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Politics and Economy:
Pension Pain
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Landmark Legislation

The United States Government made its first foray into guaranteeing old age income by promising pensions to encourage enlistments in the Union Army in the Civil War. This system was then put into law by legislation in 1879 and 1888. Today the Congress is still considering pension issues. Below is a brief description of major pension legislation in effect, and a few bills now under consideration. You can check on these bills by using our guide to Tracking Legislation on the Web.

The Social Security Act — 1935
The Social Security Act of 1935 is one of the most important pieces of legislation in American history. Passed during the depth of the Great Depression, it was an omnibus act, creating a variety of programs to serve many groups of citizens. But the Act takes its name from the landmark social insurance program which was designed to pay retired workers age 65 or older a continuing income after retirement.

The Act has been amended many times, most notably in 1939 when benefits were extended to surviving spouses and minor children. In the 1950's additional changes added to Social Security's participant base, increased the benefit, including its first cost of living increase (COLA) since 1940. In 1972 the law was changed to provide a COLA each year based on the annual increase in consumer prices, starting in 1975. In the 1960s the Social Security Administration was tasked with providing healthcare to Social Security beneficiaries aged 65 or older under the Medicare Act. This program is now run by the Health Care Financing Administration (HCFA).

Worries about the financial health of the Social Security System began in earnest in the 1980's. In 1983, President Reagan signed new provisions into law which included the taxation of Social Security benefits for the first time, extending coverage to federal employees, raised the retirement age starting in 2000; and increased the reserves in the Social Security Trust Funds. Financial adjustments continued with the "welfare reform" legislation enacted under President Clinton in 1996, which ended Social Security eligibility for most non-citizens (this provision has since been adjusted).

In 2000, President Clinton signed into law H.R. 5, "The Senior Citizens' Freedom to Work Act of 2000," which eliminated the Retirement Earnings Test (RET) for beneficiaries above the retirement age. This allowed approximately 900,000 people who were collecting benefits but also working to not have their benefits reduced because of work.

Debate still rages about how, and if, the Social Security System will meet the increasing demands of the retiring Baby Boom generation. President Bush favors allowing younger workers to invest a portion of their Social Security contributions in the stock market. Learn more about the debate below.

The Employee Retirement Income Security Act (ERISA) — 1974
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry. ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards.

Key Provisions

  • ERISA requires plans to provide participants with information about the plan including important information about plan features and funding. The plan must furnish some information regularly and automatically.
  • Sets minimum standards for participation, vesting, benefit accrual and funding. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
  • Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management or assets, including anyone who provides investment advice to the plan.
  • Gives participants the right to sue for benefits and breaches of fiduciary duty.
  • Guarantees payment of certain benefits if a defined benefit plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

ERISA's provisions were added to by The Retirement Protection Act of 1994

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