United States General Accounting Office

GAO Report to the Chairman, Subcommittee

On Civil Service, Committee On

Government Reform and Oversight,

House of Representatives

December 1997 PRIVATE PENSIONS

Plan Features Provided

By Employers That

Sponsor Only Defined

Contribution Plans

GAO/GGD-98-23

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-275103 

December 1, 1997

The Honorable John L. Mica

Chairman, Subcommittee on Civil Service

Committee on Government Reform and Oversight

House of Representatives

Dear Mr. Chairman:

In accordance with your interest in considering possible changes to the

structure of federal employee retirement plans, you asked that we develop

information on the approaches private employers are using to provide

retirement benefits to their employees, the extent to which these

approaches may be changing, and the specific features of these pension

plans. In partial response, we reported on the trends in the numbers and

types of pension plans sponsored nationwide by private employers in

October 1996.1

As agreed with the Subcommittee, this report, which completes our work

in response to your request, identifies the general features of defined

contribution (DC) plans in the private sector. DC plans provide retirement

benefits that are based on employer and/or employee contributions to

individual employee accounts and the investment experience of those

accounts. Specifically, this report describes patterns in the plans’

(1) eligibility requirements for employee participation, (2) arrangements

for employer and participant contributions, (3) eligibility requirements for

employee rights to accrued benefits, (4) employee investment options,

(5) loan and other provisions for participant access to plan assets while

still employed, and (6) options for withdrawal of benefits upon separation

or retirement. Consistent with the Subcommittee’s interest, this report

also presents information on the six features for the Thrift Savings Plan

(TSP)—the defined contribution plan component of the Federal Employees

Retirement System (FERS)—for comparison. Also as agreed, this report

summarizes the explanations provided in retirement literature and by

pension experts with whom we consulted on why employers might decide

to sponsor more than one pension plan for the same groups of employees.

We developed data on the features of pension plans sponsored by a

representative sample of private employers with 100 or more employees

that sponsored only single-employer DC plans in 1993 by reviewing

summary plan descriptions (SPD)—documents describing plans’ features

1

Private Pensions: Most Employers That Offer Pensions Use Defined Contribution Plans

(GAO/GGD-97-1, Oct. 3, 1996).

Page 1 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

that private employers were to file with the Department of Labor (DOL) for

each pension plan they sponsored. We also report on the subset of

employers with 10,000 or more employees because these employers may

provide a more relevant comparison with the federal government. Using a

computerized research database maintained by DOL, we also developed

information on the number of plans offered by all employers with two or

more employees that sponsored only single-employer DC plans in 1993 as

well as other information useful for our analysis.2

 All the numbers

presented in this report are point estimates of population values and have

an associated sampling error of not more than 10 percent at the 95-percent

confidence level unless otherwise specified. As agreed with the

Subcommittee, because we obtained our plan information from published

SPDs rather than directly from employers, we generally were able to

describe how employers structured their DC plans to the extent that the

information was available in these descriptions, and we were not able to

provide the rationale behind the employers’ decisions regarding plan

design. We gathered the information on TSP that is presented in this report

from published documents.

Background Employer-sponsored pension plans, in combination with Social Security

and personal savings, provide millions of retirees and their families with

retirement income. As we reported in our October 1996 report, most

employers that sponsor pension plans provide benefits using a DC plan.3

For a DC plan, the employer establishes an individual account for each

eligible employee and generally promises to make a specified contribution

to that account each year. Employee contributions are also often allowed

or required and can be made on either a pretax or after-tax basis. Pretax

contributions are not taxed in the year they are earned, but rather, they are

taxed when withdrawn from the employee’s account. After-tax

contributions are taxable in the year that they are earned as part of the

employee’s annual income. Employers can make “matching” contributions,

which are made only if employees also contribute to their accounts, and/or

“nonmatching” contributions that are made regardless of whether or not

employees contribute to their accounts. The employee’s retirement

2

In 1993, approximately 490,000 employers with 2 or more employees sponsored only single-employer

DC plans. For reasons described in appendix I, our sample of 419 employers was drawn from the

subset of 3,297 of these employers that had 100 or more employees.

3

In 1993, approximately 44 million employees participated in private single-employer pension plans,

and about 20 million (or 45 percent) of these participants were covered by plans of employers that

sponsored only DC plans. Both of these statistics include only those participants covered by

employers’ primary plans to prevent double-counting of participants covered by more than one plan;

however, the statistics undercount the number of participants covered when employers offer multiple

plans to different groups of employees.

Page 2 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

benefits depend on the total of employer and employee contributions to

the account as well as the account’s investment gains and losses.4

In the early 1980s, Congress began to consider a new retirement system

for federal civilian employees that would be more like private sector

retirement systems and include a DC plan component. As a result, in 1986

the Federal Employees’ Retirement System Act was enacted, which closed

the Civil Service Retirement System (CSRS) to new entrants and established

FERS for employees generally hired after December 31, 1983.5 FERS is a

three-tiered program that includes a basic annuity in addition to the

defined contribution TSP and Social Security.6

 Although FERS provides an

annuity in addition to Social Security and DC pension benefits, many

financial planners believe that under current market conditions income

from participant and government contributions to TSP alone could generate

50 percent or more of the retirement income available to most FERS

participants. Thus, it may be useful for policymakers to know how the

features of TSP compare with the features of private sector DC plans.

In comparing the features of private and public sector pension plans, it is

important to consider key differences between private and public

employers. Notably, private sector employers can deduct the cost of

providing pension benefits from their taxable revenues. To qualify for

these tax advantages, however, private employers must be in compliance

with complex and frequently changing laws and regulations. Public

employers need not comply with all of the rules that private employers

face in designing and modifying their pension systems. Public sector

pension benefits must be legislated, and changes to retirement programs

for public employees involve political as well as business, financial, and

human resource management issues.

4

Private employers are not required to provide their employees with pension benefits; however, those

employers that do so must meet certain minimum legal standards. In particular, under the Employee

Retirement Income Security Act of 1974 (ERISA), as amended, private employers that provide pension

benefits are to manage pension plan funds prudently and in the best interests of participants and their

beneficiaries, inform participants of their rights and obligations, and adequately disclose the plan’s

terms and activities. ERISA also provides certain minimum standards for various plan features,

including those discussed in this report.

5

For a more complete description of the legislative history of FERS, its early implementation, and

features see Federal Pensions: Thrift Savings Plan Has Key Role in Retirement Benefits

(GAO/HEHS-96-1, Oct. 19, 1995) and Federal Retirement: Implementation of the Federal Employees

Retirement System (GAO/GGD-88-107, Aug. 4, 1988).

6

Although employees covered by CSRS can contribute to TSP, the government does not make

contributions to their accounts. In this report, we describe TSP as it applies to employees covered by

FERS to more fully describe all of its features.

Page 3 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Notwithstanding the different environments in which private and public

pensions evolve, it is also important to recognize that all employers that

sponsor pension and other employee benefit programs do so for the same

underlying business and financial reasons, which include to (1) attract and

maintain an effective workforce in a competitive marketplace,

(2) motivate employees to work towards meeting their employers’ goals,

and (3) manage the transition of older employees from work to retirement.

Results in Brief The designs of DC plans for the 3,297 employers with 100 or more

employees that sponsored only single-employer plans in 1993 varied

greatly with respect to eligibility requirements, contribution arrangements,

accrual of benefits, investment options, loan provisions, and withdrawal

options so that no single plan design could be identified as representing a

“typical” DC plan. With respect to eligibility requirements, the employers

reported that they generally established eligibility requirements that their

employees must satisfy to participate in their plans. In 1993, 51 percent of

the employers specified that employees must meet a combination of age

and service requirements—usually age 21 and 1 year of service. Fifty-five

percent of the 100 larger employers with 10,000 or more employees

reported requiring that employees meet length of service requirements,

generally 1 year of service, with no corresponding age requirements.

Under the federal government’s TSP, newly hired employees covered by

FERS must have from 6 to 12 months of federal service before they become

eligible to participate.

Ninety-seven percent of the 3,297 employers provided for employer

contributions to the plan rather than requiring participants to fully fund

their own pensions. Under the most common funding arrangement,

employers made automatic, or nonmatching, contributions to the plan

with no participant contributions allowed or required. The subset of 100

larger employers were more likely to allow participants to contribute to

their plans on a pretax basis, with the most common funding arrangement

consisting of employer nonmatching, matching, and participant pretax

contributions—the same arrangement provided for under the federal TSP.

Fifty-one percent of the employers that provided for pretax contributions

(and 60 percent of the larger employers) allowed participants to

contribute more than 10 percent of their salaries, whereas federal

employees who participate in TSP are limited to contributing 10 percent of

their basic pay on a pretax basis.

Page 4 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Employers generally did not include enough information in their SPDs to

allow us to determine the maximum potential cost, or liability, of making

employer contributions, expressed as a percentage of compensation.

Moreover, we could not determine an employer’s liability for contributions

without also knowing the portion of these contributions that were used to

reduce the employer’s corporate tax liability in any given year. However,

for the 27 percent of the employers for which we could determine the

liability for contributions, not taking corporate taxes into consideration, 59

percent had a liability of up to 5 percent of participant compensation, and

41 percent had a liability of 6 percent or more of participant

compensation.7

 For the subset of larger employers, 76 percent had a

liability of up to 5 percent of participant compensation, and 24 percent had

a liability of 6 percent or more of participant compensation. In

comparison, the government’s maximum potential liability for

contributions under TSP is 5 percent of participant compensation,

assuming participants contribute at a rate that maximizes government

matching contributions.8

Although by law participants have always owned their own contributions

(and earnings on those contributions) to DC plans, employers have often

established minimum service requirements that participants were required

to meet before they could own, or become “vested” in, employer

contributions to the plan. About one-third of the employers provided for

immediate vesting of matching contributions and one-eighth for immediate

vesting of nonmatching contributions. The subset of employers with

10,000 or more employees were more likely to use immediate vesting for

matching (52 percent versus 35 percent) and nonmatching contributions

(23 percent versus 13 percent) compared with all of the employers

included in our review.

The employers used vesting requirements that generally required fewer

years of service for employees to own matching contributions, as

compared with nonmatching contributions. That is, 44 percent of

employers provided for participants becoming fully vested in matching

contributions within 4 years, while 22 percent provided for full vesting for

nonmatching contributions within the same time period. Federal

employees are immediately vested in any government matching

contributions made to their accounts, and most become fully vested in the

7

Because we were able to determine the liability for contributions for only a small portion of the

employers in our sample, these estimates have a sample error of 15 percent.

8

In 1996, federal agencies contributed about $2 billion to FERS employees’ TSP accounts.

Page 5 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

government’s automatic 1 percent nonmatching contribution after

completing 3 years of service.

A significant portion of the employers did not specify in their SPDs whether

participants could direct how the contributions made to their accounts

were invested, although the subset of larger employers were more likely to

so specify. The majority of those employers that specified participants

could direct the investment of their accounts and specified the number of

investment options available in their SPDs provided at least four investment

options. These employers frequently included investment options such as

employer stock, stock mutual funds, and bond mutual funds. Federal

employees who participate in TSP may direct the investment of their

accounts using three funds—a nonmarketable government securities fund,

a diversified stock fund, and a diversified bond fund. Two additional

funds—an international and a small company stock fund—are scheduled

to become available in 2 to 3 years.

