Keith Mack
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health plans in the private industry. ERISA covers two types of retirement plans: defined benefit plans and defined contribution plans. The law also established the Pension Benefit Guaranty Corporation (PBGC), which currently protects the retirement incomes of about 31 million American workers, retirees, and their families. Another law related to retirement benefits is the Federal Employees Retirement System (FERS), created by Congress in 1986 and effective as of January 1, 1987. FERS provides benefits from three sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). Additionally, the Age Discrimination in Employment Act of 1967 includes provisions related to retirement benefits, prohibiting involuntary retirement based on age.
| Characteristics | Values |
|---|---|
| Name of the Law | Employee Retirement Income Security Act (ERISA) |
| Year | 1974 |
| Applicability | Covers two types of retirement plans: defined benefit plans and defined contribution plans |
| Applicability Exclusions | Does not cover plans established or maintained by governmental entities, churches for their employees, or plans maintained solely to comply with workers' compensation, unemployment, or disability laws |
| Applicability Exclusions | Does not cover plans maintained outside the United States for nonresident aliens or unfunded excess benefit plans |
| Purpose | Sets minimum standards for voluntarily established retirement and health plans in the private industry to protect individuals |
| Requirements | Plans must provide participants with information about plan features, funding, participation, vesting, benefit accrual, and funding |
| Requirements | Establishes fiduciary responsibilities for those managing and controlling plan assets |
| Requirements | Plans must establish a grievance and appeals process for participants to obtain benefits |
| Requirements | Participants have the right to sue for benefits and breaches of fiduciary duty |
| Requirements | In the case of a defined benefit plan termination, payment of certain benefits is guaranteed through the Pension Benefit Guaranty Corporation (PBGC) |
| Other | ERISA does not cover early retirement incentive plans as an excuse for failing to hire any individual or involuntary retirement |
| Other Laws | The Age Discrimination in Employment Act of 1967 is another law that relates to retirement benefits |
| Other Laws | Federal Employees Retirement System (FERS) was created in 1986 and became effective in 1987, covering new Federal civilian employees |
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What You'll Learn
The Employee Retirement Income Security Act of 1974 (ERISA)
ERISA was established to protect individuals in retirement and health plans. It requires plans to provide participants with information about plan features, funding, participation, vesting, and benefit accrual. The law also sets fiduciary responsibilities for those managing plan assets and mandates the establishment of a grievance and appeals process for participants to obtain their benefits. Additionally, ERISA gives participants the right to sue for benefits and breaches of fiduciary duty.
ERISA generally does not cover plans established by governmental entities, churches for their employees, or plans maintained solely for compliance with applicable workers' compensation, unemployment, or disability laws. It also excludes plans maintained outside the United States for nonresident aliens and unfunded excess benefit plans.
The foundation for ERISA was laid in 1967 when Senator Jacob Javits introduced pension reform legislation to safeguard the benefits of workers with private pension plans. Congress passed ERISA in 1974, and President Gerald R. Ford signed it into law on September 2, 1974. The law led to the establishment of the Pension Benefit Guaranty Corporation (PBGC), which protects retirement incomes and pays benefits to insured pension plans. Today, PBGC safeguards the retirement incomes of approximately 31 million American workers, retirees, and their families in private-sector defined benefit pension plans.
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Federal Employees Retirement System (FERS)
The Federal Employees Retirement System (FERS) was created by Congress in 1986 and came into effect on January 1, 1987. Since then, new federal civilian employees with retirement coverage have been covered by FERS. FERS is a retirement plan that provides benefits from three sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP).
The Basic Benefit and Social Security parts of FERS require employees to contribute each pay period, with payroll deductions withheld by their agency. The agency also contributes its share. After retirement, the retiree receives annuity payments each month for life. The TSP part of FERS is an account that the agency automatically sets up for the employee. Two parts of FERS (Social Security and TSP) can be transferred to a new job if the employee leaves the federal government before retirement.
FERS covers employees of U.S. Customs and Border Protection. A military deposit under FERS is a payment made to the retirement fund to have active military service performed after December 31, 1956, credited in the computation of the annuity. As a FERS employee, credit for post-1956 military service can be received under FERS rules only if a sum equal to 3% of the military basic pay earned during the military service period is deposited with U.S. Customs and Border Protection, plus interest.
If a FERS employee leaves federal service for more than 30 days, they may request and receive a refund of their retirement contributions. When an employee receives this refund, the period of service represented by the refund is called Redeposit Service. A FERS employee who receives a refund of FERS (only) retirement contributions may not make a redeposit. However, if they receive a refund of Civil Service Retirement System (CSRS), CSRS Interim, or CSRS Offset retirement contributions, they may make a redeposit under certain conditions.
A new system of coverage, the Federal Employee Retirement System-Revised Annuity Employees (FERS-RAE), was established under the Middle Class Tax Relief and Job Creation Act of 2012. FERS-RAE generally applies to those first hired in a federal appointment on or after January 1, 2013, who would have previously been covered by FERS. FERS-RAE increases the amount of employee retirement contributions, with employees paying an additional 2.3% of their salary into the retirement system.
