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Employee Retirement Income Security Act - The Future Of Erisa

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Over the years, there have been a number of proposals to expand participation in employer-sponsored pensions. In particular, many analysts have suggested shortening the vesting period, promoting pension-plan portability, and increasing participation (e.g., by covering part-time workers). Another alternative would be to allow designated financial institutions to administer defined contribution megaplans for numerous small employers. Employers would contribute to these megaplans, each employee would have her or his own account, and the financial institution would take on all of the reporting, disclosure, and fiduciary responsibilities.

Another approach would be to mandate private pensions. Depending upon the size of the program, this approach could compel most workers to set aside a large enough share of their earnings over their careers to fund adequate retirement benefits. For example, in 1981, the President's Commission on Pension Policy recommended adoption of a Mandatory Universal Pension System (MUPS). Basically, the proposal would have required all employers to contribute at least 3 percent of wages to private pensions for their workers. The proposal drew little interest at the time. Recently, however, there has been renewed interest in mandated pensions.

One design for a mandatory pension system would be to piggyback a system of individual retirement savings accounts (IRSAs) onto the existing Social Security withholding system. For example, both employers and employees could each be required to contribute 1.5 percent of payroll to these IRSAs (and the self-employed would be required to contribute the entire 3 percent). These accounts could be held by the government, invested in secure equity funds, and annuitized on retirement. Alternatively, these individual accounts could be held by financial institutions and their investment could be directed by individual workers.

A different approach would be for the government to mandate that employers provide a suitable defined benefit plan for their employees. In that regard, the government might authorize employers to use a central clearinghouse where employers could send pension contributions on behalf of their employees. Over the course of a career, each worker would earn entitlement to a defined benefit that, at retirement, would supplement Social Security.



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