TEAMSTERS' CENTRAL STATES PENSION FUND TUESDAY, APRIL 5, 1977 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT, COMMITTEE ON WAYS AND MEANS, Washington, D.C. The subcommittee met at 8:30 a.m., pursuant to notice, in the committee hearing room, Longworth House Office Building, Hon. Sam Gibbons (chairman of the subcommittee) presiding. Mr. GIBBONS. The meeting will come to order. Will someone ask the electrician to turn up the microphones? Good morning Mr. Secretary. Secretary MARSHALL. Good morning. Mr. GIBBONS. We are having a little difficulty with the electronics here, so before we put you to task in trying to communicate, we will at least try to get the microphones working. I say again, Mr. Secretary, welcome and good morning. In my opening statement, I am going to say that few things can have as important an impact on a worker's life as the knowledge that he or she is enrolled in a pension plan that will provide adequate retirement benefits. This morning we are continuing hearings on the Federal law designed to provide such an assurance: the Employee Retirement Income Security Act of 1974. This is the latest in a series. of hearings on this subject which the Oversight Subcommittee has been holding since 1975. One of our major concerns is that the lack of coordination amongst the different responsible Federal agencies hampers the law's effectiveness. This is why we have invited representatives of the Internal Revenue Service, the Justice Department, and the Labor Department to testify this morning. We will be looking for answers to questions raised earlier this month by witnesses who testified with regard to the Federal investigations under ERISA of the Teamsters' Central States Pension Fund. We need to know more about the Government's actions to reform the central fund. This information should provide insights into the effectiveness of the enforcement of the fiduciary rules of ERISA and the effectiveness of the ERISA program generally. Tens of thousands of Americans are awaiting the answers we are seeking. They want to know whether they can trust the existing ERISA administration. Because of their interest and their right to know some of these answers, I am hopeful that today we will hear the maximum possible amount of testimony in public. Mr. Secretary, we know that you represent a new administration, and we realize that it takes a little while to get up speed. After all, a man has to get acquainted with all the people who are working with him, and has to get settled down into the job. There is a whole lot to learn, as well as a whole lot to do, new appointments to be made, and much more. So with that caveat, we welcome you here this morning, realizing that you do represent a new administration in the Labor Department. I know it may not be comfortable for your Department to be looked at as closely as the Oversight Subcommittee is doing. We are right now looking at the actions of your Department. We are not focusing on you personally because we realize that you are new here, and that you are out to do a good job. Let me say that as recently as last week when I was going down to my district, somebody on the airplane who didn't know who I was, and wasn't even a resident of my area, got to complaining to me about the government, and got to complaining about ERISA, and about how he had been bounced around from one agency to another and from one office to another. That is just typical, Mr. Secretary, of the complaints that I think most Members of Congress have been hearing almost since we passed that law. Now, perhaps ERISA is terribly defective. If it is, we need some information now, quickly, as to how it could be amended and made to work better. We are also not investigating the Teamsters Union. We are looking at the actions of the government and the Teamsters' Central States Pension Fund case is a spectacular matter which draws a lot of public attention; but we realize there are many Teamster pension funds, and the rest of them seem to have very little trouble, as far as we now know. The Central State Fund investigations have been a lightning rod of sorts for a lot of pension-related problems. I am not going to go into detail with respect to these problems. [The opening statement of Chairman Gibbons follows:] OPENING STATEMENT OF CHAIRMAN SAM M. GIBBONS TEAMSTERS CENTRAL STATES FUND This morning the Ways and Means Subcommittee on Oversight continues its review of what the Federal government has done to enforce and implement the Employee Retirement Income Security Act of 1974 (ERISA). The primary topic today is the actions of the Internal Revenue Service, Department of Labor and the Department of Justice in the case of the Teamsters' Central States Pension Fund. This pension fund is reportedly the largest in the United States. According to press reports, it is also one of the most troubled. Many Teamsters have requested that these hearings continue until they have assurances of their pension rights. Today's questions are an outgrowth of an initial inquiry begun about a year ago by Representative J. J. Pickle of Texas, a member of this subcommittee. When Mr. Pickle began asking questions in the Spring of 1976, his primary interest was in why the different agencies of the Federal government had not acted in a more coordinated way in response to assertions of impropriety in the operation of the Central States Fund. The Government has been telling this subcommittee for over a year now that it is too soon to hold hearings. Over this past year, this subcommittee has come up with many more questions, but received few answers. In addition there has been a series of apparently coincidental events that raise the issue of whether any action, or at least any effective and coordinated action, would have been taken had this panel not been looking into the issue. The Oversight Subcommittee is quite concerned with the seemingly slow and sometimes unaggressive and uncoordinated implementation of ERISA provisions by the responsible government agencies. Last June, the Internal Revenue Service announced its revocation of the Central States Fund's tax exempt status because of certain improprieties. Ironically that action came within hours after a meeting between Congressmen Pickle and Martin and high IRS officials. Mr. Pickle was pushing for coordinated Government action. He and Congressman Martin were not told that the revocation was forthcoming. Until today the IRS has not told the public about the specific problems that led to that revocation. Teamster members and the public want to know about the improprieties that resulted in that action and about the steps and proposed steps to remedy those improprieties. 