LegiStorm

What GAO Found

To encourage private-sector employers to sponsor new pension plans and U.S. workers to save for retirement, federal law authorizes a variety of tax incentives, such as the ability to defer taxes on contributions to qualified plans until the funds are distributed, up to certain limits. Since 2000, the dollar amount of these limits has increased over time. However, from 2009 through 2011, the number of new pension plans formed each year in the private sector remained relatively flat, and was below the levels reported previously for 2003 through 2007. Specifically, from 2009 through 2011, private-sector employers sponsored about 81,000 new pension plans, including 75,000 defined contribution (DC) plans and 6,000 defined benefit (DB) plans. DC plans with fewer than 100 participants accounted for about 90 percent of all new plan growth over this period. Moreover, the net change in the number of pension plans over this period was negative, with the number of terminated plans more than offsetting new plan formation by nearly 34,000 plans. Over the 3-year span from 2009 through 2011, private-sector employers terminated about 106,000 DC and 9,000 DB plans. Overall, there were about 52,000 fewer employer-sponsored pension plans in the private sector in 2011 than there were in 2000. Thus, while tax incentives from increased contribution limits may have spurred new plan formation, other events--such as company consolidations and bankruptcies stemming from the recent recession--may have discouraged it. Nevertheless, despite the overall decline in number of plans, the total number of participants rose throughout the decade.

The percentage of DC participants affected by the 2010 statutory limits and their income characteristics were similar to those reported previously for participants affected by the 2007 limits. In 2011, GAO reported that an estimated 5 percent of all DC participants who contributed to their plans in 2007 were affected by the statutory limits. Based on an analysis of the most recent data from the Federal Reserve's Survey of Consumer Finances, about 6 percent of all DC participants who contributed to their plans in 2010 were affected by the statutory limits in that their annual contributions in 2010 reached or exceeded one or more of the three limits examined. Of this group:

• About 3 percent were under age 50 and contributed at least $16,500 (the elective deferral limit). 

• About 3 percent were aged 50 or older and contributed at least $22,000 (the combined elective deferral and catch-up contribution limits). 

• Another one-tenth of 1 percent of all ages contributed at or above the combined employer-participant contribution limit of $49,000. 

Participants affected by the 2010 statutory limits shared similar income characteristics with their counterparts in 2007. When compared with other DC participants who contributed below all of the 2010 statutory limits, this group had disproportionately higher earnings (90th percentile and higher) and were more likely to have additional assets of greater average value in their households. In addition, in 2007 and 2010, men were overwhelmingly more likely than women to contribute at such levels. However, fewer DC participants with earnings below the 90th percentile took maximum advantage of tax incentives in 2010 than did in 2007.

GAO issued reports in 2001 and 2011 that, among other things, examined the trends in plan formation and the characteristics of participants affected by the statutory limits for contributions to DC plans. A key source of data for these two previous reports was a survey on household finances conducted by the Board of Governors of the Federal Reserve System every 3 years. Following release of another installment of this survey, GAO was asked us to update certain findings.

For more information, contact Charles A. Jeszeck at 202-512-7215 or jeszeckc@gao.gov.