Heptig Discusses ERISA in Fiduciary News

Kate Heptig was quoted in a FiduciaryNews.com article entitled, “Are We Better Off with or without ERISA? And What Are the Implications?”

The story discusses the removal of ERISA protections from private employees’ retirement savings. In discussing the history of ERISA, Kate noted: “ERISA was enacted in 1974, after years of investigation into the notion that there was a gap between the completion of a service condition by employees and a future date when retirement benefits ‘earned’ in connection with that service would actually become vested. Prior to ERISA, an employer could legally terminate an employee in anticipation of his/her becoming vested in retirement benefits.”

In explaining why ERISA has treated private company retirement plans differently than state sponsored retirement plans, Kate said:

ERISA does not apply to governmental plans because it was enacted to address perceived abuses specifically in the private pension system. Unfortunately for public-sector employees, Congress was reluctant to create a federalism-charged controversy by interfering with the administration of public retirement plans. Practitioners and historians also cite a variety of other potential explanations, including the fact that it was generally believed that public plans were more generous than their private-sector counterparts with respect to vesting provisions, a belief that governmental entities could fulfill their obligations to employees through their taxing powers, and even concern that the imposition of minimum funding and other ERISA-required standards would simply be too expensive for governmental entities.

Regarding the company health insurance benefit, Kate added:

The primary goal of ERISA was to create a uniform regulatory regime over employer-provided benefit plans and in furtherance of that goal, ERISA broadly preempts ‘any and all State laws insofar as they may now or hereafter relate to any employee benefit plan’ that ERISA covers. This is important for two reasons:  First, without a uniform body of law, employees in various states would not be afforded the same protections with respect to their retirement assets; and, Second, employers would be subject to potentially conflicting state laws, presumptively resulting in increased compliance costs associated with designing and operating applicable plans in accordance with a multitude of state laws.

As for the risks of retirement savings absent ERISA protections, Kate had this to say:

Private employees would lose certain rights and benefits arising under ERISA if their retirement assets were transferred to state-run retirement plans, including (i) eligibility guidelines which prevent an employer from precluding participation in offered plans, (ii) protection from employer fiduciary breaches, including the mismanagement of retirement plan assets and the entry into transactions which are not in the best interests of plan participants, and (iii) wrongful termination protection in the event of discharge from employment as a means to preclude eligibility for benefit plans.

She prefers protecting both public and private employees under ERISA:

Saving for retirement is a critical issue in our country and millions of Americans are not financially prepared for this later stage of their life, which inevitably places additional burdens on the current workforce and all levels of our government. ERISA was enacted as a direct result of the Studebaker Plant closing in South Bend, Indiana, which resulted in thousands of employees finding themselves without the pensions that had been promised to them and for which they had completed all of their requisite service. ERISA protections are an important piece of helping to ensure that Americans are financially secure during their retirement years.  An employee who responsibly participates in an employer-sponsored retirement plan should be able to rely on the fact that those funds will be available when they are needed in the future.