ERISA at 50: Pre-ERISA and the Need for Pension Protections

By: Jeffrey D. Mamorsky, COHEN & BUCKMANN, P.C.

THIS VIDEO SERIES CELEBRATES THE ENACTMENT of the Employee Retirement Income Security Act (ERISA), signed by President Gerald Ford on September 2, 1974, and generally effective for plan years starting on or after January 1, 1976.¹ The law established minimum standards for most voluntarily established retirement and health plans in private industry.

In the first video of the series, Jeffrey Mamorsky discusses the need for U.S. pension reform that led to consideration of legislation that would establish minimum standards for private industry’s sponsorship and maintenance of pension plans. Jeff discusses the Congressional hearings and discussions that shaped the legislation, and its eventual passage with overwhelming support from both chambers of Congress.

The following is an excerpt from the first video, ERISA at 50: Pre-ERISA and the Need for Pension Protections.

What really kicked off the movement to reform pensions in America was the closure of the last Studebaker Motor Company manufacturing plant in 1963.

Studebaker was over a hundred years old, once the top manufacturer of horse drawing carriages, and by the early 1900s, the Studebaker Corporation was one of the top auto manufacturers in the United States. The company was truly iconic. The Studebaker Golden Hawk, which was made in 1958, was one of the most beautiful cars I have ever seen.

What brought to light the plight of American workers and their pension benefits was when the Studebaker Pension Plan terminated on October 15th, 1964. Only current retirees and retirement eligible employees over the age of 60 received their pensions, and more than 4,000 non-vested employees received nothing. This was not an isolated story.

Prior to ERISA, an employer could legally terminate a pension plan without funding all vested benefits. In the old days, there were no rules as we know them today whatsoever. There were labor laws under the 1947 Labor Management Relations Act, known as the Taft-Hartley Act.² It really didn’t do very much at all.

The Taft-Hartley Act said only that it was legal for a union to set up a pension plan as long as you had a joint board of trustees consisting of both management and labor representatives. The reason why Studebaker caused such a huge brouhaha was that pre-ERISA, there was not any vesting in retirement benefits until you retired. The only real regulations then were found in the qualification rules of the Internal Revenue Code that had been in place since 1928. There were also interpretations by the IRS Pension Chief, Isidore Goodman, through his speeches and through revenue rulings, but they basically related only to maintaining the qualified status of a pension plan through compliance with the tax laws. There weren’t any vesting rules, minimum accrual rules, eligibility rules, joint and survivor rules, break in service rules, or any of the other pension rules we know today, and most unbelievably, there weren’t fiduciary rules at all, but things took time.

Even though the Studebaker plant closing happened in 1963, it wasn’t until 1968 that bills were introduced and hearings held in Congress on why pension reform was necessary.

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Four legislators were the greatest proponents of pension reform. The most important one was Senator Jacob Javits from New York. Javits was passionate about passing legislation to protect workers with regard to their retirement plans. Senator Harrison Williams from New Jersey was also passionate about pension reform.

On the House side, John Erlenborn from Illinois and John Dent from Pennsylvania were very passionate about pension reform and protecting workers. These four gentlemen were driven to get pension reform passed, but even though these bills started to float around beginning in 1968, things really didn’t start to happen until 1972.

View the full video, ERISA at 50: Pre-ERISA and the Need for Pension Protections, to learn about the next steps in the process that led to the creation and passage of ERISA 50 years ago.

To view the second video in the series, see ERISA at 50: Fiduciary Protections Video.

To view the third video in the series, see ERISA at 50: Impact of ERISA and Major Amendments Video. 

Jeffrey D. Mamorsky is a shareholder at Cohen & Buckmann, P.C. He is a leading ERISA and employee benefits attorney with an emphasis on legal issues involving retirement and welfare benefit plans. Jeff serves as employee benefits counsel and provides fiduciary advice to plan sponsors, which include large multinational corporations, financial institutions, insurance companies, closely held businesses, large not-for-profit organizations, governmental agencies, Big Four accounting firms, employee benefits consulting firms, large multi-employer plans, and major multi-employer pension and welfare funds.

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1. Pub. L. No. 93-406, 88 Stat. 829 (Sept. 2, 1974). 2. Pub. L. No. 80-101, 61 Stat. 136 (June 23, 1947).