ERISA at 50: Landmark law improved retirement, but did it hurt pension plans?

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(Photo: Mike Scarcella/ALM)

As the retirement industry prepares to celebrate five decades since the passage of the landmark Employee Retirement Income Security Act of 1974 law this year, the American Academy of Actuaries met to discuss the impact the law has had on the retirement industry at the ERISA 50 Symposium in Washington, D.C. last week.

While panelists overall agreed that ERISA has been beneficial to retirement savers, many expressed regret that it has also contributed to the decline of traditional pensions.

Private sector defined benefit plans account for just $3.2 trillion of the $38.4 trillion in retirement assets held by U.S. households, according to the Investment Company Institute. Defined contribution plans account for $7.4 trillion, and individual retirement accounts—often created from rollovers of 401(k) plans—account for $13.6 trillion.

Here are some of the comments from panelists at the recent ERISA symposium:

Shift from DB to DC: “The system has shifted dramatically from [defined benefit] to [defined contribution] plans” because of ERISA, however, instead of devolving to DC plans, we have moved “to an undefined saving system, where benefits and contributions alike are undefined,”  said Mark Iwry, a nonresident senior fellow for the Brookings Institution. Plan premiums: “The overall level of premiums has to come down.” Not only are they an obstacle to plan creation, but they also incentivize lump sum payments to remove participants from the plan solely to save money on premiums, said  Bruce Cadenhead, the global chief actuary at Mercer.

Structural improvements: ERISA introduced many structural improvements to the retirement system, including the fiduciary standard of the “prudent person rule” and additional disclosures to participants, however, “defined benefits have declined,” while overall “coverage [for participants] has improved,” said Lloyd Katz, the vice-chair for the AAA’s pension committee.

Policymakers also struggle to find ways to increase Americans’ retirement savings, as they discussed challengers related to DB and DC plans. While 401(k) plans are an important part of the retirement equation, they never were designed to replace pensions, Dan Doonan, executive director of the National Institute on Retirement Security, told the Senate Health, Education, Labor & Pensions Committee in a March hearing.

The ERISA 50th Anniversary Symposium and Gala will take place on September 12, 2024 in Washington, D.C. The event will be hosted by nine organizations including the ERISA Industry Committee, American Benefits Council, American Retirement Association, and will be accessible virtually.