That was the defendant who was receiving compensation at the rate of about $1 million since about 1975. We stopped that by the consent order.

Now, we didn't stop everything, and we didn't have the information at that time to indicate that anything else terrible was going on. That information came later, and when we got that information, we fixed

it.

Mr. PICKLE. Could you have stopped that siphoning of funds by actually going into an interim receivership or asking for receivership? Why did you have to keep him on the job to stop the dissipation of the fund?

You had four people still left in charge of administering the fund. Ms. GALLAGHER. As to whom we had no information that what they were doing did not warrant the salaries they were receiving at that time.

Mr. PICKLE. Well, I want to observe that the handling of this thing has been a laughable matter, because it is a very serious matter. But it does disturb me that we are trying to say no the notion that we are going to establish steadfast and strong precedents, and that you literally have come in and out the door twice now in different directions. And I assume now by having a receivership at this point that you have that you are controlling that fund.

Ms. GALLAGHER. No, sir.

Mr. PICKLE. Who controls it?

Ms. GALLAGHER. The receiver controls it. The receiver doesn't work for us.

Mr. GIBBONS. He works for the court.

Mr. PICKLE. He works for the court, but that is the status of it now?

Ms. GALLAGHER. Yes, sir.

Mr. PICKLE. All right.

Well, I guess I come back to the same basic question. Why did Labor, when you kept the four trustees in, why did you agree to leave the foxes in charge of the chicken coop in the first place, if you really thought they were siphoning off a million dollars or more of the fund, and that has been proven in effect.

Why would you leave them in charge at all?

Ms. GALLAGHER. We made a judgment about the kind of relief that we could hope to get from a court on an emergency basis to remedy the emergency we would be able to demonstrate, and it was our judgment that the relief that we would seek was obtained by that consent order, that we would not be seeking or getting anything more from the court.

Mr. PICKLE. Under the present set of facts, are suits filed, do you contemplate suits filed against those trustees? Have they been filed? Ms. GALLAGHER. Absolutely, and we are seeking restitution of all the money that was improperly siphoned off from the plan.

Mr. PICKLE. Are there any criminal actions being filed at this point, or can you comment on that?

Ms. GALLAGHER. I would prefer not to comment on that.

Mr. PICKLE. The staff will be in touch with your department to keep abreast of that, because what happens in that case is a prece

93-939-77-—--9

dent. We were very upset that that case has been reversed, but we know the status of it now, and I am glad to have that information.

You know what bothers me on some of these things, Mr. Chairman, is that, obviously, the Labor Department, IRS, and Justice are becoming active in this field. We have given them the ERISA law, and three agencies and divisions are pursuing it.

I am impressed with the statement by Mr. Burkhardt on these cases that are being looked into. When you had 728 cases, no violation is found, but in 642, there was a violation.

Now, the impressive thing to me, also, is that of these 642 cases, only 4 of these cases were not settled by voluntary compliance. Only in four cases out of the thousand that you are looking into, did you take some action.

Now, I have to ask myself, is this because their violations were so minor that you didn't think any action would be taken, or were you just being terribly soft in your administering the laws, or is it that they are so quick that they are correcting any questions you raise?

When you have only had four cases that you have either gone to court with, or are pursuing, that seems to me it is almost a minuscule, insignificant number. Are you being too soft in this area?

Mr. BURKHARDT. I don't think we are being too soft.

Mr. PICKLE. Four out of a thousand. Somebody is operating better than the Good Book, or else you are throwing them sweetheart examinations, and I am sure that is not the case.

Mr. BURKHARDT. Since I didn't have anything to do with those 624 cases, I cannot really respond in detail to every one of them. Mr. PICKLE. All right, Pontius.

Mr. BURKHARDT. I think we can give you a breakdown on the kind of violations they were, so that you can get an idea how the compliance strategy, at least as it existed at that time, worked.

With regard to solving 600-something problems without going through an elaborate court procedure, that is. If your question is because we only litigated in four of them that we won't use litigation, or that we are afraid to, I don't think that is correct, and I think that I can assure you that, in terms of our future enforcement strategy that we will use civil litigation whenever that is the best way to protect the plan beneficiaries.

