reasonable procedures for participants and beneficiaries to file claims with plan administrators. Plans are also required to notify claimants whenever benefit claims are denied and to provide a review procedure. Since, for many workers, the claims procedure is the primary contact with their pension or other benefit plan, the regulations are an important step to assure that the claims of participants and beneficiaries are determined fairly and promptly.

In another regulatory area, final regulations for persons providing office space for employee benefit plans were published in the Federal Register on Friday, June 24, 1977. These regulations clarify under what circumstances a party-in-interest, including a fiduciary, may receive reasonable compensation for providing necessary services and office space to pension and welfare plans, and describe when plan assets may be invested in deposits of banks or similar financial institutions which are plan fiduciaries or parties-in-interest.

The regulations also set forth conditions under which ancillary services may be provided to plans by banks or similar financial institutions also acting as fiduciaries to a plan.

In addition, the Department has just issued final regulations detailing requirements for writing summary plan descriptions. A key feature of the regulations requires plans to include an "employee statement of rights" with their plan description.

This statement advises these individuals of their rights under the law including the right to sue a plan that does not meet its own terms. All employee benefit plans must furnish summary plan descriptions to their participants and beneficiaries covered under the plan.

As I indicated, we are cognizant of the importance of accelerating our process of granting exemptions under the prohibitied transactions provisions. Over 700 exemption applications have been filed since the enactment of ERISA; of these, 338 have received final disposition. It may be of interest to you that 221 of these have received final disposition in the first 6 months of this administration.

We are also taking steps to try to reduce the administrative burden ERISA has caused for some plans. We have agreed with IRS that form 5500, on which plans submit annual financial information, will be filed only with IRS beginning with the report for fiscal year 1977.

In the past, plans have had to file with both Labor and IRS, thereby creating an unnecessary burden. Under the improved procedure, the IRS will receive the reports and provide the Department of Labor access to the files.

We also are studying ways of simplifying the information presently required on the form, and methods of making the return available as quickly as possible. We have placed high priority on providing information to plans and to participants concerning the requirements of ERISA and the rights of individuals under the plans.

In addition to the just published final regulations on summary plan descriptions, which advise employees of their rights under the act, we have developed a natonwide program to aid small business in meeting the obligations of the act.

As you know, 94 percent of the plans have less than 100 participants. We are completing a booklet, in both Spanish and English, explaining in understandable language what ERISA does and does not do for

the worker, are developing multimedia materials that will help participants understand their rights, and are preparing explanations of joint and survivors rights benefit claims procedure regulations and of the requirements of the summary plan description regulations.

In addition, we are contiuing to clarify legal interpretations of the act. For example, we have put a high priority on addressing issues relating to the preemption of State laws under ERISA.

Of particular concern has been the establishment of multiple employer trusts (METS) that resemble insurance companies but which claim exemption from State insurance laws based on ERISA's broad preemption provisions. We are undertaking a comprehensive study of METS to determine whether, or to what extent, they are entitled to an exemption from State laws.

Mr. Chairman, some of the issues raised by your questions are under the jurisdiction of the IRS, and I will defer to the Service on those questions. I would like to provide you with an overview of our enforcement activity in a way which will be responsive to your invitation.

As you are aware, the Department of Labor's authority to enforce ERISA's provisions is very broad. Under section 502, we can bring civil actions to enjoin or redress practices violating the law, to remove fiduciaries, obtain restitution for the plan, or pursue other appropriate equitable relief.

The Secretary is also authorized to participate in cases involving plan participation, vesting or funding standards when he receives requests made by participants or beneficiaries, or by the Secretary of the Treasury.

Also, under his authority to redress violations of fiduciary duty, the Secretary may sue in benefit cases to enforce compliance with plan provisions. This inforcement authority is in addition to the right conferred upon participants and beneficiaries to sue to enforce rights under a plan, to recover benefits due under a plan, or to clarify rights to future benefits under a plan.

