Thre Great Pension Fraud

...The staff aide of one U.S...

...f Many pension plans fail to pro- vide any benefits for dependent widows or widowers, or provide only meager benefits...

...The files show cases of pension fund loans made to plan administrators, and to employers...

...Up to one half of all persons par- ticipating in private pension plans may not receive pension benefits when they retire because they change jobs befdre they become entitled to benefits, because their plans are terminated before they retire, or because the actuarial basis of their plans proves insufficient to pro- vide benefits...

...These cases, along with even more extreme cases of abuse of pension fund money for economic or political gain, suggest that fiduciary responsibility legislation will be fully effective only if the tie between employer and union interests and management of the funds is severed...

...Had he been allowed to work until he reached the ten year mark, he would have become entitled to a pension...

...f Some administrators unilaterally control such large amounts of pension fund money that they can influence corporations and affect the stock mar- ket...

...This unhappy state of affairs has developed because of an almost total lack of regulation of the pension in- dustry...

...Perhaps because they are not convinced that reform of the pension system is a sufficiently "political" issue to warrant the displeasure of the pen- sion industry...

...The Securities and Exchange Commis- sion's Institutional Investor Study Re- port discloses that the four largest trust departments hold forty-three per cent of all pension plan assets admin- istered by trust departments...

...He would have a greater in- terest in how much money was set aside for him and, since he would benefit directly from the fund's per- formance, in its investment policies...

...The money could be withdrawn only at retirement or upon disability, although an em- ploye dissatisfied with the administra- tion of the fund could transfer his money to another fund...

...The governing law would make clear that no employer would be obligated to make pension contributions, but if contributions were made, they would have to be made (probably on the basis of any non- discriminatory formula that takes into account years of service, wage levels, and perhaps age) for all employes over twenty-five years of age and for those under twenty-five who have worked more than three years...

...cause he changes jobs or is laid off for an extended period of time...

...It would afford more protection than the "fiduciary responsibility" pro- posals, which provide for governmental and individual legal intervention after a breach of duty by the fiduciary, or fund-holder, has been discovered...

...Four—Is there any justification for a pension system based primarily on defined—that is, specified—benefits, company by company, in a highly mo- bile economy in which there can be no assurance of the continuance of many companies or industries...

...The President has dropped pensions from a position of high to low priority in his legislative program...

...His pen- sion benefits would "vest immediately" and could not be forfeited...

...His pension plan would be "fully funded" at all times—even if his employer were to go out of business...

...When he re- tired in 1963, he began receiving a monthly pension of $140...

...It would encourage the expansion rather than the stifling of pension benefits...

...There is ample evidence of their mounting public concern: Some members of Congress now report that pension grievances rank second only to Vietnam as a subject of constituent mail...

...They show that the pen- sion plans of major corporations freely lease land and machinery back to the employers at extraordinarily low rent- als...

...There is no reason why democracy cannot be inflicted upon pension fund investment decisions...

...The investment preference question- naire, and his vote for directors, would give him an added sense of participa- tion...

...With inflation in the acute stage so that retired persons find their Social Security benefit dollars worth less each day, the private pension system has be- come an urgent issue for older Ameri- cans...

...Why are so few of our elected rep- resentatives making suggestions for re- form...

...Retention of control by the company and/or union creating a pension fund is, I assume, designed to assure satis- factory management of the fund...

...One approach which interests me and which merits, I think, the closest examination is the creation of a pension system which gives the beneficiary dis- cretion over where his pension funds are to be deposited, just as he now ex- ercises a choice in depositing his savings...

...The U.S...

...I think the President may have been ill-advised...

...His for- mer employer had merged with an- other brokerage house and stopped paying pensions...

...Would they do as well eco- nomically under this system...

...Where invest- ment decisions raise questions of social policy, the directors could ascertain the investment and proxy voting pref- erences of members by mailing out an annual or semi-annual computerized questionnaire...

...Under this system, employers would continue to contribute funds for their employes' retirement, and would con- tinue to receive a tax deduction for such contributions...

...E of Edison, New Jersey, is a widow with two sons...

...Here are a few case histories from our extensive files: Mr...

...When these contributions become tax- able upon retirement, they would in al- most all cases be taxed at a lower rate...

...Candidates for the Democratic Party Presidential nomination have already begun to realize the potency of pensions as a campaign year issue...

...It seems to me that this system could be justified only if it were demonstra- ble that it somehow serves the best in- terests of the beneficiaries...

...Would the beneficiaries prefer this system...

...The proposal would replace eco- nomic concentration of pension funds with effective competition—always a radical proposal in our economic sys- tem...

...Pension fund administrators have been known to make unwise invest- ments and even to appropriate pension money for their own use...

