It retains the current enforcement responsibilities of both the Departments of Labor and Treasury. The IRS can more effectively levy tax penalties, and the Department of Labor is more experienced in bringing civil actions.

Hence, we think that these respective roles in enforcement should continue. However, the Departments have taken steps to insure that investigative or enforcement activities relating to ERISA violations will be performed jointly or will be coordinated closely.

We feel this reorganization plan is a very constructive measure that can result in immediate improvements in the administration of ERISA. We do not, however, view this plan as the final step in our efforts to define the most efficient organization and allocation of responsibilities under ERISA.

As the President stated in his message to Congress on this reorganization plan:

After the Departments have had a chance to administer ERISA under this new plan, the Office of Management and Budget and the Departments will jointly evaluate that experience. Based on that evaluation, early in 1980, the Administration will make appropriate legislative proposals to establish a long-term administrative structure for ERISA.

As the reorganization plans stipulate, we will submit to the Congress by April 30, 1980, the results of our evaluation and our proposals for further improving the organization and the administration of ERISA.

Chairman RIBICOFF. I hope before you come to any conclusions you consult with Senators Javits, Williams, and Bentsen. I think you could save time by getting their advice at an early stage.

Mr. WELLFORD. We certainly intend to do that and have them participate in this task force from the very beginning.

We are now taking steps to set up an evaluation task force with representatives of OMB, the Labor Department, and the Treasury Department. This task force will establish criteria for assessing the results of Reorganization Plan No. 4.

We will consult closely with Senators and Members of Congress who have an interest in ERISA administration in this process of designing and implementing the evaluation, and analyzing other options, including the single agency approach contained in S. 3017 sponsored by Senators Williams and Javits, and the division of jurisdiction approach contained in S. 2352 sponsored by Senator Bentsen. It will be carefully examined.

The help and support of these Senators has been and will continue to be instrumental to our efforts.

I will ask Mr. Lanoff or Mr. Halperin if they have additional comments to add to my testimony at this time.

[The prepared statement of Mr. Wellford follows:]

STATEMENT OF HARRISON WELLFORD, EXECUTIVE ASSOCIATE DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET

Mr. Chairman, I appreciate the opportunity to appear before this committee today to discuss the reorganization of the Employee Retirement Income Security Act of 1974 (ERISA). Reorganization Plan No. 4 will effect an immediate improvement in the administration of ERISA. Accompanying me today to assist in describing and answering questions about this plan are Colin Blaydon, Director of the Reorganization Task Force on ERISA; Ian Lanoff, Administrator of the Pension Welfare Benefit Program of the Department of Labor; and Daniel Halperin, Deputy Assistant Secretary for Tax Policy of the Department of the Treasury.

Reorganization Plan No. 4 is a key component in a series of actions the administration has taken to reduce the administrative burdens of ERISA. It is designed to reduce jurisdictional overlap and duplication by clearly dividing responsibility for ERISA regulation between the Department of Labor and Treasury. This reorganization will reduce substantially the amount of time required to process applications by plan administrators, unions and businesses-small and large for exemptions from prohibited transactions. It will also allow the Departments to issue expeditiously the remaining regulations under ERISA.

This proposed reorganization has received support from groups representing small and large businesses, pension plan managers, labor unions and consumers. Mr. Chairman, I would like to submit for the record a list of groups that have endorsed this reorganization plan.

This constructive simplification of ERISA administration has widespread support and appeal since it can be implemented immediately and will have tangible results.

The Employee Retirement Income Security Act represents the Federal Government's commitment to protect the rights and benefits of the Nation's workers. But, as you are aware, Mr. Chairman, ERISA is one of the most frequently criticized government programs. Most public complaints about ERISA have focuse don three kinds of problems.

First, the delays in processing applications for exemptions from prohibited transactions have caused unnecessary uncertainty and difficulty for small and large businesses, plan administrators and unions. There are many cases in which such exemptions are permitted, but because both the Internal Revenue Service (I.R.S.) and the Department of Labor must now approve exemptions, there is substantial delay. To date, only 485 final decisions have been made on the 955 applications for exemptions: four hundred and seventy (470) applications are still pending. The average length of time for processing one application is 15 months and increasing.

Reorganization Plan No. 4 addresses this problem. It clearly assigns responsibility to one agency-the Department of Labor for processing and granting these exemptions. We estimate that the processing time will be cut in half.

The second major problem with the current administration of ERISA is the excessive amount of time required to issue important regulations. The Departments have identified 215 regulations required by the statute. Although it has been almost four years since passage of the Act, more than half of the regulations have not been published. This administrative delay is caused in part by the complexity of the issues, but also by dual jurisdiction. Almost half of the 123 regulations that have not been published in final form are subject to dual jurisdiction.

Reorganization Plan No. 4 will reduce the number of pending regulations by 20 percent and the number subject to dual jurisdiction by 74 percent.

