Employee benefits law is mostly drawn from two federal sources—the Internal Revenue Code and ERISA. Just what is “ERISA,” though? Its official reference is the “Employee Retirement Income Security Act of 1974.” That means the law is 50 years old this year! So, in honor of its birthday, let’s take a deeper dive into its history.
ERISA was signed by President Gerald Ford on Labor Day, September 2, 1974. The history of laws regulating benefit plans started long before then, mostly in the form of tax rules controlling deductions relating to pension plans. For example, the Revenue Act of 1913 provided for the tax-exempt status of pensions, and the Revenue Act of 1942 provided participation requirements and, for the first time, disclosure requirements.
Several historical events drove Congress to consider the need for greater pension protections than the IRS could provide. In 1959, Congress passed the Welfare and Pension Plans Disclosure Act in 1959 (WPPDA), giving the Department of Labor a role in regulating employee benefit plans. But it was the failure of the Studebaker automobile manufacturer that is commonly said to be the impetus for ERISA’s passage. The Studebaker company closed its plant in 1963. Its pension plan was so poorly funded that many employees received none of the pensions they had been promised. Over the next several years, Congress held hearings, the media publicized concerns and flaws with the system, and public support for a solution grew (“There oughtta be a law!”).
The Act that President Ford signed was simply titled “An Act to provide for pension reform,” and though it was sweeping in its original form, it has been amended over the years to add even more comprehensive employee benefit protections, including COBRA and HIPAA. The system we have today is a complex, nuanced, and powerful coordination of oversight from not only the DOL, but also the IRS, the PBGC, and EBSA. Perhaps the lawmakers from 1974 would be amazed to see this evolution. Or maybe, comparing it to the evolution of the automobile from Studebaker to modern wonders like self-driving cars, they might say it makes perfect sense.