Mr. PICKLE. Mr. Burkhardt, when you had nearly 2,000 investigations, and you got 4 that you finally went to the mat on, I just have to ask myself if somebody is not being very tough about this matter. Now, I don't want to cause the Labor Department a lot of undue difficulty, but it would seem to me that in a summary form at least you could give us a breakdown for the record about what these cases are so that we can take a look at it, and see if we are being Doubting Thomases up here. So I ask that you submit for the record a summary of these cases.

Mr. BURKHARDT. We would be happy to supply you with a breakdown of what those cases are. Those cases were for 1976, by the way, not 1977.

Mr. PICKLE. 1976, I believe, is the figure you gave us. In the calendar year, 1976, you said you opened 1,119 investigations.

[The information follows:]

In 1976 we closed 1370 cases, in 642 of which a violation was found. These cases are broken down into the following categories:

The four 1976 cases not settled by voluntary compliance are Usery v. Penn (Glen's Steakhouse, Oklahoma City, Okla.); Usery v. Wilson, (Southern Labor Union, Oneida, Tenn.); Usery v. Hill (Beaver County Electrical Employees, Beaver, Pa.); and Usery v. Chase Manhattan Bank (Federal Sweets and Biscuit Co., Clifton, N.J.).

Mr. GIBBONS. Let me ask a question there, Mr. Pickle.

Are these civil cases, or criminal cases?

Mr. BURKHARDT. Civil cases.

Mr. GIBBONS. All civil?

Mr. BURKHARDT. Yes. I think that is important to note. Maybe Mr. Klevan can better explain this in terms of our remedies.

Mr. KLEVAN. This has come up now in two hearings. The Department of Labor does not have criminal enforcement powers. We only have civil enforcement powers.

Mr. GIBBONS. You must have some idea as to how many criminal cases have spun off these investigations. Do you know that?

Mr. BALLARD. No, Mr. Chairman, I don't know how many have spun off, but we regularly refer cases to the Justice Department and in some instances actually have delegated authority from the U.S. Attorney to conduct the criminal case aspect of the investigation ourselves, depending on the circumstance, and how much we are already involved in the case.

Mr. GIBBONS. Can you tell us how many cases you have sent to the Justice Department?

Mr. BALLARD. We could furnish that to you for the record.

Mr. GIBBONS. Would you furnish the number of cases you have sent to the Justice Department and what disposition the Justice Department has made of those cases?

Mr. BALLARD. That may be more difficult for us to obtain, but we will see what we can do.

Mr. GIBBONS. If you think it will be difficult, please let us know, and we will ask the Justice Department.

Mr. BALLARD. All right.

[The information follows:]

In 1975 we referred 25 cases and in 1976 we referred 23 cases to the Department of Justice, as follows:

Cases involving bonding losses reported on forms S-1, required to be filed by surety companies. Cases involving individuals convicted of crimes which prevented them from holding a fiduciary position with a benefit plan..

Cases involving potential embezzlements, in violation of title 18, sec. 664..

Total....

25

23

Mr. GIBBONS. Mr. Pickle?

Mr. PICKLE. All of this raises a question as we try to enforce this ERISA program, of who has what responsibility, and who does act, and Mr. Bafalis raised a question about dual jurisdiction, and it may be that we need to watch this very carefully. This committee will maintain jurisdiction over part of it.

Do you have a question with regard to resolving dual jurisdiction? Mr. BURKHARDT. No. As I said in response to Mr. Bafalis' question, I wouldn't want to make any recommendation while the two agencies, ourselves, and Treasury, IRS, are working out this problem. Rather than making suggestions, I would rather make the suggestion after we have completed our discussions. It would seem to me to be more beneficial.

Mr. PICKLE. We would be glad to have your recommendations. It brings up the question of just what coordination you have with, say, Internal Revenue Service. You have the IRS in the Central States Fund, revoking the tax-exempt status on the biggest, most complicated fund we have in the country. They did it with a snap of the finger and didn't tell Labor, and you didn't know anything about it. Now, that is not good coordination.