The third area of complaint about ERISA is the paperwork burden caused by complex and duplicative reporting, disclosure and recordkeeping requirements. The Administration has already taken substantial steps to correct this problem. The O.M.B. report on paperwork reduction, issued in June, showed that progress has been achieved. The agencies administering ERISA have reduced by more than half the amount of time required to complete their forms. An estimated 9 million hours of the public's time in filling out these forms has been reduced to less than 4 million hours. The Departments of Treasury and Labor are now undertaking several new initiatives to eliminate entirely or simplify reporting requirements. I would like to submit for the record a detailed description of these reform measures.

Mr. Chairman, let me describe briefly how this Reorganization Plan divides the responsibilities under ERISA between the Department of Labor and the Department of the Treasury according to the expertise of each Department in certain areas of regulation and enforcement. The plan has the following basic provisions:

It transfers to the Treasury Department most responsibilities for setting minimum standards for funding, participation and vesting of benefits. These standards ensure that pension plans are adequately funded and that the rights of beneficiaries are protected. Responsibility now shared by the two Departments for 25 pending regulations will be assigned to one agency-the I.R.S. The Department of Labor will retain some authority, however, to disapprove certain minimum standards that substantially affect collectively bargained plans.

It transfers to the Department of Labor responsibility for fiduciary standards and prohibited transactions. These provisions guaru against conflicts of interest and regulate the granting of exemptions from prohibited transactions.

It retains the current enforcement responsibilities of both the Departments of Labor and Treasury. The I.K.S. can more effectively levy tax penalties, and the Department of Labor is more experienced in bringing civil actions. Hence, we think that these respective roles in enforcement should continue. However, the Departments have taken steps to ensure that investigative or enforcement activities relating to ERISA violations will be performed jointly or will be coordinated closely.

This Reorganization Plan is a very constructive measure that can result in immediate improvements in the administration of ERISA. We do not, however, view this plan as the final step in our efforts to define the most efficient organization and allocation of responsibilities under ERISA. As the President stated in his Message to Congress on this Reorganization Plan, "After the Departments have had a chance to administer ERISA under this new Plan, the Office of Management and Budget and the Departments will jointly evaluate that experience. Based on that evaluation, early in 1980, the Administration will make appropriate legislative proposals to establish a long-term administrative structure for ERISA." As the Reorganization Plan stipulates, we will submit to the Congress by April 30, 1980, the results of our evaluation and our proposals for further improving the organization of ERISA.

We are taking steps now to set up an evaluation task force with representatives of O.M.B., the Labor Department and the Treasury Department. This task force will establish criteria for assessing the results of Reorganization Plan No. 4. We will consult closely with Senators and Members of Congress who have an interest in ERISA administration in this process of designing and implementing the evaluation, and analyzing other options including the single agency approach contained in S. 3017 sponsored by Senators Williams and Javits, and the division of jurisdiction approach contained in S. 2352 sponsored by Senator Bentsen. The help and support of these Senators have been and will continue to be instrumental to our efforts.

In conclusion, let me thank the Chairman and this Committee for your leadership in improving the administration of ERISA.

Mr. LANOFF. I would like to mention, in addition to the reorganization proposal itself aimed at expediting rules by the agencies as part of the overall reorganization announcement the administration also included two other matters.

One was the announcement of additional significant reductions in paperwork. One would be the proposed elimination of an entire form, the EBS-1 plan description form, which we feel might be eliminated because all of the information now contained in it is contained in other forms already required.

Second, the agencies, the IRS, Labor Department, and PPGC have reached an agreement in principle to develop an annual report for filing by smaller plans; that is, plans with less than 100 participants. Every 2 or 3 years, smaller plans would file a short form annual report with a more complete return filed every 3 years.

Finally, as announced at the press conference and as has become reality, the Department of Labor has proposed in the Federal Register new regulations with respect to the so-called summary annual report forms.

Chairman RIBICOFF. Senator Javits, do you have any questions? Senator JAVITS. Yes; I have a good many technical questions designed to refine our understanding of the situation.

Mr. Chairman, with your permission, I would like to yield to Senator Williams who has another hearing very shortly.

TESTIMONY OF HON. HARRISON A. WILLIAMS, JR., A U.S. SENATOR FROM THE STATE OF NEW JERSEY

Senator WILLIAMS. Thank you very much.

I would ask permission to put a statement supporting this interim reorganization plan.

Chairman RIBICOFF. Without objection, Senator Williams' statement will be made part of the record.

[The prepared statement of Senator Williams follows:]

PREPARED STATEMENT OF SENATOR HARRISON A. WILLIAMS, JR.

Mr. Chairman, the President's reorganization plan for the Labor Department and Internal Revenue Service under the Employee Retirement Income Security Act of 1974 offers the hope of reducing at least some of the confusion and dely that has plagued the administration and enforcement of ERISA.

The reorganization plan is not a panacea-we all recognize that but it has been judged by Secretaries Marshall and Blumenthal, and by the President, to hold sufficient promise of improvement in administration to warrant its submission to the Congress.

