For more than 130 years, the first Monday in September has been a national holiday celebrating the social and economic achievements of American workers.
According to the U.S. Department of Labor, the first Labor Day holiday was observed Sept. 5, 1882, in New York City following a proposal by the Central Labor Union. The Central Labor Union encouraged the expansion of Labor Day observances in states outside New York City by promoting a "workingmen's holiday" in early September, according to the Labor Department. By 1885, Labor Day was celebrated in many industrial centers. Several states, including New York and Colorado, passed state laws formalizing the observance of Labor Day, and in 1894, Congress made it an official national holiday.
It was around this same time that one of the most significant advances in economic security for the American labor force began to take hold. Pensions, a benefit that previously had been used to entice soldiers to join the ranks of the Army and Navy during wartime, began to expand to public-service employees and eventually to private-sector workers. Throughout most of the 20th century, pensions flourished until the mid-1980s, when employer-sponsored pensions reached their pinnacle. Since then, most companies have phased out pension plans or no longer offer them to new employees.
On this Labor Day, check out these important pension milestones outlined by the Employee Benefit Research Institute, many of which continue to affect retirement savings plans today.
An American Express shipping receipt dated Aug. 6, 1860, recalls the company's
early roots in the express mail business. (Photo: Wikipedia)
The American Express Co. established the first private pension plan in the United States. Prior to the 1870s, private-sector plans did not exist, primarily because most companies were small family-run enterprises.
The Civil Service Retirement System was enacted in 1920 during Woodrow Wilson's presidency. (Photo: Wikipedia)
The Civil Service Retirement System was formed in 1920 to provide retirement, disability and survivor benefits for most civilian employees in the federal government. The system was replaced by the Federal Employees Retirement System in 1987.
President Roosevelt signs the Social Security Act into law on Aug. 14, 1935. (Photo: Wikipedia)
On Aug. 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law. The 32-page act was meant to provide social insurance as a safeguard "against the hazards and vicissitudes of life."
"The Social Security Act established two types of provisions for old-age security: (1) Federal aid to the States to enable them to provide cash pensions to their needy aged, and (2) a system of Federal old-age benefits for retired workers," according to the Social Security Administration website. "The first measure was designed to provide immediate assistance to destitute aged individuals. The second was a preventive measure intended to reduce the extent of future dependency among the aged and to assure workers that their years of employment entitled them to a life income."
Initially, the minimum monthly benefit was $10 and the maximum was $85, according to SSA.
Women entered the U.S. labor force in large numbers during World War II to support the war effort and fill jobs left vacant by deployed men. Here, workers at Aluminum Industries Inc. in Cincinnati, Ohio, assemble armor-piercing shot in 1942. (Photo: Alfred T. Palmer/Wikimedia Commons)
The Investment Advisors Act of 1940 required delegation of investment responsibilities only to an adviser registered under the act or to a bank or an insurance company.
Pension plans grew in popularity during World War II and its aftermath. In 1940, 4.1 million private-sector workers, or 15 percent of all private-sector workers, were covered by a pension plan. That number more than doubled in by 1950 to 9.8 million private-sector workers covered, or about one-quarter of all American workers.
During this time period, the Labor-Management Relations Act of 1947, better known as the Taft-Hartley Act, provided fundamental guidelines for the establishment and operation of pension plans administered jointly by an employer and a union.
General Motor's headquarters building in Detroit from 1923 until 1996 is now a National Historic Landmark. (Photo: Wikimedia Commons)
General Motors established a pension plan for its employees and wanted to self-fund its pension plan so it could invest in stocks. State law prohibited insurance companies from investing pension assets in stocks. The 1950s saw a bull market caused by the release of pent-up demand, because of wartime restrictions and the need to rebuild Europe and Japan.
Pension reform in the 1970s was triggered when Studebaker Corp., a South Bend, Indiana, car manufacturer declared bankruptcy in 1963, accompanied by the collapse of its pension plan. (Photo: Wikipedia)
The Employee Retirement Income Security Act of 1974 was enacted. The act was designed to secure the benefits of participants in private pension plans through participation, vesting, funding, reporting and disclosure rules.
It established the Pension Benefit Guaranty Corp. and provided added pension incentives for the self-employed through changes in Keogh plans and for persons not covered by pensions through individual retirement accounts. It established legal status of employee stock ownership plans as an employee benefit and codified stock bonus plans under the Internal Revenue Code.
It also established requirements for plan implementation and operation. In the early 1970s, 26.3 million private-sector workers, or 45 percent of all private-sector workers, were covered by a pension plan.
In 1978, further regulation in the form of the Revenue Act of 1978 established qualified deferred compensation plans under section 401(k), providing that employees should not be taxed on the portion of the income they elect to receive as deferred compensation rather than direct cash payments.
President Ronald Reagan signs the Tax Reform Act of 1986 into law. (Photo: Wikipedia)
The Tax Reform Act of 1986 established faster minimum vesting schedules, changed rules for the integration of private pension plans with Social Security, and mandated broader and more comparable minimum coverage of rank- and file-employees. It also restricted 401(k) salary reduction contributions, tightened nondiscrimination rules, and required inclusion of all after-tax contributions to defined contribution plans as annual additions.
The act extended the limit on the compensation amount that may be taken into account under all qualified plans, imposed a new excess benefit tax on distributions over a certain amount and reduced the maximum benefit payable to early retirees under defined benefit plans. It restricted the allowable tax-deductible contributions to IRAs for individuals who participate in an employer-sponsored pension plan and whose income exceeds a specified threshold.
The act also imposed an excise tax on lump-sum distributions received before age 59.5, created an simplified employee penion plan salary reduction option for companies with 25 or fewer employees and subjected loans above a certain amount to current income tax.
After 100 years of growth, pension plans began to decline in the mid to late 1980s. (Photo: iStock)
About 39.5 million private-sector workers (43 percent of all private sector workers) were covered by a pension plan, signaling the beginning of a downward trend in pension plan participation. In 1983 there were 175,143 plans, but by 2008 there were only 46,926 plans.
President George W. Bush signs the Pension Protection Act of 2006. (Photo: Kimberlee Hewitt/White House)
The Pension Protection Act of 2006 further fueled the trend away from defined benefits toward defined-contribution plans. The act increased defined benefit plan disclosure and reporting rules and imposed stricter funding rules, made increases in defined contributions limits in the 2001 tax cuts permanent and facilitated the use of default participation rules.
By 2006, many U.S. companies had frozen their defined benefit pensions and replaced them with defined contribution plans, according to the Social Security Administration. Two years later, the 2008 recession resulted in a loss of $1 trillion in the value of assets held in private-sector defined benefit plans and an additional $1 trillion lost from state and local plans, according to SSA. By the late 2000s, only 20 percent of private-sector workers were covered under defined benefit plans while 43 percent of private-sector workers were covered by defined contribution plans.
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