"Class" of '74


Pensions were not on my mind in 1974, certainly not on Labor Day of that year.  While I was pondering my new college textbooks, President Gerald Ford, less than a month in that role, signed into law the Employee Retirement Income Security Act of 1974 – better known to most of us as ERISA. Little did I know at the time that that law – and the structure it provided to the nation’s private pension system – would, in the years to follow, play such an integral role in my life.
ERISA did not create pensions, of course; they existed in significant numbers prior to 1974.  Rather, it was designed to regulate what was there and would yet come to be – to protect the funds invested in those plans for the benefit of participants and beneficiaries with a consistent set of federal standards.  And, as part of that protection, to establish the Pension Benefit Guaranty Corporation (PBGC).  As President Ford said at the time, “It is essential to bring some order and humanity into this welter of different and sometimes inequitable retirement plans within private industry.”

Has ERISA “worked”?  Well, in signing that legislation, President Ford noted that from 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers, while during that same period, assets of these private plans increased from $52 billion to $138 billion, acknowledging that “[i]t will not be long before such assets become the largest source of capital in our economy.”  Today that system has grown to exceed $17 trillion, covering more than 85 million workers in more than 700,000 plans.
The composition of the plans, like the composition of the workforce those plans cover, has changed over time.  While much is made about the perceived shortcomings in coverage of the current system, the projections of multi-trillion dollar shortfalls of retirement income, the pining for the “good old days” when everyone had a pension (that never really existed for most), the reality is that ERISA—and its progeny—have unquestionably allowed more Americans to be better financially prepared for a longer retirement. 
Forty years on, ERISA – and the nation’s retirement challenges – may yet be a work in progress.  But, by any measure, this “class of 74” has done the nation a great service.

-          Nevin E. Adams, JD

Comments

Post a Comment

Popular posts from this blog

Do Roth and 401(k) Pre-Tax Holders Really Spend Differently?

Image
An interesting—and somewhat counterintuitive—report came out last week, one that cast doubt on the “common wisdom” regarding Roth versus traditional pre-tax savings. The assumption underlying the research [i] was that those who had not yet paid taxes on their savings (the traditional pre-tax savings) would be hesitant to tap into those savings and trigger taxes, certainly more so that individuals that had already paid those taxes. Instead, the research suggested that the opposite occurred; that individuals who had saved on a pre-tax basis actually withdrew more/sooner—but with a twist.  This they hailed as good news. They noted that the research suggests investing in a CT (current-taxed, or Roth) plan could help ease concerns about outliving funds—because they spend at a lower rate (though they saw this as a negative for those who saved on a deferred tax (DT) basis).  They even managed to find a silver lining in the “cloud” of faster spending by the pre-tax c...
Read more

Is the 401(k) Really a ‘Horrible’ Retirement Plan?

Image
  A recent “news” post about a blog post finds some curious “faults” with the 401(k). The news item carried the provocative title “ ‘Rich Dad’ Robert Kiyosaki Reveals Why the 401(k) Is a ‘Horrible’ Retirement Plan .” It originally ran on GoBankingRates.com, but was subsequently picked up in syndication on Yahoo Finance (at least). For the uninitiated, Robert Kiyosaki is one of those “I’ll help you get rich the way I did” types, providing that road map via books (notably “Rich Dad, Poor Dad”) and seminars. He offers comparisons to decisions made by his dad (poor dad) in contrast to those of the father of his best friend (rich dad).  Suffice it to say that his dad worked hard and saved the old-fashioned way—which is NOT his advice to you. That’s included previous pearls of wisdom like “ Why Saving Money is the Wrong Way to Prepare for Retirement .” Apparently rather than saving for retirement, we’re supposed to “look for an investment that will pay for your desired standard of l...
Read more

The Biggest 401(k) Rollover Mistake

Image
  Readers of these columns know that for years I held off rolling over my old 401(k) balances. Oh, I had rational reasons for (not) doing so; the institutional pricing of a particular fund in one, the low fees in another, the managed account option in a third—but the reality was that the process of rolling over your accumulated savings has been—and in many cases remains—painful. Rollovers are a big deal. Vanguard reports that annual contributions to IRAs ($701 billion as of 2020) far exceed all DC plan contributions, largely due to rollovers ($618 billion in 2020), while the Investment Company Institute claims that investors now hold an estimated $13.5 trillion in IRAs—“approximately $3 trillion more than in DC plans, despite the fact that 45 million fewer Americans own IRAs than participate in DC plans,” according to the report Two things, in particular, stayed my hand over the years—trying to time the liquidation of funds (I know, but I’m human), and worrying about the timing I’d...
Read more