SC Lawyer, May 2005, #7. Everyday ERISA: understanding the rules of the only game in town.

AuthorBy Dave Maxfield

South Carolina Lawyer


SC Lawyer, May 2005, #7.

Everyday ERISA: understanding the rules of the only game in town

South Carolina Lawyer May 2005

Everyday ERISA: understanding the rules of the only game in townBy Dave MaxfieldIt was the winter of 1963 in South Bend, IN, when the last Studebaker automobile built in America rolled down the assembly line. The company, which had begun as a horse-drawn wagon maker 111 years before and had survived two world wars and the stock market crash, was effectively wiped out. On the heels of the plant's closure, Studebaker terminated its retirement plan for hourly workers.

In his article "The Most Glorious Story of Failure in Business: The Studebaker-Packard Corporation and the Origins of ERISA," Buffalo Law Review, Vol. 49, P. 683, 2001, Professor James A. Wooten writes that "[n]o single event is more closely associated with ERISA than the shutdown of the Studebaker plant in South Bend."

Wooten goes on to chronicle how the plight of the Studebaker employees emerged as a symbol of the need for pension reform and how the United Auto Workers union used the opportunity created by the shutdown to push the cause of pension reform onto the national legislative agenda.

While symbolic, the predicament of the former Studebaker employees was by no means unique. Up until this time, employee benefit plans had not been regulated at the federal level, and a significant number of Americans reached their "golden years" only to find that their pension funds had been drained by theft, bankruptcy or fundamental mismanagement. Thus, it was on Sept. 2, 1974, that the Employee Retirement Income Security Act, ERISA, was signed into law by President Ford. As its name implies, the intent of Congress in enacting ERISA was to protect employee pension and welfare plans by providing federal protections that would apply uniformly in all 50 states. However, the ensuing 30 years have seen widespread criticism of ERISA.

ERISA's 30th season - is it time for the final whistle?

It is hard to say that Congress's heart was not in the right place in 1974. But 30 years later, many argue that the main legacy of ERISA is a lack of enforcement or, worse still, that the broad coverage designed to defend employee pensions has been turned into a shield for dubious (or outright fraudulent) practices by disability, health and other insurers.

According to a March 3, 2004, article appearing in Reuters Health, one such scam was perpetrated by a company that called itself Employers Mutual, LLC. Using a name similar to a legitimate insurer, in 2001 Employers Mutual sold bogus group health plans to around 22,000 people, collected approximately $16 million in premiums and left more than $24 million in unpaid medical bills. A 2003 report by the General Accounting Office to a U.S. Senate Committee shows that the above incident was not isolated and that more than 15,000 employers bought 144 separate bogus health insurance plans, leaving an estimated 200,000 policyholders holding the bag for more than $252 million in unpaid claims. The Texas Insurance...

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