Today, ERISA turns 40! It is hard to believe that the Employee Retirement Income Security Act (ERISA), the law that ignited pension reform in the United States, has been around for four decades. To celebrate the law’s long, lively journey since its birth on Labor Day 1974, we have compiled some employee benefits trivia that may surprise even the most ardent ERISA-watchers (and you know who you are!):
- All Aboard! Employer-sponsored pension plans have been around since the nineteenth century. Railroads started the plans, viewing them as gifts to compensate employees for extended service. Benefits were paid from the railroads’ annual revenues, but when company fortunes waned, pension benefits were often reduced or terminated. ERISA outlawed such practices.
- The Only Certainties are Death and Taxes. Preferential tax treatment for pension and profit-sharing plans dates to the 1920s. However, because few households actually paid income taxes at that time, the tax preference did little to encourage the growth of private pensions. Employer adoption of retirement plans increased significantly in the 1950s and 1960s.
- How’s Your Math? In 1930, the retirement age exceeded the average life expectancy under Social Security guidelines. While the retirement age was set at 65, life expectancy was only 58 for men and 62 for women.
- Down-and-Out. In 1963, the Studebaker Corporation closed its South Bend, Indiana plant and its underfunded pension plan ended along with it. Full benefits were only paid to employees who were 60 years old and had met certain service requirements, while more than 4,000 employees received little to nothing from the plan. Notorious cases such as this prompted Congress to create ERISA.
- Gimme Shelter! The Pension Benefit Guaranty Corporation (PBGC) issued its first pension check for $140.75 on February 28, 1975, to a participant in the International City Bank of New Orleans Employees Retirement Plan. The creation of the PBGC as part of the enactment of ERISA offered important protection to United States workers who, until 1974, had very little protection from a faltering pension plan.
- My How You Have Grown! From its original statutory length of 200 pages in 1974, ERISA had by 1994, its twentieth year of existence, grown to over 700 pages (and 3,600 pages of related regulations). Today, the number of pages is even higher, and the amount of assets in defined benefit plans and retirement accounts is $12.5 trillion!
Now that we have shared this ERISA knowledge with you, we hope that you can use it to impress your friends and family on this very special occasion. For those practitioners who work with employee benefits on a daily basis, remember what the sponsors of ERISA thought—that it was “the greatest development in the life of the American worker since social security.” Now that’s a big deal.