...Pension fund administrators, invest- ment managers, actuaries, and other persons with the necessary expertise who joined together to form corpora- tions would be eligible to apply for licenses...

...But the people who are victimized by the present system en- counter extraordinary difficulty in mak- ing their needs and wishes known...

...Sta- tistics compiled by the Securities and Exchange Commission show that the rate of return on pooled pension funds is inordinately low compared to other forms of investment...

...Perhaps the reason is that none of those in a position to promote change is likely to be hurt themselves by the pension system as it now operates...

...Civil Service retirement plan...

...Never in history has such a huge agglomeration of funds provided so little benefit and disap- pointed so many millions of Americans...

...The best interests of some employes are, of course, served by the defined benefit system now in effect, where the employer promises pensions of a stated amount and makes the contributions theoretically necessary to pay that amount...

...Meaningful reform legislation can be enacted in early 1972...

...The concentration of pension plan as- sets in bank trust departments, which administer more than two-thirds of all pension fund assets, is phenomenal...

...There are an infinite number of re- finements possible once the basic struc- ture is agreed upon...

...Employes' pension benefits, the years of service required for a pension, whether or not an em- ploye's widow is to receive pension benefits—all these are decisions often made by employers, with plenty of loopholes to protect themselves...

...He had more than satisfied the pension plan's require- ment of twenty years' service, but the plan provides survivors' benefits only if the worker has reached the age of fifty-five...

...He is receiving no benefits...

...We also know that fund ad- ministrators often say they have no idea what the best interests of the benefi- ciaries are, and believe they have no way of satisfactorily ascertaining those interests...

...Labor Department has compiled many case histories of im- proper—if not yet illegal—self-dealing...

...I think it is time to find out...

...B of Hartford, Connecticut, was employed for thirty-five years by a stock brokerage concern...

...It does not work for America in 1971...

...and the twenty largest administer seventy-two per cent of all pension plan assets administered by bank trust departments...

...Consider these facts: f More than half of the private work force works for a company or union that does not have a pension plan...

...Pensions have shown an enormous growth in the last twenty years...

...THE GREAT PENSION FRAUD BY RALPH NADER About 34,000 private pension plans, with combined assets totaling some $137 billion, are now in operation in the United States...

...At the heart of the problem is the fact that most private pension plans are now directed by persons who are only minimally accountable to the people whose interests they are supposed to serve...

...C of Potomac, Maryland, an electrical engineer, worked fifteen years for various aerospace companies without acquiring any rights to pen- sion benefits...

...Given the basic fund structure, it would be possible to extend pension coverage by allowing employes a tax deferral of amounts contributed to the accounts of their non-working wives and/or amounts contributed to supple- ment their employers' contributions...

...It would not only simplify the benefit structure by removing all of the bewildering con- tingencies, but it would also give the employe an immediate stake in his pension...

...It would be possible for a bank's pension trust department, if it were spun off and all connections with the commercial department severed, to qualify as an independent retirement fund...

...It seems to me that there must be a more satisfactory alternative...

...the mass media are devoting in- creasing attention to pension abuses, and some pensioners have begun to organize their own pressure groups to seek redress of inequities...

...Such weak laws as exist are haphazardly and indifferently enforced, and except for occasional flurries of interest shown by Congressional com- mittees, proposals for reform receive scant official attention...

...This makes it possible—to some extent—for current workers to contribute toward the benefits of those who have already retired and for workers who are older when a pension plan comes into effect to receive pen- sion credits for their earlier work years...

...They could decide whether or not to invest in companies which are no- torious polluters or which flagrantly violate laws governing civil rights or labor relations...

...In- vestment experts testified in hearings held last year by the Joint Economic Committee of Congress that large banks tend to neglect their pension fund clients, concentrating instead on their largest investment customers...

...Senator, whose advocacy of truly comprehensive reform legislation would give tremendous impetus to its enactment, recently excused the Sen- ator's inaction by indicating that he did not think Congress was "ready" for it yet...

...The majority of retirement funds are administered by bank trust depart- ments...

...Initially, the funds could be used by employes who have acquired vested rights (irrevocable rights to future pension benefits) in an existing pension plan and have then left the company, by employes of com- panies which had previously been de- terred by the administrative costs from establishing plans, and by self-em- ployed persons...

...We know that concentration of pen- sion fund assets tends to reduce rather than increase their rate of return...

...The employe would not lose his benefits—as he often does now—be- . . the rate of return on pooled pension funds is inordinately low compared to other forms of investment...

...But does it...

...He has been a mem- ber of the same international union for twenty-nine years, but was told that the merger of his union local with another local some years back had resulted in the loss of pension rights by all mem- bers of the original local...

