The Employee Retirement Income Security Act (ERISA) was signed into law on September 2, 1974. It is a key piece of federal legislation that protects assets in retirement plans. ERISA sets minimum standards and rules for various types of retirement programs.
These include eligibility rules, vesting periods, and spousal rights in the event of an employee’s death. The law requires retirement plans to provide information regarding employee participation, vesting, benefit accruals, and funding. It also imposes accountability on fiduciaries who exercise authority or control over a plan’s management or investments.
ERISA covers defined benefit plans, which are funded by employers and promise to pay recipients a specific monthly amount in retirement.
Erisa’s impact on retirement savings
It also covers defined contribution plans like 401(k) accounts, which are primarily funded by workers’ contributions.
While ERISA authorized Individual Retirement Accounts (IRAs), it does not cover them because there is no employer involvement. IRAs debuted in the mid-1970s and have expanded over the years to allow higher contributions. ERISA has strongly influenced American retirement savings.
According to the Investment Company Institute, Americans have accumulated around $40 trillion in retirement plans, with $14.3 trillion in IRAs and $11.1 trillion in 401(k)-type plans. “ERISA’s most enduring impact may be that it began an era of continuous enhancements to employee protections and contributed to the reduction of discriminatory treatment of U.S. workers,” said ERISA experts. While not initially comprehensive, ERISA laid the groundwork for modern employee retirement security and protections in the United States.
As David John, a senior policy adviser at the AARP Public Policy Institute, noted, “Typically, when a retirement bill comes before Congress, some part of it will refer to ERISA.”
