pension Task Force, Pension Plan Termination Insurance, July 8, 1974, USWA Legislative Department, box 50, folder 7. 197. Agenda for Meeting between Members of DOL Termination Insurance Task Force and Members of the Actuarial Profession, August 19, 1974, Latimer Papers, box 75, folder 6; I. W. Abel to All District Directors, etc., August 30, 1974, Latimer Papers, box 75, folder 8. 198. Abel to All District Directors, August 30, 1974, Notices Required under the New Retirement Income Security Act of 1974, Latimer Papers, box 75, folder 8. 199. U.S. House, Employee Retirement Income Security Act of 1974, 93d Cong., 2d sess., 1974, H. Rpt. 1280 (hereafter Conference Report), § 1021(g), ERISA Leg. Hist., 4405–406. See also ibid., 4547–48. 200. “House Okays Reform: Drops Offset Freeze,” Pensions & Investments, August 26, 1974, p. 2; H. Con. Res. 609, 93d Cong., 2d sess., § 2(17), ERISA Leg. Hist., 4727. See also ibid., 4683. 201. Conference Report, § 1017(c)(2)(B), ERISA Leg. Hist., 4399. See also H. Con. Res. 609, § 2(9) (“Alternative transfer of terms” for ATT) and (12) (“Usual application waived” for the UAW), ibid., 4726–27. Chabot Interview, September 13, 1999. 202. H. Con. Res. 609, § 2(14), ERISA Leg. Hist., 4727. 203. ERISA Leg. Hist., 4670–71. 204. “Pension Bill May Have Impact on Prepaid Legal Service Plans,” Daily Labor Report, August 27, 1974, p. A-12. 205. Robert Nagle, interview with author, September 13, 1999. 206. ERISA Leg. Hist., 4789. 207. Ibid., 4790. 208. Ibid., 4789. See “Pension Bill May Have Impact on Prepaid Legal Service Plans,” p. A-12. 209. ERISA Leg. Hist., 4790. See “Pension Bill May Have Impact on Prepaid Legal Service Plans,” p. A-12. 210. “Pension Bill May Have Impact on Prepaid Legal Service Plans,” p. A-12. 211. Joseph Diamond, “The New Pension Bill: Its Impact on Insurers,” National Underwriter, August 17, 1974, p. 1.

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212. Timmons to Parker, August 21, 1974, WHCF, LA box 12, EX LA9 Welfare-Pensions-Retirement 8/9/74–8/29/74 folder, Ford Presidential Papers. 213. ERISA Leg. Hist., 5321.

epilogue 1. See, e.g., “Dissatisfactions Aired at Washington Meeting on Pension Legislation,” Pensions & Investments, March 11, 1974, 32. 2. See John H. Langbein and Bruce A. Wolk, Pension and Employee Benefit Law, 3d ed. (New York: Foundation Press, 2000), 135, 136; Section of Labor and Employment Law, American Bar Association, Employee Benefits Law, 2d ed. (Washington: Bureau of National Affairs, 2000), 11–12, 18. 3. Frank Cummings, “ERISA: The Reasonable Expectations Bill,” Tax Notes, November 14, 1994, 881. 4. See Patrick J. Purcell, Pension Issues: Lump-Sum Distributions and Retirement Security, CRS Report for Congress, updated June 30, 2003, 3, 11, 16. 5. The provisions on individual retirement accounts did address divorce and community-property issues. See ERISA, § 2002 (adding IRC § 408(d)(5) and (g)). 6. See Arthur H. Kroll and Yale D. Tauber, “Divorce under ERISA: The Controversy between Retirement Plans and Aggrieved Spouses Continues,” New York University Thirty-seventh Annual Institute on Federal Taxation: ERISA Supplement, ed. Nicholas Liakas (1979), 3–2. 7. See Langbein and Wolk, Pension and Employee Benefit Law, 521–22. 8. See House Committee on Education and Labor, Pension Equity for Women: Hearing on H.R. 2100, 98th Cong., 1st sess., 1983, 117–20; Senate Committee on Labor and Public Welfare, Retirement Equity Act of 1983: Hearing on S. 19, 98th Cong., 1st sess., 1983, 75–77, 96; House Committee on Ways and Means, Economic Equity Act and Related Tax and Pension Reform: Hearing before the Committee on Ways and Means, 98th Cong., 1st sess., 1983, 106. 9. See Senate Committee on Finance, Potential Inequities affecting Women: Hearings on S. 19 and S. 888, 98th Cong., 1st sess., 1983, 112–13; House Committee, Pension Equity for Women, 65, 86–87. 10. See Langbein and Wolk, Pension and Employee Benefit Law, 577–79. 11. Ibid., 578–79. 12. ERISA, §§ 4063 and 4064. See also ERISA Leg. Hist., 4647. 13. Multiemployer Pension Plan Amendments Act of 1980, Public Law 364, 96th Cong., 2d sess. (September 26, 1980). See Dan M. McGill et al., Fundamentals of Private Pensions, 7th ed. (Philadelphia: University of Pennsylvania Press, 1996), 770–71. 14. See generally John W. Kingdon, Agendas, Alternatives, and Public Policies, 2d ed. (New York: HarperCollins College Publishers, 1995), 90–94; Eric M. Patashnik, Putting Trust in the U.S. Budget: Federal Trust Funds and the Politics of Commitment (Cambridge: Cambridge University Press, 2000), 35, 74–75.

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Notes to Pages 274–277

15. For discussion, see Richard A. Ippolito, The Economics of Pension Insurance (Homewood, Ill.: Irwin, 1989), 80–85; Langbein and Wolk, Pension and Employee Benefit Law, 356–57, 365, 368–69, 900–901; Employee Benefits Law, 13–14, 17, 615–17; C. David Gustafson, “An Apologia for the Pension Benefit Guaranty Corporation,” Tax Notes, December 26, 1994, 1677–78. 16. See House Committee on Ways and Means, Challenges Facing Pension Plan Funding: Hearing before the Committee on Ways and Means, 108th Cong., 1st sess., 2003, 16–17. 17. See generally Steven Sass, “Risk at the PBGC: The Public Guarantee of Private Pension Benefits,” Regional Review (spring 1996), 19–24. 18. See generally David A. Moss, When All Else Fails: Government as the Ultimate Risk Manager (Cambridge, Mass.: Harvard University Press, 2002), 31–32. 19. House Committee, Challenges Facing Pension Plan Funding, 18. 20. See, e.g., Senate Committee on Finance, The Funding Challenge: Keeping Defined Benefit Pension Plans Afloat: Hearing before the Committee on Finance, March 11, 2003; and House Committee, Challenges Facing Pension Plan Funding. 21. Gene Steuerle, “Why Pensions Will Not Be Expanded—At Least Not Very Much,” Tax Notes, September 18, 1995, 1493. 22. See especially Bruce Wolk, “Discrimination Rules for Qualified Retirement Plans: Good Intentions Confront Economic Reality,” Virginia Law Review 70 (1984), 419–71; Joseph Bankman, “Tax Policy and Retirement Income Policy: Are Pension Plan Anti-Discrimination Rules Desirable?” University of Chicago Law Review 55 (1988), 790–835; Joseph Bankman, “The Effect of AntiDiscrimination Provisions on Rank-and-File Employees,” Washington University Law Quarterly 72 (1994), 597–618; Daniel I. Halperin, “Special Tax Treatment of Employer-Based Retirement Programs: Is It ‘Still’ Viable as a Means of Increasing Retirement Income? Should It Continue?” Tax Law Review 49 (1994), 1–51. 23. See generally Emily S. Andrews, Pension Policy and Small Employers: At What Price Coverage? (Washington: Employee Benefit Research Institute, 1989), 65–87. 24. See Wolk, “Discrimination Rules for Qualified Retirement Plans,” 430–32. 25. See, e.g., testimony of Daniel I. Halperin, House Committee on Ways and Means, Individual Retirement Accounts and IRS Plan Termination Study: Hearings before the Subcommittee on Oversight, 95th Cong., 2d sess., 1978 (hereafter 1978 IRA Hearings), 47; statement of Hon. Charles B. Rangel, House Committee on Ways and Means, Pension Equity Tax Act of 1982: Hearing on H.R. 6410, 97th Cong., 2d sess., 1982 (hereafter Pension Equity Tax Act of 1982), 4–6; testimony of Donald C. Lubick, House Committee on Ways and Means, Pension Issues: Hearing before the Subcommittee on Oversight, 106th Cong., 1st sess., 1999 (hereafter 1999 Pension Issues Hearing), 10–13. 26. See, e.g., testimony of H. Daniel Jones, 1978 IRA Hearings, 89–91; tes-

