2. Individual payments can be made for six months immediately following the last month of your employer's contribution if you are either:

a) Laid-off

b) Sick or injured

Note pertaining to b): In order to continue individual payments after six (6) months, a confirmation from the Local Union and a current doctor's certificate must be submitted for review by the Trustees.

Q. Are there any exclusions for individual payments?

A. Yes, as follows:

1) After you have received your first Total Permanent Disability check; or

2) After the effective date of your retirement; or

3) If you are a new employee and are not yet covered by this group insurance.

STATEMENT Of Matt Simon, President, World Book LIFE INSURANCE Co., AND ALEXANDER HEHMEYER, EXECUTIVE VICE PRESIDENT, FIELD ENTERPRISES, INC.

Field Enterprises, Inc. is a privately held corporation, with its principal offices located in Chicago, Illinois. Field Enterprises, in addition to various newspaper publishing interests, owns Field Enterprises Educational Corporation which is the owner of the World Book Encyclopedia, Inc. and other subsidiary corporations, including World Book Life Insurance Company. A copy of the Field Enterprises organizational chart is attached as an Exhibit to this statement.

World Book Life Insurance Company is an Illinois insurance company, licensed now in 40 states. The company has filed an insurance holding company's registration statement in Illinois and other states where required indicating the organizational relationship between the insurance company, its parent and affiliated companies. The World Book Life Insurance Company's original purpose was to sell life insurance policies on children. Subsequently, it was determined that certain Field Enterprises Employee Group Insurance Programs could also be administered by the insurance company and these policies were transferred from outside carriers to World Book Life Insurance Company where they are now placed. The advantages of handling the insurance in Field Enterprises' own subsidiary company are several: 1) the program is more effectively administered by the subsidiary company; 2) the subsidiary insurance company is more responsive to claim problems; 3) benefits have been increased at no increase in premium rate; 4) insurance programs can also be negotiated directly between the parent and the subsidiary and without the intervention or expense of an intermediary; and 5) the profit accruing to the subsidiary insurance company has enhanced the financial stature of the insurance company. The placement of the insurance through the subsidiary insurer has resulted in no complaints by either employees or management.

With this background, we should now like to turn our attention to the purpose of our statement in these oversight hearings on the Employee Retirement Income Security Act of 1974 (ERISA). One of the primary purposes for the enactment of ERISA was to establish standards of conduct, responsibility, and obligation for fiduciaries in order to protect the interest of participants in employee benefit plans and their beneficiaries. (ERISA Section 2(b))

Section 406 prohibits certain transactions between fiduciaries and parties in interest, the primary purpose apparently being to remove conflict of interest situations. Because these prohibitions are so sweeping in nature, Congress recognized an immediate need to provide a list of exemptions in Section 408. Section 408(b) (5) (B) permits a plan sponsor to purchase insurance from its wholly-owned insurance subsidiary provided the total premiums and annuity contracts written by such an insurer for all plans with respect to which such an insurer is a party in interest, do not exceed 5% of the total premiums and annuity contracts written for all lines of insurance in that year by such insurer. Currently, the premiums for Field Enterprises, Inc. insurance programs are approximately 29% of the total premium volume of World Book Life Insurance Company. It is the position of Field Enterprises that the 5% limitation on premium is:

1. unnecessary;

2. not related to any meaningful statistical basis;

3. inconsistent with normal business practices; and

4. counterproductive to the purposes of the Act and the broadening of employee benefits.

1. Any limitation is unnecessary. The fact that a plan purchases insurance from an insurance company licensed in one of the states is more protection than ERISA requires from employers and fiduciaries who elect to provide self-insured benefits from general operating revenues or an IRC Section 501(c) (9) trust. Congress has adopted as adequate safeguards the reporting requirements and standards of acceptable conduct prescribed by ERISA. We agree with the sufficiency of this protection; we urge that those companies who have gone further and established licensed insurance companies which provide employee benefits should not be subjected to some greater, more stringent limitation. Licensed insurance companies already are required to maintain a minimum capital and surplus by their state laws, invest their assets according to statutory limitations, file holding company statements in Illinois and many other jurisdictions showing their relationships to other corporations in the holding company system, file annual reports showing

their financial status and be subject to periodic financial examinations. Although insolvencies of life and health companies have not been of any significant number, some 11 states have guaranty fund legislation to protect life and health company policyholders.

Bills are pending in other states and further legislation is anticipated in many of these. For instance, 48 jurisdictions already have enacted guaranty funds for property and casualty companies. Through these recently established funds and other ways the states constantly are attempting to improve regulations so as to reduce the risk and the effect of an insolvency. Admittedly, this state regulation has not prevented all insurance insolvencies but their effect is greatly diminished. It seems undeniable that the protections provided by a licensed and regulated insurance company must exceed those protections afforded by the unregulated and unfunded vehicles that ERISA permits to provide the entire package of employee benefits to plans that elect such an unregulated route. Since the Congress imposes no further regulation on self-insured plans, we do not see either the logic or the necessity of imposing such stringent regulations upon an insurance company which is already subject to the regulation mentioned above.

2. There is no basis to select 5%.-We can find no indication in the record why Congress selected 5% as a maximum. The percentage selected may solve the problem of those giant insurers who have welfare plans for their parent and affiliated companies, but the limitation is no solution for the smaller companies which are equally well-run, stable, and serving legitimate business purposes. We are not aware any evidence was presented that any percent limitation is preferable to no limitation.

