2. The plan must be a definite written program, setting forth all the provisions essential for qualification.

3. The plan must be for the exclusive benefit of the employees and their beneficiaries.

4. The plan's fund must be used exclusively for the benefit of employees.

5. A plan must be "permanent". IRS Re. 1.401 (b)(2) para 10.055 states that "... the abandonment of the plan for any reason other than business necessity within a few years after it has taken effect will be evidence that the plan from its inception was not a bona fide program for the exclusive benefit of employees in general."

6. The plan must be "non-discriminatory" in that it must not discriminate in favor of any of the four classes of employees specified in the code: stockholders, officers, supervisors, and highly-compensated employees.

The attitude of employers toward the unfunded liabilities of their plans was generally that their obligation was limited to the annual contributions required by the terms of their respective pension plans. and that at termination, neither they, nor a potential purchaser, had any obligation to assume all or part of the pension plan liabilities. In two specific cases, however, an unusual situation existed at termination. The White Motor Company, prior to the termination had signed a "guarantee letter" which did commit corporate assets to fulfilling a portion of the unfunded liabilities at Minneapolis-Moline. The Greyhound Corporation, also, at the time of the termination of the BaldwinLima-Hamilton Hourly Plan at Eddystone, Pa., contributed $500,000 out of corporate assets to cover unfunded liabilities, although they were under no legal obligation to do so. It has already been mentioned how Park-Electro-chemical accepted the pension obligations for the Ingram-Richardson employees, but discontinued them at its own discretion.

V. STATUS OF EMPLOYEES AT TERMINATION

The average employee age at the closing companies was generally high. (44 at Griscom-Russell; 46 at Minneapolis-Moline). This reflects the steady lay-offs which preceded the closings, and the sense of the younger men that they had better seek their future elsewhere. Union seniority rules also affected the averages. When Ballantine closed and all but some distribution workers lost their jobs, even men in their forties waited several months before their name came up on the seniority lists for a day's work.

Because of their age, these workers frequently expressed pessimism about future employment prospects. Further, many of them had been for years in a job requiring a specialized skill, and the combination of age and a depressed market for their particular skills made it unlikely that they would find other employment. The farm implement workers at Minneapolis-Moline were not permitted to transfer to White Motor's Iowa plant, nor could they find employment in farm manufacturing in the Minneapolis area. Further, other factories in thas area, such as Honeywell, also had been laying off workers. The Baldwin-Lima.Hamilton workers at Eddystone, Pa., were also confronted with dim re-employment prospects due to many other factory closings in the immediate area. A brewer who had worked 20 or 30

years for Ballantine would ostensibly have his choice of four other Newark area breweries to go to; but seniority rules in his union, and layoffs at all the other breweries at the same time conspired against his ever finding steady employment at a brewery. In this case, therefore, even though the pension plan is a multi-employer plan, and the employees theoretically have "portability", it is so difficult for the employees of a closed brewery to get "on the roster" of another one, that they are unable to make up the necessary number of days work to remain in the plan. John McGrath found himself nine days short of his 30-year pension eligibility on March 31, the date of the closing of the brewery. Although he has been unable to receive any clear information about his personal situation from his local or the company, he believes now that according to the rules of the pension plan, he will have to work 95 days to make up that nine; because of the difficulty in even finding steady employment, it seems unlikely that he will fulfill those conditions.

Ironically, plan terminations usually hit hardest at employees from 50 to 60, a difficult age: they are too old to find other jobs, and too young to qualify for Social Security. As one Ballantine worker put it, he would be able to exist on his savings for one more year, and then would have to apply to the "four winds-the city, the county, the state, or the federal government."

When pension plans actually do terminate, and the existing benefits are distributed, these workers with long terms of service also suffer. At the time of termination, the order of distribution of monies generally follows the model established in the Studebaker situation: retirees, those eligible to retire, older vested employees, and younger vested employees. The 53-year old worker with 29 years of service, such as John McGrath, might actually receive far less than a worker with fewer years of service, but who was old enough to retire.

