ERISA at 40: Intended, and Unintended, Consequences
Turning 40 is one of those storied moments — and not just for individuals. ERISA turned 40 this year, affording an opportunity to take stock of its impact and whether it is functioning as intended. An Oct. 28 panel discussion at the 2014 ASPPA Annual Conference, held at National Harbor, Md. discussed exactly that.
“ERISA has served us well. It was really rather forward-thinking,” said Vanguard’s Principal and Head of Government Relations Ann Combs. Employee Benefit Research Institute President and CEO Dallas Salisbury agreed with Combs that ERISA has allowed greater flexibility, but he added a big caveat: He thinks that flexibility also poses “tremendous difficulty” in some ways.
ERISA is not unique as a law that had unintended consequences, and Salisbury offered an illustration. “We actually have a system now that led to the demise of defined benefit plans,” he said, but added that it also has led to retirement savings for many people, something he said was one of the intentions behind enactment of ERISA in the first place. But that move to greater equity has had the unintended result of making it possible for more people to have retirement savings but at the same time has resulted in those savings being inadequate for many people. “Nobody’s prepared to spend more money,” he noted.
Alvin D. Lurie, who served as the first IRS Assistant Commissioner (Employee Plans and Exempt Organizations) and is now President of Alvin D. Lurie, PC, said that the rise of the 401(k) is another of ERISA’s unexpected consequences. “It was totally not foreseen” that the 401(k) would take over, Lurie said.
J. Mark Iwry, Senior Advisor and Deputy Assistant Secretary at the Treasury Department, disputed that the 401(k) has taken over. Rather, Iwry said, it really was a shift from defined benefit plans to "undefined" benefit plans, and that perhaps it is more accurate to say that "non-elective profit sharing" is a better characterization. But he expressed the view that we may be heading back to a system that leads people to saving.
Salisbury did not agree. “I share none of your optimism that that will happen,” he said, and expressed the view that individuals will not respond well if they have the impression they are giving up control over their retirement accounts.
But IRAs have been growing in number. In fact, said Lurie, “It’s incredible how the IRA monster has grown.” Salisbury said that he expects that the ongoing flow of money into IRAs will continue, and remarked, “They will become totally dominant.”
So has ERISA been a success? The system that has developed “has done great things,” said Iwry, “and It continues to deliver benefits to tens of millions of families.” Still, Iwry said, its work is not finished, and it “needs to do more to cover the other tens of millions.”
And that, he said, is the “single biggest disappointment” about ERISA: that there are “still tens of millions of working families still with no access to retirement plans. The fact is that we still have such a large percentage of our population who are not eligible and don’t participate. We need to correct that,” Iwry said.
Another shortcoming, Salisbury said, is the decision to exclude public pension plans from ERISA's scope. If they had been, he argued, the current problems that those plans are experiencing would not have occurred.
Salisbury and Lurie also expressed concern about the fresh demands on the benefits kitty. Lurie pointed out that the Patient Protection and Affordable Care Act has been enacted, and questioned how it and the demands it places on health plans will interact with retirement plans. “Both are competing for the same money,” he said. Salisbury added that there also are millions of people who are on food stamps and need Medicaid coverage. “There’s only so much money. We’re not going to be in a position to expand all these components.”