ERISA and Worker Benefits Protection

The Employee Retirement Income Security Act of 1974 (ERISA) is a law designed to protect the pension funds of American workers in private industry. According to the Department of Labor (1974), the law sets standards that employers who maintain pension plans must abide by. ERISA doesn’t require employers to set up pension plans but does address guidelines such as when employees must be allowed to participate in employer-run plans, and how long they must work in order to receive non-forfeitable rights to those benefits.

According to historian James Wooten, ERISA was passed largely because of the aftereffects of the 1963 shuttering of a Studebaker-Packard plant in South Bend, Indiana. After World War II, the United Auto Workers (UAW) and United Steelworkers unions used collective bargaining to secure retirement coverage for employed members. While most new plans under this agreement gave workers a set monthly addition to a pension fund for up to thirty years of service, workers were not guaranteed receipt of these funds, with Studebaker’s plan explicitly stating that no employee had contractual rights to receive the funds until they qualified for retirement based on internal guidelines. If an employee quit or was fired before they were eligible to retire, they lost their pension credit. Despite repeated negotiations between the UAW and Studebaker-Packard, the plan was so poorly funded that when the South Bend plant began to shut down, the plan defaulted and only a few workers were able to receive their full pension. While Wooten argues that “there was little the UAW could do to stop the Studebaker pension plan from defaulting, union officials quickly recognized that the publicity surrounding the shutdown created an opportunity to promote termination insurance.” In 1962, two UAW employees, Leonard Lesser and Nat Weinberg - a lawyer and an economist, respectively – proposed regulation to the President’s Committee on Corporate Pension Funds which would establish insurance for private pensions. President Johnson did not personally act on the committee’s findings. The UAW turned to Indiana Senator Vance Hartke, who proposed a pension reinsurance bill to Congress in 1964. While Hartke’s bill did soundly address the concerns of the UAW, it did little in the way of offering viable solutions for the problem of guaranteeing pension payouts or pension protection. New York Senator Jacob Javits used this bill as a springboard to propose comprehensive pension reform legislation in 1967, and in 1968 the Department of Labor introduced their own pension reform bill, which included the termination insurance UAW sought from the get-go. In 1974, after six more years of retooling the bill, President Ford finally signed ERISA into law. (Wooten, 2001)

ERISA is a vital piece of legislation for the American worker. By protecting worker pensions in the event of layoffs or bankruptcy through federal insurance and providing guidelines for employer-matched contributions to pension plans, it set a new standard for private employers regarding how to handle their employee’s retirement accounts. Without it, millions of Americans would be at risk of losing benefits they’d worked much of their lives to obtain.

References

United States Department of Labor: Frequently Asked Questions. (n.d.).United States Department of Labor. Retrieved April 27, 2013, from http://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=225

Wooten, J. A. (2001). “The most glorious story of failure in the business”: The studebaker-packard corporation and the origins of ERISA. Buffalo Law Review, 49, 684-739.