In the shadow of ERISA.

• Position: Part one - Pension Fund Management - Panel Discussion

Part 1

Is there a crisis in our pension system? As the Employee Retirement Income Security Act turns 20, many executives are questioning whether the legislation truly serves employees and employers. There are at least two sides to the issue, so Financial Executive, along with Actuarial Sciences Associates, invited seven people who are intimately involved with ERISA to discuss Corporate America's role in retirement.

How can companies work within the ever-changing regulatory framework that often severely limits benefits? Why are 401 (k) plans dominating the retirement-savings picture? Where does the company's responsibility for a secure retirement end and the employee's begin? How can companies and employees make their new working relationships - short-term, mobile, contingent - mesh with pension protocol? The panelists take on all of these topics and more. Here are their thoughts.

SCOTT MACEY: ERISA provides a relatively comprehensive regulatory framework for employee benefits. It has been amended many times in its 20-year history, and some of us feel that certain of the provisions and regulations still are burdensome and unnecessarily costly. The economy is changing, market forces are changing and businesses are changing the way they hire, train and retain people. At the same time, the financial and health-care industries, which are so integral to employee benefits, are changing. We need to assure that our regulatory system evolves to fit the current needs of both employees and employers.

The foundation of ERISA, as I see it, is that it offers the uniformity of a single federal system underpinned by the pre-emption provision. We don't have 50 state laws governing employee benefits. But we've all had a lot of experience, both positive and negative, dealing with the federal regulatory framework of ERISA, so let's talk about where we've been and, more important, where we're going or should be going.

Vance, would you like to start since you were working with ERISA in Congress when it was passed?

VANCE ANDERSON: Clearly, one of the purposes behind the statute was to establish minimum plan standards for vesting, funding and disclosure to participants. In that regard, I think it's been a success. The other purpose was to avoid piecemeal regulation by states and municipalities and to create a single set of standards focused on preventing the application of state laws to such benefit-plan provisions as welfare plans and pension plans. The statute has been successful in this area, too.

Where it hasn't been successful is it has created some maximum limits on these plans. Today, we find ourselves in an uncomfortable position, where the corridor we run between in the minimum and maximum areas is narrow, plans probably aren't well-served and participants clearly aren't well-served.

LLOYD SWAIM: I think ERISA was enacted to also protect employees' rights, and it's been successful because the Pension Benefit Guaranty Corporation provides some insurance protection for the employees of bankrupt companies.

What's lacking is a pension policy in the United States. As a country, our pension system conflicts with our objective of cutting the deficit, because that reduces the pension amounts that can be funded and the benefits that can be protected. We also face constant attacks when our tax policy conflicts with the concept of a private pension system.

MYRA DRUCKER: I think ERISA has done quite well in protecting employees, but it's been an abysmal failure in establishing understandable regulatory processes. I've been dealing with ERISA for quite some time, and I still find these peculiarities that present limitations. For instance, there are prescribed participant-notification procedures that do absolutely nothing to inform participants about the health of their plans. In the end, that doesn't serve either the voluntary sponsors or the plan participants.

DON HARRINGTON: At the time it was enacted, ERISA addressed disclosure, vesting and funding. The creation of the PBGC determined what benefits should be insured in the case of plan failure. However, the PBGC also established a benefit - through the Section 415 limits - that was perhaps too high in absolute dollar terms. So we had a floor that was too generous and a ceiling that became arbitrary and inadequate.

I don't like absolute numbers in any situation. You should use percentages and relative numbers. After all, this is replacement of pay.

As for the funding, I was never sure how it worked. When we had the 404 minimum and the 412 maximum and the two were calculated differently, I used to put tongue in cheek occasionally and say a minimum was a minimum until it became greater than a maximum, in which case the minimum had to be reduced.

And I think pre-emption under ERISA is good when it comes to benefits design, but it's extended beyond where it should be. When you consider self-insured individuals, for example, it's confusing.

Also, ERISA is hard to write systems around. Believe me, I'm doing this now, and it's tough to continually change the standards in the system.

TERESA GHILARDUCCI: ERISA did give property rights explicitly in places where they previously were implicit. Before the act, some employers and workers did voluntarily come up with similar agreements that worked for both the unions and the employers, to soften the risk of retiring without enough money and to ensure that companies have a loyal work force. ERISA...