Page images
PDF
EPUB

Those functions, as the then Chairman of the SEC observed, are devoted to the regulation of the capital-securities markets. And we do have experts among our staff in analyzing corporate financial statements by accountants, and our lawyers are expert in the analysis of full-disclosure provisions. But the area covered by a bill on welfare and pension funds does not, as such, deal with the capital-securities markets. (Emphasis added). 1957 Senate Hearings at 107.

Congress rejected S. 1122 which would have given the SEC general jurisdiction over employee pension plans. As stated in a report by the Senate Committee on Labor and Public Welfare:

Serious consideration was given earlier to placing
the administration of the bill with the Securities
and Exchange Commission on the basis of its past
experience in the administration of disclosure type
legislation. However as the official representatives
of the Securities and Exchange Commission clearly
Indicated that they did not feel they were the proper
agency to handle the administration of this type of
legislation, and as they felt that the taking on of
this function might interfere with their presently
established functions, this consideration was aban-
doned. (Emphasis added). S. Rep. No. 1440, 85th Cong.,
2d Sess. 21 (1958).

Subsequently, the WPPDA was enacted, vesting jurisdiction with the
Secretary of Labor.

As was

But the WPPDA was not as effective as was hoped. expressed in the House and Senate ERISA Reports, reporting and disclosure provisions required strengthening:

The underlying theory of the Welfare and Pension
Plans Disclosure Act to date has been that reporting
of generalized information concerning plan opera-
tions to plan participants and beneficiaries and
to the public in general would, by subjecting the
dealings of persons controlling employee benefit
plans to the light of public scrutiny, insure that
the plan would be operated according to instruc-
tions, and in the best interests of participants and
beneficiaries. The Secretary's role in this scheme
was minimal. Disclosure has been seen as a device
to impart to employees sufficient information and

data to enable them to know whether the plan was
financially sound and being administered as intended.
It was expected that the information disclosed would
enable employees to police their plans. But exper-
ience has shown that the limited data available under
the present Act is insufficient. Changes are there-
fore required to increase the information and data
required in the reports both in scope and detail.
Experience has also demonstrated a need for a more
particularized form of reporting so that the indivi-
dual participant knows exactly where he stands with
respect to the plan--what benefits he may be entitled
to, what circumstances may preclude him from obtain-
ing benefits, what procedures he must follow to obtain
benefits, and who are the persons to whom the manage-
ment and investment of his plan funds have been en-
trusted. 3 U.S. Code Cong. & Ad. News, 93rd Cong.,
2d Sess. (1974), p.p. 4649 and 4868.

This once again leaves no other conclusion but that the

pre-ERISA congressional understanding was that the securities laws disclosure requirements were not applicable to the interests of employee pension plans.

ERISA Legislative History

In 1972 the Senate Labor Subcommittee of the Committee on Labor and Public Welfare initiated an investigation of the need for remedial legislation. In the Interim Report of Activities of the Private Welfare and Pension Plans Study, S. Rep. No. 92-634, 92d Cong., 2d Sess. 91 (1972), the Subcommittee summarized the extent of federal authority and responsibility in the field of pension plans:

The General Accounting Office furnished the Sub-
committee with a summary of the jurisdiction
exercised by the federal government over private
pension plans through eleven federal departments
and agencies which had such authority and respon-
sibility. Of these, it is apparent that two play
a significant, although limited, role in super-
visory jurisdiction over private pensions. The
must direct supervision is exercised by the Depart-
rent of Labor through its statutory requirements

30-779 - 78-36

of disclosure of pertinent plan data, and its
enforcement powers against crimes involving

bribery, embezzlement, false statements, and kick-
backs, related to pensions.

The other department which had any degree of con-
trol is the Department of the Treasury, which,
through the Internal Revenue Service, is em-
powered to grant plan qualification and tax bene-
fits upon compliance by the proposed plan with
various statutory requirements. Despite the
jurisdiction of these two agencies, it is apparent
that welfare and pension funds lack adequate
protective supervision over their administration
and operations through existing laws and regulations.
Current statutes and regulatory controls are frag-
mented and impotent in effecting meaningful
protection of workers' benefits. Analysis of the
compilation made by the General Accounting Office
makes it apparent that real and effective supervision
is absent. This deficiency must be assessed in
the light of the tremendous reservoir of assets
which are held in trust for America's workers
(Emphasis added).

