The Evolution of Retirement Benefits in America

Studebaker and Packard, once iconic names in the automobile industry, are now largely forgotten by the American public. Though remembered for their innovative designs, these brands also symbolize a bygone era – a time when traditional defined benefit pensions were prevalent.

Following their merger in 1954 and subsequent closure, the pension plans of Studebaker and Packard were terminated, leaving many workers without the promised benefits. This, along with other pension failures, spurred efforts to enhance retirement security, leading to the enactment of federal legislation that continues to influence retirement benefits today.

The Employee Retirement Income Security Act (ERISA), enacted in 1974 during President Gerald R. Ford’s administration, celebrates its 50th anniversary this year. This landmark legislation aimed to safeguard private sector pensions by introducing funding requirements, eligibility rules for employees, and fiduciary standards mandating that plan sponsors prioritize the interests of participants. Additionally, ERISA established the Pension Benefit Guaranty Corporation, a federal insurance fund that intervenes when pension plans falter.

However, the stringent regulations and associated costs prompted many employers to phase out traditional pensions, leading to the widespread adoption of 401(k) plans and Individual Retirement Accounts (IRAs) in today’s private sector.

While pensions never covered the entire U.S. private sector workforce – with 62% of workers being covered in 1983 compared to just 18% in 2022, as reported by the Center for Retirement Research at Boston College – those who had access to them enjoyed benefits such as automatic enrollment, professional investment management, and guaranteed lifetime income streams.