CABINET COUNCIL ON ECONOMIC AFFAIRS - JUNE 24, 1982

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84T00109R000100050019-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 21
• Document Creation Date: December 20, 2016
• Document Release Date: September 12, 2007
• Sequence Number: 19
• Publication Date: June 22, 1982
• Content Type: MEMO

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EXECUTIVE SECRETARIAT
Routing Slip
ACTION
INFO
DATE
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DCI
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6I DENTIAL
vvI fl
? THE WHITE HOUSE
WASHINGTON
?
ATTACHMENTS
CABINET AFFAIRS STAFFING MEMORANDUM ...~ nE:a;g~ ,
DATA:
NUMBER: 077331 cA DUEBY: - ----
SUBJECT: Cabinet Council on Economic Affairs - June 24, 1982
CABINET MEMBERS
Vice President
State
Treasury
Df
eense
Attorney General
Interior
Agriculture Commerce Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
OMB
CEA
CEQ
OSTP
ACTION
FYI
ACTION FYI
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Baker ^ ^
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Deaver ^ ^
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Clark ^ ^
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Darman (For WH Staffing) ^
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Harper lr ^
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Jenkins ^
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Gray ^
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CCCT/Gunn ^ ^
CCEA/Porter ' ^
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CCHR/Carleson ^ ^
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CCLP/Uhlmann ^ ^
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RTARKS: Attached is the agenda for the CCEA meeting Thursday. There
are two papers attached providing background.
CONFIDENTIAL
REURN TO: ^ Craig L. Fuller L1 Becky Norton Dunlop
Assistant to the President Director, Office of
for Cabinet Affairs Cabinet Affairs
456-2823 456-2800
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Confidential ?
Attachment ? THE WHITE HOUSE
June 22, 1982
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFAIRS
FROM: ROGER B. PORTER alp
SUBJECT: Agenda and Papers for the June 24 Meeting
The agenda and papers for the Thursday, June 24 meeting of
the Cabinet Council on Economic Affairs are attached. The
meeting is scheduled for 8:45 a.m. in the Roosevelt Room.
The first agenda item is a report from the Pension Policy
Working Group on public employee pension legislation. In recent
weeks administration officials and members of the Pension Policy
Working Group have met with congressional proponents of this
legislation and with a wide variety of interested parties. A
paper from William A. Niskanen, chairman of the Working Group,
describing the proposed legislation and outlining a series of
options for the Council's consideration is attached.
The second agenda item is a review of global negotiations
and North-South economic relations as they emerged from the
Versailles Summit. A paper from William Clark, Assistant to
the President for National Security Affairs, on this issue is
attached.
Confidential
Attachments
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? THE WHITE HOUSE ?
WASHINGTON
June 24, 1982
8:45 a.m.
Roosevelt Room
AGENDA
1. Report of the Pension Policy Working Group (CM#112)
2. Global Negotiations (CM#266)
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? WA ItIIJG ION, DC 90500 ?
MUF RAY L. WEIDENBAUM, CHAIRMAN
JERI Y L. JORDAN
WILT IAM A. NISKANEN
June 22, 1982
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFAIRS
FROM: WILLIAM A. NISKANEN \V%"*J
SUBJECT: Report of the Pension Policy Working Group:
Public Employee Pension Legislation
The Pension Policy Working Group has reviewed the
issue of public employee pension legislation and has
prepared the attached paper on this issue for the
Cabinet Council's consideration.
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. Issue Paper ?
Public Employee Pension Legislation
Background
Congressman John Erlenborn, the ranking minority member of
the House Labor Committee, has asked the Administration to
support H.R. 4928 and H.R. 4929, the Public Employee Pension
Plan Reporting and Accountability Act of 1982 (PEPPRA). This
legislation would establish Federal reporting, disclosure, and
fiduciary standards for the pension plans of state and local
governments. H.R. 4928 would also extend to lump-sum
distributions from public pension plans the favorable tax
treatment enjoyed by distributions from qualified private
plans.
Erlenborn strongly supports these measures on their own
merits. He has also emphasized on several occasions that two
other pension measures endorsed by the Administration will not
emerge from committee unless they are attached to the
legislation he wants. The two other measures are 1) a change
to prevent private firms from dumping their underfunded pension
plans on the PBGC, and 2) an increase in the premiums charged
by the Pension Benefit Guarantee Corporation (PBGC), an
insurance company owned by the Federal Government.
Without active Administration opposition, PEPPRA would
undoubtedly be included in a package with these two measures.
