Secretary MITCHELL. It was my thought, Mr. Chairman, that because of the lack of knowledge of this field, and it is obvious every time I get into a discussion of it that there is a lack of knowledge of the type of plan, the coverage and so on, as I said yesterday in my prepared testimony, I think that the time has come when there should be some overall filing and registration of these plans so that we can grapple with the problem based on information rather than estimates and guess, and that in the first instance the most comprehensive filing requirement should be asked for, and then, based upon that information, the Congress can then decide what it wants to include and what it wants to exclude. I have borne in mind always, Mr. Chairman, that the major objective here, from my point of view anyway, has been the protection of the equity of the individual working men and women in these plans. Chairman BARDEN. Right at that point, do you not owe a higher duty to the protection of the right of free and untrammeled and uninterfered with bargaining at the bargaining table with the definite assurance that the bargainer and the bargainee can rely upon what agreement they have reached? Secretary MITCHELL. Yes, sir. Chairman BARDEN. And not that we must go in and begin to arouse controversies and strife and that kind of thing where we have no business. Secretary MITCHELL. I would agree with you, Mr. Chairman, but I do not believe that this legislation in any way interferes or trespasses on collective bargaining. Chairman BARDEN. Suppose they have said in this bargaining agreement that this is a matter between the union members and the employers? Secretary MITCHELL. Most bargaining agreements do say that, sir. Chairman BARDEN. Then what business have we in it? Secretary MITCHELL. Well, based upon the investigations that have been held by this committee and by the Senate also, it is in this very area of collectively bargained agreements that abuses have been found. Mr. Bosch. Mr. Chairman, I raise a question. Chairman BARDEN. I am going to let somebody else step into that fight with the system of bargaining at the bargaining table. I believe I will let you take that one alone. Secretary MITCHELL. I am not arguing, sir. Mr. Bosch. I raise a point of order. The House is in session. Chairman BARDEN. Mr. Secretary, we appreciate your coming down before the committee. You have certainly done, I think, a good job. You have tried to cooperate with the members. We have enjoyed your visit and hope you will come back. Secretary MITCHELL. I have enjoyed being here and I hope the committee will act favorably on this legislation. Chairman BARDEN. I am sorry to interrupt your questioning, Mr. House, but the Secretary has some other engagements. He was required to cancel some today and I do not wish to further detain him. The committee will meet tomorrow morning at 9:30. (Whereupon, at 12: 15 p. m., the committee recessed, to reconvene at 9:30 a. m., on Friday, June 28, 1957.) WELFARE AND PENSION FUND LEGISLATION FRIDAY, JUNE 28, 1957 HOUSE OF REPRESENTATIVES, COMMITTEE ON EDUCATION AND LABOR, Washington, D. C. The committee met at 10 a. m., pursuant to notice, in room 429, Old House Office Building, Hon. Graham A. Barden (chairman) presiding. Present: Representatives Barden, Kelley, Perkins, Wier, Elliott, Green, Roosevelt, Holland, McGovern, Gwinn, Holt, Rhodes, Frelinghuysen, Nicholson, Ayres, Griffin, and Haskell. Staff members present: Fred G. Hussey, chief clerk; John O. Graham, minority clerk; A. Regis Kelley, clerk; Robert E. McCord, clerk; Martin S. House, special counsel on welfare and pension legislation; Kennedy W. Ward, assistant general counsel; and Russell C. Derrickson, chief investigator. Chairman BARDEN. The committee will come to order. Ladies and gentlemen of the committee, we have with us this morning Mr. Andrew J. Biemiller, director of the department of legislation, AFL-CIO. We are glad to hear from Mr. Biemiller at this time. STATEMENTS OF ANDREW J. BIEMILLER, DIRECTOR, DEPARTMENT OF LEGISLATION; NELSON H. CRUIKSHANK, DIRECTOR, DEPARTMENT OF SOCIAL SECURITY; AND J. LANE KIRKLAND, ASSISTANT DIRECTOR, DEPARTMENT OF SOCIAL SECURITY, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS Mr. BIEMILLER. Mr. Chairman, for the record my name is Andrew J. Biemiller. I am director of the department of legislation of the American Federation of Labor and Congress of Industrial Organizations with offices at 815 16th Street, Washington, D. C. I am accompanied by Mr. Nelson Cruikshank, the director of the department of social security of the AFL-CIO, and Mr. J. Lane Kirkland, the assistant director of that department. As questions and colloquies proceed, I would appreciate it if they would be permitted to participate in such discussion. For the past 3 years, the American Federation of Labor and Congress of Industrial Organizations-both as a merged organization and separately prior to the merger-has been urging the enactment of disclosure legislation as an aid to the protection of the rights and interests of workers and the public at large in the honest and efficient operation of group health, welfare, and pension programs. In our firm opinion, at this late date, neither further investigation nor additional studies are required to demonstrate the need for the type of legislation that we advocate. The need is obvious and pressing. The investigations and studies that have already been conducted and completed have demonstrated it conclusively. There are numerous bills now before this committee which provide a sound basis for early legislation. What is needed now is prompt action on these measures by this committee and by the Congress. One of the first actions by the AFL-CIO, at our first constitutional convention in December 1955, was the adoption of a resolution embodying a comprehensive program of action to assure the proper operation of health, welfare, and pension plans. This was not a new program then, but was simply an amalgamation of similar programs that had been independently adopted the year