	Small Employers Face Challenges Helping Their Workers Save for Retirement

		Complex Rules, Resource Constraints, and Financial Instability Contribute to Low Rates of Plan Sponsorship by Small Employers

As we reported in March 2012, retirement plan sponsorship is low  among small employers, which may reflect the challenges employers face  in establishing and maintaining a plan. Our analysis of available Labor  and IRS data found that about 14 percent of small employers sponsored  some type of plan in 2009. For example, some small employers and  retirement experts said that the broad range of plan types and features  made it difficult for small employers to compare and choose plans. Specifically, some small employer sponsors found the fiduciary  responsibility of selecting investment fund choices for their plans  particularly challenging. In addition to these challenges, smaller or newer firms may be unwilling  or unable to sponsor plans because they lack sufficient financial  resources, time, and personnel. Additionally, some small employers, such as those who described having  a younger workforce, stated that their employees were less concerned  about saving for retirement and, as a result, were not demanding  retirement benefits. In March 2012, we made a recommendation to Labor to convene an  interagency task force with the Department of the Treasury, IRS, SBA,  and other appropriate agencies to review, analyze, and address the  challenges small employers face in helping ensure retirement security. The agencies generally agreed with this recommendation, however,  Labor disagreed with one aspect of our recommendation, which was for  the task force to create a single webportal for federal guidance. We  believe consolidating plan information onto one webportal could benefit  small employers, mainly because federal resources are scattered across  different sites. Participants of Small Employer 401(k) Plans are Likely to Pay Higher Fees

Small employers are more likely to sponsor 401(k) plans and participants  of these plans tend to pay higher fees than larger plans. According to our  analysis of Labor and IRS data, out of slightly more than 712,000 small  employers that sponsored a single type of plan in 2009, about 46 percent  sponsored a 401(k) plan, 40 percent a SIMPLE IRA, and the remaining  employers sponsored other types of plans, including DB and non-401(k)   Experts have identified low contribution rates as a  profit sharing plans.key problem facing workers seeking to secure an adequate retirement  income. Regarding fees, plans with fewer than 100 participants account for the  majority of 401(k) plans, and these plans usually pay higher fees. In April 2012, we reported that participants in smaller plans typically pay  higher fees than participants in larger plans. Little Information Available About Current MEPs and Their Potential to Increase Small Business Sponsorship

As we reported in September 2012, little is known about the employers  that participate in MEPs, or even the number of MEPs by type, in part  because the federal government no longer collects these data. MEPs have been suggested by PEO and open MEP representatives as a  viable way for small employers to reduce their administrative  responsibility for their pension plans. A small employer sponsoring a single employer  plan can also contract with a service provider to perform administrative  functions, but a couple of interviewees said employers not already  offering plans might find it easier and faster to join a MEP than to create  their own single employer plan. However, it is not clear how much relief from fiduciary  liability a MEP can provide to participating employers, and it is not clear  that such relief is unique to MEPs. Overall, no consensus existed among MEP representatives and pension  experts on the potential for MEPs to substantially expand coverage. To ensure Labor has information needed to  oversee MEPs, in September 2012, we recommended that Labor gather  additional information about the employers participating in MEPs,  potentially through the Form 5500, which is the primary source of pension  plan information for government oversight activities.
Why GAO Did This Study

About 42 million workers, or about onethird of all private-sector employees, work for employers with fewer than 100 employees, and recent federal data suggest many of these workers lack access to work-based retirement benefits. Despite efforts by the federal government to develop new plan designs and to increase tax incentives, plan sponsorship remains low among small employers. MEPs, a type of arrangement involving more than one employer, have been suggested as a potential way to increase coverage.
This testimony describes (1) the challenges small employers face in helping ensure that their workers secure retirement income, and (2) types of MEPs and their potential to address these challenges. GAO drew from its previous reports related to small employer challenges in establishing and maintaining a retirement plan and recent work on MEPs issued from March 2012 through September 2012.

What GAO Found

About 14 percent of small employers sponsor some type of plan for their employees to save for retirement and these employers in general can face numerous challenges establishing and maintaining a plan. GAO's March 2012 report found that many of the small employers who were contacted said they felt overwhelmed by the number of plan options, plan administration requirements, and fiduciary responsibilities. For example, some small employers found it challenging to select investment funds for their plans. Small employers also cited other challenges in sponsoring a plan, including a lack of financial resources, time, and personnel. GAO's April 2012 review of select 401(k) plans--the most common type of plan sponsored by small employers--found that some smaller plan sponsors did not know about or fully understand fees they and their participants were charged, such as fees associated with group annuity contracts. In addition to these fees, participants in small plans often pay higher recordkeeping and investment management fees than participants in larger plans. GAO's work demonstrates the need for plan sponsors, particularly small sponsors, to understand fees in order to help participants secure adequate retirement savings. Any fees paid by participants, even a seemingly small amount, can significantly reduce retirement savings over time.
Little is known about the types of employers that participate in multiple employer plans (MEP), particularly because, since 2004, no publically available information has been collected on such employers. MEP representatives have suggested MEPs as a viable way for small employers to reduce the administrative and fiduciary responsibilities that come with sponsoring a pension plan, and for reducing costs, in part through asset pooling. However, GAO found that these advantages are not always unique to MEPs. There was also no consensus on the potential for MEPs to increase plan coverage. During GAO's September 2012 study the Department of Labor (Labor) ruled that some MEPs made up of otherwise unrelated employers did not constitute a single pension plan but an arrangement under which each employer sponsored a separate plan for its own employees. Because this raises significant policy and compliance questions and data are limited, it is important that Labor gather information on participating employers to inform policy and oversight activities on retirement security for employees of small businesses.

What GAO Recommends

GAO is not making any new recommendations. GAO made several recommendations in prior reports to Labor and the Internal Revenue Service (IRS) to address challenges facing small employers and to improve oversight and coordination for MEPs. The agencies generally agreed with GAO's recommendations. However, Labor disagreed with a recommendation to create a single webportal for federal guidance. GAO believes consolidating information could benefit small employers, mainly because resources are scattered.