However, contributions varied from year to year with the general employment pattern. For instance, contributions declined in 1961, as the economy went through a recession, and increased during the following 2 years of strong recovery. (See table 2.) While cash contributions fluctuated in a cyclical manner in some industries, consecutive increases or declines occurred in others. Dissimilar employment experience and funding arrangements account for these differences among industries.

The amount of annual SUB contributions to most funds was reasonably stable although the financing provisions of most plans related them directly to changes in employment or, as in steel plans, to both employment and benefit experience. The most stable experience was reported by plans in transportation equipment; the least stable, by those in electrical machinery.

The employer's financial obligation for each operating period usually was geared to the company's level of operations by relating it to employment, most frequently expressed in terms of cents per man-hour. In the auto plans, the obligation was related to the hours paid for, and in steel plans to the hours worked. Other methods, such as a percent of gross payroll or a flat amount per pay period for each active employee, were seldom used. The plans with the general trust fund, pooled fund, and individual account funding arrangements required prompt discharge of the entire obligation shortly after the end of each op

erating period. Those under the general fund with contingent liability arrangement, chiefly plans negotiated with the Steelworkers, allowed part of the employer's obligation to accrue in the form of contingent liability that was payable only if needed for benefits. In all cases, the employer was not required to make any additional contribution after his cents per man-hour commitment was discharged even though benefit reductions might be necessary because of a lack of funds.

Investment Income

The unpredictable nature of SUB fund disbursements makes liquidity, rather than income, the foremost consideration in investment policy. The possible need of substantial sums of cash on short notice generally dictated the selection of high-grade, short-term securities. Many plans, including those negotiated by the Auto Workers, restrict investments to general obligations of the U.S. Government. While the moneys held in the SUB funds negotiated by the Steelworkers also could be invested in "other appropriate securities approved by the company," the practice has been to invest almost entirely in U.S. Government securities. Very few plans allowed banks or other corporate trustees much latitude in investment decisions.

Limited asset accumulations and high liquidity needs generally result in low levels of interest, dividends, and other forms of investment income.

Such income accounted for less than 10 percent of the receipts reported by all plans in each year from 1960 through 1963, and 8.5 percent for the entire period. The relative importance of investment income varied with type of funding arrangement.

Benefits

Most SUB plans reported a substantial change in benefit payments from one year to the next because of their dependence on layoff experience. Total benefit payments of $91 million were reported in 1960. They subsequently increased by $38 million, or 42 percent in 1961. Improved business conditions then led to consecutive declines of 22 and 5 percent, respectively, during the next 2 years.

The year-to-year changes in benefit disbursements differed from industry to industry. Annual benefit payments in the transportation equipment industry, for instance, followed a cyclical pattern that was counter to changes in the level of contributions. However, consecutive year-to-year increases occurred in primary ferrous metals until 1963, while fabricated metals and nonelectrical machinery had consecutive declines.

It was common to provide for reductions in either the number or amount of weekly benefit payments during times of financial stress. Many plans used both methods. Their application was geared to the plan's financial position so as to reduce payments out of the fund as finances declined.

Plans with no allocation of resources to individual member accounts almost invariably used "credit units" to determine the extent of each employee's right to benefits and to reduce overall commitments. A reduction in the number of potential payments was accomplished by increasing the number of credit units needed for a full weekly benefit. The opposite approach—a reduction in the amount of the regular or usual benefit-lowered total commitments while retaining the normal credit unit cancellation rate."

Other Disbursements

It was not unusual to charge a SUB fund with some of the costs of administering the plan and managing the fund. During the 1960-63 period,

such charges accounted for about 3 percent of total fund disbursements. Some year-to-year variation occurred in these charges since they tend to vary directly with the size of the fund and claims activity. For example, expenses were especially high in 1961 when increased benefit payments augmented the burden of administration.

