Ode to ERISA

It's just too easy these days for the armies of pundits, bloggers and tweeters to criticize in no particular order, the President, Congress, the Fed or any other person or institution that may appear overwhelmed by a world in turmoil.  So in the spirit of looking at the positive, this post will offer a bit of praise to an incredibly successful piece of retirement legislation that doesn't receive the recognition it deserves - The Employee Retirement Income Security Act.  Granted, it's hard to imagine John Keats waxing poetic about pension reform.  But there's integrity in this seminal legislation that for the most part has delivered beyond expectations.

Before ERISA, it was open season on pension fund assets.  There were no funding guidelines or fiduciary standards and as a result many plans were underfunded, subject to onerous vesting or simply pilfered.  (Think of handing over your retirement savings to Johnny Friendly - the union boss played by Lee J. Cobb in On the Waterfront). Then the Studebaker Motor Company went bankrupt and most pensioners discovered they would be lucky to get fifteen cents on the dollar.  That occurred in 1963 and the outrage that followed heralded the birth of ERISA in 1974.

It took some time but when you stop to consider the trillions of dollars that have become part of our retirement system and the relative lack of malfeasance relating to ERISA-protected plans, it truly is remarkable.  ERISA is much like a baseball umpire or football referee that you take for granted until a blown call. The regulations are far from perfect (not unlike instant replay) and provide lifetime employment  for legions of attorneys, pension consultants and actuaries.  And are they ever complicated (Every Ridiculous Idea Since Adam) as every plan sponsor, administrator and recordkeeper knows.

But for the most part ERISA has been effective in keeping the bad guys at bay at least from retirement assets. (No doubt Johnny Friendly's grandson is off the Jersey docks and managing a hedge fund across the Hudson.) It's especially remarkable when taking into account how complex 401(k) plans have become (daily valuation, loan provisions, self-directed brokerage, in-plan Roth conversions etc.) and the advances in technology that make it that much easier to separate retirees from their savings.

This is not about whether the shift from defined benefit to defined contribution plans has shortchanged retirees. Or that companies have put the needs of shareholders (code for the c-suite) ahead of employees by exploiting the ambiguities of ERISA.  And that too many well-meaning plan sponsors have been duped by the siren song of Madoff and his ilk over the years.

Sad to be sure. But given the magnitude of the assets at stake and the infinite cupidity that relentlessly stalks big money like a pride of lions, the guidelines have held up against enormous odds.  So whereas Keats had his Grecian urn, retirees have their 401(k)s to contemplate.   And they need to remember that even with ERISA, it never hurts to double check that statement now and then.