Congress passed the Employee Retirement Income Security Act (ERISA) in 1974. The principal objectives of ERISA were to provide statutory law for pension plan requirements, to strengthen the financial soundness of private pension plans, to safeguard employees' pension rights, and to create the Pension Benefit Guaranty Corporation (PBGC).
Prior to ERISA, the Internal Revenue Code was the principal source of law for governing and managing pension plans. Unfortunately, the thrust of the Code emphasizes tax considerations, and the important nontax aspects of pension plans, such as vesting, funding, and employee participation, were not addressed. ERISA filled the void by mandating minimum vesting, funding, employee participation, and other requirements. Virtually every private pension plan in the United States is affected by the provisions of ERISA.
ERISA, as subsequently amended by Congress and interpreted by regulations issued by the Internal Revenue Service (IRS), provides minimum vesting periods for participants. Amounts contributed by employees must, at all times, be 100% vested. Benefits derived from employer contributions must become nonforfeitable when the employee reaches normal retirement age. Normal retirement age is the earlier of the time a participant attains normal retirement age under the plan or the later of: (1) attainment of age sixty‐five, or (2) the fifth anniversary of the individual's participation in the plan.