On the other hand, there have been instances where vested rights were not taken into consideration in the distribution of funds. At the

Griscom-Russell Company in Ohio, pension funds were distributed among 65 retired and 523 active employees thus: the 65 retired employees received a retirement benefit reduced by 65% to approximately $25 per month. The 523 active employees received a cash settlement based on age and years of service ranging from $830 given to an employee age 58 with 41 years service to $8 to a man aged 22 with a little over one year service. In making these lump-sum payments, the fact that an employee had vested rights did not enter into consideration.

VI. COMMUNICATION PROBLEMS

Along with the desperation the employees at the terminated companies felt as they faced their financially uncertain future went a feeling that the company had betrayed them. Because there are inadequate laws and regulations requiring employers to give full details of pension plans to employees, it was predictably found that employees did not know very much about their pension plan. Most employees generally knew what they could expect when they retiredthe Ballantine workers, for example, all knew the formula, "$10 per month per year of service"--but there was very little understanding of the concept of vesting and total ignorance of the fact that the pension plan was not required to be funded to meet its obligations.

81-436 0-72- -3

Although almost all pension plans provided specific provisions in the pension plan itself relating to termination, the simplified pension plan booklets provided to the employees invariably ignored this contingency. The booklet given to the Ballantine workers made a promise of benefits "for the rest of their lives"; the booklet given to Horn and Hardart employees was even more optimistic in terms of what they could expect. The booklet promised, "as a Horn and Hardart employee you can look forward to retirement with peace of mind, knowing that under the plan there will be a pension check in the mail to you from the Company every month for life. Your financial future is secure." But with no advance warning, over 400 retired employees received this letter in September, 1970:

"SEPTEMBER 18, 1970.

"DEAR PENSIONER: Since the adoption of the Horn & Hardart Pension Plan in 1964, the Horn & Hardart Baking Company has been experiencing very heavy losses in its operations. It has now reached the point that it must conserve its assets and curtail its expenditures if it is to continue operations.

"Accordingly, the Board of Directors has directed that no further payments be made into the First Pennsylvania Banking and Trust Company, which is the Trustee under the Company's Pension Plan. The funds remaining in the fund of the First Pennsylvania Banking and Trust Company for the payment of pensions are only sufficient to continue making payments to you for a period of approximately nine months.

"The August and September payments are necessarily delayed until the asset within the fund is converted to cash.

"For the present, it will continue to carry Blue Cross and Blue Shield for you if it has done so in the past.

"We are most regretful of the situation but there is no other alternative.

"Very truly yours,

"HORN & HARDART BAKING Co."

In addition to problems with the promises in the pension booklets, there was general confusion about the role of the Federal government in pension plan management. Mistaking the Internal Revenue code requirements for "government approval" employees expressed disbelief that "the government could let this happen to them." As Mr. Larson put it at the St. Louis hearings, "They (Benson Manufacturing Co.) stressed to us that this plan would have to be a good plan, since it had to be approved by the Internal Revenue Service, and being the Internal Revenue Service is what it is, we thought it had to be a good plan." And further, "I was terminated or laid off last July 30. I was age 51. I thought that my pension plan was established and I didn't have to worry about it before that, but soon before that I learned that I was not going to receive anything from the pension fund at all, there was no money there, that only men over the age of 55 would be funded in the pension plan.'

Many employees were unable to receive answers to their questions about their pension plan. The Minneapolis-Moline workers waited six months for an actuarial report which had been promised them.

But the classic case is that of a salaried employee of Ballantine, who addressed a simple request for information about his own pension benefits to his superior in December 1971 and as of the date of the hearing, May 8, 1972, had received a series of letters from officials of the various insurance companies holding his policies all referring his request to other offices. He undertook this inquiry, he said, because:

