Congress created  IRAs, in part, to help those individuals not covered by a DB or DC plan  save for retirement. IRAs Are Primarily Used to Preserve Savings through Rollovers

Most assets flowing into IRAs come not from direct contributions, but  from transfers, or rollovers, of retirement assets from other retirement  plans, including 401(k) plans. These rollovers allow individuals to preserve  their retirement savings when they change jobs or retire. This, again, may be partly  attributed to the emerging role of traditional IRAs as a means to preserve  rollover assets rather than build retirement savings. Payroll-deduction IRA programs could provide a retirement savings  opportunity at work for the millions of workers without an employer- sponsored retirement plan. In theory, all workers under age 70½ who lack  an employer-sponsored retirement plan could be eligible to contribute to a  traditional IRA through payroll deduction, should their employer offer  such a program. As we previously reported, we found that several factors may discourage  employers from establishing employer-sponsored SIMPLE and SEP IRAs. We also found that several barriers may discourage small employers even  from offering payroll-deduction IRAs, including: (1) costs to employers for  managing payroll deductions, (2) a perceived lack of flexibility to promote  payroll-deduction IRAs to employees, (3) lack of incentives to employers,  and (4) lack of awareness about how these IRAs work. Several retirement and savings  experts said additional incentives should be in place to increase employer  sponsorship of IRAs. Employee incentives to participate in IRAs. As a  result of our findings, we made recommendations to Labor and IRS to  improve IRA information and oversight and suggested that Congress may  wish to consider whether payroll-deduction IRAs should have some direct  oversight. Consequently, Labor does not receive important information on employers  who have established employer-sponsored IRAs, over which it has  oversight responsibilities. Ensuring that regulators obtain information about employer-sponsored  and payroll-deduction IRAs is one way to help them and others determine  the status of these IRAs and whether those individuals who lack employer- sponsored pension plans are able to build retirement savings through  employer-sponsored and payroll-deduction IRAs. Experts that we interviewed said that, without such  information, they are unable to determine how many employers and  employees participate in payroll-deduction IRAs and the extent to which  these IRAs have contributed to the retirement savings of participants. They also  offer employers less burdensome reporting and legal responsibilities than  defined benefit pension plans and defined contribution plans, such as  401(k) plans. Although the limited reporting requirements for employer-sponsored IRAs  and the absence of reporting requirements for payroll-deduction IRAs  were meant to encourage small employers to offer retirement savings  vehicles to employees, there is also a need for agencies that are  responsible for overseeing retirement savings vehicles to have the  information necessary to do so.
Why GAO Did This Study

Congress created individual retirement accounts (IRAs) with two goals: (1) to provide a retirement savings vehicle for workers without employer-sponsored retirement plans, and (2) to preserve individuals' savings in employer-sponsored retirement plans when they change jobs or retire. Questions remain about IRAs' effectiveness as a vehicle to facilitate new, or additional, retirement savings. GAO was asked to report on (1) the role of IRAs in retirement savings, (2) the prevalence of employer-sponsored and payroll-deduction IRAs and barriers discouraging employers from offering these IRAs, and (3) changes that are needed to improve IRA information and oversight. GAO reviewed published reports from government and financial industry sources and interviewed retirement and savings experts, small business representatives, IRA providers, and federal agency officials.

What GAO Found

Although Congress created IRAs to allow individuals to build and preserve their retirement savings, IRAs are primarily used to preserve savings through rollovers rather than build savings through contributions. Over 80 percent of assets that flow into IRAs come from assets rolled over, or transferred, from other accounts and not from direct contributions. Assets in IRAs now exceed assets in the most common employer-sponsored retirement plans: defined contribution plans, including 401(k) plans, and defined benefit, or pension plans. Payroll-deduction IRA programs, which allow employees to contribute to IRAs through deductions from their paychecks, and employer-sponsored IRAs, in which an employer establishes and contributes to IRAs for employees, were established to provide more options for retirement savings in the workplace. Experts GAO interviewed said that several factors may discourage employers from offering these IRAs to employees, including administrative costs and concerns about employer fiduciary responsibilities. Information is lacking on how many employers offer employer-sponsored and payroll-deduction IRAs and the actual costs to employers for administering payroll-deduction IRAs. Earlier this month, GAO reported on the role that federal agencies can have in helping employers provide IRAs to employees and in improving oversight of these savings vehicles. GAO made several recommendations to the Department of Labor (Labor) and the Internal Revenue Service to provide better information and oversight, but in the course of the review, GAO found that Labor does not have jurisdiction over payroll-deduction IRAs. Consequently, GAO also suggested that Congress may wish to consider whether payroll-deduction IRAs should have some direct oversight. A clear oversight structure could be critical if payroll-deduction IRAs become a more important means to provide a retirement savings vehicle for workers who lack an employer-sponsored retirement plan.