ERISA turns 50: A retrospective

There’s a widely accepted adage that states, “Bad facts make bad law.” While we can point to many reasons why that’s true, did you also know that bad facts can sometimes make great law?

On September 1, 2024, we celebrate the 50th anniversary of ERISA being signed into law. ERISA, or the Employee Retirement Income Security Act, ensures that promises made are promises kept when it comes to employees’ retirement and health care benefits. 

So, where are the bad facts? They can be found in the tragic stories of thousands of hard-working Americans whose dreams were shattered and who were left financially out in the cold, unprotected by the employer who had promised them a retirement.

In South Bend, Indiana, American auto manufacturer Studebaker faced financial challenges. Declining sales and increasing costs were too much for a company that had come back from bankruptcy before, but ultimately was never able to recapture the resources of its Big Three competitors. 

Studebaker employees’ pension plan was one way company management decided to cut costs, which left the plan unable to cover the pension benefits promised to all employees. When Studebaker filed for bankruptcy in 1963, 4,000 employees ages 40-59, with an average service of 23 years with Studebaker, received only $0.15 for every dollar of benefit the company owed them. The other 2,900 employees with less than 10 years of service received nothing. 

When Studebaker shuttered its doors after 114 years in business, it also closed the door to the retirement that employees had been counting on. This is financial tragedy at its worst; clearly, reform was needed.

Enter ERISA

On Labor Day, September 2, 1974, ERISA was signed into law by President Gerald Ford. The legislation was a culmination of many efforts to meet the changing retirement and health care needs of employees and their families. ERISA set minimum standards for pension plans and guaranteed payment of certain benefits through the Pension Benefit Guaranty Corp. 

ERISA was passed to ensure soundness and stability in the retirement plans of millions of employees and their dependents who were affected by these plans. Also, preferential tax treatment impacted federal tax revenues. The standards established by ERISA were sorely needed to help prevent tragedies like the Studebaker incident from happening ever again.

ERISA required disclosure and reporting. It also:

• established standards of conduct and responsibility of plan sponsors;
• set obligations for fiduciaries;
• provided appropriate remedies and access to federal courts; and
• created minimum employee protections, including participation, eligibility, vesting and funding.

The genius of ERISA

Since ERISA’s debut in 1974, more than 20 laws have passed to amend various aspects of ERISA, often to change aspects such as minimum requirement standards, reporting, or protected rights. The genius of ERISA lies in its ability to evolve with changing workplaces in evolving times; the law is written in a way that has enabled employers and the benefits community to take the measures of fairness and apply them to the creation of other benefit programs that were never contemplated by the original drafters.    

Consider, for example, ERISA’s impact on the creation and advancement of occupational injuries in Texas. While other states mandated workers’ compensation, the Texas Workers’ Compensation Act was voluntary.  When Texas figured out its voluntary workers’ compensation system created an opportunity to care for their injured workers outside the state system, it was the structure of ERISA that filled in regulatory gaps, offering a dispute resolution process, reporting and disclosure responsibilities and fiduciary obligations.  

But it’s in the preemption provisions where ERISA’s strength and true genius resides.  Without ERISA preemption, multi-state employers would find themselves lost and overwhelmed by a sea of contradictory state laws and regulations.  The near elimination of state regulatory burden is what allows employers to innovate in order to attract and retain its workforce.  

Many careers are influenced by ERISA

The standards established by ERISA have far-reaching impacts across our country today, as we see its impacts on every workplace in the U.S. It is truly impossible to overstate its positive impact on real people working real jobs and living real lives.

My first introduction to ERISA came in college, during an advanced accounting course, in the context of accruing pension liabilities. It was an odd, life-changing moment, even for a self-professed nerd. Learning about ERISA and immediately considering its influence on working families took me back to discussions around my family’s dinner table as I was growing up. My father was a union steward for the Communication Workers of America (CWA), and we spoke often of the relationship between workers and their employers. While I can’t remember the exact issue, I can recall the moment my family’s financial security intersected with the accounting principles I was studying.

Prior to the advent of ERISA, the documents provided by companies to workers like my father were convoluted, at best. One could even argue they were written to discourage an employee from even trying to understand what their benefits actually included. That was just wrong. One of the many benefits we have today, thanks to ERISA, is a better understanding of what is actually promised to the employee, important information that is required to be written in “plain language” so that everyone can understand and engage with the system that is supposed to reward the fruits of their labor. From understanding stems accountability and a sense of dignity, too.

Happy birthday, ERISA!

Reflecting on the advent of ERISA, it’s easy to see that it has made a world of difference in 50 years. It is also a brilliant example of how legislation – when well-conceived, well-written and well-implemented – can create better working and living conditions for all. In a time today when political discord seems the norm, let us remember that the legislative process can truly be about seeing problems and addressing them for the American people. ERISA is that kind of hope for me, and it has provided hope for many millions, going on a half-century and counting. 

Jennifer Hurless, J.D., is president of PartnerSource, the recognized leader in Texas injury benefit programs and other responsible alternatives to traditional workers’ compensation insurance.