The $12 million of operating expenses charged to SUB funds during the 1960-63 period were equal to 2.3 percent and 2.8 percent of contributions and benefits, respectively. However, because contribution and benefit experience was by no means uniform, individual plan ratios tended to differ even more widely. Average annual expenses were equal to less than 5 percent of benefit payments in plans covering 58 percent of all SUB participants. However, 85 percent of the participants belonged to plans in which expenses equaled less than 5 percent of contributions.

Examination of expenses on a per employee basis is more useful. During the 1960-63 period, about half of the SUB funds were charged with average annual expense payments of less than $1 per member. Differences in the types of expenses charged to the funds largely determine the magnitude of the charges. For example, almost 3 out of 4 plans with expenses of less than $1 per member had disbursements only for trustee fees and expenses. The greatest variation in expenses occurred among funds with professional fees and salaries. A relation between plan size and efficiency of operation is evident when cost comparisons are made between plans with similar expenses charged against their funds. For example, all but one of the large

6 For details, see BLS Bulletin 1425–3.

Commonly, the higher the employee's seniority, the smaller was the reduction of his benefit. See BLS Bulletin 1425–3, pp. 22-25.

plans that paid only trustee fees and expenses spent less than $1 per member, while about half the small plans with similar charges spent more than that amount.

Assets

SUB-fund assets, exclusive of contingent liability, at the end of the 1960 reporting year amounted to $340 million. In 1961, a net drain of $20 million reduced them by about 6 percent. By 1963, assets totaled almost $447 million, a 40-percent gain over 1961.

Funds of the transportation equipment industry consistently accounted for more than half of all SUB assets. In contrast, a low asset position was characteristic of funds in the primary metals industries, where contingent liability accruals exceeded regular cash contributions.

The yearend asset data generally reflected the results of different contribution rates and the impact of dissimilar benefit experience. However, by the end of 1963, many of the general trust fund plans and general funds with contingent liability were at or near maximum financing levels. When their maximum levels were attained, further asset increases were curtailed."

Similar fluctuations appear in plan assets when compared on a per-participant basis. (See table 3.) In addition, they show large differences by type of funding. The funds for the individual account plans, which functioned somewhat as savings plans, contained the most assets per participant; 10 those for plans with contingent liability had the least. However, if contingent liability is included and comparisons are made, the pooled fund plans move to the bottom of the ladder. -EMERSON H. BEIER

Division of Industrial and Labor Relations

s About 80 percent of all financial reports were on a calendar year basis. The remainder used a fiscal year.

Many of the original SUB plans set maximums as a flat dollar amount per employee, even though subsequent reductions were provided for if benefit experience proved favorable. Subsequent amendments usually tied them more directly to benefit experience.

10 As mentioned previously, participants had no equity or interest in these fund assets, except for those covered by plans that made allocations to individual employee accounts.

Disability Benefits Under Private Pension Plans

1

PRIVATE DISABILITY BENEFITS, like old-age benefits, supplement social security (OASDI) benefits; together they are expected to provide a reasonable income to meet the needs of the disabled worker and his family. However, early in 1963, almost half of all private pension plans did not provide disability retirement benefits. When benefits were provided, the amount was sometimes too small to be a significant supplement to social security benefits. This was especially true for shortservice workers. The requirements for social security disability benefits were, in some cases, more restrictive than those for private plan benefits, with the consequence that some workers were not eligible for both. Even for workers receiving both private and public benefits the difference in their incomes before and after disability was usually substantial.

Prevalence

Over half of the plans studied (covering about 7 out of 10 workers) contained disability retirement provisions." Three-fourths of the multiemployer plans provided for disability retirement, compared with only half of the single employer plans. However, a higher proportion of workers in single employer plans than in multiemployer plans were covered (3 out of 4 and 3 out of 5, respectively). This was chiefly because several of the largest multiemployer plans (the United Mine

1 This article is based on the forthcoming bulletin, Private Pension Plan Benefits (BLS Bulletin 1485, 1966), a study of 15,818 private pension plans covering 15.6 million active workers. See also "Characteristics of the Private Pension Structure," Monthly Labor Review, July 1964, pp. 774-780.

