The Economic Growth and Tax Relief Reconciliation Act of 2001 increases all three of these limits beginning in 2002; the scheduled increases are to be fully implemented by 2006. The Majority of Pension Participants Had Low or Moderate Earnings, but More Than Half of Low and Moderate Earners in the Workforce Did Not Participate in a Pension Plan

About 51 million workers, or 47 percent of all workers, participated in a pension plan in 1998. However, higher earners were more likely to participate in pension plans than low and moderate earners. Of workers with household incomes of less than $40,000 per year, 30 percent participated in a pension plan. In 1998, about 53 percent of all workers were men. When we examined the percentages of workers in various earnings categories that were likely to benefit directly from these limit increases, we found that higher earners were more likely than low and moderate earners to benefit directly. About 8 percent of all DC participants, or 3.1 million people, were likely to have benefited directly if all the contribution limits analyzed in this report had been increased. We found that higher earning DC participants were more likely than low- or moderate-earning DC participants to benefit directly from an increase in all three DC plan contribution limits. Survey data suggest that limits on tax-deferred pension contributions may not be among the most important reasons why some small employers do not offer pension plans. “Catch-Up” Provision Was Likely to Benefit Few Participants Directly

Allowing a “catch-up” provision—permitting persons aged 50 or older to make additional contributions to DC plans in excess of the statutory limits we analyzed—would likely have directly benefited 11 percent of all eligible DC participants, or 721,000 participants. Copies will also be made available to others on request. Appendix: Scope and Methodology

We used survey data from the 1998 Survey of Consumer Finances (SCF), sponsored by the Board of Governors of the Federal Reserve System, to estimate the number and percentage of workers that participated in pension plans and the number and percentage of workers that participated in DC plans, by earnings and gender; the earnings and gender distributions of pension plan participants and DC participants; the number and percentage of DC participants who would and would not likely have benefited directly from increasing the three contribution limits, by earnings and gender; the number and percentage of likely direct beneficiaries of increasing each of the contribution limits sequentially, by earnings and gender; and the number and percentage of participants in certain DC plans aged 50 or older who would and would not likely have benefited directly from allowing "catch-up" contributions in excess of the three contribution limits, by earnings and gender.
What GAO Found

Proposals to expand pension coverage and promote pension savings have recently received much attention. In the Economic Growth and Tax Relief Reconciliation Act of 2001, for example, Congress raised statutory limits on tax-deferred pension contributions and benefits and made other changes to the law governing qualified pension plans. Some believe that increasing these limits will encourage employers to start new plans and improve existing plan coverage, especially for employees of small businesses. Others contend that these measures will primarily benefit higher-paid individuals and may not improve pension coverage for low-or moderate-income workers. Forty-seven percent of all workers participated in a pension plan, and 36 percent of all workers participated in a defined contribution (DC) plan. Most pension plan participants had low or moderate earnings (less than $40,000 per year) and were men. About eight percent of all DC participants, or 3.1 million people, were likely direct beneficiaries of a simultaneous increase in all the statutory contribution limits GAO analyzed. Higher earners were more likely than low and moderate earners, and men were more likely than women, to benefit directly from such an increase; this was also true of increases in each of the separate dollar limits on contributions. About 721,000 DC participants, or 11 percent of eligible DC participants, were likely to benefit from a so-called "catch-up" provision allowing persons aged 50 or older to make additional contributions to DC plans. Higher earners were more likely to benefit directly from this option than were low and moderate earners. However, neither male more female DC participants were significantly more likely to benefit directly from this option.