Private sector pension plans are classified  either as defined benefit (DB) or as defined contribution (DC) plans. The second role was to  give retiring workers or individuals changing jobs a way to preserve assets  in employer-sponsored retirement plans by allowing them to roll over or  transfer plan balances into IRAs. We also found that IRA  ownership is associated with higher education and higher income levels. As shown in figure 1, in 2004, IRA assets totaled about  $3.5 trillion compared to DC assets of $2.6 trillion and DB assets of $1.9  trillion. Most assets flowing into IRAs come from the transfer of retirement assets  between IRAs or from other retirement plans, including 401(k) plans, not  from contributions. Similar Percentages of Households Own IRAs and Participate in 401(k) Plans, but IRA Contributions Are Lower Than Contributions to 401(k) Plans

The percentage of households that own IRAs is similar to the percentage  that own 401(k)s, but IRA contributions are less than 401(k) contributions. 401(k) plans are sponsored by  employers, whereas most households with IRAs own traditional IRAs  established outside of the workplace. Although  employer-sponsored IRAs were designed with fewer reporting  requirements to encourage small employers to offer them, few employers  appear to do so. Several barriers, including costs,  may discourage employers from offering them; however, information is  lacking on the actual costs to employers. Barriers May Discourage Small Employers from Offering IRAs to Employees, and Many of These Employees Lack Access to Workplace Retirement Savings

Employees of small firms are more likely to lack access to a retirement  plan at work than employees of larger firms, and several barriers may limit  small employers from offering payroll-deduction programs and employer- sponsored IRAs to their employees. Although IRAs have been largely  successful at helping individuals preserve their retirement savings through  rollovers, experts told us that IRA participation falls short of Congress’  first goal for creating IRAs—to provide a tax-preferred account for  workers without employer-sponsored retirement plans to save for their  retirement. However, other experts reported that costs to employers may be  significant. Flexibility to Promote Payroll-Deduction IRAs. IRS is responsible for tax  rules on establishing and maintaining IRAs, while Labor is responsible for  oversight of fiduciary standards for employer-sponsored IRAs. Labor does not have  processes in place to identify all employers offering IRAs, numbers of  employees participating, and employers not in compliance with the law. Obtaining information about employer-sponsored and payroll-deduction  IRAs is also important to determine whether these vehicles help workers  without pensions and 401(k) plans build retirement savings. Although IRS  publishes some IRA data, IRS has not consistently produced IRA reports. Consequently, Labor does not have  information on employer-sponsored IRAs. Labor Has No Process in Place to Monitor Employer-Sponsored and Payroll-Deduction IRAs

Given the limited reporting requirements for employer-sponsored IRAs  and the absence of requirements for payroll-deduction IRAs, as well as  Labor’s role in overseeing these IRAs, a minimum level of oversight is  important to ensure that employers are acting in accordance with the law. Since IRS is the only agency that has data on  all IRA participants, consistent reporting of these data could give  policymakers and others a comprehensive look at the IRA landscape. To increase retirement plan coverage for the millions of workers not  covered by an employer-sponsored pension plan and the possibility  that payroll-deduction IRAs can help bridge the coverage gap, examine  ways to better encourage employers to offer and employees to  participate in these IRAs that could include:    examining and determining the financial and administrative costs to  employers for establishing payroll-deduction IRA programs, especially  for those employers that do not have an automatic payroll system in  place;   developing policy options to help employers defray the costs  associated with establishing payroll-deduction IRA programs, while  taking into consideration the potential costs to taxpayers and small  employers; and   evaluating whether modifications or clarifications to its guidance on  payroll-deduction IRAs are needed to encourage employers to establish  payroll-deduction IRA programs. 2. To improve the federal government’s ability to better assess ways to  improve retirement plan coverage for workers who do not have access  to an employer-sponsored retirement plan, and to provide Congress,  federal agencies, and the public with more usable and relevant  information on all IRAs, evaluate ways to collect additional  information on employer-sponsored and payroll-deduction IRAs, such  as adding questions to the Bureau of Labor Statistics National  Compensation Survey that provide:  information sufficient to identify employers that offer payroll- deduction and employer-sponsored IRAs and the distribution by employer of the number of employees that  contribute to payroll-deduction and employer-sponsored IRAs. Appendix I: Objectives, Scope, and Methodology

