ERISA is 50.
It's time to modernize it.

Time to read: 11 minutes

Key takeaways

• ERISA initially was written to protect workers who had pensions. But contrary to popular belief, most workers didn’t have them—so this landmark legislation didn’t protect nearly as many workers as it meant to.
• The retirement landscape has changed dramatically in 50 years: low interest rates mean smaller savings, gig workers can’t access workplace retirement plans and investing is increasingly DIY. People need more help than ERISA can provide.
• Policymakers and employers need to modernize and embrace behavioral finance. Automatic savings, model portfolios and guaranteed lifetime income can help ensure Americans get the retirements they deserve.

To shore up the retirement system for the future, advocates are pushing an approach that reprises the best of the pension era—guaranteed income for life—while helping more people access and automate retirement saving at work.

“The great frontier is how we deal with the conversion to retirement income,” said David John, senior strategic policy advisor at the AARP Public Policy Institute. “The way ERISA has been administered placed burdens on the defined benefit pension system and until recently made it very hard to create a retirement savings system that offers lifetime income."

ERISA also introduced a jumble of new responsibilities and potential legal liabilities for employers. The law elevated employers to fiduciaries, who must provide plan information to participants and ensure plan assets get invested in prudent and diversified ways. It required pension plan sponsors to pay into the government’s insurance system against defaults and adhere to new funding and vesting standards.

ERISA’s implications are so far-reaching that Justice Ruth Bader Ginsburg, in reference to her first Supreme Court opinion assignment—an ERISA case—called the law a “candidate for the most inscrutable legislation Congress ever passed.”³

The twist is that the pension-centric retirement system ERISA was built to protect has largely faded away. In 1974, seven in 10 private-sector workers with access to retirement plans had pensions. Fast forward five decades, and only one in 10 private-sector workers has access to a pension.⁴

Even if your employer offered a pension, benefits were hard to come by and inflexible. Receiving payouts in retirement required decades of unbroken work for the same employer, penalizing younger people who quit or lost their jobs. Women (who moved in and out of the workforce to have children) and part-time or seasonal workers were left out.

Worse, pre-ERISA pension plans were precariously underfunded. The catalyst for the pension reform movement culminating in ERISA was the 1963 closure of the Studebaker-Packard Corp. factory in South Bend, Ind. The automaker terminated its pension plan, leaving 4,500 active workers with a fraction of promised benefits and about 3,000 workers with nothing.

Studebaker became a call to arms for public officials and private-sector experts. Among them was Senator Jacob Javits, who introduced a series of pension-reform bills in the 1960s and was a leader in drafting ERISA. The cause carried into the early 1970s, when high-profile investigative news reports took aim at gaps in the pension system and cemented reform on the national agenda. Mike Wallace on “60 Minutes” highlighted the mismatch of employee tenure and eligibility, and an award-winning NBC News documentary interviewed a slew of retired workers who didn’t receive expected pension benefits.

“After 30 years and I've got nothing,” lamented one unidentified auto worker on the NBC program. “I mean, it's gone down the drain, 30 years of service.”⁸

The rise of defined contribution plans.

ERISA’s provisions ushered in a do-it-yourself savings ethos that birthed the individual retirement account (IRA), extending tax-advantaged saving benefits to workers without access to an employer-sponsored plan.⁹ And while ERISA didn’t create the 401(k)—that came a few years later—its stricter rules for operating pension plans helped accelerate adoption of the arcane-sounding savings tool that became shorthand for personal retirement savings.

In 1978, Congress authorized 401(k) plans, and in 1981 the IRS drafted the regulations that allowed employees to fund them. While 403(b) plans already existed (often called tax-sheltered annuities), ERISA permitted investments in mutual funds for the first time. Other types of DC plans had been around for decades, but worker-funded, tax-deferred 401(k)s proliferated rapidly. Within two years, nearly half of all large firms—names like Johnson & Johnson and PepsiCo—were either already offering a 401(k) or considering one.¹⁰

It wasn’t that employers immediately dropped defined benefit (DB) pensions and adopted DC plans. The first 401(k)s were supplemental to existing pension plans, and few employers offered them as standalone options.

Addressing retirees’ changing needs.

The rapid transition from DB to DC plans has not kept pace with how we work today, the financial decisions we have to make and how long we live. As a result, too many workers remain ill-prepared for retirement. We can and must do better for the next five decades of retirees. By eroding access to pension-based guaranteed lifetime income, ERISA diminished retirement security and increased retirement anxiety for millions of workers. Nine in 10 DC plans have no in-plan option for guaranteed lifetime income.¹³

Furthermore, too many workers with DC plans must make complicated and consequential decisions on their own. They must decide whether to participate, in what amounts and how to invest. What’s more, they must make these decisions every time they change jobs.

