Statement of Gene E. Little, Senior Vice President, Finance and Treasurer,
Timken Company, Canton, Ohio, on behalf of the National Association of Manufacturers

Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means

Hearing on Employee and Employer Views on Retirement Security

March 5, 2002

Chairman Houghton and members of the subcommittee, thank you for the opportunity to appear before you today to present the views of The Timken Company and the National Association of Manufacturers on Retirement Security.  I am Gene Little, Senior Vice President - Finance and Treasurer of The Timken Company.

The NAM –18 million people who make things in America – is the nation’s largest industrial trade association.  The NAM represents 14,000 member companies (including 10,000 small and mid-sized companies) and 350 member associations serving manufacturers and employees in every industrial sector and all 50 states.  Headquartered in Washington, D.C., the NAM has 10 additional offices across the country.

The Timken Company, headquartered in Canton, Ohio, is the world's largest producer of tapered roller bearings and seamless mechanical alloy steel tubing.  Founded in 1899, the company had $2.4 billion in sales in 2001.  The Timken Company has 18,700 associates working at 50 plants and more than 100 sales, design and distribution centers located in 24 countries on six continents.  The company has been listed on the New York Stock Exchange (NYSE) for 80 years.

Defined contributions plans, like 401(k) plans, are a foundation of our private retirement system.  Currently, 401(k) plans cover more than 42 million American workers at thousands of companies -- many of them mid to small size – and hold $2 trillion in assets, almost 15% of the value of the NYSE.

On behalf of the National Association of Manufacturers and its 14,000 member companies, we are extremely concerned that hasty legislative action in response to the collapse of Enron will have a negative impact on our voluntary retirement system, widespread stock ownership among employees and the 401(k) assets and retirement security of millions of employees.  It is imperative that Congress and the Administration fully investigate the facts surrounding the Enron case before making any changes to current retirement policy or regulation.

Diversification proposals to mandate shifts out of company stock, including caps and limits on holding periods, will harm, not enhance, the ability of employees to save for their retirement.

Existing laws already require a strict level of fiduciary behavior for pension plan sponsors and provide stringent sanctions for any violations.  Increasing employer liability will reverse recent efforts to expand pension benefits for American workers.

With regard to lockout periods, please note that these transaction suspension periods are not uncommon, but they are for only a very short time.  Transactions are barred during this period so that a new record keeper can verify account accuracy and reconcile records.  Lockouts often result in new plan features or investment options for employees.  Restrictions on these periods could interfere with the normal process of improving 401(k) plans.

There are seven 401(k) U.S. retirement plans at The Timken Company covering 11,600 associates.  Associates contribute an average of 7% of their pay and the company contributes roughly an additional 4.4% in Company stock.

These plans have existed for about 20 years and contain $546 million in assets.  More than $100 million or about 20% of those assets represent shares of company stock contributed to the associates' accounts by the company.  In addition, associates have elected to direct a portion of their own contributions into company stock.  (Last year company stock provided a better return than the other eight investment alternatives.)  In the aggregate, through our 401(k) plans, company associates own about 21% of the outstanding shares of The Timken Company.

401(k) plans have made investors of millions of workers.  Their asset investments are visible, able to be managed and portable.  Legislating investment alternatives begins to erode individuals' rights.

Company stock in 401(k) plans has been a powerful contributing factor to the economic outperformance enjoyed by the U.S. economy relative to other industrialized nations over the past decade or so.  Company stock ownership has several other benefits:

• it brings about alignment within a company among its associates;
• making associates owners is a tremendously powerful catalyst for productivity;
• company stock as a benefit is, as you all know, an important enabler for start-up companies.

Changes to expand the flexibility regarding the holding of company shares are necessary and advancing rapidly.  Legislating arbitrary divestitures or shareholding limitations for company stock could have dramatic negative consequences for both companies and individuals alike.

Telling an employee to sell or not invest in his company's stock because another company like Enron behaved irrationally can be likened to forcing an American to not buy or sell U.S. bonds because one government entity behaved dysfunctionally.

As a global company, but with a majority of its business in the U.S., Timken is in a good position to observe what a significant element retirement security plans are and how the U.S. is different than Europe, Asia and less developed nations whose workers for the most part do not have private pension plans.

Hastily considered pension legislation could have two undesirable consequences:

• private companies could reduce or eliminate pension benefits which would shift more of the burden to government over time; and

• jobs could be transferred to other countries--post employment benefits are a very big element in determining where we locate manufacturing capacity.

Defined benefit plans constitute the other important leg of our country's private retirement benefit system.  Timken has four U.S. defined benefit pension plans covering 24,000 active, deferred vested, and retired associates.  The value of the assets is $1.3 billion, which is larger than the book or market value of the company's equity.

Last year, we had a pension expense of $60 million and contributed a greater amount into our pension plan.  There has been an artificial burden placed on companies’ funding of these plans as a consequence of the government's October 31, 2001, announcement to stop issuing 30 year treasury bonds.  The resulting drop in yield on these bonds incorrectly and artificially inflates the cash contributions required to meet pension obligations. 

We are grateful to Representative Rob Portman for working on legislation which addresses this irregularity.  Without an equitable method of calculating contributions, more companies will move away from providing defined benefit pension plans, and many, many companies will be faced with massive cash outlays that can prolong or prevent recovery from the deep manufacturing recession for a number of years.

Thank you for inviting me here today to discuss these important issues.