401(K) PLANS

Effects of Eligibility 

and Vesting Policies 

on Workers' 

Retirement Savings

Accessible Version

Report to the Ranking Member, 

Subcommittee on Tax Policy, Committee 

on Ways and Means, House of 

Representatives

October 2016

GAO-17-69

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-69, a report to the 

Ranking Member, Subcommittee on Tax 

Policy, Committee on Ways and Means, 

House of Representatives

October 2016

401(K) PLANS

Effects of Eligibility and Vesting Policies on Workers’ 

Retirement Savings

Why GAO Did This Study

ERISA allows sponsors to opt to set up 

401(k) plans—which are the 

predominant type of plan offered by 

many employers to promote workers’ 

retirement savings—and to set 

eligibility and vesting policies for the 

plans. GAO was asked to examine 

401(k) plans’ use of these policies. 

Among other objectives, this report 

examines 1) what is known about the

prevalence of these policies and why 

plans use them, and 2) the potential 

effects of these policies on workers’ 

retirement savings. 

GAO conducted a nongeneralizable 

survey of 80 plan sponsors and plan 

professionals regarding plans’ use of 

eligibility and vesting policies and the 

reasons for using them; reviewed 

industry data on plans’ use of eligibility 

and vesting policies; and projected 

potential effects on retirement savings 

based on hypothetical scenarios. GAO 

also interviewed federal officials and 

21 retirement professionals and 

academic researchers.

What GAO Recommends

GAO suggests Congress consider a 

number of changes to ERISA, 

including changes to the minimum age 

for plan eligibility and plans’ use of a 

last-day policy. GAO is also making 

two recommendations, including that 

Treasury reevaluate existing vesting 

policies to assess if current policies are 

appropriate for today’s mobile 

workforce. Treasury had no comment 

on the recommendation. GAO believes 

that such an evaluation would be 

beneficial, given the potential for 

vesting policies to reduce retirement 

savings.

What GAO Found

GAO’s nongeneralizable survey of 80 401(k) plans ranging in size from fewer 

than 100 participants to more than 5,000 and its review of industry data found 

that many plans have policies that affect workers’ ability to (1) save in plans 

(eligibility policies), (2) receive employer contributions, and (3) keep those 

employer contributions if they leave their job (vesting policies). Thirty-three of 80 

plans surveyed had policies that did not allow workers younger than age 21 to 

participate in the plan. In addition, 19 plans required participants to be employed 

on the last day of the year to receive any employer contribution for that year. 

Fifty-seven plans had vesting policies requiring employees to work for a certain 

period of time before employer contributions to their accounts are vested. Plan 

sponsors and plan professionals GAO surveyed identified lowering costs and 

reducing employee turnover as the primary reasons that plans use these policies.

The Employee Retirement Income Security Act of 1974 (ERISA) allows plan 

sponsors to set eligibility and vesting policies. Specifically, federal law permits 

401(k) plan sponsors to require that workers be at least age 21 to be eligible to

join the plan. The law also permits plans to use rules affecting 401(k) plan 

participants’ receipt of employer contributions and the vesting of contributions 

already received. However, over time workers have come to rely less on 

traditional pensions and more on their 401(k) plan savings for retirement security. 

Further, while the rules were designed, in part, to help sponsors provide profit 

sharing contributions, today 401(k) plan sponsors are more likely to provide 

matching contributions and today’s workers may be likely to change jobs 

frequently. GAO’s projections for hypothetical scenarios suggest that these 

policies could potentially reduce workers' retirement savings. For example, 

assuming a minimum age policy of 21, GAO projections estimate that a mediumlevel earner who does not save in a plan or receive a 3 percent employer 

matching contribution from age 18 to 20 could have $134,456 less savings by 

their retirement at age 67 ($36,422 in 2016 dollars). Saving early for retirement is 

consistent with Department of Labor guidance as well as previous legislation and 

allows workers to benefit from compound interest, which can grow their savings 

over decades. In addition, the law permits plans to require that participants be 

employed on the last day of the year to receive employer contributions each 

year, which could reduce savings for today’s mobile workforce. For example, 

GAO’s projections suggest that if a medium-level earner did not meet a last day 

policy when leaving a job at age 30, the employer’s 3 percent matching 

contribution not received for that year could have been worth $29,297 by the 

worker’s retirement at age 67 ($8,150 in 2016 dollars). GAO’s projections also 

suggest that vesting policies may also potentially reduce retirement savings. For 

example, if a worker leaves two jobs after 2 years, at ages 20 and 40, where the 

plan requires 3 years for full vesting, the employer contributions forfeited could 

be worth $81,743 at retirement ($22,143 in 2016 dollars).The Department of 

Treasury (Treasury) is responsible for evaluating and developing proposals for 

legislative changes for 401(k) plan policies, but has not recently done so for 

vesting policies. Vesting caps for employer matching contributions in 401(k) 

plans are 15 years old. A re-evaluation of these caps would help to assess 

whether they unduly reduce the retirement savings of today’s mobile workers. 

View GAO-17-69. For more information, 

contact Charles Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov.
Letter 1

Page i GAO-17-69 401(k) Plans

Background 5

Many Plan Sponsors In Our Survey Use Policies that Determine 

Workers’ Eligibility to Save in 401(k) Plans and to Retain 

Employer Contributions, Often to Reduce Costs and Employee 

Turnover 15

GAO Hypothetical Projections Suggest Current Plan Eligibility, 

Employer Contribution, and Vesting Policies Can Result in 

Lower Retirement Savings 27

Clearer Policy Descriptions by 401(k) Plans Could Help 

Participants to Better Understand Eligibility and Vesting Policies 47

Conclusions 58

Matters for Congressional Consideration 60

Recommendations for Executive Action 61

Agency Comments and Our Evaluation 61

Appendix I: Objectives, Scope, and Methodology 64

Appendix II: Explanation of Hypothetical Scenarios and Projected Retirement Savings 74

Appendix III: Comments from the Department of Labor 83

Appendix IV: GAO Contact and Staff Acknowledgments 85

Appendix V: Accessible Data 86

Agency Comment Letter 86

Data Tables/Accessible Text 88

Related GAO Products 94

Tables

Table 1: Summary of 401(k) Plan Eligibility Policies Allowable 

under Federal Law and Regulations 7

Table 2: Descriptions of Effects on Employer Contributions to 

401(k) Plans from Using Cliff and Graduated Vesting 

Policies 8

Table 3: Key Features of Required 401(k) Plan Communications 

to Participants That Would Contain Eligibility and Vesting 

Policies 12

Contents
Table 4: Average Total Jobs Held by Individuals from Age 18 to 

48, by Age and Gender, 1978-2012 14

Table 5: Most Frequently Cited Reasons for Using Eligibility, 

Vesting, and Other Policies, Based on a GAO Survey of 

80 401(k) Plan Sponsors and Plan Professionals 22

Table 6: Based on the Results of GAO’s Hypothetical Scenarios, 

Current Eligibility, Employer Contribution, and Vesting 

Policies Can Potentially Result in Lower Retirement 

Savings 27

Table 7: GAO’s Nongeneralizable Survey of 46 Participants’ 

Understanding of Their Plans’ Eligibility and Vesting 

Policies 48

Table 8: Annual Average Salaries for a Medium-Level Earner 75

Table 9: Comparison of the Value at Retirement of Potential Lost 

Savings (from Age 18 to 20) for a Worker with Lower Pay 

and Flatter Wage Growth Versus a Worker with MediumLevel Pay and Average Wage Growth 78

Table 10: Potential Savings at Retirement from Employee 

Contributions from 3 Years of Savings Starting at Age 18 

Versus Starting at Ages 28, 38, 48, and 58 78

Table 11: Comparison of Value of Potential Foregone Savings 

from Employee Contributions and the Effects on Total 

Retirement Savings of Separate Incidents of 1-year 

Minimum-Service Eligibility Policies 79

Table 12: Potential Cumulative Foregone Savings from Employee 

Contributions from Repeated Incidents of 1-Year 

Minimum-Service Eligibility Policies, for a Worker Starting 

11 New Jobs in their Career 79

Table 13: Potential Value at Retirement of Savings Lost Due to a 

Last Day Policy 80

Table 14: Potential Value at Retirement of Lost Savings Due to 

Delayed Employer Contributions to Employees’ 401(k) 

Plan Accounts 80

Table 15: Total Value of Potential Lost Savings from Five 

Episodes of 2-Year Minimum-Service Policies for 

Employer Contributions 82

Data Table for Figure 1: Percentage of Employer Contributions to 

401(k) Plans That Are Nonforfeitable, Per Year of 

Employment, Under Maximum Cliff and Graduated 

Vesting Policies Permitted by Federal Law 88

Page ii GAO-17-69 401(k) Plans
Accessible Text for Figure 2: A “Last Day” Policy for Employer 

Contributions to 401(k) Plans Adds to Existing Service 

Requirements and Continues Year after Year 89

Data Table for Figure 3: Plans Use a Range of Schedules for 

Providing Employer Matching Contributions 89

Data Table for Figure 5: Compounding Means a Younger Worker 

Can Save Less than an Older Worker for Same Savings 

Amount at Retirement 89

Data Table for Figure 6: Potential Accumulated Value of Lost 

Savings from Repeated Incidents of 1-Year Ineligibility for 

Participation in a Workplace 401(k) Plan 89

Accessible Text for Figure 7: Potential Value of Lost Retirement 

Savings Due to 401(k) Vesting Policies, Based on our 

Projections 90

Data Table for Figure 8: Plan Participant Responses to a National 

Survey on Financial Literacy Question About Their 

Understanding of the Term “Eligibility Requirements” 90

Accessible Text for Figure 9: Vesting Schedule for Employer 

Contributions in One 401(k) Plan 91

Accessible Text for Figure 10: Comparison of Multiple Employer 

Contributions to a 401(k) Plan Included in a Summary 

Plan Description versus Only One Actually Offered by the 

Employer 91

Accessible Text for Figure 11: Sample 401(k) Plan Highlights 

Document 91

Figures

Page iii GAO-17-69 401(k) Plans

Figure 1: Percentage of Employer Contributions to 401(k) Plans 

That Are Nonforfeitable, Per Year of Employment, Under 

Maximum Cliff and Graduated Vesting Policies Permitted 

by Federal Law 10

Figure 2: A “Last Day” Policy for Employer Contributions to 401(k) 

Plans Adds to Existing Service Requirements and 

Continues Year after Year 11

Figure 3: Plans Use a Range of Schedules for Providing Employer 

Matching Contributions 20

Figure 4: 401(k) Plan Policies Can Result in Employer 

Contributions to Participant Accounts Being Delayed 

More Than a Year 21
Figure 5: Compounding Means a Younger Worker Can Save Less 

than an Older Worker for Same Savings Amount at 

Retirement 30

Figure 6: Potential Accumulated Value of Lost Savings from 

Repeated Incidents of 1-Year Ineligibility for Participation 

in a Workplace 401(k) Plan 37

Figure 7: Potential Value of Lost Retirement Savings Due to 

401(k) Vesting Policies, Based on our Projections 45

Figure 8: Plan Participant Responses to a National Survey on 

Financial Literacy Question About Their Understanding of 

the Term “Eligibility Requirements” 50

Figure 9: Vesting Schedule for Employer Contributions in One 

401(k) Plan 51

Figure 10: Comparison of Multiple Employer Contributions to a 

401(k) Plan Included in a Summary Plan Description 

versus Only One Actually Offered by the Employer 55

Figure 11: Sample 401(k) Plan Highlights Document 57

Page iv GAO-17-69 401(k) Plans

Abbreviations

ASPPA American Society of Pension Professionals and 

Actuaries (ASPPA)

BLS Bureau of Labor Statistics (BLS)
Census Bureau U.S. Census Bureau (Census Bureau)

CPI-W Consumer Price Index for Urban Wage Earners 

and Clerical Workers (CPI-W) 

CPS Current Population Survey (CPS)

DCP Defined Contribution Plan 2015 Study of Participant

Satisfaction and Loyalty (DCP)

DOL Department of Labor

ERISA Employee Retirement Income Security Act of 1974

(ERISA) 

FELT Financial Empowerment Literacy and Trust (FELT) 

survey 

IRS Internal Revenue Service (IRS)

NARPP National Association of Retirement Plan

Participants (NARPP) 

OCACT Social Security Office of the Chief Actuary 

(OCACT)

PSCA Plan Sponsor Council of America (PSCA) 

SIPP Survey of Income and Program Participation (SIPP) 

SPD summary plan description (SPD)

SSA Social Security Administration (SSA)

Treasury Department of the Treasury (Treasury) 

Page v GAO-17-69 401(k) Plans

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Page 1 GAO-17-69 401(k) Plans

441 G St. N.W.

Washington, DC 20548

October 21, 2016

The Honorable Richard Neal

Ranking Member

Subcommittee on Tax Policy

Committee on Ways and Means

House of Representatives

Dear Mr. Neal:

Employers frequently sponsor and contribute to defined contribution 

plans, such as 401(k) plans, in which workers can save for retirement.1

Workers can contribute to these plans before taxes are applied, which 

can encourage them to establish and grow their retirement savings.2 The 

amount of foregone federal tax revenue associated with defined 

contribution plans, estimated at $62.1 billion in fiscal year 2015, reflects 

the prevalence of workplace plans as a source of retirement security.3

Plan sponsors—employers who offer 401(k) plans—have the authority 

and flexibility to customize certain aspects of plans, but such 

customization can also affect workers’ retirement savings. For example, 

some plan sponsors may use eligibility policies to limit enrollment in their 

 

1A 401(k) plan is a popular type of defined contribution plan that provides eligible 

participants the opportunity to contribute a portion of their earnings to their own individual 

retirement account. 26 U.S.C. § 401(k)(2).

2Some plans also offer Roth accounts, in which participants can contribute earnings after 

taxes are paid. When taking eligible distributions later, withdrawals from those accounts 

are not taxed. 26 U.S.C. §§ 402A(a), (c)-(d), 408A.

3Office of Management and Budget, Analytical Perspectives: Budget of the U.S. 

Government, Fiscal Year 2017 (Washington, D.C.: Feb. 9, 2016). The tax expenditure is 

measured as the tax revenue that the government does not currently collect on 

contributions and earnings amounts, offset by the taxes paid on plan distributions to those 

who are currently receiving retirement benefits. Defined contribution plans are comprised 

largely of 401(k) plans.

Letter
plans and use vesting policies to limit participants’ ability to keep 

employer contributions upon leaving their job.

Page 2 GAO-17-69 401(k) Plans

4

Federal policy encourages workers to save for retirement through 

employer plans, and has removed some barriers that prevent plan 

participants from saving, such as by facilitating automatic enrollment and 

automatic increases in savings rates in workplace plans. Researchers 

have also studied the efforts of different groups of workers in saving for 

retirement by comparing groups and outcomes by age, gender, race, and 

other factors. However, few studies have looked at the effects of eligibility 

and vesting policies on a participant’s ability to save for retirement in a 

workplace plan and to keep employer contributions when changing jobs 

throughout their career. You asked us to look at plan sponsors’ use of 

eligibility and vesting policies. This report examines: 1) what is known 

about the prevalence of 401(k) plans’ eligibility and vesting policies and 

why plans use them, 2) the potential effect of eligibility and vesting 

policies on workers’ retirement savings, and 3) participants’ 

understanding of these policies.

To identify what is known about the prevalence of eligibility and vesting 

policies, we developed a non-generalizable survey of plan sponsors and 

plan professionals. This web-based questionnaire included questions on 

 

4For the purposes of this report, we use the term eligibility policies to refer to 401(k) plan 

policies that require employees to reach a minimum age (minimum-age policies) or work 

for a minimum length of time (minimum-service policies) before they can participate and 

save their earnings in a plan. In addition, in this report, we use the term vesting policies to 

refer to plan policies that require employees to work for a minimum length of time before 

their employer’s contributions become fully nonforfeitable, meaning employees have an 

unconditional and legally enforceable right to keep their employer contributions if they 

separate from their job. To the extent permitted by federal law, some sponsors offer 

immediate eligibility and vesting, meaning their employees 1) do not have to reach a 

certain age or work for a minimum amount of time before they can save in a plan, and 2) 

do not have to work for a minimum length of time before their employer’s contributions are 

nonforfeitable.
401(k) plans’ use of eligibility and vesting policies.

Page 3 GAO-17-69 401(k) Plans

5 Beginning in May 

2015, we provided online access to the survey through the publications of 

three industry groups who agreed to help notify their members and 

readers about our survey. We also included a link to the survey in an 

online forum for American Society of Pension Professionals and Actuaries 

(ASPPA) members, who are owners or senior managers of plan 

administration firms.6 We received and accepted responses through 

August 31, 2015. We received 80 responses from plan sponsors and plan 

professionals regarding plans ranging in size from less than 100 

participants to more than 5,000.7In addition, we reviewed industry survey 

data, plan data from a large 401(k) plan record keeper, and U.S. Census 

Bureau (Census Bureau) data. We assessed the reliability of these data 

by interviewing the staff who maintain the data, reviewing related 

documentation, and testing the data for missing or erroneous values.8 We 

determined that the data we used were sufficiently reliable for our 

purposes. To examine why plans use eligibility and vesting policies, we 

included questions in our survey about what factors were important to 

 

5 While plan sponsors and plan professionals of all defined contribution plans were invited 

to take the survey, because the majority of these plans are 401(k) plans according to 

Department of Labor data, we determined that it is reasonable to assume that the 

responses to our survey largely reflect the 401(k) plan experience. Therefore, we refer to 

the plans represented by survey respondents as 401(k) plans. See United States 

Department of Labor, Employee Benefits Security Administration, “Private Pension Plan 

Bulletin: Abstract of 2013 Form 5500 Annual Reports Data Extracted on 6/2/2015”

(September 2015). The 2013 Private Pension Plan Bulletin was the most recent document 

available at the time of our review.

6ASPPA is a non-profit professional organization with more than 7,000 members. Its goals 

are to educate retirement plan professionals and to create a framework of public policy 

that promotes retirement security. 

7Our web-based survey was an opt-in panel and open to anyone who received a link to 

the survey. Plan sponsors and other plan professionals who assist plan sponsors, such as 

human resource professionals, record keepers, plan administrators, and benefits 

consultants participated in the survey. The highest number of survey respondents 

identified themselves as plan sponsors. We asked for information regarding the plan 

sponsor’s largest plan or the largest plan served by the plan professionals. We received 

80 completed surveys. We evaluated the data by performing automated checks to identify 

inappropriate answers and checking for missing or ambiguous responses, following up 

with respondents when necessary to clarify their responses. On the basis of our 

application of recognized survey design practices and follow-up procedures, we 

determined that the data were of sufficient quality for our purposes. 

8See Appendix I for additional details on the steps we took to assess the reliability of the 

data.
plans in choosing specific policies. We based these questions on 

information we obtained from interviews and a discussion group with plan 

professionals. The survey also provided respondents with the opportunity 

to cite their own reasons for using eligibility and vesting policies. We also 

interviewed officials from the Department of Labor (DOL), Treasury, the 

Internal Revenue Service (IRS), and the Securities and Exchange 

Commission, as well as a total of 21 retirement professionals and 

academic researchers to obtain their perspectives on why plans use 

eligibility and vesting policies. The views of the individuals we interviewed 

are not generalizable and therefore do not represent all potential views on 

eligibility and vesting policies.

To examine the policies’ potential effects on retirement savings over time, 

we developed hypothetical scenarios based on assumptions drawn from 

federal and industry data sources.

Page 4 GAO-17-69 401(k) Plans

9 Most of these projections assume 

contributions that are based on medium scaled lifetime earnings factors 

developed by the Social Security Office of the Chief Actuary (OCACT). 

We also interviewed academic researchers and retirement professionals, 

as described above, on what the policies’ effects on retirement savings 

were likely to be.

To examine workers’ understanding of eligibility and vesting policies, we 

administered a nongeneralizable questionnaire to employees of four 

companies and tested the accuracy of their answers against the policies 

in their plans’ documents. We asked plan sponsors who responded to our 

plan sponsor survey and provided contact information if they would help 

us by voluntarily inviting their 401(k) plan participants to complete a 

questionnaire regarding their eligibility and vesting status in the plan. Four 

companies agreed to help us facilitate this participant questionnaire. We 

analyzed the accuracy of responses from 46 401(k) plan participants by 

comparing their responses about plan policies against the summary plan 

descriptions for their actual plans. This allowed us to determine the 

accuracy of their knowledge rather than rely on their self-reported 

 

9Among other factors, we assumed an employee deferral rate of 5.3 percent of salary, an 

employer matching contribution of 3 percent of salary, employee and employer 

contributions made on a per pay period basis, and a return reflecting a mixed portfolio 

adjusted annually to decrease the allocation to equities over time. See Appendix II for 

more detailed information on our approach for developing hypothetical scenarios, 

including the assumptions we used. 
knowledge. To understand what sources of information on eligibility and 

vesting policies participants may have, we analyzed survey responses 

from the 80 plan sponsors and plan professionals which identified the 

methods used by plans to communicate these policies. In addition, we 

interviewed retirement professionals and academic researchers to get 

their perspectives on participants’ understanding of their plan’s eligibility 

and vesting policies. See Appendix I for additional information on our 

methodology.