2 Plans not having disability retirement provisions frequently provide early retirement or vesting, but these are usually poor substitutes, because vesting rarely confers the immediate benefits needed by the disabled worker, and early retirement benefits are usually substantially smaller than disability benefits. See Labor Mobility and Private Pension Plans: A Study of Vesting, Early Retirement, and Portability Provisions (BLS Bulletin 1407, 1964).

Workers, the Clothing Workers, and the Central States Teamsters) had no disability provisions.3

Among the major industry groups, disability provisions were most common in manufacturing (included in over half of the plans and covering over three-fourths of the workers) principally because of their inclusion in the large negotiated plans in the metalworking and women's apparel industries. In nonmanufacturing, because the provision was included in several large Teamster and telephone industry plans, three-fourths of the workers in the transportation industry and the communications industry were also covered. Only in the trade, services, construction, and finance industries were there substantial numbers of workers without disability protection (2 out of 5, or more).

Minimum Requirements

Disability retirement provisions usually require that a worker be totally and permanently disabled (as defined in the plan) before normal retirement age to qualify for a lifetime benefit. The provisions mostly apply to workers who are so severely incapacitated that they must withdraw from the labor force. As with other plan benefits, a certain amount of service, a specified age, or both, may also be required.

Most plans defined disability in terms resembling, but not identical to, the wording of the Social Security Act's definition which, prior to July 30, 1965, read as follows: "Inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of a long-continued and indefinite duration." Other plans either used the act's definition or delegated substantial discretion to the plan administrator (usually the employer).

A recent study by the Social Security Administration analyzed in detail the definition of disability in private pension plans. Based on data supplied by the Bureau of Labor Statistics, the study showed that when plans specifically defined disability, most workers were in plans "that provide benefits for a member who is unable to work at any job and whose disability is judged to be permanent or long-lasting-roughly the same individual who is likely to be able to qualify for benefits from the Social Security Administration."

The article cautioned that little is known about the practical application of plan definitions as interpretations may vary widely with the result that "decisions . . . will differ from one plan to another even though the definitions of disability may be identical." 5

In 1965, the scope of the social security definition was broadened by eliminating the requirement that a worker's disability must be expected to be of a long-continued and indefinite duration; it is now sufficient that the disability is expected to last for a continuous period of not less than 12 months." Many pension experts predict that private pension plans will alter their definitions to conform to this change, especially since it will not affect most alternate disability income programs."

The main difference between definitions in private plans and in the Social Security Act relates to the extent to which an applicant must be disabled. For example, the act requires that the claimant be unable to perform any job, while about a seventh of the private plans (covering about a fourth of the workers) require only that the worker be unable to perform a job for which he is qualified or any job in the company or industry. Presumably, such workers would not be prohibited from obtaining other employment. (Liberalization of the social security definition in 1965 permitted workers disabled because of blindness to collect benefits while working at other employment.)

Another area in which private plan definitions differ from social security definitions is in the type of impairment for which benefits are payable. Social security benefits are provided for both

3 Several large multiemployer plans provided disabled workers with deferred pensions not payable until they reached age 65 (Clothing Workers) or cash termination benefits for disability (Central States Teamsters). These benefits were not regarded as disability retirement provisions in this study.

Joseph Krislov, "Definition of Disability in Private Pension Plans," Social Security Bulletin, May 1964, pp. 13–19.

Ibid, p. 14. This is illustrated by the changes in the Social Security Administration's own interpretation and application of its definition. See, for example, Social Security Regulation 404.1502 (c).

For a fuller summary of the changes, see Wilbur J. Cohen and Robert M. Ball, "Social Security Amendments of 1965: Summary and Legislative History," Social Security Bulletin, September 1965, pp. 3-21.

