ERISA at 50: A New Model for the Private Pension System

Abstract:     
In 1999, the Employee Retirement Income Security Act of 1974 (ERISA), the primary law regulating the private pension system, turned 25. Since 1974, ERISA has expanded in unanticipated and often irrational ways. The private pension system is now burdened with overly complex rules, regulations, and plan types inhibiting its ability to generate adequate retirement income for millions of Americans. This paper proposes a new model for ERISA at 50 with vastly simplified plans and rules intended to make the private pension system more accessible by employers and employees alike. The center of the proposal is a single, standard defined contribution plan that would include a simplified option for employee savings. The role played by IRAs is also enhanced, enabling them to achieve parity with employer plans through a coordinated individual savings limit. The proposal also suggests ways in which defined benefit plans could be adapted for an aging workforce and alternatives for the nondiscrimination rules to increase benefit accruals by moderate-income workers. The paper then looks to ERISA at 65 and proposes replacing the employer-sponsored plan with individual defined contribution accounts offered through the financial services industry. It explains how removing the superstructure of a plan could simplify benefits law and enable employers to spend more of their employee benefit dollars directly on their own employees and less on the plan compliance industry.

Number of Pages in PDF File: 20

Keywords: ERISA, pension, IRA, defined contribution, defined benefit, nondiscrimination

JEL Classification: J26, J33, J38, K34

working papers series