Let's remember the anniversary of the Employee Retirement Security Act this week, but let's not celebrate it. Ultimately, ERISA failed to achieve its objective of making pension benefits more secure for employees.
Yes, the benefits promised by defined benefit plans are today more secure than they were before ERISA, but the number of defined benefit plans has dropped dramatically, and is still dropping.
In hindsight, the passage of ERISA clearly was the first nail in the coffin of defined benefit plans, which provide the most secure retirement benefits. Spooked by ERISA's requirements, companies terminated 5,000 defined benefit plans in the first nine months after the law was passed. That should have been a warning. Since then, other legislative and regulatory actions taken to "protect employee pensions" have just added more nails.
More employees are covered by some form of pension plan today than when ERISA was passed, but that's because of the spread of defined contribution plans, especially 401(k) plans.
But employee retirement benefits are no more secure today than before ERISA was passed because employees are more exposed to the vagaries of the capital markets today than they were then. The funding decision -- how much to save and invest for retirement -- and the investment risk both have been passed to the employees, who are least qualified to make those decisions.
If Congress had foreseen the results of its passage of ERISA, the law would have been far different.
No one has yet repealed the law of unintended consequences.