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timony of Edwin F. Boynton, Pension Equity Tax Act of 1982, 102–106. 27. See, e.g., Halperin Testimony, 1978 IRA Hearings, 47; Statement of Dianne Bennett, 1999 Pension Issues Hearing, 126–30; Testimony of Mark Iwry, House Committee on Education and the Workforce, Strengthening Pension Security: Examining the Health and Future of Defined Benefit Pension Plans: Hearing before the Committee on Education and the Workforce, 108th Cong., 1st sess., 2003, 116–17. 28. See, e.g., testimony of numerous witnesses in Senate Committee on Finance, Effect of TEFRA on Private Pension Plans: Hearing before the Committee on Finance, 98th Cong., 1st sess., 1983. 29. See generally Paul A. Smith, “Complexity in Retirement Savings Policy,” National Tax Journal 55 (2002), 539–53. 30. Richard A. Ippolito, Pension Plans and Employee Performance: Evidence, Analysis, and Policy (Chicago: University of Chicago Press, 1997), 79; U.S. Department of Labor, Pension and Welfare Benefits Administration, Private Pension Plan Bulletin: Abstract of 1998 Form 5500 Annual Reports (winter 2001–2002), Tables E4a, E4b, and E11. Some employees participated in both a defined-benefit and a defined-contribution plan. 31. Jack VanDerhei and Craig Copeland, “Changing Face of Private Retirement Plans,” EBRI Issue Brief Number 232 (April 2001), 6. See also Pension and Welfare Benefits Administration, Private Pension Plan Bulletin, Tables E4a, E4b, and E11. 32. For a comprehensive review, see William G. Gale, Leslie E. Papke, and Jack VanDerhei, “Understanding the Shift from Defined Benefit to Defined Contribution Plans,” paper prepared for conference entitled ERISA after Twenty-five Years: A Framework for Evaluating Pension Reform, September 17, 1999. 33. VanDerhei and Copeland, Changing Face of Private Retirement Plans, 6. For the cost of PBGC premiums, see Edwin C. Hustead, “Trends in Retirement Income Plan Administrative Expenses,” in Olivia S. Mitchell and Sylvester J. Schieber, eds., Living with Defined Contribution Pensions: Remaking Responsibility for Retirement (Philadelphia: University of Pennsylvania Press, 1998), 173. 34. See Ippolito, Pension Plans and Employee Performance, 83–84, 157–58. 35. Ibid.; McGill et al., Fundamentals of Private Pensions, 39–40; Gale et al., “Understanding the Shift from Defined Benefit to Defined Contribution Plans,” 14–15, 17. 36. Ippolito, Pension Plans and Employee Performance, 81–83. See also Gale et al., “Understanding the Shift from Defined Benefit to Defined Contribution Plans,” 12–14. 37. VanDerhei and Copeland, Changing Face of Private Retirement Plans, 5–6. 38. See Ippolito, Pension Plans and Employee Performance, 84–89. 39. Gale et al., “Understanding the Shift from Defined Benefit to Defined Contribution Plans,” 6.

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Notes to Pages 280–283

40. See U.S. General Accounting Office, Private Pensions: Participants Need Information on the Risks of Investing in Employer Securities and the Benefits of Diversification, GAO-02–943 (2002), 8–17. 41. See Allan P. Blostin, “Distribution of Retirement Income Benefits,” Monthly Labor Review 126 (April 2003), 4. 42. See Patricia E. Dilley, “Hidden in Plain View: The Pension Shield against Creditors,” Indiana Law Journal 74 (1999), 355–453. 43. Employee Benefits Law, 355. 44. See Daniel M. Fox and Daniel C. Schaffer, “Semi-Preemption in ERISA: Legislative Process and Health Policy,” American Journal of Tax Policy 7 (1988), 47–69. 45. ERISA, § 514(a) and (b)(2)(A) and (B). 46. See Fox and Schaffer, “Semi-Preemption in ERISA,” 60–63; Gail A. Jensen, Kevin D. Cotter, and Michael A. Morrissey, “State Insurance Regulation and Employers’ Decision to Self-Insure,” Journal of Risk and Insurance 62 (1995), 205–11; Gail A. Jensen and Michael A. Morrissey, “Employer Sponsored Health Insurance and Mandated Benefit Laws, Milbank Quarterly 77 (1999), 426–33. 47. See American Medical Corp. v. Bartlett, 111 F.3d 358 (4th Cir. 1996). See also Craig Copeland and Bill Pierron, “Implications of ERISA for Health Benefits and the Number of Self-Funded ERISA Plans,” EBRI Issue Brief Number 193 (January 1998), 18–19. 48. Jensen et al., “State Insurance Regulation and Employers’ Decisions to Self-Insure,” 185–86. 49. See Jensen and Morrissey, “Employer-Sponsored Health Insurance and Mandated Benefit Laws,” 441–43. 50. See Wendy K. Mariner, “State Regulation of Medical Care and the Employee Retirement Income Security Act,” New England Journal of Medicine 335 (December 26, 1996), 1986, 1989. 51. Langbein and Wolk, Pension and Employee Benefit Law, 556. 52. ERISA Leg. Hist., 4771. 53. For a succinct discussion of differences between the traditional indemnity model and prospective utilization review, see U.S. General Accounting Office, Employer-Based Managed Care Plans: ERISA’s Effect on Remedies for Benefit Denials and Medical Malpractice, GAO/HEHS-98–154 (1998), 7–12. 54. Sara Rosenbaum et al. “Who Should Determine When Health Care Is Medically Necessary,” New England Journal of Medicine 340 (January 21, 1999), 230. 55. Karen Titlow and Ezekiel Emmanuel, “Employer Decisions and the Seeds of Backlash,” Journal of Health Politics, Policy and Law 24 (1999), 942. 56. See the useful analysis in Jacob S. Hacker and Theodore R. Marmor, “The Misleading Language of Managed Care,” Journal of Health Politics, Policy and Law 24 (1999), 1033–43. 57. See generally J. Scott Andresen, “Is Utilization Review the Practice of Medicine?” Journal of Legal Medicine 19 (1988), 431–54.

