else? Would $46,000 be a good round figure to consider as the amount? I am trying to make it simple rather than get it involved. Mr. ELY. That is right. I think that is correct. You said a good figure, I don't know whether you meant morally good or not, but an approximate figure is what you meant. Isn't it?

The CHAIRMAN. Yes; a figure that would stand up against all deductions, and so forth. I don't want to say $46,000 and then find they get maybe $20,000 back, so the net would not be $46,000. Would the net outlay from this fund, we will put in that way, would the net outlay from this fund for premiums and payments to the insurance company, would that total about $46,000 for this particular fund we are considering?

Mr. ELY. I would think so, sir, to the best of my knowledge, and I am not an expert. I think that is right.

The CHAIRMAN. Then my figure here of $116,000 approximately, is a good average figure or an average figure to consider that would have to be deducted each year for the operation of this fund and for the payment of premiums, and that fund totals about $695,000. Is that right?

Mr. ELY. That is the way it is now operated. If we could change that administration in the office, we could knock off approximately, in my estimation, $40,000 at least."

The CHAIRMAN. Now let us get back to this broker again. You are a trustee. I think you said that you didn't know what fee was paid to him. Wouldn't you know as a trustee what fee is paid to the broker? It is not your responsibility, but wouldn't you have a general idea?

Mr. ELY. Well, I learned recently that I think I know about what he gets, but the insurance company pays that to the broker. The CHAIRMAN. Yes; I know that.

Mr. ELY. As I understand it, under a California law it doesn't matter whether you deal direct to the insurance company or through a broker, you have to take into consideration a payment to a broker. Mr. GRAHAM. But it doesn't say how much?

Mr. ELY. No. That is between the broker and the insurance company.

The CHAIRMAN. There is another spot. If that fee were excessive and could be cut down, that could naturally be reflected in the less charge on the part of the insurance company. All of this sort of flows right through there.

Mr. ELY. I was told rather recently that the brokerage was around $6,000 and $7,000 a year, between 5 and 7, right around there. The CHAIRMAN. To place what amount of policy?

Mr. ELY. I beg your pardon.

The CHAIRMAN. In order to place what amount of policy per year? Mr. ELY. Well, we don't, of course, figure in amount of policy, we figure it in premium. I guess they figure it in premium, based on the premium that we pay.

The CHAIRMAN. On the $513,000 that have been paid in premiums, we will say, for the past year-is that correct?

Mr. ELY. Yes.

The CHAIRMAN. The broker would get how much?

Mr. ELY. I think I heard-as I say, this is very hearsay, but I think I heard it as five, six, or seven thousand dollars.

Mr. HOLT. What was the premium?

Mr. ELY. $513,000.

The CHAIRMAN. What is the condition of the fund itself? Has it increased in value or has it remained stationary, or what is the condition of the fund?

Mr. ELY. Well, we have a good surplus in the fund. We have in the neighborhood of $400,000 on hand.

The CHAIRMAN. Is that up or down from where it started?
Mr. ELY. Well, we didn't have anything to start with.

The CHAIRMAN. The first year it started you had a certain amount paid in.

Mr. ELY. We have accumulated since the first year, yes. We took on additional insurance the first of 1954 but we have also increased the payment to the fund as of May 1. So we are now paying 612 cents instead of 712. I think that surplus is not endangered.

The CHAIRMAN. There are some funds being discovered in parts of the country that are now completely exhausted, they are depleted. Mr. ELY. I have the key to the safe deposit box where we have about $200,000 in securities. Mr. Fillipini, sitting over here, has a key. We both have to go in there at the same time to have access. I know those funds are on hand and we checked them recently.

The CHAIRMAN. Mr. Ely, you have handed to me or someone has handed to me a statement on your part, a statement of Henry B. Ely, before a subcommittee of House Committee on Education and Labor investigating welfare and pension funds. Would you like to have that submitted?

Mr. ELY. Yes. I would read it, if you like.

The CHAIRMAN. Yes. I believe you have in there some recommendations and suggestions.

Mr. ELY. I will skip my background or qualifications in the first paragraph.

The first change should be the elimination of the right to strike in order to have management representatives act as trustees. Our experience has been that even though management has not wished a welfare fund nevertheless, because of a shutdown or threatened shutdown by the union, management representatives have been forced to become trustees. Furthermore, even while they are trustees they have been threatened with economic action if they did not vote in accordance with the demands of the union. Again the management trustees, :although dissatisfied with the operations of a welfare fund, cannot resign be-cause then the welfare fund would fall as not being in accord with the TaftHartley Act and management would be faced with a strike. A trustee forced by threat of strike to act as such, forced often times to vote under this threat, and unable to resign if dissatisfied with the operations, is not a trustee in the historical sense of the word and cannot be required to fulfill the high fiduciary ..duties of a trustee.

