'The Most Glorious Story of Failure in the Business:' The Studebaker-Packard Corporation and the Origins of ERISA

Abstract

The Studebaker-Packard Corporation occupies a distinctive place in the lore of the Employee Retirement Income Security Act of 1974. No single event is more closely associated with ERISA than the shutdown of the Studebaker plant in South Bend, Indiana. Soon after the plant closed in December 1963, Studebaker terminated the retirement plan for hourly workers, and the plan defaulted on its obligations. The plight of Studebaker employees quickly emerged as a symbol of the need for pension reform. This article examines the history of the Studebaker-Packard Corporation to understand why and how the shutdown came to play a role in the political history of ERISA. Briefly, the shutdown played an important role in pension reform because the United Auto Workers union was prepared to take advantage of the political opportunity the shutdown created. By the time the plant closed, the UAW was well aware that "default risk" - the risk that a pension plan will terminate without enough funds to meet its obligations - threatened union members. Studebaker-Packard had terminated the retirement plan for employees of the former Packard Motor Car Company in 1958. Packard workers got even less than their counterparts at Studebaker would receive in 1964. The Packard termination convinced UAW president Walter Reuther that the union needed to protect its members from default risk. In the early 1960s, the UAW devised a remedy - a proposal for "pension reinsurance" - that is a precursor of the termination-insurance program created by Title IV of ERISA. The Studebaker shutdown gave the union an opportunity to move default risk and termination insurance onto the legislative agenda. The success of this effort in agenda-setting indelibly linked Studebaker to the cause of pension reform.