before the merger by both the AFL and the CIO. I should like, at this point, to submit to the committee, for inclusion in the record, a copy of that resolution. Chairman BARDEN. Will the gentleman let me interrupt there? Chairman BARDEN. I wonder if you would furnish for the record a copy of that resolution. Mr. BIEMILLER. Yes. I should like at this point to submit for the committee for inclusion in the record a copy of that resolution. I believe, Mr. Chairman, copies have been distributed to the members this morning. If not, we have them here. The CHAIRMAN. Without objection, it may be inserted. (The resolution referred to follows:) AFL-CIO 1955 CONVENTION RESOLUTIONS ON HEALTH AND WELFARE PLAN ADMINISTRATION Published by American Federation of Labor and Congress of Industrial Organizations, Washington, D. C. AFL-CIO Publication No. 10 HEALTH AND WELFARE PLAN ADMINISTRATION In the development, through the process of collective bargaining, of plans designed to provide some measure of protection to the health and welfare of wage earners and their families, the labor movement is fulfilling its historic role. Having been denied by the Government the comprehensive health insurance protection for the people of the Nation, which organized labor has advocated for many years, trade unions have secured for their members the best protection available. The task of administering and operating these programs has placed heavy, new responsibilities upon the shoulders of trade-union officials. The funds involved must be regarded as the common property of the workers covered by these plans, for they have been paid for through labor performed in exchange. They must, therefore, be administered as a high trust for the benefit only of the workers covered. The trustees or administrators of health, welfare, and retirement programs, whether union, management, or joint, as well as all others exercising responsibility in connection with such programs, have the obligation to make sure that maximum benefits are provided for the money available, and that the highest ethical standards are observed and rigorously followed. In the pursuit of their responsibilities as autonomous organizations in the direction of their internal affairs, it is incumbent upon each national and international union affiliated with the American Federation of Labor the Congress of Industrial Organizations to take such steps as are necessary to protect the interests of its members in the operation of health and welfare programs, in the manner best suited to the particular problems and practices in its trade or industry. Where constitutional amendments or changes in internal administrative procedure are necessary to provide this protection, such amendments and changes should be undertaken at the earliest practicable time. They should be designed to provide national and international unions with the means and the authority to audit funds and apply remedies where there is evidence of a violation of ethical standards. To aid affiliated organizations in the performance of this responsibility, and as a guide to trade-union officials engaged in the administration of health and welfare programs, a uniform code of ethical standards—in keeping with standards adopted separately heretofore by both the American Federation of Labor and the Congress of Industrial Organizations should be adopted by the first convention of the American Federation of Labor and Congress of Industrial Organizations. These guides and standards should receive the widest distribution throughout the ranks of the tradeunion movement. While unions affiliated with the American Federation of Labor and Congress of Industrial Organizations can, with the aid of these standards, be relied upon to keep their own houses in order, there are problems in other areas of the health and welfare field, and particularly in the area of commercial insurance practices, which require legislative action. Now, therefore, be it resolved: 1. In the administration of health and welfare plans, the following principles should be observed: (a) Where a salaried union official serves as employee representative or trustee in the administration of a health, welfare, or retirement program, such service should be regarded as one of the functions expected to be performed by a union official in the normal course of his duties and not as an extra function requiring further compensation, over and above his salary, from the welfare fund. Officials who already receive full-time pay from their union should not receive fees or salaries from a welfare fund. (b) Union officials, employees, or any other persons acting as agent or representative of the union who exercise responsibility or influence in the administration of welfare programs or the placement of insurance contracts should be entirely free of any compromising personal ties, direct or indirect, with outside agencies such as insurance carriers, brokers, consultants, and others doing business with the welfare plan. Such ties cannot be reconciled with their duty to be guided solely by the best interests of the membership in any transactions with such agencies. Any union official found to be involved in such ties to his own personal advantage, or to have accepted inducements, benefits, or favors of any kind from such outside agencies, should be removed. This principle should not be construed to prevent an outside relationship on the part of a union officer or employee where (i) no substantial personal advantage is derived from the relationship, and (ii) the concern or enterprise is one in the management of which the union participates for the benefit of its members. (c) Where any trustee-whether employer, employee, or neutral-of employee of a health and welfare program is found to have received an unethical payment, the union should insist upon his removal and appropriate legal action against both the party receiving and the party making the payment. In addition, if an insurance carrier or agent is involved, action against the carrier or agent should be pressed before