NFA National Food Processors Association LEGISLATIVE AFFAIRS May 16, 1978 EPISA and Seasonal Industries - This statement is being submitted on behalf of the National Food Processors Association ("NFPA") formerly known as the National Canners Association ("NCA") regarding the possibility that regulations may be promulgated under sections 202 (a) (3) (B), 203(b)(2) (C), and 204 (b) (3) (D) of ERISA, relating to seasonal industries. NFPA is a nonprofit trade association, representing approximately 458 canned food processing companies located in 41 states, Puerto Rico and American Samoa. NFPA's members pack 85 to 90 percent of the canned foods produced in the United States for human consumption. We think that it is clear that ERISA does not require the Secretary of Labor to modify the generally applicable 1,000-hour standard in the case of seasonal industries. It merely authorizes him to promulgate regulations defining a "year of service" in the case of any seasonal industry where the customary period of employment is less than 1,000 hours during a calendar year. The statute clearly permits the Secretary to prescribe the same definition of a "year of service" for seasonal industries as the statute and regulations prescribe for other industries. ERISA's legislative history reveals that the principal purpose of the generally applicable 1,000-hour standard was to protect seasonal and part-time employees. The Conference Report for ERISA states that "[i]n general, the 1,000 hour standard Although the Secretary is permitted to modify the 1,000-hour standard in the case of seasonal industires, he should exercise that authority only if there are compelling reasons for doing so. In our judgment, it would be highly inappropriate for the Secretary to prescribe a definition of a year of service for plans in seasonal industries that is any different from the generally applicable 1,000-hour standard. Accordingly, we urge the Secretary to extend the 1,000-hour standard to plans in seasonal industries. The principal reasons supporting NFPA's position may be summarized as follows: A. The 1,000-hour standard is already very generous. It permits an employee who works on a seasonal, irregular or part-time basis to complete a "year of service" even though he completes far less than a standard full-time year of work (i.e., approximately 1,800 hours). B. A great many seasonal employees (who work for less than 1,000 hours per year) would not work long enough with their employers to become entitled to a vested benefit. And even when such an employee became entitled to a vested benefit, his benefit would ordinarily be quite small. On the other hand, the record keeping and other administrative costs involved in covering such employees would be quite substantial in the canning industry. On balance, the cost of covering seasonal employees who work for less than 1,000 hours per year would far exceed the benefits to be derived from covering them. C. There appears to be no principled basis for special treatment of employees in seasonal industries. Such special treatment would arbitrarily discriminate between (i) seasonal industries and (ii) industries which are not regarded as seasonal but which employ many part-time and/or seasonal employees. In both cases a substantial number of employees may customarily complete less than 1,000 hours per year. If the 1,000-hour standard is appropriate for the many part-time and seasonal employees in nonseasonal industries, it should be equally appropriate for part-time and seasonal employee in seasonal industries. D. As the Department of Labor recognized in Interpretive Bulleting 76-2, ERISA's provisions regarding seasonal industries are anomalous. They are phrased in terms of a particular kind of industry, while the general participation, vesting and benefit accrual provisions focus on particular plans. Although the Secretary of Labor lacks the authority to amend ERISA, he can and should administer the Act in a manner that both advances its general purposes and limits the impact of the Act's anomalies. Extending the 1,000-hour standard to seasonal industries would have both of these results. " E. Any definition of seasonal industry" that depended on "recurring weather conditions" rather than "cyclical demand" (as suggested in the Department's request for comments) would arbitrarily discriminate against those industries that are affected by weather conditions. The effect of weather on patterns of employment has no rational relationship to the purposes of ERISA. As far as ERISA is concerned, the reason why an employee works for less than 1,000 hours per year should not be relevant; part-time and seasonal employees in all industries should be treated alike, without regard to the various reasons for their part-time or seasonal status. Thank you very much for your request on behalf of the Pension Task Force for our comments on the protections afforded workers and retirees by the Employee Retirement Income Security Act of 1974, and for our views on possible legislative changes in the Act. Thank you also for your consideration in consenting to keep the record of the Subcommittee's May Oversight Hearings open for receipt of our statement. As you know, we are staff attorneys at the National Senior Our thoughts in preparing these comments had originally focused on two areas of major concern to many of the pension plan participants we represent. These areas are ERISA's special protections of the pension rights of