If ever a federal act illustrated the law of unintended consequences, the portion of the Employee Retirement Income Security Act that deals with pensions is it.

ERISA, which became law in September 1974, was designed to ensure that workers got the pension benefits they had been promised. At the time, this meant protecting defined benefit pensions-then the overwhelming vehicle of choice for providing pensions. Yet, as ERISA approaches its 25th anniversary, defined benefit pension plans are in eclipse. Many observers say that development can be attributed to-or blamed on-ERISA and subsequent amendments to the law, as well as Congress' insatiable appetite for new revenue.

Changes, often made in the name of fairness, have made defined benefit plans extremely complicated and expensive to maintain. For example, attempts to make sure that highly compensated employees weren't getting the bulk of the benefits led plan sponsors to question the value of running increasingly expensive plans in which they had little stake. Tax law changes added to the burden, while a generation of workers who didn't plan to follow their parents' example of remaining with an employer for life demanded more-flexible retirement systems. The convergence of forces rocked the pension landscape.

"One of the new realities that has jeopardized the strength of DB plans is job mobility. Without portability, DB plans lose substantial value to workers whose careers consist of many short-tenured jobs at many different employers," said Bill Arnone, partner and national director of employee financial education and planning at Ernst & Young L.L.P. in New York.

"The unanswered question is whether ERISA caused the supplanting of defined benefit plans by defined contribution plans, or would that have happened anyway?" he said.

Ted Benna, president of the 401(k) Assn. in Bellefont, Pa., goes so far as to say that ERISA "should be viewed as the beginning of the death of traditional defined benefit plans."

While other observers don't go that far, they do agree that ERISA's impact on defined benefit plans has not been uniformly benign.

"ERISA has its split personality-we have the labor side, and we have the tax side. From the tax point of view, we have a situation where not only have we not developed a good overall retirement policy, we've actually discouraged defined benefit plans. Through various parts of the tax code, we've discouraged any type of superior funding of these plans," said Pete McCormick, benefits consultant with Buck Consultants Inc. in Pittsburgh.

According to Dallas Salisbury, president of the Washington-based Employee Benefit Research Institute, there were 33 million participants in 103,000 defined benefit plans in 1974, compared with about 11 million participants in 207,000 defined contribution plans. EBRI's most recent estimates show about 41.7 million participants in 42,000 defined benefit plans, compared with 50 million participants in about 700,000 defined contribution plans.

Mr. Salisbury said the number of defined benefit plans peaked in 1983 at about 175,000.

Despite the growth in the number of participants in defined benefit plans over the past quarter-century, EBRI's Mr. Salisbury pointed out, "Relative to the growth of the labor force, there should have been a lot more."

Ironically, ERISA itself gets generally high marks for achieving the major goals of its framers, according to Mr. Salisbury.

ERISA had three primary purposes, noted Mr. Salisbury. These were: securing benefit promises to make sure plans were funded; creating the Pension Benefit Guaranty Corp. in order to ensure that the first objective was met even if some plans weren't adequately funded; and increasing benefit entitlement through greater participation and faster vesting. All of these were achieved, he said.

"Because of ERISA, more than 42 million workers and retirees can rest easy knowing that, no matter what happens to their company, they will have a pension in retirement. For nearly half a million people whose pensions are now in PBGC's care, the promise of a protected pension is a reality. These are the people who were covered by the 2,700 pension plans that PBGC has taken over," said David Strauss, executive director of the PBGC.

"As we look ahead, we hope many more American workers will have additional pension plans that provide a predictable, secure pension for life. To make this happen, changes are needed. We need to make traditional pensions more attractive, and we are working toward that end," Mr. Strauss said.

"Judged on its own terms, it has been an extraordinary success. It was targeted at disappointed expectations and broken promises, and it's no exaggeration to say that, as a direct result of ERISA, millions of people are getting pensions they counted on getting," said Karen Ferguson, a Washington-based consumer advocate who is director of the Pension Rights Center.

"Having said that, there are, of course, many shortcomings, but they are really traceable less to the law than to the implementation of the law by the administrative agencies and the courts," Ms. Ferguson said. "First, what we saw in the Reagan administration was an invitation for companies to cut back or cut out pensions, first through reversions. Second is what we call executive-only plans. The third and most important has been the advent of 401(k)s-do-it-yourself retirement plans, which have invited companies to drop or to effectively freeze (defined benefit) plans," she said.

"It's a mixed story. For those who have been functioning under ERISA pension plans, they're still doing well," said George Pantos, a Washington attorney who specialized in ERISA law for more than two decades. "For those people who are covered, they're much more secure."

But meeting ERISA's primary objectives proved to be both expensive and complex, and it "has had the unintended consequence of freezing the defined benefit pension system and encouraging the massive growth of the defined contribution system," which was not a goal or intention of ERISA, said Mr. Salisbury. He noted that ERISA had a fourth objective that was "hidden" within the language spelling out the PBGC's purpose: to encourage the maintenance and expansion of defined benefit plans. This goal "has been an utter failure," he said.

"The one area where they've substantially fallen short is in the desire to expand coverage," said Syl Schieber, vp-research and information at Watson Wyatt Worldwide in Bethesda, Md. The percentage of the workforce covered by defined benefit plans really hasn't expanded "since the late 1970s or early 1980s," Mr. Schieber said.

Several observers blame changes to the law for ERISA's shortcomings.

