There’s no shortage of debate about whether the Employee Retirement Income Security Act is meeting the retirement challenges now facing baby boomers and generations to follow. But there’s no debating that the law ushered in some monumental changes, enhancing, if not revolutionizing, the concept of retirement as the country knows it today.
Here are the top 5 changes ERISA has brought us:
1. Pension Benefit Guarantee Corp.
The PBGC gets its share of flak. No one really likes paying those premiums. The transition from defined benefits to defined contribution plans has made PBGC less popular; as the pool of DB sponsors grows smaller, so does the collective dollars available to spread the risk around. That’s meant increased premiums and a pretty aggressive tug-of-war between PBGC and the private sector.
But before ERISA, there was no backstop to private pensions. That meant an employer could offer a plan, defer contributions, and not be responsible for coughing up what was rightfully earned by employees.
According to its most recent numbers, PBGC is currently responsible for providing the pensions of about 1.5 million people who otherwise would have been left holding the bag.
That makes at least 1.5 million fans of ERISA.
Sometimes it’s easy to take a blessing for granted.
Let’s say you worked a job in the private sector, a hard, demanding, bulging-disc type of job. You did it for 25, 30 years until you were physically left with no option but to quit. You decide to take a lower-paying job to keep your family fed, but that’s OK, because you’ve been paying into a pension your whole life, and that will allow you and your family to survive.
So, you go to your boss, tell him your plans, and he comes back from management and says, sorry Charlie, no pension unless you stay until you’re 65.
That’s pretty ruthless by today’s standards, and it was a common occurrence before ERISA established vesting rules for public pensions.
3. Pension funding