'Long-term disability insurance programs are likely to be affected by the amended social security definition because they are commonly integrated with both social security and applicable private pension plans. For a discussion of the effects of recent changes in the social security definition on disability insurance programs, see Richard J. Mellman, "Impact of New Social Security Disability Definition on Existing Employee Benefits," Pension and Welfare News, January 1966, pp. 49–51.

physical and mental disabilities regardless of cause, while private plans are usually silent as to whether they cover disabilities stemming from mental disorders (three-fourths of the plans) and frequently (a third of the plans) do not grant benefits for self-inflicted injuries or willful misconduct (includes alcoholism, addiction to narcotics, and criminal activity).

Age and Service

As in the case of other plan provisions, age or service requirements were essential parts of disability retirement provisions. Like social security, three-fourths of the plans had no age requirements. Under those that had age requirements, age 50 (until 1960, the earliest age at which social security disability benefits were payable) continued to be the most common minimum requirement as compared with age 55 or 60 for early retirement.8

Service requirements for disability retirement were generally lower than for other retirement benefits. Almost 3 out of 5 of the plans required 10 or 15 years of service. The most common combinations of age and service were 15 years of service and ages 50 or 55. Plans without age requirements typically had service requirements of 10 or 15 years.

Disability retirement benefits were payable by 3 out of 5 plans only after a waiting period had elapsed. In nearly all plans, the waiting period ran 6 months from the onset of disability (the

8 Social security data show that 70 percent of the disabilities among men occur after age 49 and 82 percent after age 44. See Robert J. Meyers, Disability Incidence Rates Under OASDI System For Disability Onsets Occurring in 1956–61 (U.S. Social Security Administration, 1965), Actuarial Note 18, and BLS Bulletin 1407, op cit., p. 27.

For a discussion of normal retirement benefit formulas, see "Normal Benefits Under Private Pension Plans," Monthly Labor Review, July 1965, pp. 857-863, and Ch. 1 of the forthcoming BLS Bulletin 1485.

10 At the time of this study, the monthly normal retirement benefits provided by the Auto Workers' plans were $2.80 times years of service, and those provided by the Steelworkers' plans were the greater of: (1) 1 percent of average monthly earnings in the last 120 months of employment times years of service less $80, or (2) $2.60 times years of service. Subsequently, the Auto Workers' plans increased their benefits to $4.25 times years of service. In August 1966, the minimum benefit in the Steelworkers' plans will be increased to $5 times years of service, and the $80 social security offset will be reduced to $60. In addition, $75 per month will be added to disability pensions for workers ineligible for unreduced social security disability benefits.

1 Based on a study of 8,193 private pension plans with disability retirement benefits covering 10.9 million active workers.

Excludes substantial numbers of workers in plans with higher qualifying service requirements.

Includes assumed social security disability benefits of $105 per month for workers earning $3,600 per year and $127 per month for workers earning $4,800 per year or more.

same waiting period required to receive social security disability benefits), although in some plans it was as short as a month and in others as long as a year. Short-term disability benefits, such as accident and sickness benefits, disability income insurance, and statutory benefits are usually available at the outset of disability, but often continue for less than 6 months.

Benefit Formulas

For workers eligible for social security disability benefits, most plans used the same formula for disability benefits as were used for normal retirement benefits. For ineligible workers, however, many negotiated single employer plans-chiefly those in the metalworking industries-utilized a special disability formula. For example, instead of benefits based on the normal benefit computation the Auto Workers' plans provided double the normal benefit and the Steel workers' plans provided $100 a month.10 Typically, multiemployer plans applied the same formula regardless of the social security status of the worker.

As with normal retirement benefits, social security disability benefits are explicitly considered in the benefit formulas of many private plans. This occurs either when private plan benefits are reduced by all or part of social security disability benefits, or when different benefit formulas are