Few Americans today are familiar with the legacy of Studebaker and Packard automobiles. While classic car enthusiasts may cherish their sleek and innovative designs, these brands also serve as a poignant reminder of a bygone era characterized by traditional defined benefit pensions.
The merger of Studebaker and Packard in 1954 marked a pivotal moment in automotive history. However, the subsequent demise of both companies left thousands of workers grappling with the loss of their anticipated pension benefits. This unfortunate turn of events, coupled with other pension plan failures, spurred significant efforts to enhance the security of retirement savings.
The culmination of these efforts was the enactment of the Employee Retirement Income Security Act (ERISA) in 1974 during President Gerald R. Ford’s administration. As ERISA celebrates its 50th anniversary this year, its enduring impact on the retirement benefit landscape remains palpable.
ERISA aimed to safeguard private sector pensions by introducing stringent funding requirements, defining rules for employee eligibility, and establishing fiduciary standards that obligated plan sponsors to prioritize the interests of plan participants. Additionally, the legislation led to the creation of the Pension Benefit Guaranty Corporation, a federally backed insurance fund designed to support failing pension plans.
Despite its noble intentions, the heightened regulatory demands and associated costs prompted many employers to veer away from traditional pension offerings. This shift catalyzed the emergence of 401(k) plans and Individual Retirement Accounts (IRAs), which have since become the prevailing retirement savings vehicles in the private sector.
While pensions historically covered a substantial portion of U.S. private sector workers—encompassing 62% in 1983—their prevalence has dwindled significantly, with a mere 18% of workers benefiting from such plans in 2022, as reported by the Center for Retirement Research at Boston College. Nevertheless, those who were fortunate to have pension coverage enjoyed advantages such as automatic enrollment, professional investment management, and guaranteed lifetime income streams.
