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It was alleged that because of these questionable practices the members of Local 295 were being deprived of benefits due them. It was further alleged that certain leaders of the local and certain of the leaders' business associates were profiting illegally or unethically from severance fund operations.

DEFINITION OF SEVERANCE TRUST FUNDS

A severance trust fund is a fund of money usually created as the result of a labor agreement, from which cash payments or other benefits are provided qualified employees upon termination of their employment with a covered employer, in accordance with a severance pay plan. In most cases, the plans are jointly administered.

The payments, usually in lump sum, are made to employees when they quit their jobs or are fired or laid off. In the event of death, the employees' beneficiaries receive the severance fund payment.

Severance funds are financed by contributions from management alone or from management together with union members. The funds are controlled by trustees who represent both management and labor, or management alone.

Payment to employees from the severance trust fund is commonly referred to as "severance pay." Severance pay is usually a "fringe benefit;" that is, it is a benefit unions win for their members in addition to higher wages. Examples of other major fringe benefits are retirement pensions, health and life insurance programs, vacations, annuities and savings programs and apprenticeship training.

BRIEF HISTORY OF SEVERANCE PAY PLANS

At the Subcommittee's request, the Economics Division of the Congressional Research Service of the Library of Congress prepared a brief history of union severance trust funds in the United States.1

The first severance pay plans were started in the early 1920's when a form of lay-off notice payments were made to employees by certain companies. The companies implementing these plans were large, had mostly white collar employees, had small labor costs and did business for the most part in noncompetitive markets.

In the mid-1920's, several unions began to include severance pay provisions in their negotiated contracts. In 1925, for example, the International Ladies Garment Workers Union reached an agreement with the New York Dress Manufacturers Association in which at least two weeks' wages were paid to workers displaced by labor-saving devices. Employees laid off because of shop reorganization were to be paid from one to four weeks' wages depending on their length of service.

In 1926, the Amalgamated Clothing Workers negotiated a plan with Hart, Schaffner and Marx to pay 236 displaced cutters $500 each. The money was paid from funds contributed by the company and by cutters remaining on the job.

In May of 1936, railroad unions and the railroad industry signed the Washington Job Protection Agreement in which it was stipulated that

1 Memorandum of August 27, 1975 entitled, "Information relating to severance pay fund," prepared by Charles V. Ciccone, Specialist, Labor Economics and Relations, Congressional Research Service, Library of Congress, for the Senate Permanent Subcommittee on Investigations.

workers laid off because of consolidations would receive 60 percent of their average monthly pay for periods varying according to their length of service.

In 1940, the Congress amended the Interstate Commerce Act to provide pay protection to workers let go because of mergers. In 1944, the policy was extended to workers displaced because of abandonment of railroad lines.

The Communications Act of 1934 was amended in 1943 so that workers fired due to mergers of telegraph companies would receive one month's pay for each year of seniority.

During World War II, controls on wages triggered new efforts toward better employee benefits. Moreover, workers and union leaders feared that mass layoffs would occur when the war ended. These factors led to demands for severance pay benefits.

Accordingly, the War Labor Board ordered adoption of a plan giving employees displaced by post-War plant shutdowns at least four weeks' pay for workers with 10 or more years of service.

Since 1944, there has been a slow but steady rise in the number of negotiated severance pay plans. Government figures, compiled by the Bureau of Labor Statistics, show that in 1944 only 5 percent of the agreements studied contained severance pay provisions. Only a few industries, notably the newspaper publishing and railroad industries, had adopted the principle of severance pay to any considerable extent. By 1949, 168 or 8 percent-of the 2,137 agreements studied provided for severance pay. These contract provisions tended to be in the communications, rubber, printing and publishing industries.

Some 266 or 16 percent of 1,693 labor-management agreements covering 1.75 million workers contained severance pay benefits in the period of 1955 to 1956. Half of these agreements were in the communications, primary metals and electrical machinery industries.

