OUR THOUGHTS ON:

Happy Birthday, ERISA!!

ERISA

By Timothy Hammer

This year’s Labor Day celebration will mark the 40th anniversary of the Employee Retirement Income Security Act (ERISA) being signed into law by President Gerald Ford. ERISA was enacted to provide greater security and protection to retirement plans.

Looking back over the years, many things have occurred with employee benefit plans; however, the most notable change is the shift from organizations providing defined benefit plans to defined contribution plans. Shortly after ERISA became law, Congress added IRC Section 401(k), providing the opportunity for employees to start a retirement savings program by deferring wages for retirement. This enactment coupled with the uncertainty over the years regarding investment returns, fluctuating interest rates and an aging workforce has led organizations to adopt defined contribution plans as an alternative to defined benefit plans.

ERISA requires plans with greater than 100 participants to have an annual audit performed on the financial statements accompanying the plan’s filing of Form 5500. In 1975, approximately 26,000 defined benefit plan audits occurred annually, compared to fewer than 10,000 defined contribution plan audits. As of 2011, this dynamic has changed drastically, as there are approximately 61,000 defined contribution plan audits being performed annually, compared to fewer than 20,000 defined benefit plan audits.1  There are a number of reasons why this trend has occurred, but quite simply, the most likely reason is the financial challenges most organizations face trying to meet funding requirements of defined benefit plans.

Footnotes:

1 DOL 2011 Form 550

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