to regulate without imposing certain costs. The issue that continually must be examined in every regulatory program is whether the costs are justified by the benefits that derive from the regulation.

In this regard, it is worthwhile to bear in mind that the regulated sector under ERISA includes some of the most well-organized, powerful, and articulate interests in our society. ERISA regulates activities of the business community-employers who maintain employee benefit plans and persons and institutions which supply goods and services to plans; it impacts significantly on the financial and capital markets community-commercial banks, savings and loan associations, mortgage bankers, insurance companies, investment companies, and other investment media which rely heavily on the business they do with employee benefits plans, especially pension plans, which are in the aggregate the largest institutional investor in the capital markets; and it is a matter of particular concern to organized labor, which finds itself in the curious position under ERISA of being in both the regulated sector, as a sole or joint sponsor of employee benefit plans, and in the benefited group, as a representative of employees. On the other hand, with the exception of organized labor in its representative capacity and a small number of public interest organizations, the persons for whose benefit ERISA was enacted are not well organized, not powerful, and not skilled or even vaguely knowledgeable about making their views known to the Government in an effective way.

It is also important to remember that, by and large, the effects of ERISA's costs can reasonably be expected to show up more quickly and more vividly than the effects of its benefits. We all chafe at being told that we must not do certain things and that we must do other things in a certain way. Nobody enjoys filling out forms, and certain tensions are created when the citizens of a free society are required to report to someone else about their activities. These propositions become self-evident to most of us every year, on or before April 15.

Without belittling in any way their true significance as societal problems, government "red tape" and "paperwork burden" have become attractive, heavily symbolic code words that are met with sympathy in the Congress and, believe it or not, in the executive branch, too. But after more than 2 years of hearing from the regulated sector about its complaints and objections, some of which have substantial merit, we are only now beginning to see some concrete results of ERISA's benefits.

The first batch of ERISA annual financial reports has been filed and the initial round of summary plan descriptions will soon be in the hands of all participants. Participants and fiduciaries, as well as the Labor Department, have begun to obtain significant judicial relief in Federal court enforcement actions under ERISA. Moreover, just as it is extremely difficult to prove a negative, it is equally difficult to measure, at this stage, how many employee benefit plan fiduciaries have become aware of ERISA's provisions regarding the "prudent man." "solely in the interest," and diversification requirements, ERISA's personal liability provisions, and its Federal court enforcement remedies, and have decided to do or not to do something differently than they would have in the absence of those provisions. This critically important but largely invisible impact on decisionmaking

by fiduciaries, which in many cases will avoid a substantial loss of plan assets or will prevent an invidious discrimination against a participant or class of participants, is very difficult to measure at this time, but it is surely one of ERISA's most significant effects.

Some facts and figures are available about ERISA's administration. and its impact. Some 1,800,000 private sector employee benefit plans are subject to all or part of title I of ERISA, and these plans cover almost 40 million employees and their families. Pension and profit sharing plans currently hold about $210 billion in assets, a figure that is sure to increase as the economy continues to improve. When the first round of plan descriptions and annual reports have been analyzed, we will have better figures, and as future annual reports and plan descriptions are filed, these figures can be compared on a year-to-year basis to give us a more uniform set of statistics.

As of January 1, 1977, over 1,300,000 reports and forms of various types have been filed under ERISA at the Labor Department and are or soon will be available for public inspection. More than 113,000 have already been examined through our public disclosure facilities. Since enactment, the Department has distributed over 2 million copies of 8 different explanatory booklets. Countless copies of fact sheets, articles and other materials, including over 100 separate news releases and 13 audio-visual productions, have similarly been distributed or made available to the public. We have responded in writing to over 120,000 inquiries and have orally handled another 500,000, and almost 42,000 pages of ERISA interpretive opinions and 1,400 pages of ERISA reports have been reproduced for the public. The Labor Department has published 16 sets of regulations in final form, 4 sets of regulations in temporary-final form, and 6 sets of proposed regulations are currently awaiting finalization. We have also published 13 interpretive bulletins and hundreds of opinion letters.