3. The 5% limitation is inconsistent with normal business practice. The 5% limitation forces parent corporations who have established, solvent, and wellmanaged subsidiary insurers to pay premiums to outside companies. Such outside companies are subject to the same state regulation as the parent company's subsidiary insurer and may in fact be less well managed than the employer's own insurance company. While the broad prohibitions of Section 406 would require banks and insurance companies to purchase banking services or insurance protection from competitors, Congress recognized that it would be "contrary to normal business practice for a bank to invest its plan assets in another bank" or "to require the plan of an insurance company to purchase its insurance from another insurance company." Therefore, consistent with normal business practices, the use by these financial institutions of their own facilities and policies is permitted by Section 408(b) (4) and Section 408(b) (5).

Field Enterprises established World Book Life Insurance Company primarily to sell various insurance products to a defined market. Since the insurance company has the legal and practical capability of insuring certain of Field Enterprises employee benefits, these insurances were systematically moved from a competing insurer to Field Enterprises' subsidiary company. The same coverage with certain improvements is being provided as had been provided by the outside insurer. There was no objection from employees and the plan has operated and continues to operate without difficulty. The effect of the 5% limitation is to force Field Enterprises to stop handling its own business through a regulated, licensed insurance company and to shift its business to another company that is subject to no greater regulation.

4. The 5% limitation is counterproductive and may lead to reduced employee benefits. Undeniably, it is a legitimate business purpose to seek the best buy in the marketplace-the greatest benefits at the lowest cost. This must be done consistent with prudent management practices (which are amply required of the fiduciary by Section 404 and of the insurer by state insurance codes and by Section 408(b) (5) (A)) but ERISA thoroughly frustrates this heretofore sound business principle. The 5% limitation forces a fiduciary to purchase insurance in the outside market where premium dollars also must provide for outside profits and acquisition costs. A parent company that cannot provide a cost savings through a subsidiary insurance company would use the traditional outside market in any event, but where a parent can provide equal benefits through its insurance subsidiary at lower costs, it can either save money or provide greater employee benefits at the same cost. Surely, Congress recognizes the merit of either result. The result of the 5% test, therefore, we say is counterproductive because it may reduce the benefits provided since employers that do not meet the test cannot use their own subsidiary insurance companies but instead, at increased cost, are forced to use outside insureres which are not necessarily larger or more stable, but whose only unique qualification is that they are an outside, unrelated company.

Alternatively, employers which cannot qualify under the 5% test may abandon insurance plans altogether and adopt the relatively unregulated self-insurance vehicles which are permitted by ERISA to provide all the benefits without limitation. We did not understand and do not believe that it serves Congress' purpose to force employers now using adequate insurance plans to abandon such plans and adopt unfunded, self-insured arrangements yet that is one of the clear alternatives that ERISA presents to those employers who exceed the 5% test.

CONCLUSION

It is our position that Congress should consider amending ERISA to eliminate the 5% premium test. We urge that Section 408(b) (5) be amended to read as follows:

"Section 408(b) The prohibitions provided in Section 406 shall not apply to any of the following transactions:

***

(5) Any contract for life insurance, health insurance, or annuities with one or more insurers which are qualified to do business in a state, if the plan pays no more than adequate consideration."

An amendment which strikes the remainder of subsection 5 we believe would serve Congress' goal and be consistent with the purposes to be achieved. The prudent management requirements of Section 404, the adequate premium consideration that would be required by Section 408(b) (5) as indicated above, the reports already required by ERISA and regulations and surveillance provided by the state insurance codes, we believe adequately safeguard against abuses that could arise from self-dealing. To continue the 5% limit of ERISA is unnecessary, frustrates legitimate business purposes, and in fact is counterproductive to the important goals that are to be achieved.

PENSION PROGRAMS, INC., New York, N.Y., April 1, 1975.

Re Public Hearing on ERISA, written material for the record.
Mr. VANCE J. ANDERSON,
Pension Task Force, Subcommittee on Labor Standards, Cannon House Office
Building, Washington, D.C.

DEAR SIR: ERISA, Title I, Part 4, Section 406 contains a prohibited transaction that could be disastrous to the good intentions behind this act. The specific prohibited transaction I am referring to involves not allowing a fiduciary to provide multiple services to a plan. I realize that section 414 does not make this effective until June 30, 1977 but I believe that the extreme importance of this prohibition deserves immediate attention.

I am sure that you are aware of the large number of small corporation qualified plans, those with less than 50 participants. In fact, many of these have between one and twenty-five participants. I am equally sure that you are aware of the large number of these plans that contain an insured pre-retirement benefit. I am not sure that you are aware of the function of the life insurance agent in these areas. In many, if not most, of these plans, the professional life insurance agent is involved in the design and installation of the plan and in the administration of the plan as well as the sale of life insurance. We do not act as legal representatives nor in many cases do we act as investment advisors but we do initiate the idea in the employers mind. We do design the proper plan for him. We do help in communication of the plan to the participants. We do provide a service to the administrators by accomplishing such functions as preparing reporting forms, doing many of the administrative tasks and preparing valuations.

We do the administration, valuation and government forms service for a fee and we sell life insurance for a commission.

What I am trying to say is that we are responsible for the initiation and continuation of many qualified plans. A function that is certainly in the best interest of this country and ERISA.

As ERISA stands now, we will have to curtail all of these functions in 1977. At that time our only service will be to sell life insurance to a plan after the plan has been designed and only when we are called in. Not only will we suffer, but all of the employees of small corporations will suffer. I believe the number of new plans will reduce drastically after 1977 if a variance is not granted.

The insurance man must be allowed to continue to sell and service qualified plans and to be compensated separately for each function. He should be held accountable for the proper performance of his services in the best interest of the plan participants, but he should be allowed to function.

Yours sincerely,

JUDD S. SLOANE, C.L.U.