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ERISA and 401(k) Plans
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The Employee Retirement Income Security Act of 1974 (ERISA), which was signed by President Ford on September 2, 1974, adopted a sweeping over-haul of the existing employee pension and welfare benefit rules (both nontax related and tax-related). It affected almost every employee benefit plan in the United States. ERISA has been amended subsequently on numerous occasions and has developed into an enormous, complex set of rules and regulations. The major acts that have amended the various titles of ERISA since 1974 are set forth below:

1974 ERISA enacted

1975 Tax Reduction Act of 1975

1976 Tax Reform Act of 1976

1977 Technical Corrections Act of 1977

1978 Revenue Act of 1978

1980 Multiemployer Pension Plan Amendments Act of 1980

1981 Economic Recovery Tax Act

1982 Tax Equity and Fiscal Responsibility Act of 1982

1984 Deficit Reduction Act

Requirement Equity Act of 1984

1986 Consolidated Omnibus Budget Reconciliation Act of 1986

Single-Employer Pension Plan Amendments Act of 1986

Tax Reform Act of 1986

1987 Omnibus Budget Reconciliation Act of 1987

1989 Omnibus Budget Reconciliation Act of 1990

1990 Older Workers Benefit Protection Act of 1990

Omnibus Budget Reconciliation Act of 1990

1992 Unemployment Compensation Amendments of 1992

1993 Omnibus Budget Reconciliation Act of 1993

1994 Retirement Protection Act of 1994

1996 Small Business Job Protection Act of 1986

Health Insurance Portability and Accountability Act

1997 Taxpayer Relief Act of 1997

1998 Transportation Equity Act of the Twenty-first Century

Child Support Performance and Incentive Act of 1998 Internal Revenue Service Restructuring and Reform Act of 1998

Tax and Trade Relief Extension Act of 1998

1999 Tax Relief Extension Act of 1999

2000 Consolidated Appropriations Act of 2001

2001 Economic Growth and Tax Relief Reconciliation Act of 2001

401 (k) Plans

Cash or deferred arrangements (CODAs), which are currently permitted under Section 401(k) of the Internal Revenue Code were a popular feature in profit sharing plans in the early 1950s. Under such an arrangement, an eligi-ble employee could elect to receive a portion of the employer profit-sharing contribution in cash or defer it under a profit-sharing plan, which had to meet certain IRS requirements with respect to the timing of elections and the eligible participant group. Such type of CODA was not particularly popular—less than 1,000 were in existence in the early 1970s. In 1972, the In-ternal Revenue Service issued proposed regulations regarding the taxation of salary reduction contributions and created issues and uncertainties with respect to CODAs. Then on June 27, 1974, ERISA temporarily froze the tax status of plans with CODA features that were in existence until the end of 1976. Such date was subsequently extended until December 31, 1979. The Revenue Act of 1978 added Section 401(k) to the Code and in 1981, the IRS issued proposed regulations that permitted salary reduction contributions

to be made to 401(k) plans. Thereafter, employers began adopting 401(k) plans and converting after-tax contributions to existing profit sharing plans to pre-tax contributions.

The Tax Reform Act of 1984 made changes to the requirements of 401(k) plans by imposing mandatory nondiscrimination rules that were subse quently modified by the Tax Reform Act of 1986. More recently, EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001) has made ad ditional changes to 401(k) plans by permitting increased contributions and raising compensation limits for plan purposes.

Statutory Framework of ERISA

Title I of ERISA provides rules for the structuring of plans, sets standards of conduct for plan fiduciaries, and prohibits certain plan transactions. This is the “Labor” title.

Title II of ERISA sets forth the provisions of the Internal Revenue Code regarding employee benefit plans and excise taxes applicable to certain plan transactions. This is the “Tax” title.

Title III of ERISA sets forth provisions relating to procedures regarding

(1) the issuance of determination letters for plans, (2) continued compli ance with participation, vesting and funding standards, and (3) prohibited transactions as well as coordination of the function relating to ERISA be tween the Treasury Department and the Department of Labor.

Title IV of ERISA sets forth provisions relating to the termination of de fined benefit plans, the Pension Benefit Guaranty Corporation (PBGC), and multiemployer plans.

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