Nearly two-thirds of the employers reported providing plan participants

access to a portion of their account balances prior to separation from

employment. Nearly half allowed participants to borrow from their

accounts up to certain legal limits, and some also allowed participants to

withdraw some or all of their own contributions, usually in the event of a

personal financial hardship. The larger employers were somewhat more

likely to allow participants to borrow from their accounts or make

financial hardship withdrawals; however, they were less likely to allow

withdrawals for reasons other than financial hardship. The federal TSP

includes a loan program and allows participants to make hardship

withdrawals and a one-time withdrawal at age 591⁄2 or later without

separating from federal service.

Nearly all the employers allowed participants to take their account

balances as a lump-sum distribution when they retired; while two thirds

allowed participants to withdraw their accounts in even installment

payments over some specified period of time, and nearly half provided for

an annuity that would produce a regular monthly payment for the rest of a

participant’s life. The subset of larger employers were less likely to

provide an installment or annuity option in their plans. Employers

generally provided the same withdrawal options to participants who

separated for reasons other than retirement; however, most of these

participants could opt to defer any withdrawal from their accounts until

some future date not to exceed the year following the year in which they

turn age 701⁄2. TSP allows federal employees to select from all three

Page 6 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

withdrawal options—a lump-sum distribution, installment payments, or an

annuity. Federal employees who separate from the government before

retirement may also choose to defer their withdrawal until the year

following the year in which they turn age 701⁄2.

A small portion (12 percent) of the approximately 490,000 employers with

2 or more employees that sponsored only single-employer DC plans also

sponsored more than one DC plan for the same groups of employees.

Employers with fewer than 100 employees were more likely to sponsor

multiple plans covering the same groups of employees than employers

with 100 or more employees. Experts with whom we consulted suggested

that smaller employers might be better able to manage multiple plans

because they had fewer accounts to manage, while larger employers might

be more likely to offer multiple plans to compete with other employers.

According to pension experts with whom we consulted and

pension-related literature, private employers design their pension

programs principally to control costs, maximize federal tax incentives, and

comply with ERISA, as amended, while at the same time structuring their

compensation and benefits to support their overall business and financial

goals.

Scope and

Methodology

To provide the requested information on patterns in plans’ features, we

reviewed SPDs—documents that all private employers were to file with DOL

for each pension plan they sponsored—for a sample of private sector

employers with 100 or more employees that sponsored only

single-employer DC plans to supplement their employees’ Social Security

retirement benefits. We stratified our sample by employer size using 3

groups—employers with 100 to 999 employees, 1,000 to 9,999 employees,

and 10,000 or more employees. Because of the larger sampling error

associated with the first two strata, we reported on two groups—all the

employers in our sample and the subset of larger employers with 10,000 or

more employees, the one stratum for which our sample included the entire

population of such employers. Because DOL officials told us that the

Department would not be able to provide SPDs for all the employers in our

sample, we requested SPDs from DOL and directly from the employers.9

 As a

result, we were able to obtain and analyze 281 SPDs—67 percent of the 419

employers in our sample. In considering the representativeness of the

sample of employers for which we had obtained SPDs, we found that the

9

Officials told us that DOL did not monitor or enforce employer compliance with the SPD filing

requirement because of limited resources and other competing priorities. Effective August 5, 1997,

with the passage of the Taxpayer Relief Act of 1997, private employers subject to ERISA are required

to file copies of their SPDs with DOL only upon request.

Page 7 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

281 employers were generally comparable to our universe of 3,297

employers, in terms of employer size, industry type, and geographic

region.

We also analyzed pension plan information that was available from DOL’s

research database from which we had selected our sample of employers to

provide additional information on the plans’ features. To provide

information on TSP, we reviewed summary documents published by the

Federal Retirement Thrift Board.

As agreed with the Subcommittee, we limited the scope of our analyses

involving SPDs to those employers with 100 or more employees. Also as

agreed, our review included the largest primary plan offered by private

employers that sponsored only DC plans in 1993, the most recent data

available at the time of our review. We included only single-employer

plans in our analyses, because the research database did not identify all of

the employers associated with each multiemployer plan. Unless

specifically noted, the estimates presented in this report are generalizable

to the population of employers with 100 or more employees that

sponsored only single-employer DC plans in 1993 with a sampling error of

no more than 10 percent at the 95-percent confidence level.10

Also, as agreed with the Subcommittee, we did not independently verify

the accuracy of the information (1) described in the SPDs or (2) contained

in the DOL research database. Moreover, we could not confirm that the SPDs

provided by DOL represented the most up-to-date information for each DC

plan in our sample. Lastly, due to differences such as those described in

the background section of this report, pension plan experiences in the

private sector may not be applicable to the federal government.

To provide information on the use of multiple plans, we used the DOL

research database to identify the number of private employers with two or

more employees that sponsored more than one DC plan to provide benefits

for the same groups of employees in 1993. We did not independently verify

DOL’s criteria for identifying plans in their research database as primary

versus supplementary. To obtain insights on what factors employers may

consider in deciding whether to sponsor multiple plans, we reviewed

retirement-related literature and consulted with pension experts, which

we selected on the basis of prior work we had done on private sector

pensions.

10Approximately 8 million participants are covered by plans sponsored by the employers in our

population.

Page 8 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Appendixes I and II provide more detailed information on our objectives,

scope, and methodology and the results obtained, respectively.

We requested comments on a draft of this report from the Secretary of

Labor. These comments are discussed at the end of this letter. We did our

review in Washington, D.C., from October 1996 to July 1997 in accordance

with generally accepted government auditing standards.

Eligibility

Requirements

Employers that sponsor DC plans generally establish certain minimum age

and/or service requirements that employees must meet before they are

allowed to participate in these plans. These eligibility requirements allow

employers to reduce the administrative costs associated with establishing

individual accounts for employees. Flexibility to establish minimum

participation requirements may be especially useful to employers facing

high turnover rates. Such requirements allow employers to use their

resources to benefit employees who are more likely to remain with the

employer for the long term. Under ERISA, as amended, employers cannot

require employees to be over age 21 or to have completed more than 1

year of service with the employer. However, an exception applies to plans

where participants immediately own all employer contributions made to

individual accounts—employers may require that employees complete 2

years of service to be eligible to participate in these plans.

Of the 3,297 employers with 100 or more employees that sponsored only

single-employer DC plans in 1993, 51 percent (1,673 employers) reported

using some combination of age and length of service to determine when an

employee was eligible to participate in the plan. The most common

combination, which was used by 73 percent of these 1,673 employers, was

that an employee must be age 21 with 1 year of service—the legal limit.

For the 100 larger employers, 55 percent used only length of service to

determine eligibility (with most requiring 1 year of service), while

28 percent used a combination of age and service (with 93 percent

requiring an age of 21 and 1 year of service). Figure 1 shows the

distribution of employers according to the type of eligibility requirement

used.

Page 9 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Figure 1: Percentage of Employers

Using Various Eligibility

Requirements, by Employer Size

(1993)

60

50

40

30

20

10

0

Immediate

participation

Age only

Service only

Service & age

Type of eligibility requirement

Employers with 100 or more employees (n=3,297)

Employers with 10,000 or more employees (n=100)

Percent of employers

Source: GAO analysis of SPD data (see app. II, table II.1).

Although the summary plan documents did not provide information on the

rate of participation among covered employees, we were able to determine

the percentage of employees with active accounts in 1993 for 2,127 (or

65 percent) of the employers in our review using DOL’s research database.

For these employers, 74 percent had a participation rate of 76 to

100 percent, 18 percent had 51 to 75 percent participation, 4 percent had

26 to 50 percent participation, and 4 percent had 25 percent participation

or less. We could determine the participation rate for 72 of the larger

employers. These employers showed a considerably lower rate of

participation—15 percent had a participation rate of 76 to 100 percent,

24 percent had 51 to 75 percent participation, 15 percent had 26 to

50 percent participation, and 47 percent had 25 percent participation or

less. A high or low rate of participation may be a reflection of whether or

Page 10 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

not employers contributed to their plans. According to experts with whom

we consulted, employers that reported 100 percent participation generally

made contributions automatically to participant accounts.

Newly hired federal employees covered by FERS are eligible to participate

in TSP during the second open season after they are hired. Two open

seasons are held each year (May 15 to July 31 and November 15 to

January 31); thus, the minimum service required to participate ranges from

6 to 12 months. The government establishes and makes automatic

contributions to accounts for all eligible employees covered by FERS. As of

March 1997, 83 percent of eligible FERS employees made contributions to

their accounts.

Types of Employer

and Participant

Contributions

DC plans are funded by means of employer and/or participant

contributions. Employer contributions can be based on the amount a

participant contributes (i.e., matching contributions), on some other

criteria unrelated to participant contributions (i.e., nonmatching

contributions), or on some combination of the two. For example, an

employer could make matching contributions by providing $1 for each

dollar a participant contributes up to a specified maximum. Alternatively,

an employer could make nonmatching contributions determined on the

basis of annual profitability or a specified percentage of participant

compensation.

In addition to employer matching and nonmatching contributions,

participants may be allowed or required to contribute to their DC plan.

Plans can provide for participant contributions to be made on a pretax or

after-tax basis or on some combination of the two. For pretax

contributions, employers generally reduce a participant’s salary by an

agreed upon amount and contribute these funds directly to the

participant’s DC account, thereby allowing the participant to defer paying

income taxes on this portion of their salary until the funds are withdrawn

from the account, presumably at or during retirement.

Regardless of the type(s) of contributions employers and/or participants

make to the plan, each employer must ensure that total contributions to

participant accounts do not exceed certain legal limits set by ERISA, as

amended. Specifically, the annual dollar contribution limit to a DC

participant account is the lesser of $30,000, or 25 percent of participant

Page 11 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

compensation.11 Moreover, participant pretax contributions are limited to

$9,500 per year and participant after-tax contributions may be limited to

allow employers to satisfy certain nondiscrimination rules.12 Contributions

that are calculated as a percentage of participant compensation are limited

to including a maximum annual compensation of $160,000. Each of the

above limits is indexed to the consumer price index to adjust for changes

in the cost of living over time.

Most Employers

Contribute to Their DC

Plans

Of the 3,297 employers with 100 or more employees that sponsored only

single-employer DC plans in 1993, 97 percent reported providing for

matching and/or nonmatching contributions to the plan, and 1 percent

funded the plan solely on the basis of participant contributions. For the

100 larger employers, 94 percent provided for employer contributions, and

6 percent provided only for participant contributions to the plan. Thus,

most employers that sponsor only DC plans contribute towards their

employees’ retirement benefits rather than require that their employees

bear the entire cost. As shown in figure 2, 85 percent of the 3,297

employers provided for employer nonmatching, 43 percent for employer

matching, 50 percent for participant pretax, and 16 percent for participant

after-tax contributions. For the 100 larger employers, 68 percent of

employers provided for employer nonmatching, 54 percent for employer

matching, 72 percent for participant pretax, and 11 percent for participant

after-tax contributions.

11Special limits are applicable through December 31, 1999, for employers that sponsor both basic

annuity and DC plans covering the same group of employees.

12Nondiscrimination rules are designed to ensure that employers only receive tax advantages for those

pension plans that provide coverage to a broad base of their employees rather than to highly-paid

employees or managers of the company exclusively.