seasonal workers, protections which have to date received insufficient attention from both the Labor Department and the Internal Revenue Service, and the unintended effects of the overbreadth of ERISA's state law preemption provision which has both undercut valuable state innovations in the employee health benefits field and threatened the rights of spouses of pension plan participants under state marital property distribution laws which have worked fairly and effectively for generations. The serious questions which have arisen in these two areas deserve, in our judgment, the close attention of the Pension Task Force and of the Subcommittee. We are including, as part of this statement, a copy of testimony addressed to the special problems of seasonal workers and of state law preemption we submitted to the Labor Department's ERISA Advisory Council in April of this year. We hope that the views outlined in this testimony will be useful to the Task Force and the Subcommittee in its consideration of these extremely important areas. With respect to the preemption question, we would also urge that the Subcommittee carefully consider proposals such as that recently offered by Senator Curtis (R-Nebraska) in S.2018 to limit ERISA's preemptive effect to those state laws which themselves relate to ERISA's substantive provisions. Despite the importance of the seasonal workers and preemption questions, the focus of the comments we wish to share with the Task Force and Subcommittee has been broaden substantially by the introduction last month of the ERISA Improvements Act of 1978 (S. 3017) by Senators Javits and Williams. The issues raised by S. 3017, and the assumptions which apparently underlie it, are of overriding importance to workers and retirees because they reflect a careful assessment of ERISA's effects to date by its two major Senate sponsors. While we welcome the many provisions of the bill which strengthen and underscore ERISA's guarantees, we are also concerned that other provisions may undermine these guarantees in ways that are both harmful to the interests of the workers and retirees for whom the private pension system exists and entirely unnecessary. Much of the ERISA Improvements Act appears to reflect an assumption that ERISA may have harmed the private pension system in the United States as much as it has helped it. Perhaps the best example of this apparent assumption is the sponsors' decision to amend the declaration of policy which introduces ERISA by the explicit addition of a policy "to foster the establishment and maintenance of employee benefit plans sponsored by employers and employee organizations", $201. The insertion of this added policy declaration at the very least implies that ERISA has not fostered the establishment and maintenance of employee benefit plans, and may even suggest, however subtlely, that ERISA has discouraged and undermined the creation and operation of such plans. If this kind of implication or suggestion is intended by the change in ERISA's declaration of policy proposed by Senators Javits and Williams, we would submit that nothing in ERISA's three-year history supports so disparaging an assessment of its effects. We are aware, of course, of the many accounts of pension plan terminations, especially terminations involving small plans, which have surfaced since ERISA's enactment. We are also aware of the objections of employers, employee organizations, trustees, and others in the pension industry to some of the requirements imposed on them by ERISA and by such court decisions as Daniel v. The International Brotherhood of Teamsters. We do not dismiss or ignore either reports of plan terminations or the views of the pension industry. At the same time, we would urge that any proposals to cut back on the protections afforded workers and retirees by ERISA be received with caution, in light of the high stakes involved. The private pension system exists for the benefit of its participants and of its participants only, and the largely unorganized voices of plan participants are rarely heard by those institutions who would now find that ERISA is designed "to foster the establishment and maintenance of employee benefit plans". ERISA was based on the premise that employee benefit plans deserve to be fostered and maintained only if they are operated in a manner that is consistent with the highest possible regard for the rights of the workers and retirees in whose name they are established. Our concern is that the problems encountered by the pension industry in implementing ERISA's standards not be resolved by abandoning this premise. It is in this spirit that we offer the following specific comments on the proposed ERISA Improvements Act of 1978. 1. The proposed Employee Benefits Commission. We are pleased to see that the bill addresses the problem of dual jurisdiction over the enfocement of ERISA in a comprehensive way. The delay and uncertainty caused by concurrent Labor Department and IRS jurisdiction over similar and often identical ERISA provisions has, in our judgment, been harmful to the interests of plan participants and beneficiaries. The most prominent example of harmful delay is the continuing absence of regulations implementing the special protections of the rights of seasonal workers to participate and accrue benefits in pension plans. These rights are guaranteed by part 2 of title 1 of ERISA, over which both the Labor Department and the Internal Revenue Service may properly |