By Guest Contributor: Yolanda Santirosa
The earliest pension plan, established in 1875 was the American Express plan. Benefits under this plan were 50% of the average pay earned in the final 10 years of a participants employment and could not exceed $500 dollars annually. The second plan was established five years later by the Baltimore and Ohio Railroad in 1880. During the next 50 years roughly 400 retirement plans were established. The railroad, banking and public utility industries instituted the early employee retirement plans. During this same time frame the manufacturing industry was still relatively new and therefore they were slow to develop employee retirement plans since they were not faced with employee retirement problems. The first group annuity contract, which is a contract designed to meet retirement goals between an individual and an insurance company, was issued in 1921 by the Metropolitan Insurance Company. Also, in 1924 the Equitable Life Assurance Society of the United States became the second company to offer group annuities.
Even though pension plans came about in the 1800’s there was no significant growth in pension plans until the creation of the Wage Stabilization Act of 1942. During World War II as part of a general price control effort, the Wage Stabilization Program denied employers competing for labor the ability to offer higher wages as an incentive to attract and retain employees. Additionally, union leaders found that the wage control hindered their efforts to persuade employees to join unions and created difficulties for the union leaders to validate the advantage of belonging to a union to their membership. Under the Wage Stabilization Act the War Labor Board permitted the establishment of fringe benefits programs that included pensions thus beginning the practice of employer-sponsored health and pension plans. Finally, in 1948 the National Labor Relations Board (NLRB) ruled that employers had a legal obligation to bargain over the terms of pension plans.
Allen, E. T., Melone, J. J, Rosenbloom, J.S, & Mahoney, D. F. (2008). Retirement plans 401(k)s, IRAs, and other deferred compensation approaches. (10th.). New York, NY: McGraw-Hill/Irwin.