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)
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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.