As counsel for Hubbard-Bert, Inc., I am writing to you on behalf of a number of our clients who maintain qualified defined benefit pension plans which require employee contributions as a condition of participation in said plans. In these plans, withdrawal of employee contributions upon termination of employment traditionally has been permitted since, for the most part, the return of employee contributions was the only amount an employee received upon termination of employment prior to retirement. With the advent of ERISA and the vesting requirements incident thereto, many employees are now fully vested when they terminate employment. And, as required by ERISA, when an employee terminates with a vested interest, he is provided with a statement reflecting that portion of his vested benefit attributable to employer contributions to the pension plan. It is apparent that a terminated vested employee loses only a small portion of the total monthly benefit due at retirement by withdrawing his or her own contributions to the pension plan due to the government mandated conversion factors for employee contributions as reflected in the above Revenue Ruling.

It is submitted that the conversion factors stated in the above Revenue Ruling are unrealistic and therefore, placed an unreasonably high cost on the employer for providing pension benefits when employee contributions to a pension plan are withdrawn prior to retirement.

In amplification of our concern on behalf of our clients, attached are two examples of the problems created by the conversion factors relating to employee contributions to a defined benefit pension plan. These examples have been used with permission of Zurn Ind

ustries, Inc., the employer for whom these examples were prepared.

It is submitted that the conversion factors are unrealistic for the following reason:

An employee who withdraws his own contributions from a defined benefit pension plan prior to retirement can purchase on the open market a higher monthly benefit with those contributions based on prevailing annuity purchase rates than the conversion factors posed by the above Revenue Ruling would reflect as purchasable from those contributions.

Your initial reaction to this problem might be that the problem can be avoided by not allowing withdrawal of employee contributions from a defined benefit pension plan at any time, other than via distribution of such contributions as part of a monthly retirement benefit. Theoretically, this solution of the problem is realistic; in practice, however, it will be extremely difficult from an employee relations standpoint to impose such a restriction when the long standing practice has been to permit withdrawal of employee contributions to the plan in lump sum upon termination of employment.

It is hoped that your Subcommittee on Labor Standards, which we understand will be holding ERISA oversight hearings in May, will give serious consideration to the problem raised in this letter as it is submitted.

In that regard, it is requested that this letter be published in the hearing record. In addition, Mr. J. Boyd Bert, Jr., the President of our firm, as well as myself, will be available to testify regarding this matter if and when deemed appropriate by your Subcommittee.

A possible consequence of the problem raised in this letter, if it is not resolved to reflect more realistic conversion factors, would be to force employers with contributory defined benefit pension plans to lower benefits on a prospective basis to take into consideration the increased cost of providing retirement benefits to employees that withdraw their contributions prior to retirement.

Your attention to this and other problems created as a result of ERISA is sincerely appreciated. Hopefully, as a result of such hearings, amendments to ERISA will be forthcoming to foster expansion rather than constriction of the private pension system in this country.

GAB: smt

Sincerely,

HUBBARD-BERT, INC.

Alan Balle

G. Alan Balla

Example One

Under this example, subject participant's normal retirement benefit which would have commenced the first of the month after attainment of age 62 would have been $330.14 (subject employee actually retired late). His total contributions with interest to date of normal retirement would have been $2,620.04, which under the government mandated conversion factors would have purchased $17.90 of monthly benefit out of the total $330.14 monthly benefit.

Utilizing immediate annuity purchase rates for a 10-year certain and continuous monthly benefit for a male age 62 provided by the Metropolitan Life Insurance Company would have produced a monthly retirement benefit attributable to the $2620.04 employee contributions of $22.72. This monthly benefit represents a 27% increase over the monthly benefit assumed purchased by employee contributions under the mandated conversion factors for employee contributions pursuant to Revenue Ruling 76-47.

Utilizing the actuarial assumptions employed by the actuary under the plan, the monthly benefit that could have been purchased with the $2620.04 employee contributions would have been $18.58, which represents a 3.8% increase over that monthly benefit provided under the terms of the above Revenue Ruling.

Example Two

Under this example, subject participant's normal retirement benefit which would have commenced the first of the month after attainment of age 62 would have been $419.60 (subject employee actually retired late). His total contributions with interest to date of normal retirement would have been $2427.85, which under the government mandated conversion factors would have purchased $16.59 of monthly benefit out of the total $419.60 monthly benefit.

Utilizing immediate annuity purchase rates for a 10-year certain and continuous monthly benefit for a male age 62 provided by the Metropolitan Life Insurance Company would have produced a monthly retirement benefit attributable to the $2427.85 employee contributions of $20.91. This monthly benefit represents a 26% increase over the monthly benefit assumed purchased by employee contributions under the mandated conversion factors for employee contributions pursuant to Revenue Ruling 76-47.

Utilizing the actuarial assumptions employed by the actuary under the plan, the monthly benefit that could have been purchased with the $2427.85 employee contributions would have been $17.21, which represents a 3.7% increase over that monthly benefit provided under the terms of the above Revenue Ruling.

Thank you for your letter of May 3, 1978 informing us of your oversight activities with respect to the Employee Retirement Income Security Act (ERISA) of 1974. We commend your continuing efforts at amelioration of problems under ERISA and concur that certain statute alterations may be appropriate.

The Institute of Electrical and Electronics Engineers (IEEE) is the nation's largest professional engineering society, composed of approximately 140,000 U. S. members ( 180,000 members worldwide). Engineers are deeply concerned not only with the administration of ERISA but also with recent experience under the new law which does suggest that further amendments are in order, so that the excellent purposes of the new law may be better accomplished.

In this connection, we wish to call to your attention a severe problem for professional engineers (and others similarly situated) which existed before ERISA, which was only partly solved by the new law, and which still needs legislative attention. This is the problem of multiple pension forfeiture by employees in highly mobile occupations employees whose typical job tenure is so short

that they spend a lifetime working in their profession, moving from job to job, and forfeiting pension after pension. They rarely vest, even under the liberal new vesting law provided in ERISA Title I, Part 2 and the companion sections of the Internal Revenue Code. Engineers are damaged most severely by multiple pension forfeiture, but the same problem exists for many other types of employees (secretaries, for example).

The enclosed testimony elucidates the problems for mobile individuals under ERISA and delineates our proposals for modification of existing law. This testimony is submitted by IEEE and has been endorsed by the American Institute of Chemists (AIC), the American Society of Civil Engineers (ASCE), the American Society of Mechanical Engineers (ASME), and the National Society of Professional Engineers (NSPE). These societies represent a diverse cross-section of the Engineering and Scientific community and illustrate the homogeneity of problems under ERISA for individuals in mobile occupations.

Again, IEEE, AIC, ASCE, ASME and NSPE thank you for this opportunity to express our concerns and to present our proposals. If we can be of further assistance to the oversight activities of your Subcommittee, please contact us without hesitation.

Sincerely

CC:

D. Roethel, AIC

L. Meier, ASCE

M. Frangiadakis, ASME

M. Blevins, NSPE

Bruno 0. Weinschel