Trusts No More: Rethinking the Regulation of Retirement Savings in the United States
56 Pages Posted: 2 Oct 2016 Last revised: 19 Nov 2016
Date Written: Summer 2016
The regulation of private and public pension plans in the United States begins with the premise that employer-sponsored plans resemble traditional donative, or gift, trusts. Accordingly, the Employee Retirement Income Security Act of 1974 (ERISA) famously “imports” major principles of donative trust law for the regulation of private employer-sponsored pension plans. Statutes regulating state and local government pension plans likewise routinely invoke the structure and standards applicable to donative trusts. Judges, in turn, adjudicate by analogy to the common law trust.
This Article identifies the flaws in the analogy and analyzes the shortcomings of a regulatory framework that, despite dramatic changes in the nature of modern pension benefits, still regards employees as gift recipients, grants both settlor and trustee rights to employers, and increasingly relies on trust-based fiduciary obligations to prevent employers from prioritizing the interests of their non-employee stakeholders over the interests of pension plan participants.
Today, the mismatch between the trust-based legal framework and the parties’ rights and interests has contributed to the high cost of pension fund investing, the significant gaps in pension coverage, and the underfunding of public pension plans. As such challenges force U.S. policymakers to reconsider how and how much Americans save for their retirement, this Article shows that long-term retirement security for U.S workers requires a fundamental reevaluation of the employer, employee, and government roles in the provision and management of retirement assets.
Keywords: ERISA, fiduciary, public pensions, trusts, pension reform
JEL Classification: H72, H75, J26,J32
Suggested Citation: Suggested Citation