500,000 participants of the Central States Fund have a special interest. Their retirement security is at stake. There was another coincidence last month when the IRS decided to reverse the revocation decision and the Department of Labor decided to halt a major portion of its investigation. That decision was made public on a Sunday-the day before our hearings were to begin. The explanation of this action came in a press release explaining, among other things, that some Fund trustees would be replaced and that independent investment managers would be given the task of managing the assets of the Central States Fund. The press release, which is short on specifics, and the testimony before this Subcommittee on March 14-15, raised a whole series of new questions, including: -was there a government committment to stay out of federal court? -how are the new investment managers to remain independent of the present fund staff and trustees? -do the Fund's intentions to reduce its real estate investments go far enough and fast enough to comply with the diversification and prudence standards under ERISA? -has the Fund or the government begun a complete appraisal of the Fund's real estate portfolio? -by what date does the government anticipate that the "holdover" trustees will be replaced. -what part of the Labor Department's investigation will not be dropped if and when the agreement is carried out? Which parts will be continued? Unless and until all of these questions are fully answered it will be impossible to judge the effectiveness of IRS and Labor regulation. We hope to maximize the amount of information given in public session to provide some reassurance to Teamster members about whether they will receive the pensions they have coming to them. Anyone present at this committee's earlier hearings knows something about the Fund's problems. So do most newspaper readers. The Fund has been so disorganized and its investments so questionable that it was impossible to tell participants whether they would receive anticipated benefits. So the burden of proof was on the applicant. Further, the Fund invested an extraordinarily high percentage of its assets in real estate and did not even have an accurate estimate of what this property was worth. Real estate investment decisions were often based on special relationships rather than normal arms-length transactions. As a result there have been massive foreclosures. All these questions raise one primary issue-have the responsible federal agencies carried out the intent of the Congress under ERISA properly and effectively? And have the trustees of Central States Fund abused their fiduciary relationship? Has their undivided loyalty been to its participants? There are many clues that suggest it was not. Unfortunately this subcommittee has not been successful in confirming many of these allegations because government cooperation has been lacking. It is our hope that the change in administrations will indicate a changed attitude that will make everyone's job easier. The questions being raised here are very basic and should be of interest to the millions of Americans participating in pension plans. Congress created ERISA to guarantee workers their pension rights. We wanted to eliminate the phantom funds that collected contributions continually but paid off in little more than frustration for far too many employees. But if the regulators are so slow, unaggressive and uncoordinated that they will allow a fund to all but disappear before taking effective action, they are crippling the whole program. The Supreme Court has held in other instances that justice deferred is justice denied. This subcommittee wants to know if these are the problems with federal pension law enforcement and, if so, what can be done about them? Mr. GIBBONS. We welcome you here, and you may proceed as you wish this morning, Mr. Secretary. STATEMENT OF HON. F. RAY MARSHALL, SECRETARY OF LABOR, ACCOMPANIED BY EAMON KELLY, SPECIAL ASSISTANT; LAWRENCE LIPPE, DIRECTOR, SPECIAL INVESTIGATIONS STAFF; NIK EDES, DEPUTY UNDER SECRETARY FOR LEGISLATIVE AFFAIRS; FRANK BURKHARDT, ASSISTANT SECRETARY OF LABOR; STEVEN SACHER, ASSOCIATE SOLICITOR, PLAN BENEFITS SECURITY DIVISION; TOM BAUCH, SPECIAL ASSISTANT TO THE SOLICITOR; AND LESTER SEIDEL, SPECIAL INVESTIGATIONS STAFF Secretary MARSHALL. Thank you, Mr. Chairman. It is a pleasure to be here. The gentleman on my far right is Nik Edes. The person next to him is Frank Burkhardt, Assistant Secretary of Labor, and then Lester Seidel, Special Investigative Staff. On my right is Eamon Kelly, advisor to me, and on my left is Steve Sacher, associate solicitor of Labor; and next to him is Larry Lippe, Director of the Special Investigations staff, and then Tom Bauch, special assistant to the solicitor. I have brought all these people with me because they have much more detailed knowledge of ERISA and its activities than I have, so they will help me in responding to your questions, if I don't know the answers. Since this is my first congressional testimony specifically regarding the Employee Retirement Income Security Act of 1974, Mr. Chairman, I want to state some general views about the act and its administration at the outset. First and foremost, I believe that ERISA is one of the most important and far-reaching statutes enacted by Congress in recent years, that it was long overdue, and that it is a sound law representing national policy objectives in which I wholeheartedly concur, and to which I am personally very deeply committed. As you know, the administration and enforcement mechanisms for ERISA are among the more complex in the Federal Government. However, ERISA and the complementary provisions of the Internal Revenue Code that were enacted along with ERISA represent a very intricate body of law, and the subject area that ERISA seeks to comprehensively regulate is an extremely complicated one. Given these facts, the questions we need to be asking ourselves about ERISA's administration and enforcement program are not whether it is complex, but whether it is needlessly complex; not whether it is complicated, but whether it is unduly complicated; not whether it is burdensome, but whether the burden it imposes on the regulated public outweighs its value to the protected public. In seeking answers to these questions, we must recognize that government cannot expect |