Passage of any pension package during this session of Congress,
with or without PEPPRA, is uncertain.
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In addition to Erlenborn, Senator Chafee and Congressman
Burton also supports PEPPRA. The American Federation of
State, County, and Municipal Employees also supports the
bills. PEPPRA's opponents include the National Governors
Association, the National Association of Counties, the U.S.
Conference of Mayors and other organizations representing State
and local governments.
State and Local Pension Plans
There are about 6,600 State and local pension plans, with
over $150 billion in assets. They cover 11 million current
employees and pay benefits to 2.3 million beneficiaries. Most
participants belong to very large plans, but most plans have
few participants.
Two recent studies found that most large public pension
plans are adequately funded and provide information on
investments, benefits, and actuarial assumptions to anyone
interested. However, a significant number of plans, especially
small ones, are underfunded and some of these plans could face
financial problems if they do not increase the rate of funding
or reduce future benefits. In addition, a large minority of
public plans did not provide adequate information on pension
benefits to their employees. A smaller percentage had no
available actuarial report.
PEPPRA's Provisions
pEPPRA would require the pension plans of State and local
governments to submit annual reports to the Department of
Labor, to have annual audits, to invest plan assets solely for
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the benefit of participants, and to refrain from investing
assets in certain projects that involve plan officers. These
requirements are similar to Federal reporting, disclosure, and
fiduciary standards for private pension plans. (.The
constitutionality of these requirements is discussed in an
Appendix, written by the Justice Department.)
All the reporting requirements would be waived for plans
in states with similar reporting laws of their own. However,
Federal fiduciary standards would preempt State standards that
allow "social investing" or that limit plans to very
conservative, low interest investments.
PEPPRA's supporters claim that stricter reporting and
disclosure requirements would provide voters and public
employees with information needed to evaluate the likely costs
of future benefits. Without public knowledge of this
information, state and local officials might be tempted to hide
the eventual cost of generous pensions.
Possible Compromises
in previous discussions with Erlenborn, Administration
officials have raised objections to PEPPRA. Erlenborn has said
that he would be willing to drop all Federal enforcement
provisions from PEPPRA in exchange for Administration
neutrality. The bills currently give the Department of Labor
the power to bring civil and criminal actions against managers
of public plans for failing to meet the reporting, disclosure,
and fiduciary requirements. State attorneys general, plan
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participants, and taxpayers would still have the right to sue
pension plans in Federal courts, as in the present bill.
Although he has not said so, Erlenborn would probably also
agree to eliminating H.R. 4928's tax provisions.
Other Pension Legislation
Passage of two other pieces of legislation sought by the
Administration may depend on supporting PEPPRA. The first
would prevent ongoing firms from dumping their unfunded pension
liabilities on the PBGC. Fully owned by the Federal
Government, the PBGC insures benefits from private pension
plans. Current law allows firms to terminate pension plans at
any time, and turn the plan's assets and liabilities over to
the PBGC. If liabilities exceed assets, PBGC can only claim 30
percent of the firm's net worth. By spinning off underfunded
subsidiaries, healthy firms can use this provision to unload
their pension debt on the PBGC. Although only a few firms have
used this technique so far, PBGC fears that it will become
increasingly attractive and.will soon create a serious drain on
PBGC's resources unless current law is changed.
The second desirable pension piece of legislation is a
premium increase for the PBGC. The Administration has
requested an increase in PBGC's annual premium from $2.60 to $6
per plan participant. Without the premium increase, the PBGC
will not run out of cash in the near future. However, the
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additional money is needed to keep the PBGC actuarially sound.
The new premium assumes that the law is changed to prevent the
dumping of pension debt on the PBGC.
Policy Options
The Cabinet Council can decide to support PEPPRA, support
a weakened version with no Federal enforcement or tax
provisions, take no position, or oppose PEPPRA in any form.
Option 1: Support PEPPRA
Advantages
o Reporting and disclosure for state and local plans
would give voters and public employees more
information on the eventual costs and benefits of
their pension plans. Without such requirements, state
and local officials may be tempted to hide the future
costs of current pension promises.
o Requiring State and local plans to invest solely for
the benefit of plan participants would discourage
social investing. Social investing, for instance in
mortgages with below market interest rates, reduces
plan income and transfers resources from plan
participants to people receiving the mortgage
subsidies.
o Ensuring that public plans are financially sound may
reduce the pressure for Federal bailouts in the
future.
