Employee Retirement Income Security Act

The Employee Retirement Income Security Act (ERISA) was signed into law by President Gerald Ford on Labor Day, 2 September 1974. This landmark law provides extensive rules governing private pension plans and other employee benefit plans. The primary function of ERISA has been to help ensure greater retirement security for those American workers who have pensions. ERISA has largely achieved this result by (1) requiring that private pension plans hold plan assets in trust for the benefit of the employees and their beneficiaries, (2) requiring that pension plans be funded on a timely basis, and (3) ensuring that most covered employees with more than five years of service have a vested (i.e., nonforfeitable) right to receive their pension benefits.

It is important to note that the United States has a voluntary pension system. Private employers are not required to have pensions, but if they do, ERISA is applicable. Since it was enacted, ERISA has been amended numerous times, and a whole regulatory system has grown up to enforce its provisions. The key agencies charged with the administration of ERISA are the U.S. Department of Labor, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC).

From 1975 until 1995, the total number of private tax-qualified retirement plans rose from 311,000 to 693,000, and the total number of plan participants (including workers, retirees, and survivors) rose from 45 million to 87 million. In 1995, these plans held more than $2.7 billion in assets.

Private pension-plan participation and coverage are by no means universal, however. In 1993, for example, only 44 percent of U.S. civilian workers participated in a private pension plan, and only about 38 percent were vested. The government has long been interested in expanding private retirement-plan coverage, and this concern has motivated many of the changes to ERISA.