Your retirement benefits are your nest egg, and ERISA is your mother hen. Without the law, shortsighted companies, who can’t seem to see beyond the next fiscal quarter, could put your hard-earned assets at risk for their own benefit.
Before the Employee Retirement Income Security Act of 1974 (ERISA), employee retirement plans were largely unregulated. Thus, pre-ERISA your employer could promise you the world in order to recruit and motivate you, only to leave your retirement account penniless after the company mismanaged the retirement fund and/or filed for bankruptcy (e.g. Studebaker Company bankruptcy of 1963). Congress responded by legislating tough asset and fiduciary requirements in order to protect worker benefits. These “fiduciary” obligations are probably the most important aspect of this complex law.
Meeting the fiduciary obligations means that those who manage a company’s retirement investment portfolio must do so in a manner that is in its workers’ (i.e. your) best interests. To achieve this, fund managers and its consultants must seek investment diversity (i.e. not putting all the “eggs” in one “basket”), must follow standards of conduct, and must be prudent in how they risk fund assets (e.g. not betting the “farm” on a single risky stock), and objective (e.g. avoiding conflicts of interest).
In addition, ERISA requires company accountability to their workers with regard to retirement plans. The law achieves this in two ways. First, workers and their beneficiaries must regularly be provided information about the management of their retirement plan. Second, the law places stringent regulations on how the assets (e.g. value and money) in a particular retirement plan can be used and leveraged.
With ERISA, the U.S. Congress ushered in elements of responsibility and accountability so that America’s workers would find more security in the notion of retirement benefits. In addition, since its passage, ERISA has functioned as an “umbrella” for employee benefits regulations. For example, COBRA, WHCRA and HIPAA, discussed in separate Helium articles (see below), were actually important amendments to ERISA.
For more information about your rights under ERISA, see:
For more information on your rights under related health care laws, see the following Helium articles: