Effect of the Employee Retirement Income Security Act on the Termination of Single Employer Defined Benefit Pension Plans

The Employee Retirement Income Security Act (ERISA) requires private pension plans to meet extensive, complex minimum standards and reporting and disclosure requirements. Concerns were expressed about ERISA effects on small businesses and their employees and the increase in pension plan terminations after enactment of the legislation.

The act did contribute to a large degree to pension plan terminations, but economic and other factors played a more significant role. The adverse effect on workers indicated by the number of terminations is misleading because: (1) in terminations of plans attributed to ERISA, the plans generally did not meet the act's minimum participation and vesting requirements; (2) participants of terminated plans had received or were to receive almost all of their vested benefits under existing plan provisions; and (3) about 41 percent of the sponsors of terminating plans continued pension coverage for their employees through other plans. According to plan sponsors, major factors contributing to termination were the increased costs of providing benefits and revising and administering plans, the burden of meeting reporting and disclosure requirements, the need for clarifying regulations, and concern about penalties. The increased costs and provisions for compliance and reporting are necessary to ensure employees' rights to receive adequate benefits. Agencies involved have made progress in providing guidelines for meeting requirements and have reduced the reporting and disclosure burden. Agencies should continue such efforts, consistent with the protection of participants.