The Department can also intervene in this civil actions brought by plan participants. In addition, the Department under section 504, has the authority to issue and enforce investigative subpenas.

Further, pursuant to section 503, the Department recently issued claims procedures regulations which require each plan to establish a fair claims procedure providing notification to a claimant of a claim denial and a review of the plan's decision.

Under these regulations, some plans will be permitted to use collectively bargained abitration procedures as their review procedure. It is worth noting that plans can use these procedures only where there is an independent neutral rendering the benefit claims decision.

We believe the current authority and use of such by the Department has proven to be an effective means of enforcing ERISA. In using this authority, we have developed certain basic priorities.

These are to protect plan assets, correct abusive situations, modify plan policies and practices that are unsound, and place the plan back on a track which will insure that participants and beneficiaries receive anticipated benefits. These priorities are reflected in our investigations, our advocacy of voluntary compliance, and our litigation and intervention strategy.

Our investigations are directed toward preventing and remedying the most serious abuses affecting the largest number of participants. We try to respond on a timely basis to the complaints filed with us by participants and beneficiaries.

We have emphasized the conduct of fiduciary investigations since these violations are likely to be the most injurious to participants and beneficiaries. We make appropriate use of information we derive from form 5500 and from form EBS-1 in these investigations.

The Department emphasizes utilizing the civil remedies of ERISA since our primary concern is to protect the assets of the plan and to protect participants' rights to benefits. In accordance with this aim of protecting the integrity of the funds, we seek to correct violations by obtaining voluntary compliance whenever possible.

Through this approach, we can best safeguard the rights of participants and beneficiaries, and avoid time-consuming and costly litigation. We, of course, do refer cases to the Department of Justice for criminal action where appropriate.

When a situation cannot be rectified by voluntary compliance, we may find it necessary to institute or intervene in an action. In addition to entering cases where mishandling of plan assets require attention, we attempt to participate in litigation which provides the courts with an opportunity to clarify and interpret the law-both so participants and beneficiaries can pursue their rights and so that fiduciaries will know their obligations.

We cannot intervene in all cases, both because of our limited resources and the fact that sometimes intervention is not the best enforcement strategy. We, therefore, try to utilize three main criteria: Our judgment of how well the issues will be addressed by private parties, the resources we have available, and, the potential significance of the case. In a number of situations, we have chosen to file amicus curiae briefs rather than to intervene.

We believe that we have been quite successful to date in our enforcement, litigation, and conciliation roles. In calendar year 1976, we have opened 1,919 investigations, and we closed 1,370 cases, many of which were opened in 1975.

In 728 cases, no violation was found and in 642, there was a violation. Only four of those cases were not settled by voluntary compliance. We resort to the courts when we cannot achieve all the results to which we are entitled by voluntary compliance. In no case will we overlook a criminal violation.

Litigation arises under a new law only after some time, because of the time needed for implementation, investigation, and conciliation attempts. In addition, once an action has been brought, it must work its way through the court system.

Thus, many of our investigations and actions in the Department are still in their early stages. However, I would like to present to this subcommittee a few examples of completed cases and, in general terms, pending cases, to provide you with a sense of the type of cases we are pursuing and the type of results we are trying to achieve through our enforcement strategies.

As I indicated, we prefer voluntary compliance where possible. In one case, information was received in January 1976, that two jointly

administered pension plans intended to liquidate substantial investments and jointly invest the proceeds amounting to $2.5 million in real estate mortgages.

After the matter was investigated, DOL advised the board of trustees of both plans that the intended investment of a disproportionate amount of assets of the plans in a single transaction appeared to be in violation of the diversification requirements of ERISA and that, unless corrected, DOL would seek appropriate relief. Both funds canceled the transactions.

I certainly do not want to leave you with the impression that we do not go to court where civil action is necessary. We obtained preliminary relief against a Virginia company in 1975, after the trustees transferred all the assets of the fund to the company in exchange for company stock.

This transfer resulted in a $270,000 loss to the plan. The Department obtained the preliminary relief to stop the company from disposing of its assets and to order the trustees of the profit-sharing plan to make restitution to its 160 employees who were participants in the retirement fund.

