Although Americans hate to save, the U.S. work force - through the passage of the 1974 Employee Retirement Income Security Act and with a little help from money managers - has socked away nearly $4.8 trillion.
This is just one of the changes wrought by ERISA over the past 20 years.
Great flows of corporate pension fund contributions into the stock market, which may have helped propel the bull market of the 1980s.
The burgeoning of the professional investment management industry.
The development of a wide range of investment alternatives to domestic stocks and bonds as pension funds sought to meet ERISA's diversification requirements as well as higher investment returns.
The growth of defined contribution plans as companies sought to avoid some of ERISA's heavy regulatory burdens.
ERISA meant the death of the gold watch and the birth of something more worthwhile: a guaranteed retirement benefit. It also introduced a flood of sophisticated money managers, who some say, are responsible for the bonanza period in equity returns after ERISA's enactment.
Before ERISA, employees were often given a promise of a retirement benefit that hinged on the employer's ability to afford it, said Bill Priest, chief executive officer and portfolio manager at BEA Associates, New York. When Studebaker Co. shut down its South Bend, Ind., auto plant in 1963, it left thousands of workers without pension benefits. Though the automaker did nothing illegal, many people say the Studebaker story triggered widespread concern over establishing a retirement policy and helped spark initial legislative efforts.
Congress "created an industry with ERISA," Mr. Priest said. "It was a tremendous business to money managers."
Through a new system, ERISA created minimum funding levels, diversification rules and other regulations that opened a new aspect of the retirement industry: how to manage these funds and how to get the best possible return for participants.
"If you go back 30 years ago, the debate was whether or not you ought to be holding stocks, and there were plenty of public pension funds prohibited from holding stocks and many private funds that wrote into their plans that they could not hold stocks," said Randy Barber, director of the Center for Economic Organizing, Washington.
The Labor Department's Pension and Welfare Benefits Administration's latest report on private pension plans show that plan assets saw a 502% increase to nearly $2 trillion in 1991 from $325 billion in 1977. Earnings leaped a staggering 1,493% to $289 billion in 1991 from $18.144 billion.
Meanwhile, plan sponsors fastidiously contributed to their pension plans during this time, causing contributions to skyrocket 139% to nearly $113 billion in 1991 from $47 million in 1977.
Pension plans held 28.6% of the equity market in 1992, according to a recent study by Riverside Economic Research, Washington.
As pension fund holdings have grown, so has the way money managers have viewed their role in managing these funds, experts said.
"Diversification became the front and center issue," said Claude N. Rosenberg Jr., chief investment officer of RCM Capital Management, San Francisco. "It was something that people didn't consider before."
Mr. Rosenberg, who started his money management firm in 1970, said diversification was and still is a challenge, because if you didn't diversify your portfolio, it would be a violation of the pension law. On the other hand, if you over-diversified, the portfolio more than likely ended up with mediocre returns, Mr. Rosenberg said.
Out of the diversification issue evolved the proxy voting issue, Mr. Rosenberg said.
"Prior to ERISA, it's fair to say that money managers took proxy voting very, very casually," he said. "If you didn't agree with management, you would just sell the stock."
Now, proxy voting has become one of the hot buttons being pushed by the Department of Labor. Assistant Secretary of Labor Olena Berg, who heads the Pension and Welfare Benefits Administration, believes proxy voting is an essential part of managing the assets of pension funds today.
"If you are an owner of corporate America you want to make sure that things are in place that you need to perform effectively, just like an owner of an individual business would," she said. "So you need to be worried about how companies are training and treating their employees, in terms of (a company's) productivity and bottom line results."
But the way institutional investors have managed pension funds for the past 20 years will not be the way funds will be managed in the future, experts said.
International investing, for example, is growing dramatically. Assets of international and global money managers jumped 52% to $269.5 billion this year, from $177.4 billion in 1993 and only $1.7 billion in 1979 (Pensions & Investments, June 27).
"Money managers are facing the fact that this is part of diversification," Mr. Rosenberg said. "This is going to be where their competition is going to be five years from today, if not already today."
But institutional money managers are already learning how to deal with another type of money manager: defined contribution plan participants who make investment choices based on limited options from plan sponsors.
"I think the corporate ERISA market is passe, and the defined contribution market is the new game. That's where the market is going to be," said BEA's Mr. Priest. "ERISA has done nothing but guarantee that no one in their right mind would set up a defined benefit plan."
Some, like John Erlenborn, a former Illinois congressman and one of the founding fathers of ERISA, said participants should not be money managers.
"I would take away the power of participants investing and have funds professionally managed," Mr. Erlenborn said.
"Participants' problem is that they don't know how to balance their portfolio. Given the chance, they would buy tax-free bonds, and get taxed anyway."
But some experts, like Scott Macey, executive vice president and general counsel for Actuarial Sciences Associates Inc., Somerset, N.J., said employers and the investment community will put more emphasis on educating the employee within the next two to five years.
"I think we will eventually get to the right place," Mr. Macey said. "I don't think you need to make (employees) super-sophisticated. You just need to talk to them about savings - maximum savings - and how to allocate money and how to balance risk and reward. I do think we will get there as a society."
RCM's Mr. Rosenberg agreed, but said institutional investing is a learned art, and that people must develop a contrarian sense in order to get the best returns.
"As human beings, we are faced with human emotions of hope, greed and fear," Mr. Rosenberg said. "People usually react emotionally and in the stock market, that can be destructive to themselves. .*.*. It's important to be contrarian enough to make bets when prices are reasonable."
Mr. Rosenberg said the introduction of defined contribution plan participants may mean more volatility in the marketplace. Investment managers may have to deal more with redemptions and may have to manage more cash than they used to when funds were professionally managed.
But does this mean the death of the defined benefit plan? Many experts don't believe so, but most believe the government should do something to simplify the defined benefit system and to keep it intact.
"Retirement policy should at least be neutral between defined benefit and defined contribution plans, to err on the side of defined benefit plans," said Gary Ford, former Pension Benefit Guaranty Corp. general counsel. "Right now, the law has heaped one regulation on another on defined benefit plans, making it more difficult for companies to provide defined benefit plans."
Although most government officials don't think they have an obligation to promote defined benefit plans, there is a responsibility to study retirement policy to make sure it remains a legitimate investment vehicle for employee retirement.
"ERISA was modeled for the traditional defined benefit plan, and in light of the growth of defined contribution plans - 401(k)s and participant direction - there are some issues that need to be looked at again," said the Labor Department's Ms. Berg. "We're trying to start that process, for example requests for comments on reporting and disclosure, because needs have changed dramatically."