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58. See Rosenbaum et al. “Who Should Determine When Health Care Is Medically Necessary,” 229–32; Wendy K. Mariner, “Liability for Managed Care Decisions: The Employee Retirement Income Security Act (ERISA) and the Uneven Playing Field,” American Journal of Public Health 86 (1996), 863–69. 59. General Accounting Office, Employer-Based Managed Care Plans, 15–16. 60. See, e.g., Wendy K. Mariner, “What Recourse?—Liability for ManagedCare Decisions and the Employee Retirement Income Security Act,” New England Journal of Medicine 343 (August 24, 2000), 595–96. 61. For an example and a discussion of other similar cases, see AndrewsClarke v. Travelers Ins. Co., 984 F. Supp. 49 (D. Mass. 1999). 62. Karen Pollitz et al. Assessing State External Review Programs and the Effects of Pending Federal Patients’ Rights Legislation (May 2002), prepared for the Kaiser Family Foundation, 2; Rush Prudential HMO v. Moran, 122 S. Ct. 2151 (2002). 63. See Patricia Butler, Key Characteristics of State Managed Care Organization Liability Laws: Current Status and Experience (August 2001), prepared for the Kaiser Family Foundation, 1. 64. Pegram v. Herdrich, 530 U.S. 211 (2000). 65. See Pappas v. Asbel, 768 A.2d 1089 (Pa. 2001); Cicio v. Does, 321 F.3d 83 (2d Cir. 2003). 66. See Congressional Quarterly Almanac: 105th Congress 2nd Session 1998 (Washington: Congressional Quarterly, 1999), 14–3; Congressional Quarterly Almanac: 106th Congress 2nd Session 2000 (Washington: Congressional Quarterly, 2001), 12–13; “Enactment of Patients’ Bill of Rights Legislation Unlikely, Speaker Says,” Pension & Benefits Reporter, May 28, 2002, p. 1553–54. 67. Fox and Schaffer, “Semi-Preemption in ERISA,” 59. 68. In a footnote in the Supreme Court’s recent opinion in Kentucky Association of Health Plans v. Miller, Justice Scalia suggests that states may be able to regulate contractors that perform services for self-insured plans. See 123 S.Ct. 1471, 1476 n. 1 (2003). Even if they can regulate contractors, however, states appear not to be able to reach self-insured plans that do not hire outside service providers to perform plan functions.

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Index

Abel, I. W., 141, 211, 227, 229, 232 accountants and accounting, 22–23, 24 Accuracy in Media, 184 actuarial cost methods, 58, 126, 222 actuaries, 22–23, 39, 126; criticize Senate Labor Subcommittee’s vesting study, 162, 163, 165–67 adverse selection, 70–73, 134–35, 138, 229 Advisory Committee (President’s Advisory Committee on Labor-Management Policy), 77–78; considers Cabinet Committee provisional report, 102–10, 111, 113 Advisory Council on Employee Welfare and Pension Benefit Plans, 46, 49, 82, 153 agency risk, 4, 5, 43–46. See also fiduciary standards; prohibitedtransaction rules; trust law Agnew, Spiro, 229 Albert, Carl, 192, 224, 229, 243, 244 American Bar Association, and prepaid legal-services plans, 235–36, 258–59, 268–69 American Bar Association Journal, 2 American Federation of Labor (AFL), 37 American Federation of LaborCongress of Industrial Organizations (AFL-CIO), IRAs and liberalization of self-employed pensions

opposed by, 176, 179, 227; internal divisions on pension reform, 141–42, 177, 179, 226–27, 231–32; Labor Department jurisdiction demanded by, 47, 178, 226–27, 231; position statement on pension reform prepared by, 140–44; moderates position on vesting and funding standards for multiemployer plans, 226; termination insurance program supported by, 123–24, 146, 140, 202; vesting and funding standards for multiemployer plans opposed by, 109, 140, 144, 178, 179, 182; vesting and funding standards for singleemployer plans supported by, 144, 146, 179 American Iron and Steel Institute, 120 American Motors Corporation, 54, 55–56 American Pension Conference, 164–65, 166–67, 177 American Telephone and Telegraph (AT&T), 225 American Zinc Company, 178–79 Anderson, John, 237 Anderson, Vance, 233 annuity contracts, pension plans financed via, 23; tax treatment of, 24–26, 43–44, 300n Archer, Bill, 238–39 Arnold, R. Douglas, 7, 14

401

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Asbell, Bernard, 186 A. S. Hansen, Inc., vesting study by, 166–67, 172–73 Association of Private Pension and Welfare Plans, 157 Attwood, James, 150 Badillo, Herman, 239 balance-sheet reserve financing method, 22; tax treatment of, 24–26 Ball, Robert, 101 banking industry: and pension trusts, 43–44; preemption supported by, 259; prohibited-transaction rules in Senate bill (HR2/HR4200) opposed by, 243, 257 Barasch, George, 118, 128 Barden, Graham, 48–49, 82 Beck, David, 47 Beidler, Jack, 245 Bell, Elliott, 107, 108 Bentsen, Lloyd, 192, 194, 196, 208 Bernstein, Merton, 94, 112, 119 Biden, Joseph, 192 Biegel, Herman, 136–40, 201–2 Biemiller, Andrew, 47, 142, 146, 177, 182, 226, 231–32 Bloch, Max, 68, 69 Block, Joseph, 102, 103, 109–10 “blue collar” initiative, 171–72, 176 Board of Tax Appeals, 31 Boyle, Anthony, 109, 155, 158 Brennan, Peter, 193, 257 Bret, William, 182–83 Britain, tax treatment of pension trusts in, 26 Buck, George, 58 Buckley, James, 215–16 Building and Construction Trades Department of AFL-CIO, 227, 265 Building Service Employees Union, 141 Bureau of Internal Revenue, U.S. Treasury Department, 24, 40, 45. See also Internal Revenue Service Bureau of the Budget, 86, 128 Burns, Arthur, 102, 153

business groups: Disclosure Act opposed by, 47; disclosure reform supported by, 152–53; disclosure reform and fiduciary standards opposed by, 124; funding standards opposed by, 124, 137, 138–39, 152, 179, 212; funding standards supported by, 201–2, 210, 212; IRAs and liberalization of self-employed plans supported by, 179; Labor Department jurisdiction opposed by, 47; limits on benefits or contributions in retirement plans opposed by, 91, 170–71, 175, 225; comprehensive pension reform opposed by, 7, 8–10, 108, 119, 148–49; portability fund opposed by, 138–39, 152, 179, 225, 252; preemption supported by, 13, 204–5, 265, 370n; recommendations to conference committee, 252, 254, 259, 262; termination insurance opposed by 124, 133–34, 137, 139, 152, 179, 202, 225; vesting standards opposed by, 124, 137, 138–39, 152, 171, 179; vesting standards supported by, 179; vesting and funding standards supported by, 201–2, 210, 212 Business Week, 92, 121, 169 Cabinet Committee. See President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs Califano, Joseph, 145, 146–47 California, pension reform legislation in, 264–65 Canada, pension reform legislation in, 92 capital markets, effect of pension funds on, 44, 97 Caplin, Mortimer, 83–84 Cardon, John, 210 Cary, William, 97 Chamber of Commerce, 120; funding standards opposed by, 124, 212; Senate Labor Committee bill

Index (S3598) opposed by, 185–87; vesting standards opposed by, 124, 179 Chicago Tribune, 163–64 Chrysler Corporation, 53, 58 Church, Frank, 192 Clague, Ewan, 162–63 Clark, Dick, 192 Cohen, Edwin, 175 collective bargaining, federal labor law and, 35, 36, 62 collectively bargained pension plans, multiemployer, 37–39, 105–6; single-employer, 36–39, 57–60 Commerce clause of U.S. Constitution, 205, 233 Commerce, U.S. Department of: and Johnson administration’s consideration of pension reform, 119–20, 128, 131, 138, 139–40, 148; and Nixon administration’s consideration of pension reform, 153–54, 171–74, 198–200 Commission on Money and Credit, report and recommendations of, 85–86, 98–99 Committee for Economic Development, 85 Conable, Barber S., 239–40 conference committee, 386n; composition of, 242, 243; meetings of, 249–60, 262–65; meetings of deferred, 243–44, 245–46; report on HR2 filed by, 267; role of staffers on, 242, 246, 260–62, 265 Congress of Industrial Organizations, 35–37, 52 Congressional Quarterly Weekly Report, 192 Congressional Record, 159, 269 Conners, John, 128 Connerton, Robert, 235–36, 259 Consolidated Omnibus Budget Reconciliation Act of 1985, 282 Council of Economic Advisors, 85–86. See also Heller, Walter; Tobin, James Council on Economic Policy, 198–200

