Question

The Employee Retirement Income Security Act or ERISA requires employees to set up pension plans for their employees

a. true
b. false

Answer 1

The Employee Retirement Income Security Act (ERISA) does not require employees to set up pension plans for their employees. Instead, ERISA sets standards for employers who do choose to offer pension plans.

Step-by-step explanation:

The statement is false. The Employee Retirement Income Security Act (ERISA) does not require employees to set up pension plans for their employees. Instead, ERISA sets standards for employers who do choose to offer pension plans, such as providing minimum vesting requirements, fiduciary responsibilities, and disclosure obligations.

ERISA also mandates that employers who offer pensions pay a small fraction of what they set aside for pensions to the Pension Benefit Guarantee Corporation (PBGC). The PBGC acts as a safety net by paying at least some pension benefits to workers if a company goes bankrupt and cannot fulfill its pension obligations.

Answer 2

The correct answer is option False. The Employee Retirement Income Security Act (ERISA) does not require employers to establish pension plans for their employees; it merely sets standards for those that do. Pension plans are being replaced by defined contribution plans such as 401(k)s, which offer several practical benefits for today's workforce.

Step-by-step explanation:

The question of whether the Employee Retirement Income Security Act (ERISA) requires employers to set up pension plans for their employees can be answered with a simple false. ERISA provides a set of standards for pension plans to ensure that they are managed in the best interests of the employees, but it does not mandate that employers actually offer these plans.

Employers that do provide pension plans must follow certain rules, such as contributing to the Pension Benefit Guarantee Corporation, which safeguards some pension benefits in the event of a company's bankruptcy.

However, it's worth noting that traditional pension plans are becoming less common compared to defined contribution plans like 401(k)s and 403(b)s. Defined contribution plans require an employer to contribute a fixed amount to an employee's retirement account, often matching the employee's contributions. These funds are invested and grow tax-deferred until retirement, and they are portable, meaning they stay with the employee if they change employers. Such plans offer advantages including adapting to inflation, which traditional pensions do not provide.