Page 12 GAO/GGD-98-23 Private Pensions DC Plans
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Figure 2: Percentage of Employers

That Provide for Various Types of

Contributions, by Employer Size (1993)

100

80

60

40

20

0

Participant

after-tax

Participant

Employer

Type of contribution

Employers with 100 or more employees (n=3,297)

Employers with 10,000 or more employees (n=100)

Percent of employers

Employer

nonmatching

matching

pretax

Note: Because employers can provide for more than one type of contribution to a plan,

percentages do not add to 100 percent.

Source: GAO analysis of SPD data (see app. II, table II.2)

The two most common arrangements for employer and participant

contributions were to provide for (1) employer nonmatching contributions

and no participant contributions (41 percent) or (2) employer matching

and nonmatching contributions plus participant pretax contributions

(25 percent). None of the other arrangements were used by more than

8 percent of the employers that sponsored only single-employer DC plans.

The subset of larger employers were more likely to provide for participant

pretax contributions to their plans than the overall group of employers in

our review—72 percent versus 50 percent, respectively. The most common

contribution arrangements were also somewhat different for these

Page 13 GAO/GGD-98-23 Private Pensions DC Plans
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employers. Specifically, 26 percent of the larger employers provided for

matching, nonmatching, and participant pretax contributions—the same

arrangement provided under TSP for those federal employees covered by

FERS; 23 percent provided for nonmatching contributions only; 18 percent

provided for matching and participant pretax contributions; and

11 percent provided for nonmatching and participant pretax contributions.

None of the other combinations of contributions were used by more than

6 percent of the larger employers. Table II.2 (see app. II) provides more

details on the combinations of contributions that the employers specified

in their SPDs.

The employers that provided for matching contributions to their plans

used a wide variety of matching arrangements. For example, employers

applied different limits on what level of participant contributions would be

eligible to receive a match, matched different amounts of each dollar

contributed by participants, and sometimes provided different matching

contributions for different levels or types of participant contributions.

Of the 1,410 employers that provided for matching contributions, 815

employers (and 32 of the subset of larger employers) specified the level of

participant contributions that they were willing to match and the amount

of matching contributions that would be provided for each participant

dollar contributed. Of these employers, 60 percent offered to match

participant contributions that did not exceed 5 percent of the participants’

compensation, and 40 percent offered to match participant contributions

that did not exceed 6 percent or more of compensation. Fifty-eight percent

of the employers matched 50 cents or less for each eligible participant

dollar contributed, and 42 percent matched more than 50 cents for each

eligible participant dollar contributed.13 How an employer combined these

two factors—the amount of participant contributions eligible to be

matched and the level of matching contributions provided for each eligible

participant dollar contributed—determined the maximum potential

amount of an employer’s matching contributions. Our analyses showed

that employer matching practices were not related to participant

contribution eligibility practices. That is, employers did not provide a high

rate of matching contributions only when the percentage of eligible

participant contributions was low, nor did they provide a low rate of

matching contributions only when the percentage of eligible participant

contributions was high.

13Because only a small portion of the employers in our sample provided for matching contributions

and specified the maximum level of participant contributions eligible for employer matching

contributions and the rate of matching contributions provided for each dollar participants contributed,

the sample errors for these estimates are 15 percent.

Page 14 GAO/GGD-98-23 Private Pensions DC Plans
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Of the larger employers, 45 percent offered to match participant

contributions that represented up to 5 percent of their compensation, and

55 percent offered to match participant contributions that represented

6 percent or more of compensation. Further, 62 percent of the larger

employers matched $1 or more for each eligible participant dollar. In

comparison, TSP provides for government matching contributions on

participant contributions not exceeding 5 percent of compensation, and

the government match equates to 80 cents for each eligible dollar of

participant contribution, assuming participants contribute at least

5 percent of their salary.14

For the 2,786 employers that provided for nonmatching contributions to

their plans, 45 percent specified that the dollar amount to be contributed

to participant accounts would be determined on the basis of some

percentage of annual profits, while another 45 percent specified that the

dollar amount would be determined on the basis of some percentage of

participant compensation. Seventy-nine percent of these employers did

not specify in their SPDs the exact percentage that would be used to

determine nonmatching contributions. Similarly, of the 68 larger

employers that provided for nonmatching contributions to their plans,

45 percent determined nonmatching contributions on the basis of profits,

and 36 percent, on the basis of participant compensation. Sixty-six percent

of these larger employers did not specify the exact percentages used to

determine nonmatching contributions. TSP provides for government

nonmatching contributions equal to 1 percent of employee compensation

for those employees covered by FERS.

Most Employers Allow

Participants to Contribute

to Their DC Plans

Of the 3,297 employers that sponsored only single-employer DC plans to

provide pensions for their employees, 1,862 (or 56 percent) of these

employers allowed participants to make contributions to their plans. Of

these 1,862 employers, 71 percent allowed participants to contribute on a

pretax basis, 18 percent on either a pretax and/or after-tax basis, and

11 percent on an after-tax basis. Seventy-three of the 100 larger employers

provided for participant contributions—85 percent of these 73 employers

allowed pretax contributions, and 15 percent allowed both pretax and

after-tax contributions.

14TSP provides for matching contributions using a graduated schedule—participants covered by FERS

receive a dollar-for-dollar match on the first 3 percent of salary that they contribute and a 50 cents

match for each dollar contributed for the next 2 percent of salary. Thus, participants who contribute

less than 5 percent of their salary experience a higher overall level of match for each dollar

contributed. For example, if participants contributed 3 percent of their salary to the plan, they would

receive a dollar-for-dollar match from the government.

Page 15 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Of the 1,656 employers that provided for pretax contributions (and thus

allowed participants to shelter a portion of their income from current

taxation as well as accumulate savings for retirement), 51 percent allowed

participants to contribute more than 10 percent of their annual

compensation to the plan (not to exceed the Internal Revenue Service

limit). Similarly, 60 percent of the 73 larger employers that provided for

pretax contributions allowed participants to contribute more than

10 percent of their annual compensation to the plan. Federal employees

covered by FERS are allowed to contribute up to 10 percent of their basic

pay on a pretax basis to TSP, up to the current legal maximum of $9,500.15

Figure 3 shows the maximum participant pretax contributions allowed for

plans sponsored by employers that only offer single-employer DC plans.

15Basic pay is the rate fixed by applicable law or regulation before any deductions. Basic pay

(1) includes locality-based comparability payments and certain categories of differential or premium

pay and (2) excludes other types of pay, including bonuses, allowances, overtime, and holiday pay.

Page 16 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Figure 3: Percentage of Employers

That Provide for Various Levels of

Participant Pretax Contributions (1993)

60

50

40

30

20

10

0

Maximum participant pretax contributions allowed

Employers with 100 or more employees (n=1,656)

Employers with 10,000 or more employees (n=73)

Percent of employers

1 to 5 percent

6 to 10 percent

11 to 15 percent

16 to 25 percent

Not specified

Source: GAO analysis of SPD data (see app. II, table II.8).

Most Employers Did Not

Specify Their Liability for

Contributions in Their

SPDs

Of the 3,297 employers included in our review, 883 (or 27 percent) of the

employers included enough information in their SPDs to allow us to

calculate the maximum potential cost, or liability, of making employer

contributions—matching, nonmatching, or both—to their plans. Thus, our

results regarding employer liability for contributions are not generalizable

to all the employers included in our review. Of the 883 employers,

59 percent had a liability of up to 5 percent of participant compensation,

and 41 percent had a liability of 6 percent or more of participant

compensation (with the greatest liability being 18 percent).16

An employer’s actual liability for contributions may be less than the

potential maximum in any given year for a variety of reasons, including

16Because we could only determine the employer’s liability for contributions for a small portion of the

employers in our sample, these estimates have a sample error of 15 percent.

Page 17 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

when participants do not contribute enough to maximize employer

matching contributions or when employers elect to contribute less than

the maximum allowable nonmatching contributions in any given year.

Moreover, an employer’s effective cost of contributions cannot be

determined without knowing what portion of those contributions may

have been deducted from the employer’s corporate taxes in any given

year.

We could determine the maximum employer liability for contributions for

38 of the 100 larger employers. Of these 38 employers, 76 percent had a

liability of up to 5 percent of participant compensation, and 24 percent had

a liability of 6 percent or more of participant compensation. In

comparison, the government’s maximum potential liability for

contributions for employees covered by FERS is 5 percent of

compensation—consisting of up to 4 percent in matching contributions

plus 1 percent in nonmatching contributions. In 1996, government

agencies contributed about $2 billion to FERS employees’ TSP accounts.

Vesting Participants of DC plans accrue the right to pension benefits, or become

“vested,” by meeting certain requirements established by employers. By

law, participants are always fully vested in any pretax or after-tax

contributions that they make to their accounts, whether these

contributions are voluntary or mandatory. Thus, employer vesting

requirements apply only to the participant’s right to employer-matching

and/or nonmatching contributions. ERISA, as amended, requires that

participants become fully vested in 100 percent of employer contributions

to their accounts (1) within 5 years if the employer uses “cliff” vesting,

where no rights to benefits are earned in prior years or (2) within 7 years if

the employer uses “graduated” vesting, where rights to benefits are earned

gradually over the period starting no later than the third year. Employers

may also use more liberal vesting requirements if they choose. For

example, immediate vesting occurs when an employer sets no vesting

requirements. Employers can use vesting schedules to reduce the cost of

providing pension benefits to employees who do not remain with an

employer for at least 5 to 7 years.

Of the 1,410 employers with 100 or more employees that sponsored only

single-employer DC plans in 1993 and made matching contributions to their

plans, 1,374 employers specified vesting requirements in their SPDs. Of

these 1,374 employers, 56 percent reported using graduated vesting;

Page 18 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

35 percent, immediate vesting; and 9 percent, cliff vesting.17 Larger

employers were more likely to use immediate vesting—52 percent used

immediate vesting, 26 percent used graduated vesting, and 22 percent used

cliff vesting. Of the 2,786 employers that made nonmatching contributions

to their plans, 2,755 employers specified vesting requirements in their SPDs.

Of these 2,755 employers, 70 percent used graduated vesting, about

17 percent used cliff vesting, and 13 percent used immediate vesting. For

the larger employers, about 51 percent used graduated vesting, 26 percent

used cliff vesting, and 23 percent used immediate vesting.

Regardless of the type of vesting schedule used, employers generally used

more liberal schedules for matching contributions compared with

nonmatching contributions. Forty-four percent of the 1,410 employers that

provided for matching contributions specified that participants became

fully vested in these contributions within 4 years, while 22 percent of the

2,786 employers that provided for nonmatching contributions specified

that participants became fully vested in these contributions within the

same time period. Similarly, 57 percent of the subset of larger employers

provided for employees to become fully vested in any matching

contributions within 4 years, compared with 25 percent for nonmatching

contributions within the same time period. Federal employees covered by

FERS are immediately vested in any matching contributions, and most

become fully vested in the automatic 1 percent nonmatching contributions

after completing 3 years of service.18 Figure 4 shows the length of time to

full vesting for employer-matching and nonmatching contributions for

plans sponsored by employers that only offer single-employer DC plans.

17Because only a small portion of the employers in our sample provided for matching contributions

and specified vesting requirements in their summary plan descriptions, the sample errors for these

estimates are no greater than 11 percent.