Mr. BURKHARDT. Right.

Mr. PICKLE. Somehow, I think this problem is going to arise unless we can resolve this question, and we would like very much to have your recommendations on it.

Mr. BURKHARDT. We would be happy to discuss with you before we reach any final determination on that matter what our plans are. You may even have some suggestion yourselves.

Mr. PICKLE. Mr. Chairman, those are all the question I have now. Mr. GIBBONS. Thank you, very much. Thank you, Mr. Burkhardt and the rest of your panel. We appreciate it, and we expect to be seeing a lot of you in the next few years. We expect to have a lot of questions for you.

Mr. BURKHARDT. Thank you, Mr. Chairman.

Mr. GIBBONS. Any time you have suggestions for us on how this law ought to be improved, we would be most happy to have them.

Mr. BURKHARDT. Very good.

Mr. GIBBONS. Good morning and welcome, Mr. Commissioner. We are happy to have you here, and we welcome back your assistant, Mr. Lurie, and you may proceed as you wish, sir.

STATEMENT OF JEROME KURTZ, COMMISSIONER,

INTERNAL

REVENUE SERVICE; ACCOMPANIED BY ALVIN D. LURIE, ASSISTANT COMMISSIONER

Mr. KURTZ. Thank you, Mr. Chairman, and members of the committee.

This is my first opportunity to testify before this committee, and I am sure it will be the first of many.

I am happy to be here, and I hope I can be helpful to the committee. Mr. GIBBONS. We want you to know that you have the nice fellows here this morning. We are saving the mean ones for later on.

Mr. KURTZ. Yesterday, Assistant Commissioner Lurie, Regional Commissioner Trainor, and Chicago District Director Miriani dis

cussed the ERISA enforcement activities of IRS with specific reference to the Central States, Southeast and Southwest areas pension fund.

Mr. PICKLE. May I interrupt?

Do you have a prepared statement?

Mr. KURTZ. Yes; it was sent up last night, but we have additional copies.

Mr. GIBBONS. Go ahead.

Mr. KURTZ. Today, I am here in response to your invitation to discuss our activities and policies with regard to ERISA enforcement generally.

The extensive legislative changes to the requirements for qualification of employee benefit plans presented a number of difficult challenges to the Service.

The Service decided that its first task was to provide the necessary clarification and guidance to the pension community to enable the approximately 500,000 existing corporate plans and an estimated like number of H.R. 10 plans to be amended to conform to ERISA's complex new requirements.

Our next action was directed toward developing accelerated processing techniques so that we could cope with the expected determination letter workload from these amended plans, and also those newly adopted plans which were subject to the same ERISA requirements.

On March 15, Acting Commissioner Williams discussed with you our publication program, which was designed to furnish employers and pension practitioners the necessary tools to draft plan provisions that would satisfy ERISA's requirements.

These interpretative materials have been issued in the form of regulations, revenue rulings and procedures, questions and answers, and announcements.

We also issued model plans, standard paragraphs and guidelines for use by the pension community in adapting plans to the new legislative standards.

We have developed checksheets and guidelines for use by our field personnel to accelerate the processing of plan determinations.

We have also made these available to the public since they provide helpful information to the plan drafter.

Additionally, we shifted staffing from our exempt organization program to the employee plan determination letter function, and we have begun to shift the determination letter workload among our key districts and regions throughout the country, to balance the workload.

During the March 15 hearing, we reported to you some of the statistics indicating the difficulties we faced in our enforcement efforts. At that time, we stated that as of December 31, 1976, we had received approximately 78,000 determination letter requests on conforming amendments.

Since that hearing, we have compiled additional statistics on our receipts and disposals of determination letter requests. These statistics, which I would like to share with you, include requests with respect to the initial adoption, amendment and termination of employee benefit plans.

On July 1, 1975, we had approximately 4,000 requests in inventory. From then until May 31, 1977, our field offices have received approximately 225,000 applications requesting determination letters.