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Before 1974, there was no protection for individuals against losing their private pensions. The passage of ERISA was largely due to the default of the Studebaker pension fund in 1963. Studebaker, a South Bend, Indiana, automobile company, went into bankruptcy, and employees, many of whom had spent their entire careers with the company, lost some or all of their pensions. The company had an underfunded pension plan, meaning that there was not enough money set aside to pay the pensions that employees had been promised. Eventually, the United Automobile Workers union negotiated full benefits for some senior workers, but nothing was left for younger workers. This scandal led Senator Jacob Javits of New York to introduce into Congress a bill that would protect the benefits of millions of workers covered by pension plans. However, because of jurisdictional disputes, it was not until 1974 that the bill finally passed and became law.

On September 2 (Labor Day), 1974, President Gerald R. Ford signed the Employee Retirement Income Security Act of 1974 (ERISA) into law. ERISA established complex rules concerning employee benefit plan disclosure, fiduciary responsibility, funding, and vesting. Vesting refers to an employee’s nonforfeitable right to a pension, a right earned, for example, after a fixed number of years of service. The law also established pension plan termination insurance and the Pension Benefit Guaranty Corporation.