We conducted this performance audit from January 2015 to October 2016 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Page 5 GAO-17-69 401(k) Plans

A 401(k) plan provides eligible plan participants the opportunity to choose 

to contribute a portion of their earnings, commonly called elective 

contributions, to their own individual account in a retirement plan.10 These 

contributions may be taken out of an employee’s salary before taxes. 

Some employees affirmatively enroll in their plan and elect how much of 

their pay they want to contribute. These employee contributions can be a 

set dollar amount or a percentage of pay, within annual contribution limits 

set by the IRS.11 Some employees are automatically enrolled in 

 

1026 U.S.C. § 401(k)(2).These elective contributions are considered “employer 

contributions” under the Internal Revenue Code. However, for clarity in our report we refer 

to these contributions as employee contributions and only to additional contributions made 

by the employer as employer contributions. 

11In 2016, employee contributions to 401(k) plans are limited to $18,000. Catch-up 

contributions, permitted for employees age 50 and over who participate in 401(k) plans, 

are limited to $6,000. Employer contributions are held to other limits. In 2016, the total 

annual additions to a participant’s account by the participant and employer combined, 

cannot exceed the lesser of 100 percent of the participant’s compensation, or $53,000 

($59,000 including catch-up contributions). 26 U.S.C. §§ 402(g)(1)(A)-(C), (4), 415(c), 

(d)(1)(C), (d)(2)-(4).

Background

Types of Contributions in a 

401(k) Plan
employers’ plans and their contributions set at a default rate, though they 

can opt to adjust the contribution level later. Under federal law, an 

employee’s own contributions and any returns on those contributions 

always belong to the employee and are not forfeitable to the plan if they 

leave their employer.

Page 6 GAO-17-69 401(k) Plans

12

An employer may also contribute to a participant’s account, though not 

every plan includes an employer contribution. Generally, employers’ 

contributions to participants’ 401(k) accounts are voluntary, though once 

incorporated into plan documents contributions must be made as 

described.13 Unless the plan is a “Safe Harbor 401(k)”, “SIMPLE 401(k)” 

plan, or a “SIMPLE IRA”, plan sponsors have flexibility to decide whether 

to provide employer contributions and how quickly these contributions 

become vested, to the extent permitted by federal law.14 Formulas used to 

calculate employers’ contributions vary across plans. One form of 

employer contribution is called a match, which is based on the amount 

that an employee contributes to the plan.15 Alternately, employers may 

provide non-matching contributions based on employer profits. Employer 

contributions may be made solely at the employer’s discretion or may be 

required by plan documents. Unlike an employee’s own contributions, 

 

1226 U.S.C. § 411(a)(1).

13Plan sponsors must provide participants with a basic description of the plan that clearly 

explains participants’ rights and responsibilities as well as the plan’s key features. 29 

U.S.C. § 1022. 

14A SIMPLE 401(k) plan is a type of plan that is intended to provide small businesses—

those with 100 or fewer employees who received at least $5000 in compensation in the 

preceding calendar year—with a cost-efficient way to offer retirement benefits. 26 U.S.C. 

§ 401(k)(11). In a SIMPLE 401(k) plan, the employer is required to make contributions that 

are fully vested, while employers that offer a traditional 401(k) plan can choose whether to 

provide employer contributions. A SIMPLE 401(k) plan is exempt from the Employee 

Retirement Income Security Act’s “nondiscrimination requirements”, which help to ensure 

that plan contributions do not discriminate in favor of highly-compensated employees. 26 

U.S.C. §§ 401(a)(4), 410(b). Like SIMPLE 401(k) plans, Safe Harbor 401(k) plans are also 

exempt from nondiscrimination testing, and must provide for employer contributions. 26 

U.S.C. § 401(k)(12)-(13). There are different safe harbor options. In one option, employer 

contributions may be matching contributions. Alternatively, contributions may be made on 

behalf of all eligible participants, regardless of whether they make elective contributions. 

The amount of employer matching contributions must comply with specific limits. 26 

U.S.C. § 401(m). A SIMPLE IRA is a common account based retirement plan that is used 

by small employers. 

15For example, a plan could match 50 cents for each dollar a participant contributes.
employer contributions can be forfeited when an employee separates 

from their job if the employee is not vested in the plan.

The Employee Retirement Income Security Act of 1974 (ERISA) provides 

the legal framework for eligibility policies used by workplace retirement 

plans, including minimum-age and minimum-service policies. The rules 

were designed, in part, to help sponsors provide profit sharing 

contributions, but after 401(k) plans were introduced, employer matching 

contributions became common. Under ERISA, the maximum age that 

plans may require as a condition of plan eligibility is 21.

Page 7 GAO-17-69 401(k) Plans

16 The maximum 

period of service—or length of tenure with an employer—a 401(k) plan 

may require for plan eligibility is 1 year.17 (See table 1.)

Table 1: Summary of 401(k) Plan Eligibility Policies Allowable under Federal Law and Regulations

Type of Eligibility Policy Description

Age Generally, under federal law, the maximum age that plans may require as a condition of plan 

eligibility is 21 years.a 

Length of service The maximum period of service—or length of tenure with an employer—that a plan may require for 

plan eligibility is 1 year, but a plan may require an additional year of service before a plan 

participant is eligible to receive the employer’s contribution.b

The maximum number of hours worked that a plan may require is 1,000 hours per year, which is 

about 19 hours per week averaged over a full year.c

Factors other than age or 

service

Plans may deny eligibility to workers based on other factors such as job type (e.g. employees paid 

hourly) and union status, subject to compliance with nondiscrimination requirements.d

Source: GAO analysis of federal laws and regulations. | GAO-17-69

a

ERISA established a maximum age of 25 years, but the Retirement Equity Act of 1984, Pub. L. No. 

98-397, §102, 98 Stat. 1426, 1426-29, lowered the maximum age to 21. 29 U.S.C. § 1052(a)(1)(A)(i). 

In certain plans maintained exclusively for employees of an educational organization, plan policies 

may require an employee to reach age 26 before being eligible for the plan. The Fair Labor Standards 

Act of 1938 imposes restrictions on the employment of minors under age 18, and states may impose 

restrictions as well.

b

29 U.S.C. § 1052(a)(1)(A)(ii) and (B)(i). In this event, the employer contributions made after the 

second year of service must vest immediately.

c

29 U.S.C. § 1052(a)(3).

d

Plans can use any factor to restrict plan eligibility as long as they comply with nondiscrimination and 

other qualified plan requirements outlined in federal law. 26 C.F.R. § 1.410(a)-3(d).

 

1629 U.S.C. § 1052(a)(1)(A)(i).

1726 U.S.C. §§ 401(k)(2)(D), 410(a); 29 U.S.C. § 1052(a)(1)(A)(ii). 401(k) plans were 

created 4 years after ERISA was enacted.

Eligibility Policies and 

Relevant Laws
In addition to using eligibility policies, plans can extend the waiting time 

by taking up to 6 months or until the end of the plan year,

Page 8 GAO-17-69 401(k) Plans

18 whichever 

comes first, to enroll a newly eligible worker.

A 401(k) plan’s vesting policy can require participants to work for a certain 

period of time with an employer before they can keep all or some of their 

employer’s contributions to their account and investment returns on that 

money when they leave their job.19 Federal laws require that a minimum 

percentage of employer contributions are vested after a certain period of 

time; however, plans can choose to allow employer contributions to vest 

faster or even immediately.20 The shorter the period of service required 

for 100 percent vesting, the “faster” the vesting. The minimum percentage 

that must be vested at a given time depends on the type of vesting policy 

used by the plan, either cliff or graduated (see table 2).

Table 2: Descriptions of Effects on Employer Contributions to 401(k) Plans from Using Cliff and Graduated Vesting Policies 

Type of vesting policy Description

Cliff None of the employer contribution is vested until the full vesting period is satisfied. Then 100 percent of 

employer contributions are vested all at once, after no more than 3 years of service.a

Graduated An increasing percentage of employer contributions are vested over time. At least 20 percent is vested after 

2 years of service, with the minimum percentage vested increasing by 20 percent for each additional year 

of service thereafter, and 100 percent vested after no more than 6 years.b

Source: GAO analysis of federal laws. | GAO-17-69

 

18The plan year is the calendar year, or an alternative 12-month period, which a retirement 

plan uses for plan administration. 26 U.S.C. § 410(a)(4).

19Generally, all qualified years of service count toward satisfying a vesting period required 

by a plan, including when a worker was not yet participating in the plan due to ineligibility. 

29 U.S.C § 1053(b)(1). ERISA also requires full vesting upon a participant reaching 

normal retirement age. For the purposes of this report, we discuss vesting in the context of 

individuals terminating employment prior to retirement.

2026 U.S.C. § 411(a)(2)(B). Prior to the passage of ERISA, some retirement plans required 

an employee to work until normal retirement age before they would vest and keep their 

share of the employer’s contribution when they left their job. At that time, plans were 

typically defined benefit plans, which generally provide a specified monthly lifetime 

retirement payment with the amount based on a formula that often reflects years of 

service, age at retirement, and salary. There has been a shift over time and, according to 

Department of Labor data, most private sector workplace plans are now defined 

contribution plans, which establish individual accounts for employees and provide benefits 

based on employer and participant contributions to individual accounts and investment 

returns on those contributions. 

Vesting Policies and 

Relevant Laws
Note: The vesting policies described in this table do not apply to defined contribution plans operated 

by the federal government or by a state government, local government, or some religious institutions. 

Defined benefit plans can have longer maximum periods for graduated and cliff vesting policies, 7 

and 5 years, respectively, although a subset of defined benefit plans – typically cash balance plans –

can only have a maximum cliff vesting policy of 3 years. These plans cannot have graduated vesting 

policies. Plans can be structured so that they use more than one type of vesting policy. For example, 

plans can use one type of vesting policy for employer matching contributions and another type of 

policy for non-matching employer contributions. Plans may use shorter vesting periods, as long as 

annual vesting levels (the percentage of employer contributions to participants’ accounts that 

participants keep if they leave their job) meet the minimum standards prescribed by federal law. For 

example, some plans choose to use graduated vesting policies by which employees are 100 percent 

vested after 5 years rather than 6 years.

a

29 U.S.C. § 1053(a)(2)(B)(i)-(ii).

b

29 U.S.C. § 1053(a)(2)(B)(i), (iii).

Employer contributions that are vested are considered “nonforfeitable,” 

which means a participant has an unconditional and legally enforceable 

right to keep that portion of their account if they separate from their job.

Page 9 GAO-17-69 401(k) Plans

21

When a vesting policy’s required period of service is not fully met, some 

or all of an employee’s account balance that is attributable to employer 

contributions is forfeited to the plan. (See figure 1.)

 

2129 U.S.C. § 1002(19).
Figure 1: Percentage of Employer Contributions to 401(k) Plans That Are Nonforfeitable, Per Year of Employment, Under 

Page 10 GAO-17-69 401(k) Plans

Maximum Cliff and Graduated Vesting Policies Permitted by Federal Law

Note: Plans are not required to apply vesting schedules to employer contributions but may choose to 

do so.

Forfeited money can be used by the plan to offset plan expenses and to 

offset employer contributions.22 Once the full vesting period is complete, 

all employer contributions made both before and after that point are fully 

vested and nonforfeitable. All of a participant’s own contributions, 

rollovers, and earnings on those contributions are always immediately 

vested and nonforfeitable.23

Similarly, in addition to a minimum-service policy required to receive 

employer contributions, plans may use a “last day policy,” which can 

require up to an additional year of employment to earn the employer 

contribution for that year. When used, a last day policy applies to the 

 

22Rev. Rul. 84-156, 1984-2 C.B. 97.

2329 U.S.C. § 1053(a)(1). In some safe harbor 401(k) plans, non-discretionary employer 

contributions must also be immediately vested. 
employer contributions made each plan year, year after year (see fig. 2). 

According to recent industry data, plans offer matching contributions more 

commonly than non-matching contributions, which include profit sharing 

contributions.

Figure 2: A “Last Day” Policy for Employer Contributions to 401(k) Plans Adds to Existing Service Requirements and 

Page 11 GAO-17-69 401(k) Plans

Continues Year after Year

ERISA also governs the timing of employer contributions. Employers may 

delay making contributions until their tax return due date for a given year, 

including extensions.24

Under federal law, plan sponsors must provide participants with a basic 

description of the plan, called a summary plan description (SPD), that 

explains participants’ rights and responsibilities under the plan as well as 

the plan’s key features, including eligibility and vesting policies.25 Table 3 

provides some key features of an SPD and other required plan 

documents.

 

2426 U.S.C. § 404(a)(6). Certain employer contributions to SIMPLE 401(k) plans must be 

made sooner. 

25Information about the plan’s policies can also be conveyed in other reports such as in 

annual reports and the summary of material modifications. Plans may provide participants 

with a summary of material modifications to inform them of plan policy changes or other 

changes to information included in the SPD instead of providing an updated SPD. 29 

U.S.C. §§ 1021-1025.

Plan Policy Information 

Provided to Participants
Table 3: Key Features of Required 401(k) Plan Communications to Participants That Would Contain Eligibility and Vesting 

Page 12 GAO-17-69 401(k) Plans

Policies

Plan Document Type Key Features

Summary plan 

description (SPD)

Summarizes the provisions of an employee benefit plan, providing information about the terms of the plan 

and the benefits offered, including: when and how employees become eligible to participate in the plan, 

contributions to the plan, the vesting schedule, when participants are eligible to receive their benefits; how 

to claim their benefits, and their basic rights under federal law.

Provided to new plan participants and again periodically to all participants. 

Required to be written in a manner that can be understood by the average plan participant and that 

sufficiently, accurately, and comprehensively informs participants and beneficiaries of their rights and 

obligations under the plan.

Individual benefits 

statement 

Informs participants of their total plan benefits including accrued benefits, vested benefits, the earliest date 

on which accrued benefits become nonforfeitable, as well as information about the value of investment 

accounts.

If participants direct the investment of their contributions, plans must provide them with this statement 

quarterly. If not, plans must provide this statement annually.

Source: GAO analysis of federal laws and regulations. | GAO-17-69.

Treasury and IRS, an agency within Treasury, share responsibility for 

overseeing provisions of ERISA applicable to eligibility and vesting in 

401(k) plans. IRS has primary responsibility for overseeing eligibility and 

vesting policies and has promulgated regulations in these areas. For 

example, IRS regulations state that plans risk losing their tax qualified 

status if they impose policies that 1) do not specifically refer to service but 

have the effect of requiring service as a condition for plan participation, 

and 2) ultimately result in employees being excluded from participating in 

the plan for a period of time that exceeds the plan’s stated minimum 

service policy.26 IRS has also promulgated regulations for rules relating to 

“year of service.” Additionally, IRS regulations and federal law address 

the timing of employer contributions–when they must be deposited into 

participants’ accounts in a defined contribution plan.27 Treasury is 

responsible for developing proposals for legislative changes, which could

include changes regarding eligibility and vesting requirements. In fulfilling 

this duty, Treasury prepares the “General Explanations of the 

Administration’s Revenue Proposals,” referred to as the “Greenbook,” 

 

2626 C.F.R. § 1.410(a)-3(e)(2).

2726 C.F.R. §§ 1.404(a)-3(a), 1.415(c)-1(b)(6); 26 U.S.C. § 404(a)(6).

Treasury, IRS, and DOL 

Oversight of Eligibility and 

Vesting Policies Used by 

401(k) Plans
which accompanies the President’s annual budget submission and 

outlines the President’s tax-related legislative proposals.

Page 13 GAO-17-69 401(k) Plans

28

DOL is responsible for prescribing regulations governing retirement plans 

in a variety of areas, including reporting, disclosure, and fiduciary 

requirements.29 According to DOL officials, DOL could issue guidance on 

best practices to plan sponsors to help them better communicate plan 

policies in the summary plan description (SPD). With regard to eligibility, 

vesting, and related policies, DOL regulations impose certain 

requirements, such as the requirements that plans:

· Transmit employees’ own contributions into their account no later than 

the 15th day of the month following the month in which the money 

comes out of their pay.30

· Report and disclose certain information to participants regarding 

eligibility and vesting policies.31 ERISA specifically grants DOL the 

authority to prescribe the format and content of the SPD and other 

statements or documents which are required for plan participants and 

beneficiaries receiving benefits under a plan.32 In addition, DOL may 

prescribe regulations covering the format of these disclosures.33

U.S. workers are likely to have multiple jobs throughout their careers. 

Each time an employee begins a new job where a 401(k) plan is offered, 

 

28For the most recent version of this document, see Department of the Treasury, General 

Explanations of the Administration’s Fiscal Year 2017 Revenue Proposals (Feb. 2016), 

accessible at http://www.treasury.gov/resource-center/taxpolicy/Pages/general_explanation.aspx.

29DOL may intervene in any matters that materially affect the rights of participants. See 

Department of Labor, Employee Benefits Security Administration, History of EBSA and 

ERISA, accessible at www.dol.gov/ebsa/aboutebsa/history.html. DOL regulates the 

requirements for reporting and disclosure of financial information established by ERISA.

3029 C.F.R. § 2510.3-102. DOL prescribes no standard for the timing of employer 

contributions, which is regulated by IRS.

3129 C.F.R. pt. 2520.

3229 U.S.C. § 1029(c).The statements or documents covered by this authority exclude the 

bargaining agreement, trust agreement, contract, or other instrument under which the plan 

is established or operated. 

3329 U.S.C. § 1135.

Mobility of the U.S. Labor 

Force
the plan’s eligibility policy may affect the employee’s ability to participate. 

Likewise, every time a plan participant leaves a job, the plan’s vesting 

policy may affect the participant’s ability to retain employer contributions 

to their account. According to workforce data collected by the federal 

government, from 1978 to 2012, the average number of total jobs held by 

men and women workers from age 18 to 48 was more than 11 (see table 

4). The mobility of the U.S. workforce is also reflected by the median 

tenure, which was 4.1 years for private sector workers in January 2014, 

according to Bureau of Labor Statistics (BLS) data.

Page 14 GAO-17-69 401(k) Plans

34

Table 4: Average Total Jobs Held by Individuals from Age 18 to 48, by Age and 

Gender, 1978-2012

Age Average Number of Jobs Held for Persons 

Ages 18 to age 48 from 1978-2012 

Total Men Women

Ages 18 to 24 5.5 5.7 5.3

Ages 25 to 29 3.0 3.1 2.8

Ages 30 to 34 2.4 2.5 2.3

Ages 35 to 39 2.1 2.1 2.1

Ages 40 to 48 2.4 2.4 2.4

Ages 18 to 48, Total 11.7 11.8 11.5

Source: Bureau of Labor Statistics’ data from the National Longitudinal Study of Youth 1979 (NLSY79), March 31, 2015. | GAO-17-69

Note: More than one job could be held by an individual at a time. The jobs reflected in each age 

category do not necessarily represent new jobs, as jobs held in more than one of the age categories 

were counted more than once, in each appropriate category. The jobs were counted only once in the 

“total” row. Therefore, totaling each age category does not add up to the overall total.

Since these data indicate that many U.S. workers switch jobs multiple 

times during their career, eligibility and vesting policies may affect their 

accumulated retirement savings multiple times as well. The President’s 

Fiscal Year 2017 Budget Proposal encourages efforts to better ensure 

that workers’ job changes do not harm their retirement savings in a 

package of proposals aimed at increasing workers’ access to retirement 

plans and increasing the portability of their retirement savings and 

benefits. The proposal tasks DOL with evaluating existing portable 

benefits models and examining whether changes are needed.

