Imagine the day of your retirement, fondly looking forward to the golden days ahead, safe in your knowledge that your company pension will support your financial needs. Then to your horror, you find out that your company has squandered the funds set aside for retirement! Thankfully, there are protections in place to prevent this scenario from playing out. In 1974, the Employee Retirement Income Security Act (referred hereafter as ERISA) was passed into law. This act gave protection to employee pensions and retirement funds.
Although there was regulation of employer pension programs prior to 1974, there was no clear protection of these pensions until the passing of ERISA (History, 2004). The monitoring up until 1974 was largely done for tax purposes. This monitoring was done under the Revenue Act of 1942 and the Welfare and Pension Plans Disclosure Act of 1959 (History, 2004)
There was nothing to protect the employee or stop the employer from robbing the pension.
Exterior of the Internal Revenue Service office in...
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English: Certified HIPAA Privacy Security ExpertOne such example was the Studebaker Car Company. Even though Studebaker had an excellent pension program, the company fell on hard times. Employees were shocked upon retiring to find that the very funds set aside for them had been mismanaged and squandered (Richardson, 1995). There were also stories like these:
"People were shocked to hear about one employee who worked for ten straight years. After a short break in service, he worked another ten years. But guess what? His years working for the company did not satisfy its 20 year service requirement -his service had to be consecutive. And the employee got nothing (Richardson, 1995)."
Stories like these finally forced the government to act. On Labor Day in 1974, ERISA was passed into law by Congress (Richardson, 1995). A new agency was formed, the Pension Benefit Guaranty Corporation and a new section...