want to do is to see that any proposed legislation stays in the channels that will encourage employers to establish these plans in small- and medium-sized businesses.

Now, Abraham Lincoln said, "God must have loved the common people, because he made so many of them." He also must have loved the small employer, because relatively he made so many more of them, and what we want to do is favor the small businessman by the law itself and the administration of law.

As to the proposed amendment, as passed out by the Securities and Exchange Commission today, our committee is in sympathy with the idea that a proposed amendment is desired, if you start with the assumption that the only way you can get automatic exemption for these individual policy trust plans is to have an amendment, because for a time we were afraid that we were "hamstrung" and, that the Commission was also "hamstrung" and that they could not give us any relief from registration or prospectus requirements for these pension trust plans without an amendment. So, because of that understanding, we favored an amendment as the way out. Now, if the "jurisdiction" question is settled then, of course, that may settle the whole matter. If the jurisdiction question is not settled, then we would be in favor of an amendment somewhat as proposed by the Commission subject to the following technical changes:

3a (1) (B) of the amendment, as proposed, reads "The employer is obligated to make cash contributions, at least annually," etc. This would be unfortunate in connection with individual policy pension trusts (and even group annuity) because, in these, the employer is rarely, if ever, obligated to make annual contributions. Almost universally, all that the employer does is express the hope and intention to make annual deposits, but we doubt if very many employers would be willing to undertake actual legal obligation to make such contributions annually.

Even section 165 of the Internal Revenue Code does not make any requirements of this nature as a condition to tax benefits. Naturally, the employer has every desire and intention to make deposits on an annual basis, but, in the period of a depression or bad business, he almost always reserves the right to discontinue making payments. In such cases, the employer is universally willing to let any benefits already accumulated for the benefit of employees remain for the exclusive benefit of covered employees— in fact, section 165 of the Internal Revenue Code was recently amended so as to require employee benefits to be adequately safeguarded in this regard as a provision and a condition to obtain the tax benefits. It is our impression that the proposed Securities Act amendment may have been drafted more with a view to stockpurchase plans or profit-sharing plans than with reference to pension systems or death, disability, or thrift plans. Consequently, this very provision of annual obligation is an illustration of the major point of our testimony, namely, that this legislation has to be drafted with a view to all of the different kinds of plans that might come under its jurisdiction-namely, pension, death, disability, unemployment thrift and stock bonus or profit-sharing plans. Proposed section 3a (1) (E) requires annual statements to be furnished to each participant and the Commission.

This language would have to be carefully drafted with reference to its effect on group annuity plans and individual policy pension trusts, or else we may be again "killing the goose that lays the golden eggs." In other words, if employers are required to file information which enables employees to ascertain the amount of compensation that various other employees are obtaining, or discloses financial data of a nature that an employer is unwilling to divulge to the body of his employees, then this provision might be another "scarecrow" that might cause employers to refrain from installing such plans.

We recognize that this provision (3 (a) (1) (E) of the proposed amendment) is intended to require statements with regard to the pension trusts and not necessarily statements with regard to the employer company.

But, nevertheless, this language and its intent would need to be very clearly and carefully defined or else it may be a boomerang that might influence employers of small and medium-sized businesses to refrain from installing these plans.

Again, we think, perhaps the drafting of this language (3 (a) (1) (E)) was directed primarily at self-administered employee stock purchase plans and, perhaps, self-administered pension plans.

But the language is broad enough to draw into the vortex plans which may not have been sufficiently under contemplation, such as group annuity or individual policy pension trusts. We respectfully call these technical matters to the attention of the committee and the S. E. C.

Mr. WOLVERTON. Mr. Chairman.

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. I am glad you have appeared as a witness to present this phase of the situation. I had intended to ask Mr. Purcell a further question, but, unfortunately, I was detained on the floor of the House and was unable to get here.

I wanted to ask him something along the line that you have testified to, for, as I thought it over, it seemed to me there was something in the proposal there that needed careful attention as to the phases you have brought to our attention. I am glad you have appeared.

Now, you said you favored the amendment as a way out. What kind of an amendment do you prefer, the one they first suggested, or the one they have secondly suggested, or an amendment that would cut out any jurisdiction that the Commission has assumed over the matter?

