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and file. Integration has been permitted by the Internal Revenue Code since 1942.13/

The current integration rules are highly complex, are said by some to rest on a questionable foundation, may be outdated, and, particularly in view of the ever increasing Social Security wage base and benefits, are probably in need of significant revision. Undoubtedly, as the Treasury asserts, some abuse exists. However, we note that the abuses delineated by the Treasury in its detailed analysis relate principally to plans of small employers. 14/ Although data is extremely difficult to obtain, we believe that the vast majority of large retirement plans currently provide benefits to all their retirees, in addition to the benefits

provided by Social Security. 15/

A.

Integration Is the Subject of Several Imminent Studies

The Social Security integration rules may need revision, but the Treasury's proposal is premature, fragmentary, and

13/ Section 162(a) of the Revenue Act of 1942, 56 Stat. 798, added paragraphs (3), (4), (5) and (6) to Section 165(a) of the Internal Revenue Code of 1939. Those sections, with minor modifications, are now sections 401(a)(3) through (6) of the Internal Revenue Code of 1954, as amended (the "Code").

14/ Detailed Descriptions at 150.

15/ Table B-1, attached, is derived from a sample of 540 individuals who retired in 1977 from 23 different ERIC members and, in our view, is representative of benefits provided by plans sponsored by most major employers.

Because of the complexities involved and the potentially adverse impact on existing plans, 17/ the Congress deferred

action at that time on a recommended "freeze" on future

Nonetheless, the Conferees on ERISA followed this Committee's recommendation that the Joint Pension Task Force

19/

conduct a two-year study of Social Security integration.. That study has not been undertaken.

Late last year, as a part of the Social Security Amendments of 1977, the Congress adopted the recommendation of

16/ Report on H.R. 12855, H.R. Rep. No. 93-807, 93d Cong., 2d Sess. 69 (1974); 1974-3 C.B. (Supp.) 236, 304.

17/ 120 Cong. Rec. 29202 (1974) (remarks of Cong. Ullman); 120 Cong. Rec. 29928 (1974) (remarks of Sen. Williams).

18/ This was accomplished by the unusual parliamentary procedure of amending the Conference Report by means of a Concurrent Resolution. H.R. Con. Res. 609. 120 Cong. Rec. 29216, 29925 (1974).

19/ Conference Report on H.R. 2, H. R. Rep. No. 93-1280, 93d Cong., 2d Sess. 280 (1974); 1974-3 C.B. 415, 441.

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Congressman Jenkins20/ to create the National Commission

with a mandate to conduct

a continuing study, investigation, and review of the adequacy of benefits including the measurement of an adequate retirement income, . . . the impact of such programs on, and their relation to nongovernmental retirement and annuity programs, [and] medical delivery systems, [and] . . . the integration of such current Federal programs with private retirement programs

21/

(Emphasis added.)

Within two years, the Commission is to report to the Con

gress specific recommendations regarding these and other issues. 22/

Similarly, as noted above, the President recognized in his Budget Message that a complete, careful, and exhaustive

20/ Congressman Jenkins originally proposed an amendment to create a National Commission on Social Security during the consideration by this Committee of H.R. 9346, 95th Cong., 1st Sess. (1977). Although rejected by the Committee on a tie vote, the amendment was adopted during the House floor debate. 123 Cong. Rec. H 11649-60 (daily ed. October 27, 1977).

21/ Section 361 of P.L. 95-216, 91 Stat. 1557.

22/ The first two Commission members, Wilbur J. Cohen and Robert J. Myers, are highly qualified, and were appointed by the Speaker of the House on February 6, 1978. 124 Cong. Rec. H. 654 (daily ed. February 6, 1978).

recommendations for reforms in the systems to insure that

workers have adequate coverage and benefits" 23/ The

Presidential Commission is expected to complete its reports

ERIC strongly supports these Congressional and Presidential efforts to develop a cohesive national retirement income policy. It will support and assist the work of the

Commissions.

B.

Integration Is Essential to a Sound National Retirement
Policy

Integration of Social Security with private pension plans is a key element of any national retirement income

23/ The Budget of the United States Government, 1979, at 18.

24/ The President's tax proposals do not treat Railroad Retirement Benefits. Presumably, they would be considered by the Presidential and National Commissions. We also note that concurrently with these hearings, the Rooney Subcommittee is continuing its hearings entitled "Retirement Income Security: The State of the Nation's Private Pension System". Today, it is to receive testimony on the respective roles of Social Security, private and public pension plans, and IRAs; the level of retirement income to be provided by each such source; the effect of integration, including the Treasury's proposals; and the impact of the Social Security Amendments of 1977 on private pension plans. Press Release, Rooney Subcommittee (March 3, 1978).

30-779 78-73

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policy. The object of both private plans and Social Security is one: to achieve an adequate retirement income. Social Security, through its limited covered wage base and benefits, is "weighted" in favor of lower income employees. Integration by private pension programs is used to attempt to provide for all employees a reasonable level of retirement income, without any employee receiving total disposable retirement income in excess of disposable pre-retirement income. Thus, the recent CRS study of "Major Issues Facing the Private Pension System" concluded that:

There appears to be nothing inherently wrong in
excluding low and moderate income individuals
from a private pension plan if the income re-
placement rate from social security is high
enough. 25/

25/ CRS study, supra note 5, at CRS-19. The public is being informed of the need for and the purpose of integration, as witnessed in the following questions and answers from a recent article in the Washington Post:

Q: What has the Social Security law to do with private pensions?

A: Most pensions are deliberately designed to piggyback on Social Security.

footnote continued on page 16