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Employee Retirement Income Security Act

Employee Retirement Income Security Act

United States 1974


Most laws relating to private sector pensions in the United States are contained in one of two federal statutes: the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). ERISA was passed in 1974 and has been amended several times. Although ERISA deals with so-called employee welfare plans, including health plans, pension regulations make up the bulk of the law.

ERISA does not require an employer to establish a pension plan, nor does it dictate actual pension benefits. It does, however, subject established pension plans to numerous legal requirements, mainly to ensure that pension plans are used for employee retirement benefits and not exploited by employers. The law is thus part social insurance, part tax law, and part business regulation. ERISA is implemented by several different federal agencies, some of which were created by ERISA itself. Partly because of the law's broad aims and partly because of the complex politics that underlay its enactment, ERISA is a very large and extremely complex law. It was enacted largely as a kind of delayed response to several pension-related scandals, similar to the pension-drenched accounting and business scandals prominent at the beginning of the 2000s and leading to calls for significant changes to ERISA.


  • 1955: African and Asian nations meet at the Bandung Conference in Indonesia, inaugurating the "non-aligned" movement of Third World countries.
  • 1965: Power failure paralyzes New York City and much of the northeastern United States on 9 November.
  • 1969: Assisted by pilot Michael Collins, astronauts Neil Arm strong and Edwin E. "Buzz" Aldrin become the first men to walk on the Moon (20 July).
  • 1972: On 5 September, Palestinian terrorists kill eleven Israeli athletes and one West German policeman at the Olympic Village in Munich.
  • 1975: Pol Pot's Khmer Rouge launch a campaign of genocide in Cambodia unparalleled in human history. By the time it ends, with the Vietnamese invasion in 1979, they will have slaughtered some 40 percent of the country's population. Cambodia is not the only country to fall to Communist forces this year: the pro-Western governments of South Vietnam and Laos also succumb, while Angola and Mozambique, recently liberated from centuries of Portuguese colonialism, align themselves with the Soviet Bloc.
  • 1975: U.S. Apollo and Soviet Soyuz spacecraft link up in space.
  • 1975: Two assassination attempts on President Ford occur in September.
  • 1978: Terrorists kidnap and kill former Italian premier Aldo Moro. In Germany, after a failed hijacking on behalf of the Red Army Faction (RAF, better known as the Baader-Meinhof Gang), imprisoned RAF members commit suicide.
  • 1980: In protest of the Soviet invasion of Afghanistan, President Carter keeps U.S. athletes out of the Moscow Olympics.
  • 1985: In a year of notable hijackings by Muslim and Arab terrorists, Shi'ites take a TWA airliner in June, Palestinians hijack the Italian cruise ship Achille Lauro in October, and fundamentalists take control of an Egyptian plane in Athens in November.
  • 1995: Bombing of the Alfred P. Murrah Federal Building in Oklahoma City, Oklahoma, kills 168 people. Authorities arrest Timothy McVeigh and Terry Nichols.

Event and Its Context

The Problem of Superannuation

To better understand ERISA's purposes, enactment, and meaning, it is necessary to review the concept and history of what used to be called "superannuation" and is now called "retirement." Many issues that were contentious when the concept of retirement emerged in the United States remain so today.

Pensions seem to have emerged as a response to various post-Civil War economic and demographic trends that mirrored one another. Various macroeconomic shifts made it increasingly necessary for people to work for others rather than for themselves, and for employment to move from agriculture to industry. It is conventionally argued that older people have been better able to find a place for themselves in agriculture than in industry because of differing value systems. Further, because of changes in birthrates and longevity between the Civil War era and the 1930s, the population was slowly aging—a trend that continues in the twenty-first century. In short, not long ago, most people seem to have died relatively young and worked until they died, mostly in an agricultural environment. Retirement was thus unnecessary. In response to these changes, the concept of an old-age pension slowly developed. The specifics of why or how would be difficult to trace with certainty, but similar concepts had developed earlier in other countries, usually manifesting as pension schemes similar to social security in the United States.

The first recognizable pensions in America were exclusive to Civil War veterans. It remains unclear whether this program consisted of retirement pensions, disability pensions, or both. Despite many administrative problems with the Civil War pension system, the program proved to be popular and lasted long enough to become a philosophical precedent for modern pensions. Most sources agree that, in 1875, the American Express Company established the first private pension plan in American, and that the Baltimore-Ohio Railroad established the second in 1880. This second plan was jointly financed by employer and employee contributions. This is considered an important innovation, because it increases the actuarial soundness of a pension plan and engenders a feeling of forced savings, or deferred compensation. After that, the pension plan quickly became a widespread and important factor in the economy, and it has only continued to grow in size and importance.

The Rise of ERISA

Government regulation and accommodation of pensions date back to the Revenue Acts of 1921 and 1926, which first gave pensions a special tax status and gave the Internal Revenue Service a limited amount of oversight over their management. Other laws were enacted throughout the 1940s, 1950s, and 1960s.

Pension reform began in earnest, however, in the late 1950s in response to a series of major pension-related scandals. One especially important scandal involved Jimmy Hoffa, the widely publicized leader of the Teamsters Union. Another involved the Studebaker car manufacturer. Both labor and management practices illustrated the need for increased federal regulation. Early reforms were enacted in response to a series of specific incidents and not through reasoned and deliberate public policy debate; reform was thus haphazard and episodic.

