Four decades after its introduction, the Employee Retirement Income Security Act has done much to help American workers create a small sense of financial security as they ponder their post-working years.
But as a panel of ERISA experts and insiders noted Tuesday at ASPPAs Annual Conference in Washington D.C., that complex and frequently controversial legislation hasnt entirely replaced the long-ago security of the old-fashioned pension plans once prominent in the American workplace.
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Not that it was necessarily supposed to, noted Alvin D. Lurie, the assistant commissioner of the IRS during the turbulent years that ERISA was born.
Lurie says ERISAs creation came just as the Nixon presidency was spiraling toward impeachment the landmark retirement legislation was one of the items fast-tracked by that administration as larger problems unfolded and that a perfect storm of poor economic times and the beginning of the end of the traditional pension system made ERISA an important, if somewhat flawed development.
Even at the time, he says, the fledgling retirement industry referred to it as a new, horrible law, adding that ERISAs sometimes confusing multijurisdictional status, caught between the Departments of Labor and Treasury and the IRS, was also an untraditional approach.
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I think we got a grand compromise which has worked surprisingly well, he notes. It wasnt planned that way it was supposed to be mostly tax-driven, but then Labor got involved, and that got the Senate Finance Committee involved. There was a turf battle from 1972 to 1974; neither side was particularly comfortable with the other being involved.
J. Mark Iwry, current deputy assistant secretary at the U.S. Treasury, says ERISAs most controversial legacy will likely be the almost accidental development and explosion of the 401(k) plan, so heavily shifting the burden of retirement planning onto employees themselves.
Probably ERISAs biggest disappointment is the sheer lack of coverage we still see today, with tens of millions of workers who lack access to any retirement savings plan, he says. I dont think we saw a shift from defined benefits to defined contributions, we saw a shift to undefined benefits, with contributions left up to the employee.
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Redoubling the effort to lead people to savings through automatic enrollment, default investments and more lifetime income options will be critical to long-term success, he notes, with even limited employer contributions to employee savings still creating some first semblance of savings for so many workers.
And on the whole, I think [ERISA] has held up pretty well, adds Ann Combs, head of government relations with Vanguard. It was allowed to evolve and adapt to new structures, and it was wise of its founders to include modern portfolio theory that was really quite forward-thinking.
Dallas Salisbury, president and CEO of EBRI, says the fact that ERISAs inbuilt flexibility allowed the then-nascent concept of defined contribution plans to be included may ultimately have been the legislations strongest legacy, although side developments such as the creation of the Pension Benefit Guarantee Corporation have also done much to continue to protect existing corporate pension plans.
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Unfortunately, employers have not increased their spending on retirement, even when push came to shove, he says. The only way to get there is to spend a lot more money, and no one has been willing to do that. By giving something to everyone, but less to everyone, theres far greater equity, but far fewer with a true defined benefit.