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Cox, Archibald, 229 Cravath, Swaine & Moore, 64, 66, 129 Cummings, Frank, 129, 155; legislation after ERISA discussed by, 272–73; and preparation of bill by Senate Labor Committee in 1972 (S3598), 177, 179, 181, 182–83, 185; preemption discussed by, 204–5; and Senate Labor Subcommittee study and hearings, 158–59, 168 Curran, Jack, 236 Curtis, Carl, 207, 213, 215 Curtiss-Wright Corporation, 57 Daily Labor Report, 186, 188, 210, 212 Dam, Kenneth, 198–99, 201 Daniels, Wilbur, 123, 136, 143 default risk, 4, 5, 57–60, 67–73, 133–34, 198–99; proposal for disclosure of, 153–54 defined-benefit plans, 36–37, 57–60, 106; decline of, 277–79. See also private pension system defined-contribution plans, trend toward, 277–80 Democratic Caucus, House of Representatives, 192 Democratic Conference, Senate, 191 Democratic Policy Committee, Senate, 187 Democratic Steering and Policy Committee, House of Representatives, 234 Democratic Steering Committee, Senate, 192 Dent, Frederick, 200 Dent, John, 51, 145, 238–39, 242, 245, 260, 261; and conflict with Ways and Means Committee, 209, 212, 218, 224, 225–26, 228, 230–34; difficulties from divisions within AFLCIO, 179, 196–97; preemption expanded by, 234, 236, 268; and preparation of House Labor Committee bill (HR2/HR12781), 209–12, 218, 224, 234–37; pressured by Steelworkers union, 196–97, 211–12

404

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Dingell, John, 130 Dirksen, Everett, 90 Disclosure Act (Welfare and Pension Plans Disclosure Act of 1958): criticism of, 49, 85; passage of, 45–50, 77 Donahue, Thomas, 145–46, 148, 149 Douglas, Paul, 44, 46, 47, 48 Drucker, Peter, 44 Dubinsky, David, 109, 141 DuRose, Stanley, 204 Eagleton, Thomas, 178 Education and Labor Committee, House of Representatives: conflict with Ways and Means Committee, 209, 212, 218, 223–26, 228–34; and Disclosure Act, 48–49, 82; jurisdiction of, 131, 144–45; reports fiduciary and disclosure bill, 149, 152–53; reports pension reform bill (HR2), 218. See also General Labor Subcommittee; Perkins, Carl Ehrlichman, John, 245 Eisenhower administration, 45, 81–82, 83 Eisenhower, Dwight D., 42, 45, 49 Employee Retirement Income Security Act of 1974, 1–5; enactment of, 266–67 (table), 269–70, healthcare system, effect on, 281–85 employer liability. See termination insurance program Erlenborn, John, 204–5, 206, 239, 245, 259; and conflict between Labor and Ways and Means Committees, 209, 224, 228, 230; criticizes compromise between Labor and Ways and Means Committees, 233, 237–39; criticizes termination insurance program, 238, 239 Fair Labor Standards Act of 1938, 93, 104 Feay, Herbert, 162–63, 167 Federal Communications Commission, 184 Federal Deposit Insurance Corporation, 67, 70, 159

Federal Reserve Board, 86, 97 fiduciary standards of conduct: Cabinet Committee report, 98–99, 118; bill introduced by John McClellan, 118, 122; bill prepared by Cabinet Committee (S1024), 122–23, 127–28, 148, 149; bill reported by Senate Labor Committee in 1972 (S3598), 180 (table); bill reported by Senate Labor Committee in 1973 (S4), 195 (table); bill reported by House Labor Committee (HR2), 219 (table), 223; bill passed by Senate (HR4200/HR2), 213, 219 (table), 223, 247 (table), 257; bill passed by House (HR2), 247 (table), 257; considered by conference committee, 257; ERISA, 5, 257, 267 (table). See also agency risk; prohibitedtransaction rules; trust law Finance Committee, Senate, 34, 132, 192; conflict with Labor Committee, 185–87, 194, 196, 203–5, 208–9, 213–14; prepares pension reform bill (S1179), 206–8, 212; and selfemployed pension legislation, 83, 84. See also Bentsen, Lloyd; Long, Russell B.; Private Pension Plans Subcommittee Fiscal Policy Subcommittee, Congressional Joint Economic Committee, 121 Flanigan, Peter, 155, 185; and Nixon administration’s task force on pension reform, 172–77 Ford, Gerald, 1, 229, 269–70 Ford, Henry, II, 107–8, 113–14, 145 Ford Motor Company, 54, 210; pension plan for hourly workers, 36, 52, 58. See also Ford, Henry, II; Markley, Rod forfeiture risk, 4, 54–56, 92–94, 142–43; proposal for disclosure of, 153–54; study by A. S. Hansen, Inc., 166–67, 172–73; study by Senate Labor Subcommittee, 162–67. See also vesting; vesting standards 401(k) plans, 279–80

Index Fowler, Henry, 145 Fox, Daniel, 281 Fulfilling Pension Expectations (McGill), 95, 102 funding: advantages of, 21–23; impact of past-service liability, 57–60; regulation before ERISA, 58–60, 95–96; study by Pension Research Council, 156–57. See also actuarial cost methods; default risk; funding standards; termination insurance program funding standards: cost of, 105–6, 141–42; Cabinet Committee report, 94–97, 100 (table), 111, 112 (table); considered by Advisory Committee, 103–4, 106–7, 109–10; bill prepared by Cabinet Committee (S3421), 126–27, 132, 147 (table); bill reported by Senate Labor Committee in 1972 (S3598), 180 (table), 184; bill introduced by Lloyd Bentsen (S1179), 195 (table); bill prepared by Nixon administration (S1631), 199–200; bill reported by Senate Labor Committee in 1973 (S4), 195 (table); bill reported by House Labor Committee (HR2), 220 (table), 222; bill passed by Senate (HR4200/HR2), 220 (table), 248 (table), 250; bill passed by House (HR2), 248 (table), 250; considered by conference committee, 250, 259; ERISA, 266 (table); ERISA, effective dates, 256; development after ERISA, 274. See also default risk; funding Future of Private Pensions, The (Bernstein), 112, 119 Gaither, James, 145 General Accounting Office, 162, 163 General Agreement on Tariffs and Trade, 197 General Electric, 265 General Labor Subcommittee, House Committee on Education and Labor, hearings on pension reform, 145,

