Government
ACS calls lor pension rolorm legislation Testifying at hearings on Senate bill, Society urges early vesting, advocates federal incentives for single vesting approach Congress has exhibited legislative interest in private pension plans since the late 1950's but federal regulation is still limited to simple plan disclosure and financial reporting requirements. Today, however, comprehensive private pension reform is being demanded at the national level and the next year or so may well see enactment of legislation. Bipartisan bills have been introduced in both houses of Congress and 10 days ago ACS had the opportunity to present its views on one bill, the Retirement Income Security for Employees Act of 1972, S. 3598. Testifying for ACS, Dr. Robert E. Henze, director, Membership Division and acting manager for ACS Washington operations, told the Senate Subcommittee on Labor that the Society supports the need for pension reform legislation such as S. 3598 and believes that its provisions for early eligibility and early vesting are sorely needed. Dr. Henze also described the Society's Pensions for Professionals, Inc., a nonprofit, interdisciplinary entity set up to correct the inequities found in many private pension plans. Setting a federal minimum standard for vesting is one of the aims of S. 3598, whose principal cosponsors are Sen. Harrison A. Williams, Jr. (D.N.J.), and Sen. Jacob K. Javits (R.N.Y.). (Vesting occurs when an employee acquires the right to a pension benefit.) S. 3598 provides for initial vesting of 30% after eight years of service with increases of 10% each year thereafter so that 100% vesting is attained after 15 years of service. Dr. Henze says that this requirement "appears to be a reasonable immediate improvement over the large majority of plans covered in our surveys." Hence, although the Society supports this approach in principle, he adds, it believes that consideration will ultimately have to be given to even earlier vesting. For its own members the Society has advocated 100% vesting within 10 years through a statement of employer-employee relationships entitled "Guide12
C&EN July 3, 1972
lines for Employers," which has been distributed among some 3000 industrial employers. The Society believes this vesting position can be improved, however, and urges that earlier vesting be provided chemists who are terminated at the convenience of their employer. The Pension for Professionals plan predicates 100% vesting in five years, Dr. Henze notes. "Lest this be thought too costly or too evolutionary for the early 1970's," he told the subcommittee, "we should bear in mind that the academic community has had a system of virtually immediate vesting for more than 50 years. Moreover, employees in the Civil Service participate in a plan that also features very early vesting among federal agencies."
Henze: minimum vesting standard The Nixon Administration has proposed a "rule of 50" provision for vesting. Under this rule an employee's pension plan benefits must be at least 50% vested when the sum of his age and years of plan participation is 50. The percentage vested would then rise until benefits would be fully vested five years after the rule of 50 is satisfied. Cost of the rule would be modest, the Treasury Department says, estimating that it would raise overall pension costs by about 0.3% of covered payroll. The Administration's rule of 50 has certain disadvantages, Dr. Henze tells C&EN. It could be discriminatory against the older worker. For example, an employer hiring a 50-year-old chemist would have to provide 50% vesting immediately. The cost of this would lead the employer to look for younger
men who would not have to be vested right away, thus perpetuating the current and very real employment problems that mid-career and older scientists now encounter when forced to change jobs. S. 3598 provides for a voluntary program for portability of vested pension credits. Dr. Henze notes, however, that early or immediate vesting would have essentially the same effect as portability. ACS also advocates federal recognition or incentives for private employers to participate in a collaborative, single vesting approach. Under this proposal an employee in his first job would have to serve some specific period of time before initially acquiring a vested right in a common pension plan. But in successive jobs with other employers the employee would only have to serve out the eligibility period required before acquiring pension credits. Dr. Henze points out that under this proposal a chemist could accumulate 30 to 35 years of pension credits in a 40-year career against perhaps 20 years or fewer credits under the present system. ACS also supports tax incentive for employees like those for employers. Noting that for the large majority of employees no tax shelters exist, Dr. Henze says that such incentives would likely lead large numbers of employees to augment their existing contributions or agree to large employer deductions for pension benefits. ACS also urges an incentive, possibly of a tax nature, to induce employers who offer earlier vesting than that stipulated by S. 3598 not to relax their requirements. S. 3598 does not provide for tax incentives but the Nixon Administration proposal, H.R. 12272, does. Employees not covered by pension plans would be encouraged to set up their own retirement program. They would be allowed to deduct from taxable income amounts set aside in savings accounts or investments up to 20% of their earned income, with a maximum annual deduction of $1500. Tax deductions for self-employed persons who save or invest for retirement would increase from a maximum deduction of $2500 now to $7500 a year under the bill. An advisory Council on Employee Welfare and Pension Benefit Plans would be set up under S. 3598. Dr. Henze urges that representatives of the professional and technical community (ACS, for example) be named to the council or be available to assist in its deliberations.
