[330 those situations where two or more agencies of the Federal government have varying positions with respect to issues in litigation and, in such situations, to assure that the government takes uniform positions before the courts. In addition, the Attorney General is to have authority concerning the presentation to the courts of the government's position with respect to such issues of general importance as the constitutionality of Federal laws. Under the conference agreement, it is intended that in civil litigation involving the Secretary of Labor under this bill, the Secretary, in the normal course, will be represented in court by the Solicitor of Labor and his attorneys, with appropriate arrangements being made between the Secretary of Labor and the Attorney General with respect to the active involvement of the Justice Department in the types of situations discussed above.

Reports to Congress.-Under the bill as passed by the House, the Secretary of Labor is to report annually to the Congress regarding the administration of title I. This report is to include an explanation of the variances granted, a status report on any plan operating with a variance and its progress in achieving compliance with the Act, the projected date for terminating the variance and information, and recommendations for further legislation in connection with matters covered by title I. Under the conference agreement, the provisions of the bill as passed by the House generally are adopted.

Cooperation between agencies.—Under the bill as passed by both the House and the Senate, the Secretary of Labor is authorized to cooperate with other agencies and make agreements for mutual assistance. In addition, under the bill as passed by the House, the Attorney General is authorized to receive from the Secretary of Labor for appropriate action evidence which has been developed that warrants consideration for criminal prosecution under Federal law. Under the conference agreement, the provisions for cooperation of other agencies including the authorization for the Attorney General to receive matters relating to criminal prosecution is adopted.

Administrative matters.-Under the bill as passed by the House, the Administrative Procedure Act is applicable to the provisions of title I. In addition, no employee of the Department of Labor is to administer or enforce title I with respect to any employee organization of which he is a member or employer organization in which he has an interest. The bill as passed by the Senate does not add any comparable provisions. Under the conference agreement, the provisions of the bill as passed by the House are adopted.

Interference with rights.-Under the bill as passed by both the House and the Senate, it is unlawful to interfere with the attainment of any rights to which a participant or beneficiary may become entitled or to coercively interfere through the use of fraud, force, or violence with any participant or beneficiary for the purpose of preventing him from exercising any right to which he is or may become entitled to under the plan or title I. The penalties and degrees of proof for violations of the provisions are somewhat different. Under the conference agreement, the participant or beneficiary may bring a civil action against any person who interferes with his rights which are protected under the Act. In addition, any person who willfully uses

[331 fraud, force, violence or threats to restrain, coerce or intimidate any participant or beneficiary for purposes of interfering with the participant's or beneficiary's rights under the plan or title I of the Act is to be fined $10,000 or imprisoned for not more than 1 year, or both. Advisory Council.-Under the bill as passed by both the House and the Senate, there is established an Advisory Council on Employee Welfare and Pension Benefit Plans. Under the conference agreement, the Council is to consist of 15 members appointed by the Secretary of Labor. Not more than 8 members are to be of the same political party. The Council is to be made up of members who are to be representatives of employee organizations and employers, and members from the fields of insurance, corporate trusts, actuarial counseling, investment counseling, investment management, and accounting, and from the general public. Members are generally to serve for terms of 3 years, are to advise the Secretary of Labor with respect to the carrying out of his functions under the bill and are to submit to the Secretary recommendations as to the administration of the provisions of the bill. Tax Court declaratory judgment proceedings

Both the House bill and the Senate amendment provide a procedure for obtaining a declaratory judgment with respect to the tax-qualified status of an employee benefit plan. Under both the House and Senate versions of the bill, jurisdiction to issue a declaratory judgment is given to the United States Tax Court. This remedy is available only if the Internal Revenue Service has issued a determination as to the status of the plan which is adverse to the party petitioning in the Tax Court, or has failed to issue a determination but the petitioner has exhausted his administrative remedies inside the Internal Revenue Service.

