Effect of the Employee Retirement Income Security Act of 1974 on Termination of Pension Plans

The purpose of the Employee Retirement Income Security Act (ERISA) of 1974 is to establish Federal standards for private pension plans and to protect the rights under these standards for an estimated 30 million participants in an estimated 470,000 private pension plans. The act establised minimum standards and requirements for the plans, such as participation standards, vesting standards, fiduciary standards, and reporting and disclosure requirements. As part of a review of pension plan terminations, questionnaires were sent to a sampling of plans that terminated during the period from September 1974 to June 1976. A larger percentage of respondents cited non-ERISA than ERISA factors as the major reason for plan termination; about 17 percent noted ERISA as the only major reason for termination. Those that identified ERISA as a major factor in termination cited such factors as cost, administrative burdens, and uncertainties about requirements and possible penalties. Some progress has been made in clarifying ERISA requirements. The adverse impact of ERISA on workers was not as great as indicated by plan terminations because the plans generally did not meet minimum participation and vesting requirements; participants of terminated plans generally had received or were to receive almost all of their vested benefits; and about 41 percent of the sponsors of terminated plans continued pension coverage for their employees through other plans.