18FERS employees in congressional and certain noncareer positions become vested in the automatic

1 percent nonmatching contributions after completing 2 years of service.

Page 19 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Figure 4: Percentage of Employers

That Require Various Lengths of

Service for Full Vesting in Matching

and Nonmatching Contributions, by

Employer Size (1993)

Percent of employers

0

20

40

60

80

100

Employer matching (n=1,410)

Employer nonmatching (n=2,786)

Employer matching (n=54)

Employer nonmatching (n=68)

Type of contribution

Employers with

100 or more

employees

(n=3,297)

Employers with

10,000 or more

employees

(n=100)

Not specified

Full vesting in 5 to 7 years

Full vesting in 1 to 4 years

Immediate vesting

Source: GAO analysis of SPD data (see app. II, table II.10).

Using DOL’s research database, we were able to determine the proportion

of participants who were fully vested in 1993 for 2,825 (or 86 percent) of

the employers in our review. For these employers, more than half of the

current employees were fully vested for 62 percent of the plans, while half

or less of the employees were fully vested for 38 percent of the plans. For

Page 20 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

the 83 larger employers for which we were able to determine the

percentage of fully vested participants, the proportion of plans with more

than half and half or less of participants fully vested were virtually the

same as for all employers—63 percent and 37 percent of employers,

respectively.

Investment of

Contributions

By law, employers that sponsor DC plans can either invest employer and

participant contributions made to the plan, or they can allow participants

to direct the investment of their own accounts. Employers that provide for

“participant-directed” accounts in their plans must meet certain DOL

regulations to insulate themselves from being liable for any losses that

result from a participant’s exercise of investment control. Specifically,

employers that allow participants to direct their own accounts must offer

a broad range of investment alternatives, consisting of at least three

diversified investment alternatives, each having different risk and return

characteristics. Moreover, participants must be allowed to change their

investment decisions at least once in every 3-month period. Employers

must also provide participants with descriptive information on each

investment option, including risk and return characteristics, transaction

fees and expenses, and copies of prospectuses.

A considerable portion of the employers with 100 or more employees that

sponsored only single-employer DC plans in 1993 did not specify in their

SPDs whether participants could direct the investment of contributions

made to their accounts, as shown in figure 5. As also shown, the larger

employers were more likely to specify who could direct the investment of

each type of contribution. For those employers that did report on who

could direct the investment of account assets, participants were more

frequently allowed to direct the investment of all but nonmatching

contributions made to their accounts. The larger employers were more

likely to allow participants to direct the investment of all types of

contributions made to their accounts.

Page 21 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Figure 5: Percentage of Employers

That Specified Participant Versus

Employer-Directed Investment, by

Contribution Type and Employer Size

(1993)

Percent of employers

0

20

40

60

80

100

Employer nonmatching (n=2,786)

Employer matching (n=1,410)

Participant pretax (n=1,656)

Participant after-tax (n=540)

Employer nonmatching (n=68)

Employer matching (n=54)

Participant pretax (n=72)

Participant after-tax (n=11)

Type of contribution

Employers with 100 or more

employees (n=3,297)

Employers with 10,000 or more

employees (n=100)

Employer directed

Participant directed

Not specified

Source: GAO analysis of SPD data (see app. II, table II.11).

Of the employers that specified participants could direct the investment of

their accounts and specified the number of investment options in their

SPDs, the majority provided participants with at least four investment

options from which to choose. About half of the employers did not list the

specific investment choices available to participants in their SPDs;

however, investments commonly listed included employer stock, stock

mutual funds, bond mutual funds, balanced funds consisting of both

Page 22 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

stocks and bonds, guaranteed investment contracts providing a fixed

interest rate through an insurance company, U.S. government securities,

and money market investments consisting of short-term securities.

Although we could not determine the proportion of participants who

actually selected each available investment option, we were able to

determine the proportion of total plan assets invested in (1) stocks and

(2) bonds in 1993 for approximately three-fourths of the employers in our

review using DOL’s research database. For these employers, 81 percent had

25 percent or less of their total plan assets invested in stocks (not

including an employer’s own company stock) and 95 percent had

25 percent or less of their total plan assets invested in bonds. For the

larger employers, 93 percent had 25 percent or less of their total plan

assets invested in stocks, and 100 percent had 25 percent or less invested

in bonds. We were unable to determine what proportion of these

investments resulted from employer contributions, participant

contributions, and market gains or losses over time.

Regardless of how plan assets are invested, employers must receive, hold,

and transmit plan assets up to the time the assets are withdrawn by plan

participants. Employers generally do so using a trust fund, an insurance

account, or a combination of the two. Using the DOL research database, we

were able to determine how 2,831 (or 86 percent) of the employers in our

review managed their participant accounts in 1993—70 percent of these

employers used trust funds, 20 percent used a combination of trust funds

and insurance accounts, and 10 percent used insurance accounts. The

larger employers also used these same methods in approximately the same

proportions.

Federal employees who participate in TSP may direct the investment of

their accounts using three investment funds—the “G fund” that is invested

in short-term nonmarketable U.S. Treasury securities, the “C fund” that is

invested in the stock of the same 500 companies selected by the Standard

& Poor’s Corporation for its S&P 500 index, and the “F fund” that is

invested in U.S. government, corporate, and mortgage-backed securities.

In 2 to 3 years, participants will have two new funds—a small company

stock fund and an international fund—which will bring the number of

investment options up to five funds. Participant accounts are managed by

the Federal Retirement Thrift Investment Board, an independent

government agency tasked with managing TSP prudently and solely in the

interest of participants and their beneficiaries.

Page 23 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Participant Access to

Account Assets Prior

to Separation or

Retirement

Employers that sponsor DC plans can permit participants to access some

portion of their account balances while they are still actively employed

using loan, voluntary withdrawal, and/or hardship withdrawal provisions.

Employers can include loan provisions that permit participants to borrow

a portion of their vested account balances and repay this amount in level

payments over a specified number of years at a specified interest rate.

ERISA, as amended, generally limits a participant’s outstanding loan balance

to the lesser of $50,000 or 50 percent of the participant’s vested account

balance. Employers can also allow participants to make voluntary

withdrawals from their after-tax contributions and/or employer

contributions (and the earnings on these contributions) without requiring

that the funds be repaid; however, a 10 percent tax penalty applies to most

of these distributions if they are made before age 591⁄2. Some employers

specify that participants will face additional penalties for making a

voluntary withdrawal, such as losing the right to make contributions to the

plan for 1 year. An employer can allow participants to make a hardship

withdrawal from their pretax contributions (but not the earnings on those

contributions) to meet immediate and heavy financial needs for which no

other resources are available. Needs that meet the legal definition of a

hardship include medical expenses, purchase of a principal residence,

tuition for postsecondary education, and prevention of eviction from, or

foreclosure on, a principal residence. Nearly two-thirds of the 3,297

employers reported providing plan participants access to a portion of their

account balances prior to separation from employment. Figure 6 shows

the percentage of employers with 100 or more employees that sponsored

only single-employer DC plans in 1993 and provided for each type of

participant access to their accounts.

Page 24 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Figure 6: Percentage of Employers

That Provide Various Types of Access

to Participant Accounts, by Employer

Size (1993)

60

50

40

30

20

10

0

Type of access to participant accounts

Employers with 100 or more employees (n=3,297)

Employers with 10,000 or more employees (n=100)

Percent of employers

Loans

Hardship

Voluntary

No access

withdrawals

withdrawals

specified

Note: Because employers can provide for more than one type of access to participant accounts,

percentages do not add to 100 percent.

Source: GAO analysis of SPD data (see app. II, table II.13).

Of the 3,297 employers included in our review, 46 percent specified that

participants could borrow from their accounts; 43 percent provided for

hardship withdrawals, and 21 percent specified that participants could

make voluntary withdrawals from their accounts. Of the larger employers,

57 percent provided for loans, 58 percent provided for hardship

withdrawals, and 15 percent provided for voluntary withdrawals.

For those 1,530 employers that included a loan feature in their DC plans,

11 percent reported allowing participants to borrow from their accounts

for any reason, while the remaining employers allowed participants to

Page 25 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

(1) borrow from their accounts only for specified purposes or (2) submit

an application to the employer for approval. ERISA, as amended, allows

employers to set a minimum loan amount of up to $1,000; however,

47 percent of the employers either did not specify a minimum loan amount

in their SPDs or specified a minimum amount that was less than $1,000.

Moreover, only 27 percent of the employers specified that participants

were limited to one outstanding loan at any given time. The vast majority

of employers (98 percent) allowed participants to borrow up to the legal

limit of $50,000 (or 50 percent of their vested account balance, if less).

Although the 57 larger employers that provided for loans were more likely

to allow participants to borrow from their accounts for any reason

(35 percent versus 11 percent for all employers), the other components of

their loan programs were generally comparable to the group of employers

as a whole.

Using DOL’s research database, we were able to determine the proportion

of total plan assets represented by outstanding participant loans for 787

(or 51 percent) of the employers that allowed participants to borrow from

their accounts. For 88 percent of these employers, participant loans

represented 5 percent or less of the plan’s total assets, which suggests that

the majority of plan contributions were being held and invested for

retirement rather than being tapped by participants for preretirement

spending. An even greater percentage—94 percent—of the 32 larger

employers for which we could determine this information had outstanding

participant loans of 5 percent or less of total plan assets.

For those 1,419 employers that allowed participants to make hardship

withdrawals from their accounts, 86 percent specified neither limits on the

number of hardship withdrawals that could be made in 1 year nor a

required minimum amount that must be withdrawn. Similarly, 79 percent

of the 58 larger employers that provided for hardship withdrawals did not

specify such restrictions in their summary plan documents. However,

77 percent of the employers (and 79 percent of the larger employers)

specified some form of penalty for participants who made a hardship

withdrawal from their accounts—the most common penalty being the

suspension of a participant’s right to contribute to the plan for some

period of time. Thus, although participants may not be able to control their

need to make a hardship withdrawal from their accounts in all

circumstances, employer penalties may discourage participants from

tapping their accounts prior to retirement.

Page 26 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

For those 709 employers that allowed participants to make voluntary

withdrawals from their accounts, 20 percent limited participants to one

such withdrawal per year and 13 percent specified that participants must

withdraw some minimum amount ranging from $100 to $500. Moreover,

one-third of these employers required participants to meet certain age and

service requirements before they could make a voluntary withdrawal from

their accounts. For example, the most common requirement was that

participants must be at least age 55 and have 10 years of service with the

employer. Twenty-one percent of the employers penalized participants

who made voluntary withdrawals from their accounts, for example, by

suspending a participant’s right to contribute to the plan for 12 months.

For plans that provided for employer matching contributions, such a

penalty also suspended a participant’s ability to receive matching

contributions over the same time period. The 15 larger employers that

provided for voluntary withdrawals were more likely to set a minimum

amount that participants must withdraw; however, other limits and

restrictions were generally comparable to those provided for by all the

employers included in our review. All of the above limits, restrictions, and

penalties can reduce an employer’s administrative burden for allowing

participants to make voluntary withdrawals from their accounts as well as

encourage participants to preserve their accounts for use in retirement.

The federal TSP includes a loan program, which allows participants to

borrow from their own contributions (and earnings on those

contributions) for any reason. The federal program sets the minimum loan

amount at $1,000, allows two loans outstanding at any one time, and is

limited to the same $50,000 limit as private sector plans. The federal

program also provides for hardship withdrawals, and participants who are

at least age 591⁄2 may make a one-time voluntary withdrawal from their

accounts while they are still in federal service.

