The Employee Retirement Income Security Act (ERISA) was enacted on September 2, 1974. This critical federal law is designed to safeguard assets within retirement plans. ERISA establishes baseline standards and regulations for various categories of retirement schemes.
These regulations encompass eligibility criteria, vesting timelines, and spousal entitlements in case of an employee’s passing. The legislation mandates that retirement plans offer details about employee involvement, vesting, benefit accruals, and financial support. Moreover, it enforces responsibility on fiduciaries who manage or influence a plan’s operations or investments.
ERISA applies to defined benefit plans that are financed by employers and guarantee recipients a predetermined monthly sum during retirement.
Impact of ERISA on Retirement Savings
Additionally, it includes defined contribution plans such as 401(k) accounts, which are chiefly supported by employee contributions.
Although ERISA authorized Individual Retirement Accounts (IRAs), it does not extend to them due to the lack of employer participation. IRAs emerged in the mid-1970s and have evolved to accommodate larger contributions over the years. ERISA has significantly shaped the landscape of retirement savings in America.
As stated by the Investment Company Institute, Americans have amassed approximately $40 trillion in retirement accounts, with $14.3 trillion in IRAs and $11.1 trillion in 401(k)-style plans. “The most lasting influence of ERISA may be its initiation of a period of ongoing improvements in employee protections and its role in decreasing discriminatory treatment of American workers,” remarked ERISA specialists. Although initially not all-encompassing, ERISA set the foundation for contemporary employee retirement security and safeguards in the U.S.
David John, a senior policy consultant at the AARP Public Policy Institute, highlighted that “Usually, when a retirement-related bill is presented to Congress, some aspect of it will reference ERISA.”
