President’s Day Special Edition – The Story of Ford, Studebaker and Tesla

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401KTV President’s Day – Special Edition – The Pension Story of Ford, Studebaker, and Tesla. Move over George Washington and Abraham Lincoln.  Share the Spotlight Mount Rushmore. Since the United States has transitioned to recognizing all the great works of U.S. Presidents on a single day, this seems an appropriate time to salute the works of Gerald R. Ford, the 38th U.S. President.  The President who signed the most meaningful U. S. pension reform into law.  This took place at a time when trust in the private pension system had all-but disappeared and faith in pension leadership was at a historic low. The Employee Retirement Income Security Act (ERISA) was, and remains, the nation’s most productive pension reform of any during our country’s history, and that reform continues to guide and serve as the foundation of the private pension system of the United States today.

Almost 44 years ago, on Labor Day of 1974, President Gerald R. Ford signed the Employee Retirement Income Security Act. The Act now referred to as ERISA. One might ask, “What does ERISA mean to me?”  Quite a lot, actually; if you participate in a 401k Plan, a 403b Plan or any other tax-qualified retirement plan.

At first pass, ERISA may not seem to carry significance with Millennials.  GenX’ers also may possibly be unaware of the importance of the signing of ERISA. And even though Baby-boomers were alive and able to observe the signing of ERISA on the nightly news (“on tape” on any one of the 3 TV channels available in 1974) to this day, most boomers fail to comprehend exactly what ERISA does for them.

Why Did Pension Reform Matter?

Long before Tesla was turning heads with sleek auto design, Studebaker-Packard was doing the same. The futuristic fleet of Studebaker during the 1950s and 60s included the Bullet-nose Champion Convertible (pic), the Starliner (pic) and the Avanti (pic). The company was successful from the late 1800s until December of 1963, when they were forced to close the doors of the manufacturing plant in South Bend, Indiana. The closing of the plant was the harbinger of Studebaker’s financial troubles which eventually spread throughout the company. In the end, Studebaker’s financial difficulties became retiree-realities, when pensioners received fifteen cents on the dollar as a lump-sum payout.  Those payments were a fraction of the pension benefits earned and promised to workers by Studebaker. However, those receiving fractional pension payments fared better than thousands who received no pension payments at all.

The danger of having an unprotected pension benefit from an employer became apparent for 30 million workers throughout the country. The possibility of “the company retirement plan disappearing,” for whatever reason, became a concern and a topic of conversation across the country.  The need for meaningful pension reform was front and center.

On September 12, 1972, the National Broadcasting Company aired an expose’ titled PENSIONS: The Broken Promise.  The program took aim at those who were entrusted with overseeing retirement plan assets – the unprincipled scoundrels and thieves took advantage of the workers, their position of authority and the pre-ERISA private pension system. The masses were concerned that without meaningful reform, what had taken place at Studebaker “could happen to me as well!”  The need for reform was obvious. Constructing the rules and implementing safeguards was taking longer the country could comfortably handle.  And certainly, longer than most had expected,

ERISA in the Making

The process of getting to ERISA was arduous.

The proposed remedy was the Employee Retirement Income Security Act of 1974 (ERISA).  (Pre-ERISA, rules, accountability, responsibility and plan fiduciaries had been missing.)

Eleven years after Studebaker shut their plant in South Bend, Indiana, The United States Congress and President Ford, through the passage of ERISA, delivered the legal standards that would successfully bolster the private pension system for decades to come.

ERISA was passed in the House of Representatives on Feb. 28, 1974.  It passed in the Senate on March 4, 1974.  On September 2nd, 1974, President Gerald Ford signed on the passage of ERISA.

ERISA not only stated the rules; but also outlined specific accountability associated with tasks and assigned personal liability to individuals who would take responsibility for overseeing the plan.  The retirement plan fiduciary was born.

How is ERISA Working

ERISA is now in its 44th year of protecting plan sponsors, retirees, and plan participants.

Is the private pension system under ERISA working? Absolutely.

Is the private pension system under ERISA perfect? Absolutely not.  There are still bad-actors, ignorant fiduciaries and plan participants who believe that “funding their own retirement is someone else’s responsibility.”

Over the last four decades, the retirement landscape has changed at every level.  The financial markets, legislation, regulation, investment products, client expectations and employer-funding strategies.  Even the way Americans grow old has changed – life-spans are different, longevity has increased and gerontology discussions are commonplace.

Throughout the past 44 years, since the signing of the Employee Retirement Income Security Act, ERISA has stood the test of time.

Although John N. Erlenborn is credited with being The Father of ERISA, and Ted Benna is known as the Father of the 401k, President Gerald R. Ford will always be known as the United States President who signed the Employee Responsibility Income Security Act into law.   When signing ERISA into law, President Ford is reported to have stated, “with ERISA, the men and women of our labor force will have much more clearly defined rights to pension funds and greater assurances that retirement dollars will be there when they are needed.”  Forty-four years later, plan participants and plan sponsors are better off as the result.

Steff Chalk

Steff Chalk

Executive Director at 401kTV | TRAU | TPSU
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education.Steff also serves as the Executive Director of 401(k)TV and The Plan Sponsor University. Steff is current faculty of The Retirement Adviser University.
Steff Chalk
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