ERISA’s mid-life crisis

Schlichter says he'd like to see ERISA interpreted by the courts to be "the powerful law it was intended to be, to help participants protect and build their retirement assets." 

The participants his firm has represented want sponsors to be more transparent, and to be sure that they are offering only plan options with reasonable fees. 

With a growing number of court decisions favoring plaintiffs, things are going well for Schlichter. 

But while lower fees are vital to retirement security, they're not the only thing participants and their advocates want. 

The fiduciary standard

Karen Friedman, executive VP and policy director at the Pension Rights Center, says her Washington, D.C.-based organization is busy on multiple fronts, from lobbying against clawbacks of benefits for retirees in multiple employer plans to fighting sponsors' efforts to de-risk pension plans, which she thinks exposes participants to massive risk. 

And then there's the fiduciary standard debate. 

"The financial services industry's lobby to thwart the DOL in updating rules on fiduciary status is absolutely outrageous," she said. 

"Let the DOL issue its proposed rules, and let the democratic process of commenting on them commence. That is how this is supposed to work. Why is it being delayed?" Friedman added.

The world has changed dramatically from the time when ERISA was conceived, a time when 401(k)s were non-existent and IRAs were in their infancy, said Friedman. In her opinion, ERISA was effective at dealing with "20^th century" problems. 

But times have changed, and she says so must ERISA. And so must the fiduciary standard. 

"So now companies are trying to de-risk by offering lump-sum payments to participants. And we're going to send these people who have worked all their life off with a pile of cash they have to make last for 20, 30 years? Into a financial services world where there is no clear fiduciary standard? I'm sorry. But that's just dangerous," Friedman says.

ERISA, she said, failed to give the three agencies involved in its oversight adequate power to truly protect participants' rights.

"We've often said there should be one agency administering ERISA, with an internal ombudsman committed to dealing with individual participant issues, and lobbying on behalf of participant rights," she says. 

She imagines a role similar to the participant and plan sponsor advocate position created at the Pension Benefit Guarantee Corp., which, in Friedman's opinion, was immediately effective in coordinating participant concerns with the regulatory process. 

That position's title – participant and plan sponsor advocate – suggests that the interests of both would (or should) be aligned. 

That's a primary question going forward: Can ERISA harmonize the needs of participants with the needs of sponsors, and vice-versa? 

James Klein believes the interests of both are, in fact, aligned, more so than most think. As president of the Washington, D.C.-based American Benefits Council, he has the ear of the biggest plan sponsors in the country. 

"Participants have a need for financial wellbeing," he said. "And employers have a need for them to have that, too." 

Klein says that ABC's members very much care about the retirement security of the people who work for them. After all, Congress has yet to mandate that they provide plans, he notes. Yet sponsors still do. 

To skeptics, Klein has this to say: "Employers need to be able to transition their employees toward retirement," he says, something that can't be done if they don't have the assets to leave the workforce. 

In other words, the costs of investing in a defined contribution plan are less than it ultimately would cost sponsors if they couldn't transition older, more highly-paid workers safely into retirement, he explained. Also, offloading retirement funding responsibilities to the government would ultimately mean a crushing tax exposure to sponsors, giving them one more reason to offer and maintain a retirement plan for their workers, said Klein. 

Regarding transitioning older workers, he says ERISA has an important job to do, and some much-needed room for improvement. 

Much has been written about current and future generations of retirees both needing and wanting to continue to work. ERISA makes it difficult for participants to draw partial benefits from their pensions while continuing to work for the same employer, in a reduced capacity, at reduced pay, he says. 

"Current ERISA rules don't allow that. So artificial barriers are created. That needs to change," he said.

Participant advocates also want to see deferral and contribution caps changed, which would allow workers to save more to better prepare themselves for retirement.

Sponsors also want to be able to give more advice to their employees — and employees want that advice, Klein says. But the fear of fiduciary liability creates a culture of reluctance to deliver guidance to participants. 

He says he hopes regulators take note of the reasons for the decline in DB plans. 

"Volatile" funding rules that leave sponsors vulnerable when interest rates are low and ever-higher PBGC premiums helped encourage the shift away from defined benefits, he says. 

"There is a disconnect when one set of policies makes DB plans harder to provide, and then another set of polices makes DC plans harder to provide," he says. 

The fact that both sponsor and participant advocates all have passionate objections to ERISA in its current form may actually be the silver lining. 

When all sides seem to be in agreement that change is needed, then perhaps the hard work of getting down to figuring exactly what changes are really needed can begin.