the State insurance authorities, with a view to the cancellation of the carrier's or agent's right to do business in the State. (d) Complete records of the financial operations of welfare funds and programs should be maintained in accordance with the best accepted accounting practice. All welfare funds should be audited at least semiannually by certified public accountants of unquestioned professional integrity, who should certify that the audits fully and comprehensively show the financial condition of the funds and results of the operation of these funds. All audit reports should be available to the membership of the union. (e) There should be full disclosure and report to the beneficiaries at least once each year by the trustees or administrators of welfare funds. Included in the report should be a detailed statement of receipts and expenses; all salaries and fees paid by the fund, to whom and in what amount such sums were paid, and for what service or purpose; a breakdown of insurance premium payments, if a commercial insurance carrier is involved, showing the amount of retentions, claims paid, dividends, commissions, and service charges and to whom the carrier paid such commissions and charges; a financial statement on the part of the 94914-38--10 insuring or service agency, if an agency other than a commercial insurance carrier is employed; and a detailed account of the manner in which the reserves held by the fund are invested. (f) Prior to the initial establishment of the plan, the relative advantages of all of the alternative available methods of providing health and welfare benefits should be fully explored, including self-insurance and the use of programs providing prepaid direct medical services where they exist or can be set up in the community, as well as the use of commercial insurance carriers. The objective should be to reduce operating expenses and nonbenefit costs to the minimum consistent with the safety and security of the program, and to make available to the members the maximum in terms of actual prepaid health services (as distinguished from cash payments covering an unpredictable portion of actual medical bills) obtainable within the limits of the revenue of the fund. (g) Where health and welfare benefits are provided through the use of a commercial insurance carrier, the carrier should be selected through competitive bids solicited from a substantial number of reliable companies, on the basis of the lowest net cost for the given benefits submitted by a responsible carrier, taking into consideration such factors as comparative retention rates, financial responsibility, facilities for and promptness in servicing claims, and the past record of the carrier, including its record in dealing with trade unions representing its employees. The trustees of the fund should be required to state in writing and to report to the membership the specific reasons for the selection of the carrier finally chosen. The carrier should be required to warrant that no fee or other remuneration has been paid, directly or indirectly, to any representative of the parties in connection with the business of the fund. (h) Complete records of the claims experience should be kept so that a constant check can be maintained on the relationship between claims and premiums and dividends, and on the utilization of the various benefits. In the case of medical benefits, records and statistics should also be kept, where possible, showing the extent to which benefits paid out are sufficient to cover, or fail to cover, the costs and charges actually incurred by the members when they avail themselves of medical services. (i) The investment of welfare fund reserves in the business of any contributing employer, insurance carrier or agency doing business with the fund, or in any enterprise in which any trustee, officer or employee of the fund has a personal financial interest of such a nature as to be affected by the fund's investment or disinvestment, should be prohibited. (This is not to be construed as preventing investment in an enterprise in which a union official is engaged by virtue of his office, provided (i) no substantial personal advantage is derived from the relationship, and (ii) the concern or enterprise is one in the management of which the union participates for the benefit of its members.) (j) The provisions of the plan governing eligibility for benefits should be designed to include, as nearly as practicable, all workers on whose wages any substantial contribution has been paid, whether such contribution was withheld from their wages or made on their behalf by their employers. Waiting periods for eligibility should not be of such a length as to discriminate unfairly against some portions of the membership, to the benefit of others. (k) Every program should incorporate an adequate appeals procedure as a check against the arbitrary or unjust denial of claims, so as to afford the individual mmeber a fair hearing and a sufficient opportunity to obtain redress where he feels his claim for benefits has been improperly rejected. 1. The duty of policing and enforcing these standards is shared by every union member, as well as by local, national and international officials. The best safeguard against abuses lies in the hands of a vigilant, informed and active membership, jealous of their rights and interests in the operation of health and welfare programs, as well as any other trade union program. As a fundamental part of any approach to the problem of policing health and welfare funds, affiliated unions, through education, publicity and discussion programs, should seek to develop the widest possible degree of active and informed interest in all phases of these programs on the part of the membership at large. International unions should, wherever possible, have expert advice available for the negotiation, establishment and administration of health and welfare plans, and should provide training for union representatives in the techniques and standards of proper administration of welfare plans. |