If you are looking into the details of your employer-provided benefits, or if you have had a claim denied, you will likely come across the term ERISA. ERISA stands for Employee Retirement Income Security Act of 1974, and it is a set of legislation that was designed to protect workers’ rights when it comes to their benefits.
Like most complex pieces of legislation, its existence came out of a complicated set of events and compromises. It has also seen changes over the years. Understanding the history of ERISA and how it operates today can make filing an ERISA claim easier.
History of ERISA: Understanding the Need
In the 1960s, there was a sharp increase in private pension funds, and that increase nudged President John F. Kennedy to establish the Committee on Corporate Pension Funds in 1962. That Committee would later publish their findings under President Johnson. A summary and analysis of the report explained that “[f]rom 1953 to the end of 1964, the accumulation of assets of private pension funds has grown from 16.9 billion dollars to 75 billion dollars, with a projected accumulation of 225 billion dollars by 1980.”
The Committee foresaw a steep increase in the use of private pensions and cited several causes for this dramatic rise including union pressure to create pension funds, high corporate taxes in conjunction with deductions for pension contributions, and a 1948 court ruling that established pensions as bargainable issues. Writing about the findings of the Committee, the summary explained that “the degree of federal regulation is and has been minimal. This predominantly laissez-faire attitude may be on the wane, however.”
Indeed, it was, and a single company’s failure was a large catalyst for these upcoming changes.
Studebaker-Packard Failure Provided Stark Illustration
Even as the Committee was assessing the need for more regulation in the private pension arena, a stark illustration of their deepest concerns was taking shape. Studebaker was an American car manufacturer based in South Bend, Indiana that had roots back to the family’s blacksmithing days in the 1850s. By the 1950s, they were creating cars known to be reliable and desirable, but their financial situation was not as rosy. In fact, they partnered with Packard and then ceased operations at their South Bend plant in December 1963.
What does this have to do with the history of ERISA? Well, there were 10,500 workers impacted by the closure. The 3,600 who had already retired were able to keep their promised benefits, but around 4,000 workers between the ages of 40 and 59 were not as fortunate. As the ASPPA explains, “They only got about 15 cents for each dollar of benefit they had been promised, though the average age of this group of workers was 52 years with an average of 23 years of service (another 2,900 employees, who all had less than 10 years of service, received nothing).”
There was already a question of whether benefits needed more regulation, and the Studebaker-Packard failure seemed to provide a resounding “YES!”
ERISA Established Protection for Workers
Enacted in 1974, the Employee Retirement Income Security Act (ERISA) helped to provide safeguards against the kind of financial tragedy that impacted thousands of workers in the Studebaker-Packard failure. As the Department of Labor explains, ERISA “requires that sponsors of private employee benefit plans provide participants and beneficiaries with adequate information regarding their plans” while establishing minimum qualifications for those who manage the plans. In addition, ERISA requires reporting to the government and disclosure to participants while establishing provisions that protect funds for participants.
Employers who do not comply with ERISA risk disqualification of the plan and penalties as well as ineligibility for tax benefits.
Changes to ERISA Over Time
Like any piece of complex legislation, changes over time have been necessary to make sure that the Act keeps up with the needs of the day. After nearly 50 years in action, ERISA has certainly seen a lot of changes to the workforce, and amendments to its function have taken many forms, including the following:
- Retirement Equity Act of 1984– Reduced the maximum age that an employer may require for retirement plan participation; lengthened the time period a participant could be absent from work without losing credit
- Omnibus Budget Reconciliation Act of 1986– Barred limits on retirement plan participation for new hires near retirement age; barred the freezing of benefits for participants over age 65
- Omnibus Budget Reconciliation Act of 1989– Established a 20% penalty for recovered amounts due to fiduciary responsibility violations
- Pension Protection Act of 2006– Expanded fiduciary investment advice availability; removed barriers to automatic enrollment; increased transparency
History of ERISA: Still in the Making
ERISA was established within a specific context of the American workforce, and changes to that context have resulted in changes to ERISA itself over the years. We can expect that ERISA will continue to adapt to modern-day workplace demands, but its primary function has remained consistent.
If you have been denied benefits from your employer-provided benefits, an ERISA claim might be your best course of action.
Contact us today to schedule a no obligations consultation.