The Interim Report continued with a complete description of the federal regulation affecting the administration of private plans. This report at page 96 dealt with any potential SEC jurisdiction as follows:

Pension and profit-sharing plans are exempt from
coverage under the Securities Act of 1933 (15
U.S.C. 77 et seq.), unless the plan is a volun-
tary contributory pension plan and invests in
the securities of the employer company an amount
greater than that paid into the plan by the em-
ployer.

With this congressional understanding, ERISA was enacted. During the entire period of intense debate and study, the

Commission never asserted any new claim of jurisdiction or disagreed with the obvious congressional understanding.

Moreover,

the Chairman of the SEC in a letter to the Chairman of the

Senate Labor Committee expressed a favorable opinion of "the disclosure and fiduciary standards provisions" of the bill which later became ERISA. S. Rep. No. 92-1150, 92d Cong., 2d Sess. 58-69. The bill so approved did not include the SEC or the Securities Acts in its regulatory scheme. Instead, the Secretary of Labor was to receive regulatory authority.

We believe that employee benefit plans should be
subject to the requirement of adequate disclosure
of investment returns based upon appropriate
adjustment for volatibility. In this way, the
participants as well as the Secretary of Labor
would be advised of the extent to which the plan's
investment assets were being subjected to varying
degrees of investment risk. S. Rep. No. 92-1150,
92d Cong., 2d Sess. 68 (1972).

And so, through the history of WPPDA and ERISA, there was total agreement that the Securities Acts did not apply to employees' pension plans such as the one in the Daniel case. The SEC understood this and declined to assert otherwise when given the opportunity to do so before Congress. Thus, ERISA was enacted and jurisdiction was given specifically to the Department of Labor and the Internal Revenue Service.

We believe that this history shows that the SEC had never taken the position either that they had jurisdiction over any of the plans such as in the Daniel case or that any of the securities laws were applicable to the regulation of such pension plans. And our understanding of the SEC's historical position is confirmed by the fact that the Commission has never attempted to exercise the power both it and the Seventh Circuit now state that it has. No exercise has been made of any asserted SEC authority

to regulate noncontributory involuntary pension plans under the antifraud provisions of the 1933 or 1934 Acts, either by rules, interpretive guidelines, or enforcement proceedings. Such a failure to exercise such an important power for so long a time has been held by the U. S. Supreme Court to indicate that the agency did not believe the power existed. See Federal Power Commission v. Panhandle E.P.L. Co., 337 U.S. 498, 513; United States v. Enmons, 410 U.S. 396, 408-410. That judgment is shared by those who led Congress toward its enactment of ERISA. For example, following the District Court's opinion in Daniel, Chairman Dent candidly stated:

Other parts of ERISA require careful review at
this time. A recent Federal court decision
raises the specter that yet another Federal
agency, the Securities and Exchange Commission,
will become involved in the regulation of em-
ployee benefit plans, a result clearly unin-
tended when we enacted ERISA. Certainly
Congress must be prepared to act if in fact
this case is not reversed on appeal. [1976]
174 Daily Lab. Rep. (BNA) at A-6.

Further, Senators Williams and Javits have introduced legislation (S. 3017) to reverse the Seventh Circuit's decision in Daniel and have said:

Changes are made in ERISA's preemption provi-
sion to clarify congressional policy in certain
areas that have been highlighted since ERISA
was enacted. In an abrupt change of a position
of more than 40 years' standing, the Securities
and Exchange Commission has begun to interpret
the antifraud provisions of the Securities Act
of 1933 and the Securities Exchange Act of 1934
as being applicable to what has been termed
the "interest" of an employee in certain types
of employee benefit plans.

« PreviousContinue »