Finally, workers face daunting decisions about when and how to spend their money in retirement so they don’t run out—a massive challenge. The challenge can become even greater for retirees dealing with cognitive decline, as they are more prone to making financial mistakes.

“We’re trained to preserve savings and spend income throughout our entire careers,” said AARP’s David John. “Then at retirement you’re handed more money than you’ve ever seen in your life even if you have absolutely no experience managing investments.”

A system that is already inadequate will confront the reality that Americans are living longer—increasingly 30 years or more after they retire. Increasing longevity and rising healthcare costs have made outliving retirement savings the top retirement fear voiced by savers across every generation. And as more of today’s children will live past 100, it’s critical to act now and renew our retirement system for the next 50 years and beyond.

“The most important thing we should think about over the next 50 years is going back to a system where we don’t have do-it-yourself retirement … and people don’t have to be their own investment manager,” said Phyllis Borzi, former assistant secretary for Employee Benefits Security of the U.S. Department of Labor, at a May 2024 forum sponsored by the Employee Benefit Research Institute and the American Benefits Council.¹⁴

Make it easier for those without a workplace plan to save in IRAs.

The right collaboration between employers and policymakers can help workers with no access to workplace plans, especially small-business employees. This is critical since moderate-income workers are more than 15 times likely to save for retirement if they have access to payroll deductions at work.¹⁶

Automatic-enrollment IRAs are one solution gaining traction at the state level. Auto IRAs work by requiring employers without retirement plans to automatically enroll their employees in state-run, private-sector-managed IRAs. Under these plans, the role of the employer is administrative, limited to enrolling workers and facilitating payroll contributions into tax-favored IRAs. IRAs are personal savings accounts, not employee benefit plans, and a key feature of auto-IRA programs is that IRAs are portable and move with workers from employer to employer.

In June 2024, Rhode Island became the 17th state to enact an auto-IRA program. Federal auto-IRA legislation also has been introduced multiple times in the U.S. House of Representatives, most recently in February 2024.

Help workers save and access lifetime income in their DC plan.

Retirement plan design enhancements can nudge workers through the maze of decisions around saving. Fortunately, plan sponsors are well-placed to help workers make better decisions.

Auto enrollment and qualified default features have long helped people start saving earlier than when enrolling on their own. A complementary plan feature can automatically increase an employee’s contribution amount annually. Employees can opt out of those defaults and make their own choices, but if they don’t, they get enrolled in the plan’s choices. With SECURE 2.0 Act of 2022, 401(k) and 403(b) plans established after December 31, 2024, must include an automatic enrollment option.

Both the SECURE Act of 2019 and SECURE 2.0 provided regulatory certainty and flexibility for plan sponsors and participants interested in incorporating guaranteed lifetime income. Key provisions cleared the way for employers to select investment products for their employees that could include annuities.

These investments make it easier for workers to convert their savings into guaranteed lifetime income at retirement. Often such products embed guaranteed lifetime income into target-date strategies, which also can be used as a plan’s default investment option. We believe such product innovation will help broaden access to pension-like lifetime income solutions within DC plans.

Guide savers toward a retirement income plan.

While features like auto-enrollment and auto-escalation encourage workers to save, we believe retirement plans should also provide workers access to income solutions that could provide a “paycheck for life” in retirement.

To help retirees make their savings last, TIAA believes in requiring employers with 401(k) and 403(b) plans to offer a menu of retirement payout options as well. Our proposed approach—called the “Retirement Q-PON,” or qualified payout option—would require one or more options in a menu of choices including systematic withdrawals, guaranteed annuity income or managed payouts. Workers who wish to work with a financial professional could also opt for a lump-sum withdrawal.

The idea is to spare workers the burden, stress and guesswork associated with generating retirement income from their savings. The Retirement Q-PON proposal would embed retirement payout into plan design, making it easier for retirement plan participants to choose a useful retirement income solution at the point of retirement.

Such a policy change should also include an educational component to ensure workers approaching retirement age can understand and appropriately consider their income and retirement payout options as they weigh their retirement needs and priorities.

Reviving ERISA’s legacy.

“Plan sponsors offering easy-to-implement income payout options and accompanying education can significantly improve workers’ ability to transition into and thrive in retirement,” TIAA’s Hester said. “ERISA needs to evolve and modernize for today’s workplace.”