While the severance pay contract provisions went from 5 percent to 16 percent from 1944 to 1956, this was a relatively slow pace when compared to the spread of pension plans and health and insurance programs built into collective bargaining pacts of the same period. However, the need for severance pay plans had been lessened somewhat by the post-War increases in supplementary unemployment programs and the enactment of unemployment compensation laws. But severance plans did continue to grow.

In the 1958 auto workers negotiations, severance pay arrangements were integrated into the supplementary unemployment benefit program. The International Ladies Garment Workers Union won acceptance of a widely praised severance pay plan in their 1958 negotiations. And other unions, especially in the electrical and maritime industries, also included some form of severance pay protection in their contracts. By 1971, severance pay plans were found to be in use in 237—or 38 percent of the 620 selected labor contracts examined by the Bureau of Labor Statistics.

Several factors have contributed to the growth of severance pay plans.

First, union leaders consider the severance issue of special significance to older workers who feel that it would be more difficult for them to find new employment should they lose their jobs.

Additionally, the rise in plant closures and relocations, coupled with increasing company mergers, has given severance pay a higher priority in the list of fringe benefits.

Finally, union negotiators are focusing more attention on winning fringe benefit increases in contracts because, in the better salaried industries, pay raises are often offset by higher taxes and are, therefore, less meaningful than in previous years.

From a management point of view, a benefit like a severance fund contribution satisfies a union's demand for increased compensation without raising other costs such as the hourly overtime wage. Severance fund contributions are also tax deductible.

Prior to enactment of the Employee Retirement Income Security Act of 1974, the federal government did not regulate union severance trust funds and pay plans to any significant extent. However, a few federal laws in effect prior to 1974 did relate to severance pay plans. A 1959 amendment to section 302 (c) of the Taft-Hartley Act, as amended, allows employers to contribute to jointly-administered severance trust funds if the severance pay plans meet certain stated requirements. For example, the kind of benefits provided must be spelled out in a written agreement and there must be an annual audit of the fund, the results of which must be made available to interested parties.

Section 302 of Taft-Hartley also states that the severance fund must be administered equally by management and the union. There must be a provision for recourse to a third party in cases of disagreement.2

Another federal law-the Labor-Management Reporting and Disclosure Act of 1959, as amended-provides for more specific availability of information about benefit plans. Section 201 of the Act requires the filing of financial reports by labor organizations with the Department of Labor. The report is to include information with respect to insurance and other benefits as well as all relevant data about union operations, including assessments, disbursements, annual financial reports, assets, liabilities and receipts.3

In addition, the Internal Revenue Service (IRS) of the Treasury Department examines tax exempt trusts (severance pay plans) to determine if employer contributions are legitimate business expenses and are, therefore, tax deductible. IRS says that employers may deduct severance fund contributions if more than half of the money in the fund is for severance pay. This IRS provision enables severance fund money-as much as 49.9 percent of it-to be used for fringe benefits other than severance pay.*

1974 LEGISLATION

On September 2, 1974, the Employee Retirement Income Security Act (ERISA) became law. ERISA, public law 93-406, includes in its coverage any benefit described in section 302(c) of the Labor Management Relations Act of 1947 (Taft-Hartley). Section 302 (c) covers a trust fund established . . . for the purpose of pooled vacation, holiday, severance or similar benefits." Severance pay plans

? Text of Labor Management Relations Act, 1947, as amended by Public Law 86-257, 1959.
Labor Management Reporting and Disclosure Act of 1959, as amended.
Memorandum of August 17, 1973 entitled, "Information relating to severance pay fund."

are now under the jurisdiction of the U.S. Department of Labor and the Internal Revenue Service.

While the new law does not mandate pension or welfare benefit plans, it does protect participants and beneficiaries of existing plans against mismanagement and misrepresentation. The law is designed to require adequate public disclosure of the administrative and financial affairs of employee pension and welfare benefit plans; establish minimum standards of fiduciary conduct for trustees, administrators and others dealing with plans; provide for appropriate remedies, sanctions and ready access to the federal courts; establish standards for vesting and funding; and provide for adequacy of plan assets by insuring unfunded portions of promised benefits.

