A major failing of ERISA has been its inability to nudge up pension coverage among workers in the private sector, says Leon E. Irish, vice president and senior counsel at Aetna Life and Casualty Co., and a noted ERISA lawyer.
Pension coverage has been stuck at 45% of the private work force since the 1970s, Labor Department data show. And despite the dread that the words "employer mandates" evoke in many plan sponsors, requiring all employers to provide workers with retirement benefits would certainly solve the coverage problem, Mr. Irish says.
And if Congress ultimately passes a health care bill that directs employers to provide coverage to all employees at some distant time in the future, "then the way will be open to consider employer mandates for retirement," he suggests.
Under a mandatory universal pension system contemplated by Mr. Irish, the government would require all self-employed individuals or those working for non-government organizations to set up a separate pension account for 5% of their earned income up to a maximum income of $200,000.
Contributions beyond 5% would be tax deductible up to a specified amount to encourage added contributions.
Of course, such a program also would eliminate the need for tax-preferential treatment for other types of savings vehicles such as individual retirement accounts, Mr. Irish says. The program might also cause employers to cut back on traditional pension plans, making them a "highly optional third tier," beyond Social Security and mandatory pension accounts.
And despite its name, the MUPS program envisaged by Mr. Irish would impose a mandate only on workers, not employers, although employers would be free to contribute tax-advantaged matching amounts.
All contributions, which could be invested in a variety of options, would grow free of taxes until retirement age. The only payout permitted under Mr. Irish's plan would be an inflation-adjusted single or joint annuity at retirement age - the same age at which the participant qualifies for Social Security benefits. Alternatively, individuals could take a 20% lump sum of the entire MUPS account at retirement. The remainder would be available only as an annuity.
"Over time this would not only solve the private pension plan problems of a lack of coverage, but also the looming problems of Social Security," Mr. Irish says. "If you required everyone to fund a MUPS account throughout their lives, you would be creating a funded program, instead of the pay-as-you-go (Social Security) system, which is really an unfair intergenerational transfer system.
"MUPS would make the system much more sound that it is."
Of course, the program also would make the employer-pension connection irrelevant and greatly diminish the importance of ERISA, he says.
But is the United States ever going to adopt such a system? Mr. Irish doubts it.
"It makes too much sense, it's too logical and it costs too much money."