Pensions were at the heart of the Employee Retirement Income Security Act (ERISA) when it was enacted in 1974, ensuring greater protections for workers’ retirement savings. But as the American workforce has changed dramatically over the past half-century, questions are emerging about whether ERISA can still adequately safeguard financial security in retirement.
Although the law provided a regulatory framework that improved accountability and security for retirement plans, shifts in employment trends, the decline of traditional pensions, and the rise of alternative savings vehicles have exposed gaps in its coverage. With millions of workers left unprotected, discussions about modernising ERISA have gained momentum.
The legacy of ERISA: Safeguarding workplace pensions
ERISA was introduced in response to pension fund failures, most notably the collapse of the Studebaker-Packard Corporation in the 1960s, which left thousands of workers without their promised retirement income. The law established a set of rules to ensure that pension funds were properly managed, companies met funding requirements, and fiduciary duties were upheld in the interests of employees.
One of ERISA’s most significant achievements was the creation of the Pension Benefit Guaranty Corporation (PBGC), a federal entity that insures private pension plans. This measure prevented future pension collapses from entirely wiping out workers’ benefits. Additionally, the law introduced faster vesting periods and stricter reporting requirements, making retirement savings more transparent and accessible.
Over time, ERISA’s scope expanded to include oversight of employer-sponsored retirement accounts such as 401(k) and 403(b) plans. However, these plans, unlike traditional pensions, require employees to manage their own investments, shifting the burden of risk onto individuals rather than employers. Despite its robust structure, ERISA does not mandate that businesses offer retirement plans, leaving many workers without any employer-sponsored savings.
A changing workforce: Are ERISA’s protections outdated?
One of the most pressing criticisms of ERISA is its limited reach. The legislation was drafted in an era when long-term, full-time employment with a single company was the norm. Today, the workforce is significantly more mobile, with workers frequently switching jobs and increasing numbers classified as freelancers, gig workers, or independent contractors—many of whom are not covered under ERISA protections.
Furthermore, Individual Retirement Accounts (IRAs), which hold $15.2 trillion in assets, are not governed by ERISA, leaving many savers without the same fiduciary protections that exist for employer-sponsored plans. Concerns have also been raised over financial exploitation, particularly affecting retirees during the rollover of funds from 401(k)s to IRAs.
In response, several states have introduced auto-IRA programmes to expand retirement savings access, but these initiatives do not fall under ERISA’s jurisdiction. Meanwhile, new federal regulations aim to ensure that financial advisers act as fiduciaries when managing retirement assets, though legal challenges have delayed their implementation.
