For some employee benefit professionals, it may be hard to imagine that the landmark Employee
ERISA was, in part, a reaction to the 1963 Studebaker automobile bankruptcy and the company's decision to close its South Bend, Indiana manufacturing plant, leaving thousands of workers under the age of 60 with minimal or no pension benefits. For nearly a decade, Congress studied, debated and drafted, and on Labor Day 1974, President Gerald Ford signed sweeping legislation that included both carrots and sticks for employers. Companies were not required to offer pension plans to their employees; but if they did, the plans had to satisfy various participation, funding and vesting rules, along with certain reporting and disclosure rules (e.g., notify employees of their ERISA rights and inform the government about plan operations).
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Employers largely have bought into ERISA and continue to offer robust "total compensation" packages featuring retirement, medical and dental, disability and life insurance, and other ERISA-covered benefits. While this partially is because employees want these benefits, ERISA also preempts state laws, and most ERISA disputes are heard by federal courts rather than employee-friendly state courts. While ERISA's complex regulatory scheme may have its challenges, a single regulatory framework is efficient for employers operating in multiple states. Just ask any employer currently struggling to manage varying state and local paid-leave laws whether a uniform federal standard has its silver lining.
Over the years, as employees and the workplace have evolved, ERISA itself has changed. For example, ERISA initially permitted 10-year cliff vesting as an option, but as worker mobility has evolved, the maximum cliff vesting schedule was reduced to just three years.
Every few years, another significant law adds to the alphabet soup, including TEFRA (the Tax Equity and Fiscal Responsibility Act, which added top-heavy nondiscrimination rules), OBRA (the Omnibus Budget Reconciliation Act of 1990, which added a 20% penalty on parties to a fiduciary breach), PPA (the Pension Protection Act, which imposed additional participant disclosure rules and enhanced defined-benefit funding requirements, and also clarified rules for cash-balance plans), and, most recently, the
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These changes, and expansions to ERISA's reach, seem to be consistent with Congress's original intent of passing a comprehensive law to regulate employer-sponsored benefit plans. There have, however, been developments that one might argue are not consistent with Congress' expectations. Take, for example, the current litigation landscape involving 401(k) and 403(b) plans. There is ample legislative history evidencing Congress' desire to provide a meaningful process for plan participants, and the government, to enforce ERISA and hold wrongdoers accountable.
But Congress also made clear that it did not want to create a system that was so complex that administrative costs or litigation expenses might discourage employers from offering benefits in the first place. Courts have done little to stem the tide of certain ERISA class actions, and many lawsuits survive initial motions to dismiss with the barest of factual allegations. It seems that litigation has become one of the costs of offering a 401(k) or 403(b) plan.
Don't just blame the courts, however. One of the reasons for widespread ERISA litigation is also one the beauties of ERISA: it was drafted to be general and flexible (particularly its fiduciary provisions) so that the same provisions can apply to fiduciaries of any type of ERISA-governed plan. For example, a health plan fiduciary and a retirement plan fiduciary are bound by the same provision that requires fiduciaries to act with "care, skill, prudence and diligence." Precisely what this requires in any particular situation is fact-specific and open to widely varying interpretation. This generality and flexibility has allowed plaintiffs to file lawsuits that propose laundry lists of actions that they claim are required of prudent fiduciaries. With little guidance in the text of ERISA itself, courts often allow such lawsuits to move forward, at least until courts are given more information to allow them to understand the issues.
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For its part, the Department of Labor largely supports litigation, and at times has filed amicus briefs supporting expansive readings of ERISA. The DOL also has made clear its desire to expand ERISA's reach. One of the most significant efforts in recent years involved the fiduciary rule issued in April 2016, which expanded the definition of "investment advice fiduciary" to include conduct that was not considered fiduciary in nature. That fiduciary rule was invalidated by the Fifth Circuit in 2018, but the DOL is trying again. A new proposed rule was issued on October 31, 2023, and the DOL is still interested in expanding ERISA's fiduciary reach.
Going forward, ERISA must continue to evolve as the workforce also evolves and as challenges emerge. For example, increased emphasis on mental health parity, combined with a post-COVID world facing a mental health crisis, has some asking if disability plans should provide parity of benefits for mental health and substance use disorders. The DOL recently issued guidance on cybersecurity issues, but more is needed to help plans manage through an increasingly complex digital world creating risks for data integrity. Similarly, an additional safe harbor for electronic distribution of retirement plan notices provides some relief, but does not address the mounting set of notices required for health plans.
New statutory requirements that impose additional transparency requirements on health plans may simultaneously equip plan sponsors with more information to fulfill their fiduciary duties and proactively manage their plans, while also creating a new target for plaintiffs' lawyers. ERISA preemption faces new questions as more states enact new mandated benefits and assert regulatory authority over certain benefits – including paid leave, retirement auto-enrollment plans, EAPs and PBM services. As legislators, regulators, and courts grapple to find solutions, stakeholders from all sides will be there to advocate for resolutions addressing their own concerns.
