Forty years ago this week, bell-bottom jeans were still in style, the Vietnam War was coming to a close, and Watergate was still riveting the nation.
Against this backdrop of social unrest, there was also a focus on broken pension promises. Back then, tens of thousands of people were losing their pensions because few laws existed to regulate pension plans. A worker could lose his pension after working at the same company for 25 years because he left the company before turning 65. Employers could fritter away pension money on bad investments or bogus transactions often without facing any consequences. Bankrupt plans could leave workers and retirees with only a fraction of the benefits they earned and no recourse against their employer. In response, Congress passed the Employee Retirement Income Security Act of 1974, or ERISA, to put an end to such abusive practices.
ERISA created basic standards to protect pension promises, including setting minimum service requirements to qualify for a pension; requiring plans to disclose information on funding and benefits to both participants in the plan and the government agencies that regulate it; setting funding standards; creating fiduciary standards for the people who are responsible for managing and administering a pension plan or investing its money; requiring plans to establish a claims and appeals process for workers and retirees if they are denied a benefit; and providing ready access to federal courts to resolve benefit and other disputes.
Also, ERISA created the Pension Benefit Guaranty Corporation, a federal private pension insurance program that provides insurance for most pension plans in the event that a plan becomes insolvent.
ERISA achieved its objective of putting an end to “disappointed pension expectations” for the 34 million workers then covered by pension plans, dramatically improving their retirement security.
However, the world has changed in ways that Congress could not have envisioned four decades ago. Secure pensions have been largely replaced by often insecure and inadequate 401(k) plans. Employers have found new ways of backing out of pension commitments. And half of the private workforce still isn’t covered by a pension or retirement savings plan.
In other words, although there is much to celebrate, there is also much work to be done to ensure the protection of all retirees for another 40 years and beyond. This nation needs to:
Articles celebrating ERISA’s 40th: