Anniversaries are times for reflection. With the 40th anniversary this week of the signing of the first and still most significant pension reform legislation — the Employee Retirement Income Security Act — we have a few thoughts on the law. Forty years after ERISA's passage, as we report on page 1, the law's successes are striking. ERISA's creation of a federal pension insurance agency — the Pension Benefit Guaranty Corp. — put an end to plan participants losing some, if not all, of their promised benefits, when employers went out of business and hadn't fully funded those benefit promises.
Another huge ERISA achievement: mandating pension plan vesting schedules so that employees did not have to work decades to earn a benefit.
And subsequent federal laws amending ERISA also were significant and beneficial, including a 1984 measure — the Retirement Equity Act — assuring that spousal benefits were protected in divorce situations.
That said, ERISA's 40th anniversary coincides with a disturbing trend: the massive erosion of defined benefit pension plans, which for decades were a mainstay of corporate America's retirement programs.
Indeed, as recently as 1998, 90% of Fortune 100 companies offered a defined benefit plan to new salaried employees.
But now, just 30% still offer the plans to new employees.
How does one explain such a huge drop in defined benefit plan sponsorship? Certainly, increased lifespans are a reason. With retirees living longer, the cost of providing lifetime annuities is rising, and that growing cost is one that some companies say they can no longer afford.
That said, federal lawmakers bear some of the blame. Take cash balance pension plans, a promising and attractive plan design that emerged in the mid-1980s. Questions later arose on whether the plans' basic design ran afoul of age discrimination law. Regulators ducked the question, as did federal lawmakers, and many employers, once interested in adopting the plans, lost patience and decided not to offer them.
And lawmakers continue to do things that have accelerated the flight of employers from defined benefit plans. Almost annually, there is tinkering of pension rules — often with a view toward boosting federal revenues — that increases the administrative burden of offering pension plans.
We hope ERISA's 40th anniversary serves as a call to action to federal lawmakers that they should consider what steps they can take to encourage, not discourage, employers to offer the plans.