 

34BLS, Economic News Release, “Table 5: Median years of tenure with current employer 

for employed wage and salary workers by industry, selected years, 2004-14”.
Page 15 GAO-17-69 401(k) Plans

Information from our non-generalizable survey of 80 plan sponsors 

ranging in size from fewer than 100 participants to more than 5,000, and 

our review of industry data, show that many 401(k) plans have minimumage policies that do not allow workers to save in plans until they reach 

age 21 instead of immediately upon employment.35 Our survey data found 

that 43 of 80 plans surveyed have minimum-age policies for plan 

eligibility, with 21 being the most frequently used minimum age, used by 

 

35Plan sponsors and other plan professionals who assist plan sponsors, such as human 

resource professionals, record keepers, plan administrators, and benefits consultants, 

participated in the survey. The highest number of survey respondents identified 

themselves as plan sponsors. Therefore, in this section we refer to the survey as a plan 

sponsor survey. See Appendix I for additional details on the survey. There are no current, 

comprehensive federal data that describe the prevalence of eligibility and vesting policies 

nationwide, and officials from the Department of Labor and the Internal Revenue Service 

said they do not have any current comprehensive data regarding the prevalence of 

eligibility and vesting policies. Prior to the enactment of the Taxpayer Relief Act of 1997, 

plans were required to submit summary plan descriptions—documents that describe plan 

policies including those pertaining to eligibility and vesting—to the Department of Labor. 

However, the Act eliminated this requirement. Pub. L. No. 105-34, § 1503, 111 Stat. 788, 

1061-63. 

Many Plan Sponsors 

In Our Survey Use 

Policies that 

Determine Workers’ 

Eligibility to Save in 

401(k) Plans and to 

Retain Employer 

Contributions, Often 

to Reduce Costs and 

Employee Turnover

Many Plan Sponsors In 

Our Survey Use MinimumAge and Minimum-Service 

Policies to Determine Plan 

Eligibility
33 plans.

Page 16 GAO-17-69 401(k) Plans

36 Industry data from the Plan Sponsor Council of America 

(PSCA), which primarily cover large plans, also show that 376 out of 613 

plans have minimum-age policies, with 21 the most frequently used 

minimum age.37

According to our analysis of 2008 Survey of Income and Program 

Participation (SIPP) data from the Census Bureau, an estimated 405,000 

workers whose employers offer 401(k)-type plans said they were 

ineligible to participate in the plan because of a minimum-age policy.38

This is equal to about 2 percent of workers nationwide who were not 

participating in 401(k)-type plans offered by their employers that year.39

Minimum-service eligibility policies require employees to work for an 

employer for a certain period of time before they can enroll and 

participate in a 401(k) plan. Fifty of the 80 plans we surveyed reported 

they have minimum-service eligibility policies. Twenty plans use a 1-year 

 

36In this section and the sections that follow, we highlight the percentage or number of 

plans that have a particular type of eligibility or vesting policy. When we report that a 

certain percentage of plans have a particular policy that means that the remaining plans 

do not have the policy. Therefore, since 43 plans in our survey have minimum-age policies 

that require employees to reach a minimum age before they can participate in their plan, 

37 plans do not require employees to reach a minimum age before they are eligible to 

participate.

37Of plans that reported having a minimum age policy (376), the highest number (207) 

used a minimum age of 21. Plan Sponsor Council of America, 57th Annual Survey:

PSCA’s Annual Survey of Profit Sharing and 401k Plans Reflecting 2013 Plan Experience

(Chicago, IL: 2014). PSCA’s survey, which is nongeneralizable, covers 613 plans, 

including both profit sharing and 401(k) plans. Because just 2 percent of plans surveyed

are profit sharing plans, we determined the data are sufficiently representative of the 

401(k) plan experience. PSCA’s dataset includes a greater proportion of large plans 

based on participant numbers and assets and disproportionately represents the financial, 

insurance, and real estate industries when compared to the total population of plans, as 

measured by 2013 Form 5500 filings.

38U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel. These 

are the most recent SIPP data available that address workers’ views on why they are not 

able to participate in workplace retirement plans. A 95 percent confidence interval of the 

population estimate is 1.6–2.5 percent.

39Because the SIPP data reflect workers’ own assessment of why they are not 

participating in their workplace plans and workers can misunderstand plan policies, the 

data may therefore reflect some degree of inaccuracy. While our analysis was limited to 

workers responding that their employers offer a “401(k) type plan”, that universe includes 

both public and private sector workers.
minimum. Industry data from Vanguard also show that about 40 percent 

of its plans have minimum-service eligibility policies, with a 1-year 

requirement the most prevalent policy among these plans.

Page 17 GAO-17-69 401(k) Plans

40 The Census 

Bureau’s SIPP data show that an estimated 16 percent of U.S. workers 

who do not participate in 401(k)-type plans offered by their employers 

said it is because they have not worked long enough.41 Projected to the 

total workforce nationwide, this would amount to about 3 million workers 

who are not able to save in their employers’ 401(k) plans because of a 

minimum-service eligibility policy.

Certain types of 401(k) plans may be more likely than others to have 

policies that require employees to complete a minimum period of service 

before they can save in the plan. Vanguard found, among its plan clients, 

that small plans are more likely than large plans to use minimum service 

eligibility policies.42 PSCA also found that small plans are more likely to 

use minimum-service policies, as their data show that the percentage of 

plans with a minimum-service eligibility policy decreases as plan size 

increases.43

 

40See Vanguard, How America Saves 2015: A Report on Vanguard 2014 Defined 

Contribution Plan Data (Valley Forge, Pa., June 2015). This report is based on 

nongeneralizable data from the 1900 qualified plans for which Vanguard serves as record 

keeper. Survey data from the Plan Sponsor Council of America’s 57th Annual Survey show 

that 36 percent of plans have minimum-service eligibility policies. 

41A 95 percent confidence interval of the population estimate is 15.2–17.8 percent. Few 

survey respondents reported that both minimum age and minimum service eligibility 

policies prevented them from participating in their employer’s plan. Specifically, eight 

workers—about 0.2 percent of SIPP respondents—said they do not participate in their 

employer’s plan because they have not satisfied a minimum-age policy and because they 

have not worked long enough. GAO analyzed data from SIPP’s 2008 panel, the most 

recent data available on this topic. U.S. Census Bureau, Survey of Income and Program 

Participation, 2008 Panel.

42Vanguard, How America Saves 2015. While it notes that small plans are more likely to 

use these policies, Vanguard’s report does not define “small” or “large” and does not 

provide the number or percentage of small or large plans with minimum-service eligibility 

policies. 

43Plan Sponsor Council of America, 57th Annual Survey. For example, among plans that 

have between 1 and 49 participants (the first category for plan size), about 57 percent of 

plans have minimum-service eligibility policies, while about 46 percent of plans that have 

between 50 and 199 participants (the second category for plan size) have these policies. 

This trend continues for all of the remaining plan size categories. 
Under federal law, plans have discretion to require a period of minimum 

service for plan eligibility, and some discretion on how long that period will 

be and how service will be measured. Our survey found that of 80 plans, 

20 required employees to work a certain number of hours per year to be 

credited with a year of service for the purpose of meeting a plan’s 

minimum-service eligibility policy. Of those 20, 12 required employees to 

work 1,000 hours during the year, which is the maximum number of hours 

that may be required under current law.

Page 18 GAO-17-69 401(k) Plans

44 PSCA data covering a larger 

number of plans show that the 1,000 hour minimum is a common service 

requirement, used by about 30 percent of plans.45 According to the most 

recently available SIPP data, an estimated 24 percent of U.S. workers 

who reported that they do not participate in their employer’s plan said 

they do not do so because they do not work enough hours during the 

year.46

Minimum-service policies that govern the receipt of employer 

contributions can prevent plan participants from receiving them. In our 

survey of 80 plans, 34 reported minimum-service policies for employees 

to receive employer contributions.47 Vanguard data show that about 50 

percent of plans have such policies, with a 1-year minimum-service policy 

being the most frequent.48 Employers can use these policies in addition to 

minimum-service policies for 401(k) plan eligibility—which determine a 

participant’s ability to save his or her own earnings in a plan—but ERISA 

caps the length of service needed to receive employer contributions at 2 

 

44Due to the small number of survey responses, the plans included in our survey may not 

be representative of all plans.

45Plan Sponsor Council of America, 57th Annual Survey. As previously noted, this survey 

covered 613 plans, while our survey covered 80 plans. Thirty-percent is roughly 184 

plans. 

46This would amount to about 4.8 million workers. A 95 percent confidence interval of the 

population estimate is 22.7 –25.5 percent. U.S. Census Bureau, Survey of Income and 

Program Participation, 2008 Panel.

47In our survey, we did not differentiate between employer matching and non-matching 

contributions. Therefore, this figure includes matching and non-matching contributions. 

48Vanguard, How America Saves 2015. Vanguard’s data show that 53 percent of its plans 

have minimum-service eligibility policies for employees to receive employer matching 

contributions. PSCA’s data show that 54 percent of plans have these policies. Plan 

Sponsor Council of America, 57th Annual Survey.

Many Plans Use Policies 

that Affect the Receipt and 

Timing of Employer 

Contributions
years. Therefore, after a 1-year minimum-service policy for plan eligibility, 

a plan could only require 1 additional year of service prior to a participant 

receiving employer contributions.

The receipt of employer contributions can also be limited by “last day 

policies”, which are additional policies that can, in some cases, prevent a 

participant’s receipt of employer contributions. These policies require 

workers to be employed on the last day of the plan year to be eligible to 

receive an employer contribution for that year.

Page 19 GAO-17-69 401(k) Plans

49 Plans can use these 

policies alone or in combination with minimum-service policies. Whether a 

worker leaves a job voluntarily or is laid off or fired, the worker can be 

affected by a last day policy even after satisfying up to a 2-year service 

policy for employer contributions. Our survey of plans found that 19 of 80 

plans have last day policies.

Delaying employer contributions to employees is another policy that can 

affect the receipt of employer contributions. Twenty-four plans we 

surveyed provide contributions, including all types of employer 

contributions, on an annual basis instead of quarterly or per pay period.50

With regard to matching contributions, PSCA’s survey found that 18 

percent of plans make those contributions on an annual basis rather than 

on a more frequent schedule (see fig. 3).51 Our survey data also show 

that plans often use an annual schedule for contributing to participant 

accounts in concert with a last day policy. In total, 12 of the 24 plans we 

surveyed that provide contributions on an annual basis said they also 

have last day policies.

 

49As previously noted, a plan year is the calendar year, or an alternative 12-month period, 

that a retirement plan uses for plan administration.

50Workers make contributions through paycheck deductions, which occur throughout the 

year.

51PSCA’s percentage may be lower because PSCA’s survey included a much larger 

number of plans (613) than our survey. Furthermore, our survey included a larger 

percentage of small plans (those with less than 100 participants) and, as noted by a 

retirement professional we interviewed, small plans may have cash flow concerns that 

lead them to make contributions at the end of the year to avoid contributing to the 

accounts of employees who leave during the year. 
Figure 3: Plans Use a Range of Schedules for Providing Employer Matching 

Page 20 GAO-17-69 401(k) Plans

Contributions

Note: PSCA does not define “other” schedules.

According to Treasury officials, delaying employer contributions so that 

they are non-concurrent with pay periods, such as making annual 

contributions, is a long standing practice put into place when employers 

with defined contribution plans made only profit sharing contributions. 

Under federal law, plans may make matching contributions as late as the 

date the plan files its tax return for the previous year, including any 

extensions, which means that a participant could receive matching 

contributions for the entire previous year as late as September of the 

following year.52 (See fig. 4.)

 

52According to IRS officials, a corporation that operates on the basis of a calendar year 

normally has until March 15 to file an income tax return, but many get a 6 month extension 

to September 15.
Figure 4: 401(k) Plan Policies Can Result in Employer Contributions to Participant Accounts Being Delayed More Than a Year

Page 21 GAO-17-69 401(k) Plans

Based on our survey of 80 plans, we found that 57 have vesting policies 

that require employees to work for a certain period of time before the 

employer contributions in their accounts are vested.53 Among survey 

respondents, a 6-year graduated vesting schedule was used most 

frequently, meaning a worker must complete 6 years of employment 

before all of their employer contributions to their account would be 

retained if they left their job.54 Industry data from Vanguard show that 

more than 55 percent of its plans also have vesting policies for matching 

contributions.55 A 5-year graduated vesting policy was the most frequent. 

We also found that plans do not often change their vesting policies. For 

example, about 70 of the 80 plans we surveyed had not changed their 

vesting policies over the past 5 years.56 A retirement professional we 

 

53If employees are “vested”, they can keep all or some of their employer’s contributions

and investment returns on that money when they leave their job. One plan did not provide 

a response to this question, therefore 79 of 80 plans surveyed provided a response. As 

previously noted, our survey did not differentiate between employer matching and nonmatching contributions. 

54Thirty of 80 plans surveyed used a 6-year graduated schedule. 

55Vanguard, How America Saves 2015. PSCA’s survey also found that more than half of 

surveyed plans (63 percent) have vesting policies for matching contributions. Plan 

Sponsor Council of America, 57th Annual Survey.

56Specifically, we asked respondents whether they have 1) added new vesting 

requirements, 2) decreased the total amount of time to become 100 percent vested, 3) 

eliminated vesting requirements, 4) increased the total amount of time to become 100 

percent vested, 5) switched from cliff to graduated vesting, or 6) switched from graduated 

to cliff vesting. Between 72 and 75 respondents said they had not made a change in any 

one of these 6 categories. 

Many Plans Have Vesting 

Policies that Affect 

Participants’ Ability to 

Retain Employer 

Contributions
interviewed concurred that vesting policies have remained stable in 

recent years.

Based on our survey of plan sponsors and interviews with academic 

researchers, retirement professionals, and government officials, we found 

that plans cited lowering costs and reducing employee turnover as the 

most important reasons for using eligibility, vesting, and other related 

policies. Our survey asked respondents to identify the importance of 

various reasons for having eligibility and vesting policies (see table 5).

Page 22 GAO-17-69 401(k) Plans

57

Table 5: Most Frequently Cited Reasons for Using Eligibility, Vesting, and Other 

Policies, Based on a GAO Survey of 80 401(k) Plan Sponsors and Plan 

Professionals

Policy Number with Policy, of 

80 Plans Surveyed

Most Cited Reasona

Policies restricting 

eligibility to join the plan

67 Reducing administrative costs 

(43 plans);

Reducing turnover (43 plans)

Policies restricting 

eligibility to receive 

employer contributions

42 Reducing turnover (32 plans)

Delayed employer 

contributions

24 Existence of a last day policy (6 

plans)

Vesting policies 57 Reducing turnover (55 plans)

Source: GAO analysis of GAO survey. | GAO-17-69

Note: Our survey did not ask respondents to identify reasons for using a last day policy.

aWe analyzed the frequency of plans identifying different reasons as either “very important” or 

“somewhat important.”

According to retirement professionals, plans use policies that restrict plan 

eligibility to reduce administrative costs—which include maintaining 

accounts for separated, short-tenured workers—although these costs are 

often borne by participants and not by plans. A retirement professional we 

interviewed explained that after a worker separates from an employer, the 

plan sponsor must still keep track of the former worker’s account if the 

 

57We asked survey respondents to provide reasons for using these policies for the largest 

plan they serve. We did not ask separately for the reasons for using minimum-age and 

minimum-service eligibility policies.

Plans Use Eligibility and 

Vesting Policies to Lower 

Costs and Reduce 

Employee Turnover
worker remains a participant in the plan, and provide the worker with plan 

communications and account statements, all of which are additional 

administrative costs. Several retirement professionals we interviewed 

noted that plan sponsors pay the administrative costs of maintaining 

small, dormant accounts after short-tenure workers leave their 

employer.

Page 23 GAO-17-69 401(k) Plans

58 Because young workers have shorter average tenure than 

older workers, according to federal workforce data, some plans may use 

a minimum-age policy to exclude the youngest workers and reduce the 

administrative costs of dealing with short-tenured employees joining the 

plan and then leaving.59 However, it is unclear the extent to which 

additional plan participants increase plans’ administrative costs. Our prior 

work found that participants generally paid part or all of administrative 

fees,60 and that regardless of who incurs added administrative costs for 

accounts left behind by workers, plans are not obliged to maintain those 

accounts. Plans can require account holders to transfer their savings out 

of the plan if their balances fall below a threshold set by federal law.61

Reducing the direct costs of employer contributions was also cited by 

plans that we surveyed as an important reason for using eligibility 

 

58IRS officials said that minimum-age policies are unnecessary because a minimumservice eligibility policy alone can prevent the enrollment of short-tenure workers into a 

plan. A minimum-service policy affects just those workers who are short-tenure, 

regardless of age.

59According to CPS data for January 2014, the median number of years with one’s current 

employer among employed wage and salary workers was 0.8 years for 18 to 19-year-olds, 

1.3 years for 20 to 24-year-olds, and 5.5 years for workers 25 and older. Tenure varies 

among workers age 21 and under. The average number of jobs started per year was 1.5 

jobs for an 18-year-old, but nearly half that (0.8) for a 19-year-old, 0.7 for a 20-year-old 

and 0.6 for a 21-year-old. See U.S. Bureau of Labor Statistics, National Longitudinal 

Survey of Youth 1979 (NLSY79).

60GAO, 401(K) Plans: Increased Educational Outreach and Broader Oversight May Help 

Reduce Plan Fees, GAO-12-325 (Washington, D.C.: April 24, 2012). Here we use the 

term administrative fee to include record-keeping fees.

61Absent instruction from the participant, a plan can opt to cash out a participant account 

with a balance of $1,000 or less and can transfer a vested balance up to $5,000, 

excluding rollovers, to a special individual retirement account . See GAO, Greater 

Protections Needed for Forced Transfers and Inactive Accounts, GAO-15-73 

(Washington, D.C., Nov. 21, 2014). The “Retirement Savings Lost and Found Act of 2016”

proposed in June 2016 would increase that maximum account balance to $6,000. 
policies, although savings for some plans may be minimal.

Page 24 GAO-17-69 401(k) Plans

62 Minimumage policies reduce costs because employers do not need to make 

contributions to otherwise eligible workers. If plans do not use minimumage policies they can incur some added direct costs in the form of 

employer contributions to additional workers. However, our projections 

suggest that the direct costs associated with including workers under age 

21 in existing plans may be small because younger workers earn less, on 

average, than older workers, so the same percentage match from the 

employer costs less for younger workers.63 According to a retirement 

professional, plans may use a minimum-service policy for employer 

contributions to reduce costs for sponsors because the sponsor avoids 

making contributions to a participant account if that worker leaves their 

job before satisfying the policy.

Eligibility policies and policies that delay employers’ contributions until the 

end of the year are also used by some plans for administrative 

convenience, according to government officials we interviewed and plans 

we surveyed, though delayed enrollment is possible without delayed 

eligibility and today’s employer contribution formulas make delayed 

employer contributions often unnecessary. First, government officials said 

that some plans may use eligibility policies to delay workers’ enrollment 

because it takes administrators time to determine eligibility and to process 

workers’ enrollment in the plan. However, plans may delay a worker’s 

enrollment up to 6 months after eligibility, which can help plans to mitigate 

 

62Of the 80 plans surveyed, direct cost was cited as an important reason for using 

minimum-service for employer contribution policies by 24 plans and for using vesting 

policies by 28 plans. 

63Our analysis suggests that without paying a dollar more in employer contributions, a 

hypothetical employer currently making a 3.0 percent match to 1,000 employees ages 21 

to 66 and earning, in 2016 dollars, an average salary of $65,387 may only have to reduce 

that match to 2.96 percent to include 50 (5 percent) more employees ages 18 to 20 who 

earn an average salary of $16,172. For the older workers, that amounts to an average 

annual employer contribution of $1,938, which is $24 less than they received before the 

adjustment, but younger workers could receive an annual average employer contribution 

of $479, instead of $0. Dollar values are rounded. See Appendix II for information about 

salary data used for hypothetical scenarios. Our analysis of Current Population Survey 

(CPS) data found that workers ages 16 to 20 are 5.2 percent of the overall workforce and 

just 2.3 percent of the full-time workforce, as of March 2016. CPS data are averages 

across all industries. However, some firms employ a higher percentage of workers ages 

16 to 20, which would increase the cost of extending an employer match.
administrative concerns.

Page 25 GAO-17-69 401(k) Plans

64 According to PSCA’s survey, about 25 percent 

of 401(k) type plans delay the enrollment of newly eligible workers and 

the rest enroll workers “anytime” after they are eligible.65 Moreover, a 

retirement professional told us that, for medium and large-size plans, the 

payroll systems used to administer plan benefits can support the 

provision of employer contributions during the year as opposed to just at 

the end of the year. Second, some plans that we surveyed indicated they 

also delay employer contributions until the end of the year for 

administrative convenience. For example, one respondent reported that it 

is less work for the plan to make employer contributions once, at year’s 

end. However, a government official told us that the reason most plans 

make employer contributions each pay period is that doing otherwise 

would have adverse effects on the plan sponsor by requiring a large 

outflow of cash at the end of the plan year. By making employer 

contributions more frequently, a company can spread that cost over the 

year. A retirement professional told us a likely reason that some plans 

make delayed employer contributions is employer inertia in keeping a 

policy that is a remnant of the past, when employer contributions were 

based on the employers’ year-end profits. However, today, most plans 

are 401(k) plans and often provide matching employer contributions 

based on participants’ own contributions, which are typically made each 

pay period.