ERISA covers employee pension and welfare benefit plans falling under the Commerce Clause jurisdiction but does contain certain specific exemptions. Among the exemptions are plans established by unions which do not provide for employer contributions after the date of enactment of the law; and church and governmental plans. The Act sets forth a number of criminal violations including willfully violating reporting and disclosure provisions, embezzlement, kickbacks, false statements, concealment of facts, intentional violation of the office-holding prohibitions and willfully interfering with benefit rights through fraud or coercion. In addition, the law provides for civil equitable or remedial relief.

Various effective dates of coverage are set in the law depending on the nature of the matter to be covered. For example, participation and vesting for new plans became effective on the date of enactment, September 2, 1974; for existing plans on December 31, 1975; while collectively bargained plans will come under the law on the date of expiration of the contract or December 31, 1980. Other effective dates (but none before July 1, 1974) are set for termination insurance and fiduciary liability; the latter became effective January 1, 1975.

Under the law, employee pension and welfare plan administrators must file with the U.S. Department of Labor certain plan descriptions, annual reports, termination_reports and other plan documents as required by the Secretary of Labor. Additional reports are required to be filed with the Pension Benefit Guarantee Corporation and with the IRS.

THE POTENTIAL FOR RAPID GROWTH OF SEVERANCE FUNDS

There is considerable potential for quick accumulation of large amounts of money in severance trust funds. For example, it is possible that if a union local with 5,000 members negotiates a collective bargaining agreement that includes a severance trust fund, the employer might agree to contribute $1 an hour for each of his workers. Computing on the basis of a 40-hour week, the trust fund would receive $200,000 each week. Annual revenues, before interest and excluding pay-outs, would be $10.4 million.

II. HISTORY OF TEAMSTERS LOCAL 295

SENATE COMMITTEE INVESTIGATES TEAMSTERS IN 1950's

The Senate created the Select Committee on Improper Activities in the Labor or Management Field in March of 1957. The Select Committee was, in effect, an arm of the Senate Permanent Subcommittee on Investigations. The Select Committee Chairman, Senator John L. McClellan of Arkansas, was also Chairman of the Investigations Subcommittee. Three of the other Senators on the Select Committee also served on the Investigations Subcommittee. The Select Committee's staff included men and women assigned from the Investigations Subcommittee. And the Select Committee's rules and procedures were those of the Investigations Subcommittee.5

The Select Committee focused considerable attention on the activities of the Teamsters Union and its executives, including Dave Beck, the president, and James R. Hoffa, a vice president who later became president.

The Select Committee issued interim reports in 1958 and 1959 and a four-part final report in 1960. It is from these reports and from the two and a half years of public hearings held by the Select Committee that this staff study gathered information on the creation of Local 295.6

THE IMPORTANCE OF JOINT COUNCIL 16

In the mid-1950's, James Hoffa was trying to unseat Dave Beck as president of the Teamsters International. One move Hoffa made was to try to take control of the powerful Teamsters Joint Council No. 16 in New York City."

Joint Council 16 was important to Hoffa's ambitions because it controlled the flow of goods and services in and out of and within New York City. Council 16 had the authority to approve Teamsters strikes and to grant or withhold Teamsters support for strikes staged by other unions.8

In addition, New York, as much as any other city in the United States, is dependent on services for its economic life. And in providing these services, the Teamsters Union plays a key role. Teamsters deliver food, pick up garbage, transport freight. Few aspects of New York commerce are not affected by the Teamsters. New York would quite literally close down if the men who drive its trucks stayed home.

5 Hearings before the Senate Select Committee on Improper Practices in the Labor or Management Field 85th Congress, First Session, pursuant to Senate Resolution 74, 85th Congress, Parts 1-58, February 26 1957-September 9, 1959; First Interim Report March 1958; Second Interim Report, part 1, August 1959; Second Interim Report, part 2, October 1959; Final Report, part 1, February 1960; Final Report, part 2, March 1960; Final Report, part 3, March 1960; Final Report, part 4, March 1960.

• Ibid.

7 Interim Report of the Select Committee on Improper Activities in the Labor or Management Field, March 17, 1958, pp. 198-199. 8 Ibid.

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