ERISA’s Fundamental Contradiction: The Exclusive Benefit Rule

Abstract

The comprehensive federal scheme for regulating pension and other employee benefit plans, ERISA, is approaching its fifteenth anniversary. ERISA has attracted a large administrative gloss and a burgeoning case law. Experience has begun to show the effects of the statute. Parts of ERISA appear to have worked smoothly. The reporting and disclosure provisions that were a central goal of the legislation have been implemented without much ruckus. Another major goal of the statute, the vesting scheme that restricts the forfeiture of pension benefits, has also proved easy to institute. The disclosure and vesting rules have produced scant litigation. Other parts of ERISA have become much more problematic. The overbroad preemption provision has wreaked aimless interference upon state regulation of areas such as health insurance that are quite peripheral to pension policy. Neither a substantial string of Supreme Court cases nor occasional Congressional repair has been able to cure the mess. Another well known instance of statutory shortsightedness is ERISA's effort to regulate the financial affairs of multiemployer plans. The 1974 legislation insisted on covering these plans without working out the principles, which Congress had to supply by amendment in 1980. The 1980 amendment imposed unexpected and dismaying retroactive liabilities on employers. Although the Supreme Court has mostly sustained the constitutionality of the scheme, employer resistance to participation in multiemployer plans has increased, and there is reason to think that the legislation may ultimately be seen to have doomed the multiemployer system. Yet another instance of serious disorder in ERISA is the insurance system that protects workers' pension benefits in the event that a plan defaults. Because the program rewards moral hazard, the Pension Benefit Guaranty Corporation (the federal insurer whose duty is to suffer the consequences) has amassed a deficit that is growing by billions and that makes the program inherently unstable.