During our review, our objectives were to (1) compare individual  retirement account (IRA) assets to assets in pension plans, (2) describe  the barriers that may discourage small employers from offering employer- sponsored and payroll-deduction IRAs to their employees, and (3)  describe how the Internal Revenue Service (IRS) and the Department of  Labor (Labor) oversee IRAs and assess the adequacy of oversight and  information of employer-sponsored and payroll-deduction IRAs.
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. However, questions remain about IRAs' effectiveness in facilitating new, or additional, retirement savings. GAO was asked to report on (1) how IRA assets compare to assets in other retirement plans, (2) what barriers may discourage small employers from offering IRAs to employees, and (3) the adequacy of the Internal Revenue Service's (IRS) and the Department of Labor's (Labor) oversight of and information on IRAs. GAO reviewed reports from government and financial industry sources and interviewed experts and federal agency officials.

What GAO Found

Individual retirement accounts, or IRAs, hold more assets than any other type of retirement vehicle. In 2004, IRAs held about $3.5 trillion in assets compared to $2.6 trillion in defined contribution (DC) plans, including 401(k) plans, and $1.9 trillion in defined benefit (DB), or pension plans. Similar percentages of households own IRAs and participate in 401(k) plans, and IRA ownership is associated with higher educational and income levels. Congress created IRAs to provide a way for individuals without employer plans to save for retirement, and to give retiring workers or those changing jobs a way to preserve retirement assets by rolling over, or transferring, plan balances into IRAs. Rollovers into IRAs significantly outpace IRA contributions and account for most assets flowing into IRAs. Given the total assets held in IRAs, they may appear to be comparable to 401(k) plans. However, 401(k) plans are employer-sponsored while most households with IRAs own traditional IRAs established outside the workplace. Several barriers may discourage employers from establishing employer-sponsored IRAs and offering payroll-deduction IRAs to their employees. Although employer-sponsored IRAs were designed with fewer reporting requirements to encourage participation by small employers and payroll-deduction IRAs have none, millions of employees of small firms lack access to a workplace retirement plan. Retirement and savings experts and others told GAO that barriers discouraging employers from offering these IRAs include costs that small businesses may incur for managing IRA plans, a lack of flexibility for employers seeking to promote payroll-deduction IRAs to their employees, and certain contribution requirements of some IRAs. Information is lacking, however, on what the actual costs to employers may be for providing payroll-deduction IRAs and questions remain on the effect that expanded access to these IRAs may have on employees. Experts noted that several proposals exist to encourage employers to offer and employees to participate in employer-sponsored and payroll-deduction IRAs, however limited government actions have been taken. The Internal Revenue Service and Labor share oversight for all types of IRAs, but gaps exist within Labor's area of responsibility. IRS is responsible for tax rules on establishing and maintaining IRAs, while Labor is responsible for oversight of fiduciary standards for employer-sponsored IRAs and provides certain guidance on payroll-deduction IRAs, although Labor does not have jurisdiction. Oversight ensures the interests of the employee participants are protected, that their retirement savings are properly handled, and any applicable guidance and laws are being followed. Because there are very limited reporting requirements for employer-sponsored IRAs and none for payroll-deduction IRAs, Labor does not have processes in place to identify all employers offering IRAs, numbers of employees participating, and employers not in compliance with the law. Obtaining information about employer-sponsored and payroll-deduction IRAs is also important to determine whether these vehicles help workers without DC or DB plans build retirement savings. Although IRS collects and publishes some data on IRAs, IRS has not consistently produced reports on IRAs nor shared such information with other agencies, such as Labor. Labor's Bureau of Labor Statistics National Compensation Survey surveys employer-sponsored benefit plans but collects limited information on employer-sponsored IRAs and no information on payroll-deduction IRAs. Since IRS is the only agency that has data on all IRA participants, consistent reporting of these data could give Labor and others valuable information on IRAs.