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o Exempting public plans in states with adequate
reporting and disclosure requirements of their own
would minimize Federal interference.
o Supporting PEPPRA will increase. the likelihood of
obtaining passage of PBGC's premium increase and the
tightening of the pension insurance program.
Disadvantages
o Regulating State and local pension plans, in any form,
violates the principle of federalism. Expanding the
role of the Federal Government runs counter to the
basic tenet of the Reagan Administration.
o Placing Federal requirements on State and local
pension plans would encourage, not discourage, looking
to the Federal Government for bailouts. Federal
regulation would imply to many a Federal obligation to
help State and local plans that get themselves in
trouble. The next likely step after PEPPRA would be
to extend minimum funding and vesting requirements and
pension benefit insurance to public plans.
o Increased Federal regulation means an increase in the
paperwork burden on State and local pension plans and
an increase in the Federal bureaucracy.
o Lump sum distributions from public pension plans now
receive favorable tax treatment under temporary IRS
guidelines. These guidelines are under study and
should not be enacted into law until the Treasury
study is complete.
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o There is no guarantee that support for PEPPRA would
ensure passage of other desirable pension
legislation. Making a deal to support bad legislation
in exchange for good legislation would only lead to
greater pressures to compromise in other areas.
Option 2: Support a compromise bill with no Federal
enforcement and no tax provisions.
Advantages
o A carefully designed law could encourage the states to
enforce their own reporting and fiduciary regulations
with minimal Federal interference.
o A law with no teeth is a small price to pay for two
necessary pieces of legislation.
Disadvantages
o Any increase in Federal regulation, especially of
state and local governments, violates Administration
principles.
o Other enforcement mechanisms, such as the right of
private parties to sue public pension plans in Federal
courts, would be little better than direct Federal
involvement.
o Once a modified PEPPRA was passed, it would be easier
to amend it to introduce Federal enforcement, minimum
funding standards, and pension benefit insurance for
state and local plans.
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Option 3: Agree to remain neutral towards a modified version
of PEPPRA
Advantages
o A neutral position towards a weakened version of
pEPPRA would not contradict Administration
statements on federalism and deregulation.
o Such a compromise would improve the chances of
obtaining the PBGC premium increase and the
tightening of the pension insurance program.
Disadvantages
o The Administration should actively oppose
legislation that violates the fundamental principles
of federalism and deregulation. For instance,
Federal law should not prohibit States from making
social investments or from limiting pension plans to
very conservative investments.
o Agreeing not to oppose PEPPRA may give misleading
signals about the Administration's willingness to
acquiesce on other legislation it dislikes.
Option 4: Oppose PEPPRA in any form
Advantages
o Even stripped of its Federal enforcement and tax
provisions, PEPPRA would impose additional Federal
regulations on State and local pension plans. .
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o Opposing PEPPRA may have only a small effect on the
likelihood of obtaining the other two pieces of
pension legislation this session.
Disadvantages
o A modified version of PEPPRA could improve the
operation of State and local pension plans without
imposing detailed Federal regulation and
enforcement.
o Opposing PEPPRA would reduce the likelihood of
passage of the other two pieces of pension
legislation.
Recommendation
The Working Group unanimously recommends that the CCEA
support Option 4, opposing PEPPRA in any form. The PBGC
premium increase and the tightening of the pension insurance
program are not sufficiently urgent to justify Administration
acquiescence to PEPPRA.
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Office of the
Assistant Attorney General
2AJ1NJ1
MEMORANDUM
TO: _ Willim A. Niskanen
FROM! dHore
-Assistant Attorney VCIiCL 41
Office of Legal Counsel
RE: Constitutionality of H.R. 4928 and H.R. 4929 under the
National League of Cities case.
These bills are clearly within Congress' power to regulate
interstate commerce, see, e. g.,, Heart of Atlanta Motel v.
United States, 379 U.S. 241, 262 (1964), and do not on their
face appear to exceed the "limits upon the power of Congress
to override State sovereignty" imposed by the Tenth Amendment.