Vesting policies can also reduce costs for plan sponsors by resulting in 

forfeited employer contributions when participants separate without fully 

satisfying the vesting policy. Those forfeitures can offset employer 

expenses and contributions. According to retirement professionals we 

interviewed and plans we surveyed, vesting policies reduce the direct 

cost of employer contributions for shorter-tenure employees who do not 

stay employed long enough to satisfy the vesting policy and keep 

employers’ contributions.66 However, tax benefits to employers from 

making employer contributions can partially offset direct costs to 

 

64Plans must enroll eligible workers no later than 6 months after becoming eligible or the 

first day of the new plan year, whichever is sooner. 26 U.S.C. § 410(a)(4).

65Plan Sponsor Council of America, 57th Annual Survey.

66For example, because a plan can require a 3-year cliff policy, there is no net cost in 

direct benefits for contributions made but later forfeited back to the employer. Returns on 

those contributions are also forfeited to the plan when vesting is unmet. 
employers of making contributions to participant accounts, because they 

reduce an employer’s taxable corporate income in proportion to the 

amount spent on contributions.

Page 26 GAO-17-69 401(k) Plans

67

Finally, both eligibility and vesting policies were also used to reduce 

employee turnover by plans we surveyed. Retirement professionals and 

an academic researcher we interviewed explained that some plans see 

delayed eligibility in the 401(k) plan as an incentive that may convince 

new employees to stay longer in their job. Sponsors also use vesting 

policies to reduce turnover, according to government officials, retirement 

professionals, and an academic researcher we interviewed. For example, 

a retirement professional said that companies with a generous matching 

contribution and high employee turnover prefer to use a vesting schedule 

because it incentivizes employees to stay with the employer. However, 

the extent to which vesting policies are effective in changing behavior and 

reducing turnover depends in some measure on whether participants 

actually understand vesting policies. For example, if a participant 

incorrectly believes he or she is fully vested but is actually only partially 

vested, the vesting policy will not effectively incentivize the worker to 

extend tenure to fully vest.68

 

67Employers receive a tax deduction for their contributions to participant accounts, though 

Treasury officials said the deduction is the same as received for paying wages of the 

same amount. For tax year 2012, the most recent year for which data are available, IRS 

estimated that corporations claimed $145 billion in aggregate deductions for contributions 

to workplace retirement plans. This estimate is based on deductions claimed by 

companies who filed Form 1120, “U.S. Corporation Income Tax Return.” See Department 

of the Treasury, Internal Revenue Service, 2012 Corporation Income Tax Returns Line 

Item Estimates (Washington, D.C). Because a tax deduction reduces the amount of an 

employer’s income subject to income tax unlike a tax credit which directly offsets the tax 

amount owed, the federal tax revenue lost each year as a result of employer contributions 

does not equal the amount of deductions.

68A significant number of job separations are not voluntary. According to Bureau of Labor 

Statistics’ data from the Job Openings and Labor Turnover Survey 2001-2015, on 

average, 40 percent of total annual job separations resulted from layoffs and discharges. 

Another 53 percent of job separations were due to workers voluntarily leaving their job and 

7 percent was due to retirements and other reasons, on average. While the number of 

quits and layoffs may vary over the business cycle, over the last 15 years only in 2009 did 

the number of layoffs and discharges exceed voluntary separations.
Plan sponsors use eligibility and vesting policies for a number of reasons. 

However, based on our projections, we found that although the effects on 

a worker’s retirement savings can initially be minimal from policies 

affecting plan eligibility, eligibility to receive employer contributions and 

the timing of those contributions, and vesting of employer contributions, 

the cumulative effects can potentially result in significantly lower 

retirement savings, depending on the policies used (see table 6). (Also 

see Appendix II for detailed information about the assumptions used in 

these hypothetical projections.)

Page 27 GAO-17-69 401(k) Plans

Table 6: Based on the Results of GAO’s Hypothetical Scenarios, Current Eligibility, Employer Contribution, and Vesting 

Policies Can Potentially Result in Lower Retirement Savings

Policy

When Workers are 

Affected

Potential Foregone or Lost Savings

Savings 

Potential Value at Retirement (age 67) of 

Foregone or Lost Savings

Nominal In 2016 Dollars

Minimum age of 21 Before joining the plan $2,643a

employee contributions 

$85,587 $23,258

Not specified $4,140

employee and employer 

contributions

$134,456 $36,422

Minimum service for 

eligibility (up to 1 year and 

1,000 hours)

Before joining the plan $3,808b

employee contributions 

$51,758 $14,021

Not specified $5,963

employee and employer 

contributions

$81,055 $21,957

“Last day” service After joining a plan, 

when leaving a job

$2,155c

employer contributions 

$29,297 $7,936

Timing of employer 

contributions

After joining a plan, allyear every year$86d

employer contributions

$1,076 $291

If the worker’s plan applied this policy for 10 

years

$1,128e

employer contributions

$9,976 $2,702

Vesting of employer 

contributions

After joining a plan, 

when leaving a job

$4,143f

employer contributions

$58,494 $15,845

Source: GAO analysis of federal laws and hypothetical scenarios. | GAO-17-69

Note: Foregone savings are based on an assumption that the worker would have saved 5.3 percent 

of their salary. Salaries are based on data developed by the Social Security Administration’s Office of 

the Chief Actuary. Lost savings are based on employer contributions, which are assumed to be 3 

GAO Hypothetical 

Projections Suggest 

Current Plan 

Eligibility, Employer 

Contribution, and 

Vesting Policies Can 

Result in Lower 

Retirement Savings
percent of pay. Projected values at retirement assume a return that reflects a mixed portfolio and 

which varies each year to grow increasingly conservative over time.

aWe assume that savings are foregone from the beginning of workers’ 18th year of age and that they 

work for three years through the end of their 20th year of age.

bWe assume that savings are foregone for one year corresponding to the worker’s 30th year of age.

cWe assume that a worker ends employment on the last day of the year, which corresponds with their 

30th year of age, and thereby forfeits the employer’s contribution for the whole year.

dWe assume that a worker forfeits the interest that could potentially have been earned on their 

employer’s contribution to their account during the plan year, which corresponds to the worker’s 30th 

year of age, if it had been made biweekly rather than at the end of the year.

eWe assume that a worker forfeits the interest that could potentially have been earned on their 

employer’s contribution to their account over 10 plan years, which corresponds to the worker’s 30th 

thru 39th years of age, if the employer contribution had been made biweekly rather than at the end of 

each year.

fWe assume that a worker forfeits employer contributions to their account made over 2 years that 

correspond to the worker’s 29th and 30th year of age.

Currently, the law permits 401(k) plans to require a minimum age of 21 

and at least 1,000 hours of service over 1 year for a worker to be eligible 

to join an employer’s 401(k) plan. As discussed earlier, we found that plan 

sponsors may use these policies to reduce the costs and challenges 

incurred when short-term workers enroll in the plan and leave behind 

small accounts. While the law gives plan sponsors flexibility in 

establishing plan eligibility policies that meet their needs, federal caps on 

minimum age and minimum service policies serve to balance plan 

sponsors’ needs with workers’ interests in accessing and saving for 

retirement in workplace plans.

Page 28 GAO-17-69 401(k) Plans

69 In addition, because of the potential for 

compound interest to grow savings over time, it is a widely accepted best 

practice for workers to start saving for retirement as early as possible, 

even if the amounts they save seem small.70 Our projections suggest that 

 

69According to a statement from a House Committee on Ways and Means report issued in 

advance of ERISA: “...the committee bill sets minimum standards on the age and service 

requirements which can be used to exclude employees from participation in plans. ...The 

Committee believes that these rules are reasonable. They provide a balance between the 

need to grant employees the right to participate in pension plans at a relatively early age 

so that they can begin to acquire pension rights and the need to avoid the administrative 

drawbacks that would be involved in granting coverage to immature and transient 

employees whose benefits would in any event be small.” H.R. Rep. No. 93-807, at 15

(1974). 

70See United States Department of Labor, Employee Benefits Security Administration, 

“Savings Fitness: A Guide to Your Money and Your Financial Future” (Washington, D.C.), 

accessible at http://www.dol.gov/ebsa/publications/savingsfitness.html, and “New 

Employee Savings Tips- Time Is On Your Side” (Washington, D.C.), accessible at

http://www.dol.gov/ebsa/publications/main.html.

Our Projections Suggest 

that Plans’ Use of 

Minimum-Age and 

Minimum-Service Policies 

Can Reduce Workers’ 

Access to Workplace 

Retirement Plans and Can 

Result in Foregone 

Retirement Savings
these eligibility policies can potentially reduce workers’ retirement 

savings.

Our estimates, which project hypothetical retirement savings, suggest that 

minimum-age policies can potentially reduce young workers’ future 

retirement savings. Minimum-age eligibility policies can lower workers’ 

potential retirement savings through the loss of compound interest as well 

as employer contributions, and the policies disproportionately affect some 

groups. Because minimum-age policies can prevent young workers from 

saving for retirement in their workplace 401(k) plan early in their careers, 

they miss the opportunity to accrue compound interest and grow their 

initial contributions over the remaining decades of their working life.

Page 29 GAO-17-69 401(k) Plans

71 For 

example, an 18-year-old worker earning $15,822 per year who is 

ineligible to enroll in an employer’s plan until age 21 may forego savings 

at retirement of $85,85772 ($23,258 in 2016 dollars) if they had been able 

to save and invest 5.3 percent (the average contribution level for nonhighly compensated employees reported by plans in PSCA’s 57th Annual 

Survey) of their salary over those 3 years.73

Because of the effects of compound interest, saving for retirement at a 

young age is a one-time opportunity to optimize retirement savings 

 

71Compound interest refers to the exponential growth realized when returns are earned on 

returns.

72Projected values “at retirement” are nominal, that is, they are not adjusted for inflation. 

Inflation is a general increase in the overall price level of the goods and services in the 

economy. The projected values provided in “2016 dollars” adjust the nominal value to 

show the current value of the projection, given anticipated increases in the price of goods 

and services. In other words, the 2016 value shows what the projected future value might 

be worth today.

73See Appendix II for a detailed description of our hypothetical projections and the 

assumptions we used. The Social Security Administration’s (SSA) Office of the Chief 

Actuary (OCACT) publishes age-based earnings-adjustment factors that can be applied to 

SSA’s average wage index (AWI) to produce an average pattern of wage progression over 

a worker’s career, referred to as scaled factors. For our illustrations, we used the 2015 

factors. SSA, Office of the Chief Actuary, SSA Bulletin: Actuarial Note, “Scaled Factors for 

Hypothetical Earnings Examples Under the 2015 Trustees Report Assumptions,” No. 

2015.3, July 2015. The amount of forgone savings is $23,258 in 2016 dollars—more than 

the worker’s entire starting salary in this scenario—and amounts to 5 percent of their total 

potential retirement savings from their own contributions over their career. See Appendix 

II, table 3 for a comparison of projected savings from 3 years of employee contributions 

alone, occurring at different times during a worker’s life.

Our Estimates Suggest that 

Plans’ Use of Minimum-Age 

Policies Can Reduce Workers’ 

Access to Retirement Plans 

and Accumulation of Savings
despite making what is typically a low salary relative to lifetime earnings. 

An older worker has to save more to make the same gains over time, 

because the returns on savings made later have fewer years over which 

to compound. (See fig. 5.) (Also see Appendix II for detailed information 

about the assumptions used in these hypothetical projections.)

Figure 5: Compounding Means a Younger Worker Can Save Less than an Older 

Page 30 GAO-17-69 401(k) Plans

Worker for Same Savings Amount at Retirement

Note: Dollar values above are nominal. The value at retirement, $85,857 ($23,258 in 2016 dollars), is 

5 percent of projected retirement savings from employee contributions alone, which is $1.7 million 

($464,046 in 2016 dollars). Adjusted to 2016 dollars: The projected savings from ages 18 to 20 is 

$2,505 and savings from ages 48 to 50 is $11,069. Percentages are based on total retirement 

savings resulting from a worker saving each year from age 18 through age 66, and retiring at age 67. 

The projected employee deferral for the 48 to 50-year-old worker differs slightly from the projected 

deferral for that age given the hypothetical scenarios used elsewhere. It reflects what the deferral 

would need to be from age 48 to 50 to result in an amount worth 5 percent of retirement savings, 

given our other assumptions.

Minimum-age eligibility policies may have disproportionate effects 

for some groups. Based on our analysis of data and estimates, we 

found that certain groups can be disproportionately affected by a 
minimum-age eligibility policy for 401(k) plans. For example, many young 

people graduating from high school will not enroll in college but will enter 

the workforce, only to be potentially excluded from an employer’s 401(k) 

plan by a minimum age policy. Data from BLS’s Current Population 

Survey (CPS) show that of 3 million workers who graduated from high 

school in 2015, about 30 percent were not enrolled in college by October 

of that year.

Page 31 GAO-17-69 401(k) Plans

74 Recent high school graduates not enrolled in college are 

about twice as likely to be employed or looking for work as those who are 

enrolled.75 Young workers who do not attend college can expect less 

wage growth over their career, making early savings all the more 

important. Policies that prevent potential savings by young workers may 

also disproportionately affect women, who often earn lower wages and 

may benefit most from maximizing early savings. We have previously 

reported that women have less retirement income on average than men, 

partly because women are more likely than men to spend time outside the 

workforce when they are older. This is a time when income may be higher 

than earlier in their career and when they might otherwise be able to take 

advantage of “catch-up” savings opportunities in their workplace plan.76 A 

minimum-age policy may prevent some women from saving for retirement 

when they are fully participating in the workforce, before they may reduce 

work hours or leave the workforce to provide caregiving support to family 

members. A minimum-age policy also has implications for low-wage 

workers. Our projections suggest that the foregone savings of low-wage 

workers from age 18 to 20 can be an even larger percentage of their 

retirement savings than for higher earners because low-wage earners 

may realize less growth in their salary over time, so later contributions do 

 

74The data include those from ages 16 to 24 in the count of recent high school graduates. 

BLS, “College Enrollment and Work Activity of 2015 High School Graduates” April 28, 

2016. According to BLS, information on school enrollment and work activity is collected 

monthly in the Current Population Survey (CPS), a nationwide survey of about 60,000 

households that provides information on employment and unemployment. Each October, 

a supplement to the CPS gathers more detailed information about school enrollment, such 

as full- and part-time enrollment status.

75Ibid. As a percentage of those employed or looking for work, that amounts to 73 percent 

who are not enrolled in college and 36 percent who are enrolled.

76GAO, Retirement Security: Women Still Face Challenges, GAO-12-699 (Washington, 

D.C.: March 20, 2014).
less to make up for savings missed at a younger age.

Page 32 GAO-17-69 401(k) Plans

77 For example, 

based on our analysis, compared to the loss of 5 percent of retirement 

savings for a medium-level earner not saving from age 18 to 20, a lowerlevel earner with reduced wage growth over his or her career could lose 

11.5 percent of retirement savings from not saving from age 18 to 20—

more than twice the percentage lost by the medium-level earner with 

average wage growth.78

Minimum-age eligibility policies may mean foregone contributions 

from an employer. The amount of foregone retirement savings due to 

minimum-age policies can be higher when matching employer 

contributions are considered. For example, based on analysis of our 

hypothetical scenario, the savings of an otherwise eligible 18-year-old 

earning $15,822 per year could have been $134,456 at retirement, or 

$36,422 in 2016 dollars, if that individual had also received an employer 

match of their contribution up to 3 percent of salary from age 18 to 20.79

An employer’s match of employee contributions is typically, in effect, a 50 

to 100 percent return on the employee’s contributions; participants who 

receive an employer match can double the value of their contribution—a 

100 percent return—if the employer makes a dollar for dollar match.

 

77See Appendix II for a description of how we calculated flatter earnings growth for this 

comparison and table 2 for the projected value of savings not made from ages 18 to 20 for 

a low-wage earner with less wage growth than the SSA-scaled medium earner, from the 

SSA Bulletin, on which we based our other illustrations.

78Lost savings for a medium-level earner with constant wage growth of 5.6 percent (the 

average wage growth from salary data from the SSA Bulletin) would be $85,857, which is 

5 percent of $1.7 million in total savings, not adjusted for inflation or $23,258 out of 

$464,056 in 2016 dollars. Lost savings for a low-level earner with less wage growth (4.6 

percent, one point less than SSA’s assumption for an average worker) would be $38,411, 

which is 11.5 percent of $334,783 in total savings at retirement (or $10,405 out of $90,689 

in 2016 dollars). These values illustrate the potential effect of an eligibility policy on a 

worker’s retirement savings over time and are not a prediction of a low-wage worker’s 

likely retirement savings.

79In our hypothetical scenario, earnings for an 18-year-old are for 2016 so the inflation 

adjusted value is the same as the nominal value. PSCA survey data show that the most 

common employer contribution level among 401(k) plans is 2.9 percent, rounded in our 

standard projections to 3 percent. Similarly, the most commonly used match formula is 50 

percent of employee deferrals up to 6 percent of salary, which is a maximum match of 3 

percent, used by 26.2 percent of plans. See Appendix II for a detailed description of 

assumptions used in our hypothetical scenarios.
ERISA provides plan sponsors some flexibility to design plan policies that 

can restrict workers’ eligibility to enroll and save in plans. ERISA 

specifically permits sponsors to limit enrollment in 401(k) plans to workers 

age 21 and older.

Page 33 GAO-17-69 401(k) Plans

80 Over 8 million workers under the age of 21 are 

potentially subject to this policy.81 In passing ERISA, Congress supported 

the policy goal of increasing access to plans by allowing workers to save 

for retirement as early as possible.82 Increasing access to plans was also 

a policy goal supported by Congress more recently in passing the 

Pension Protection Act of 2006.83 The current minimum-age policy does 

not further that goal. Extending eligibility to workers at an age earlier than 

21 would also give young workers an opportunity to build their private 

sector savings at the same time they are earning credits toward future 

Social Security retirement benefits. In addition, increasing workers’ 

access to workplace retirement plans is a current federal policy goal, 

 

8026 USC § 410(a)(1)(A)(i).

81As noted, CPS data from March 2016 reflect that 5.2 percent of the total labor force (fulltime and part-time) is ages 16 to 20, or 8.2 million workers. Just 2.3 percent of the full time 

workforce is younger than age 21.

82According to a statement from a House Committee on Ways and Means report issued in 

advance of ERISA: “...it is desirable to have as many employees as possible covered by 

private pension plans and to begin such coverage as early as possible, since an 

employee's ultimate pension benefits usually depend to a considerable extent on the 

number of his years of participation in the plan.” H.R. Rep. No. 93-807, at 43-44 (1974). 

ERISA set the minimum age cap at 25. The Retirement Equity Act of 1984 reduced the 

cap on minimum age to 21. According to a statement in the Congressional Record by an 

original cosponsor of the bill that later became the Retirement Equality Act of 1984,

changing the cap on the minimum age to 21 better allowed women to save for retirement. 

Specifically, the statement in the Congressional Record states: “The permitted exclusion 

of younger women is particularly harmful to younger workers because female labor force 

participation is highest – over 70 percent – between the ages of 20 to 24. This change 

alone could result in the overall plan participation rate by women to increase up to 16 

percent.”

