2. Defined benefit plans should be exempt from the requirements of Revenue Procedures 75-49 and 76-1, relating to 4-40 vesting. Defined benefit plans should qualify under the Code with the selection of any of the three statutory vesting schedules contained in ERISA and without being subjected to the "key employee test" or the "turnover test." The most objectionable element of these Revenue Procedures is the apparent requirement that total years of service with the employer be counted for purposes of "4-40" vesting, rather than merely the employee's length of service following adoption of the plan. In any event, except as provided in paragraph 3 below, the service requirement should be limited to the number of years since the plan has been in effect, as is the case with ERISA's minimum vesting standards. The requirement to count years of preplan service may cause a defined benefit plan to have significant unfunded vested benefit liability on its effective date. 3. Except where there is full and immediate vesting, ERISA requires that an employee who works 1,000 or more hours per year and has completed one year of employment or attained age twenty-five (25), whichever occurs later, be included as a participant in defined benefit plans. This requirement would appear meaningless if the plan provides a benefit that does not relate to service. The requirement that an employee be covered after one year of service substantially increases the recordkeeping cost of the plan without providing a meaningful benefit to the plan participant. Consideration should be given to allowing defined benefit plans the option of excluding those employees with less than three years of service. Where benefits are accrued only upon participation in the plan, the three-year eligibility requirement would be dependent upon the plan also providing accrual of benefits and vesting based upon the date of original employment. 4. A defined benefit plan which provides a meaningful retirement benefit for a group of employees whose average age is about age 40, usually requires a contribution of 8 percent to 12 percent of the annual compensation of the covered employees in order to be funded on a sound actuarial basis. The initial impact on profits of a contribution of this magnitude, coupled with the other burdens associated with the adoption of a defined benefit plan which have been previously mentioned, often result in the employer adopting a defined contribution plan instead or a IV. CONCLUSION In conclusion, the American Society of Pension Actuaries, representing 1500 professional pension plan practitioners, is grateful for this opportunity to share in the public's re-evaluation of pension planning and the Congress's reassessment of ERISA. Problem areas have been defined and recommendations have been offered consistent with the goals of ERISA in order to strengthen and encourage the development of the private pension system. Remedial legislation is absolutely imperative. Our actuaries and pension plan consultants who design, evaluate and administer 25% of our nation's qualified retirement plans can not overstate the very real threat to the continued existence of small employee benefit plans. We are grateful for your careful consideration. 27 THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA May 18, 1978 The Honorable John H. Dent Chairman Subcommittee on Labor Standards Dear Mr. Dent: Thank you for extending us the opportunity to submit our recommendations and views on legislative changes to the Employee Retirement Income Security Act of 1974. As you will note from our enclosed statement, our major concern is contingent employer liability. We find it most inequitable to impose liability on a single employer in a multi-employer benefit plan if that employer has made every agreed to contribution to the plan. I hope you will give serious consideration to this formidable problem. Once again, thank you for your courtesy and consideration. Sincerely, R.7. Zacharias Robert F. Zacharias Collective Bargaining Services RFZ:99 Enclosure STATEMENT OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA The Associated General Contractors of America is a management trade association representing 8,300 general contracting firms and 20,000 affiliate firms. Our member firms annually perform 80 billion dollars of construction which involves over three and one-half million employees. Many of our members are involved in multi-employer pension and employee benefits plans in all parts of the country. We have very strong feelings on the application of Title IV of ERISA. General contractor employers are in a position which, we suspect, was overlooked when the ERISA legislation was passed, i.e., unlike most employers we are regularly contributors to multiple plans. Most employers are involved with one benefit plan, but general contractors are by definition usually involved in none (where they work full open shop) or in several (where they work union). This gives rise to liabilities which were probably unintended and which, by exceeding 100 percent of corporate worth, are patently impossible to satisfy. It is the position of the AGC that employer liability under pension plans created pursuant to the collective bargaining process should be limited to the retirement contributions called for from such employers under the terms of the collective bargaining agreements involved. The creation of liability in excess of such amounts is inequitable, counter-productive, technically unworkable and contrary to the principles of collective bargaining which have worked so well in past years. We object strenuously to the imposition by ERISA of various levels of liability upon employers that are not otherwise delinquent in the making of agreed contributions to the retirement plans covering their unionized employees. This liability is threefold: The liability to make up funding deficiencies (not The imposition of penalties upon such underfunding 3. The resort by the Pension Benefit Guaranty Corpor- |