To help encourage sponsorship, federal agencies  conduct education and outreach activities and provide information about  retirement plans for small employers. Number of Employees and Average Pay Level Greatly Influence Plan Sponsorship

		More Employees and Higher Average Wages Increase the Likelihood of Plan Sponsorship

We found that the number of employees and average wages greatly  influence the likelihood that a small employer will sponsor a retirement  plan. A separate analysis we conducted using Labor and IRS data found an  overall small employer sponsorship rate of 14 percent in 2009. important to note, however, that this sponsorship rate does not include  small employers that sponsor SEP IRA plans because IRS currently does  not have a means to collect data on employers that sponsor this plan  type. The sponsorship rate cited in this testimony is limited to single employers that sponsor a  plan. Plan Complexity and Resource Constraints Were Most Frequently Cited Barriers to Retirement Plan Sponsorship

		Many Small Employers Find Retirement Plans Complex and Burdensome to Start and Administer

Small employers and other stakeholders we interviewed identified various  plan options, administration requirements, fiduciary responsibilities, and  top-heavy testing requirements as complex and burdensome—often citing  these factors as barriers to sponsoring retirement plans or as reasons for  terminating them. For example, some retirement experts said that  small employers whose plans are found to be top-heavy may encounter a  number of additional costs in the effort to make their plans compliant. 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 they face in starting and maintaining  retirement plans. As a result, both types of  workers were not demanding retirement benefits. These options included simplifying plan administration rules, revising or  eliminating top-heavy testing requirements, and increasing tax credits. Such a proposal would provide  employers who do not sponsor any retirement plans with a mechanism  that allows their employees to save for retirement. Based on the limited data available, we found the rate of  plan sponsorship among small employers, a segment of the economy  which employs about one third of all private sector workers, was only 14  percent in 2009. Our discussions with small employers and other stakeholders identified a  variety of challenges small employers face in sponsoring retirement  plans. However, even if federal information about  retirement plans were more accessible to small employers, our interviews  with small employers identified a number of other significant challenges to  plan sponsorship, including plan administration requirements that are  perceived to be unduly complicated and burdensome, not having  sufficient financial and personnel resources to sponsor a plan, and  insufficient incentives to create and maintain a plan.
Why GAO Did This Study

This testimony discusses the challenges that small employers face when sponsoring retirement plans for their workers. About 42 million workers, or about one third of all private-sector employees, work for employers with less than 100 employees and recent federal data suggest many of these workers lack access to a work-based retirement plan to save for retirement. An estimated 51 to 71 percent of workers at employers with less than 100 workers do not have access to a work-based retirement plan, compared to an estimated 19 to 35 percent of those that work for employers with 100 or more workers. Small employers face a number of barriers to starting and maintaining a plan for their workers. Certain characteristics associated with small employers may contribute to the challenges of sponsoring a plan. For example, in 2008, we reported on challenges that can limit small employer sponsorship of Individual Retirement Arrangement (IRA) plans, including administrative costs, contribution requirements, and eligibility based on employee tenure and compensation, among others. Additionally, federal data suggest that about half of all new businesses (nearly all of which are small) do not survive for more than 5 years.
This testimony is based on our report released today that examines (1) the characteristics associated with small employers that are more or less likely to sponsor a retirement plan, (2) challenges small employers face in establishing and maintaining a retirement plan, and (3) options that exist to address those challenges and increase small employer sponsorship.

What GAO Found

We 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. Small employers, retirement experts, and other stakeholders also identified a number of challenges such as plan complexity and resource constraintsto starting and maintaining retirement plans. In addition, stakeholders offered options for addressing some challenges to plan sponsorship, which included simplifying federal requirements for plan administration and increasing the tax credit for plan startup costs. Although Labor, IRS, and the Small Business Administration (SBA) collaborate in conducting education and outreach on retirement plans, agencies disseminate information online through separate websites and in a largely uncoordinated fashion. In addition, IRS currently does not have the means to collect information on employers that sponsor a certain type of IRA plan. As a result of our findings, we are recommending efforts for greater collaboration among federal agencies to foster small employer plan sponsorship and more complete collection of IRA plan sponsorship data.