If we bring out a bill, I am sure that I will get criticized regardless of what it is, but if I am to be criticized, I hope it will be for leaving something out instead of putting too much in. I thank you so much. Mr. FITZHUGH. Thank you, sir. Chairman BARDEN. We will adjourn at this time. (Whereupon, at 1 p. m., the hearing in the above-entitled matter was recessed.) WELFARE AND PENSION FUND LEGISLATION TUESDAY, JULY 16, 1957 HOUSE OF REPRESENTATIVES, COMMITTEE ON EDUCATION AND LABOR, Washington, D. C. The committee met at 10 a. m., pursuant to recess, in room 429, Old House Office Building, Hon. Graham A. Barden (chairman) presiding. Present: Representatives Barden, Perkins, Wier, Elliott, Landrum, Green, Thompson, McConnell, Holt, Wainwright, 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 be in order. We have with us, this morning, Mr. Orloff, vice president of Marsh & McLennan, Inc., Chicago, Ill., and Mr. Blomquist of the same organization. You gentlemen, I presume, wish to appear together. Mr. BLOMQUIST. That is correct. Chairman BARDEN. Will you identify yourselves for the reporter, please, and proceed with your statement. STATEMENT OF CONRAD A. ORLOFF, VICE PRESIDENT, MARSH & MCLENNAN, CHICAGO, ILL.; ACCOMPANIED BY RICHARD M. BLOMQUIST, MANAGER, WELFARE DEPARTMENT, MARSH & MCLENNAN, CHICAGO, ILL. Mr. ORLOFF. I have a short statement which I would like the privilege of reading. My name is Conrad A. Orloff, and I am vice president of Marsh & McLennan, of Chicago. On my right is Richard M. Blomquist, manager of the welfare department of our organization. I am an actuary who has functioned in the pension field for over 25 years. Our firm renders a consulting service which has been availed of by over a thousand organizations of various sizes, locations, and interests. I am chairman of the public employees pension plans committee of the Taxpayers Federation of Illinois. My principal reasons for accepting the invitation to appear before your group were: 1. To commend you for the objectives you are attempting to achieve of preventing the diversion of funds from the benefit of members of welfare and benefit plans; 2. To point out why, in my opinion, the method of registration, reporting, and disclosure may not be the most effective method of accomplishing this objective; and 3. To suggest an alternative method for consideration. Without dealing extensively with the weaknesses of the registration, reporting, and disclosure method and to avoid repetition of opinions already presented to your committee and other committees dealing with this subject, I would suggest that such method has two principal weaknesses: I. Expense of preparation and review: Because of the number of plans and the great amount of material involved, the preparation of audit will be very substantial and accordingly will materially reduce the amount of funds available to beneficiaries. It is not unlikely that such expense might exceed the amount otherwise diverted. II. Those individuals who intend to abuse plans will find ways of so doing that would not be disclosed in any prescribed reporting form. Because of the large number of plans now in operation, the review would have to be performed largely by clerical personnel who might not be qualified to recognize suspect situations in this complicated field. There are some hazards to members of plans resulting from public disclosure which should not be overlooked. For example: Under a level-of-benefit plan, an employer may indicate that the cost of the benefits approximate X cents per hour. The majority of our employer clients, however, are contributing more than this X cents so that, if, in later years, economic conditions might make it difficult to pay the X cents, they can draw on the excess contributed in order to maintain the plan's solvency. If disclosure is required, I would expect that employers would contribute the minimum amount estimated to be sufficient to support the plan. Under such circumstances, the security now enjoyed by members of plans would be weakened. Other objections have already been brought to your attention. The following suggestion is being offered as a more practical method of achievement: I. Provide appropriate penalties for anyone who abuses welfare or benefit plan funds (a) By converting such funds to his own use or the use of another; (b) making false entry in any record with intent to injure the plan fund or defraud any beneficiary; (c) willfully destroys any such record unless authorized by appropriate regulations. II. Require anyone engaged directly or indirectly in or connected in any capacity with the administration, management or control of any welfare or benefit plan, to maintain and preserve complete records of all transactions until authorized by appropriate regulations to dispose thereof. Such material should be made available to the appropriate legislative board authorized to review the operation of the plan. III. Establish a legislative board with authority to review the operation of any welfare or benefit plan and initiate punitive action against anyone who abuses welfare or benefit fund plans. The board will act only upon receipt, from anyone, of any information filed with it indicating that a plan is being abused, how and by whom. The board may either (a) determine and investigate to be unnecessary; (c) undertake exhaustive investigation. This procedure should be more effective than registration, reporting and disclosure of all plans because (a) only suspect situations will be reviewed, entailing less expense; (b) no advance indication will be given of the kind of information to be required, as would be the case under a reporting method; (c) the board could justify using qualified personnel for such purpose whereas a large clerical staff of unskilled help would be required to audit a "reporting method." Chairman BARDEN. Does that conclude your statement? Chairman BARDEN. Mr. Wier, have you any questions? Mr. WIER. I have one or two questions. I notice you introduce yourself as representing this particular firm. You add to that "I am chairman of the public employees pension plans committee of the Taxpayers Federation of Illinois." Will you elucidate a little bit on that? Mr. ORLOFF. I shall be glad to. The Taxpayers Federation of Illinois is an organization supported by contributions from taxpayers. The committee that I have been heading for about 6 or 7 years has been reviewing the public employee plans in the State of Illinois covering municipal employees, police and firemen funds, teachers funds, library funds, and other groups of that character. Mr. WIER. Before you leave that, you are devoted in that field entirely to civil-service retirement, then, are you not? Mr. ORLOFF. No, sir. Well, I do not know what you mean by civilservice. None of those are covered by the civil-service pension plan. Those are individual plans enacted through State legislation, and we review most of the bills that are submitted to the Illinois Legislature, and comment on them. The Taxpayers Federation takes a position with respect to contemplated legislation. Also, we have appeared before the Pension Laws Commission of the State of Illinois on several occasions, and presented opinions with respect to matters that are presented to that commission. Mr. WIER. Let me get that picture clear. You decline to call them retirement funds, or welfare funds. As long as you are talking to the State and make recommendations to the State, does the State participate in the moneys provided for these funds? Mr. ORLOFF. The State establishes the legislation, and approves the tax methods for financing what we call the employer portion of the cost of these plans. All of the employees of the respective groups are required to participate in those plans. They make contributions. Mr. WIER. Are these mutual organizations you are talking about? Mr. ORLOFF. They are employees of the State. Mr. WIER. And confined to that? Mr. ORLOFF. Yes, sir. Or the community, like police and fire funds. Mr. WIER. Governmental, then? Mr. ORLOFF. All governmental, that is right. Mr. WIER. The State or municipality does not participate in payments? |