Benefit Withdrawal

Options

Employers that sponsor DC plans can allow participants to receive their

pension benefits from their individual accounts in a variety of ways at

retirement—generally as a lump-sum distribution or an annuity. For a

lump-sum distribution, employers disburse a participant’s entire account

within 1 taxable year. For an annuity, the participant receives regular

payments for the participant’s remaining lifetime. Employers that offer

annuities must also offer a joint and survivor annuity that provides a

surviving spouse with at least one-half the amount of the participant’s

benefits. Employers generally pay for the additional survivor benefits by

reducing the participant’s monthly benefit. In addition to a lump sum or

Page 27 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

annuity, some employers allow participants to withdraw their accounts

using installment payments that deplete the account over a period of time

that can be specified by the employer or the participant. Employers are

currently required to begin disbursements from pension accounts no later

than April of the year following the year participants turn age 701⁄2.

Of the 3,297 employers with 100 or more employees that sponsored only

single-employer DC plans in 1993, 92 percent reported providing for

lump-sum distributions, 67 percent for installment payments, and

47 percent for annuities when participants separated from the employer at

retirement. Of the 100 larger employers, 97 percent provided for lump-sum

distributions, 52 percent for installment payments, and 32 percent for

annuities when participants retired. Although the majority of employers

provided more than one withdrawal option in their plans, less than

one-third of the plans specified that participants could opt to withdraw

their accounts using a combination of withdrawal options—for example,

by taking a portion of their account as a lump-sum withdrawal and

purchasing an annuity with the remainder of their account balance.

Limiting participants to one withdrawal option may allow employers to

control their administrative costs. Figure 7 shows the combinations of

withdrawal options provided for by employers that sponsor only

single-employer DC plans.

Page 28 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

Figure 7: Percentage of Employers

That Provide for Various Combinations

of Withdrawal Options at Retirement,

by Employer Size (1993)

40

30

20

10

0

Percent of employers

Combination of available withdrawal options

Employers with 100 or more employees (n=3,297)

Employers with 10,000 or more employees (n=100)

Lump sum, annuity,

Lump sum &

Annuity only

Other combinations

installments

& installments

Lump sum & annuity

Lump sum only

Source: GAO analysis of SPD data (see app. II, table II.14).

For those participants who separate from an employer for reasons other

than retirement, employers generally provided for the same withdrawal

options as those available at retirement. However, the majority of the

employers allowed participants to defer making a withdrawal from their

accounts until a later date, thus providing them an option to avoid the

10 percent tax penalty assessed on pension assets withdrawn prior to age

591⁄2. The ability to maintain vested account balances with a prior employer

or to “roll over” funds to either a special individual retirement account or a

new employer’s retirement plan reflects the portability of DC plans. ERISA,

as amended, allows employers to unilaterally cash out a participant

account if the balance is $5,000 or less—72 percent of the employers (and

Page 29 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

80 percent of the larger employers) specified that participants with small

account balances would be required to receive a lump-sum distribution of

their accounts.

Under TSP, participants can choose to withdraw their accounts as a

lump-sum distribution, an annuity, or regular monthly installment

payments. For married participants who withdraw their accounts as a

lump sum or monthly installment payments, their spouses must first waive

their rights to a 50-percent joint life annuity. Participants with vested

account balances of $3,500 or less are to be automatically cashed out

unless participants select another withdrawal option or elect to leave the

funds in the plan. Participants may defer receiving any immediate

withdrawals from their accounts until April of the year following the year

they turn 701⁄2—the legal limit for pension deferral.

Use of Multiple Plans

and Possible

Explanations

Provided by Experts

and the Literature

According to DOL’s research database, in 1993, 12 percent of the

approximately 490,000 employers that sponsored only single-employer DC

plans covering 2 or more participants sponsored more than one DC plan for

the same group of employees. An employer may sponsor multiple plans to

provide primary benefits to different groups of employees, primary and

supplementary benefits to the same group of employees, or a combination

of both. It is important to note that employers that sponsor supplementary

pension plans do not necessarily offer more comprehensive or “generous”

retirement benefits than employers that offer only a primary plan.

Administrative costs are generally insignificant compared with the cost of

employer contributions, and pension programs with either one or multiple

plans can be designed to result in the same total cost to an employer.

The proportion of employers that sponsored multiple plans covering the

same groups of employees was fairly consistent across different employer

size categories—12 percent of employers with fewer than 100 employees

sponsored supplementary plans, as compared with 9 percent of employers

with 100 to 9,999 employees and 14 percent of employers with 10,000 or

more employees. One expert with whom we consulted suggested that a

greater proportion of larger employers may sponsor supplementary plans,

because these employers are more likely to have initially sponsored plans

that were later supplemented with a 401(k) plan to compete with other

employers.19 This same expert also noted that smaller employers were

19Under a 401(k) plan, participants may direct their employers to defer a portion of their compensation

to be directly deposited into their pension accounts. Taxes on these contributions, as well as any

investment earnings, are deferred until the participant receives a distribution from the account.

Page 30 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

better able to cope with managing multiple plans during the period before

computer technology was readily available.

The proportion of employers that sponsored multiple plans covering the

same groups of employees were also fairly evenly distributed across

different industry categories, although employers in the services industry

were about 30 percent more likely to sponsor supplementary plans, on

average. Employers in the mining, communications, and utilities industries

as well as tax-exempt employers were the least likely to sponsor

supplementary plans. Appendix III provides more detailed information on

the number of employers that sponsored primary and supplementary plans

in 1993, stratified by employer size and industry group.

Pension experts with whom we consulted and pension-related literature

suggested various factors that may explain why some employers might

choose to offer more than one pension plan to their employees. According

to these sources, employers that sponsor pension plans are primarily

concerned with controlling benefit costs, maximizing the federal tax

incentives for providing pensions, and meeting the legal requirements of

ERISA, as amended. Employers must also design their compensation and

benefit packages to support their overall business and financial goals. For

example, employers may use multiple pension plans to (1) recruit and

retain certain groups of employees while also satisfying longer-tenured

employees, (2) enhance productivity and employee morale, (3) reduce

pension liabilities by shifting a portion of pension contributions to

employees, and/or (4) link compensation to performance for higher paid

employees, as described in more detail below. These sources also said that

computer technology has made it possible for more employers to manage

multiple pension plans than would have been practical using only paper

records. As a result, employers may choose to sponsor multiple plans that

provide different combinations of pay and benefits to different groups of

employees.

According to the experts, employers must meet industry benefit standards

to remain competitive in attracting new employees and encouraging those

employees to stay with the company. By providing more than one pension

plan, employers can encourage career employment while meeting the

needs of younger, more mobile, workers with desired skills. For example,

younger and more mobile workers may demand a 401(k) plan in their

benefits packages to allow them to build up retirement benefits that are

fully portable should they change jobs. On the other hand, a basic annuity

(or “defined benefit”) plan may provide better benefits for employees who

Page 31 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

remain with an employer for the long term. By offering a pension program

consisting of both these types of plans, employers can satisfy the needs of

both groups of employees.

Employers may sponsor employee stock option plans (ESOP) and profit

sharing plans for a variety of reasons, only one of which is to provide

employees with primary or supplementary retirement benefits. These

plans can enhance employee productivity by increasing employee

identification with the company and providing a more direct incentive for

improved job performance. These plans also give employers the option of

whether to contribute to the plan in any given year, depending on

company profitability. For an ESOP, other benefits can include creating a

more liquid market for closely held stock, raising new capital, obtaining

financing at below-market interest rates, and sheltering profits from

corporate income taxes.

New retirement programs that include one or more DC plans may reflect a

cultural shift away from benefits paid solely by the employer towards a

partnership relationship between the employer and employees. By offering

a combination of pension plans, employers allow employees to influence

their own level of benefits according to their participation and investment

choices. Employers that offer a combination of a basic annuity and a DC

plan can guarantee a certain minimum level of retirement benefits, while

employees can choose the extent to which they participate in

supplementary plans to increase their potential benefits upon retirement.20

Employers can increase the benefits available to their senior executives

and other highly paid employees by sponsoring supplementary plans that

are not covered by ERISA and benefit only selected groups of employees.

Although these “nonqualified” plans are not accorded preferential tax

treatment, and therefore do not provide employers with tax benefits,

employers can use them to motivate executives by linking the amount of

benefits to some measurable level of performance, such as total sales.

Nonqualified plans also allow employers to provide higher-paid employees

with the same retirement income replacement rate as lower-paid

employees, while still complying with ERISA’s nondiscrimination

20Under FERS, the government guarantees that each participant will receive a certain minimum level

of retirement benefits from their basic annuities and Social Security and a 1 percent automatic

contribution to TSP. Participants who choose to contribute to their TSP accounts can add to this

guaranteed level of benefits.

Page 32 GAO/GGD-98-23 Private Pensions DC Plans
B-275103 

regulations and annual limits on employee contributions to the employer’s

other qualified pension plans.21

Agency Comments

and Our Evaluation

We requested comments on a draft of this report from the Secretary of

Labor. In a letter dated October 28, 1997, the Assistant Secretary of Labor

for Pension and Welfare Benefits provided Labor’s comments. (See app.

IV.) DOL provided no substantive comments; however they did make one

technical comment regarding the fact that nonqualified plans are not

accorded preferential tax treatment. We clarified the report to reflect this

comment.

As agreed with the Subcommittee, unless you publicly announce its

contents earlier, we plan no further distribution of this report until 30 days

after the date of this report. We will then send copies of this report to the

Ranking Minority Member of the Subcommittee, the Chairman and

Ranking Minority Member of the Senate Governmental Affairs Committee,

the Secretary of Labor, and other interested parties. We will also make

copies available to others on request.

Major contributors to this report are listed in appendix V. If you have any

questions, please call me at (202) 512-8676.

Sincerely yours,

Michael Brostek

Associate Director, Federal Management

 and Workforce Issues

21Because employers and/or participants are legally limited in the amount of contributions they can

make to a qualified plan account each year, certain higher-paid employees cannot accrue benefits at

the same rate as lower-paid employees under some plans. For example, for plans that allow

participants to contribute up to 10 percent of their salaries on a pretax basis, those participants that

earn more than $95,000 will not be able to contribute a full 10 percent of their salaries because of the

$9,500 annual limit on pretax contributions. Some employers sponsor additional plans that cover only

those higher-paid employees that cannot accrue benefits at the same rate as lower-paid employees

under the employers’ other pension plans. Because these additional plans explicitly exclude lower-paid

employees (i.e., they do not meet nondiscrimination rules established by ERISA, as amended), they are

nonqualified plans.

