ERISA is, of course, the Employee Retirement Income Security Act of 1974 – and on Labor Day 2024, that legislation will be fifty years young. Not that ERISA created either the concept or the reality of pensions and retirement plans; in fact, the former dates back to the time of the ancient Roman armies. But in America, the first private pension plan was that of the American Express Company in 1875 – crafted in an effort to create a stable, career-oriented workforce. By 1899 there were (just) 13 private pension plans in the country.
The reality is that employee pensions had very few protections under the law before ERISA – there were no rules around funding or protections for benefits if the plan sponsor went bankrupt or was sold. Many plans had long vesting schedules requiring as many as 20 to 30 years of service, some plans required employee service periods to be “uninterrupted,” and there were situations where companies reportedly terminated employees just a few months before vesting to avoid having to pay their pension benefits.
That said, ERISA did not require any employer to establish a retirement plan. It “only” required – and still requires – that those that establish plans meet certain minimum standards. However, the law did a number of things that we take for granted today. At a high level, it established federal standards for things like vesting, participation and eligibility. It established rules regarding reporting and disclosure about plan features, funding and investments to participants – and via mechanisms such as Form 5500, reporting to the government as well. It put limits on benefits – and gives participants the right to sue for benefits and breaches of their fiduciary duty under that law.
Notably, ERISA established fiduciary duties for those managing retirement plans – requiring that fiduciaries act in the best interest of plan participants and beneficiaries.
In signing that legislation, President Ford noted that from 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers, while during that same period, assets of these private plans increased from $52 billion to $138 billion, acknowledging that “[i]t will not be long before such assets become the largest source of capital in our economy.”
Indeed, as of the latest (2021) numbers available, that system has grown to exceed $13 trillion (and another 11.5 trillion in IRAs, much of which came from that private retirement system), covering nearly 100 million active workers (146 million in total) in more than 765,000 plans. Indeed, the Labor Department recently reported that plans disbursed $322.5 billion more than they received in contributions during 2021.
That said, the composition of the plans, like the composition of the workforce those plans cover, has changed significantly over time. Fifty years on, ERISA—and the nation’s retirement challenges—may yet be a work in progress. But it’s hard to imagine American retirement without it.
Happy birthday, ERISA!
That’s Wella’s Way!