While terms used to describe the Employee Retirement Income Security Act when it was signed into law by President Gerald Ford 40 years ago include “horrible” and “terrible,” a panel of retirement planning experts agreed Tuesday that the law has had a positive impact on Americans’ retirement savings.
“The structure” of ERISA “has served us well,” said Ann Combs, principal and head of government relations at Vanguard, during a Tuesday morning panel discussion titled ERISA @ 40, at the American Society of Pension Professionals and Actuaries annual conference in National Harbor, Maryland, just outside Washington.
The “flexibility of the investments [allowable under ERISA] have allowed [the law] to evolve and adapt to new plan structures,” said Combs, who was the former assistant secretary of Labor and head of the DOL’s Employee Benefits Security Administration (EBSA) from 2001 to 2006. The law’s drafters “were wise to basically adopt the modern portfolio theory that you can invest in riskier assets if they [are] diversified.”
Indeed, Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, added during the panel discussion that “where we are today in [the retirement saving] system is where ERISA would ultimately lead us.” While “ERISA has ended up not restricting flexibility” in how people can save, the law has resulted in “tremendous difficulty” for defined benefit plans. “Pre-ERISA there were only DB plans.”
Alvin Lurie, president of the law firm Alvin D. Lurie PC, who was the first person to administer the IRS’ ERISA program in Washington in the mid-’70s, noted that ERISA came to be “because the economy was suffering” and “big employer plans became underfunded.” However, he said, “it was not foreseen [that under ERISA] 401(k)s and other plans would have taken over.”
Mark Iwry, senior advisor and deputy assistant secretary at the Treasury Department, added that since ERISA, “a lot has been done by administrative action [as well as] legislation” to help retirement savers. “The federal framework around ERISA is a very positive part of what came with the new law,” he said. ERISA “was a job well done.”
Brian Graff, ASPPA’s president and CEO, questioned whether the post-ERISA “multi-jurisdictional” nature of retirement plan regulation today is a good thing.
Vanguard’s Comb responded that as the assets under management in retirement plans have grown and as the plans “have become major players in the capital markets,” it’s only “natural” and “inevitable” that the Securities and Exchange Commission as well as the Financial Industry Regulatory Authority have become involved in issuing retirement-related rules. However, she conceded, “coordination” among the regulatory entities can be “difficult.” Graff also noted that ERISA was designed, in part, to ensure assets of employees were protected, and asked the panelists if there was a “gap” in ERISA protections with the huge shift of money to individual retirement accounts, which aren’t included under the law.
Salisbury responded that it remains to be seen if the Department of Labor will include in its proposed conflicts of interest rule (better known as the DOL’s rule to amend the definition of fiduciary under ERISA) whether fiduciary advice surrounding IRAs will be included. “I don’t need to tell anybody how controversial that provision [of the DOL’s proposal] has been.” Salisbury explained that the preamble to the DOL’s first fiduciary draft argued that “most of the money in IRAs came out of the [retirement planning] systems with protections, and shouldn’t those same protections be there” when the money shifts to IRAs.
“I take exception to comments that IRAs are the Wild West,” Combs added. “That’s not the case; the SEC and FINRA” have oversight responsibilities when it comes to IRAs. “It’s a very disclosure-oriented regime; it’s a debate as to whether there should be additional rules” regarding IRAs.
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