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155, 210–11; reports fiduciary and disclosure bill, 148; prepares pension reform bill (HR2; HR12781), 209–12, 218, 234–36. See also Dent, John; Education and Labor Committee; Erlenborn, John General Motors, 54; pension plan for hourly workers, 37, 53 Gibb, Bill, 119, 138 gift and estate tax, 90, 100 (table), 103, 112 (table) Goldberg, Arthur, 81, 87, 101 Goldwater, Barry, 129 Goodell, Charles, 98 Gordon, Michael S., 2, 160, 183, 214; and conference committee, 242, 245–46, 259, 264–65; and conflict between Senate Labor and Finance Committees, 186, 188, 193, 206, 207–9; and Senate Labor Subcommittee study of pension plans, 158–59, 162 Gore, Albert, 91 Gravel, Mike, 192 Green, Edith, 49 Griffin, Frank, 126, 156–57, 162, 164, 167 Griffin, Robert, 188 Griffiths, Martha, 121 HR2, 93d Cong., 1st sess. (1973), 196, 209–12; reported by House Labor Committee, 218; HR2 (as reported) compared to HR4200 (as passed by Senate), 218, 219–21 (table), 221–23; floor consideration delayed in House, 228, 231; Rules Committee grants rule for, 237; considered and passed by House, 237–40; Senate substitutes text of HR4200 for, 240; provisions of House and Senate versions of HR2 compared, 247–49; meetings of conference committee on, 246–60, 262–65; conference report filed, 267; House and Senate pass conference report, 269; Gerald Ford signs; 270; provisions of ERISA, 266–67 (table)

406

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HR462, 93d Cong., 1st sess. (1973), 196, 209–10 HR4200, 93d Cong., 1st sess. (1973), 208–9; text of S4 added to, 216; passes Senate, 216; compared to reported version of HR2, 218, 219–21 (table), 221–23; held at Speaker’s table by Carl Albert, 224; criticized by Nixon administration, 224; criticized by business groups, 225; criticized by AFL-CIO, 226–27; opposed by AFL-CIO Building and Construction Trades Department, 227 HR10470, 93d Cong., 1st sess. (1973), 224 HR12481, 93d Cong., 2d sess. (1974), prepared by Ways and Means Committee, 225, 227–28, 230, 231; introduced by Al Ullman, 234 HR12781, 93d Cong., 2d sess. (1974), 234–36 HR12855, 93d Cong., 2d sess. (1974), 237, 239–40 HR12906, 93d Cong., 2d sess. (1974), 237 Haldeman, H. R., 245 Hall, John, 202, 211 Hall, Paul, 141 Hartke, Vance, 215, 216; and bill prepared with UAW, 78, 114, 118–19, 132, 160–61 Harvard Business Review, 45 Health, Education, and Welfare, U.S. Department of, 86 healthcare industry, impact of ERISA, 2, 281–85 Heller, Walter, 83, 85, 86, 99, 110 Henle, Peter: and Cabinet Committee report, 103, 117; and legislation prepared by Cabinet Committee, 117, 118–19, 138, 144 Hickman, Frederick, 224–25 Hoffa, James, 47, 112–13, 118 Holtzman, Elizabeth, 239 “horror stories,” 13, 77–79, 118–19, 168–69, 178–79, 184

Hudson Motor Car Company, 53, 54, 55, 67 ideas and values, role in policy-making of, 4–6, 7, 8–11, 155. See also personnel theory; tax subsidy theory; worker-protection theory Impact of Collective Bargaining on Management (Slichter et al.), 35 income tax: deduction of pension costs, 24–25, 31, 32, 40; discrimination, rules forbidding, 33–34, 88–89; employees and retirees, tax treatment, 25, 31; employer-sponsored retirement plans, tax treatment, 23–26, 29–34, 39–43, 87–91, 170, 275–77; 401(k) plans, tax treatment, 279–80; self-employed retirement plans, tax treatment, 40, 42–43, 90–91, 170, 174–75; tax avoidance, retirement plans used for, 18, 29–34, 40, 93, 170; undistributed profits tax, 30–31. See also individual retirement accounts individual retirement accounts (IRAs), bill proposed by Nixon administration in 1971, 171, 174–75; bill introduced by Lloyd Bentsen (S1179), 196, 196 (table); bill proposed by Nixon administration in 1973 (S1631), 198; bill reported by Senate Finance Committee (S1179), 207; bill passed by Senate (HR4200/ HR2), 215–16, 221 (table), 249 (table); bill passed by House (HR2), 249 (table), 260; conference committee considers, 260; ERISA, 260, 267 (table) Inland Steel case, 35 “inside” strategy of policy-making, 158 insurance companies, 31; investment restrictions for, 44; regulation of, 234, 258; taxation of, 43–44. See also insured pension plans insurance regulation, 234, 258

Index insured pension plans, 23; tax treatment, 24–26, 43–44, 300n integration of pension plans with Social Security, 28–29; Cabinet Committee report, 89, 100 (table), 103, 112 (table); tax rules regulating, 33–34, 88, 90, 268 interest groups, role in policy-making, 1, 2, 7–11 intermediation, 17, 21–23, 43–45; taxation of intermediaries, 25–26, 30. See also agency risk; fiduciary standards of conduct; prohibitedtransaction rules Internal Revenue Service, U.S. Treasury Department, 47, 202–3. See also Bureau of Internal Revenue International Brotherhood of Electrical Workers, 109, 141 International Ladies Garment Workers Union, 109, 141, 259, 268. See also Daniels, Wilbur Investments of pension plans, 43–44; regulation before ERISA; 45, 85, 97–98; Cabinet Committee report, 97–99, 107, 109, 111; bill prepared by Cabinet Committee (S1024), 123, 127–28. See also fiduciary standards of conduct; prohibitedtransaction rules Ives, Irving, 45 Jackson, Paul, 165–66, 167 Javits, Jacob K., 1, 80, 118, 201, 202, 215, 245–46, 282; and bill reported by Senate Labor Committee in 1972 (S3598), 180–85; and bill reported by Senate Labor Committee in 1973 (S4), 193, 201; and conference committee, 243, 252, 257–58, 259; and dispute with Senate Finance Committee, 186–88, 208; helps kill UAW/Hartke legislation, 160–61; introduces first comprehensive bill, 129–31; remarks on preemption, 205, 269; and Senate Labor Subcommittee study of pen-

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sion plans, 12, 13, 157–60, 163–64, 167–69; supports comprehensive legislation, 146, 157, 179. See also Cummings, Frank; Gordon, Michael S. Jaworski, Leon, 244 Johnson, Lyndon B., 77, and Cabinet Committee report, 113–14 Johnson administration: and Cabinet Committee report, 111–12, 113–14; and comprehensive bill prepared by Cabinet Committee, (S3421), 145, 146–48; and fiduciary and disclosure bill prepared by Cabinet Committee (S1024), 149; White House Task Force on Labor and Related Legislation, 117–19 Joint Tax Committee, 205, 212, 228, 246, 259 Journal of Commerce, 228 Judiciary Committee, House of Representatives, 244, 261–62 Jurisdiction, 130–31, 144–45; conflict between House Labor and Ways and Means Committees, 209, 212, 218, 223–26, 228–34, 250; conflict between Senate Labor and Finance Committees, 185–87, 194, 196, 203–5, 208–9, 213–14, 250; considered by conference committee, 242–43, 250–51, 386n; ERISA, 251, 266 (table), 386n Justice, U.S. Department of, 120 Kaiser-Frazer Corporation: financial circumstances, 53, 54; plant shutdown, 55, 67 Keenan, Joseph, 109, 141 Kennedy administration: proposes Disclosure Act amendments, 82–83; relations with business community, 101; and self-employed pension legislation, 83–84, 90 Kennedy, John F., 77, 82–83, 85–86, 101–2; role on Disclosure Act while in Senate, 49, 82 Keogh, Eugene, 83

