Happy Golden Anniversary to ERISA

Published on September 9, 2024

ERISA stands for the Employee Retirement Income Security Act of 1974, which became federal law in September 1974. It implements standards for certain employer-sponsored retirement and health plans. Fifty years later, we celebrate its enactment for several important reasons—to us at Next Generation Trust Company and investors nationwide.

ERISA has made it possible for more Americans to save for retirement by:

• changing the way employer-sponsored retirement plans are managed and regulated.
• creating Traditional IRAs, including self-directed IRAs (yes—IRAs have been around for that long although Roth IRAs came later).
• making 401(k) and other qualified workplace plans possible.

The legislation was enacted in response to concerns about the future (and security) of workplace retirement plans. It added protections and a federal regulatory framework that governs funding requirements, eligibility rules, and fiduciary standards for plan sponsors. ERISA also created the Pension Benefit Guaranty Corporation (PBGC) which protects private sector defined benefit pension plans.
 

The importance of ERISA to investors – and self-directed IRA custodians and administrators

Although pension plans were still more widely offered at that time than they are today, many workers did not have access to an employer-sponsored retirement plan. Thanks to ERISA, Traditional IRAs were introduced in 1974 as a solution for people who were not participating in a workplace plan to save for retirement beyond their bank accounts. Over the years, Roth IRAs became available as well as health savings accounts and education savings accounts (which can all be self-directed to include alternative assets within their portfolios).

Other retirement legislation was implemented along the way to boost Americans’ ability to save for retirement through tax-advantaged plans and to protect those plans. Most recently, the SECURE Act (2019) and SECURE 2.0 (2022) created significant enhancements to retirement security that adapted to an evolving market and build on ERISA’s strong foundation. As a full-service administrator and custodian for self-directed retirement plans, we keep our clients abreast of legislative changes that affect retirement plans, ESAs, and HSAs and will post updates as they become finalized.
 

Self-directed IRAs were always available

We find that many of our clients don’t realize that when IRAs were created, there was always the option to open a self-directed account. This is partly because 50 years ago, large financial institutions—which limited investments to stocks, bonds, and mutual funds—advertised the availability of their IRAs heavily, leaving many taxpayers unaware of the self-directed option. However, we’re happy to report that over the past five decades, investors have become more financially knowledgeable about alternative assets in general, and more are discovering the many options and benefits of including them in a tax-advantaged self-directed IRA.

Thanks to the passage of ERISA, all those self-directed IRAs have become possible, along with the establishment and growth of Next Generation. We are delighted to be celebrating our company’s 20^th anniversary this year…and we all wish IRAs a happy 50^th anniversary!