"Group meetings held by Industrial Relations to clarify and review Pensions and Benefits were the majority of the times very evasive. However the answers never did come and the subject was avoided. These meetings, I feel, were pacifiers due to the fact that nothing ever developed, very few answers to questions were received, and those that were turned out to be confusing, assumptous, with no two answers alike. In general, answers were fabricated to meet the questions. The last meeting of this sort was conducted by the Director of Industrial Relations in February of 1971... . Very little if anything derived from the meeting was constructive, conclusive, or informative. All answers by the Director were, as in the past, evasive and noncommittal. However, he did state that the Board of Directors of Investors Funding Corporation, present parent of Ballantine, were in the process of reviewing and completing a new policy of the Pension and Benefit Plan and copies were to be forthcoming to each and everyone of us. Here it is one year later and still no literature or communications on the subject's progress.' Perhaps the most serious evidence of poor communications between employers and employees on the matter of pension benefits dealt with the actual termination of the pension plan. In most instances, the companies never informed the employees before or at the time of the sale of the plant in question what the disposition of the pension plan would actually be. The Ballantine employees heard on the radio March 3, 1972 that their brewery had been sold and they would be out of work on March 31. By the time of the hearing in May, the two pension plans for Ballantine employees had not terminated, and the disposition of the plan assets was still in question. The hourly employees were not told whether there had been a partial termination of their plan, the New Jersey Brewery Employees Trust Fund, because of a dispute among the other brewers about assuming the pension liabilities for the Ballantine workers, the largest contributors to the plan. Falstaff had offered to hire most of the salaried workers, but had not yet said whether it would take them into the Falstaff plan, and if so, how much credit they would receive for their years under Ballantine.

The Minneapolis-Moline workers, in fact, did not officially learn until the hearing on June 3 that White Motor intended to terminate their pension plan. In the case of the former Horn and Hardart employees, who were already retired, pension benefits simply ceased coming in the mail in July 1970. The letter explaining the lapse and benefits and their eventual complete discontinuance (supra. p. 20) was not mailed to retirees until September 18, 1970. Well over 400 retirees were kept in a state of anxiety and uncertainty as to their pension for over three months.

VII. FINDINGS AND CONCLUSIONS

The Subcommittee study found ample indications that the incidence of terminations has increased markedly during recent periods of conglomerate activity and during the economic decline in certain sectors hurt by foreign imports and cuts in government spending. While it did not attempt to gauge the statistical extent of terminations, it did examine enough cases in depth, including several in extensive detail, to be able to determine certain recurrent problems and distinct patterns associated with pension plan terminations. It believes that these observations, set forth in the foregoing chapters, confirm_the serious need for remedial federal legislation in the areas of funding, reinsurance, disclosure and fiduciary standards, as recommended in the prior Interim Report (supra, p. 1).

In each of the cases involved directly in the Subcommittee's series of field hearings, it was concluded by the Subcommittee that the major problem of insufficient funding at the time of plan termination can best be countered by a combination of a mandated funding period (i.e., a specific period of time in which a pension plan is required to amortize its past service liability) and a program of insurance for vested pension plan obligations. In this way a plan which is forced to terminate before it has reached full funding can still pay off its obligations to its retirees and vested workers.

The Subcommittee has noted that terminations have frequently been preceded by an increase in benefits, which immediately increases the fund's liabilities. It is obvious that even a regular system of retiring past service liability based on sound actuarial principles cannot anticipate such increases, and that a program of reinsurance would be an essential element of protection for the participant during the period of underfunding immediately following such an increase. It is also necessary that this insurance program be operated in conjunction with a funding obligation to eliminate the obvious temptation for plan administrators to rely on reinsurance as a substitute for funding. It is also appropriate to recognize in any remedial legislation that a distinction be made between involuntary terminations, wherein a company enters into bankruptcy or closes down due to economic conditions, and voluntary terminations, wherein a corporation may decide to close a subsidiary or a division and terminate the attached pension plan. It is the opinion of the Subcommittee that, in the latter cases, the employer should share the liability of the vested benefits with a federal insurance program.

In addition, the Subcommittee concludes, as a result of its communications with affected employees, that improved legislation is needed, or that existing regulations should be strengthened, to better inform the participant at the time of termination concerning the status of the pension fund and of his right to a benefit, if any. The unawareness of pension plan administrators of the mental confusion of the participant at this extremely traumatic time in his working career was in evidence in some degree in nearly all of the cases studied. Some of the bills presently pending before this Subcommittee address themselves quite completely to this problem, while others are limited to other aspects of pension reform. But legislation which addresses itself only to the establishment of vesting standards does not solve the basic problem in the private pension plan system: the