Happy birthday, ERISA!
Happy 34th Birthday, ERISA!
Today marks the 34th anniversary of the date that the Employee Retirement Income Security Act of 1974, known to those in the field of pensions as ERISA, was signed into law. In a tribute to the workers who would be helped by the new law, that day, September 2, 1974, fell on Labor Day.
ERISA's enactment was brought about in part by the devastating "Studebaker" incident, which left thousands of employees without the pensions they had been promised. When Studebaker, at the time one of the nation's largest car manufacturers, closed its Indiana plant in 1963, it left an underfunded pension behind and some workers ended up receiving as little as 15 percent of the pension they had been promised. When he signed ERISA into law, President Gerald Ford said that with ERISA, "the men and women of our labor force will have much more clearly defined rights to pension funds and greater assurances that retirement dollars will be there when they are needed."
Indeed ERISA has achieved many improved protections for workers. Before ERISA, companies could require employees to stay with the company for 25 or more years to earn the right to a pension benefit. With ERISA that requirement shrank to 10 years. When a company like Studebaker failed prior to ERISA's enactment, pensions of thousands of workers were lost because there was no federal pension insurance program to protect their hard-earned benefits.
Pensions were important in 1974 for the same reasons they are important today. Along the way improvements have been made, including some that allow workers to earn pensions after 5 or fewer years, protect women, and tell employees about the benefits they have earned.
But there is still a great deal of work to be done. Too many employers offer no retirement plan coverage to their employees. Workers with plans often encounter obstacles in enforcing their retirement rights, more protections are needed for women, and people are not informed about the fees they pay for their retirement savings accounts. To make matters worse, a growing number of companies are freezing their pension plans and breaking promises to their employees.
Happy Birthday, ERISA. You've done a lot to protect the retirement security of American workers, but there is still important work to do.
Care to learn more about the history of ERISA? Read The Employee Retirement Income Security Act of 1974: A Political History by James A. Wooten.
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Did You Know?
A defined benefit plan is a pension plan, usually funded entirely by employer contributions, that pays benefits according to a formula. The formula is typically based on the participant's wages or salary and length of time spent working for an employer or group of employers. Defined benefit plans are also known as traditional or guaranteed pensions.