83The Pension Protection Act of 2006, Pub. L. No. 109-280, § 902, 120 Stat. 780, 1033-

35, includes a provision that allows plans that automatically enroll eligible workers in the 

plan to be treated as meeting nondiscrimination testing requirements provided certain 

conditions, such as ensuring that workers’ contribution amounts meet certain minimum 

levels, are met. A committee report by the House Committee on Education and the 

Workforce that preceded the enactment of PPA stated that “there is a growing consensus 

that the 401(k) plan rules need to be updated to encourage automatic enrollment (to get 

more workers in plans).” H.R. Rep. No. 109-232, pt. 1, at 280 (2005).
reiterated by DOL guidance

Page 34 GAO-17-69 401(k) Plans

84 and recently in DOL’s fiscal year 2017 

Budget Justification.85

Employers may bear costs from enrolling additional workers in plans and 

administering their accounts after they leave their employ, but our prior 

work has shown that participants often bear the costs of administering 

their accounts and plans can use forced-transfers to eliminate small 

accounts left behind by separated employees.86 IRS officials told us that 

the minimum-age policy is unnecessary because the minimum-service 

eligibility policy permits plans to exclude short-term employees. By 

extending eligibility to workers at an age earlier than 21, private 

retirement plan coverage could expand for young workers who research 

shows lack access to 401(k) plans.87 We recently reported that when 

given the opportunity, young, low-income workers participate in workplace 

plans at high rates.88

Allowing young people to contribute at the beginning of their careers 

would also help to mitigate the risk that potential unexpected events 

could reduce the length of their careers and the period to save for 

retirement and, thus, their retirement savings. For example, research 

shows that many workers retire sooner than they expect, due to physical 

 

84DOL guidance highlights the importance of saving early for retirement. See United 

States Department of Labor, Employee Benefits Security Administration, “Savings Fitness: 

A Guide to Your Money and Your Financial Future” (Washington, D.C.), accessible at 

http://www.dol.gov/ebsa/publications/savingsfitness.html, and “New Employee Savings 

Tips – Time Is On Your Side” (Washington, D.C.), accessible at

http://www.dol.gov/ebsa/publications/main.html. 

85The fiscal year 2017 Budget Justification of the Employee Benefits Security 

Administration, an agency within the Department of Labor, states a goal of expanding 

retirement plan coverage. See United States Department of Labor, Employee Benefits 

Security Administration, FY 2017 Congressional Budget Justification, accessible at 

http://www.dol.gov/sites/default/files/documents/general/budget/CBJ-2017-V2-01.pdf.

86GAO, Private Pensions: Changes Needed to Provide 401(k) Plan Participants and the 

Department of Labor Better Information on Fees, GAO-07-21 (Washington, D.C.: Nov.16, 

2006) and GAO, 401(k) Plans: Greater Protections Needed for Forced Transfers and 

Inactive Accounts, GAO-15-73, (Washington, D.C.: Nov. 21, 2014).

87A worker could be ineligible for a reason other than a minimum-age policy, such as not 

working enough hours during the year. 

88GAO, Retirement Security: Federal Action Could Help State Efforts to Expand Private 

Sector Coverage, GAO-15-556 (Washington, D.C., Sept.10, 2015).
limitations or the need to care for family members.

Page 35 GAO-17-69 401(k) Plans

89 Such individuals will 

not save for retirement for as long as they had planned or during years in 

which their contributions may have been highest.90 Extending eligibility to 

workers at an age earlier than 21 could help a significant number of 

workers to save at an earlier age and those who experience unforeseen 

absences from the workforce or premature retirement will be better 

positioned to maximize their retirement savings during their working 

years.

Minimum-service eligibility policies of up to 1 year delay access to 

workplace 401(k) plans and can reduce potential retirement savings for 

workers of any age, according to our projections of retirement savings. 

For example, our projections suggest that for a 30-year-old worker 

earning a salary of $71,841 ($52,152 in 2016 dollars), a 1-year delay in 

plan eligibility could mean $51,758 less in savings at retirement ($14,021 

less in 2016 dollars). That amounts to 3 percent of the worker’s total 

projected retirement savings from their own savings alone. Including the 

employer match of 3 percent not received during the 1-year period of 

ineligibility, the worker could have $81,055 less at retirement ($21,957 in 

2016 dollars).91 A minimum-service eligibility policy also means that any 

workers excluded from participating in a plan also will not receive any 

employer contribution to which they might otherwise be eligible.

 

89According to the 2015 Employee Benefit Research Institute’s (EBRI) Retirement 

Confidence Survey, among workers 55 and older, 36 percent say they plan to retire at 66 

or older, while 14 percent of current retirees report having done so. Also see GAO, Private 

Pensions: Low Defined Contribution Plan Savings May Pose Challenges to Retirement 

Security, Especially for Many Low-Income Workers, GAO-08-8 (Washington, D.C., 

Nov.29, 2007).

90Society of Actuaries. “Understanding and Managing the Risks of Retirement: 2013 Risks 

and Process of Retirement Survey Report”, 2013, Online. Premature retirement also 

prevents workers from taking advantage of the additional “catch-up contributions” intended 

to help workers ensure adequate retirement savings. 26 U.S.C. § 414(v). In 2016, the 

maximum catch-up contribution permitted in a regular 401(k) plan was $6,000 above the 

general limit of $18,000 or the ADP test limit of section 401(k)(3) or the plan limit, if any. 

Catch-up provisions were created, in part, to help women save for retirement. See GAO, 

Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits,

GAO-11-333 (Washington, D.C., March 30, 2011) and GAO, Private Pensions: Pension 

Tax Incentives Update, GAO-14-334R (Washington, D.C., March 20, 2014).

91In our illustrative projections, total retirement savings from employee contributions alone 

would be $1.7 million ($464,056 in 2016 dollars). See Appendix II for a description of the 

assumptions used in our hypothetical projections.

1-Year Minimum-Service 

Eligibility Policies Delay and 

May Prevent Plan Participation 

and Our Estimates Suggest 

they May Result in Lower 

Savings
Additionally, the more often a worker changes jobs the larger the potential 

effect of a minimum-service eligibility policy on the worker’s retirement 

savings (see fig. 6). (See Appendix II, Table 5 for a similar table with 

values adjusted for inflation.) A longitudinal study by the BLS found that 

the average number of jobs for individuals born in the latter years of the 

baby boom was 11.7 jobs.

Page 36 GAO-17-69 401(k) Plans

92 The same study found that about half those 

jobs were held between ages 18 and 24. Being ineligible to save in a new 

employer’s plan for 1 year on 11 occasions, especially occurring more 

frequently early in a worker’s career, may result in $411,439 less 

retirement savings ($111,454 in 2016 dollars), based on our projections.93

 

92Bureau of Labor Statistics’ data from The National Longitudinal Survey of Youth 1979 

(NLSY79). According to BLS, the survey’s cohort consists of men and women born in the 

years 1957-64 who were age 14 to 22 when first interviewed in 1979. These individuals 

were ages 47 to 56 in 2012-13. Data are from the NLSY report “Number of Jobs Held, 

Labor Market Activity, and Earnings Growth Among the Youngest Baby Boomers: Results 

from a Longitudinal Survey.”

93Lost savings of $411,439 amounts to 24 percent of our hypothetical worker’s total 

retirement savings, based on nominal total employee retirement savings of $1,713,090 at 

age 67 ($464,056 in 2016 dollars) derived from employee contributions alone. 
Figure 6: Potential Accumulated Value of Lost Savings from Repeated Incidents of 

Page 37 GAO-17-69 401(k) Plans

1-Year Ineligibility for Participation in a Workplace 401(k) Plan

Notes: Dollar values are nominal. “Lost savings” means savings that were not made in the event of 

ineligibility, but which could have been made otherwise. These projections are hypothetical and there 

is no guarantee that a worker, even if eligible to do so, will contribute to a workplace retirement plan. 

Savings are calculated for a worker whose age corresponds roughly to the jobs held in data cited in 

BLS’s longitudinal study of older baby boomers, who held an average of 11.7 jobs, about half of 

which were between ages 18 and 24. Therefore, age 55 is skipped to account for higher turnover in a 

worker’s 20’s.

Lastly, under the current definition of a “year of service,” some types of 

workers are likely to remain ineligible to participate in their workplace 

401(k) plan indefinitely. For example, long-term part-time workers can be 
excluded from their employers’ plans regardless of tenure if they work 

fewer than 1,000 hours during the year, or about 19 hours per week. 

According to March 2016 data from the CPS, 14.3 million workers said 

that they usually worked 20 or fewer hours per week over the previous 

month.

Page 38 GAO-17-69 401(k) Plans

94 Those data also show that more women than men worked 20 or 

fewer hours per week (making women more likely than men to be 

ineligible for their workplace plan as a result of the 1,000 hour rule).95

Even employees working more than 19 hours per week could be subject 

to ineligibility due to the 1,000-hour rule, if they work multiple part-time 

jobs.96 Moreover, under the current definition of a year of service, workers 

who remain employed on a part-time basis year after year may not be 

eligible to participate in their workplace savings plans.

In first establishing the rules for a minimum-service policy for plan 

eligibility, ERISA capped such policies at 1 year of service, defined as 

1,000 or more hours worked over 1 year.97 While plans can require fewer 

hours or no hours of service for plan eligibility, they cannot require more 

 

94The survey’s categories for hours usually worked are 0-20, 21-34, 35-39, 40, 41-49, and 

50 or more hours per week; 20 hours per week is the closest approximation to the 

average of 19 hours per week, which corresponds to 1,000 hours worked per year. BLS’s 

Current Population Survey (CPS) data for March 2016.

95GAO analysis of BLS’s CPS data issued in March 2016 found that 9.2 million women 

worked 20 or fewer hours per week while 5.2 million men did so. Prior GAO work has 

shown that women have less retirement income than men, on average. See GAO, 

Retirement Security: Women Still Face Challenges, GAO-12-699 (Washington, D.C., July 

19, 2012).

96In 2015, nearly 5 percent of the workforce worked multiple jobs and women were 

somewhat more likely than men to do so (5.3 percent of women in the workforce worked 

multiple jobs versus 4.6 percent of men). BLS data from the Current Population Survey, 

2015.

97According to the Congressional Record dated Feb. 26, 1974, the 1-year service cap was 

aimed to address concerns about pension plan coverage stemming, in part, from plans 

using overly restrictive service requirements to exclude workers from participating in 

plans. 
than 1,000 hours.

Page 39 GAO-17-69 401(k) Plans

98 However, millions of part-time workers may never 

qualify for their employer’s plan with a 1,000-hour requirement. Some 

members of Congress and the current administration have proposed 

amending the law to ensure that long-term part-time workers can become 

eligible to save in their employer’s workplace plan. As part of its fiscal 

year 2017 budget submission, the current administration proposed 

amending federal law to require plans to expand eligibility to workers who 

have worked for their employer at least 500 hours per year for 3 

consecutive years, allowing workers to contribute their own earnings, but 

not necessarily to receive employer contributions to their account.99 A 

2015 Senate Finance Committee bi-partisan working group endorsed this 

proposal and legislation was introduced that incorporated it.100 Prior to the 

current administration’s proposal, legislation was introduced that also 

would have required plans to cover long-term part-time employees.101

Given today’s workforce, determining whether the current definition of 

“year of service” is consistent with the goal of expanding access to 

workplace retirement savings plans would be beneficial to all workers. 

Without revising the definition of “year of service”, minimum-service 

eligibility policies may continue to reduce potential retirement savings for 

millions of workers who will remain ineligible to participate in a plan 

because their annual hours of service may fall below their plans’ 

requirement. Some retirement professionals we interviewed said that 

operating without a 1,000 hour rule could result in more small accounts 

 

98Under federal law, plans may credit employee service on the basis of actual hours 

worked or elapsed time. Using the actual number of hours an employee has worked, a 

plan may require an employee to work up to 1,000 hours during a 12-month period to be 

credited with a year of service. Employees are not eligible to save in the plan and receive 

employer contributions, if they are offered by the plan, until they have worked the requisite 

number of hours set by the plan. However, under the elapsed time approach, a plan 

credits service based on the total period of time that has elapsed since the employee 

began working, irrespective of the actual number of hours the employee has worked. 26 

U.S.C. § 410(a)(3)(A); 26 C.F.R. § 1.410(a)-7(a)(1)(i)-(ii); and 29 U.S.C. § 1052(a)(3)(A).

99Department of the Treasury, General Explanations of the Administration’s Fiscal Year 

2017 Revenue Proposals (Washington, D.C.: February. 2016).

100Women’s Pension Protection Act of 2015, H.R. 4235, 114th Cong. § 102 and Women’s 

Pension Protection Act of 2015, S. 2110, 114th Cong. § 102.

101Retirement Plan Simplification and Enhancement Act of 2013, H.R. 2117, 113th Cong. 

§ 103.
left behind by short-term workers, but as we previously noted, forced 

transfers of small balances can help plans manage any associated 

burden or cost, and often those costs are borne by participants 

themselves.

Current law permits 401(k) plan sponsors to require participants to be 

employed on the last day of the plan year to be eligible to receive 

employer contributions to their account. Current law also permits 401(k) 

plan sponsors to delay the accrual of employer matching contributions 

until the end of the year. Information from our survey of 80 plan sponsors 

and plan professionals showed that plan sponsors often use these two 

requirements together. Based on our review of relevant statutes and 

interviews with retirement professionals and government officials, we 

found that these provisions were created decades ago when 401(k) plans 

did not exist and when profit sharing contributions were the norm. 

According to Treasury officials, the provisions met plan sponsors’ need to 

wait until the end of the year to identify what their profits were for the year 

and thus what the employer’s contribution would be for the year. 

However, today most employer-based plans are 401(k) plans, not 

traditional profit sharing plans, and based on our analysis of industry 

survey data, most 401(k) plans make matching contributions, which are 

based on participants’ contributions throughout the year.

Page 40 GAO-17-69 401(k) Plans

102 Although plan 

sponsors may have previously found these two policies to be beneficial, 

our projections suggest they may also potentially reduce workers’ 

retirement savings.

The law permits plans to apply policies that limit a participant’s ability to 

receive employer contributions without additional service each year—last 

day policies—which can reduce participants’ potential retirement savings. 

Although last day policies can provide financial benefits to plan sponsors 

and may also ease plan administration, these policies can reduce 

potential retirement savings for workers. Given a relatively mobile 

workforce, the requirement to be employed on the last day of the plan 

year to receive an employer’s contributions for that year puts workers who 

separate from their job at risk of losing some of their potential retirement 

 

102Plan Sponsor Council of America’s 57th Annual Survey of 401(k) and profit sharing 

plans covers the 2013 plan year. These were the most recent PSCA survey data available 

when we developed our report.

Our Projections Suggest 

that Current Employer 

Contribution Policies Can 

Also Reduce Workers’ 

Retirement Savings in 

401(k) Plans

Last Day Policies Can Reduce 

Workers’ Retirement Savings, 

Based on Our Projections
savings. For example, our projections suggest that for a 30-year-old 

earning $71,841 ($52,152 in 2016 dollars), the employer contribution not 

received due to an unmet “last day” policy is $2,155 in that year ($1,443 

in 2016 dollars). But it could be worth $29,297 by retirement ($7,936 in 

2016 dollars), which is 3 percent of the worker’s total projected savings 

from employer contributions of $969,674 ($262,673 in 2016 dollars) at 

retirement.

Page 41 GAO-17-69 401(k) Plans

103

Our projections also suggest that a last day policy can reduce potential 

retirement savings to the same extent as a 1-year minimum-service policy 

for employer contributions, except the potential savings are lost in the last 

year rather than in the first. Last day policies can reduce potential 

retirement savings for even long-tenure, full-time workers who separate 

from their employers before the official last day of the year. For example, 

a 67-year-old employee who has worked for the same employer during 

his or her entire career and retires when eligible for full Social Security 

benefits could lose the employer’s $6,606 match for that last year ($1,837 

in 2016 dollars) if it is before the end of the year.104 Moreover, the last day 

policy can affect workers repeatedly throughout their careers. If our 

hypothetical worker leaves three jobs without satisfying a last day 

requirement, at ages 20, 30, and 40, the worker could lose a total of 

$6,542, which could be worth $69,583 at retirement ($18,849 in 2016 

dollars).105

ERISA caps at 2 years the length of service that a plan sponsor can 

require before a participant is eligible to receive employer contributions. 

Given the mobility of the workforce, this provision ensures that workers 

who change jobs are eligible, just like long-tenured workers, to benefit 

from employer contributions for which employers receive a tax benefit. 

 

103See Appendix II for details of our projection assumptions and Appendix II Table 6 for 

examples of potential lost savings from a “last day” policy applied at different ages.

104A participant would lose whatever portion of the annual contribution they would 

otherwise have earned by the point in the year that they leave their job. See Appendix II 

for details about the assumptions used. Many older workers also leave their job due to 

health issues. For more on this phenomenon and the effects on retirement savings see 

GAO, Retirement Security: Most Households Approaching Retirement Have Low Savings, 

GAO-15-419, (Washington, D.C., May 12, 2015).

105Those lost savings amount to about 7 percent of total retirement savings from employer 

contributions. See Appendix II for the assumptions we used.
Given that job turnover is greater among younger workers, ERISA’s cap 

on a service policy that delays employer contributions also helps to 

ensure that workers’ savings in these tax-advantaged accounts are not 

excessively diminished at a time when, our projections suggest, 

contributions have the greatest ability for compound earnings over time to 

improve retirement savings. However, because a last day policy requires 

an additional year of service to receive any employer contributions, year 

after year, a worker who has already satisfied a 2-year minimum-service 

policy would have to wait up to another year to receive an employer 

contribution. (See Appendix II Table 8 for examples of how a last day 

policy could potentially reduce retirement savings.)

IRS oversees provisions of federal law applicable to eligibility and vesting 

and Treasury is responsible for developing proposals for legislative 

change in these areas. However, according to an IRS official, the law 

permits 401(k) plans to use a last day policy and, as long as the law’s 

non-discrimination and coverage rules are satisfied, plans are generally 

free to structure their plans as they choose. In addition, according to that 

IRS official, the flexibility provided to plans by ERISA prevents IRS from 

prohibiting plans’ use of a last day policy.

Page 42 GAO-17-69 401(k) Plans

106 Considering whether an 

adjustment to the law’s provisions regarding plans’ use of a last day 

policy is needed could help to ensure that 401(k) plan policies reflect the 

current mobility and characteristics of today’s workforce.

Plan policies that delay employer contributions so that they are paid at the 

end of the year rather than being paid in tandem with employee 

contributions throughout the year affect participants’ opportunities to earn 

compound interest on investment returns on the employer’s contribution 

to their account over the course of the year. Our projections suggest it 

may also reduce participants’ potential retirement savings. In contrast, 

regular employer contributions, such as those made bi-weekly, allow 

participants to potentially profit from the investment of that money and the 

reinvestment of those profits.107 Delayed employer contributions may 

seem negligible at first, but, if left to compound over time, our projections 

suggest that the return on that employer contribution can amount to 

significant savings. Moreover, while the immediate value of savings lost in 

 

10626 U.S.C. §§ 401(a)(4), 410(b).

107Investments typically have no guarantee of returns and can lose value.

ERISA Allows Employers to 

Delay Employer Contributions, 

Which Our Projections Suggest 

Also May Reduce Potential 

Savings
a single year can be relatively small, the potential value of that lost 

opportunity compounds year after year.

Page 43 GAO-17-69 401(k) Plans

108 For example, our projections 

suggest that for a worker who remains with one employer throughout his 

or her career, the delay of the employer’s contribution until the end of the 

year, each year, could mean $35,636 less in total savings at retirement 

($9,653 in 2016 dollars) than if the employer’s contribution was made on 

a per pay-period basis (bi-weekly), in concert with the worker’s own 

contributions.109 That is about 3.7 percent of our hypothetical worker’s 

total 401(k) retirement savings based on employer contributions alone.

ERISA establishes rules for the accrual of retirement benefits in 

workplace retirement plans.110 Those rules permit flexibility as to when an 

employer’s contributions go into—or accrue to—an individual’s retirement 

account. ERISA permits plan sponsors to delay making the employer 

contribution to participants’ accounts until as late as the end of the year or 

the date when the plan’s tax return is filed, including extensions. 

However, the law permitting delayed employer contributions is from a 

time when profit sharing plans were the norm and plans typically waited 

until the end of the year to calculate and distribute employer contributions. 

Those plans predate 401(k) plans and the matching contributions that are 

now commonplace. Treasury officials told us that, because plan sponsors 

today generally make contributions that match a participant’s own 

deferrals, delayed employer contributions are no longer necessary in 

most defined contribution plans. In addition, delayed employer 

contributions are inconsistent with the best practice of saving for 

 

108For example, under our hypothetical scenario, for a 20-year-old, the foregone 

investment returns over the year resulting from an employer contribution made at the end 

of the year instead of bi-weekly could be just $22 for that year and $599 at the worker’s 

retirement ($162 in 2016 dollars). See Appendix II Table 7 for the projected value of 

retirement savings lost from delayed employer contributions over multiple years of 

employment occurring at different ages.

109See Appendix II for details of our projection assumptions and Appendix II Table 7 for 

examples of potential lost savings from delayed employer contributions over multiple 

years of employment occurring at different ages.