If management, without a threat of strike, desires to be a trustee there is no .objection, but the act can provide that a bank or trust company be the trustee as selected by the parties. Such bank or trust company can receive payments from the employers, handle the relationship between the fund and the insurance company to ascertain whether the policy is being carried out, and the insurance company can receive the claims under the policy and make payments to the ⚫employees.

There is absolutely no necessity to require management, under constant threat, to act as trustee when a neutral party such as a bank or trust company can perform these functions.

There have been many abuses in connection with who should be the broker and who shall be the insurance carrier. This is on my own experience. A welfare fund is in the nature of a public trust and should be treated accordingly. Thus, the law should provide, as with Government contracts, that requests for bids be

submitted to insurance companies and that the insurance be awarded to the lowest and best bidder, or carrier, with a public opening of the bids.

Many threats of strike have occurred as to whether or not the union should name the broker who will receive the brokerage. There appears to be no alternative for a proper resolution of the problem than to have management and labor each appoint a broker who would divide the commission.

If at the bargaining table when the contract is being settled the trust instrument and rules of eligibility were negotiated, when at the close of negotiations: all matters would be settled, the bank or trust company selected as trustees and there would be little or no further reason for either management or labor to act other than in an advisory capacity to the trustees, and all matters which might be subject to strike threat would be eliminated when the labor agreement was reached.

The CHAIRMAN. We certainly appreciate your giving us those suggestions. They have a lot of meat in them.

In connection with the regulation of welfare funds, which we are considering, do you believe it should be by State or Federal authority, or have you any idea?

Mr. ELY. Well, we attorneys have gone through almost 20 years of trying to find out who has jurisdiction between the State and Federal over labor relations.

Mr. LUCAS. Have you found out yet?

Mr. Ely. No, sir. It changes every day. The National Labor Relations Board changes its jurisdiction every day, or almost it seems like that. Now it has jurisdiction or can exercise jurisdiction, which it doesn't always do, on industry affecting commerce. I think that in view of the fact that uniformity is essential, that many funds operate over many States, such as ours, and in view of the fact that the great bulk of funds, although not all of them, effect interstate commerce in their operations, payments to it, strikes over it, and so forth and so on, the Federal Government should be the only one to regulate welfare funds of labor unions.

The CHAIRMAN. Would that be somewhat along the line of your SEC for the securities firms and businesses?

Mr. ELY. Well, of course I am against further bureaus.

The CHAIRMAN. I would guess that.

Mr. ELY. I feel, if the act were properly drawn, there would not be need for further bureaus.

The CHAIRMAN. In other words, to place it in existing departments, is that what you have in mind?

Mr. ELY. I think if you have a regulatory law-for instance, the wage and hour law is not a good example, because there you have an administrative group but you also have the regulation of time and a half after 40 hours, which is self-executing. An administrator is not necessary on that. I think a proper law could be drawn which would be self-executing, although I agree with the late Senator Taft who felt that welfare funds should be under regulation similar to banks.

The CHAIRMAN. And insurance funds.

Mr. ELY. Banks or insurance. Of course, I don't think the Federal Government has jurisdiction-the Federal Government hasn't got jurisdiction over insurance companies at the present time, but it does have jurisdiction over national banks.

The CHAIRMAN. I was thinking of various types of trust funds and also insurance funds. I think the States

Mr. ELY. States have jurisdiction over insurance funds, as I recollect. But you have a bank examiner come in through the banks.

He looks over what the bank's investments are, how much has been loaned a director, or whatever. He looks over whether they are conducting their business properly, as I understand it. I think maybe something along that line would be it. I suppose the Federal Reserve bank does that, don't they? I certainly think that if out of the Federal Reserve bank you had examiners from time to time, it would be very helpful.

The CHAIRMAN. Of course there has been quite a legal argument over the status of insurance, whether it should be in interstate commerce. We have acted in Congress on that saying we thought it should be under State authority. That is the real purpose of these hearings. We are into the meat of it now, seeing what type of regulation should be enacted to handle this type of fund.

