August 21, 2014
For 40 years, the Employee Retirement Income Security Act of 1974 (ERISA) has shaped which employee benefits employers offer to employees and how they offer them. Born from a rather simple concept, ERISA has been amended numerous times and has evolved into an increasingly complex system of rules and requirements for plans with concomitant requirements for employers and plan fiduciaries. ERISA is now the cornerstone of the US employee benefits system.
ERISA was enacted in part as a response to the 1963 closing of a Studebaker-Packard auto manufacturing plant in South Bend, Indiana (see “The Most Glorious Story of Failure in the Business”: The Studebaker-Packard Corporation and the Origins of ERISA, James A. Wooten, 49 Buff. L. Rev. 683, Spring/Summer 2001). When the plant closed, the pension plan for hourly workers had insufficient assets to pay benefits to anyone other than retirees and employees who were 60 years of age or older. The workers who did not meet those requirements received only a portion of their promised benefits and some received nothing at all. Their plight prompted Congress to take action and eventually ERISA was signed into law on Labor Day, September 2, 1974.
The primary purpose of ERISA was to safeguard private-sector pension benefits, although the law also contemplated other types of employer-provided benefits. ERISA established a framework of minimum requirements for employee benefit plans, including participation and vesting requirements, funding standards for retirement plans and rules for reporting to both the government and participants. It also set out standards for plan fiduciaries and created the Pension Benefit Guaranty Corporation, the federal agency that guarantees the benefits of participants in defined benefit plans.
Over its 40-year history, ERISA has been frequently amended and expanded. While protecting participants’ benefits remains the purpose of the law, it has become clear that certain trends have developed, or are in the process of developing, and that ERISA will continue to evolve with the times.
These trends include:
- A move from defined benefit plans to defined contribution plans.
- The expansion of government-mandated benefits.
- An increase in plans with automatic enrollment features.
- An increase in the number of ERISA class action lawsuits.
- Greater transparency of plan information, especially fee information.
- Expansion of correction programs to address compliance errors.
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