11026 U.S.C. § 404(a)(6).
retirement as early as possible.

Page 44 GAO-17-69 401(k) Plans

111 While IRS has primary responsibility for 

overseeing eligibility and vesting policies and Treasury is responsible for 

developing proposals for legislative change in these areas, the provision 

permitting delayed employer contributions can only be changed by statute 

and not by either agency. Considering whether the law’s provisions 

regarding the timing of matching employer contributions should be 

adjusted could be an opportunity to help ensure the provisions reflect the 

current mobility and characteristics of today’s workforce.

Our projections suggest that vesting policies can also reduce retirement 

savings when participants leave their job and the vesting policy is not 

satisfied in full.112 (See fig. 7.) For example, our projections suggest that 

for a worker who twice separates from employment (at age 20 and 40) 

after 2 years without satisfying a 3-year cliff vesting policy, forfeiting the 

employer contributions already in their account, the lost savings could 

have grown to $81,743 by retirement ($22,143 in 2016 dollars).113

 

111See United States Department of Labor, Employee Benefits Security Administration, 

“Savings Fitness: A Guide to Your Money and Your Financial Future” (Washington, D.C.), 

accessible at http://www.dol.gov/ebsa/publications/savingsfitness.html, and “New 

Employee Savings Tips – Time Is On Your Side” (Washington, D.C.), accessible at

http://www.dol.gov/ebsa/publications/main.html.

112Vesting policies differ from eligibility and other polices in the way in which they may 

reduce potential retirement savings because participants lose the employer contribution 

after it has been deposited and invested in participants’ accounts. Consequently, the 

employer contributions that participants see on their account statements can be taken out 

of their account if they leave before they are vested. Initial savings forfeited is the amount 

of employer contributions made up to that time, and investment returns on those 

contributions, less any portion that is considered vested.

113See Appendix II for a full description of the assumptions used in this hypothetical 

scenario.

Vesting Policies That Our 

Projections Suggest May 

Affect Participants’

Retirement Savings when 

They Separate from a Job 

Have Not Been Recently 

Evaluated by Regulators
Figure 7: Potential Value of Lost Retirement Savings Due to 401(k) Vesting Policies, 

Page 45 GAO-17-69 401(k) Plans

Based on our Projections

Note: This figure reflects hypothetical projections formulated by GAO for illustrative purposes. Dollar 

values are nominal. In 2016 dollars, the forfeited employer contributions at age 20 could be worth 

$8,634 at retirement and those forfeited at age 40 could be worth $13,509 at retirement, for a total of 

$22,143. For this illustration we assumed: the individual worked during ages 19 and 20 and ages 39 

and 40; a cliff vesting policy because it is simpler to illustrate than a graduated policy; and a 3 year 

vesting policy, which is the most commonly used cliff vesting policy according to the Plan Sponsor 

Council of America survey for plan year 2013.

Caps for vesting policies are set by federal law and, over time, have been 

shortened to provide for faster vesting to make it easier for workers in a 

mobile labor force to keep employers’ contributions and to more easily 

build their savings for retirement.114 As noted earlier, Treasury is the 

federal agency that would be responsible for developing proposals for 

legislative change with regard to vesting. However, a Treasury official told 

us that the agency has not recently proposed any changes to the vesting 

 

114The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) reduced 

the cap on vesting policies in defined contribution plans for employer matching 

contributions to 3 years for cliff vesting and 6 years for graduated vesting policies. More 

recently, the Pension Protection Act of 2006 ensured that those caps would apply to 

employer non-elective contributions made after 2006. 
rules and has not conducted an assessment to determine what vesting 

policies are appropriate today.

Page 46 GAO-17-69 401(k) Plans

115 Based on our survey of plan sponsors 

and plan professionals, vesting policies are often used to reduce 

employee turnover. In addition, according to retirement professionals we 

interviewed, vesting policies reduce the direct cost of employer 

contributions for shorter-tenure employees who do not stay long enough 

to satisfy the vesting policy and keep employer contributions.116

Nevertheless, current federal policies seek to improve retirement security 

for today’s mobile workforce, including increasing the portability of 

workplace retirement plan savings.117 However, our projections suggest 

that current vesting policies can potentially reduce a participant’s 

retirement savings when vesting requirements are not met in full. An 

evaluation of the effects of current vesting policies on participants’ 

retirement savings may help to identify if those policies remain 

appropriate for a mobile workforce increasingly dependent on their 

employer-based retirement accounts, and help determine how vesting 

policies affect the portability of retirement savings.

 

115DOL officials told us that the reorganization of duties under ERISA that occurred in 

1980 made Treasury responsible for the regulation of vesting policies.

116Employer contributions that are forfeited when a participate leaves their job before 

satisfying the vesting requirement can offset plan expenses and reduce costs for the 

remaining participants.

117The Pension Protection Act of 2006 revised rules affecting portability in some 

workplace plans. In addition, there have also been some recent policy proposals in this 

area. As previously noted, the current administration’s FY 2017 Budget Proposal includes 

a package of proposals aimed at increasing access to retirement plans and increasing the 

portability of retirement savings and benefits. The proposals are intended to ensure nearuniversal access to workplace retirement savings accounts and test new approaches to 

making retirement benefits more portable across jobs. See Office of Management and 

Budget, Fiscal Year 2017 Budget Overview, accessible at 

https://www.whitehouse.gov/omb/overview. 
Page 47 GAO-17-69 401(k) Plans

To examine plan participants’ understanding of eligibility, employer 

contribution, and vesting policies, we analyzed 46 responses to an online 

survey administered to participants in four 401(k) plans in which they 

were asked about their own plans. Responses to the survey show that 

participants’ knowledge varied.118 (See table 7.) The accuracy of 

responses was highest regarding the frequency of the employer’s 

contribution, participants’ initial eligibility to join the plan and the types of 

employer contributions made. However, based on our evaluation, some 

participants surveyed lacked knowledge of their plans’ eligibility, employer 

contribution, and vesting policies that, as our projections discussed earlier 

suggest, can have important effects on retirement savings. Our survey 

results may reflect some degree of unwarranted confidence by plan 

participants regarding their understanding of plan policies. According to a 

behavioral finance expert, about one-quarter of people generally 

overestimate their understanding of finance-related terminology.119 An 

individual’s lack of understanding of their employer’s policies can result in 

 

118Four plan sponsors agreed to let us survey their plan participants about their own 

eligibility to join the plan and to receive employer contributions, their vesting status, and 

other related plan policies. We examined the accuracy of 46 respondents’ answers by 

identifying their actual plan policies through our analysis of summary plan descriptions 

(SPD), summaries of material modification, and exchanges with the plan administrators. 

While participating employers were asked to send the survey to both employee and 

participant groups, of the 46 survey responses we analyzed, two were from individuals 

without an active 401(k) plan account with their current employer. Therefore, we refer to 

respondents generally as plan participants.

119Overconfidence among individuals assessing their own financial literacy is 

demonstrated in a study: Annamaria Lusardi and Olivia Mitchell, “Financial literacy and 

retirement planning in the United States” PEF, 10(4):509-525, October 2011. Cambridge 

University Press.

Clearer Policy 

Descriptions by 

401(k) Plans Could 

Help Participants to 

Better Understand 

Eligibility and Vesting 

Policies

GAO’s Nongeneralizable 

Survey Found that While 

Knowledge Varied, Some 

Plan Participants Lacked 

Knowledge on Eligibility, 

Employer Contribution, 

and Vesting Policies
suboptimal choices, such as choosing a job with a minimum-service 

eligibility policy over one offering immediate eligibility, when wages, 

working conditions, and other benefits are comparable.

Table 7: GAO’s Nongeneralizable Survey of 46 Participants’ Understanding of Their Plans’ Eligibility and Vesting Policies

Page 48 GAO-17-69 401(k) Plans

Plan Policy

Accuracy of Participants’ Knowledge of Their Plan’s Policies 

Of ... Incorrect 

answer

Did not know or did 

not answer 

Correct answer

(1) Were you immediately eligible to enroll in the plan when 

you began work?

46 17 0 29

(2) (If not immediately eligible) Why were you not eligible to 

join the plan right away?

18 10a0 8

(3) What kind of contribution does your employer make to 

your retirement account, if any?

46 15 4 27

(4) How often are the employer’s contributions made to 

your retirement account?

42 4 4 34

(5) Are you required to be employed on a particular date to 

get your employer’s contributions for that year?

42 2 16 24b

(6) If you left your job now would your employer 

contributions be 100% vested?

42 5 12 25

(7) How long did you have to work to become 100% 

vested?

24 9 10 5 

Source: GAO analysis of participant responses to GAO survey. | GAO-17-69

Note: We excluded participants who were not presented with a question due to the survey’s skip 

patterns, so the number of total responses for each question differs accordingly. Overall, there were 

46 valid survey responses. The survey respondents were divided equally by gender; 22 were female, 

22 were male, and 2 did not disclose their gender. We asked participants about the type of 

contribution that their employer provided, matching or non-matching, and combined the responses to 

these questions in our analysis. Therefore, the total for employer contribution includes responses for 

both matching and non-matching contributions.

aWe excluded the response of an individual who indicated that he did not have an account but was 

eligible to join the plan. Because the individual did not have an account he was not asked about 

enrollment in the plan when he began working for the company.

bOf the 24 correct responses, 22 were also correct about the frequency of their employer 

contributions.

Approximately two-thirds of respondents gave answers consistent with 

the eligibility rules in place at their plan when they started their job, which 

may reflect a fairly high level of education and long tenure among workers 
we surveyed

Page 49 GAO-17-69 401(k) Plans

120, but about a third of the participants we tested were 

incorrect about their eligibility to join their employer’s 401(k) plan.121

Among those not immediately eligible to join the plan and asked to 

identify the reason for their initial ineligibility, more than half provided 

incorrect answers.122 That result is generally consistent with a national 

survey on self-reported financial literacy, which asked about 5,000 current 

defined contribution plan participants to assess their own knowledge of 

“eligibility requirements,” among other topics.123 That survey found that 

while 85 percent felt they had a working knowledge of and understood the 

term “eligibility requirements,” nearly half (46 percent) were not confident 

enough in their understanding to teach others (see fig. 8).

 

120For example, the six of eight respondents from a law firm we surveyed who provided 

correct answers regarding their immediate eligibility all have some college education and 

four have a doctor of philosophy or professional degree, such as a Juris Doctor (law 

degree). Of the 29 respondents who answered correctly, about 21 had tenure of 4 or more 

years. One retirement plan professional we interviewed also observed that longer tenure 

may be correlated with better knowledge of plan policies.

121Several participants said they had been immediately eligible to join the plan when they 

started their job although their plan required an initial minimum-service period for eligibility.

122For example, several participants said that they were not able to join the plan 

immediately after hiring because the plan did not yet exist; however, we found that the 

plan did exist and their ineligibility was instead due to the plan’s minimum-service eligibility 

policy.

123Boston Research Technologies and the National Association of Retirement Plan

Participants, “Participant Survey: Study of Financial Literacy, Financial Behavior and Trust 

in Financial Institutions,” 2015. These two groups jointly conduct the annual Financial 

Empowerment Literacy and Trust (FELT) survey. We estimate that the sampling error is 

well within an acceptable range due to the large number of survey responses (about 

5,000), and thus conclude that these survey responses are sufficiently reliable for our 

purposes. 
Figure 8: Plan Participant Responses to a National Survey on Financial Literacy 

Page 50 GAO-17-69 401(k) Plans

Question About Their Understanding of the Term “Eligibility Requirements”

Our survey results show that respondents had a good understanding of 

their employer’s contribution. The high number of correct answers to the 

question about how frequently employer contributions were made was 

consistent with information we heard from a retirement expert we 

interviewed who said that workers generally have a good understanding 

of their employer’s matching contribution to their 401(k) plan account.124

Workers who do not understand the significance of the timing of employer 

contributions may not be well prepared to weigh such policies before 

choosing to join or leave an employer. While more than half of 

 

124Aon Hewitt, “Workforce Mindset Study: Key Findings on What Differentiates, What 

Rewards, and What Communicates,” 2015. The survey was administered online within the 

United States in August 2014 to employees of a diverse range of companies and across 

different geographical regions. Of 2,539 employees surveyed, 86 percent agreed that they 

had a good understanding of their employer’s company match and/or basic contributions 

to their 401(k)-type plan.
participants we surveyed were correct about whether they are required to 

be employed on a specific day of the year to receive the employer’s 

contribution, which could indicate a last day policy, more than a third (18) 

did not know or did not answer the question. Understanding an 

employer’s last day policy is important because, as our projections 

suggest, the policy could potentially reduce retirement savings.

Page 51 GAO-17-69 401(k) Plans

125

Lastly, understanding of vesting requirements was mixed. More than half 

of participants gave accurate answers regarding their vesting status, 

given their plans’ policies. Clearly written plan documents may also have 

helped those participants who understood their vesting status. Federal 

law requires that a plan’s summary plan description (SPD) be written in a 

clear manner and uses a table to describe the maximum vesting schedule 

for 2- to 6-year vesting, which some plans use as a model in their SPD. At 

one of the companies where the majority of participants gave correct 

responses, the plan documents clearly stated the plan’s 5-year graduated 

vesting policy and the calculation of vesting status based on different 

lengths of service by using a table (see fig. 9).

Figure 9: Vesting Schedule for Employer Contributions in One 401(k) Plan

 

125Some companies require plan participants to be employed on the last day of the year in 

order to receive the employer’s matching contributions for that year. Vesting requirements 

may still apply.
The national financial literacy survey found that respondents’ selfreported understanding was also high regarding the definition of a 

“vesting period.” The survey found that about three-quarters of individuals 

surveyed thought they had either a working knowledge of the term 

“vesting period” or understood it well.

Page 52 GAO-17-69 401(k) Plans

126 However, not all participants we 

surveyed understood their vesting status. Some respondents did not 

know if their employer contribution was fully vested, did not attempt to 

answer this question, or incorrectly believed that their employer 

contribution was already fully vested, when it was not.127 Describing the 

vesting policy that they had to meet or will have to meet to become 

vested was also difficult for some participants. For example, one 

participant we surveyed said that he was required to work for 5 years to 

be fully vested even though the plan had a 6-year vesting schedule.

We found evidence that some eligibility and vesting policies in summary 

plan descriptions (SPD) can be unclear. Our review of five SPDs found 

that some eligibility and vesting policies were written using complex 

technical language which may make them less likely to be easily 

understood by the average plan participant.128 (See text box.) Participants 

in two discussion groups comprised of plan sponsors and plan advisors 

which we convened in March 2015 also said that plan participants 

probably do not understand the eligibility and vesting requirements of 

their plan because the SPDs use complex legal terms.129 Furthermore, 

 

1262015 Financial Empowerment Literacy and Trust survey, conducted by Boston 

Research Technologies. In the survey, those who said they had a working knowledge of 

the term said that they could not teach it to others, while those who said that they 

understood the term well said that they could explain it to others.

127For example, one participant who started his job in 2015 said that he would be able to 

keep all of his employer contributions if he were to leave his job even though he would not 

satisfy the company’s 6-year graduated vesting policy until 2021. As described in 

Appendix I, the participant survey was administered over several weeks from December 

2015 through January 2016.

128The summary plan descriptions (SPD) were provided by the four companies whose 

participants we surveyed regarding participant understanding, and by a third-party plan 

administrator who we interviewed.

129We convened the discussion groups at a regional conference of defined contribution 

plan sponsors and plan advisors in March 2015, issuing an open invitation to members of 

these groups to share their views and experiences regarding participant understanding of 

eligibility and vesting policies as well as what factors determine how plans use these 

policies. 

Unclear Plan Documents 

May Hinder Participants’

Understanding of Their 

Employers’ Eligibility and 

Vesting Policies
one retirement professional we interviewed said that employers’ own 

difficulty understanding their plans’ eligibility and vesting policies 

contributes to employees’ misunderstanding of these policies. According 

to a retirement professional, errors in interpretation can occur, making the 

clarity of plan documents more important.

Page 53 GAO-17-69 401(k) Plans

Example of Complex Language in a 401(k) Summary Plan Description 

You will become a Participant eligible to make Elective Deferral Contributions and 

receive Safe Harbor Non-Elective Contributions and Profit Sharing Contributions on the 

a) first day of the first month of the Plan Year or b) first day of the seventh month of the 

Plan Year, coincident with or next following the date you attain age 21 and you complete 

one (1) Year of Eligibility Service, provided that you are an Eligible Employee on that 

date.

Source: Language taken from a sample summary plan description. | GAO-17-69

Experts we interviewed observed that while plan descriptions may clearly 

illustrate the benefits of a plan, many do not as clearly illustrate the 

potentially negative consequences of certain policies.130 The five SPDs 

we reviewed were consistent with that observation. While they explained 

how much of the employer contribution is vested for each year of service, 

they did not as clearly describe the potential forfeiture of employer 

contributions and returns on those contributions if a participant leaves 

their job before satisfying the plan’s vesting policy. For example, one SPD 

we reviewed stated that employees who work 6 or more years will keep 

all of the employer’s contributions, but did not explain that if the 

participant terminates employment prior to 6 years, some or all of the 

employer contributions would be forfeited. Although the SPD describes 

the graduated vesting policy in terms of being able to keep employer 

contributions after 6 years, given that some individuals struggle to 

understand vesting at all, it is possible that some plan participants will not 

appreciate the potential reduction to their retirement savings of separating 

prior to completing 6 years of employment. According to retirement 

experts we interviewed, this type of positive framing can be difficult for 

 

130ERISA requires plans to present the advantages and disadvantages of the plan without 

either exaggerating the benefits or minimizing the limitations. 29 C.F.R. § 2520.102-2(b).
participants to interpret. For example, language about vesting from one 

SPD reads:

You have worked for your Employer four (4) years and have received Employer 

Contributions of $1,000. You terminate employment and request a distribution of your 

Employer’s Contributions. Because you have four (4) years of vesting service, you will 

receive 60% or $600.

While this example illustrates what happens as contributions become 

vested, it still cites what will be received rather than what could be lost. 

Instead of informing a participant of what they will receive if they are not 

fully vested when they leave their job, an employee may better 

understand the financial consequences of the vesting policy if the 

employer clearly informs them that they will lose a percentage of their 

account balance if they leave before becoming fully vested. However, 

according to a retirement professional we interviewed, employers seeking 

to attract employees have an incentive to make the plan sound generous.

Plans can also include information in their SPDs about provisions that are 

not used by the plan, a practice which is not explicitly prohibited by 

ERISA, making it difficult for participants to know which contribution is 

currently being offered and which eligibility and vesting policies apply. 

One plan sponsor explained that this is a common practice because plans 

want to avoid the time and expense of revising the plan documents later if 

they decide, for example, to change the type of employer contribution. 

One SPD we reviewed contained information about six employer 

contributions when only one contribution was offered (see fig. 10). This 

practice leaves participants with extraneous information and no clear way 

to tell what policies apply to them without additional information from their 

employer. Treasury officials said that it may be necessary for employers 

to describe contributions that they are not currently offering to employees, 

should they need to make these contributions at a later date in order to 

pass the Internal Revenue Code nondiscrimination tests. However, those 

officials agreed that the description of multiple employer contributions in 

SPDs can be confusing to participants as they may not be able to 

determine which contribution currently applies to them.

Page 54 GAO-17-69 401(k) Plans
Figure 10: Comparison of Multiple Employer Contributions to a 401(k) Plan Included 

Page 55 GAO-17-69 401(k) Plans

in a Summary Plan Description versus Only One Actually Offered by the Employer

Employers can do more than the minimum required communication and 

look for innovative and effective ways to improve participant 

understanding of plan policies. Our survey of 80 plan sponsors found that 

the highest number reported using new employee orientation and a 

welcome packet (63 and 62, respectively) to communicate eligibility and 

vesting policies to employees.131 One participant advocate we interviewed 

suggested that discussing policies one-on-one is the best way to 

communicate rules to employees, but said that approach is costly. 

Another suggestion was to tailor plan information to participants. For 

example, that participant advocate suggested that a plan notice 

 

131See Appendix I for a description of our plan sponsor survey.
communicating eligibility policies could read: “as of (specific date), you 

are eligible to participate in the plan (or to get an employer match).” The 

advocate also suggested that communications could increase in 

frequency ahead of the eligibility event, like a countdown, referring to 

eligibility like a prize to build excitement. Specifically, messages such as, 

“congratulations, you are now eligible...” can be effective in triggering 

behavior, like enrollment in the plan. Several experts we interviewed 

generally agreed that employers should simplify communications about 

plan eligibility and vesting policies to increase employee understanding, 

which could mean presenting information in a more concise, manageable 

format. Figure 11 shows an example of a short summary of plan 

highlights, which was provided by one plan service provider we 

interviewed. The first page of the 2.5 page document summarizes the 

plan’s basic rules for eligibility and vesting, does so using short 

sentences, and does not require the reader to refer to other sections of 

the document to fully understand the rules.