Mr. ELY. Well, as I say, we have a different situation than insurance companies have. That has been battling back and forth. This is labor. It is affecting interstate commerce, affecting strikes, shutdowns, all the rest of it. We have vast sums involved. I am informed that under the last basic trade agreement with the general contractors in Los Angeles, the amount collected locally here will be $21 million a year. We can't depend on investigating committees to look after all of these funds all the time. Somebody should have an eye out on this thing.

The CHAIRMAN. We haven't the time, the staff, nor any of that sort of thing, to get into this. Actually what we are, as you say, is an investigating committee right now for the sole purpose of initiating legislation in this field. That is what we are trying to discover. In the course of our hearings, we will naturally turn up bad practices. You have to do that in order to know what you are trying to correct, and so on. But primarily we are interested in legislation as a final objective or goal or result of these investigations.

I spoke with you, mentioned it here, and I also stated it, that you have the two problems or extremes there in connection with the SEC or your trust funds, and then you get into your insurance funds. There is a controversy between Federal and State authority there.

You mentioned labor relations. I grappled with the Taft-Hartley for quite a few years. I guess the major difficulty or point which caused the recommit vote in the Senate was over that problem of State authority in labor relations fields, how much authority should the States have in connection with strikes, picketing and lockouts, boycotts, and so on, and how much should the Federal law predominate. That is our problem here.

Mr. ELY. I would say this, that outside of possibly New York State and 1 or 2 others, the various of the 48 States have not regulated welfare funds as yet.

The CHAIRMAN. New York is the only one. That just happened

recently.

Mr. ELY. Yes. In other words, they have not exercised jurisdiction, if they did have it, or haven't wanted to. We would have a battle royal in our State, in our State legislature, on regulation of welfare funds. Labor would be on one side, management would be on the other, and there we go.

The CHAIRMAN. Mr. Ely, I will let some others question. I have to leave shortly.

Mr. Holt.

Mr. HOLT. Mr. Ely and my colleagues, I apologize for being late and stepping out, but that is the penalty of representing the San Fernando Valley and Hollywood. I have a few problems out there,

too.

If I am repeating something, I will apologize. But I am interested in the broker. As I understand it, those insured are in the southern California area, Nevada, and San Diego, approximately, and in this area.

Mr. ELY. And Arizona.

Mr. HOLT. So it is largely southern.

Mr. ELY. Well, we include Reno.

Mr. HOLT. And the broker is up in Sacramento?

Mr. ELY. That is right.

Mr. HOLT. Yesterday we found a broker operating out of Los Altos with the San Bernardino and Barstow area. Being rather a practical soul and from a local area, I wondered why, and you mentioned the operation of the fund-if you mentioned it earlier, do not repeat it, but just briefly give it to me-why the broker was from Sacramento, and how, in your opinion, it was easier to process claims from Sacramento, or did they do it directly? There was a lady yesterday who did it through the mail.

Mr. ELY. No claims are processed through the broker.
Mr. HOLT. It is through the company?

Mr. ELY. All with our main office located here in Los Angeles, processed, I guess, from Reno here by mail. That presents a problem,

too.

But so far as the broker is concerned, he was the broker for the northern California fund which agreed to a sheetmetal workers northern fund, which agreed to it a few months before we did. That is why we happened to have that broker, the same insurance company, and everything else.

That was what the union wanted. I have talked with that broker just once in the last 4 years for any advice. He hasn't given us any advice, at least so far as management trustees go, during 4 years, as to our policy, its terms, or anything else.

Mr. HOLT. The point I am trying to make is this: Maybe I am wrong, and if so it will be clarified in a little while as to what it is.. It is my understanding that while the broker handling the funds, the broker is supposed to lend assistance. That is the function of a broker. Mr. ELY. That would be true, I think.

Mr. HOLT. Maybe it isn't true in welfare funds.

Mr. ELY. Not to my knowledge. You have 30 claims a day coming into a welfare fund or more, maybe, and the broker is not down there. And anyhow, the welfare fund approves the claims and draws a draft on the insurance company. The insurance company recognizes that draft. So the insurance pays its own claims. You wouldn't need a

broker on that.

Mr. HOLT. Thank you, Mr. Ely. I appreciate the remarks in your statement being very forthright and very constructive.

The CHAIRMAN, Mr. Lucas?

Mr. LUCAS. No questions at this time.

The CHAIRMAN. Mr. Miller?

Mr. MILLER. Mr. Ely, going back to the question of under what authority shall this law be administered, I believe you stated that this