This week marks the 40th Labor Day since President Ford signed the Employee Retirement Income Security Act of 1974 into law. ERISA has been amended many times since then—as have Internal Revenue Code provisions that relate to ERISA-covered employee benefit plans. Private-sector regulatory change has come as well, via the Financial Accounting Standards Board. The U.S. and global economies, trade and employment have changed continuously over this 40 years, as has the general societal view of individual responsibility
I will leave to others conclusions on why things have gone as they have, but will provide four data pictures of the 40 years of ERISA—and by coincidence, my entire career in the benefits world—which has revolved around ERISA and employee benefits.
Chart 1 shows income sources in 1975 as reported by the Current Population Survey. Many describe the 70’s and earlier as the “good old days” for retirement: 25% of those over 65 in 1975 reported pension income. Some had both private and public pension income, with 16.9% reporting private pension income and 8.2% reporting public pension income. A central intent of ERISA was to increase the number of workers who would have private pension income in the future.
This was to be accomplished with new standards for retirement plan participation and vesting that would increase the number of plans in which workers would participate, and to increase the number of workers who would gain a non-forfeitable right to a benefit. Chart 2 shows that sponsorship has steadily increased, that participation as a percent of all workers has not, but that the increase in workers with non-forfeitable benefit rights has been achieved.
Research undertaken by EBRI since 1978 documents the change. Today our unique databases and our Retirement Security Projection Model® and the EBRI Retirement Readiness Rating™ it produces indicate that the financial well-being delivered by the voluntary private-sector system will continue to provide significant supplementation to Social Security in the decades ahead (unless legislative or regulatory changes or economic changes that cannot be predicted tear things apart).
Why have the ERISA (and amendments) vesting rules made such a difference? Because of short job tenure: Most U.S workers have never worked long careers with one employer (or in one industry that might have a multi-employer plan). Chart 3 shows that median labor force tenure has changed little for workers under the age of 44 over the life of ERISA. It has shortened a bit more for workers 46‒54, and significantly for workers 55‒64, such that the vesting standards in ERISA have been exceedingly important.
Chart 4 shows from 1983 forward (data collection has become more robust over time), that among public- and private-sector workers 45-64 the percentage with 25 or more years of tenure in both sectors is quite low, with nearly 4/5ths of the population experiencing tenures that are less than a “full career” with one employer. Data in Chart 5 on long tenure can be examined by sector, and shows that public-sector workers have significantly more full careers with one employer than is true in the private sector.
ERISA at 40—What we know as facts is that:
♦ There are about 700,000 plans today as compared to 300,000 when ERISA was enacted.
♦ The proportion of workers who are active retirement plan participants has increased from under 40 million to over 85 million, and that it is about the same proportion of the workforce as it was in 1975.
♦ The proportion of participants gaining vested benefits has more than doubled, as vesting periods have grown shorter, with 46% of workers participating and 43% of workers having vested rights.
♦ We know that total plan assets, average plan assets by various demographics, the proportion of those over 65 with income and/or accumulated wealth that is attributable to their prior vested participation in ERISA plans has grown every year. And it continues to grow, according to data from the IRS, the Federal Reserve, the Department of Commerce Income and Product Accounts, the Department of Commerce Bureau of the Census, and administrative data of plans themselves.
♦ And we know that the PBGC is paying benefits to millions of retirees because this ERISA-created agency exists.
There is no way to know where we would be had ERISA never been enacted, but data clearly tells us where we were and where we are.
These advancements in the financial well-being of retirees and future retirees are the legacy of a voluntary system that has flexed with changes in the economy, with workforce changes, working alongside Social Security, and other in-kind income and benefit programs from the government, and from other voluntary programs. OECD, World Bank, and other international comparisons document that the post-ERISA U.S. system is one of the best-funded and most stable in the world, when judged against voluntary programs working in combination with annuity-paying public social insurance programs elsewhere. Comparisons to other nations with only mandatory programs produce a less favorable picture when looking at the issue of retirement narrowly, but looking more broadly at the overall economic state of nations and populations, the U.S. retirement system certainly ranks near the top of the heap.
Younger persons than I will have to write about ERISA at 80, but I hope to still be writing about it at 50 and 60. If I live a year longer than my parents, I will even write a perspective in 2044, as I celebrate the beginning of my 95th year—and ERISA marks birthday 70. Stay tuned.
Note: To read more about ERISA at 40, see this PlanSponsor interview, online here.