The differences between the bill as passed by both the House and the Senate are technical in nature. For example, the Senate amendment provides that the burden of proof is to be on the petitioner (the employer, plan administrator, or employee) as to those grounds set forth in the Internal Revenue Service determination; the burden of proof is to be on the Service as to any other grounds that the Service relies upon in the court proceeding (e.g., if the Service does not issue a determination as to the plan, then the Service is to have the burden of proof as to every ground as to which it relies). On the other hand, the House bill does not make specific provisions for burden of proof. Under the conference agreement, the House provision is accepted with a number of amendments. The Pension Benefit Guaranty Corporation is permitted to be a petitioner, on the same basis as other petitioners. Employees are permitted to be petitioners if they qualify as interested parties under Treasury regulations and have exhausted their administrative remedies. It is contemplated that only those employees who are entitled to petition the Secretary of Labor under section 3001 of this Act are to be treated as interested parties. It is contemplated that the question as to who bears the burden of proof will be determined by the Tax Court under its existing rule-making authority. Under the existing Tax Court rules the taxpayer has the burden of proof as to matters in the notice of deficiency. As to matters raised by the Service at the time of the Tax Court hearing, the Service has the burden. It is expected that rules similar to these will be adopted by the Tax Court.

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Under the House bill, the declaratory judgment provisions are to take effect on January 1, 1978. The bill as passed by the Senate provides that the declaratory judgment provisions are to take effect on January 1, 1975.

Both the House and Senate bills authorize the assignment of the declaratory judgment proceedings provided in this bill to be heard by commissioners of the Tax Court. They also authorize a commissioner to enter a decision of the court in these proceedings. The conference substitute provides for this same procedure, but in doing so the conferees wish to make clear that it is not intended that this be construed as indicating that all of these proceedings should be heard by commissioners and decisions entered by them rather than by the judges of the court. Instead, it is intended to provide more flexibility to the Tax Court in the use of commissioners in these types of cases. It is anticipated, for example, that if the volume of these cases should be large, that the Tax Court will expedite the resolution of these cases by authorizing commissioners to hear and enter decisions in cases where similar issues have already been heard and decided by the judges of the court or in other cases where, in the discretion of the court, it is appropriate for the commissioners to hear and decide cases.

Under the conference agreement, the declaratory judgment provisions are to take effect with respect to petitions filed more than one year after the date of enactment.

Administering office in Internal Revenue Service

Under the bill as passed by both the House and the Senate, there is established an Office of Employee Plans and Exempt Organizations, in the Internal Revenue Service, headed by an Assistant Commissioner of Internal Revenue, to administer the tax provisions with regard to employee benefit plans and other exempt organizations.

The House bill does not provide a compensation schedule for the employees of the new Office of Employee Plans and Exempt Organizations. The bill as passed by the House authorizes appropriations for this office in the amount of $20 million for fiscal year 1974 and $70 million for each fiscal year thereafter. However, the bill as passed by the House neither imposes nor earmarks any specific revenue source for this authorization of appropriations.

The bill as passed by the Senate provides for the Assistant Commissioner in charge of this office to be classified as GS-18 and that this is to be in addition to the number of positions at that level otherwise authorized for the Internal Revenue Service. Also the bill as passed by the Senate authorizes for the Service an additional 20 positions at the level of GS-17 and 16. The Senate amendment authorizes appropriations for each of the fiscal years 1974, 1975, and 1976 in the amount of $35 million plus one-half of the revenue of the private foundation investment income tax (under section 4940 of the Code). For each fiscal year thereafter the bill as passed by the Senate authorizes appropriations of amounts equal to the collections of a new excise tax on employee benefit plans ($1 per participant per plan per calendar year, beginning with 1974) plus one-half of the private foundation investment income tax collections.

The conference agreement accepts the Senate provision authorizing the Assistant Commissioner Office of Employee Plans and Exempt

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[333] Organizations to be classified as a GS-18 and providing to the Service an additional 20 positions in the level of GS-16 and 17. However, the conference agreement does not accept the Senate provision authorizing a new tax on employee benefit plans of $1 per participant. In place of the authorization of the new excise tax on participants, the conference provides a permanent authorization for fiscal year 1975 and for each fiscal year thereafter of an amount equal to the revenues from the priate foundation investment income taxes if the rate of such tax was 2 percent plus an amount equal to that 2-percentage-point figure or $30,000,000, whichever is the larger.

Under the House bill, the provisions regarding the new office are to take effect 90 days after the date of enactment. Under the bill as passed by the Senate, no specified effective date is provided. The conference agreement accepts the House provision.