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King, Frank, 177 Kingdon, John W., 6 Kirkland, Lane, 55, 176 Korean War, 53 Labor and Public Welfare Committee, Senate: and Disclosure Act, 45–48, 82; jurisdiction of, 130–31, 144–45; reports bill in 1972 (S3598), 184; conflict with Finance Committee, 185–88, 194, 196, 203–5, 208–9, 213–14; reports bill in 1973 (S4), 201; unique role in pension reform, 245–46. See also Javits, Jacob K.; Labor Subcommittee; Williams, Harrison Labor Subcommittee, Senate Labor and Public Welfare Committee: investigates United Mine Workers election, 155, 158; study and hearings on pension plans, 12, 13, 158–59, 161–68; hearings on pension reform legislation, 149, 168–69, 178–79, 182–83, 193; prepares bill in 1972 (S3598), 177–78, 179–84; prepares bill in 1973 (S4), 193. See also Javits, Jacob K.; Williams, Harrison Labor, U.S. Department of, 47, 127, 154–55, 202–3; and bills prepared by Cabinet Committee (S1024, S3421), 119, 124–28, 131, 145–48; and Cabinet Committee report, 86, 92–93, 111; and Disclosure Act, 48–49, 82–83; and Nixon administration’s consideration of pension reform, 153–55, 171–74, 198–201. See also Brennan, Peter; Donahue, Thomas; Goldberg, Arthur; Henle, Peter; Reynolds, James; Shultz, George; Wirtz, Willard Labor unions: comprehensive legislation opposed by, 1, 9–10, 142; disagreements about pension reform, 7, 142–43, 196–97; fiduciary standards, views on, 124; funding standards for multiemployer plans op-

posed by, 108–9, 137, 177; funding standards for single-employer plans supported by, 141; IRAs and liberalization of self-employed plans opposed by, 179; preemption supported by, 13, 259, 260; termination insurance supported by, 123, 137, 142; vesting standards for multiemployer plans opposed by, 108–9, 123, 137, 177; vesting standards for single-employer plans supported by, 141. See also AFL-CIO; individual unions Laborers International Union, 235–36, 259, 268–69 Labor-Management Relations Act, 1947, 37–38, 235–36 Lane, Robert, 153 Langbein, John, 282 Latimer, Murray W., 158, 229, 265 legal-services plans, 235–36, 258–59, 268–89 Legislative Counsel’s Office, House of Representatives, 228 Leo Kramer, Inc., 162 Lesser, Leonard, 55, 77, 94 Lewis, John L., 35–36, 37–38 Limits on benefits and contributions for qualified retirement plans: Cabinet Committee report, 89, 100 (table), 112 (table); Advisory Committee opposes, 103, Nixon administration considers, 170–71, 175; bill reported by Senate Finance Committee (S1179), 207; bill passed by Senate (HR2/HR4200), 214, 215; conference committee considers, 260; ERISA, 260, 267 (table) Long, Gillis, 239 Long, Russell B., 192, 205, 209, 215–16, 257; and conflict with Senate Labor Committee, 185–88, 193–94, 203 lump-sum distributions, tax treatment of, 89–90, 100 (table), 103, 112 (table)

Index MacMillan, Cliff, 62–63, 64–65 Madden, Ray, 192, 231 Maduro, Denis, 131, 136, 139–40 Mansfield, Mike, 90, 183, 186–87, 188, 191–92, 193–94, 244 Markley, Rod, 114, 134 Martin Segal Company, 227, 265 Mayhew, David, 8 McClellan, John, 47–48, 117–18; introduces bill, 118, 122–23 McCormack, John, 47 McFall, John, 243, 261 McGill, Dan M., 113, 181; consultant to Advisory Committee, 102–3; research on pension security issues, 92, 95, 96 McGovern, George, 188 Meany, George, 102, 109, 141, 232 Meet the Press, 128 Michigan Conference of Teamsters Welfare Fund, 44 Mitchell, James, 48 Mitchell, John, 245 Miller, Jack, 188 Mills, Wilbur D., 84, 101, 208–9; absence of, 223–24, 230, 232; views on pension reform, 144–45, 179, 188–89, 197, 349n Mondale, Walter, 192 Money and Credit: Their Influence on Jobs, Prices, and Growth, 85, 86 Monsanto, 235 Montgomery Ward, 44 moral hazard, 70–73, 134–35, 181, 274 Mueller, Russell J., 245–46 Multiemployer pension plans, 37–39; funding practices of, 38–39, 106, 142–43; vesting practices of, 105, 143 Multiemployer Pension Plan Amendments Act of 1980, 274 Multiemployer welfare plans, malfeasance in, 45 Murray, James, 45 Myers, Robert J., 13, 28, 165 Nader, Ralph, 181–82 Nash Motor Car Company, 53, 54, 55

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Nation, 169 National Association of Insurance Commissioners (NAIC): and prepaid legal-services plans, 235, 236, 259; and self-insured welfare plans, 235, 258 National Association of Life Underwriters, 120 National Association of Manufacturers, 120; changes position on funding standards, 202; comprehensive reform opposed by, 119, 124, 148–49; vesting and funding standards supported by, 225 national health insurance, 284 National Labor Relations Board, 35, 36, 62 National Underwriter, 113, 202, 206 Nelson, Gaylord, 194, 201, 213, 214, 215–16 Newman, Edwin, 184 Newmyer, James, 138 New Republic, 169 Newsweek, 169 New York State Insurance Department, 45 New York Times, 1, 147, 186 Nixon, Richard M., 150, 191, 200; impeachment inquiry and proceedings, 229, 244–45, 246, 260–62, 265, 267; resigns, 267 Nixon administration: “blue collar” initiative, 171–72, 176; considers termination insurance, 198–200, 202, 211; prepares fiduciary and disclosure bill, 153–55, 172, 200; prepares tax and vesting bill, 171–77; prepares tax, vesting, and funding bill (S1631), 198–200; recommendations to conference committee, 246, 252, 253, 254–55, 257, 259, 262 Normal cost, 57. See also actuarial cost methods; funding O’Neill, Thomas P. (Tip), 232, 262 Ontario, pension reform legislation in, 92, 94–95

410

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“outside” strategy of policy-making, 12–13, 151–52, 158 Packard Motor Car Company: financial condition, 53, 54, 55; pension plan for hourly workers, 52–53, 58, 60–67; plant shutdown, 57 Paine, Thomas, 124 participation standards: before ERISA, 88, 90; Cabinet Committee report, 89, 100 (table), 112 (table); Advisory Committee considers, 103, 107; bill prepared by Cabinet Committee (S3421), 138, 147 (table); bill reported by Senate Labor Committee in 1972 (S3598), 180 (table); bill reported by Senate Labor Committee in 1973 (S4); bill reported by House Labor Committee (HR2), 219 (table); bill passed by Senate (HR4200/HR2), 219 (table), 247 (table); bill passed by House (HR2), 247 (table); ERISA, 266 (table); ERISA, effective dates, 256 past-service liability, 57–60, 133–34 Paul, Randolph, 41 Paul, Robert, 227 pay-as-you-go financing method, 21–23; tax treatment, 24–26 Pechman, Joseph, 42 Penn Central collapse, 159, 160 Pennsylvania Railroad Company, 20–21 “pension bargain,” 19–21, 27–29, 34–35, 57–58 Pension Benefit Guaranty Corporation (PBGC), 251, 255, 262 Pension Research Council, 77, 92, 156 Pensions and Investments, 242 “Pensions: The Broken Promise,” 184 pension trusts, 22–23, 43–44; tax treatment, 24–25, 26, 43–44, 300n Permanent Subcommittee on Investigations, Senate, 118 Perkins, Carl, 149, 225, 231 personnel functions of pensions, 3, 7,

