Economic Report President

Box 4-7.—The Federal Role in Employer-ProvidedPension PlansThe Employee Retirement Income Security Act of 1974 governspension and welfare plans sponsored by private employers. Theact covers both defined-benefit and defined-contribution plans.ERISA was enacted because of concerns about the private pensionsystem: that too few employees were receiving or would receivethe pensions they had come to expect; that too many participantswere being treated unfairly by plans and employers; and thatexisting law was inadequate to deal with these problems. Title I ofthe act spells out the protections it provides for workers and fiduciarystandards for employers, trustees, and service providers.Title II sets forth standards that plans must meet in order toqualify for favorable tax treatment, and Title III contains administrativeprovisions. Title IV, which is carried out by the PensionBenefit Guaranty Corporation, a Federal agency, regulatesemployers’ funding of their plans to make sure they set asidesufficient funds to pay the promised pensions. It also insuresvested participants’ pensions, at least up to certain levels, againstthe eventuality that the employer cannot pay.This Administration has worked for continued pension reformto promote retirement saving. Many of the President’s proposedpension provisions were adopted in the Minimum Wage IncreaseAct of 1996. That act expanded pension coverage in several ways.It created a new 401(k)-type plan for small businesses, with asimple, short form intended to make it easier for small businessesto provide their workers with pensions. It made it easier for employersto let new employees participate in 401(k) plans immediately. Itrequired State and local government retirement savings plansto be held in trust so that employees do not lose their savings ifthe government declares bankruptcy. It expanded access to401(k)-type plans to employees of nonprofit organizations andIndian tribes. And it promoted portability for veterans by allowingreemployed veterans and their employers to make up for pensioncontributions lost during active service.More recently, the Administration has proposed a number ofinitiatives to address concerns about women’s pension arrangements.One proposal would allow time taken under the Familyand Medical Leave Act to count toward eligibility and vesting. Forsome workers such a provision could make the difference betweenreceiving or not receiving credit toward minimum pension vestingrequirements for an entire year of work (a minimum amount ofwork is required in a given year for it to count toward the vestingperiod). Another would address the needs of widows by requiring159