Ability of Reforms to Expand Pension Coverage and Benefits May Be Limited

Traditional reforms to the voluntary, single-employer-based pension system may have limited potential to significantly expand pension coverage and improve benefits for workers who traditionally lack pensions. Reforms aimed at encouraging plan sponsorship have focused on improving tax incentives and reducing the burden of pension regulation on small employers, but the effect of reforms aimed at increasing pension sponsorship and coverage may be offset by other policy actions. As a result, some reformers suggest proposals that move beyond the voluntary, single-employer private pension system. These categories are (1) pooled employer reforms, (2) universal access reforms, and (3) universal participation reforms. Pooled employer reforms focus on increasing the number of firms offering pension coverage through centralized third-party administration. Universal access reforms attempt to increase retirement savings by making payroll retirement saving accounts available to all workers without mandating an employer contribution. Universal participation reforms are intended to ensure coverage and retirement income for all workers by mandating pension availability and participation, similar to the existing Social Security system. To increase the likelihood of worker participation, most proposals call for payroll-based accounts.
What GAO Found

Although pensions are an important source of income for many retirees, millions of workers lack individual pension coverage. Only half of the nation's workers have been covered by private employer-sponsored pensions since the 1970s. Traditional reforms to the voluntary, single-employer-based pension system have limited potential to expand pension coverage and improve worker benefits. These pension reforms have concentrated mainly on improving tax incentives and reducing the regulatory burden on small employers. Furthermore, efforts to increase retirement savings by restricting the use of lump-sum distributions could limit worker participation in and contributions to pension plans. Three categories of reform--pooled employer reforms, universal access reforms, and universal participation reforms--go beyond the voluntary, single-employer private pension system. Pooled employer reforms seek to increase the number of firms offering pension coverage by creating centralized third-party administration and increasing pension plan portability. Universal access reforms seek to boost savings by offering payroll-based accounts, albeit without mandating employer contributions. Universal participation reforms would mandate pension availability and participation for all workers, similar to the existing Social Security system.