Savings Incentive Match Plans for Employees  (SIMPLE) IRA plans require employers to either match their eligible  employees’ voluntary salary reductions (typically up to 3 percent of  compensation) or to contribute 2 percent of compensation for each  eligible employee. For example, EGTRRA  eliminated top-heavy testing requirements for safe harbor 401(k)s,  increased contribution limits for employer-sponsored IRA plans and  401(k) plans, and created a tax credit for small employers to offset startup  costs, including the cost of educating employees about a new plan. Some providers also include payroll services,  which further centralize an employer’s administrative services through a  single company. Further, the regression analysis using Labor and IRS data found  that small employers with larger numbers of employees were the most  likely of all small employers to sponsor a retirement plan, as were those  paying average annual wages of $50,000 to $99,999. A separate GAO analysis using Labor and IRS data found an overall  small employer sponsorship rate of 14 percent in 2009.sponsorship rate does not include small employers that sponsor SEP IRA  plans because IRS currently does not have a means to collect these data,  which limits what is known about small employers that sponsor SEP   However, the  plans. identified various plan options,  Plan options and administration requirements: Small employers and  other stakeholders said that plan options and administration requirements  are frequently complex and burdensome and discourage some small  employers from sponsoring a plan. For example, some small employers  and retirement experts said that the number of plan types and features  make it difficult for small employers to compare and choose plans. Some small employer sponsors found the selection of investment fund options for their plans particularly challenging. Federal Guidance Is Available to Address the Complexities Associated with Plan Sponsorship but May Lack Visibility among Small Employers

Federal agencies provide guidance that can assist small employers in  addressing some of the challenges of starting and maintaining retirement  plans. However, a number of stakeholders suggested that many small  employers are unaware of federal resources on retirement plans. For example, a number of small  employers stated that employees prioritized health care benefits over  retirement benefits. Proposed Options to Spur Plan Sponsorship Target Simplification, Incentives, and Education

		Stakeholders Proposed Simplifying Requirements and Increasing Tax Credits to Encourage Plan Sponsorship

Stakeholders provided several suggestions targeted at addressing some  of the administrative and financial challenges they believed inhibited plan   These proposals, which they said could reduce complexity  sponsorship.and ease administrative and financial burdens for small employer plan  sponsors, included simplifying plan administration rules, revising or  eliminating top-heavy testing, and increasing tax credits. Stakeholders Said More Education and Outreach Are Needed to Increase Awareness of Plan Options and Requirements

Numerous stakeholders agreed that the federal government could  conduct more education and outreach to inform small employers about  plan options and requirements; however, opinions varied on the  appropriate role for the federal government in this area. Retirement systems in other countries also use asset pooling and other  features that reduce administrative and financial burdens for small  employers and could spur plan sponsorship. However,  much of the information is scattered among a variety of websites and  portals in a largely uncoordinated fashion. Recommendations for Executive Action

		Department of Labor

To address the need to strengthen the retirement security of employees  at small businesses and to build on interagency data-sharing agreements  already in place, we recommend that the Secretary of Labor convene an  interagency task force with representatives from Treasury, IRS, and SBA,  and other agencies deemed appropriate, to review, analyze, and address  the challenges facing small business retirement security in the United  States. Specifically, this body should focus on, but  not be limited to, the following goals:
Conduct plan research on the characteristics associated with small  businesses that are more or less likely to sponsor a retirement plan  (including employer-sponsored IRA plans) to support agencies’  education and outreach efforts to small employers and provide  Congress and the public with information about plan coverage among  them. Agencies generally agreed with our  recommendations. However, Labor disagreed with our recommendation to create a unified  web portal to centralize retirement plan information for small employers,  expressing concerns about its necessity. Data Sources and Development of the Analytic Data Set

To perform this work, we combined and analyzed 2009 data from the  Department of Labor’s (Labor) Form 5500 database, the Internal  Revenue Service’s (IRS) Information Returns Processing (IRP) database,  and the IRS Compliance Data Warehouse database (CDW) to obtain  information on what would make a small employer more or less likely to  sponsor a retirement plan, descriptive statistics on small employer  retirement plan sponsors and nonsponsors, and descriptive statistics on  the types of retirement plans sponsored by small employers. Data Analysis of Small Employer Plan Sponsorship