VII. CONTRIBUTIONS ON BEHALF OF SELF-EMPLOYED INDIVIDUALS AND SHAREHOLDER-EMPLOYEES (SEC. 2001 OF THE BILL AND SECS. 401, 404, 1379, AND 4972 OF THE CODE)

Under the House bill the maximum limitations on deductions for self-employed individuals would be increased from 10 percent of their self-employment income, not to exceed $2,500, up to 15 percent of their self-employment income, not to exceed $7,500. In any event, a minimum of $750 would be deductible by self-employed individuals, without regard to the percentage limitations. The Senate amendment, although containing a number of technical differences, is generally similar to the House bill in this area.

The conference substitute is described below. Generally, the substitute in this case follows the House bill with respect to technical

matters.

Specific contribution limits on proprietorships, partnerships, or subchapter S corporations

The conference substitute increases the maximum deductible contribution on behalf of self-employed persons to the lesser of 15 percent of earned income or $7,500. The same change is made as to excludable contributions on behalf of subchapter S corporation shareholderemployees. In applying the percentage limitation, not more than $100,000 of earned income may be taken into account. Self-employed persons (but not shareholder-employees) are permitted to set aside up to $750 a year out of earned income, without regard to the percentage limitation.

Defined benefit limits for proprietorships, partnerships, and subchapter S corporations

The substitute authorizes Treasury regulations to allow selfemployed persons and shareholder-employees in effect to translate the 15-percent/$7,500 limitations on contributions into approximately equivalent limitations on benefits which individuals can receive under a defined benefit plan. In this respect, the substitute contains a table (based on certain interest and mortality rates) which will serve as a guideline for regulations. The Treasury Department may, by regulations, modify this table from time to time for years beginning after

[334] December 31, 1977, to take account of changes in interest and mortality rates which occur after 1973.

The conference substitute also contains technical rules to prevent an individual from obtaining unintended high benefit accruals late in his career merely by establishing a "token plan" early in his career. A plan which covers owner-employees is not permitted to use the defined benefit provisions unless it provides benefits for all participants on a nonintegrated basis (i.e., without taking social security benefits into account).

Excess contributions

Present law provides that excess contributions to an H.R. 10-plan on behalf of an owner-employee must be repaid from the plan and provides, in the case of a willful excess contribution, that the owneremployee is barred from participating in a qualified plan for 5 years. The conference substitute repeals these provisions and, in lieu thereof, the substitute imposes an excise tax of 6 percent on excess contributions to plans for the self-employed. The tax is payable by the employer who maintains the plan.

In the case of a defined contribution plan (for example, a money purchase pension plan) excess contributions include amounts contributed for the self-employed person in excess of the 15-percent/ $7,500 limitations. (However, the tax would never exceed 6% of the assets of the account). In the case of a defined benefit plan, the tax is imposed where the plan is fully funded at the close of the employer's taxable year, and is imposed on the amount that has not been deductible for the taxable year or any prior taxable year. Also, in the case of either type of plan, excess contributions include voluntary contributions by owner-employees in excess of the allowable amount of such contributions.

The tax applies for the year in which the excess contribution is made and for every subsequent year that the excess contribution is outstanding. The excess contribution may be eliminated (so as to stop the running of the tax) in one of two ways-either by repayment of the excess contribution from the plan (which would reduce or eliminate the tax for subsequent years), or by a carryover of the excess payment and applying it against the amount allowable in the next year (or a subsequent year).

In the case of a defined benefit plan, the repayment would have to be made to the employer. In the case of a defined contribution plan, the repayment could be made either to the employer or to the employee (but, as under present law, a distribution could generally not be made to the employee from a money purchase plan until he attained retirement age). An excess voluntary contribution would be repaid to the owner-employee who made it. Of course, any distribution made to eliminate an excess contribution would not be in violation of the exclusive benefit rules of present law, or the fiduciary standards imposed under this bill.

The excess contribution could also be eliminated through means of a carryover. For example, if contributions of $10,000 were made to a plan (where voluntary contributions were not permitted) on behalf of a self-employed person (who was entitled to the full $7,500 deduction) the $2,500 excess contribution could be purged in the next year if