Page 33 GAO/GGD-98-23 Private Pensions DC Plans
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

38

Appendix II 

Summary Plan

Description Analysis

Results

44

Appendix III 

IRS Form 5500

Analysis Results

57

Appendix IV 

Comments From the

Department of Labor

59

Appendix V 

Major Contributors to

This Report

60

Tables Table I.1: Distribution of the 419 Employers by Employer Size 40

Table I.2: Disposition of Employers in the Sample by Employer

Size

41

Table II.1: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Participation Requirement and Employer Size

44

Table II.2: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Contribution Source and Type and Employer Size

45

Table II.3: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Basis for Making Nonmatching Contributions and Employer Size

46

Page 34 GAO/GGD-98-23 Private Pensions DC Plans
Contents

Table II.4: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Maximum Employer Nonmatching Contributions and Employer

Size

46

Table II.5: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Maximum Level of Participant Contributions Eligible for

Employer Matching and Employer Size

47

Table II.6: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

the Maximum Level of Employer Matching Contributions and

Employer Size

48

Table II.7: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

the Maximum Potential Employer Cost of Contributions and

Employer Size

49

Table II.8: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

the Maximum Participant Contributions Allowed and Employer

Size

50

Table II.9: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Type of Vesting for Matching and Nonmatching Contributions

and Employer Size

51

Table II.10: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Number of Years to Full Vesting for Matching and Nonmatching

Contributions and Employer Size

52

Table II.11: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Number of Investment Options for Each Type of Contribution

and Employer Size

53

Table II.12: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Type of Investment Options for Participant and Employer

Contributions and Employer Size

54

Table II.13: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Type of Participant Access to Account Assets and Employer Size

55

Page 35 GAO/GGD-98-23 Private Pensions DC Plans
Contents

Table II.14: Number and Percent of Employers That Sponsor Only

Single-Employer Primary Defined Contribution Pension Plans by

Withdrawal Options Available Upon Retirement and Employer

Size

56

Table III.1: Number of Private Sector Employers That Sponsor

Only Single-Employer Defined Contribution Pension Plans, by

Type of Pension Plan Offered and Employer Size

57

Table III.2: Number of Private Sector Employers That Sponsor

Only Single-Employer Defined Contribution Pension Plans, by

Type of Pension Plan Offered and Industry Group

58

Figures Figure 1: Percentage of Employers Using Various Eligibility

Requirements, by Employer Size

10

Figure 2: Percentage of Employers That Provide for Various

Types of Contributions, by Employer Size

13

Figure 3: Percentage of Employers That Provide for Various

Levels of Participant Pretax Contributions

17

Figure 4: Percentage of Employers That Require Various Lengths

of Service for Full Vesting in Matching and Nonmatching

Contributions, by Employer Size

20

Figure 5: Percentage of Employers That Specified Participant

Versus Employer-Directed Investment, by Contribution Type and

Employer Size

22

Figure 6: Percentage of Employers That Provide Various Types of

Access to Participant Accounts, by Employer Size

25

Figure 7: Percentage of Employers That Provide for Various

Combinations of Withdrawal Options at Retirement, by Employer

Size

29

Abbreviations

CSRS Civil Service Retirement System

DB defined benefit

DC defined contribution

DOL Department of Labor

ERISA Employee Retirement Income Security Act of 1994

ESOP employee stock option plan

FERS Federal Employees Retirement System

IRS Internal Revenue Service

SPD summary plan description

TSP Thrift Savings Plan

Page 36 GAO/GGD-98-23 Private Pensions DC Plans
Page 37 GAO/GGD-98-23 Private Pensions DC Plans
Appendix I 

Objectives, Scope, and Methodology

The Chairman, Subcommittee on Civil Service, House Committee on

Government Reform and Oversight, asked us to provide information on

the use of defined contribution (DC) plans in the private sector.1

 He said

that such information would assist congressional decisionmakers as they

consider whether to design a retirement system for new federal hires.

Among the information requested was an analysis of the features of

private sector DC plans. This review was undertaken in response to that

part of the request. The objective of our review was to determine, for

employers that sponsored only DC plans, the

• eligibility requirements for employee participation,

• arrangements for employer and participant contributions,

• eligibility requirements for employee rights to accrued benefits,

• employee investment options,

• loan and other provisions for participant access to plan assets while still

employed, and

• options for withdrawal of benefits upon separation or retirement.

To address an additional interest of the requester, we also determined the

number of employers that sponsored more than one DC plan to provide

retirement benefits to the same groups of employees, and their potential

reasons for doing so.

To accomplish the first objective, we reviewed Summary Plan

Descriptions (SPD)—documents describing the terms and conditions of

pension plans that all private employers were to file with the Department

of Labor (DOL) for each pension plan they sponsored—for a random

stratified sample of private sector employers that sponsored only DC plans

to supplement their employees’ Social Security. We also included

additional plan information that was available from the DOL research

database, which we used to draw our sample of employers.

During our early design work, DOL officials told us that the Department did

not monitor or enforce employer compliance with the SPD filing

requirement because of limited resources and other competing priorities.2

For this reason, we identified a preliminary sample of employers and

mailed written requests for the employers’ SPDs. On the basis of this initial

request, we determined that it would be difficult to obtain SPDs from

1

A DC plan is one in which retirement benefits depend upon the amounts contributed to individual

employee accounts and the investment experience of that account up to the time of retirement.

2

Effective August 5, 1997, with the passage of the Taxpayer Relief Act of 1997, private employers

subject to ERISA are required to file copies of their SPDs with DOL only upon request.

Page 38 GAO/GGD-98-23 Private Pensions DC Plans
Appendix I 

Objectives, Scope, and Methodology

employers with less than 100 employees, because these employers had a

very high nonresponse rate to our request. Moreover, DOL officials told us

that smaller employers were also much less likely to file an SPD with DOL,

compared with larger employers. Therefore, as agreed with the

Subcommittee, we limited the review of SPDs to employers with 100 or

more employees.

It is important to note that the data shown in this report may reflect only

part of each sampled employer’s retirement benefits program, because it

does not include information on (1) additional DC plans that some

employers offer or (2) Social Security benefits that most workers will

qualify for upon retirement.

Sample Selection To select our nationwide sample from employers with 100 or more

employees that sponsored only single-employer DC plans, we used the 1993

research database of computerized Internal Revenue Service (IRS) Form

5500 reports maintained by the Pension and Welfare Benefits

Administration of the Department of Labor (DOL)—the most recent data

available when we designed our review. Under the Employee Retirement

Income Security Act of 1974, private employers must annually file a

separate Form 5500 report with the IRS for each of their pension plans.

Each report is to contain financial, participant, and actuarial data.

We did not independently verify the accuracy of the DOL research database.

However, IRS edits the reports by checking addition and consistency on

financial and other record items and corresponds with filers to obtain

corrected data before providing the computerized data to DOL. DOL further

edits the Form 5500 data to identify problems, such as truncated or

incorrect entries, before constructing its research database, which

consists of (1) all plans with 100 or more participants for which a Form

5500 was filed and (2) a 10-percent sample that is weighted to represent

the universe of all plans with less than 100 participants.

According to the DOL research database, approximately 490,000 employers

with 2 or more employees sponsored only single-employer DC plans in

1993. We excluded employers that (1) had fewer than 100 employees,

(2) sponsored only multiemployer DC plans, because of incomplete data,3

or (3) sponsored only DC plans that were either terminated or consolidated

3

A multiemployer plan is one to which more than one employer is required to contribute pursuant to

one or more collective bargaining agreements. Only one Form 5500 is filed for each multiemployer

plan, using one of the sponsoring employers’ identification numbers. Therefore, we could not identify

all of the participating employers.

Page 39 GAO/GGD-98-23 Private Pensions DC Plans
Appendix I 

Objectives, Scope, and Methodology

with another plan during 1993, because we wanted to review plans that

had the greatest probability of still being in existence at the time we issued

a report. Finally, we excluded those employers that offered only DC plans

for which we could not determine the number of employees from the 5500

reports. We selected a sample of 419 employers from the remaining

universe of 3,297 employers.4

Because we randomly selected the sample of private employers that

sponsor only DC plans, the results are subject to some uncertainty or

sampling error. The sampling error consists of two parts: confidence levels

and ranges. The confidence level indicates the degree of confidence that

can be placed in the estimates derived from the sample. The range is the

upper and lower limits between which the actual universe estimates may

be found. Our sample was designed so that the sampling error would not

be greater than 10 percent at the 95-percent confidence level; however,

where we further subdivided the sample along particular groups (e.g.,

employers that provided for matching contributions), the resulting number

of employers was too small to meet this criteria. In the letter portion of

this report, we indicate when the sampling errors are greater than

10 percent; these sampling errors are also at the 95-percent confidence

level. In appendix II, which provides the detailed results of our analyses,

we do not provide individual sample errors, because the number of such

individual estimates would be prohibitive.

We stratified our sample according to employer size using 3

categories—100 to 999; 1,000 to 9,999; and 10,000 or more employees. We

included in our sample all the employers that had 10,000 or more

employees, because these employers may provide a more relevant

comparison with the federal government. Table I.1 shows the distribution

of the employers from which we selected our sample and the 419

employers selected according to employer size.

Table I.1: Distribution of the 419

Employers by Employer Size

Number of employees

Number of employers in

sample universe

Number of employers in

sample

100-999 2,498 158

1,000-9,999 699 161

10,000 or more 100 100

Total 3,297 419

Source: GAO analysis of data obtained from DOL.

4

We originally selected a sample of 430 employers; however, we excluded 11 of these employers from

our study because of incorrect codes in the DOL research database.

Page 40 GAO/GGD-98-23 Private Pensions DC Plans
Appendix I 

Objectives, Scope, and Methodology

Response Rate Calculation For the 419 employers in our sample, we (1) identified the unique plan

number for each employer’s primary DC plan using the DOL research

database and (2) sent each employer a letter requesting that an SPD for the

identified plan be provided to us. For those employers that sponsored

more than one such plan (each covering different groups of employees),

we requested information on the employer’s largest primary plan.5

 For 50

of the employers, our letters were returned as nondeliverable. From the

remaining 369 employers, we received 138 SPDs. Forty-four employers

provided us with a different plan than the one we requested; however, the

plans provided appeared to be a primary DC plan and were included in our

review.

To obtain the 281 SPDs that we did not receive directly from employers, we

requested that DOL provide us copies from its files. DOL provided 143 of the

requested SPDs and told us that 138 of the SPDs were not available, because

the employer never filed a copy as required by law.

Overall, we were able to obtain SPDs for 281 of the 419 employers in our

sample, for a response rate of 67 percent. We were unable to determine if

the SPDs provided by employers or DOL reflected the most current

information available. Table I.2 shows the disposition of each of the 419

employers in our sample by employer size.

Table I.2: Disposition of Employers in

the Sample by Employer Size Number of employees

Employers in sample 100-999 1,000-9,999

10,000 or

more Total

SPD provided by employer 47 60 31 138

SPD provided by DOL 60 49 34 143

Subtotal 107 109 65 281

SPD not provided by

employer or DOL

51 52 35 138

Total 158 161 100 419

To examine the extent to which our results were generalizable, we

compared the 281 employers for which we obtained an SPD to the universe

of employers with 100 or more employees that offered only

single-employer DC plans on the basis of employer size, industry type, and

geographic region. The results of these analyses showed that the sample

respondents were generally comparable to employers in our universe for

these characteristics.

5

Approximately 6 percent of the employers in our universe sponsored more than one primary plan.

Page 41 GAO/GGD-98-23 Private Pensions DC Plans
Appendix I 

Objectives, Scope, and Methodology

Analysis of SPD Data To identify and summarize the general characteristics of the 281 DC plans

for which we obtained an SPD, we developed a detailed data collection

instrument to allow information from each SPD to be recorded in a

consistent and standardized way. Each SPD was reviewed twice—the

second review was completed by a more experienced analyst to provide

100 percent verification of the information collected. We did not

independently verify the accuracy of the information described in the SPDs.

