The Employee Retirement Income Security Act of 1974 (ERISA) is an American statute that establishes minimum standards for pension plans in the private sector. Additionally, it provides rules for income tax effects on transactions linked to employee benefits. Enforced by the Department of Labor and the Department of the Treasury, ERISA was created to protect employee benefit plan participants and their beneficiaries by requiring the full disclosure of financial details of the plans by employers. Codes of action for fiduciaries and access to federal courts are also required under the Act.
The history of the ERISA Act can be traced to President John F. Kennedy’s creation of the President’s Committee on Corporate Pension Plans in 1961. In 1963, when the automobile corporation, Studebaker, closed down and was unable to provide its employees with their full pension benefits, the pension reform movement gained additional support. In 1967, Senator Jacob Javits proposed legislation to address funding, reporting, and the disclosure of benefits information as advised by the presidential committee. Although the legislation was initially opposed, especially by business groups, the Act gained a lot of momentum after NBC’s 1970 television special Pensions: The Broken Promise. Millions of viewers witnessed the reality of shady pension plans. Immediately following, public support for pension reform increased drastically and ERISA was enacted in 1974.
Specific areas of ERISA coverage include pension and health benefit plans. For pension, the law does not require employers to establish pension plans, nor does it require a minimum level of benefits. Once established, however, the pension plan will be regulated by ERISA. Specific pension guidelines include vesting for employee pension benefits after a specified number of years and regulating the manner in which the pension plan must pay benefits. ERISA also established the Pension Benefit Guaranty Corporation in order to provide coverage to employees in case a defined pension plan is terminated.
Like its pension regulation, the Employee Retirement Income Security Act moderates health benefits for employees. The Act does not require that employers provide health benefits but does oversee them once established. Several recent amendments to ERISA include the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Other related amendments include the Newborns’ and Mothers’ Health Protection Act, the Mental Health Parity Act, and the Women’s Health and Cancer Rights Act.
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