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Our two agencies have for more than a year expended considerable efforts analyzing transactions customarily engaged in by multiemployer plans and parties in interest (disqualified persons), which have been brought to our attention by representatives of the National Coordinating Committee for Multiemployer Plans and others, with the view to determining whether exemptions were proper from the "prohibited transactions" provisions added by ERISA. As you know, the class exemption which has been issued for various types of transactions between plans (including multiemployer plans) and securities broker-dealers and reporting banks has lifted restrictions that otherwise would have prohibited or impeded customary securities transactions engaged in by plans and their fiduciary asset managers. Other projects are currently nearing completion, such as the three class exemptions proposed on June 2, 1975, and a project to issue proposed regulations and a class exemption relating to service-providers to plans, which will add considerable additional relief (both prospective and retroactive) from the prohibited transactions provisions for many other ordinary and customary transactions engaged in by multiemployer plans.

In addition to the foregoing projects, we are now prepared to entertain an application for class exemptions from the prohibitions of section 406(a)(1) of ERISA and section 4975(c)(1)(A) through (D) of the Code, covering (1) the sale of goods to multiple employer plans by parties in interest (disqualified persons), (2) loans to such plans to satisfy temporary cash emergency needs, and (3) loans from such plans to service providers. Further, as noted in the attached chart (which indicates our preliminary views as to the documents in which we may deal with the multiple-employer transactions brought to our attention), we will also consider exemption from section 406(b)(2) of ERISA for certain transactions. In all of these matters, if you apply for same, we will consider, on an expedited basis and as a matter of the highest priority, retroactive and prospective exemptions.

Based on the information that has been furnished to us, we are not at this time aware of any other transactions in which multiple employer plans ordinarily and customarily become involved that would necessitate any broader exemptions for MEPS in particular than those indicated above (except for one or two relatively infrequent situations noted in the

attached chart for which you may wish to make separate exemption applications). Of course, as other transactions are identified by your organization or others as needing exemptive relief, we will be pleased to consider them on receipt of applications therefor.

If you have any question about the matters herein noted, we would suggest you call Alan Lebowitz (964-3065) at the IRS or William Chadwick (523-9044) at OEBS.

Very truly yours,


& Kult

Janes D. Hutchinson

Administrator for Pension

and Welfare Benefit Programs

Office of Employee Benefits Security
Department of Labor


Alvin D. Lurie

Assistant Commissioner (Employee Plans and

Exempt Organizations) Internal Revenue Service

Mr. GEORGINE. Since receiving this response the Coordinating Co mittee on March 15, 1976, submitted an application for exempti for transactions involving the sale or lease of goods by a party interest to a plan; loans to a plan from a party in interest; a allocation arrangements among plans with reciprocity agreements. V are also preparing to submit an application for exemption of truste for transactions involving loans between plans and loans from pla to providers of services to the plan.

I must observe, however, that in my judgment the process its cannot work. As a recent example, let me cite the experience Local 606 of the International Brotherhood of Electrical Worke in Orlando, Fla. As the members of the committee are aware, am sure, the construction industry has been in a severe recessio indeed, a depression, these past 2 years. As a result of this seve economic downturn, many of our health and welfare plans have be suffering short-range economic difficulties.

The IBEW Local 606 fund was no exception. Indeed, last summ it was faced with a $6,000 deficit and was, therefore, unable make its monthly premium payments to its health insurance carrier. In order to relieve the plan of this financial difficulty, the membe of the union, who were also for the most part the participants the plan, voted to grant a $40,000 interest-free loan to the pla out of the union treasury. This loan was to be repayable only whe and if the trustees of the plan determined that such repayment w prudent. It is difficult to imagine a transaction more favorable a plan and more in the interest of its participants than such a interest-free loan. Yet, this transaction is barred by the prophylact prohibited transactions sections of ERISA.

In applying for an exemption from ERISA in August of 1975, th plan noted its expectation that construction activity would pick u by about May of 1976. Therefore, it was anticipated that the loa would be needed for only a short-range period between August 197 and May of 1976. The Department of Labor finally published th application for exemption in April of 1976. The closing date fo comments was a week ago today. Eight and a half months hav passed since the application was filed without any action on it. An it is already June of 1976.

Another current example relates to a construction employer wh has agreed to allow an operating engineers' apprenticeship plan t use as a training site 10 unused acres of his construction yard. H has offered the plan the use of this property rent free.

The only obligation the plan would have to accept is an agreemer to hold the contractor harmless should they cause any injuries t anyone while using this site. Since this may be a prohibited transa tion, the plan filed an application for exemption which now has bee pending for over 7 months.

I note these facts more as a critique of the implications of th law and the procedure established under it, than as a comment o those charged with its administration. They may be overburdened having been presented with a statutory provision which is and wi continue to be impossible to administer effectively. There is somethin basically wrong with a law or regulation which requires a plan t obtain an exemption before it may secure an interest-free loan from the union responsible for its establishment.