Mr. GOLDSTEIN. I would have to give you my personal opinion on that, sir, not as representing the national association which has thousands of underwriters throughout the country, that, I do not know have even thought of the question.

Mr. WOLVERTON. I would be very glad if you would give that your consideration and also to elaborate on the dangers that you see in the new proposal that has been made today by the representatives of the Securities and Exchange Commission.

Mr. GOLDSTEIN. You mean in a memorandum, sir?

Mr. WOLVERTON. Yes. I assume the chairman will give you the privilege of revising and extending your remarks, if you wish to do so, and I would like to see you include that in a revised statement, such as you might wish to make.

Mr. GOLDSTEIN. I would be very glad to do that, sir. (The following is such elaboration :)

You may recognize, sir, that I have already elaborated in some of my previous testimony in presenting this revised draft to you. Now, in answer to your specific question, I would say that, of the two drafts, I would personally prefer the amendment that was first suggested, because it did not have in it the requirement of annual contributions from the employer, namely, the proposed 3A (1) (B), as called for in the second draft. However, both the first and the second drafts are subject to the criticism of the proposed second draft, 3a (1) (E), with reference to the annual filing of various financial data with the S. E. C. and each member employee. This might be a scarecrow that might frighten the employer if these annual statements are not clearly circumscribed, as they pertain to group annuity or individual policy pen

sion trusts.

May I interject here the fact that the individual policy pension trust automatically gives the employee an annual statement of his own policy account-which is generally all he is interested in or has an interest in. The reason the employee gets this annual report is that the life-insurance company sends an annual premium notice, and later an annual premium receipt, so that, as long as the premium is paid on his own policy, you can see that he gets, for practical purposes, an annual report on his own policy-which is all that he has any interest in in connection with the policy itself. The policy itself, through published annual increases in cash values, plus dividends, is the statement of assets of each employee's policy. The same idea holds good for the group annuity.

Mr. WOLVERTON. Having in mind that many small companies seek to provide friendly relationships with their employees by providing death benefits, sick benefits, hospitalization, and all that sort of welfare work, but instead of investing funds of the employees in stocks, bonds, of their own company or any other, prefer to take out these plans and purchase group insurance, using a general term, do you think that if they did that they would come under the jurisdiction of the Securities and Exchange Commission, on the basis of the views its representatives have expressed in these hearings?

Mr. GOLDSTEIN. No; from any conversations I have had with members of the S. E. C., I do not think they do either under the present law or the proposed amendment. But I think the law should say so in plain English. I do think some of the testimony here has been a little inaccurate in that respect. I do not believe that the Securities and Exchange Commission, in the present law or proposed amendment, require the disclosure with reference to exempted securities, and a groupinsurance policy is an exempted security, whether group life, group accident and health, or group annuity contracts. So, too, are individual life-insurance or annuity policies.

Mr. WOLVERTON. The S. E. C. does all of this under the interpretation that they have given to investment contracts.

Mr. GOLDSTEIN. Yes; but under another section defining "exempted securities" the Securities Act exempts the direct purchase of insurance or annuity contracts, or Government bonds, and so forth. So that, as I understand it, the present law or proposed amendment does not reach out beyond those-other exemptive-provisions of the Securities Act; and the proposed amendment does not intend to defeat those exemptive provisions of the statute.

Mr. WOLVERTON. You would be surprised if they did?

Mr. GOLDSTEIN. I would; yes, sir.

Mr. WOLVERTON. You would not be any more surprised than I am that they have reached out as far as they have. We had no such jurisdiction in mind when we passed the act. So maybe you will be surprised later on.

Mr. YOUNGDAHL. Mr. Chairman.

The CHAIRMAN. Mr. Youngdahl.

Mr. YOUNGDAHL. I assume you have had a good deal of experience with the working of these various pension plans.

Mr. GOLDSTEIN. Quite some; yes, sir.

Mr. YOUNGDAHL. And have you any knowledge of any demand upon the part of the employees for any further governmental aid or regulation in connection with the operation of these plans?

Mr. GOLDSTEIN. No, sir; I have not.

I am not here as a representative of the S. E. C., but at the same time that question leads to another, sir, and that is this, that there have been abuses in the practice of the self-administered type of plan. So that if at some time in the future a State or Federal statute were to take some form of disclosure or jurisdiction with reference to some type of self-administered plans, it is my opinion that it might be for the benefit of the employees.