We developed bivariate and multivariate regression models to estimate  the likelihood that a small employer would sponsor a retirement plan  using the following small employer characteristics: the number of  employees, the annual average wage of the employees, the industry  using the 2007 North American Industry Classification System (NAICS)  with a depth of two digits, and the region in which the small employer  resided as defined by the Census Bureau.
Why GAO Did This Study

Because about one-third of privatesector employees in the United States work for small employers, Congress and federal agencies have made efforts to encourage small employers to sponsor retirement plans for workers. However, federal data show workers access to plans remains limited, leaving many without a work-based plan to save for retirement. For this report, GAO examined (1) characteristics of small employers that are more or less likely to sponsor a plan for their employees, (2) challenges small employers face in establishing and maintaining a plan for their employees, and (3) options to address these challenges and attract more small employer plan sponsors. GAO defined small employers as forprofit firms that employ 100 or fewer employees. GAO analyzed Internal Revenue Service (IRS) and Department of Labor (Labor) data, interviewed agency officials and experts, held discussion groups with small employers, and reviewed relevant federal rules, literature, and retirement plan proposals.

What GAO Found

Based on available data, about 14 percent of small employers sponsor some type of retirement plan. Overall, GAO found that the likelihood that a small employer will sponsor a retirement plan largely depends on the size of the employers workforce and the workers average wages more than on the industry in which the employer operates and the geographic region in which the employer is located. GAO found the greatest likelihood of plan sponsorship was among small employers with larger numbers of employees and those paying an average annual wage of $50,000 to $99,999. GAO also found that the most common plans sponsored by small employers are 401(k)s and Savings Incentive Match Plans for Employees (SIMPLE) Individual Retirement Arrangements (IRA)an employer-sponsored IRA designed for small employersat 46 percent and 40 percent, respectively, of total plans. However, IRS currently does not have the means to collect information on employers that sponsor another type of IRA plan designed for small employers, the Simplified Employee Pension (SEP) IRA plan, which limits what is known about employers that sponsor these plans.
Small employers and retirement experts identified several challenges to starting and maintaining retirement plans. Many small employers said they feel overwhelmed by the number of retirement plan options, administration requirements, and fiduciary responsibilities. For example, many are concerned about the potential risks associated with sponsoring a plan. Although federal agencies conduct education and outreach on retirement plans, a number of small employers and other stakeholders said small employers were unaware of these initiatives. For example, Labor, IRS, and the Small Business Administration (SBA) collaborate to develop and disseminate information and guidance online but do so through separate websites and in a largely uncoordinated fashion. Small employers and other stakeholders also cited other challenges to plan sponsorship, including a lack of financial resources, time, and personnel. However, some small employers said their employees prioritized health benefits over retirement benefits. To address some of the challenges to plan sponsorship, some small employers said they use contracted service providers that perform plan administration tasks.
Small employers and other stakeholders offered options for addressing some challenges and reducing the complexity of plan sponsorship for small employers. Options included simplification of federal requirements for plan administration, such as easing or eliminating certain plan testing requirements. Some stakeholders said increasing the tax credit for plan startup costs could further defray costs and help boost plan sponsorship. Some stakeholders also said that the federal government could conduct more education and outreach efforts to inform small employers about plans. Pension reform proposals in the United States, along with certain features of pension systems in other countries, may provide additional options that could increase plan sponsorship and increase workers access to retirement plans. For example, asset pooling is a feature that allows small employers to pool resources for economies of scale, which can lower plan costs. In light of the variety of options, Labor, the Department of the Treasury, IRS, and SBA should jointly evaluate existing options and develop new proposals with the goal of mitigating barriers to small employer plan sponsorship.

What GAO Recommends

GAO recommends that Labor convene an interagency task force with Treasury, IRS, and SBA to coordinate existing research, education, and outreach efforts to foster small employer plan sponsorship. GAO also recommends that IRS consider modifying tax forms to gather complete, reliable information about SEP IRAs. Agencies generally agreed with GAOs recommendations; however, Labor disagreed with GAOs recommendation to create a single webportal for federal guidance. However, because federal resources are scattered across different sites, GAO believes consolidating plan information onto one webportal could benefit small employers.