In one of the most vexing areas of dual jurisdiction, the processing of exemptions from the fiduciary prohibited transactions found in both section 406 of ERISA and section 4975 of the Internal Revenue Code, substantial progress has been made since the Department and the Internal Revenue Service began a new system of processing exemptions last November. As of mid-March 1977, 309 out of 621 applications for individual or class exemptions which were filed in the 2612 months since January 1, 1975 have been the subject of either tentative or final disposition. Of these 309 cases, 108 may be fairly characterized as favorable dispositions of the applicants' requests. Significantly, 66 applications have been finally disposed of in the 4 months ending in mid-March, while only 71 were disposed of in the 22 months previous. In addition, tentative dispositions-proposals or denials of 172 applications have occurred during this same 4-month period.

Recognizing that a tentative disposition is not the same as a final disposition, that some of the tentative denials in which we have requested further information ultimately will result in proposals of exemption, and that there is often considerable work to be done in converting a proposed exemption to a final exemption, the fact remains that from mid-November 1976 to mid-March 1977 the Department of Labor and Internal Revenue Service have been producing tentative and final dispositions of exemption applications at a rate that exceeds

the rate of incoming new applications. Thus, the size of our backlog is beginning to decrease and we expect it to decrease even more, for the following reasons:

Work on a number of major new class exemptions, which compare in complexity and demands on staff time to major regulation projects, has been substantially completed, new staff recently hired are gaining expertise, and we expect that more staff time will be available for processing individual exemptions in the coming months.

Several class exemptions under consideration cover transactions described in many of the applications for individual exemptions.

The Department and the Service have now staffed out all applications for individual exemptions, a situation which was not true a year ago, when the Department was still engaged in recruiting staff.

Many of the differences of opinion between the Department and the Service as to the standards to apply in the processing of individual exemption applications have been resolved. The two agencies are in general agreement as to the criteria to be applied to different categories of transactions covered by applications for individual exemptions and the staffs are working reasonably well together.

To increase our knowledge about the employee benefit plan industry and how it is affected by ERISA, a number of studies have been undertaken. The relationship between pension benefits and employees' retirement planning, the tradeoff between pension benefits and wage levels, and the extent to which the existence of a pension plan influences a worker's attachment to his company have been studied by researchers at Cornell University and the University of Maryland under contract with the Department. Contracts have also been let to: Evaluate the impact of ERISA on new plan formation;

Analyze pension and profit sharing plan terminations since ERISA's enactment;

Evaluate the prohibited transaction provisions;

Study the impact of ERISA on private pension plan investment behavior;

Analyze ERISA's impact on the collective bargaining process; and Measure the effects of ERISA on administrative costs of small plans.

Regarding enforcement, the Department has taken a very affirmative posture. We have some 1,000 investigations in an open and active status and our litagators have been quite busy recently, as you may have noticed from newspaper accounts. To mention just a few highlights, in addition to extensive preparation for possible litigation respecting the Central States, Southeast and Southwest Area Pension Fund, we have recently achieved a significant victory after trial in a case involving fiduciary breaches in connection with the conversion of a profit sharing plan into an employee stock ownership plan. In November, we filed a massive fiduciary suit against the trustees of the Southern Labor Union Pension and Welfare Funds.

We have put a stop to blatant fiduciary abuses in a jointly administered plan in New York, and we filed suit last week against the trustees and other persons associated with the pension trust of the Southern Nevada Culinary Workers and Bartenders, alleging a range of fiduciary violations. We filed suit yesterday against the plan administrator

and trustees of the Ohio Highway Drivers Welfare Fund, charging them with expenditures that are illegal under ERISA, including payments to the plan ̧ administrator which were in excess of reasonable compensation. We have an action going on in Wisconsin that will test the effectiveness of our administrative subpena powers under ERISA. A suit alleging reporting and disclosure violations by a plan administrator was disposed of by an order enjoining future violations and requiring a variety of corrective action, including notices explaining the relief to all plan participants.

We are participating as a friend of the court in the Daniel case, which was argued yesterday in the Federal court of appeals in Chicago and which involves the critical question of whether the antifraud provisions of Federal securities laws apply to the relationship between an employee benefit plan, its sponsoring organization and employees who are or might become covered by the plan. We are also participating jointly with the Internal Revenue Service in an amicus. capacity in the Connolly case, which will decide whether the more than 8 million participants covered by jointly administered, TaftHartley pension plans will be protected by the Pension Benefit Guaranty Corporation.