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Age Discrimination in Employment Act of 1967
The Age Discrimination in Employment Act of 1967 (ADEA) is a law that prohibits employment discrimination against persons aged 40 years or older. The ADEA includes a broad ban on age discrimination against workers, specifically prohibiting discrimination in hiring, promotions, wages, termination of employment, and layoffs. It also prohibits statements of age preference or limitations and the denial of benefits to older employees.
The ADEA does not prohibit an employer from favoring an older employee over a younger one, even if the younger employee is over 40 years old. However, employers may not indicate any preference, limitation, specification, or discrimination based on age in notices or advertisements relating to employment.
The ADEA allows for certain exceptions, such as when age is a bona fide occupational qualification (BFOQ) reasonably necessary for the normal operation of the particular business. For example, hiring a young actor to play a young character in a movie or enforcing age limits for pilots and bus drivers due to public safety concerns.
The ADEA has been amended over the years, including by the Older Workers Benefit Protection Act of 1990 and the Civil Rights Act of 1991. It is important to note that the ADEA does not affect the jurisdiction of state agencies performing functions related to discriminatory employment practices based on age. However, once an action is commenced under the ADEA, it supersedes any state action.
While the ADEA provides protections against age discrimination in employment, it is worth noting that other laws, such as the Employee Retirement Income Security Act of 1974 (ERISA), also play a role in retirement benefit systems. ERISA sets minimum standards for retirement and health plans in the private industry, providing protection and information to individuals enrolled in these plans.
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Pension Benefit Guaranty Corporation (PBGC)
The Pension Benefit Guaranty Corporation (PBGC) is a United States federally chartered corporation that was created by the Employee Retirement Income Security Act of 1974 (ERISA). The PBGC was established to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations.
The PBGC insures and guarantees the retirement security of about 31 million Americans in single-employer and multiemployer pension plans. The corporation's goal is to provide the highest level of customer support and protect workers' and retirees' pension benefits. If a defined benefit plan is terminated, the PBGC guarantees payment of certain benefits.
The PBGC's single-employer insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at 65. For plans that ended in 2023, workers who retired that year at age 65 would receive up to $6,750 per month (or $81,000 per year) under the PBGC's insurance program for single-employer plans. The benefits payable to insured retirees who start their benefits at ages other than 65 or elect survivor coverage are adjusted to be equivalent in value. The maximum monthly guarantee for the multiemployer program is lower and more complicated, with a maximum of $12,870 per year for a participant with 30 years of credited service.
The PBGC may seek to terminate a single-employer plan without the employer's consent to protect the interests of workers, the plan, or the PBGC's insurance fund. The PBGC must act to terminate a plan that cannot pay current benefits. For multiemployer pension plans that are unable to pay guaranteed benefits when due, the PBGC will provide financial assistance, usually in the form of a loan, so that retirees continue receiving their benefits.
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401(k) defined contribution plans
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement plans. ERISA covers defined benefit plans and defined contribution plans. Defined benefit plans, also known as pension plans, promise a specified monthly benefit at retirement. On the other hand, defined contribution plans do not promise a specific amount of benefits at retirement.
A 401(k) is a type of defined contribution plan. It is available to employees of publicly-owned companies. Employees can elect to defer receiving a portion of their salary, which is instead contributed on their behalf, pre-tax, to the 401(k) plan. Sometimes, the employer may match these contributions. There is a dollar limit on the amount an employee may elect to defer each year. Employees who participate in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their investments.
In 2025, employees under 50 can contribute up to $23,500 a year to a 401(k) and up to $7,500 in catch-up contributions if they're over 50. This is an increase from $23,000 plus $7,500 in 2024. 401(k) plans require employees to choose from investment options to fit their retirement goals, such as portfolios with higher returns and risk or more conservative portfolios with lower risk and returns.
A 401(k) plan is different from a defined benefit plan, which is professionally managed and guarantees retirement income for life from the employer as an annuity. With a 401(k) plan, employees may not be financially savvy or have any other experience investing in stocks, bonds, and other asset classes. This means that some people may invest in improperly managed portfolios.
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Frequently asked questions
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health plans in private industry.
ERISA requires plans to provide participants with plan information, sets minimum standards for participation, vesting, benefit accrual, and funding, and provides fiduciary responsibilities for those who manage and control plan assets.
The PBGC was established by ERISA to protect the retirement incomes of workers, retirees, and their families in private-sector defined benefit pension plans.
Yes, the Federal Employees Retirement System (FERS) provides benefits from three sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). Former federal employees covered by FERS may be eligible for a deferred annuity at age 62 or the Minimum Retirement Age.
No, ERISA does not cover plans established or maintained by governmental entities, churches for their employees, or plans maintained solely for compliance with applicable workers' compensation, unemployment, or disability laws.