National League of Cities v. User y, 426 U.S. 833, 842-44
11976). In the National League of Cities case the Supreme
Court struck down the application of the 1974 amendments to the
Fair Labor Standards Act (FLSA) which extended that Act's
coverage, including its minimum wage and maximum hour provisions,
to State and local employees, insofar as those amendments
operated to "directly displace the States' freedom to structure
integral operations in areas of traditional governmental
functions." Id. at 851. The Court said that the States'
power to determine the wages and hours of those of its employees
who carry out essential governmental functions is one of the
"attributes of sovereignty attaching to every State government
which may not be impaired by Congress . . . ." 426 U.S. at
845. The Court noted the substantial costs which coverage
under the FLSA would impose on the States and the manner in
which the Act would displace State policies regarding the
delivery of "those governmental services which their citizens
require." Id. at 847-50. Thus the imposition of FLSA wage
and hour provisions on State and local governments, at least
with respect to many employees, would impermissibly impair
State sovereignty under the Tenth Amendment. Id. at 852.
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The provisions of H.R. 4928 and H.R. 4929, which are
directed to the integrity of public employee pension plans,
and which contain reporting and oversight functions and establish
limits on investments, may be intrusive or burdensome but do
not, at least on their face, impose substantial new costs on
the States. Nor do they necessarily affect the States'
abilities to deliver traditional governmental services to
its citizens. Federal legislation designed to ensure the
integrity of public employee pension plans does not in and
of itself interfere with integral parts of traditional state
activities which are immune from federal regulation under
the Tenth Amendment. The proposals do not manifestly intrude
to an oppressive degree on the ability of the States to make
policy decisions relative to the delivery of essential services.
See also Federal Energy Regulatory Commission v. Mississippi,
50 U.S.L.W. 4566 (June 1, 1982); United Transportation Union
v..Long Island R.R. Co., 50 U.S.L.W. 4315 (March 24, 1982);
Hodel v. Virginia Sur ace Mining & Reclamation Association,
452 U.S. 264 (1981).
A full and complete analysis of these measures and
their constitutionality under the Tenth Amendment would
require a more comprehensive analysis of.the provisions of
the proposals and an examination of their actual effect
on State and local programs.
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CONFIDENTIAL
? THE WHITE HOUSE ?
WASHINGTON
June 21, 1982
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFAIRS
FROM: WILLIAM P. CLARK"
SUBJECT: Global Negotiations
At Cancun, the President stated that "we are prepared to
carry out the commitment in the Ottawa Summit Declaration to
conduct a more formal dialogue -- bilaterally, with regional
groups, in the United Nations and in specialized international
agencies." He further stated that "the United States would
be willing to engage in a new preparatory process" for
Global Negotiations (GNs) if there were acceptance of four
essential understandings:
talks should have a practical orientation;
talks should respect the competence, functions and
powers of the specialized international agencies;
talks should be oriented toward mutually beneficial
international growth and development taking into
account domestic economic policies;
-- talks should take place in an atmosphere of cooper-
ative spirit.
On December 9, 1981, the United States submitted a draft
resolution in New York which called for a preliminary conference
(i.e. preparatory process) to decide upon agenda and procedures
and required that the conference respect the jurisdiction,
competence, functions and powers of the specialized fora
(see Tab I).
On March 31, 1982, the developing countries (known as the G-77)
submitted a draft resolution (Bedjaoui Text). It did not
explicitly require the conference to respect the specialized
fora, and it convened the conference directly without a
preliminary conference to decide upon agenda and procedures.
Already before the Summit, other OECD countries had accepted
the G-77 text as a basis for discussion, and the Summit
countries pressed the United States to take a similar position.
CONFIDENTIAL
Review 6/288
CONFIDENTIAL
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In the Summit preparations, the United States decided to try
and put its allies on the spot by securing their agreement
at the Summit to changes in the G-77 text protecting the
specialized agencies in return for our willingness to settle
agenda and procedures in a preliminary phase of the Global
Negotiations rather than in a preliminary conference.
The Summit produced communique language and a separate, confi-
dential working document. The communique accepts the G-77
text as a basis for discussion and foresees a good prospect
for launching GNs provided the independence of the specialized
agencies is guaranteed. The working document sets out
amendments to the G-77 text protecting the specialized agencies
and commits the Summit leaders to have their delegations support
this text in New York and not to depart from it except by
unanimous agreement.
The amendments to the Bedjaoui text (see Tab II) explicitly
protect the specialized agencies:
-- by adding the words "by the Conference" at the
end of paragraph 4;
-- by adding "without duplication of existing
appropriate fora" in paragraph 5;
COMMENT: This wording provides better protection than
the December 9 US draft. The latter limited the
creation of ad hoc groups by the Conference to
subjects "where no fora existed." Under this formulation,
the Conference could create ad hoc groups for specific
subjects not within the formal mandate of existing fora.
The new formulation allows us to argue that, even if the
subject is not within the formal mandate of an existing
forum, there is an "appropriate" existing forum to handle
it.