As one who has invested a great deal of time and effort in developing ERISA and in monitoring its implementation by the agencies. I will welcome any improvements in administration, and I share the hopes that the President's plan will improve matters substantially.

ERISA's structure of administrative responsibility is primarily the result of compromises that were reached in 1974 when Congress passed the law. Indeed, it is not an exaggeration to say that had it not been for those compromises, there would have been no ERISA. So the difficulties that have been encountered due to the Act's administrative structure must be weighed against the good that has been accomplished by ERISA's substantive provisions.

I, for one, believe it is no contest. ERISA has brought vast and sweeping improvements in private employee benefit plans. The "broken promise," a term that was used frequently to describe private plans before ERISA, is seldom heard today.

But in recognizing ERISA's critically important contribution to assuring retirement income and welfare benefit security for millions of American workers, we cannot lose sight of the very real problems-substantive as well as administrative

that remain.

The "ERISA Improvements Act of 1978," which I introduced last May with Senator Javits as a cosponsor, addresses many of those problems. Senator Bentsen has introduced bills addressing some of the same problems. These bills, I think, show our awareness that improvements in the law-whether viewed from the standpoint of plan sponsors, plan service providers, or plan participants-can and should be made.

I believe that in the final analysis, the substantive issues in this field cannot be divorced from the administrative issues. And, in my view, bifucated administrative responsibility-no matter how well handled by the agencies-is inherently troublesome. Even if the responsibilities and powers of each agency could be utterly and totally separated and compartmentalized, there would still be many instances in which coordination would be necessary and in which "onestop shopping" by the public seeking guidance from the government would not be possible. Also, multiple agency jurisdiction will prevent or severely hinder the development of sound policymaking respecting the substantive issues. These are some of the reasons why my bill proposes consolidation of the presently separated agency responsibilities in a single place.

Needless to say, the President's reorganization authority is not broad enough to accomplish what I have proposed. Only the Congress can do that. But what the President can do, and has pledged to do, is to carefully evaluate the operation of the reorganization plan and to submit to the Congress, by April 30, 1980, legislative recommendations for a long-term ERISA administrative structure. At that time, Congress can and will take a fresh look at the question, in light of what will then have been more than five years of experience under two separate versions of fragmented jurisdiction.

For my part, I look forward to working with the Administration in evaluating the reorganization and assisting in any way I can. Quite obviously, I have a preference as to the best long-term administrative structure, but in the meantime I will be very pleased to see any improvements that come about as a result of the reorganization plan.

Secretaries Marshall and Blumenthal and their staffs, as well as the Office of Management and Budget reorganization staff, deserve our commendation for their efforts in developing this plan, and I hope that it can be swiftly approved by the Congress and rapidly implemented by the agencies.

Senator WILLIAMS. And on page 6, Mr. Wellford, of your statement you state that the Departments have taken steps to insure that investigative or enforcement activity relating to ERISA violations will be performed jointly or coordinated closely.

Now, I would like to have a sense of what the areas of violations are that you are addressing that statement to. This has been a problem, the dual jurisdiction in investigative enforcement areas, as I understand it. I was wondering what areas you are seeing as a continuing dual jurisdiction for enforcement investigation?

Mr. WELLFORD. The Internal Revenue Service, as you know, does have responsibility for tax penalty enforcement authority. And the responsibility for authority to bring civil suits remains with the Department of Labor.

The efforts to develop joint actions, closer coordination has been underway for some time in both Departments and fairly recently resulted in major improvement.

Let me ask Mr. Lanoff and Mr. Halperin to comment on the details. Mr. LANOFF. We have developed with the Internal Revenue Service a coordinated enforcement strategy document which I understand is currently under review in the counsel's office at the IRS that will, hopefully, result in better coordinated efforts on the part of the two agencies.

The idea behind the agreement is that those in the field primarily responsible for enforcing the provisions of the law on a daily basis will establish relationships. As a result of those relationships, there will be planning engaged in by those representatives of the IRS and Department of Labor in the field so that plans will not face duplicate investigations by the Labor Department and IRS.

We have developed a checklist as part of this overall agreement which the IRS and Labor Department agents will bring with them when they go in to conduct an audit of a plan. And the agent of the agencies will be responsible for checking off items on the checklist. The IRS, concerned with the minimum standards area, has developed the checklist portion which deals with those matters. The Labor Department, with its interest in the fiduciary provisions, has drafted the checklists that deal with the fiduciary area.

The way the procedure will work, for example, is the IRS agent will go into XYZ plan and conduct whatever audit the IRS conducts and be responsible for checking off items on that form even though the items he or she is checking off happened to cover the fiduciary

area.

That portion dealing with the fiduciary area will then be transmitted to the Labor Department field office at which time the Labor Department officials will review the checklist and determine on the basis of what is checked off if the Labor Department has an interest in coming in and conducting an investigation of the plan's activity.