By Ted Gotsch
Senior Policy Analyst, Content and Publications
For tens of millions of Americans, retirement security is but a dream. With no or minimal savings socked away for their golden years, they will struggle economically as seniors unless something changes.
How did this happen and what can be done to fix it? This year, the Academy is offering a window into ERISA, the Employee Retirement Income Security Act of 1974—the law that helped frame the modern American retirement system. As part of its “ERISA at 50” series, the Academy is crafting issue briefs, holding webinars, and hosting a symposium with key external thought leaders to delve deeper into the topic.
On May 14, the Retirement Practice Council offered a kickoff webinar that looked back at what spurred the creation of ERISA and how the law has changed since. Over the past 50 years, employers have increasingly moved away from offering defined benefit (DB) plans, like pensions, to their employees and instead transitioned to defined contribution (DC) plans, like 401(k)s, placing the onus on workers to handle their investments.
The transition from pensions, said J. Mark Iwry, a nonresident senior fellow at the Brookings Institution and former deputy assistant secretary for retirement and health policy at the U.S. Department of the Treasury, “was a shift that should be viewed as a decline in risk-sharing and risk-bearing” for employers. The result left many Americans scrambling to figure out a new system they knew little about.
While some saw advantages in DC plans, such as their portability and the ability to see how much one had in savings in comparison to more cryptic DB plans, Iwry said their do-it-yourself nature have left many in the lurch.
“We have a coverage gap reaching 60 million workers who are disproportionately Black, Hispanic, or women,” he stated.
This seems a far cry from the goals of those who pushed for the passage of ERISA. Lloyd Katz, vice chairperson of the Academy’s Pension Committee, explained how the initial version of the law created vesting rules for pensions, which halted workers who had spent their entire careers with a company from losing their benefits if the business went bankrupt. ERISA created the Pension Benefit Guaranty Corporation, colloquially referred to as the PBGC, to ensure pensions, fiduciary standards, and reporting and disclosure rules.
But the state of retirement plans has changed significantly since ERISA’s enactment. DB plans, once numbering as high as 175,000 in 1985, now number about 40,000. Meanwhile, DC plans have grown from about 200,000 in 1975 to more than 700,000 today, Katz noted.
In an attempt to address retirement savings shortcomings, lawmakers at the state level are increasingly stepping in by creating automated investment retirement account (IRA) vehicles. Iwry said legislators are acting at the state level instead of waiting on Congress where efforts have stalled. And those actions are helping create more employer-based offerings as well.
“Happily, it looks like the auto-IRAs in 17 states … are encouraging more 401(k)s in the private sector,” he said.
The Academy will focus on the current state and future outlook of ERISA at the June 4 event in the nation’s capital, “Looking Back, Moving Forward: ERISA at 50.” The half-day, in-person symposium will showcase Academy staff, volunteers, and retirement experts as they discuss the past, present, and future of retirement in America. Policymakers and staff are encouraged to attend.