We have surmounted constitutional challenges to ERISA in two cases and are currently defending in a third. To the extent possible, our lawyers are choosing cases which will tend to develop the law so that it can be readily understood and applied by plan fiduciaries and easily used by plan participants and beneficiaries to enforce their rights.

None of this is intended to suggest that ERISA and its administration and enforcement mechanisms, as presently constituted, do not have substantial problems, and should not be carefully scrutinized with an eye toward improvement. To the contrary, that process must be undertaken by the administering agencies and the Congress. But it must be done carefully, dispassionately and with all the wisdom we can collectively muster. As I have previously indicated to you, Mr. Chairman, I am now undertaking such a review in the Department of Labor. My study is not yet completed and I do not want to prejudge its outcome, but the subjects of my inquiry are no secret. I am looking at ERISA's substantive provisions and at its administrative and enforcement structure and mechanisms.

On the substantive side, we are trying to identify several categories of statutory matters: provisions that are technically deficient, provisions that are technically sound but which, for one reason or another, do not work in practice to achieve the policy result Congress appears to have had in mind, and provisions which embody a policy which 27 months' working experience has demonstrated out to be changed or at least reviewed anew by the Congress. On the administrative and enforcement side, we are looking at the "dual jurisdiction" issue, at internal Labor Department administrative structures, and at possible improvements in the title I enforcement provisions.

Mr. Chairman, my next remarks concern our investigation of the Central States, Southeast and Southwest Areas Pension Fund. As I have previously indicated, certain matters of that investigation are at a very delicate and sensitive stage. Despite substantial progress over

the past several weeks, major litigation remains a possibility. To avoid disruptions in the efforts of the Labor Department and the Internal Revenue Service to bring the asset management and benefit administration procedures of the fund into compliance with ERISA and the Internal Revenue Code, and to avoid premature disclosure of litigation strategy while at the same time satisfying your request for information about the investigation, I suggest that the subcommittee consider moving into executive session at this point.

Mr. GIBBONS. Thank you, Mr. Secretary. Let me explain our procedures here so that you will understand them. We recognize each member for five minutes of questioning in the order in which they arrived at the session this morning, and everything else being equal, we will then allow members to ask questions. We have some other witnesses this morning, and we may want to ask you to wait just a moment while we put them on and ask them some questions.

The Chair observed the members here in this order this morning: Mr. Pickle, Mr. Ford, Mr. Bafalis, Mr. Rangel, Mr. Crane, and Mr. Martin. That is the order we will use in the questioning.

Mr. Secretary, to turn to the Central States Pension Fund matter immediately, it looks to this subcommittee that very little was happening in the executive branch of Government before these hearings although the matter had been in the press, and, as I said, had been a lightning rod for many, many months.

It appeared that last year at about the same time that Mr. Pickle and Mr. Martin were holding a meeting with the Commissioner of Internal Revenue, even the Commissioner himself was suddenly surprised by the fact that one of his subordinates out in Chicago withdrew the tax-exempt status of this rather large plan, not only for the future, but also all the way back to 1965, as I recall.

Then it appears that nothing much happened for a while, and the Central States Plan was in limbo and tried to continue operating. It had to work out the resulting tax problems with its contributing employers with the people who were managing some of its money. Then the situation sort of went to sleep for a while, as a lot of investigators apparently continued to just look it over very closely.

Then we announced these hearings in January, and suddenly there was a flurry of activity. The first result of that was a press release on March 14 after a set of agreements on Sunday, March 13.

Now, all of us are familiar with press releases. We put out a few of them ourselves from time to time. We find them very useful. But press releases are not a very good way to conduct and formally document the settlement of an investigation. ERISA was designed to provide to plan beneficiaries the maximum amount of information so that they could understand their rights.

Now, I perhaps have unfairly characterized what has been going on all this time, but let me ask you: How many people are now involved in this matter? How many in your Department are involved in just the Central States matter?

Secretary MARSHALL. I am informed that it is about 25 full-time, and 10 or 12 part-time people who are involved in it.

Mr. GIBBONS. Some of the people who are involved in the investigation in Chicago have informed our staff, and they tell us they are