Commentary: Happy 50th birthday, ERISA!

Half a century in, Employee Retirement Income Security Act proves its value to private sector workers – while government workers miss out

It’s going to be a long 50^th birthday celebration for the Employee Retirement Income Security Act (ERISA) of 1974. Signed into law by President Gerald R. Ford on September 2, 1974, the legislation went into effect in January 1975, establishing standards for private employer pension and health plans in order to protect employee benefit plan participants and their beneficiaries. Fifty years after its ERISA has largely proven its value to private sector workers.

ERISA protections cover employer-provided insurance plans such as health insurance and short and long-term disability insurance, in addition to pension and 401(k) plans. The legislation codified employee benefits like these as being legal contracts between an employer and an employee, allowing employees to access the benefits contractually owed them by their employers.

ERISA established minimum standards for pension plans in private industry, including rules for reporting and disclosure, participation, vesting, funding, fiduciary conduct, and civil enforcement. It also created the Pension Benefit Guaranty Corporation (PBGC) to insure defined benefit pension plans.

When private pension plan participants call foul over high fees or other irregularities, ERISA provides them with easily defined avenues for relief. Similarly, in the case of denied health insurance claims, ERISA provides employees the right to argue their case and present medical expert opinions.

ERISA’s rocky road to enactment – and why public workers lack ERISA protections

The move to enshrine pension rights took shape in 1963 following the closure of the Studebaker Corporation plant in South Bend, Indiana left employees with little to no retirement income. Various politicians, notably Senator Jacob K. Javits of New York, introduced bills that ultimately became ERISA in 1974.

ERISA initially seemed to be opposed by nearly everyone, except the American worker.  Employers opposed it.  Unions opposed it.  But government employers fought the hardest to keep ERISA or ERISA-like protections out of their pension plans. That’s why ERISA does not cover public sector employers such as state, federal or municipal governments. Now, with an epidemic of underfunded public worker pension plans throughout the U.S., exempting governments from ERISA’s funding requirements and other protections is proving to be a bad idea.

Without ERISA protections such as requiring the disclosure of financial and other key information to plan participants, establishing standards of conduct for plan fiduciaries and providing legal recourse through federal courts, government pension plans went unchecked for decades. It wasn’t until such cataclysmic events as the national recession in 2008, which hit the tax coffers of cities and states, and the Detroit bankruptcy in 2013, which threatened the pensions of police, fire and municipal workers, that the vulnerability of public pension plans became widely discussed.

As part of the legal team that successfully fought for pension protections for multiple categories of workers in the City of Detroit Bankruptcy, we saw first-hand the vulnerability of municipal workers and the realization among their ranks nationwide that with no ERISA-equivalent, their pensions were not automatically non-dischargeable in bankruptcy. More recently, it’s been the exorbitant fees of investment managers who now oversee the investments of government pension plans – with minimal accountability and little to no positive investment results for plan participants – that is catching the ire of public sector workers.

The complaints extend to other pension-related matters. In the State of Michigan, for example, the Office of Retirement Services (ORS) – which serves as the administrator for the retirement plans of state employees, public school employees, judges, state police and National Guard members – stands as judge and jury when it comes to determining a disability for medical retirement. Unlike in a private retirement or disability plan, ORS is not guided by ERISA, so employees are stymied in their ability to fight against ORS decisions, which oftentimes rely on a single physician making the call.

The contrast between ERISA’s regulatory protections and lack of ERISA protections is stark. While economic conditions and other uncertainties may stall some of the momentum of the employee-rights movements underway nationwide, this area of government worker oversight is ripe for change.

John Joseph (J.J.) Conway is the founder of J.J. Conway Law, an employee benefits litigation and ERISA firm represents those seeking full access to the employee benefits they are legally entitled to. The firm has been involved with nationally significant employee benefit and pension cases h for individuals and in class action lawsuits.