9–10, 17, 19–21, 27–29, 34–35, 57–58, 60, 69 personnel theory of retirement plans, 4, 8–10, 11, 18, 33, 104–6, 148–49, 155–56, 304n Philadelphia Inquirer, 163 portability: Cabinet Committee considers, 94; bill introduced by Jacob Javits in 1967 (S1103), 130; bill reported by Senate Labor Committee in 1972 (S3598), 180 (table); bill introduced by Lloyd Bentsen (S1179), 195 (table); bill proposed by Nixon administration (S1631), 198, 199; bill reported by Senate Labor Committee in 1973 (S4), 195 (table); bill reported by Senate Finance Committee (S1179), 206; bill passed by Senate (HR4200/HR2), 213, 220 (table), 248 (table), 252; bill passed by House (HR2), 248 (table), 252; conference committee considers, 251–52; ERISA, 252, 266 (table) Powell, Adam Clayton, 82 preemption, 12–13, 204–5, 207, 233, 268–69; conference committee considers, 256, 258–59, 264–65; deemer clause, 236, 258–59, 281–82; impact on healthcare industry, 281–85; savings clause, 234, 256 prepaid legal-services plans, 235–36, 258–59, 268–69 President’s Advisory Committee on Labor-Management Policy (Advisory Committee), 77, 78; consideration of Cabinet Committee’s provisional report, 102–10, 111, 113 President’s Committee on Corporate Pension Funds and Other Private Retirement and Welfare Programs (Cabinet Committee), 77, 78, 86–87; considers tax treatment of retirement plans, 87–91; considers forfeiture risk and vesting, 92–94; considers portability, 94; considers default risk, funding, and termination in-

Index surance, 94–97; considers investments of pension plans, 97–99; provisional report of, 100 (table), 101; considers comments of Advisory Committee, 110–11; final report of, 110–11, 112 (table), 114–15; prepares fiduciary and disclosure bill (S1024)), 122–23, 127–28; prepares comprehensive pension reform bill (S3421), 120–21, 123–27, 131–35, 138, 144–45 press, 163–64, 167, 169, 176, 186 Price, David, 129 Private Nonvested Pension Benefits Protection Tax Act (New Jersey), 204 private pension system: growth before ERISA, 19–21, 30–40; development after ERISA, 2, 277–80 Private Pension Plans Subcommittee, Senate Committee on Finance: creation, 194; hearings on pension reform, 201–5 prohibited-transaction rules: before ERISA, 45, 98–99, 155; Cabinet Committee report, 98–99, 100 (table); considered by Advisory Committee, 103, 109; bill reported by Senate Labor Committee in 1972 (S3598), 180 (table); bill reported by Senate Labor Committee in 1973 (S4), 195 (table); bill prepared by Senate Finance Committee (S1179), 207; bill reported by House Labor Committee (HR2), 219 (table), 223; bill passed by Senate (HR4200/ HR2), 213–14, 219 (table), 223, 247 (table); bill passed by House (HR2), 247 (table); conference committee considers, 243, 257–58; ERISA, 5, 258, 266 (table). See also agency risk Public Policy and Private Pension Programs, 80, 81, 114, 118. See also President’s Committee on Corporate Pension Funds and Other Pri-

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vate Retirement and Welfare Programs Readers’ Digest, 169 Republican Policy Committee, House of Representatives, 237 Retirement Equity Act of 1984, 273 Reuss, Henry, 239 Reuther, Walter, 35, 67, 160; and Advisory Committee’s review of Cabinet Committee report, 102, 104, 109; and termination of Studebaker pension plan, 76, 77 Revenue Act of 1942, 32–34, 41 Revenue Act of 1962, 90 Reynolds, James, 131, 136, 137 Rhodes, John, 267 Richardson, Elliot, 229 Roosevelt, Franklin Delano, 30, 33 Royes, Robert, 133–34 Ruckelshaus, William, 229 Rules Committee, House of Representatives, 192, 225; defers action on pension reform legislation, 228, 231, 232, 234; grants rule on pension reform legislation, 237 S1024, 90th Cong., 1st sess. (1967), 122–23, 127–28 S1103, 90th Cong., 1st sess. (1967), 129–31 S3421, 90th Cong., 2d sess. (1968): preparation of, 120–21, 123–27, 131–35, 138, 144–45; introduction of, 146–49, 147 (table) S3598, 92d Cong., 2d sess. (1972), 177–78, 180 (table), 180–85; sparks conflict between Senate Labor and Finance Committees, 186–88 S4, 93d Cong., 1st sess. (1973), 193–94, 195–96 (table), 205–9; reported by Labor Committee, 201; floor consideration in Senate, 212–16 S1179, 93d Cong., 1st sess. (1973), 194, 195–96 (table), 196, 205–9, 212

412

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S1631, 93d Cong., 1st sess. (1973), 198–201 Sass, Steven, 19, 21, 296n “Saturday Night Massacre,” 229 Schattschneider, E. E., 12 Schneebeli, Herman, 224, 228 Schweiker, Richard, 184 Scott, Hugh, 183, 190 Seafarers International Union, 141 Securities and Exchange Commission, 46, 47, 86, 97 Segal Company, 227, 265 Select Committee on Improper Activities in the Labor or Management Field (McClellan Committee), 47–48 Self-dealing. See agency risk; fiduciary standards of conduct; prohibitedtransaction rules; trust law Self-employed retirement plans: campaign for “equitable” treatment of, 40–43; bill enacted in 1962 (HR10), 83–84, 90–91, 170; bill proposed by Nixon administration in 1971, 174–76; bill reported by Senate Finance Committee (S1179), 207; bill passed by Senate (HR4200/HR2), 214; bill passed by House (HR2), 260; conference committee considers, 260; ERISA, 267 (table) seniority systems, 20–21, 35, 55 Self-insured welfare plans, preemption and, 235–36, 256, 258–59, 260, 281–82 Shaffer, Daniel, 281 Sheehan, Jack, 211, 227, 229, 231–32, 244, 261, 262, 264. See also United Steelworkers of America Shultz, George, 153, 198, 257 Simon, William, 224 Sixty Minutes, 169 Smith, Neal, 98 Social Security: effect on employers, 27–29, 104, 301n; integration with private pension plans, 28–29, 33–34, 88, 90, 268; Old-Age Insurance program, 27; Old-Age and Survivors

Insurance program, 6, 27–29, 35, 40; Old-Age, Survivors, and Disability Insurance program, 88; payroll taxes, 6, 27–28, 294n Social Security Act of 1935, 27 Social Security Act Amendments of 1939, 6, 27 Social Security Administration, 86 Solenberger, Willard, 66, 71, 72, 75, 78 Special Committee on Aging, Senate, 155 spousal rights to pension benefits, 239, 273–74 Squier, Lee, 20, 21 Stabilization Act of 1942, 33 Stans, Maurice, 153 State governments: impact of preemption, 281–82; regulation of employee benefit plans, 13, 45–46, 204–5, 235–36; regulation of insurance companies, 234, 258 Steel industry, collectively bargained pension plans in, 58, 141 Steiger, Bill, 239 Strauss, Robert, 244 Studebaker Corporation: financial condition, 53–54; pension plan for hourly workers, 52–53, 58, 60–61, 65–67, 74, 75, 111 Studebaker-Packard Corporation: financial condition, 56–57, 61–62, 74–76; termination of Packard Pension Plan, 61–67; termination of Studebaker Pension Plan, 5, 76–78, 111, 118–19, 294n, 295n Stulberg, Louis, 136 Sundquist, James, 191 Supreme Court, 282 Surrey, Stanley S., 78, 114; and bills prepared by Cabinet Committee, 120, 131, 136, 137, 138, 149; and selfemployed pension legislation, 84; views on tax preferences, 83–84, 87 Survivor annuities, 239, 273–74 Taft, Philip, 47 Taft, Robert, 38

