Because summer is a popular time for weddings, it’s
also a time of many anniversaries. 2014 marks an important anniversary that is unrelated to marriage but most certainly marks an important commitment to fidelity. 2014 is the 40 anniversary of the Employee Retirement Income Security Act of 1974, or ERISA as it has come to be known. ERISA is the statutory foundation for the regulation and rules that retirement plans must follow to qualify for the tax benefits employers receive when they offer qualified retirement plans to their employees.
Given the amount of criticism that has been directed
at the private sector retirement system recently, some might ask whether
ERISA’s 40th anniversary is something to celebrate. We can certainly find imperfections. But
when we judge something as complex as this body of law, we should view it not
with the eye of a perfectionist, but the eye of a realist. That’s not
much different than having a reasonable perspective on interpersonal
relationships. If we’re looking for perfection we are likely to be
disappointed.
Very few who are working in the retirement industry
today were “in the business” in 1974, the year of ERISA’s enactment. But an objective look at the state of
retirement plans before that time leads to the inescapable conclusion that
things have changed for the better. There may be shortcomings in the implementation and operation of plans
under the ERISA umbrella. But these shortcomings generally have little to
do with the intent of its provisions.
Human weakness and error, intentional or
inadvertent, can lead to such failings as unsatisfactory investment choices, inappropriate
fees, conflicted investment advice, fiduciary abuses like diverting retirement
assets for other business purposes; even such outright crimes as
embezzlement. But such miscarriages of
ethics or justice should not unfairly taint the concept of ERISA retirement
plans. There will always be vultures,
scavengers and scalawags looking for opportunities to enrich themselves at
others’ expense. That’s not the fault of
ERISA. In fact, ERISA is the safeguard to prevent or address these failings. And, at least in my opinion, ERISA has addressed these pretty well.
Some bemoan the fact that we do not have in place a
national retirement program that ensures lifetime benefits to all American
workers, benefits like those available to the fortunate minority with defined
benefit plans. As desirable as that
might be, in the private sector there are competitive economic forces that play
a huge role in determining what benefits an employer can provide to employees and
still remain solvent. And taxpayer
funding of such a national program and the accompanying “mandate” is certainly
not politically viable at this time.
ERISA has, without question, improved the retirement
security prospects of American workers.
Prior to ERISA it was not unusual for profit sharing plans to require 10
or 15 years to reach full vesting, or for defined benefit plan vesting to be
reached only at normal retirement age, or upon plan termination. There were no controlled group rules to
prevent abusive business structures that favored the delivery of retirement
benefits to a limited group of owners or employees at the expense of others.
There also was no insurance program like today’s
Pension Benefit Guarantee Corporation (PBGC) for defined benefit plan. An example of the consequences of this was
the 1963 closure of the Studebaker automobile plant in Indiana. Its underfunded pension plan left thousands
of workers with little, if any, retirement benefits. There was also no EBSA to ensure that defined
contribution plan fiduciaries met their responsibilities of fairness to rank
and file employees.
It was more than a decade – and numerous committees,
commissions, surveys and reports later – when Congress finally acted. Some believe that ERISA legislation only got
the support needed for enactment when private businesses became fearful that
the states would act individually, creating a patchwork of dissimilar rules
that would have made compliance difficult.
Whether such support was motivated by generosity or self-interest, the
result – ERISA – was a greater degree of predictability and equity than had
existed before.
U.S. retirement plans are at a crossroads. They are considered a federal budget luxury
by some who are more concerned about their perceived impact on tax revenues
than they are concerned about our citizens’ retirement security. Conversely, they are considered by others to
be not generous enough, and to provide insufficient guarantees of a dignified
retirement.
Those in the middle of this political and
policymaking tug-of-war are most apt to appreciate today’s ERISA-governed
retirement plans for the giant positive stride in employee benefits that they
represent. There is more work to be
done to lead more Americans to a secure retirement. But ERISA is the path that has taken us a
long, long way toward a highly desirable destination.