There is something basically wrong with a law that requires a plan to get the Government's permission before it can accept a rent-free training site. There is something basically wrong with a statute which is based on the proposition that plan participants need to be protected from their trustees by the Government in Washington even if the trustees have done nothing wrong.

Mr. Chairman, I want to deal briefly with the special problem of union dues financed plans and of apprenticeship and training programs.

Over a year ago, we requested an exemption from the reporting and disclosure requirements of ERISA for union dues financed plans. However, the exemption we sought was a very narrow one. We only wanted an exemption to the extent that those plans were already reporting on LM-2 and LM-3 under the Landrum-Griffin Act and on IRS Form 990 under the Internal Revenue Code.

To the extent that the plan was disclosed to the union membership through a distribution of the union constitution and bylaws, we also requested an exemption from ERISA's disclosure requirements. In other words, we requested an exemption from duplicative reporting and disclosure requirements. To this date no exemption has been granted although just 10 days ago the Department granted a 2-month reprieve on the reporting requirements while the exemption application is still being considered.

The Department has also delayed making judgment with respect to whether union dues financed plans will have to be set up under trust. This is a serious delay inasmuch as the trust requirements of ERISA became applicable in January 1976 for most plans.

As early as December 1974, the Department of Labor contemplated issuing such an exemption since, under the Landrum-Griffin Act, union officers are trustees with respect to those funds by operation of law even without a separate trust. However, since that time there has been an inexplicable 12-year delay in issuance of the final exemption. I just want to report to you, Mr. Chairman, our limited success in securing an exemption for apprenticeship plans.

As you know, by virtue of the National Apprenticeship Act and section 302(c) of the Labor Management Relations Act of 1947, some reporting and disclosure was required by Federal law for most apprenticeship plans long before ERISA. Because of that, the chairman of this committee noted that you "clearly expect the Secretary of Labor to continue his present policies with respect to apprenticeship plans and exempt them from the reporting requirements unless a clear reason for changing that policy is shown." Senator Williams made similar statements.

Although exempting plans from disclosure, however, the Department decided to require apprenticeship plans to file an EBS-1 and at least the first annual report. We believe that this is duplicative and should not be required. The Department of Labor should be satisfied receiving a copy of the audit required by the Taft-Hartley Act.

When I testified before the subcommittee a year ago this past April, Mr. Chairman, I also noted my deep concern over the problems created by dual administration, a concern I believe is shared by the agencies themselves. Among those problems was the fact that desperately needed regulations in the area of vesting and other

minimum standards had not yet been issued. Plans are still desperatel awaiting final regulations.

Until such regulations are promulgated, plans run severe risks b making improving amendments. Therefore, the delay in the issuanc of regulations is effectively precluding countless participants in plan from securing the benefits which would be theirs under amende plans.

Now a Federal judge in Chicago has rendered a decision which if upheld, will create even greater turmoil. In the case of Danie v. Teamster Local 705, the court held that the securities laws o 1933 and 1934 were applicable to a typical multiemployer pension fund.

It is complicated enough for plans to have to keep up with regula tions issued by the Department of Labor, the Internal Revenue Ser vice, and the Pension Benefit Guaranty Corporation. The last thing we need is to have to monitor the SEC as well.

The Coordinating Committee has filed a brief in that case. W hope the administration will join us in seeking a reversal of the deci sion.

Most importantly, Mr. Chairman, I must note the serious threa to the structure of multiemployer plans and the process of collective bargaining which is posed by proposed vesting regulations and the proposed definition of multiemployer plans.

Under the Department of Labor's temporary regulations on vesting multiemployer plans are required to recognize for vesting purposes employment with a participating employer even if the employment is outside the bargaining unit for which contributions to the plar are made. The National Coordinating Committee finds such a provi sion at complete and total odds with collective bargaining and the stability of labor relations.

Multiemployer plans should not have to recognize noncovered em ployment at all and the Secretary of Labor should exercise the full authority he has under the law to establish vesting regulations which permit plans to exclude service for which contributions are not made.

As this committee well knows, there are situations in which an employer who participates in the multiemployer plan may also engage in nonunion employment in the same field.

The same employees may at one point be engaged in employment under a union contract covered by a negotiated pension fund and immediately before or after that be engaged in employment not covered by a union contract.

It is a frustration of the purposes of the pension fund if employees who perform nonunion work, work for which contributions are not paid to the fund, are permitted to build up vesting credit at the expense of their colleagues whose union work is financing the plan.

It was most graphically stated at a recent workshop conducted on the pension law in Los Angeles. There, a business agent of the carpenters reacted to the proposed regulation by stating that under no circumstances would he permit the contributions made on the basis of his work to finance pension benefits for scab labor. I cannot believe that Congress intended that result.

Compounding this problem and of even greater consequence is a proposed definition of multiemployer plan.

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