In a consent order filed April 18, 1977, the company agreed to return approximately $285,000 in liquid assets that had been used to buy stock. In addition, a plan trustee and company officials agreed to pay approximately $36,000 to the plan as compensation for losses caused by the transaction.

In another situation, the Department filed an action involving a profit-sharing plan where in excess of $500,000 in plan funds was invested in the stock of the company, to the prejudice of the participants of the plan.

On December 29, 1976, the court found that the fiduciaries had failed to discharge their fiduciary duties under ERISA and ordered that the sale be rescinded; that lost income be restored to the plan with interest; and that a new trustee be appointed to hold and manage plan assets. We filed suit in November of 1976 against the five trustees of the welfare and pension plans associated with a small Tennessee-based union in the coal mining industry, charging engagement in a wide range of fiduciary violations and prohibited transactions.

Pursuant to a consent order filed in U.S. district court on June 6, 1977, three of the trustees have resigned. Two trustees will continue to serve, subject to court-imposed controls, until union and management have an opportunity to appoint successors.

Under the consent order all trustees will be barred from any dealings with the funds for 5 years after they resign. The trustees are also required to restore to the funds amounts lost because of benefit payments not provided for in plan documents and for services provided by the funds of the union.

The decree requires the defendant trustees and their successors to take action to collect numerous pension fund loans in default, including several loans prohibited by the provisions of ERISA, and to indemnify the fund for any losses resulting from these loans.

The trustees are to sell the aircraft held by an aircraft leasing corporation previously owned by two of the trustees but now owned by

the funds; pay the proceeds of the sale to the pension fund, and undo the transaction through which the corporate stock was acquired by the funds from the trustees.

Restitution is to be made by the trustees for loans to the leasing corporation from the pension fund, and for rents paid to the corporation in excess of the reasonable value of air travel provided on legitimate fund business.

The trustees and their successors will be under a continuing court order requiring them to promptly and systematically collect delinquent employer contributions, adopt and maintain a prudent investment policy, and comply with other provisions designed to correct past abuses and secure future compliance with the law.

In some cases, the Department initiates investigations of the ERISA provisions and finds that it is appropriate to refer the case to the Justice Department for criminal action. In 1976, the Department opened a case when information was received that five fraudulent claims in execess of $10,000 had been presented to the welfare plan of a Louisiana union.

Investigation by the Department of Labor and later the FBI uncovered an elaborate scheme involving plan participants, plan employees, doctors and dentists, and others, and false claims of some $1 million. Of the 51 persons indicted, 50 pleaded guilty or were convicted.

The plan has now taken a number of corrective measures and instituted a stronger system of internal controls to prevent this kind of occurrence. We believe the foregoing cases are illustrative of types of actions that we can successfully pursue under ERISA.

Before concluding, I would like to assure you that we work closely with the IRS in enforcing ERISA. We routinely notify the IRS about court actions being undertaken by our Department. The IRS notifies us under ERISA of proposed plan disqualifications and the proposed imposition of excise taxes of funding deficiencies or prohibited transactions.

Since the impact on a plan participant of the disqualification of a plan is significant, our policy is to seek remedial action when we receive the IRS notifications. We are satisfied that the cooperation between the two agencies has worked to protect the interests of plan participants. This concludes my remarks.

Mr. Chairman, both myself and my staff are prepared to answer any questions that your committee may have.

Mr. GIBBONS. Thank you, sir.

That is a refreshing statement, and I know that it takes time to organize and to begin the enforcement of a law that is as complex and as far reaching as this ERISA law is.

What do you find to be the shortcomings of the ERISA law as far as your department is concerned?

Mr. BURKHARDT. I can honestly say I have only been exposed to the law for 6 months as such, and on the outside of Government for a little longer time. We are currently looking over the provisions of the law and, hopefully, within the next couple of months may have some suggestions with regard to how we think the law might be changed.

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