-- by rendering harmless other language in the G-77
text (e.g. "coherent and integrated approach" in
paragraph 1, giving "due attention..... to the
interrelationship between the central role of the
conference and the specialized fora," and "relevant
and appropriate objectives and guidance" in para-
graph 5), because the conference, in whatever it
does, must now respect the specialized fora,
meaning it can do no more than make recommendations
to the specialized fora.
The amendments further ensure that the substantive or negotiating
phase of the conference cannot begin until a consensus has
been reached in the preliminary phase,on agenda and procedures.
CONFIDENTIAL
CONFIDENTIAL
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This provision protects the US position that-we will not
enter into negotiations until we know what?it is that we are
negotiating.
For the first time in 2 1/2 years, the United States has
secured explicit protection of the specialized agencies
in agreement with its six Summit country partners plus the
European Community. We have not only avoided isolation in
New York, but locked our Summit country partners into a consensus
arrangement whereby no further changes in this text can be
made except on a unanimous basis. Since this is a commitment
among Summit leaders, our partners can isolate us in the
future only if they bring the issue to the heads of government
level and have their heads personally intervene with President
Reagan (a very unlikely prospect). We will now see if the
developing countries can accept these talks on our terms.
CONFIDENTIAL
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 Promose Resolution wit. .. .
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The General Assembly,
Having considered the item entitled "Launching of t'^.e Global.
Negotiations on international economic co-operation for
development,"
Noting resolution 34/138,
1. 'Decides. to convene a preli -nary United Nations
Conference. for Global Negotiations on international economic
co-operation for development from ..... 1.982;
2. Decides that the preliminary Conference will establish
the procedures, agenda and time-frame for the global negotiations;
3. Decides that the Conference will function throughout and
reach agreement on the basis of consensus;
4. Decides that the Conference will exercise the central role
in the global negotiations while respecting the jurisdiction,
competence, functions and Powers of the specialized fora within
the United Nation's system, and. in that context will entrust to
them specific agenda items or parts thereof together with.
appropriate guidance, or, where no such fora exist, to ad hoc
crcu s it may create;
5. Decides to accord high priority to the Conference in relation
to other United Nations activities except those of the pri: cif al
organs established by the Charter of the United Nations in respect
of facilities and services, and requests the Secretary-General
to provide the necessary documentation to the Conference;
6. Decides that the Conference will report to the General
Assembly at its thirty-seventh session.
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'1.
fo,
t o'
nee
a
an'
al Nagotiations en international economic cooper"
for development",
no considered the icem'entitled "launching of the
accordance with resolution 34/138,
Decides.to convene a United Nations Conference
Global Negotiations on international economic
peracion for development from 3 nay 1982.Such
ociations should be action-oriented and proceed. in
,imultaneous manner in order to ensure a coherent
integrated approach to the issues under negotiations;
2. Decides that the. Conference will function throughout
an reach agreement on. the basis of consensus
3 Jase Decides thhat the Conf erence will in a preliminary
pestablish the procedures agenda and timeframe
for the Global Negotiations
4.
rc
to
vi
Decides that the Conference will exercise the central-
le in the.Global Negotiations. The juridiccion, co=pe-
nce, functions and powers of the specialized fora
thin the United Nations system v-ill be respected.;
Decides chat due attention shall be given in the
elininary phase to the inter-relation-ship be:.:een
e central role of :he Conference and the specialized
ra ?:hic, together >ith the ad hoc groups it nay
ease, be entrusted vith specific agenda items
parts thereof. Both the specialized fora and. the
1 hoc groups will proceed with their work on the
Ls is o the relevant and appropriata ob j ec=ives and
Cidance established by the Conference
6. Decides to accord 'gig. prior_=7 to the Conference
rela.icn cc other. United `a=ions activic_es except
those of the principal arcane established by the C.;a_ter
of the Liri:ed Nations in respect o: fat--'titles and
services and requests the Secrs==7-General to 07::V
:he ne_essar-7 doc?.^en:ation to -he Cc.erence ;
Dec?das t. at t_'le Cc er _^.C?_ _~~ r eoCr = cc t ?_
enerai ssenc.L at _.s to--z=;-seven=:. session.
Recalling the resoluti
34/138
As soon as a consensu:
reached, the Conferenl
will enter the.substa:
.
phase..
,..will be respected
the Conference
...with the ad hoc g-
it may create without
duplication of existi
appropriate fora, wil
entrusted...
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