We entered the information from the data collection instruments into a

database to determine the frequency of the data elements and reviewed

our results for patterns and relationships.

Review of Thrift Savings

Plan Provisions

To identify information on the federal Thrift Savings Plan (TSP), we

reviewed various publications that we obtained from the Federal

Retirement Thrift Investment Board. We included this information in our

report to provide a general basis for comparison between the

government’s existing DC plan and those plans sponsored in the private

sector.

Analysis of Research

Database

To supplement the data available from the SPDs, we pulled additional plan

information from DOL’s research database—the same database from which

we selected our sample. We used this information to analyze the rate at

which eligible employees chose to participate in the plans, the employers’

methods of managing accounts, the proportion of participants that were

fully vested, and the percentage of plan assets invested in employer

stocks, stocks, bonds, and outstanding participant loans. We were able to

supplement only those SPDs that described plans included in the 1993

research database.

Review of Multiple Plans To address part of the second objective, which was to identify the number

of employers that sponsored more than one DC plan covering the same

groups of employees, we used the 1993 DOL research database and

included employers with two or more employees. To determine why

employers might decide to sponsor multiple plans, the remainder of the

second objective, we (1) reviewed retirement-related literature that we

identified using an on-line business periodical system and (2) consulted

with experts in the field of pensions. The experts with whom we consulted

were Mr. Ray Schmitt, Specialist, and Ms. Carolyn Merck, Specialist, the

Congressional Research Service; Mr. Dallas Salisbury, President, the

Page 42 GAO/GGD-98-23 Private Pensions DC Plans
Appendix I 

Objectives, Scope, and Methodology

Employee Benefit Research Institute; Mr. Richard R. Joss, Resource

Actuary, Watson Wyatt Worldwide; and Ms. Martha Priddy Patterson,

Director of Employee Benefits, Policy and Analysis, KPMG Peat Marwick.

We selected these individuals because we had identified them as experts

during prior work we had done on private sector pension issues.

To identify whether plans in its research database provided primary versus

supplementary benefits, DOL used a set of assumptions, which it validated

for a small sample of plans. Employers that sponsored only one plan, by

definition, sponsored a primary plan. For employers that sponsored more

than one plan, DOL’s assumptions identified (1) multiple DC plans of the

same type as primary plans covering different groups of employees and

(2) multiple DC plans of different types as primary and supplementary

plans covering the same group of employees, with the largest one being

the primary plan. We did not independently verify the accuracy of DOL’s

criteria for identifying the primary versus supplementary status of plans.

According to DOL officials, their validation analyses indicated that their

assumptions were not accurate in all cases; however, they appeared to be

valid for the large majority of situations where employers sponsor more

than one pension plan.

We obtained and analyzed the sample of SPDs and completed the review of

multiple plans between October 1996 and July 1997 in accordance with

generally accepted government auditing standards.

Page 43 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.1: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Participation Requirement and Employer Size (1993) 

100 or more 10,000 or morea

Number of employees

Participation

requirement Number Percent Number Percent

Age (in years) 18 254 8 8 8

19 47 1 0 0

20 60 2 0 0

20.5 85 3 2 2

21 1,564 47 34 34

Noneb 1,232 37 54 54

Not specified 56 2 3 3

Total 3,297 100 100 100

Length of service 1 month 33 1 3 3

3 months 97 3 2 2

4 months 23 1 0 0

6 months 460 14 8 8

9 months 6 0 0 0

1 year 2,159 65 69 69

1.25 years 6 0 0 0

2 years 91 3 2 2

Nonec 365 11 14 14

Not specified 56 2 3 3

Total 3,297 100 100 100

Note: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

bBecause 1,093 employers with 100 or more employees (and 51 employers with 10,000 or more

employees) were silent regarding an age requirement but explicitly specified that employees

must meet a particular length-of-service requirement—we included these employers under the

“none” rather than “not specified” category.

cBecause 47 employers with 100 or more employees were silent regarding a length-of-service

requirement but explicitly specified that employees must meet a particular age requirement—we

included these employers under the “none” rather than “not specified” category.

Source: GAO analysis of summary plan description data.

Page 44 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.2: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Contribution Source and Type and Employer Size (1993) 

Participant Employer 100 or more 10,000 or morea

Contribution source and type Number of employees

Pretax After-tax Matching Nonmatching Number Percent Number Percent

• 42 1 6 6

• • • 107 3 5 5

• • • • 165 5 3 3

• • • 63 2 3 3

• • 265 8 18 18

• • • 819 25 26 26

• • 196 6 11 11

• • 23 1 0 0

• • 183 6 0 0

•b 23 1 0 0

•b • 8 0 2 2

• 1,354 41 23 23

Not specified 50 2 3 3

Total 3,297 100 100 100

Note: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

bThese employers provided matching contributions on the basis of contributions that participants

made to a separate pension plan.

Source: GAO analysis of summary plan description data.

Page 45 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.3: Number and Percent of

Employers That Sponsor Only

Single-Employer Primary Defined

Contribution Pension Plans by Basis

for Making Nonmatching Contributions

and Employer Size (1993) 

100 or more 10,000 or morea

Number of employees

Basis for making

nonmatching contributions Number Percent Number Percent

Some percent of profits,

allocated by participant

compensation

1,238 44 26 38

Participant compensation 1,251 45 25 37

Profits and participant

compensation

24 1 5 7

Some percent of profits,

allocated by participant

contributions

11 0 5 7

Other 107 4 5 7

Not specified 156 6 3 4

Total 2,786 100 68 100

Note: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Table II.4: Number and Percent of

Employers That Sponsor Only

Single-Employer Primary Defined

Contribution Pension Plans by

Maximum Employer Nonmatching

Contributions and Employer Size

(1993) 

100 or more 10,000 or morea

Maximum employer Number of employees nonmatching contributions

expressed (as a percent of

participant salary) Number Percent Number Percent

5 percent or less 223 8 17 25

6 to 10 percent 196 7 5 7

More than 10 percent 154 6 2 3

Not specified 2,212 79 45 66

Total 2,786 100 68 100

Note: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 46 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.5: Number and Percent of

Employers That Sponsor Only

Single-Employer Primary Defined

Contribution Pension Plans by

Maximum Level of Participant

Contributions Eligible for Employer

Matching and Employer Size (1993) 

100 or more 10,000 or moreb

Maximum participant Number of employees contribution eligible for

employer matchinga

(percent of salary) Number Percent Number Percent

1 percent 0 0 0 0

2 percent 93 11 0 0

3 percent 78 10 6 18

4 percent 222 27 8 23

5 percent 97 12 2 5

6 percent 231 28 14 41

7 percent 48 6 2 5

8 percent 23 3 0 0

9 percent 0 0 0 0

10 percent 8 1 2 5

More than 10 percent 14 2 2 5

Total 816 100 34 100

Note 1: Of the 3,297 employers with 100 or more employees in our study, 1,410 employers

provided matching contributions to the primary plan. We could only determine the maximum

participant contributions eligible for employer matching contributions for 816 of these 1,410

employers, because the summary plan descriptions for the remaining 594 employers did not

contain this information.

Note 2: Due to rounding, numbers and percentages do not always add to the total.

aThis column represents the maximum participant contribution, expressed as a percent of salary,

for which employers will provide some level of matching contributions. However, participants are

frequently allowed to contribute a greater percent of salary than that which is eligible for matching

contributions. For example, an employer may allow participants to contribute up to 10 percent of

their salary to a plan but provide matching contributions for only the first 6 percent contributed.

bEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 47 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.6: Number and Percent of

Employers That Sponsor Only

Single-Employer Primary Defined

Contribution Pension Plans by the

Maximum Level of Employer Matching

Contributions and Employer Size

(1993) 

100 or more 10,000 or moreb

Number of employees Maximum level of employer

matching of eligible

participant contributionsa Number Percent Number Percent

Less than 25 percent 43 5 0 0

25 percent 162 20 3 9

26 to 49 percent 19 2 0 0

50 percent 248 30 8 25

51 to 74 percent 38 5 2 6

75 percent 23 3 0 0

76 to 99 percent 0 0 0 0

100 percent 249 31 17 53

More than 100 percent 33 4 3 9

Total 815 100 32 100

Note 1: Of the 3,297 employers with 100 or more employees in our study, 1,410 employers

provided matching contributions to the primary plan. We could only determine the maximum level

of employer matching of eligible participant contributions for 815 of these 1,410 employers,

because the summary plan descriptions for the remaining 595 employers did not contain this

information.

Note 2: Due to rounding, numbers and percentages do not always add to the total.

aThis column represents the overall level of matching contributions that employers provided for

eligible participant contributions. For example, if an employer provided $1 dollar for each dollar of

a participant’s contribution that was eligible for employer matching, then the overall level of

matching contributions would be 100 percent. If an employer provided 50 cents for each dollar of

a participant’s contribution that was eligible for employer matching, then the overall level of

matching contributions would be 50 percent.

bEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 48 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.7: Number and Percent of

Employers That Sponsor Only

Single-Employer Primary Defined

Contribution Pension Plans by the

Maximum Potential Employer Cost of

Contributions and Employer Size

(1993) 

100 or more 10,000 or moreb

Maximum potential Number of employees employer cost of

contributionsa (percent of

salary) Number Percent Number Percent

Employer does not contribute

to plan 42 5 6 16

1 percent 31 4 2 4

2 percent 120 14 5 12

3 percent 120 14 5 12

4 percent 138 16 6 16

5 percent 72 8 6 16

6 percent 46 5 3 8

7 percent 55 6 2 4

8 percent 13 1 0 0

9 percent 2 0 2 4

10 percent 114 13 2 4

11 to 15 percent 106 12 0 0

16 to 18 percent 25 3 2 4

Total 883 100 38 100

Note 1: Of the 3,297 employers with 100 or more employees in our study, 3,205 employers

specified that they made matching and/or nonmatching contributions to the primary plan. Of

these 3,205 employers, we could only determine the maximum potential employer cost of

contributions for 883 employers, because the summary plan descriptions for the remaining 2,322

employers did not contain this information.

Note 2: Due to rounding, numbers and percentages do not always add to the total.

aThis column represents the maximum potential employer cost of making contributions to the

primary plan. An employer’s actual cost of contributions may be less than this maximum. For

example, participants might not contribute enough to maximize employer matching contributions

or the employer might elect to contribute less than the maximum allowable nonmatching

contribution in any given year.

bEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 49 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.8: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by the Maximum Participant Contributions Allowed and Employer Size (1993) 

100 or more 10,000 or morea

Number of employees

Type of participant

contributions allowed

Maximum rate of participant

contribution allowed

(percent of salary) Number Percent Number Percent

Pretax only 1 to 5 percent 38 3 2 3

6 to 10 percent 292 22 14 23

11 to 15 percent 622 47 35 56

16 to 20 percent 119 9 6 10

21 to 25 percent 23 2 0 0

Not specified 228 17 5 8

Total 1,322 100 62 100

After-tax only 1 to 5 percent 0 0 0 0

6 to 10 percent 83 40 0 0

11 to 15 percent 0 0 0 0

16 to 20 percent 0 0 0 0

21 to 25 percent 0 0 0 0

Not specified 123 60 0 0

Total 206 100 0 0

Pretax and after-tax 1 to 5 percent 0 0 0 0

6 to 10 percent 54 16 5 45

11 to 15 percent 66 20 0 0

16 to 20 percent 9 3 3 27

21 to 25 percent 6 2 0 0

Not specified 199 60 3 27

Total 334 100 11 100

Note: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 50 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.9: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Type of Vesting for Matching and Nonmatching Contributions and Employer Size (1993) 

100 or more 10,000 or moreb

Number of employees

Type of employer

contribution Type of vestinga Number Percent Number Percent

Matching Immediate 478 34 28 52

Cliff 127 9 12 22

Graduated 768 54 14 26

Not specified 36 3 0 0

Total 1,410 100 54 100

Nonmatching Immediate 356 13 15 22

Cliff 483 17 17 25

Graduated 1,917 69 34 50

Not specified 31 1 2 3

Total 2,786 100 68 100

Note 1: For defined contribution plans, the term “vesting” refers to a participant’s ownership rights

to employer contributions made to his or her individual plan account (and the earnings that

accrue from those contributions) even if the participant separates from the employer. Participants

are always fully vested in any pretax or after-tax contributions that they make to the plan.

