Final answer:
The Employee Retirement Income Security Act (ERISA) of 1974 establishes minimum standards for private-sector pension and health plans. ERISA includes provisions for pension insurance and has been complemented by the shift from traditional pensions to defined contribution plans like 401(k)s. These changes serve to protect American workers' retirement income.
Step-by-step explanation:
The Act which establishes minimum standards for the operation of voluntarily established private-sector pension and health plans is the Employee Retirement Income Security Act of 1974. This act, also known as ERISA, ensures that employees are protected by setting minimum standards for pension plans in private industry. The Social Security Act provided a federal law creating old-age pensions financed through taxes paid by employers and employees, but ERISA focuses specifically on the private sector, including provisions for pension insurance. Under ERISA, pension plans must provide certain information to participants and are required to establish a funding mechanism to ensure benefits are paid. The Pension Benefit Guarantee Corporation plays a role by covering at least some pension benefits if an employer cannot fulfill their promised benefits due to bankruptcy.
Although originally pensions were the main form of retirement savings, changes over time have seen the emergence of defined contribution plans such as 401(k)s and 403(b)s. These plans allow for both employer and employee contributions, with the funds invested and tax-deferred. These plans are also portable, providing flexibility for employees as they change jobs throughout their career.
The establishment of ERISA, alongside the evolution of retirement plans, has reinforced the economic protections American workers have as they approach and enter retirement.