Further, there are tax incentives for  contributions to IRAs. Eligibility is based on a  worker’s adjusted gross income (AGI) and contributions made to qualified  pension plans and IRAs. Additionally, the President’s budgets for fiscal years 2010  Under the 2012 automatic IRA legislative proposal, certain employers  who do not maintain a qualified pension plan would be required to make  available an automatic IRA arrangement to eligible employees. Based on our analysis of the SCF data, we estimate that in 2010  approximately 43 percent of households working in the private sector did   We also estimate that the median AGI of all  not have a DC plan or IRA.households that did not have a DC plan or IRA was $32,000, compared to  $75,000 for those that did—a difference of about 43 percent. In addition, households without DC plans or IRAs have lower median  marginal tax rates than households with DC plans or IRAs. Only 15 percent of married  households and 11 percent of single households without a DC plan or  IRA had a DB plan. For  example, an estimated 5 percent of married households in the first  earnings quartile had a DB plan, compared to an estimated 27 percent  and 31 percent of married households in the third and fourth earnings   The shift away from DB plans and the limited  quartiles, respectively.number of households that have them highlights the importance of other  retirement savings vehicles such as DC plans or IRAs. Our evidence suggests that in addition to some  households not having a DC plan or IRA, these households also may  have limited additional assets to draw upon in their retirement years. For the purposes of this report, household  retirement annuities include all annual retirement income received from  DC or DB plans and represent income that the household receives in  retirement. For both  Saver’s Credit scenarios, low- and middle-earning households could   For households in the lowest  receive the largest benefit from the credit.earnings quartile, we projected that the median increase in annuity under  the existing Saver’s Credit would be $155 per year, while the median  increase in annuity under a refundable credit would be $876 per year. Automatic IRAs Could Increase Retirement Income for Households at All Earnings Levels

		Automatic IRAs Could Increase the Number of Lower-Earning Households with Retirement Savings and Modestly Increase Retirement Income

Automatic IRAs provide a new opportunity to increase the number of  households saving for retirement at all earnings levels. We project that 7  percent of all households had no retirement annuities from DB or DC  plans but could receive annuity income from automatic IRAs. Specifically, we projected that the median dollar  increase in a household’s annuity was $1,046 (see fig. Retirement annuities could increase if the household  participated in automatic IRAs, was eligible to receive the refundable  Saver’s Credit but not the existing Saver’s Credit, received a larger credit  under the refundable Saver’s Credit, or some combination of these  events. Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Labor and the  Department of the Treasury for review and comment. Appendix I: Objectives, Scope, and Methodology

To analyze the extent to which workers with lower earnings can benefit  from tax incentives for retirement savings and automatic IRAs, we  examined (1) the earnings and tax rates of households that do not have  DC plans or IRAs, (2) the effects of the Saver’s Credit on retirement  income, and (3) how automatic IRAs could affect retirement income,  especially for low- and middle-income workers. Section 2: Analysis of Incomes and Tax Rates of Households That Do Not Take Advantage of Incentives to Save for Retirement

		Methodology

To analyze the earnings and tax rates of households that do not take  advantage of the tax incentives for retirement saving, we used the 2010  SCF. Workers could be covered by DB plans. Existing Saver’s Credit.
Why GAO Did This Study

Participants in DC plans and IRAs may receive tax incentives for their contributions and lower-earning households may qualify for the Saver's Credit, an additional tax incentive for their contributions. However, less than half of the workforce participates in an employer-sponsored plan and upper-income workers have been more likely to take advantage of associated tax incentives. In recent years, proposals have been put forth to modify the Saver's Credit and create automatic IRAs, under which employers who do not sponsor a plan would generally be required to offer their employees the opportunity to save in an IRA through payroll deduction. These proposals would have fiscal impacts for the federal government.
GAO was asked to review tax incentives for contributions to DC plans and automatic IRAs. GAO examined (1) the earnings and tax rates of households that do not have DC plans or IRAs, (2) the effects of the Saver's Credit on retirement income, and (3) the effects of automatic IRAs on retirement income, especially for low- and middle-income workers. GAO examined the characteristics of households that do not take advantage of these tax incentives using data from the 2010 Survey of Consumer Finances, simulated the effects of the Saver's Credit and automatic IRAs, and reviewed related proposals.
GAO is making no recommendations. GAO received technical comments on a draft of this report from the Department of Labor and the Department of the Treasury, and incorporated them as appropriate.

What GAO Found

Households without employer-sponsored defined contribution (DC) pension plans or individual retirement accounts (IRA) had lower incomes and tax rates than households with those plans, and are also likely to have limited additional resources to draw upon in retirement, according to GAO estimates. The median adjusted gross income for households without DC plans or IRAs was $32,000, compared to $75,000 for those that did have them. The median marginal tax rate for households without DC plans or IRAs was 15 percent, compared to 25 percent for households with those savings vehicles. A defined benefit (DB) pension plan could provide a monthly benefit during retirement years for those without a DC plan or IRA; however, in 2010 only 15 percent of married households and 11 percent of single households without a DC plan or IRA had a DB plan.
The existing Saver's Credit tax incentive could result in small increases in a household's retirement annuity--that is, the household's annual retirement income received from DC or DB plans. GAO estimates that, on account of this credit, the median annuity increase for households in the lowest earnings quartile ($929-34,377) would be $155. If, however, the Saver's Credit was refundable (i.e., could generate a tax refund in excess of tax paid), it could result in larger increases in households' annuities across all earnings levels, and the median increase for households in the lowest earnings quartile would be $876 per year.
Implementing automatic IRAs, unless waived by participants, could expand retirement coverage and modestly increase retirement annuities for households at all earnings levels. Specifically, 7 percent of all households could receive retirement annuities from automatic IRAs even though these households had no DB or DC plans, according to GAO's projections. Workers with DB or DC plans could also benefit from automatic IRAs at certain points in their lifetime if their jobs do not offer such plans. Moreover, low-income workers could see a sizable increase in their annuities under automatic IRAs and the existing Saver's Credit--the projected median dollar increase for these households' annual retirement annuity would be $479.