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IWS Documented News Service
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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Government Accountability Office (GAO)

Private Pensions:  Some Key Features Lead to an Uneven Distribution of Benefits.  GAO-11-333, March 30. [online 29 April 2011]

http://www.gao.gov/products/GAO-11-333

or

http://www.gao.gov/new.items/d11333.pdf

[full-text, 68 pages]

and

Highlights -

http://www.gao.gov/highlights/d11333high.pdf

What GAO Found:

Net new plan formation in recent years has been very small, with the total number of single employer private pension plans increasing about 1 percent from about 697,000 in 2003 to 705,000 in 2007. Although employers created almost 180,000 plans over this period, this formation was largely offset by plan terminations or mergers. About 92 percent of newly formed plans were defined contribution (DC) plans, with the rest being defined benefit (DB) plans. New plans were generally small, with about 96 percent having fewer than 100 participants. Regarding the small percentage of new DB plans, professional groups such as doctors, lawyers, and dentists sponsored about 43 percent of new small DB plans, and more than 55 percent of new DB plan sponsors also sponsored DC plans. The low net growth of private retirement plans is a concern in part because workers without employer-sponsored plans do not benefit as fully from tax incentives as workers that have employer-sponsored plans. Furthermore, the benefits of new DB plans disproportionately benefit workers at a few types of professional firms.

Most individuals who contributed at or above the 2007 statutory limits for DC contributions tended to have earnings that were at the 90th percentile ($126,000) or above for all DC participants, according to our analysis of the 2007 SCF. Similarly, consistent with findings from our past work, high-income workers have benefited the most from increases in the limits between 2001 and 2007. Finally, we found that men were about three times as likely as women to make so-called catch-up contributions when DC participants age 50 and older were allowed to contribute an extra $5,000 to their plans.

We found that several modifications to the Saver’s Credit—a tax credit for low-income workers who make contributions to a DC plan—could provide a sizeable increase in retirement income for some low wage workers, although this group is small. For example, under our most generous scenario, Saver’s Credit recipients who fell in the lowest earnings quartile experienced a 14 percent increase in annual retirement income from DC savings, on average.

The long-term effects of the financial crisis on retirement income are uncertain and will likely vary widely. For those still employed and participating in a plan, the effects are unclear. Data are limited, and while financial markets have recovered much of their losses from 2008, it is not fully known yet how participants will adjust their contributions and asset allocations in response to market volatility in the future. In contrast, although data are again limited, the unemployed, especially the long-term unemployed, may be at risk of experiencing significant declines in retirement income as contributions cease and the probability of drawing down retirement accounts for other needs likely increases. The potential troubling consequences of the financial crisis may be obscuring long standing concerns over the ability of the employer-provided pension system in helping moderate and low-income workers, including those with access to a plan, save enough for retirement.

CONTENTS

Letter 1

Background 4

Total Number of Tax-Qualified Plans Remains Relatively Unchanged as Plan Terminations Largely Offset New, Mostly Small Plan Formation 10

DC Participants with High-Incomes and Other Assets Benefited the Most from Increases in Contribution Limits 17

Modifications to the Saver’s Credit Could Improve Retirement Income for Some Low-Income Workers 26

The Long-Term Effects of the Recent Financial Crisis on Retirement Income Security Remain Uncertain and Will Vary Widely Among Individuals 34

Concluding Observations 41

Agency Comments 42

Appendix I Methodology 44

Appendix II GAO Contact and Staff Acknowledgments 61

Related GAO Products 62

Tables

Table 1: Select Statutory Limits for Defined Contribution Plans, 2001, 2007, and 2011 5

Table 2: Saver’s Credit Rates and AGI limits in 2010 by Tax Filing Status 8

Table 3: Estimated Mean Value of Household Assets by Contribution Levels 21

Table 4: Median Account Balances for DC Participants by Whether Their 2007 Contributions were below, and at or above the Statutory Limits We Analyzed 25

Table 5: Projected Mean DC Annuity Payments for Saver’s Credit Recipients under Different Scenarios, by Earnings Quartiles 31

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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 262-6041               
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  
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