Page 56 GAO-17-69 401(k) Plans
Figure 11: Sample 401(k) Plan Highlights Document

Page 57 GAO-17-69 401(k) Plans
ERISA requires that summary plan descriptions (SPD) be written in a 

manner that can be understood by the average plan participant and be 

sufficiently comprehensive to inform participants of their rights and 

obligations under the plan. In addition, SPDs must explain a plan’s 

provisions with respect to eligibility and vesting, but plans have discretion 

in how they present these provisions. Under ERISA, DOL is responsible 

for enforcing requirements pertaining to the disclosure of companies’

retirement plan policies, including that plan policies should be 

communicated clearly. To do this, DOL issues regulations, can make 

judgments about the clarity of plan documents, and can issue guidance to 

plans on how to best comply with the intent of the laws and regulations. 

While its regulations restate the requirements in ERISA and list specific 

policies that should be included in the plan description, the agency is not 

more specific about what constitutes clear communication of policies and 

what does not. Because ERISA and DOL’s regulations pertaining to 

SPDs are not prescriptive about how plan sponsors can explain their 

plans’ eligibility and vesting policies clearly, plan sponsors may provide 

information in a way that meets the necessary requirements rather than in 

a manner most likely to be clear and helpful to participants. DOL also has 

a policy that it will not make determinations about the clarity of plan 

documents. Agency officials told us that they have this policy because 

determining whether specific wording is clear is highly subjective. 

Currently, DOL has not issued guidance that identifies best practices for 

communicating information on eligibility and vesting, which could assist 

plan sponsors with improving the clarity of those policies in SPDs. By 

providing guidance with best practices to help plan sponsors clearly and 

accurately communicate eligibility and vesting requirements, DOL can 

help ensure that workers better understand the information necessary to 

make informed choices regarding their employment and savings 

behavior. In addition, such guidance could include encouraging plans to 

provide information only on contributions actually made by employers—a 

best practice which could help participants better understand the plan 

policies that affect them.

401(k) plans were created four years after ERISA was passed in 1974. 

Since that time, 401(k) plans have become the dominant employersponsored plan relied on by employees for retirement savings. 

Understanding the eligibility and vesting policies used by these plans has 

become increasingly important for workers, employers, and regulators. 

However, some of these policies were created to address issues when 

plans were more of a supplemental source of retirement income, in 

addition to a traditional pension, and reliant only on non-matching 

Page 58 GAO-17-69 401(k) Plans

Conclusions
contributions from an employer rather than on a match of employee 

contributions. As 401(k) plans become the primary, and often sole, 

retirement savings vehicles for a large segment of the mobile workforce, 

there is a growing need to consider the effects of eligibility and vesting 

policies on workers, particularly those who are younger, less-educated, 

and with lower incomes. Moreover, one of the reported advantages of 

account-based plans like 401(k) plans is their enhanced portability over 

traditional pensions. Yet current rules and plan sponsor practices suggest 

some limitations on that portability, which can have potentially significant 

effects on retirement security.

Workers who must meet minimum-age eligibility policies to begin 

participating in a workplace plan miss out not only on contributing to 

401(k) accounts, but also on the opportunity to receive employer 

matching contributions, which can significantly increase the amount 

contributed to their accounts. Saving early is particularly important for 

those who join the workforce out of high school and may never pursue 

higher education, with its associated higher wages. Our projections show 

that the inability to save in a 401(k) plan from ages 18 to 21 can result in 

tens of thousands of foregone retirement savings. While turnover among 

young workers can create administrative costs for an employer, these 

costs often are borne by participants in the form of fees. Extending plan 

eligibility to allow otherwise eligible workers to at least save their own 

contributions in their employers’ 401(k) plans at an age earlier than 21 

could help young workers improve their retirement security by saving 

through their workplace plan at a time when those savings have the most 

to gain.

Minimum-service eligibility policies can also affect employees’ ability to 

save for retirement. Re-examining the legal definition of “year of service” 

used in minimum-service eligibility policies can help to ensure that the 

rules are consistent with today’s mobile workforce and use of 401(k) 

plans. Opening 401(k) plans to more workers could result in additional 

small accounts, which are sometimes abandoned by their owner. But that 

challenge can be mitigated in ways that do not reduce savings. At the 

same time, opening 401(k) plans to more workers could help many who 

now lack coverage to access a workplace retirement plan and make taxdeferred contributions toward their retirement security.

Last day policies can also affect employees’ retirement savings. Given 

the mobility of today’s workforce, all workers are potentially affected by 

these policies. Further, policies that allow employers to delay making 

matching contributions to participants until the end of the year can also 

Page 59 GAO-17-69 401(k) Plans
result in foregone savings. This type of policy can affect not only 

employees who separate from a job after a year or two, but also those 

who spend their entire career with the same employer. The policy is a 

remnant of the profit sharing plan era, when employers typically 

calculated benefits at the end of the year. Few employers rely on profit 

sharing contributions alone these days, so delayed employer 

contributions may be unnecessary. Considering whether these provisions 

should be adjusted could help ensure they reflect today’s mobile 

workforce and use of matching contributions in 401(k) plans.

Vesting policies also present missed opportunities to improve savings for 

workers who are mobile. Given that the median length of stay with a 

private sector employer is currently about 4 years, the rule permitting a 6-

year vesting policy may be outdated. Employees who forfeit employer 

contributions to their account when they leave a job prior to the end of the 

plan’s vesting period lose the opportunity to have those funds grow in the 

plan or to transfer those contributions into their new employer’s plan, 

reducing their retirement savings. A re-examination by Treasury of the 

appropriateness of current maximum vesting policies could help 

determine whether they unduly reduce the retirement savings of workers 

who change jobs.

Finally, having clear and concise information about their retirement plan’s 

eligibility and vesting policies helps employees make informed decisions 

affecting their retirement savings. Guidance from DOL can help plan 

sponsors better inform participants about the plan policies that they must 

understand to make optimal decisions.

To help increase plan participation and individuals’ retirement savings, 

Congress should consider updating ERISA’s 401(k) plan eligibility 

provisions to:

· extend plan eligibility to otherwise eligible workers at an age earlier 

than 21, and

· amend the definition of “year of service,” given the prevalence of parttime workers in today’s workforce.

In addition, Congress may wish to consider whether ERISA’s provisions 

related to last day policies and the timing of employer matching 

contributions need to be adjusted to reflect today’s mobile workforce and 

workplace plans, which are predominantly 401(k) plans offering matching 

employer contributions.

Page 60 GAO-17-69 401(k) Plans

Matters for 

Congressional 

Consideration
To ensure that current vesting policies appropriately balance plans’ needs 

and interests with the needs of workers to have employment mobility 

while also saving for retirement, Treasury should evaluate the 

appropriateness of existing maximum vesting policies for account-based 

plans, considering today’s mobile labor force, and seek legislative action 

to revise vesting schedules, if deemed necessary. The Department of 

Labor could provide assistance with such an evaluation.

To help participants better understand eligibility and vesting policies, DOL 

should develop guidance for plan sponsors that identifies best practices 

for communicating information about eligibility and vesting policies in a 

clear manner in summary plan descriptions. For example, DOL could 

discourage plans from including in documents information about employer 

contributions or other provisions that are not actually being used by the 

plan sponsor.

We provided a draft of this report to the Departments of the Treasury and 

Labor, and the Internal Revenue Service. Treasury provided technical 

comments, including those of IRS, which we have incorporated where 

appropriate, and oral comments, as discussed below. DOL provided 

written comments, which are summarized below and reproduced in 

Appendix III.

With respect to our recommendation that Treasury evaluate existing 

maximum vesting policies, Treasury had no formal comment. As we detail 

in our report on pages 44-46, given the effect that vesting policies can 

have on the retirement savings of mobile workers, we believe that it would 

be beneficial for Treasury to evaluate current vesting policies. Treasury 

may be able to incorporate an evaluation of these policies into the 

analysis it conducts in preparing the annual “Greenbook,” highlighted in 

our report on page 12, and which accompanies the President’s annual 

budget submission and outlines the President’s tax-related legislative 

proposals. DOL, in its written comments, stated that substantive 

provisions of Title I of ERISA governing eligibility and vesting provisions in 

401(k) plans are under the interpretive and regulatory jurisdiction of the 

Secretary of the Treasury. DOL also stated that Treasury and IRS 

generally consult with DOL on subjects of joint interest and it expects they 

will do so regarding our report.

With regard to our recommendation to develop guidance for plan 

sponsors that identifies best practices for communicating information 

about eligibility and vesting policies in a clear manner in summary plan 

Page 61 GAO-17-69 401(k) Plans

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
descriptions, DOL agreed that disclosures explaining these policies are 

important to participants’ ability to make informed choices about 

retirement savings. DOL also stated that under current law and 

regulations, this information must be written in a manner that can be 

understood by the average participant. DOL described planned actions 

that GAO believes are consistent with the intent of our recommendation. 

For example, DOL noted that an evaluation of best practices regarding 

eligibility and vesting should consider other disclosures provided to plan 

participants. DOL highlighted a long-term project on its current regulatory 

agenda relating to individual benefit statements, another type of 

disclosure provided to participants. DOL said that additional input from a 

broader range of plan sponsors and plan fiduciaries, possibly obtained 

through a Request for Information published in the Federal Register, 

could supplement the information we highlight in our report on pages 52-

58 and contribute to an informed development of best practices guidance.

DOL stated that it did not agree that implementing the recommendation 

allows the best use of its limited resources. DOL stated it would not be 

appropriate at this time to reallocate resources away from its existing 

priority projects to a new best practices project focused on our 

recommendation, especially given the regulatory requirements that 

currently apply to summary plan discrimination disclosures on eligibility 

and vesting. However, DOL stated it would review its existing outreach 

materials on plan administration and compliance for opportunities to 

highlight the issues we raised in our report, as well as consider our 

recommendation in the ongoing development and prioritization of its 

agenda for regulations and sub-regulatory guidance. We agree with DOL 

that the efforts it plans to take in response to our recommendation, if fully 

implemented, will meet the intent of the recommendation and help plan 

sponsors more clearly communicate eligibility and vesting policies to plan 

participants without developing guidance.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Secretaries of Labor 

and the Treasury, the Commissioner of Internal Revenue, and other 

interested parties. In addition, the report will be available at no charge on 

the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

Page 62 GAO-17-69 401(k) Plans
the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix IV.

Sincerely yours,

Charles Jeszeck

Director

Education, Workforce, and Income Security Issues

Page 63 GAO-17-69 401(k) Plans
Appendix I: Objectives, Scope, and 

Methodology

This report examines: (1) what is known about the prevalence of 401(k) 

plans’ eligibility and vesting policies and why plans use them, (2) the 

potential effects of eligibility and vesting policies on workers’ retirement 

savings, and (3) participants’ understanding of these policies. We did not 

examine the use of these policies by defined benefit plans or by public 

retirement plans.

We reviewed survey data, industry data, and conducted interviews to 

determine what is known about the prevalence of eligibility and vesting 

policies and why plans use them. To identify what is known about the 

prevalence of eligibility and vesting policies, we conducted a nongeneralizable survey of plan sponsors and plan professionals with plans 

ranging in size from less than 100 participants to more than 5,000.

Page 64 GAO-17-69 401(k) Plans

1 We 

received 80 responses to this survey. We also reviewed nongeneralizable 

data from Plan Sponsor Council of America’s (PSCA) annual survey of 

defined contribution plans, which covered 613 plans with 8 million 

participants and $832 billion in plan assets.2 PSCA’s dataset represents 

plans of varying sizes and industries, but includes a greater proportion of 

large plans based on participant numbers and assets and 

disproportionately represents the financial, insurance, and real estate 

industries when compared to the total population of plans, as measured 

by 2013 Form 5500 filings. In addition, we reviewed non-generalizable 

data from Vanguard’s 2015 report on the 1,900 qualified plans for which it 

serves as record keeper.3 These two were the only datasets we identified 

with detailed information on eligibility and vesting policies. We evaluated 

 

1See the next section of this appendix, “Survey Data Sources,” for additional details on 

our survey. 

2Plan Sponsor Council of America, 57th Annual Survey: PSCA’s Annual Survey of Profit 

Sharing and 401k Plans Reflecting 2013 Plan Experience (Chicago, IL: 2014). This was 

the most recently issued PSCA survey data available at the time of our review. PSCA’s 

report shows the percentage of plans with eligibility, vesting, and related policies. 

However, since the report indicates that these data cover a total of 613 plans, we 

converted these percentages to numbers for reporting purposes, rounding to the nearest 

number. 

3Vanguard, How America Saves 2015: A Report on Vanguard 2014 Defined Contribution 

Plan Data (Valley Forge, PA.: June 2015). Vanguard is one of the nation’s largest record 

keepers based on total assets managed and the number of participants served according 

to a 2015 record keeping survey conducted by PLANSPONSOR, an industry organization. 

The survey results can be accessed at www.plansponsor.com/2015-RecordkeepingSurvey/?type=top.

Appendix I: Objectives, Scope, and 

Methodology

Overview of Objectives, 

Scope, and Methodology
Appendix I: Objectives, Scope, and 

Methodology

another large dataset and determined that it was not reliable enough for 

our purposes. We also analyzed generalizable Census Bureau survey 

data to identify which eligibility policies affect workers, as reported by the 

workers themselves.

Page 65 GAO-17-69 401(k) Plans

4

To assess the reliability of these data, we interviewed staff from Vanguard 

and the Census Bureau who are responsible for producing the data. We 

also reviewed documentation related to these data sources, such as 

descriptions of their methodology. We also performed various tests on the 

data. For the PSCA data, we compared selected data from PSCA’s 2013 

survey—the survey we used—to data from PSCA’s 2012 survey to 

assess the consistency of the data. Specifically, we reviewed basic 

survey respondent demographic data (respondents by plan type, amount 

of plan assets, and industry) and key data on eligibility and vesting (the 

percentage of plans with service restrictions for plan eligibility, the 

percentage of plans with age restrictions for plan eligibility, and the 

percentage of plans that have vesting policies that require a service 

period for the vesting of matching employer contributions). We also 

evaluated the makeup of the plans included in PSCA’s survey by 

comparing selected demographic data from PSCA’s survey to 

Department of Labor Form 5500 plan demographic data.5 For the 

Vanguard data, we asked a Vanguard official who is responsible for the 

data questions about the scope of the data, how the data are collected 

and maintained, and whether they have any limitations. We also 

compared the eligibility and vesting data to the data from PSCA’s survey 

and our own survey of plan sponsors. For the Census Bureau data, we 

performed electronic testing for missing data, outliers, and obvious errors. 

Based on these steps, we determined that the PSCA, Vanguard, and 

Census Bureau data were sufficiently reliable for our purposes. We also 

interviewed government officials from the Securities and Exchange 

Commission, the Internal Revenue Service, and the Department of Labor, 

as well as retirement professionals, to determine whether they were 

 

4U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel.

Specifically, the survey asked participants to indicate why they do not participate in their 

employer’s retirement plan by selecting from a list of several different reasons. Failing to 

meet the plan’s eligibility policies was among the answer choices provided.

5United States Department of Labor, Employee Benefits Security Administration, Private 

Pension Plan Bulletin: Abstract of 2013 Form 5500 Annual Reports Data Extracted on 

6/2/2015 (September 2015).
Appendix I: Objectives, Scope, and 

Methodology

aware of any data sources regarding the prevalence of eligibility and 

vesting policies and to obtain their perspectives on the policies’ 

prevalence. See “Selection and Categorization of Interviewees” later in 

this section for more information on our interviews.

To determine why plans use eligibility and vesting policies, we surveyed 

plan sponsors and plan professionals by including a link to our survey in 

four industry publications (80 responded). The questions asked 

respondents to identify and rank the importance of multiple factors in their 

decision to use specific eligibility and vesting policies. To supplement our 

survey, we interviewed government officials, retirement professionals, 

and academic researchers to obtain their perspectives on why plans use 

eligibility and vesting policies. For additional context and perspectives, we 

also held two structured group interviews at a regional defined 

contribution plan conference with an open invitation to plan sponsors and 

plan service providers to discuss the reasons why plans use these 

policies.

To examine the policies’ potential effects on retirement savings over time, 

we developed hypothetical scenarios to illustrate what the effect could be 

for an individual based on a number of assumptions. For the hypothetical 

projections, we made a number of assumptions regarding salary levels, 

employee deferrals, employer matches, and investment returns drawn 

from federal and industry data sources, including Bureau of Labor 

Statistics data, PSCA’s annual defined contribution plan sponsor survey 

on plan policies used, and the Social Security Trustees’ report (2015 

Trustees Report, long range projections, intermediate assumptions). (See 

Appendix II for a detailed explanation of the assumptions used and 

additional tables providing more projections for comparison as well as 

inflation-adjusted values.) We also interviewed officials from the 

Department of Labor, Treasury, the Internal Revenue Service, and the 

Securities and Exchange Commission, as well as a total of 21 retirement 

professionals and academic researchers to discuss what is known about 

these policies’ effects on savings over time.

To assess participants’ understanding of eligibility and vesting policies, 

we used data from the National Association of Retirement Plan 

Participants’ (NARPP) Participant Survey: Study of Financial 

Empowerment Literacy and Trust (FELT survey) to identify participants’ 

understanding of financial terms, and generalizable data from a Defined 

Contribution Plan 2015 Study of Participant Satisfaction and Loyalty 

(DCP) to identify the decisions that participants would make about their 

employment based on their understanding of their companies’ 401(k) 

Page 66 GAO-17-69 401(k) Plans
Appendix I: Objectives, Scope, and 

Methodology

policies. NARPP’s FELT surveys approximately 5,000 current 401(k) and 

403(b) participants yearly, and was administered in April 2015. To assist 

us with our work, NARPP agreed to include the terms “eligibility 

requirement” and “vesting period” to the list of terms already included in 

their financial literacy survey. The DCP surveys an internet panel of over 

5,000 respondents and was administered during the month of April 2015. 

NARPP provided the surveys’ summary responses to us for our analysis. 

To assess the reliability of the data from the DCP and FELT surveys, we 

interviewed an official from Boston Research Technologies who is 

responsible for managing the two surveys. We also independently 

conducted manual tests of the DCP survey data and compared selected 

survey responses to similar data from other samples of defined 

contribution plan participants. We found the data to be sufficiently reliable 

for our purposes. We did not perform separate tests on the FELT survey, 

which uses the same sampling frame and procedures as the DCP survey.

We further assessed participants’ understanding of eligibility and vesting 

policies by administering a questionnaire to individuals testing their 

knowledge of the eligibility and vesting policies used by their 401(k) plans 

and comparing their answers to the actual policies in their plans’ 

summary plan descriptions (SPD), summaries of material modification, 

and exchanges with plan administrators . This allowed us to determine 

the accuracy of their knowledge rather than rely on their self-reported 

knowledge. We analyzed the accuracy of the 46 responses by reviewing 

plan documents provided by the sponsors or their service providers and 

emailed the sponsors directly to confirm that we understood the plan 

policies correctly, as necessary. See Survey Data Sources below for 

details on the survey design and implementation. To further assess the 

clarity of plans’ eligibility and vesting policies, we reviewed the SPDs of 

five companies, including those we surveyed regarding participant 

understanding. One SPD was provided by a third-party plan administrator 

who we interviewed. Additionally, we conducted online searches for 

relevant literature and asked interviewees to advise us regarding relevant 

studies and papers. We then assessed the relevance of the studies to our 

research questions to include those findings, as appropriate. Also, to 

understand what sources of information on eligibility and vesting policies 

participants typically have, we held two discussion groups with plan 

sponsors and plan advisors and asked them to identify the methods plans 

use to communicate their policies. Results of our review of the SPDs and 

discussion groups are not generalizable, but provide additional context 

and perspective. Finally, we interviewed retirement professionals and 

academic researchers, as discussed below, to get their perspectives on 

participants’ understanding of eligibility and vesting policies and to invite 

Page 67 GAO-17-69 401(k) Plans
Appendix I: Objectives, Scope, and 

Methodology

their suggestions on how this information can be more effectively 

presented to improve participant understanding. For example, we spoke 

to several financial literacy experts who made observations about 

financial decision making more generally and what that could tell us about 

eligibility and vesting policies specifically.

