The Supreme Court, the Securities and Exchange Commission, The Labor Department and now Congress are involved in an ongoing struggle over what laws should protect investors in $280 billion worth of private pension funds, and the outcome could have a major effect on the future of all such funds.
The latest volley was fired early this month in Congress when Sen. Harrison William (D-N.J.) introduced legislation that includes a provision that would prevent the SEC from scrutinizing pension funds as if they were securities.
But the dispute first came to light last year in a lawsuit involving a former Teamsters union member who charged that he had been defrauded by his pension fund. John Daniel said he was never informed that in order to qualify for fund benefits, he would have to put in 20 years of uninterrupted service on the job.
When he retired in 1973, he was told that even though he had 22 1/2 years as a Teamster truck driver, he did not qualify for pension benefits because 12 years earlier he had taken an involuntary four-month layoff.
Daniel, now 69, had expected $400 a month in retirement benefits. And, he argued, since he was making an investment decision in joining the pension plan, he felt it should be considered a security, and he subject to antifraud provisions of securities laws. Those laws require that all material facts including such things as risks that the buyer should be aware of, much be disclosed to potential investors.
Daniel said he was never told of the limitations, or that he would not receive his pension if his service was interrupted.
When his suit reached the 7th U.S. Circuit Court of Appeals (after he won a lower court), a jurisdictional squabble between the SEC and the Labor Department intensified.
Then - SEC chairman Roderick Hills, a labor lawyer for many years and a labor law professor at Harvard Law School, didn't think the SEC and jurisdiction over the pension funds becuase it had not exercised such jurisdiction previously.
But his staff disagreed, and there was even an angry exchange between Hills and a young staffer who accused him of being "bought" by Williams, the chairman of the Senate securities subcommittee, who is opposed to any SEC involvement in pension funds.
Despite Hill's dissent, the SEC voted to file a legal brief supporting Daniel's case before the 7th Circuit alleging that pension plans should fall under the guise of SEC antifraud laws.
The Labor Department came down on the side of the Teamsters, arguing that the SEC should not get involved in pensions, and that the entire collective bargaining process would be disrupted by a decision in favor of Daniel, becuase unions would lose their status as exclusive agents of employes.
But the appeals judge disagreed with the Labor Department, and the Teamsters, claiming that the only real effect of a pro-Daniel decision on unions "will be in preventing them from defrauding their rank and file with impunity." The appeal has gone to the Supreme Court, which earlier this year agreed to hear the case.
Opponents of SEC involvement are not waiting for the courts. They have now shifted the battleground to Congress. Early this month, Williams introduced the ERISA Improvements Act of 1978, which includes a subsection that would prohibit the SEC from involving itself in pension funds. (ERISA is the Employe Retirement Income Security Act of 1974).
"Private pensions would be hampered with another layer of bureacracy," Williams said in an interview. "There would be major problems for the smaller plans, who already find it too expensive to go through the existing bureaucracy."
Part of the problem dates back to the debate on the Welfare Pension Plans Disclosure Act in 1957 and 1958. During that debate, the SEC said that it did have jurisdiction over pensions, but didn't want to be bothered because it would be costly to regulate them.
At that time, the National Coordinating Committee of Multiemployer Plans asked Harvard law professor Archibald Cox for his opinion on the matter. He told them that the SEC should be involved, because "it could be expected to produce better forms and better administrative regulations [than the Labor Department]. Its staff is also likely to have a better grasp of the significance of the information disclosed," he wrote.
This issue separates the organized labor leadership and the membership. The leadership now administers the hugh private pension funds, estimated to hold $279.5 billion, and is not interested in further scrutiny. Williams, long a friend of organized labor and chairman of the Senate Labor Committee, is siding with the leadership.
But union rank-and-file members say they are tired of continuing sagas of misuse of funds in such enormous funds as the Teamsters', and further annoyed over situations like Daniel's.
"The SEC is an effective law enforcement agency where the unions and the companies don't have an in," says Karen Ferguson of the Pension Rights Center, a pension reform group in Washington.
"And the Labor Department has a tremendous conflict of interest," she adds. "It is the traditional advocate of organized labor, but in this case doing what the union leadership wants to do may not be in the interest of the rank and file."
Organized labor is worried, Ferguson claims, because if the rank and file are told before going to work, or before joining a pension, "that there is a good chance they will never collect that pension, they just might decide not to take the plan, and sign up for their own personal plans, like an IRA or something."
She said that the "material facts and risks must be told to an employe, as if the pension plan is a security, because that pension is being offered as an inducement - either to hire someone or to get them to sign a contract."
"The argument that the disclosure required by the securities laws is somehow duplicative of disclosure required by ERISA is just not true," she says. "ERISA doesn't require anything like this kind of disclosure."
Williams says a ruling in the courts for Daniel could have "potentially disastrous effects." He pointed to a recent Labor Department study that estimates that the cost to organized labor should Daniel win could "range from $3.5 to $39.6 billion," for such things as more claims filed on the same precedent.
"That's just wrong," says Ferguson. "The Supreme Court has said that if applying a ruling retroactively would impose an undue burden, they won't do it."
Meanwhile neither SEC Chairman Harold Williams, nor his enforcement chief, Stanley Sporkin, will comment on the issue because it is now before the courts and an issue in the Senate.
But friends of Sporkin say the fiercely independent 18-year veteran is anxious to move in on pension funds, which have long provided huge amounts of money to questionable recipients, frequently including people linked to organized crime.
Jack Egan's Wall Street Report column will be resumed next week.