...The company's ex- cuse: "We lost money last year...

...Most important, this approach would directly address the three prob- lems at the heart of the current pen- sion debate—vesting, funding, and re- insurance...

...A of Miami, Florida, worked twenty-four years for a major rubber manufacturer...

...He left the company after receiving repeated assurances from one of its auditors that he would be entitled to ninety-six per cent of his full pension once he attained age sixty-five...

...This procedure would enable members to help decide how their funds could be invested most pro- ductively, whether financially or social- ly...

...Three—Is there any justification for the existence of a separate pension fund for each and every pension plan...

...less than a third of the funds are managed by insurance companies...

...In fact, however, only the largest funds get that kind of treatment...

...Separate pension funds would serve the best interests of the beneficiaries if there were a guarantee that such funds would receive the separate and special attention of investment managers...

...It would probably be the perfect system for a society with constant economic growth in which no companies suffer reverses and employes remain with one company throughout their working lives...

...Her husband died at age fifty-two after having worked for the same employer for thirty-two years...

...When he reached that age he applied for his pension, only to be told by the company that the pension plan in effect while he worked there required that employes remain on the payroll until age sixty-five...

...At retirement he would be eligible for an annuity based on the amounts accumulated in his account, plus interest, plus a cost- of-living adjustment to be financed out of the fund's earnings...

...If an equitable and ad- equate private system is to be created, a number of questions must be faced: One—Is there any justification for the concentration of the better part of $137 billion in the hands of a relatively few money managers who are not, in fact, accountable to their beneficiaries, arid whose activities are virtually out- side the existing regulatory structure...

...The private pension system, viewed as a whole, falls far short of providing decent and assured benefits for Amer- ican workers...

...and a small proportion are run by in- dependent trustees...

...RALPH NADER is the outspoken public advocate who established the Center for Study of Responsive Law ("Nader's Raiders") to investigate violations of the public interest by business and other groups...

...He would select a single fund as his investment institu- tion and all of his contributions would be entered in his passbook...

...E is receiving no benefits...

...One employer laid him off after nine years and eight months of service...

...More than half of those persons who are eligible for private pension benefits will receive less than $1,000 a year...

...Certain- ly, if Congress is considering the re- structuring of our system of financing medical care, it can alsQ take on the task of restructuring our system of fi- nancing retirement...

...Members of Congress—our paramount institu- tion of gerontology—are taken care of under the U.S...

...The funds would be private, com- petitive, cooperative, insured financial institutions licensed and regulated by the Securities and Exchange Commis- sion, which would be expected (and empowered) to exercise at least as much vigilance over pension funds as it now does over the stock market...

...And his benefits would be insured and guaranteed at far less expense than under any alter- native plan now being considered...

...These proposals do nothing about the institutional structure that creates the problem in the first place...

...Some failures of the private pension system are structured right into the plans as written...

...They have had no lobby, it has been said, to press for reform...

...But instead of the contributions being deposited in a fund chosen by the employer, the money would be deposited in a fund chosen by the employe...

...This stance may be attributable to the impact of numerous "confidential" meetings be- tween industry representatives and Treasury officials...

...the ten largest trust departments administer fifty-eight per cent...

...They will not wait indefinitely for the private pension system to im- prove itself...

...It is not too late for the President and Congress to reconsider their posi- tions on pensions...

...The majority of the directors of each fund would be elected by the members of the retirement fund...

...And perhaps because they have wrongly estimated the tem- per of the times...

...Too often, however, it works against the employe's best interests, not for them...

...The approach outlined here would also do far more to improve employe benefit communications than is called for by pending legislation...

...Two—Is there any justification for permitting the corporations and unions that set up pension funds to retain power over the funds—the indirect power which comes into play when a company or union threatens to trans- fer a pension fund to another adminis- trator if the administrator does not accede to their wishes...

...Institutional trustees—banks in- cluded—are often specifically pre- cluded from serving the best interests of beneficiaries by the fear that if they do not "go along" with the wishes of the company or union, the fund may well be transferred to a competing in- stitution...

...But like other American institutions that have grown rapidly and chaotically, al- most unregulated and unplanned, the pension system must now be made re- sponsive to the needs of the millions of Americans whose interests it professes to serve...

...This approach would achieve all of the goals sought by current pension re- form proposals, and more...

...D of Corona, New York, sixty- nine years old, retired early this year without a pension...

...On January 1, 1970, his payments ended...

...Corporate executives and elite labor leaders who administer pension plans are covered by their own generous private programs...

...Perhaps they would be willing to accept a slightly lower return on their fund investments to foster the construction of moderately priced housing, or to build schools or hospi- tals—investments which might have compensating indirect benefits in their jobs and in their daily lives...