- A pension problem spurred the law. The Employee Retirement Income Security Act (ERISA) was prompted by concerns over the health of corporate pension plans, especially following the 1963 closure of automaker Studebaker, whose underfunded pension left thousands of workers without promised benefits.
- The results have been wide-ranging. ERISA not only promised pensions would be kept, but it also established minimum funding, disclosure and reporting, coverage, and nondiscrimination requirements for employer-provided pension plans; created the Pension Benefit Guaranty Corp.; and preempted many state laws and regulations for employer-sponsored healthcare benefits.
- The benefits landscape continues to shift. There is likely to be growing push and pull involving ERISA’s uniform regulations as states become more involved in retirement security and other workplace issues.
Sparked by the failure of a major automaker and signed into law on Sept. 2, 1974, by a United States president named Ford, the Employee Retirement Income Security Act (ERISA) provided wide-ranging guardrails for pensions and other employer-provided benefits.
The benefits landscape has dramatically changed in the past 50 years, but the law that Gerald Ford greenlighted remains the rule of the road, protecting participants in employee benefit plans from abuse and simplifying healthcare plan provisions for employers.
Pension Promises Kept, and More
More than a decade in the making, ERISA was prompted by concerns over the health of corporate pension plans, especially following the 1963 closure of automaker Studebaker, whose underfunded pension left thousands of workers without their promised benefits. But even healthy companies had widely varying vesting plans at the time. Some did not allow for early retirement or include benefits for surviving spouses, and others would terminate workers before they became eligible.
ERISA sought to ensure pension promises would be kept, but ultimately did much more. Among its provisions, the law:
- Established minimum funding, disclosure and reporting, coverage, and nondiscrimination requirements for employer-provided pension plans. These provisions and subsequent amendments have served to “generally make it easier for employees to obtain retirement benefits,” William J. Wiatrowski, the deputy commissioner of the U.S. Department of Labor’s Bureau of Labor Statistics (BLS), stated in an article on the agency’s website.
- Created the Pension Benefit Guaranty Corp. (PBGC) to insure private pension plans and provide benefits to the beneficiaries of terminated ones. In 2023, the agency’s annual report showed 920,000 beneficiaries received more than $6 billion in annual benefit payments, while another 31 million employees were in PBGC-insured plans.
- Preempted many state laws and regulations for employer-sponsored healthcare benefits. Doing so allowed companies with employees in more than one state to provide uniform benefits without having to comply with a patchwork of regulations.
A Seismic Shift in Retirement Plans
ERISA paved the way — perhaps indirectly — for the biggest change in the benefits landscape. In 1980, legislation allowing tax-advantaged defined contribution retirement plans went into effect. The 401(k) quickly became a household name, and traditional pension plans dwindled. By 2023, only 15% of private-sector industry workers had access to a defined benefit plan, while more than two-thirds (67%) had access to defined contribution plans, according to the BLS.
Defined contribution plans still benefit from ERISA, which governs their fiduciary standards, reporting and disclosure, and nondiscrimination rules that ensure benefits don’t go solely to the highest-paid employees. ERISA also enabled automatic payroll deductions for these plans, “allowing the retirement system to meet evolving worker needs,” said Barb Marder, president and CEO of the Employee Benefit Research Institute (EBRI).
“ERISA didn’t create defined contribution plans, but it allowed for them as an evolution of the retirement system, which was equally important,” she said.
Subsequent legislation and regulations have added new features to defined contribution plans to improve participation, including automatic enrollment, escalating contributions and default target-date funds. The shift has put ERISA’s original goal of “income security” under the microscope, Lawrence A. Frolik, professor emeritus of law at the University of Pittsburgh, wrote in a research article, “Rethinking ERISA’s Promise of Income Security in a World of 401(k) Plans.”
“ERISA ‘income security’ ends at retirement, when retired employees roll over their 401(k) accounts into IRAs,” said Frolik, stating that older Americans are unlikely to manage these plans in ways that provide a consistent income stream.
Len Comberiate, adjunct instructor at New York University and a WorldatWork faculty member, hinted at a solution, stating, “If I were to wave a magic wand, ERISA should be able to act in employees’ best interest by providing guidance to their employers on how they can achieve their retirement goals and objectives.”
A Growing Push and Pull
As the law turns 50, ERISA continues to evolve. The SECURE and SECURE 2.0 Acts now allow small businesses to pool resources into multiple employer plans, and efforts to expand automatic enrollment to additional plans are likely to continue.
“We’re going to see more things like that, which are geared at trying to increase coverage,” Marder said.
However, there’s also likely to be growing push and pull involving ERISA’s uniform regulations as states become more involved in retirement security and other workplace issues. On the one hand, there’s increasing interest in adding federal regulations for telemedicine and paid leave that would supersede state laws, according to Marder. On the other, some states have shown interest in regulating pharmacy benefit managers (PBMs), controlling the cost of prescription medications and improving employee participation in retirement plans.
“You can start to see some of the challenges where states are getting more into the pension health business, where the goal was to allow uniform coverage,” Marder said. “You can see some of these things starting to challenge ERISA preemption across state lines.”
Indeed, after all these years, ERISA continues to make headlines.
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