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Guest Article
Foreword
It was September 1999. In Washington, D.C., dinners and other celebrations were being held in honor of ERISA's 25th anniversary. The old stories, and possibly some new ones, were being told by those "who were there" in 1974. Someone said, "it's too bad that employee benefits people around the country aren't hearing these stories."
William J. Kilberg
That Preemption Language
Not many of us have had the opportunity to be present at the inception of a law that, like Social Security, Fair Labor Standards or the National Labor Relations Act, is a transforming statute, one that truly changes our society in some way. ERISA is such a law. In a myriad of ways--not all of which can be known--it has defined how retirement and welfare benefits are provided in the United States.
As solicitor of labor, I participated in many of the events prior to passage of ERISA and the years immediately following enactment: debates within the administration and with Congress; drafting and revising legislative language; proposing and finalizing regulations; reviewing and granting requests for class and individual exemptions; hiring and promoting key personnel; investigating and litigating cases.
For whatever reason, perhaps the many hands involved in drafting--four committees of Congress, two federal agencies (three, counting OMB) and numerous interest groups--ERISA contains many provisions that lack clarity. One of the most difficult is one whose provenance I witnessed.
Traditionally, IRS staff would attend Conference Committee sessions of the House Ways and Means and Senate Finance Committees. The House and Senate Labor Committees, however, had no such tradition, and Labor Department staff were not invited to their legislative markups. Because all four committees were involved in ERISA, we were treated to the opportunity to participate in the ERISA Conference Committee deliberations, an honor so rare that I participated personally along with our senior staff. Thus, I was seated behind Senator Jacob Javits when he reviewed proposed language regarding ERISA's preemption of state law handed to him by Bob Connerton, then-general counsel of the Laborers' International Union.
Connerton had modified language from both the Senate and House bills so that instead of federal law superseding state laws that "relate to" ERISA's subject matter, ERISA would preempt state laws that "relate to any employee benefit plan." Senator Javits passed the draft back to me and asked, "What do you think?" I read and reread the language. Clearly more was intended than the conflict or field preemption suggested by the House and Senate language, but I was not sure what. Senator Javits turned back to me and was clearly impatient for an answer. I whispered, "I'm not sure what it means." The senator stared at me over his reading glasses for a moment, then turned back to the table.
This Supreme Court term, 26 years after my conversation with Senator Javits, I will argue an ERISA preemption case before the United States Supreme Court (Egelhoff v. Egelhoff, No. 99-1529). The Court has dealt with over 20 ERISA preemption cases since 1974, three in the 1996-1997 term alone. ERISA articulates many rules, but not always with clarity.
Morton Klevan
That Insurance Company Asset Language
Shortly after coming to the Department of Labor, and in conjunction with my work on Interpretive Bulletin 75-2, I talked to as many of the House and Senate staffers who worked on ERISA as I could as to why they drafted Section 401(b)(2) to provide that only the assets of a "guaranteed benefit policy" would be deemed not to be plan assets. To a man, they all told me the same story. Originally, the clause stated that assets in the general account of the insurance company would not be plan assets but, at two o'clock in the morning, a key House staffer insisted that the language be changed to "guaranteed benefit policy." I asked the staffers what "guaranteed benefit policy" meant specifically, and they all begged off, saying in one way or another that they agreed to the change out of exhaustion. Such was the genesis of the clause that led to the Supreme Court's Harris Trust decision and Congress' passage in 1996 of Section 401(c) and the Department's issuance of a complex set of regulations, all to deal with a congressional staff change in the middle of the night without much thought as to what it meant.
Steven E. Schanes
That $1 PBGC Premium
By 1972, ERISA was largely a congressional initiative. The administration's role was that of offering amendments and deciding whether to support the bill. In 1973, under the leadership of Peter Flanigan, assistant to the president, a special White House task force was assembled, composed of representatives of Treasury, Labor and Commerce. I represented Commerce.
Much of the discussion had to do with the funding and vesting requirement, especially alternatives to ten-year cliff vesting. However, the major interest for some of us was the proposed termination insurance program. I was given the job of determining whether the private sector would undertake to create such a structure. Upon my inquiry, representatives of both the banking and insurance industries explained in detail why they were not in a position to do this. However, Lloyds of London was more succinct in rejecting the proposal: "We are not in a position to insure the future profitability of the American Enterprise System."
One of the concerns of the White House task force was the cost of the proposed termination insurance program. The DOL and Treasury members analyzed the pension plan termination experience of the first eight months of 1972 and concluded that on an annual basis only some $10 million of pension benefits was lost through defined benefit plan terminations. Although I was firmly against the entire concept, feeling that contingent employer liability would lead to the end of defined benefit plans, I could see the handwriting on the wall. There were two votes to my one.
As a fallback position, I pointed out that, since there were 20 million workers who would be covered under the program, a premium of $1 per employee would therefore produce twice as much income as necessary to pay the benefits. And so we settled on the initial PBGC $1 premium. As it turned out, 1972 had been an unusually good national economic year with most favorable experience. Of course, in my heart of hearts, I knew, as I proposed it, that the $1 premium was totally inadequate. However, I had represented the interests of my constituency as best I could. At least they bought in cheap initially.
Copyright 2001 International Foundation of Employee Benefit Plans, Inc.Reprinted with permission from ERISA Insights: Voice from the Early Days, edited by Steven E. Schanes. $30.
To order, visit http://www.ifebp.org/bookstore/pbinsights.asp or call (888) 33-IFEBP, option 4.
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