Although ERISA was the eventual outcome, the initial attempt at reform was the Welfare and Pension Plan Disclosure Act of 1958 (WPPDA, amended in 1962). WPPDA marked several firsts in retirement policy, including reporting requirements and enforcement by the U.S. Department of Labor. The WPPDA, however, was ultimately discredited. Commentators have described its various failings, most notably the lack of effective penalties and enforcement powers. Loopholes allowed certain activities that fell within the letter of the law but violated its clear spirit and intent; Jimmy Hoffa's worst crimes involving the Teamsters pension fund, for example, were committed after WPPDA. In addition, business leaders considered some requirements unrealistic. The extremes of Studebaker's mismanagement of its pension plan led directly to ERISA, though the effect was quite delayed. The scandal prompted President John F. Kennedy, in 1962, to form the Committee on Corporate Pension Funds, charged with investigating the issue and producing a report, which it finally did by 1965.

Private sector pensions were not a common presidential interest, and it remains unclear why Kennedy was interested enough in the pension issue to form the committee in the first place. Regardless of Kennedy's motivations, however, his commission rapidly became mired in complex politics—both labor and business interests stood in the way of pension reform—and even more complex policy details. Their report was thus delayed until 1965, following Kennedy's assassination. By this time, however, the change in administration from Kennedy to Lyndon B. Johnson signaled a loss of presidential interest in the pensions issue. Johnson effectively put the issue on the back-burner, concentrating instead on the Great Society, the War on Poverty, and, eventually, the Vietnam War. Private pensions became a congressional matter, and legislators were rapidly mired in the same complex mix of policy details and political interests. New York senator Jacob K. Javits took the lead and is usually credited as the principal author of ERISA.

No action was taken during the administration of Lyndon Johnson, and the issue stretched into the Richard Nixon era. Commentators suggest three reasons why pension reform took so long following the Studebaker scandals. First, the issue had little popular support, and, for the most part, those who were interested had personal stakes in the issue. Second, considerable time and effort were necessary to investigate and sort through many complex details. Third, the Nixon administration took a cautious approach to the issue, and for much of American history, it has been difficult to enact major legislative packages without active presidential support.

Despite these difficulties, by 1974 Congress had no less than three drafts of the pension reform act to consider. One was a U.S. Department of Labor "program bill," another was favored by the House, and yet another by the Senate. Congress still had many competing ideas and interests to sort through. Among the many issues for disagreement, the main points of contention were enforcement, specifically the roles of the Treasury and Labor departments; "vesting" requirements, which would allow an employee to draw retirement benefits upon reaching retirement age, even if no longer working for the employer providing the pension; and "accrual" requirements, which determine how benefits accumulate. From this point, the legislative history of ERISA becomes too arduous to be detailed here. The final product is the Pension Reform Act (PL 93-406), an extremely complex law that reflects many compromises and a long and complex legislative process.

Although ERISA has been amended several times since 1974—most notably by the Revenue Act of 1978 and the Retirement Equity Act of 1984—essentially it has changed little since its initial enactment. The plan does not require employers to establish pension plans, nor does it mandate what benefits are payable. ERISA does, however, provide certain requirements: vesting, benefit accrual, reporting to the government, maintaining the plan's actuarial soundness (these fiduciary requirements typically require the plan's managers to act in a "prudent" manner), and making information available to members of the plan. In general, traditional "defined benefit" plans are more stringently regulated than "defined contribution" plans such as 401(k), which were less popular when ERISA was enacted than they were at the beginning of the twenty-first century, though they were nonetheless subject to ERISA.

By the early 2000s, ERISA had come under the spotlight, with calls for amendment because of pension-related scandals, involving mainly employer mismanagement of employee defined contribution pension plans.

ERISA and Its Place

ERISA appears to have had many impacts on the American pension system, both philosophical and empirical. On the empirical level, pensions have clearly undergone tremendous growth since ERISA. It is difficult to say how much of this is a direct result of the law, but pension growth is undeniable, especially the less-regulated "defined contribution" pension plans. Philosophically, it is commonly argued that ERISA heralded a shift from thinking of pensions as employee rewards from employers for long and faithful service to a form of deferred compensation, to which employees were entitled sooner or later, simply by virtue of having worked.

Without the philosophical shift signaled by ERISA, today's modern economy—in which people increasingly switch jobs, employers, and careers—would not be tenable at all when retirement time arrives. Further, ERISA boosted private sector pensions, which are, in effect, quasipublic carriers that add to the government's social insurance system, though they remain private entities.

Key Players

Hoffa, James ("Jimmy") (1913-?): Hoffa led the International Brotherhood of Teamsters from 1957 to 1971. His is a strange and ambiguous legacy, having brought his union to both immense power and immense corruption. Raids on the Teamsters pension fund, which he either performed or allowed, led indirectly to the enactment of ERISA. He disappeared in 1975, probably at the hands of organized crime, and was declared legally dead in 1982.

Javits, Jacob K. (1904-1986): Javits, a child of immigrant parents, managed to be admitted to the New York State Bar by the age of 23. He served in the U.S. House of Representatives (1947 to 1954) and the U.S. Senate (1957 to 1981). His work in the Senate is what he is mainly remembered for.



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Additional Resources

Pension Benefit Guaranty Corporation [cited 3 December2002]. <>.

U.S. Department of Labor [cited 3 December 2002]. <>.

—Steven Koczak

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