"It has achieved what it set out to achieve. But the law of unintended consequences being what it is, it has also done some damage, although I think the damage is more than partly the result of subsequent amendments. If it had been left as it was when enacted, I think-and I think everyone else thinks-it would have been grand," said Frank Cummings, a partner in the Washington office of LeBoeuf Lamb Greene & McRae and a one-time staffer for the late Sen. Jacob Javits, R-N.Y., one of the architects of ERISA.

"The subsequent amendments, which were of populist origin, suffered from an excess of populist zeal," said Mr. Cummings.

"In the past three years, it has gotten somewhat better. The pendulum has started to swing back. But ERISA was always a complicated statute, and, certainly during the 1980s and early 1990s, most of the legislation and regulation served to make an already-complicated statute much more so," said Henry Saveth, an attorney with William M. Mercer Inc. in New York.

"The problem is ERISA has been modified," agreed Terry Stuchiner, special consultant with PwC Kwasha in Teaneck, N.J. "Much of the complexity stems from the later amendments to the

law, some of which are merely tax-oriented," she said.

This view is shared by benefit administrators, who must deal with the day-to-day complexity of meeting ERISA requirements. "In the 1980s, things started changing a lot. Rather than being driven by employee or employer needs, ERISA was changed for tax necessity. Government was looking to raise revenue, and pension plans were where the money was," said Michael Pikelny, benefit manager at Hartmarx Corp. in Chicago.

Watson Wyatt's Mr. Schieber said that "the confusion-if not the competition-between the revenuers and the regulators" has resulted in the program being somewhat less successful than it might have been.

"Since ERISA was passed in 1974, just about every year we've

had some piece of benefits legislation passed," agreed Dennis J. Nirtaut, managing director of compensation and benefits for Arthur Andersen L.L.P. in Chicago.

This trend accelerated in the 1980s, noted Mr. Cummings. He named a long list of revenue acts, beginning with the Tax Equity and Fiscal Responsibility Act

of 1982-which capped benefits and limited contributions-that caused employers to turn away from defined benefit plans. "The tide turned with TEFRA," he said. That act was followed by the Deficit Reduction Act of 1984, which resulted in "more of the same," he said. Mr. Cummings said that the "sleeper" was the Balanced Budget and Emergency Deficit Control Act of 1985, better known as "Gramm-Rudman" after its principal sponsors-Sens. Phil Gramm, R-Texas, and Warren Rudman, R-N.H. The act's requirement of revenue neutrality was "part of the engine" driving the emphasis on "fairness," he said.

Then, "what I called Pension Convulsion"-the Tax Reform Act of 1986-was passed, Mr. Cummings pointed out. The new law put in numerous tests-coverage and non-discrimination tests-as well as taxes on certain types of late distributions.

A hint of the complexity of the act was that the bill's language dealing with non-discrimination was about 50 words long, while the regulations governing it ran to "more like 500 pages," said Mercer's Mr. Saveth.

Other legislation, such as the Single-Employer Pension Plan Amendments of 1986, the Unemployment Compensation Amendments Act of 1992 and Omnibus Budget Reconciliation Act of 1993 also made defined benefit plans less attractive.

"Every time you make pensions 'fairer,' you make pensions fewer," said Mr. Cummings.

Mr. Saveth said that attempts to "wring out every last bit of abuse" make ERISA, in essence, "unenforceable." Lawmakers and

others must realize that there are "no absolute fixes, just more- or less-successful adjustments," he said.

Mr. Nirtaut said that complexity hits employees as well as employers. "When we send out our summary annual report to plan participants, very often the response we'll get back is, 'Why did you send this to me?' "

Despite the unintended consequences of ERISA and its subsequent amendments, some observers believe that defined benefit plans may be on their way back.

"I'm optimistic about the future. For much of these past 25 years, we faced a situation where the tax policy tail was wagging the retirement policy dog, and so much of the legislative activity was based on how to extract more tax revenue, rather than what was sound retirement policy," said James Klein, president of the Assn. of Private Pension and Welfare Plans in Washington. Mr. Klein said that "a fortuitous dual situation," combining federal budget surpluses and Baby Boomer awareness of the need to save for retirement, presents

an opportunity for bipartisan efforts to encourage retirement plans.

"What goes around, comes around. I think we're beginning

to see the rebirth of defined benefit plans," said Mr. Pikelny, citing congressional efforts to liberalize the regulations that govern pensions.

"We'll see the pendulum swinging back, where growth in defined benefit is greater than in defined contribution plans. Employees are starting to see, where there are big swings in the stock market, it might be better to get benefits from defined benefit plans," he said.

But that presents new challenges as well, pointed out Peter Turza, a partner in the Washington office of Gibson, Dunn & Crutcher. Mr. Turza also once worked for Sen. Javits.

Mr. Turza said he thinks demographic changes guarantee that pension policy will continue to be at the forefront of concern. He said that any attempt to get into mandatory benefits would be a big mistake and would change the dynamics of ERISA law. Any attempt to place too much liability on plan sponsors "has to be tempered," he said.

Mr. Turza praised recent efforts by Reps. Rob Portman, R-Ohio, and Benjamin Cardin, D-Md., to increase the tax incentives and attractiveness of defined benefit plans.

Ernst & Young's Mr. Arnone said that, as workplace demographics change, "clearly, there has been a re-examination of retirement itself." He said that ERISA hasn't focused on the issue of part-time retirement.

The inflexibility of some DB plans discourages part-time retirement by not allowing retirees to collect partial payments while working and by not allowing retirees who work to continue building their pensions, Mr. Arnone said.

The concept of "phased retirement" has a great deal of appeal to Baby Boomers and could help employers meet their needs during tight labor markets, he said.