Final answer:
ERISA mandates disclosure of defined benefit plan information to the PBGC, IRS, DOL, and plan participants, with an aim to bolster pension plan transparency and security for employees. It imposes penalties on firms for underfunding pensions and has led to a shift towards defined contribution retirement plans.
Step-by-step explanation:
The Employee Retirement Income Security Act (ERISA) requires disclosure and reporting of defined benefit plan information to several entities, which include the Pension Benefit Guaranty Corporation (PBGC), plan participants, the Internal Revenue Service (IRS), and the Department of Labor (DOL). Importantly, the PBGC serves as an insurance entity, providing protection to employees by paying at least some pension benefits if a company becomes bankrupt and is unable to fulfill its pension promises. ERISA also penalizes firms for underfunding their pension plans and ensures that employees are better informed about their pension accounts, enhancing transparency and security for their retirement futures.
It's worth noting that traditional pensions, also known as defined benefits plans, are becoming less common, with a shift towards defined contribution plans such as 401(k)s and 403(b)s. Under these plans, both employer and employee contributions are made directly to the employee's retirement account. These contributions are tax-deferred and the plans are portable, offering flexibility and the potential for investment growth that can mitigate the impact of inflation on retirees.