Forty years ago yesterday, September 2, 1974, Congress passed the Employees Retirement Income Security Act of 1974. Most, maybe all, of the people reading this blog owe their careers to a single piece of legislation that has spawned growth industries and cottage industries. The acronym “ERISA” has special meaning to all who work in the employee benefits industry.
ERISA exists in no small measure due to three factors: (1) the ineptitude and greed of those running the automobile manufacturer, Studebaker–Packard Corporation back in the early 1960s; (2) the mismanagement and abuse (likely theft with no federal recourse to protect participants) of the world’s then largest pension fund by the executives of the Teamsters Union; and (3) the legislative tenacity of Senators Jacob Javits and Harrison Williams. These factors forged together over a decade to get ERISA passed. The legislative debate was one of the most significant management versus labor debates in Congressional history, and the result is a compromise, or series of compromises, that demonstrate the ability of members of Congress, lobbyists and those holding on to “sacred cows” to come to a resolution in the best interest of the country.
ERISA has created jobs for numerous government employees in the agencies that write and enforce its broad and complex rules and their exceptions. Attorneys, accountants, and actuaries who daily address these complex rules on behalf of clients have developed specialty practices in employee benefits. RIAs, broker-dealers, investment advisors, third-party administrators, insurance salesmen, and many others who spend their time working with pension and welfare benefit plans owe their professional existence to a single piece of legislation, ERISA.
ERISA is oft-criticized in no small measure due to its uncompromising complexity in labor law, tax law, and pension insurance law. ERISA has struggled at times to keep up with societal changes and certainly with the change from traditional defined benefit plans to 401(k) plans. ERISA’s coverage of welfare benefit plans was somewhat of an after-thought in 1974, and the law itself and particularly the courts have struggled to apply ERISA’s complexity to traditional health plans, HMOs and other types of welfare benefit arrangements.
Year after year, it is fascinating to see the Supreme Court issue a number of opinions analyzing ERISA. Not only does this speak to ERISA’s complexity, but it also demonstrates how important ERISA is to the nation and certainly to the economic well-being of Americans.
Most of us would agree that the policies ERISA attempts to address necessarily give rise to its complexity. The web of ERISA coverage is vast and sometimes contradictory since the policy issues themselves are so complex. But overall, the construct of ERISA presents one of the most exceptional pieces of federal legislation ever enacted. Looking at it over forty years, it has withstood the test of time, but most would agree that it needs refinement in order to improve the employer-based retirement system and assist in providing working Americans with a dignified retirement.
Happy birthday, ERISA. May you continue to provide employers with the ability to attract, incentivize and retain quality employees and provide employees with retirement security and economic benefits needed to promote the ideals of hard-working Americans and a productive society for generations to come.