What is ERISA?

by | Feb 27, 2017

ERISA – the Employee Retirement Income Security Act of 1974 – is the law that resulted in the creation of all IRA's (though strangely, the law that defines IRA's is in a different place).

In the 1950’s and 1960’s, several very large companies went out of business due to a combination of corporate mismanagement and horrible abuse by labor unions.  In many cases, the demise of these companies also resulted in the total loss of the pensions that former employees were relying upon to fund their golden years.

This happened frequently enough that Congress responded with ERISA, which (among other things) created the IRA – “individual retirement arrangement” – which would make it possible for Americans to save for their own retirements in a tax-advantaged way.  But the IRA was unique because of the word “individual”…

…in other words, this retirement account would be connected exclusively to an individual person, and thus not subject to the risk that an employer pension would go bust.

ERISA is defined in the Title 29, Chapter 18 of the United States Code.

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