Likewise, the percentage of private- sector wage and salary workers, aged 25–64 participating in a plan fell  from more than 50 percent in 2000 to 44 percent in 2008. Even though employers created more  than 179,000 new plans from 2003 to 2007, the Department of Labor  estimates a slight increase overall in the total number of plans from about  697,000 to only about 705,000 in the same period (see fig.1). Most of the new plans private employers created were small—about  173,000 new plans had fewer than 100 participants (about 96 percent of  plans) and only about 6,000 plans had 100 participants or more (see fig. 2). Most new DB plans were even smaller than new DC plans. DC Participants with High-Incomes and Other Assets Benefited the Most from Increases in Contribution Limits

		High Earners More Likely to Make DC Contributions above Statutory Limits

Based on the 2007 SCF, about 5 percent of more than 40 million DC  participants contributed at or above the statutory limits for tax deferred  contributions. 4). We estimated that about 72  percent of them had individual earnings at the 90th percentile ($126,000)  or above for all DC participants. Increases in the Limits Have Primarily Benefited High-Income Workers

High-income workers have been the primary beneficiaries of recent  increases in the limits on both individual employee contributions and  combined employer and employee contributions, as well as the  introduction of the catch-up contribution provision. When we compared  2007 contributions to the 2001 limits, we found that an estimated 14  percent of participants in 2007 contributed at or above the 2001 limits and  these participants held an estimated 41 percent of all DC savings in 2007. Modifications to the Saver’s Credit Could Improve Retireme nt Income for Some Low-Income Workers

		Incentives to Help Low Income Workers That Could Be Implemented through the Saver’s Credit

Experts we spoke with cited several options that could further encourage  low-income workers to save for retirement, although each of them would  create additional cost for the federal government. Provide a refundable tax credit. The Long-Term Effects of the Recent Financial Crisis on Retirement Income Security Remain Uncertain and Will Vary Widely Among Individuals

The long-term effects of the recent financial crisis on retirement income  security are uncertain, but research suggests that the effects will vary  widely for individuals based on factors such as age, type of pension plan,  and employment status. For those who have been able to participate in  an employer-sponsored pension plan throughout the financial crisis and  recession, their benefit or accounts at retirement may or may not be  significantly affected. Impact on DB Plans

The effects of the financial crisis and recession are different for DB plan  participants than for DC plan participants, but also pose challenges to  retirement security. Long-term unemployment has increased significantly as  well. The biggest risk DB plan participants face with regard to retirement  income is likely from unemployment. Recent  trends demonstrate that the slow growth in the number of retirement  plans—as new plan formation barely exceeds plan terminations—may  continue to lead to many workers continuing to work at employers that do  not offer a plan and thus remain without access to the associated tax  benefits of employer-sponsored pension plans. For DC plans, a disproportionate share of these tax  incentives accrues to higher income earners. Each provided  technical comments which we incorporated as appropriate. Appendix I: Methodology

To analyze trends in new private pension plan formation in recent years,  we analyzed Form 5500 filings, which the Internal Revenue Service,  Department of Labor (Labor), and the Pension Benefit Guaranty  Corporation require most private tax-qualified pension plan sponsors to  file. To  identify if a new defined benefit (DB) plan sponsor also offered a defined  contribution (DC) plan, we used the plan sponsors’ employer  identification numbers. We also conducted electronic data testing to  assess missing data and other potential problems. To analyze how suggested incentives to increase retirement saving by low- income workers might affect retirement income, we used the Policy  Simulation Group’s (PSG) microsimulation models to run various  simulations of workers saving in DC plans over a career, changing various  inputs to model different scenarios for modifying the Saver’s Credit. In addition, for  this and all of the objectives we reviewed relevant federal laws and  regulations. For annuity recipients in the lowest  earnings quartile, the range was 75–81 percent. Private Pensions: Low Defined Contribution Plan Savings May Pose  Challenges to Retirement Security, Especially for Many Low-Income  Workers.
Why GAO Did This Study

Despite sizeable tax incentives, private pension participation has remained at about 50 percent of the workforce. For those in a pension plan, there is concern that these incentives accrue primarily to higher income employees and do relatively little to help lower income workers save for retirement. The financial crisis and labor-market downturn may have exacerbated these difficulties. Therefore, we examined (1) recent trends in new private pension plan formation, (2) the characteristics of defined contribution plan participants contributing at or above statutory limits, (3) how suggested options to modify an existing credit for low-income workers might affect their retirement income, and (4) the long-term effects of the recent financial crisis on retirement savings. To answer these questions, GAO reviewed reports, federal regulations, and laws, and interviewed academics, agency officials, and other relevant experts. We also analyzed Department of Labor and 2007 Survey of Consumer Finance (SCF) data, and used a microsimulation model to assess effects of modifying tax incentives for low-income workers. We incorporated technical comments from the departments of Labor and Treasury, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation as appropriate.

What GAO Found

Net new plan formation in recent years has been very small, with the total number of single employer private pension plans increasing about 1 percent from about 697,000 in 2003 to 705,000 in 2007. Although employers created almost 180,000 plans over this period, this formation was largely offset by plan terminations or mergers. About 92 percent of newly formed plans were defined contribution (DC) plans, with the rest being defined benefit (DB) plans. New plans were generally small, with about 96 percent having fewer than 100 participants. Regarding the small percentage of new DB plans, professional groups such as doctors, lawyers, and dentists sponsored about 43 percent of new small DB plans, and more than 55 percent of new DB plan sponsors also sponsored DC plans. The low net growth of private retirement plans is a concern in part because workers without employer-sponsored plans do not benefit as fully from tax incentives as workers that have employer-sponsored plans. Furthermore, the benefits of new DB plans disproportionately benefit workers at a few types of professional firms. Most individuals who contributed at or above the 2007 statutory limits for DC contributions tended to have earnings that were at the 90th percentile ($126,000) or above for all DC participants, according to our analysis of the 2007 SCF. Similarly, consistent with findings from our past work, high-income workers have benefited the most from increases in the limits between 2001 and 2007. Finally, we found that men were about three times as likely as women to make so-called catch-up contributions when DC participants age 50 and older were allowed to contribute an extra $5,000 to their plans. We found that several modifications to the Saver's Credit--a tax credit for low-income workers who make contributions to a DC plan--could provide a sizeable increase in retirement income for some low wage workers, although this group is small. For example, under our most generous scenario, Saver's Credit recipients who fell in the lowest earnings quartile experienced a 14 percent increase in annual retirement income from DC savings, on average. The long-term effects of the financial crisis on retirement income are uncertain and will likely vary widely. For those still employed and participating in a plan, the effects are unclear. Data are limited, and while financial markets have recovered much of their losses from 2008, it is not fully known yet how participants will adjust their contributions and asset allocations in response to market volatility in the future. In contrast, although data are again limited, the unemployed, especially the long-term unemployed, may be at risk of experiencing significant declines in retirement income as contributions cease and the probability of drawing down retirement accounts for other needs likely increases. The potential troubling consequences of the financial crisis may be obscuring long standing concerns over the ability of the employer-provided pension system in helping moderate and low-income workers, including those with access to a plan, save enough for retirement.