Mr. YOUNGDAHL. But on the other hand, you know of no demand upon the part of the employees for any outside aid.

Mr. GOLDSTEIN. I know of none.

Mr. YOUNGDAHL. In fact, they resent that outside influence, do they not, and would like to operate these plans by themselves?

Mr. GOLDSTEIN. I know of no demands. I do not know about their resenting it, probably because most employees know little about some of these phases, so that I am afraid we are doing a lot of guessing about what other people may think.

Mr. YOUNGDAHL. That is all.

Mr. GOLDSTEIN. Thank you very much.

The CHAIRMAN. We thank you very much.

STATEMENT OF STANLEY W. DUHIG, NEW YORK, N. Y.

The CHAIRMAN. Mr. Duhig.

Mr. DUHIG. Mr. Chairman. My name is Stanley W. Duhig. My address is 50 West Fiftieth Street, New York City.

I represent the Controllers Institute of America and am their duly accredited spokesman as chairman of the institute's committee on cooperation with the Securities and Exchange Commission.

The Controllers Institute of America was incorporated in 1931 under the laws of the District of Columbia as a nonprofit membership corporation with no capital stock.

The institute is governed by a board of 21 directors elected by the members. Seven directors are elected each year for terms of 3 years, and after expiration of their terms they are retained for an additional 4 years as members of an advisory council.

The officers of the institute are elected by and from the board of directors and consist of a president, five regional vice presidents, a treasurer, an assistant treasurer, and a secretary controller.

For convenience in holding local conferences, groups of members have organized branches called "Controls" in 24 of the principal cities

in the United States. Membership is composed of 1,644 controllers and financial officers of the principal industrial corporations in the United States.

The "declaration of principle" adopted by the directors of the institute shortly after its incorporation is as follows:

The Controllers Institute of America stands for the observance of the highest ethical standards in corporate accounting practice and in the preparation of reports of financial and operating conditions of corporations to their directors, stockholders, and other parties at interest, in such manner that all concerned may know the actual conditions insofar as such reports may assist in the determination thereof. To that end, the Controllers Institute of America offers its advice and assistance in connection with any movement which has for its purpose the establishment of better safeguards for the protection of the investor.

The object of the institute is

(a) To improve the technique and the standards by which the controller works. This is accomplished mainly through conferences, publications, special studies, and investigation.

(b) To promote cooperation between industry and Government. In this, the most notable work has been done by standing committees who specialize on (1) the Securities Act, (2) Federal income tax, (3) Social Security Act, (4) Fair Labor Standards Act.

The corresponding governmental departments in Washington regularly call upon these committees for advice in cutting out duplication of effort, approving Government forms, assisting in clearing up accounting problems, and in working out practical solutions of problems arising under these laws.

We have been studying this question of the Securities Act amendments for some time. On the particular subject today, I would like to present the institute's studied opinion.

The proposals under today's discussion are in two parts. First, that section 3 (a) (1) of the Securities Act be amended so as to grant an automatic exemption from registration in the case of "any interest or participation in a savings, pension, profit sharing, or other employees' benefit plan" if all of six specific standards are complied with and, secondly, that the present section 3 (b) be replaced by a new section 4 (b) which, among other things, would permit the Commission, by rules and regulations, to exempt from registration:

(2) Any offer or sale, or any act incident to any offer or sale, of any interest or participation in a savings, pension, profit sharing, or other employees' benefit plan not otherwise exempted under section 3 (a) (1).

The institute, which I represent, feels that the proposal of these amendments proceeds on several wrong assumptions; namely, that as the act is now written employees' plans (with some possible exemptions) constitute "securities" which are required to be registered pursuant to section 5; that it is socially desirable that employees' plans be under the jurisdiction of the Commission and subject to registration; and that the only desirable amendments to the act with respect to such plans are those designed to loosen up, within limits, the now rigid registration requirements of section 5. It is the opinion of the institute, on the other hand, that it was never intended that employees' plans should be included within the Securities Act, that it is not socially desirable that employees' plans be within the jurisdiction of the Commission, and, therefore, that the primary design