Note 2: Due to rounding, numbers and percentages do not always add to the total.

aThree common forms of vesting include immediate, cliff, and graduated vested. Under

immediate vesting, participants are fully vested in employer contributions at the time they are

made. Under cliff vesting, participants become fully vested after a specified number of years of

service, with no vesting prior to that number of years. Under graduated vesting, participants are

partially vested over a period of years according to an increasing schedule until full vesting is

achieved.

bEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 51 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.10: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Number of Years to Full Vesting for Matching and Nonmatching Contributions and Employer Size (1993)

100 or more 10,000 or morea

Number of employees

Type of employer

contribution

Number of years to full

vesting Number Percent Number Percent

Matching Immediate 478 34 28 52

1 year 0 0 0 0

2 years 6 0 0 0

3 years 84 6 2 4

4 years 44 3 2 4

5 years 256 18 16 30

6 years 136 10 6 11

7 years 369 26 2 4

Not specified 36 3 0 0

Total 1,410 100 54 100

Nonmatching Immediate 356 13 15 22

1 year 6 0 0 0

2 years 6 0 0 0

3 years 154 6 2 3

4 years 96 3 0 0

5 years 716 26 23 34

6 years 449 16 3 4

7 years 995 36 23 34

Not specified 8 0 2 3

Total 2,786 100 68 100

Note 1: For defined contribution plans, the term “vesting” refers to a participant’s ownership rights

to employer contributions made to his or her individual plan account (and the earnings that

accrue from those contributions) even if the participant separates from the employer. Participants

are always fully vested in any pretax or after-tax contributions that they make to the plan.

Note 2: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 52 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.11: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Number of Investment Options for Each Type of Contribution and Employer Size (1993) 

100 or more 10,000 or morea

Number of employees

Type of contribution

Number of investment

options Number Percent Number Percent

Pretax None—employer directs

investments

248 15 6 8

2 to 3 options 75 5 9 13

4 to 9 options 467 28 35 49

10 or more options 88 5 3 4

Not specified 777 47 19 26

Total 1,656 100 72 100

After-tax None—employer directs

investments

123 23 0 0

2 to 3 options 38 7 2 18

4 to 9 options 138 26 6 55

10 or more options 13 2 0 0

Not specified 228 42 3 27

Total 540 100 11 100

Matching None—employer directs

investments

232 16 11 20

2 to 3 options 50 4 8 15

4 to 9 options 377 27 20 37

10 or more options 75 5 3 6

Not specified 675 48 13 24

Total 1,410 100 54 100

Nonmatching None—employer directs

investments

1,253 45 31 46

2 to 3 options 111 4 5 7

4 to 9 options 434 16 15 22

10 or more options 61 2 2 3

Not specified 927 33 16 24

Total 2,786 100 68 100

Note: Due to rounding, numbers and percentages do not always add to the total.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 53 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.12: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Type of Investment Options for Participant and Employer Contributions and Employer Size (1993) 

100 or more 10,000 or moreb

Number of employees

Type of contribution Type of investment optiona Number Percentc Number Percentc

Participant Employer stock 129 4 18 18

Stock funds 604 18 45 45

Bond funds 343 10 20 20

Balanced funds 397 12 29 29

Guaranteed investment

contract

469 14 25 25

U.S. government securities 172 5 6 6

Money market 337 10 31 31

Employer Employer stock 605 18 31 31

Stock funds 745 23 43 43

Bond funds 451 14 26 26

Balanced funds 565 17 31 31

Guaranteed investment

contract

625 19 28 28

U.S. government securities 217 7 5 5

Money market 446 14 31 31

aEmployers can provide participants with a variety of options for investing participant and/or

employer contributions. Some common investment options include shares of the employer’s

stock; shares of stock in other companies; bonds offered by other companies; balanced funds,

which invest in both stocks and bonds; guaranteed investment contracts, which are offered by

insurance companies and provide a guaranteed rate of return for a specified period of time; U.S.

government securities; and money market funds, which are invested in short-term securities such

as Treasury bills and bank certificates of deposit.

bEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

cBecause some employers offered more than one of these investment options, percentages will

not add to 100 percent.

Source: GAO analysis of summary plan description data.

Page 54 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.13: Number and Percent of Employers That Sponsor Only Single-Employer Primary Defined Contribution Pension

Plans by Type of Participant Access to Account Assets and Employer Size (1993)

100 or more 10,000 or morea

Type of participant access to vested account assets Number of employees

Hardship

withdrawalsb Loansb

Voluntary

withdrawalsc Number Percent Number Percent

• 283 9 9 9

• • 759 23 34 34

• • • 269 8 9 9

• • 108 3 6 6

• 403 12 14 14

• • 100 3 0 0

• 232 7 0 0

Not specified 1,144 35 28 28

Note: Employers can design defined contribution plans to allow participants access to a portion

of their vested account balance before retirement using a variety of plan features, including

hardship withdrawals, loans, and voluntary withdrawals. Participants who use a withdrawal option

may be subject to various IRS and/or employer limits and penalties.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

bHardship withdrawal provisions allow participants to withdraw a portion of their own contributions

to the plan if they suffer a financial hardship, as defined by the IRS.

cLoan provisions allow participants to withdraw a portion of their account, subject to IRS limits,

and repay their account within a specified period at a specified rate of interest.

dVoluntary withdrawal provisions allow participants to withdraw a portion of their after-tax

contributions and/or employer contributions for any reason and without having to repay their

accounts.

Source: GAO analysis of summary plan description data.

Page 55 GAO/GGD-98-23 Private Pensions DC Plans
Appendix II 

Summary Plan Description Analysis Results

Table II.14: Number and Percent of

Employers That Sponsor Only

Single-Employer Primary Defined

Contribution Pension Plans by

Withdrawal Options Available Upon

Retirement and Employer Size (1993)

100 or more 10,000 or morea

Number of employees

Withdrawal options

available upon retirement Number Percent Number Percent

Lump-sum distribution 3,022 92 97 97

Annuity 1,537 47 32 32

Installment payments 2,216 67 52 52

Access to account balance

as needed

14 0 2 2

Other 78 2 2 2

Not specified 175 5 3 3

Note: Because some employers offer more than one withdrawal option, percentages do not add

to 100 percent.

aEmployers with 10,000 or more employees represent a subset of the employers with 100 or more

employees.

Source: GAO analysis of summary plan description data.

Page 56 GAO/GGD-98-23 Private Pensions DC Plans
Appendix III 

IRS Form 5500 Analysis Results

Table III.1: Number of Private Sector

Employers That Sponsor Only

Single-Employer Defined Contribution

Pension Plans, by Type of Pension

Plan Offered and Employer Size (1993) Number of

employees

Number of

employers that

sponsored primary

plans

Number of

employers that

sponsored

supplementary

plans

Proportion of

employers that

sponsored

supplementary

plans

2-9 173,762 28,938 0.167

10-24 110,089 11,093 0.101

25-49 62,107 4,441 0.072

50-99 39,556 2,579 0.065

100-249 29,073 2,288 0.079

250-499 9,455 874 0.092

500-999 4,960 506 0.102

1,000-2,499 2,622 290 0.111

2,500-4,999 969 162 0.167

5,000-9,999 427 65 0.152

10,000-19,999 261 40 0.153

20,000-49,999 143 19 0.133

50,000 or more 145 19 0.131

Not reported 56,689 5,711 0.101

Total 490,258 57,025 0.116

Note 1: This table includes those employers that sponsored only single-employer DC pension

plans covering two or more participants.

Note 2: The database that we analyzed categorizes pension plans as primary or supplementary

using a set of criteria established by DOL. According to these criteria, employers that sponsored

only one plan, by definition, sponsored a primary plan. For employers that sponsored more than

one plan, DOL’s assumptions identified (1) multiple DC plans of the same type as primary plans

covering different groups of employees and (2) multiple DC plans of different types as primary

and supplementary plans covering the same group of employees, with the largest one being the

primary plan.

Source: GAO analysis of IRS Form 5500 data.

Page 57 GAO/GGD-98-23 Private Pensions DC Plans
Appendix III 

IRS Form 5500 Analysis Results

Table III.2: Number of Private Sector Employers That Sponsor Only Single-Employer Defined Contribution Pension Plans,

by Type of Pension Plan Offered and Industry Group (1993)

Industry group

Number of employers that

sponsored primary plans

Number of employers that

sponsored supplementary

plans

Proportion of employers

that sponsored

supplementary plans

Agriculture 8,285 687 0.083

Mining 2,455 136 0.055

Construction 33,147 3,415 0.103

Manufacturing 56,348 4,193 0.074

Transportation 6,665 512 0.077

Communications and utilities 3,987 240 0.060

Wholesale trade 36,899 3,316 0.090

Retail trade 47,273 3,373 0.071

Finance, insurance, and real estate 34,786 3,064 0.088

Services 247,056 37,692 0.153

Tax-exempt organizations 15,363 612 0.040

Not reported 703 61 0.087

Total 492,967 57,301 0.116

Note 1: This table includes those employers that only sponsored single-employer DC pension

plans.

Note 2: The database that we analyzed categorizes pension plans as primary or supplementary

using a set of criteria established by DOL. According to these criteria, employers that sponsored

only one plan, by definition, sponsored a primary plan. For employers that sponsored more than

one plan, DOL’s assumptions identified (1) multiple DC plans of the same type as primary plans

covering different groups of employees, and (2) multiple DC plans of different types as primary

and supplementary plans covering the same group of employees, with the largest one being the

primary plan.

Source: GAO analysis of IRS Form 5500 data.

Page 58 GAO/GGD-98-23 Private Pensions DC Plans
Appendix IV 

Comments From the Department of Labor

Page 59 GAO/GGD-98-23 Private Pensions DC Plans
Appendix V 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Margaret T. Wrightson, Assistant Director, Federal Management and

 Workforce Issues

James A. Bell, Assistant Director

Jennifer S. Cruise, Evaluator-in-Charge

Gregory H. Wilmoth, Senior Social Science Analyst

George H. Quinn, Jr., Computer Specialist

Ernestine B. Burt, Issue Area Assistant

Carol B. Quick, Intern

(410080) Page 60 GAO/GGD-98-23 Private Pensions DC Plans
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