Index Taft, Robert, Jr., 269 tax avoidance, 29–34; employee incentives, 25–26, 30–32, 40; employer incentives, 31–32. See also Revenue Act of 1942; Treasury, U.S. Department of taxing power of U.S. Constitution, 130–31, 205 Tax Reform Act of 1969, 155 tax subsidy theory of retirement plans, 10, 18, 39–43, 87–91, 107–8, 121, 276–77 Taylor, George, 102, 104–6 termination insurance program: UAW develops proposal, 67–73, 94; bill prepared by UAW and Hartke, 78, 114, 118–19, 132, 160–61; Cabinet Committee considers, 94; Advisory Committee considers, 109; bill prepared by Cabinet Committee (S3421), 132–35, 138, 147 (table); bill reported by Senate Labor Committee in 1972 (S3598), 180 (table), 181, 183; bill introduced by Lloyd Bentsen (S1179), 194, 196 (table); Nixon administration considers, 198–201, 211; bill reported by Senate Labor Committee in 1973 (S4), 196 (table), 206–7; bill reported by Senate Finance Committee (S1179), 206–7; bill passed by Senate (HR4200/HR2), 213, 220–21 (table), 221–22, 248–49 (table), 252–56; bill reported by House Labor Committee (HR2/HR12781), 220–21 (table), 221–22; privatesector program proposed, 212, 227–28, 230; Murray W. Latimer memo on, 229; bill passed by House (HR2), 236, 248–49 (table), 252–56; conference committee considers, 252–56, 262–64; ERISA, 5, 266–67 (table); ERISA: effective dates, 262–63; legislation after ERISA, 274–75. See also adverse selection; default risk; funding; moral hazard TIAA-CREF, 92, 183

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413

Time, 43, 169 Tobin, James, 85 trade legislation, 197–98, 200, 223, 224 Treasury, U.S. Department of, 85, 154–55, 202–3; and bills prepared by Cabinet Committee, 119, 124–27, 202–3; and Cabinet Committee report, 86, 87–91, 93, 99, 111; and Nixon administration’s consideration of pension reform, 170–75, 198; self-employed retirement plans opposed by, 42, 84, 90–91; tax avoidance opposed by, 30–33, 40–41; and tax subsidy theory of retirement plans, 39–43, 87–91, 93. See also Bureau of Internal Revenue; income tax; Internal Revenue Service; Surrey, Stanley S.; Wallace, Robert Trowbridge, Alexander, 119–20, 131, 137 Trowbridge, Charles L., 156–57 Truman, Harry S, 36 trust law, 44, 97–98, 99, 122–23 Twinney, Marc, 210 Ullman, Al, 242, 261; and conflict with Labor Committee, 224, 225, 226, 228, 230–32; and preparation of Ways and Means bill (HR12481), 224, 225, 228, 230, 231, 234 Underwood-Simmons Tariff of 1913, 24 United Automobile Workers of America, International Union (UAW), 244; bargains for pension plans, 57–60, 68–69; bargains for vesting provisions, 55–56; comprehensive legislation supported by, 12, 104, 109, 142; recommendations to conference committee, 245, 253, 262–64; termination insurance proposal developed by, 67–73, 78, 94; termination insurance supported by, 8, 160–61, 202, 211; See also Bloch, Max; Lesser, Leonard; Reuther, Walter; Solenberger, Willard; Weinberg, Nat; Woodcock, Leonard; Young, Howard

414

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Index

United Automobile Workers of America, Local 5 (Studebaker), 52–53, 63–67, 74, 75, 76 United Automobile Workers of America, Local 190 (Packard), 53, 62–66 United Mine Workers of America, 35–36, 108–9; Senate investigation of presidential election, 155, 158 United Steelworkers of America, 196–97; comprehensive legislation supported by, 12, 141, 142; conflict with AFL-CIO over jurisdiction, 232; recommendations to conference committee, 244, 253, 262–64; termination insurance supported by, 8, 160–61, 202, 210–12. See also Abel, I. W.; Latimer, Murray W.; Sheehan, Jack U.S. News & World Report, 33, 169 U.S. Steel, 29, 58 USS Pueblo, 145 vesting: cost of, 54–55; and labor mobility, 92–93; practices before ERISA, 54–56, 156; study by A. S. Hansen, Inc., 166–67, 172–73; study by Pension Research Council, 156; study by Senate Labor Subcommittee, 162–67 vesting standards: before ERISA, 90, 93, 170, 204; cost of, 93–94, 105–6, 141; as remedy for tax avoidance, 93, 170; Cabinet Committee report, 92–94, 100 (table), 111, 112 (table); considered by Advisory Committee, 102–10; bill prepared by Cabinet Committee (S3421), 125–26, 131, 147 (table); bill proposed by Nixon administration in 1971, 171–73, 175–76; bill reported by Senate Labor Committee in 1972 (S3598), 180 (table), 183–84; bill proposed by Nixon administration in 1973 (S1631), 198; bill reported by Senate Labor Committee in 1973 (S4), 195 (table), 201; bill passed by Senate

(HR4200/HR2), 218, 219 (table), 221, 247–48 (table), 249–50; bill reported by House Labor Committee (HR2), 218, 219 (table), 221; bill passed by House (HR2), 247–48 (table), 249–50, 259; conference committee, consideration by, 249–50, 259; ERISA, 5, 266 (table); ERISA, effective date, 256; legislation after ERISA, 272–74. See also forfeiture risk; vesting Vietnam War, 191 Wall Street Journal, 232 Wallace, Robert, 88 Ward, James, 56 Washington Pension Report Group, 119, 136–40, 147, 212 Watergate break-in and investigation, 229, 244–45, 260–62, 265, 267 Watson, Thomas, 102 Ways and Means Committee, House of Representatives, 102, 188, 197, 349n; conflict with Labor Committee, 209, 218, 223–26, 228, 230–34; hearings on pension reform, 179, 197; jurisdiction of, 130–31, 144–45, 187, 208–9; prepares pension reform bill, 223–26, 227–28, 230–31, 234; and self-employed pension legislation, 84. See also Mills, Wilbur D.; Ullman, Al Weinberg, Nat, 67, 69–70, 76, 77, 94, 161 Welfare and Pension Plans Disclosure Act of 1958: criticism of, 49, 85; passage of, 45–50, 77 Welfare and Pension Plans Disclosure Act Amendments of 1962, 81–83, 98–99 White House Task Force on Labor and Related Legislation, 117–19 Wilde, Frazar, 85 Willis, E. S., 265 Williams, Harrison, 155, 161, 184, 245–46; and bill reported by Senate

Index Labor Committee in 1972 (S3598), 177, 180, 185, 186–87, 188; and bill reported by Senate Labor Committee in 1973 (S4), 193, 194, 202, 206, 208, 216; and conference committee, 252, 257; remarks on preemption, 269; and Senate Labor Subcommittee study and hearings on pension plans, 12, 13, 155, 158, 159, 163–64, 168–69 Willys-Overland, 53, 54 Wilson, James Q., 132 Wilson, Woodrow, 24 Wirtz, W. Willard, 117; and bills prepared by Cabinet Committee, 119–24, 127–29, 132–33, 136,

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144–47; and Cabinet Committee report, 87, 101, 108, 110–14 Wolk, Bruce, 282 Woodcock, Leonard, 159–60 Woodworth, Larry, 188, 206, 208–9, 212, 231; and conference committee, 257, 261 worker-security theory of retirement plans, 4–5, 10–11, 80, 93, 95–96, 106, 149, 155–56, 271, 293n World War I, 24 World War II, 29, 32, 53 Yarborough, Ralph, 128, 146 Yom Kippur War, 229 Young, Howard, 68, 71, 75

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