Page 68 GAO-17-69 401(k) Plans

Design and implementation. We developed a web-based questionnaire 

for plan sponsors and plan professionals to collect information on 

eligibility and vesting policies. The questionnaire included questions on 

the types of eligibility and vesting policies plans use and the reasons they 

use these policies. In addition, the questionnaire included questions on 

the timing of employer contributions, including whether plan participants 

have to be employed on the last day of the year to receive employer 

contributions and the schedule for making employer contributions. 

Throughout the questionnaire, our questions focused on employer 

contributions and did not distinguish between matching and non-matching 

contributions. To inform our understanding of participants’ understanding 

of eligibility and vesting policies, the questionnaire also included 

questions regarding their views on the degree to which participants

understand these policies and how they are informed of the policies.

To minimize errors arising from differences in how questions might be 

interpreted and to reduce variability in responses that should be 

qualitatively the same, we conducted pretests with three individuals 

external to GAO. The individuals included: an academic researcher, a 

retirement professional, and a benefits coordinator for a manufacturing 

company. Further, two GAO staff with expertise in the retirement area 

and two staff with expertise in survey design reviewed the survey for 

content and consistency. Based on feedback from these pretests, we 

revised the questionnaire in order to improve question clarity. For 

instance, in response to the benefits coordinator’s suggestion to clarify 

the language used in a question focused on whether certain types of 

employees are excluded from the plan, we modified the question to clarify 

that we were asking whether employees in certain job classifications are 

excluded from the plan.

After completing the pretests, we administered the survey. Starting in May 

2015, we asked three industry groups to announce – through their 

publications – an invitation for plan sponsors to complete our survey. 

These groups included a link to our survey in their publications. Those 

Survey Data Sources

Plan Sponsor and Plan 

Professional Questionnaire
Appendix I: Objectives, Scope, and 

Methodology

publications were: an email newsletter published by PLANSPONSOR,

Page 69 GAO-17-69 401(k) Plans

6

Plan Sponsor Council of America’s annual survey of plans,7 and Pensions 

& Investments’8 Plan Sponsor Digest and Pensions & Investments Daily, 

which are two publications directed at plan sponsors. We also included a 

link to the survey in an online forum for American Society of Pension 

Professionals and Actuaries (ASPPA)9 members who are owners or 

senior managers of plan administration firms. We directly received 

responses through August 31, 2015. We received 80 completed surveys. 

We cannot report a response rate as it is possible that respondents 

submitted multiple surveys or individuals responded who were not plan 

sponsors. Sponsors and plan professionals could respond anonymously, 

and some respondents did not provide contact information.

Analysis of responses and data quality. We used standard descriptive 

statistics to analyze responses to the questionnaire. Because this was not 

a sample survey, there are no sampling errors. To minimize other types of 

errors, commonly referred to as non-sampling errors, and to enhance 

data quality, we employed recognized survey design practices in the 

development of the questionnaire and in the collection, processing, and 

analysis of the survey data. For instance, as previously mentioned, we 

pretested and reviewed the questionnaire with individuals internal and 

external to GAO to enhance the clarity of our questions, which minimizes 

the likelihood of errors arising from differences in how questions might be 

interpreted and helps to reduce the variability in responses that should be 

qualitatively the same. To help reduce nonresponse, another source of 

 

6PLANSPONSOR, a member organization, provides information and solutions for 

America’s retirement benefits decision makers. For more information, see 

http://www.plansponsor.com/about_plansponsor/

7Plan Sponsor Council of America, 58th Annual Survey: PSCA’s Annual Survey of Profit 

Sharing and 401k Plans Reflecting 2014 Plan Experience (Chicago, IL). PSCA is a nonprofit trade association that supports employer-sponsored retirement plans. PSCA has 

conducted an annual survey of plans for nearly 60 years. 

8Pensions & Investments is an international newspaper of money management that is 

written for pension, portfolio, and investment management. Its coverage includes business 

and financial news, legislative reports, global investments, product development, and 

other topics.

9ASPPA is a non-profit professional member organization. Its goals are to educate 

retirement plan professionals and to create a framework of public policy that promotes 

retirement security. ASPPA has more than 7,000 members.
Appendix I: Objectives, Scope, and 

Methodology

non-sampling error, we asked the industry groups that publicized the 

survey to re-publicize it to further encourage respondents to complete the 

survey. In reviewing the survey data, we performed automated checks to 

identify inappropriate answers. We further reviewed the data for missing 

or ambiguous responses and followed up with respondents when 

necessary to clarify their responses. On the basis of our application of 

recognized survey design practices and follow-up procedures, we 

determined that the data were of sufficient quality for our purposes.

Design and implementation. We developed a web-based questionnaire 

directed at plan participants to collect information on their understanding 

of their companies’ 401(k) eligibility and vesting policies. The 

questionnaire included questions about the individual’s own eligibility and 

vesting status. In addition, the questionnaire included questions on the 

timing of employer contributions, including whether plan participants have 

to be employed on the last day of the year to receive employer 

contributions. The participants’ responses and our analysis of their 

accuracy are not generalizable.

To minimize errors arising from differences in how questions might be 

interpreted and to reduce variability in responses that should be 

qualitatively the same, we conducted pretests with two subject matter

experts and conducted pretests with three plan participants from external 

companies. We also reviewed the survey with internal survey experts. 

Based on feedback from these pretests, we revised the questionnaire to 

improve question clarity. After completing the pretests, we administered 

the survey using an online platform. To identify participants to test, we 

first invited every plan sponsor who had provided contact information to 

us when completing a separate plan sponsor survey to distribute a 

separate questionnaire to their plan participants. Four plans agreed to 

distribute a hyperlink to our participant questionnaire. We sent a link to 

the survey to the participating sponsors and asked them to disseminate 

the link and invite their plan participants to complete the questionnaire. 

Starting on December 8, 2015, we made the survey available for the 

participants to complete. While we asked the plans to send periodic 

reminders, we did not have direct access to the participant groups and we 

were not included on those communications. We did not select the 

participants in any way or have input into who responded to the survey. 

The survey closed on January 27, 2016. We received 50 completed 

questionnaires and analyzed 46 of them. In the process of comparing the 

survey responses to the plan descriptions, we manually reviewed each 

survey response for outliers or errors in skip patterns. We excluded two 

surveys because the respondents had no 401(k) account but said they 

Page 70 GAO-17-69 401(k) Plans

Plan Participant Questionnaire
Appendix I: Objectives, Scope, and 

Methodology

were eligible so they were not asked any further substantive questions. 

Two others were excluded because they began employment on a date 

before which we had a record of plan policies, so we could not analyze 

the accuracy of their responses. Some respondents did not click the 

“completed” button at the end of the survey and were not included in our 

analysis. We cannot report a response rate as it is possible that 

respondents submitted multiple surveys. In addition, most respondents 

did not provide contact information. Evaluating the accuracy of participant 

responses was the purpose of this survey, so our findings in that regard 

are an assessment of data quality.

Analysis of participant responses and data quality. To describe what 

is known about participants’ understanding of their companies’ 401(k) 

plan eligibility and vesting requirements, we reviewed participant 

responses at the four companies we surveyed. We compared the 

employee responses regarding the eligibility and vesting requirements 

that applied to them when they began working to information in the 

respective summary plan description (SPD), and obtained clarification 

from plan officials, as needed. Plans may issue new plan documents and 

change policies over time, so to test individuals’ knowledge of the 

eligibility policies that affected them when they were hired, we used the 

policies in place at that time rather than the eligibility policies in place 

most recently, when they differed. For example, to determine the 

employee’s eligibility to join the plan, we identified the employee’s start 

date and determined if there were any factors that would have prevented 

them from immediately enrolling in the plan.

Page 71 GAO-17-69 401(k) Plans

10 In cases where we did not 

have the plan document for the year the participant was hired, we 

reviewed the plan document published before and after their hire date 

and reviewed summaries of material modifications. If the information 

about the plan policies in the two plan documents from before and after 

their date of hire were the same, we used it to determine the accuracy of 

the participant’s answer. However, when we could not determine the plan 

policy for the relevant time period, we excluded the participant response 

from our analysis of that question. For policy questions regarding current 

plan policies (like frequency of employer contributions, and if the 

participant is required to work on a particular day to receive employer 

 

10Some plans have age and service requirements that limit employees’ ability to join the 

plan.
Appendix I: Objectives, Scope, and 

Methodology

contributions) we used the current plan policy to determine the accuracy 

of responses. We reviewed the plan details to identify information about 

the vesting schedule. Three of the four companies we surveyed currently 

offer automatic enrollment to eligible workers. Automatic enrollment is a 

plan feature by which eligible workers are enrolled in the plan by default 

and can opt-out if they do not wish to participate in the plan.

Administered by the Census Bureau, the SIPP is a household-based 

survey designed as a continuous series of national panels. The Census 

Bureau uses a two-stage stratified design to produce a nationally 

representative panel of respondents who are interviewed over a period of 

approximately 3 to 4 years. Within a SIPP panel, the entire sample is 

interviewed at various intervals called waves (from 1983 through 2013, 

generally 4-month intervals). In addition to income and public program 

participation, the SIPP includes data on other factors of economic wellbeing, demographics, and household characteristics. We used data from 

the most recent relevant data set, the 2008 SIPP.

PSCA’s survey, which includes data for plan year 2013, covers a total of 

613 profit sharing, 401(k), and combination 401(k)/profit sharing plans. 

Only 2 percent of plans included in the survey are profit sharing plans and 

therefore we determined the data are sufficiently representative of the 

401(k) plan experience. PSCA, established in 1947, is a national, nonprofit trade association of 1,200 companies and over six million plan 

participants. PSCA has conducted an annual survey of plans for nearly 60 

years.

As part of our approach for obtaining information on why plans use 

eligibility and vesting policies and participant understanding of these 

policies, we interviewed government officials and a total of 21 retirement 

professionals and academic researchers. We identified interviewees 

based on our prior work examining 401(k) plans and recommendations 

from initial interviewees. We selected interviewees who reflect a range of 

perspectives, from those with a focus on plan participants to those with a 

focus on plan sponsors. We selected federal government officials with a 

role in overseeing eligibility and vesting policies: officials of the 

Department of Labor, the Department of the Treasury, and the Internal 

Revenue Service. We also interviewed an official from the Securities and 

Exchange Commission, an agency that has a role in regulating the 

investment options into which plan participants direct their contributions. 

We categorized interviewees as retirement professionals if they provide 

retirement plan-related services (such as those who serve as consultants 

Page 72 GAO-17-69 401(k) Plans

Survey of Income and Program 

Participation (SIPP)

Plan Sponsor Council of 

America’s (PSCA) 57th Annual 

Survey of Plans

Selection and 

Categorization of 

Interviewees
Appendix I: Objectives, Scope, and 

Methodology

to plans), represent the interests of retirement plans or plan participants, 

or otherwise perform work in the retirement area. We categorized 

interviewees as academic researchers if they teach at an institution of 

higher education and focus on conducting scholarly research relevant to 

the retirement area. The views of those interviewed are not generalizable.

Page 73 GAO-17-69 401(k) Plans
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Employee salary and retirement age. We assume that the worker starts 

working at age 18 in 2016, and is continuously employed through 

retirement at age 67 in 2065. We modeled lifetime earnings using 

medium scaled earnings factors developed by the Social Security 

Administration’s Office of the Chief Actuary (OCACT) (see table 8).

Page 74 GAO-17-69 401(k) Plans

1

These factors express hypothetical earnings at each age as a percent of 

the Social Security Administration’s national average wage index.2 The 

scaled factors are based on average work and earnings of actual insured 

workers over their careers. This approach has the advantage of reflecting 

actual earnings histories, with steeper wage growth earlier in early- and 

mid-career work years, and flatter wage growth in late-career work years. 

Nominal wage increases an average of 5.6 percent per year. However, 

this approach does not reflect the possibility that less-skilled workers and 

lower earners may have flatter wage growth over their lifetime than 

higher-skilled workers. For this reason, we ran an alternative scenario for 

low earners featuring a constant nominal wage growth of 4.6 percent (see 

table 9). This alternative scenario demonstrates that the loss of early 

savings has a bigger effect on total savings at retirement for workers with 

flatter earnings growth than for workers with steeper earnings growth. We 

assume a retirement in 2065 at age of 67 because that is the Social 

Security full retirement age for workers starting their careers in 2016.

Inflation. To report adjusted salaries and other figures we indexed to 

2016 dollars using the Consumer Price Index for Urban Wage Earners 

and Clerical Workers (CPI-W) projected under intermediate assumptions 

from the 2015 Old-Age, Survivors, and Disability Insurance (OASDI) 

Trustee’s report.3

 

1SSA-OCACT, Actuarial Note, “Scaled Factors for Hypothetical Earnings Examples Under 

the 2015 Trustees Report Assumptions,” No.2015.3, July 2015.

2

In the OCACT actuarial note, scaled earnings factors begin at age 21 and end at age 64. 

To construct a hypothetical earnings history for workers who are 18 to 20, we assume that 

the scaled earnings factor is constant from age 18 to 21; because the average wage index 

(AWI) increases each year, scaled earnings (which equal the scaled earnings factor 

multiplied by the AWI) therefore increase slightly from age 18 to 21. We assume that 

scaled earnings are constant from age 65 to 66. 

3

“2015 OASDI Trustee’s Report: Estimates in Dollars,” Sept. 1, 2015. Online: 

http://www.ssa.gov/OACT/TR/2015/VI_G3_OASDHI_dollars.html#182913.

Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Explanation of 

Assumptions Used
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Table 8: Annual Average Salaries for a Medium-Level Earner

Page 75 GAO-17-69 401(k) Plans

Age Nominal Adjusted for inflation 

(in 2016 dollars)

Age Nominal Adjusted for inflation 

(in 2016 dollars)

Age 18 $15,822 $15,822 Age 42 $141,529 $74,628

Age 19 $16,622 $16,176 Age 43 $148,181 $76,081

Age 20 $17,433 $16,518 Age 44 $155,137 $77,558

Age 21 $18,246 $16,833 Age 45 $162,263 $78,988

Age 22 $22,877 $20,552 Age 46 $169,556 $80,368

Age 23 $29,709 $25,989 Age 47 $176,852 $81,621

Age 24 $36,580 $31,158 Age 48 $183,952 $82,666

Age 25 $42,817 $35,510 Age 49 $191,165 $83,649

Age 26 $48,787 $39,397 Age 50 $198,482 $84,567

Age 27 $54,679 $42,996 Age 51 $205,333 $85,186

Age 28 $60,596 $46,396 Age 52 $211,642 $85,495

Age 29 $66,252 $49,393 Age 53 $217,657 $85,613

Age 30 $71,841 $52,152 Age 54 $223,402 $85,563

Age 31 $77,420 $54,724 Age 55 $227,962 $85,014

Age 32 $82,877 $57,041 Age 56 $229,607 $83,376

Age 33 $88,360 $59,216 Age 57 $231,036 $81,690

Age 34 $93,952 $61,308 Age 58 $231,691 $79,768

Age 35 $99,443 $63,185 Age 59 $231,041 $77,453

Age 36 $105,010 $64,968 Age 60 $227,369 $74,218

Age 37 $110,860 $66,783 Age 61 $220,341 $70,033

Age 38 $116,641 $68,418 Age 62 $220,361 $68,198

Age 39 $122,703 $70,082 Age 63 $220,300 $66,386

Age 40 $128,816 $71,639 Age 64 $220,214 $64,616

Age 41 $135,092 $73,154 Age 65 $220,214 $62,917

- - - Age 66 $220,214 $61,263

Source: GAO analysis based on medium scaled lifetime earnings factors developed by the Social Security Office of the Chief Actuary (OCACT). (Scaled Factors for Hypothetical Earnings under the 2015 

Trustees’ Report Assumptions) No.2015.3, July 2015. | GAO-17-69

Employee deferrals. We assume that the individual in our hypothetical 

projections makes contributions continuously through their continuous 

employment from age 18 to 66, except where contributions are 

suspended to illustrate the effect of an eligibility policy. PSCA survey data 

from the 2013 plan year show that the average pre-tax salary deferral by 

participants was 5.3 percent for non-highly compensated employees. We 

referred to data from the 2013 plan year in PSCA’s report summarizing 
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

results of its annual survey of 401(k) and profit sharing plans. Plans 

reported on policies for the 2013 plan year. The survey includes 613 

defined contribution plans with 8 million participants representing a wide 

range of industries and plan sizes. The plans surveyed are 252 401(k) 

plans, 13 profit sharing plans, and 348 combination 401(k)/profit sharing 

plans. As noted in Appendix I, the PSCA population for 2013 includes a 

greater proportion of large plans based on participant numbers and 

assets and disproportionately represents the financial, insurance, and real 

estate industries when compared to the total population of plans, as 

measured by 2013 Form 5500 filings. The finance/insurance/real estate 

industry was the predominant industry reflected in the PSCA data (36 

percent of plans were in this industry), while over half of the plans 

included in the Form 5500 filings (53 percent) represented the services 

industry.

Employer matching contributions. We assume that the individual in our 

hypothetical projections receives employer contributions through their 

continuous employment from age 18 to 66, except where employer 

contributions are delayed or forfeited to illustrate the effect of an eligibility 

or vesting policy. We again referred to the PSCA survey data from the 

2013 plan year. The average employer contribution among 401(k) plans 

is 2.90 percent, which we rounded to 3 percent for our hypothetical 

calculations. Similarly, the most commonly used match formula is 50 

percent of employee deferrals up to 6 percent of salary (a max of 3 

percent) used by 26.2 percent of plans. The next most common levels of 

employer contribution are a 100 percent match up to 4 percent of 

employee pay and a 100 percent employer match up to 5 percent, used 

by 10.9 percent and 9.9 percent of plans, respectively. The hypothetical 

projected amounts of retirement savings from employer contributions that 

is foregone from delayed eligibility and forfeited contributions from unmet 

vesting policies could be even larger if one assumed a higher, though not 

uncommon, level of employer matching contributions. We also assume 

that employer contributions are made on a per-pay-period basis, unless 

calculated otherwise for comparison.

Returns. To set an annual return for each of the years of the worker’s 

career for our hypothetical scenarios we formulated a composite return 

based on Social Security Trustee projections. For the fixed income 

portion of the return, we used the Social Security Trustees’ projected 

Page 76 GAO-17-69 401(k) Plans
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

annual trust fund real interest rate of 2.90 percent, and the projected 

consumer-price index for urban wage earners and clerical workers (CPIW) of 2.70 percent, both published in the 2015 OASDI Trustee’s Report 

intermediate long range economic assumptions

Page 77 GAO-17-69 401(k) Plans

4

, for a nominal interest 

rate of 5.6 percent. For the equity portion of the return, we added an 

estimated long-term equity risk premium of 3.5 percentage points5to the 

annual trust fund nominal interest rate, for a nominal rate of return on 

stocks of 9.1 percent. We changed the ratio slightly each year to reduce 

equities exposure and investment risk as the worker approaches 

retirement. The ratio corresponds to a “100 minus age” rule, which means 

that the percentage of assets invested in equities is set at 100 minus the 

worker’s current age. For example, when the worker is 50 years old, we 

assume that just half of their assets are invested in equities and assign 

the nominal return on stocks to just 50 percent of their retirement savings, 

while the remaining portion is calculated to earn the nominal interest rate 

on bonds. The “100 minus age” rule for portfolio diversification is relatively 

conservative, thus the projected value at retirement that we report is less 

than it would be if we had assumed a rule using a higher equities 

allocation. For example, another rule used for portfolio diversification is 

“120 minus age,” which would mean a higher equities allocation and 

higher projected returns, because over time equities tend to produce a 

higher average annual return than corporate bonds. A lower return 

assumption would result in lower projected savings lost or forfeited from 

the policies discussed in this report.

Leakage and fees. We assumed no leakage from the worker’s account 

over time and did not apply any plan fees to the account balance. Both of 

these factors could decrease the rate of the account balance’s growth 

over time.

 

4

2015 OASDI Report, Section 3: Estimates in Dollars, Sept.1, 2015, online: 

http://www.ssa.gov/OACT/TR/2015/VI_G3_OASDHI_dollars.html#182913.

5Peter A. Diamond, “What Stock Market Returns to Expect for the Future?” Social Security 

Bulletin, Vol.63, No.2, 2000.
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Table 9: Comparison of the Value at Retirement of Potential Lost Savings (from Age 

Page 78 GAO-17-69 401(k) Plans

18 to 20) for a Worker with Lower Pay and Flatter Wage Growth Versus a Worker 

with Medium-Level Pay and Average Wage Growth 

Value at age 67 of 

employee 

contributions from 

age 18-20 

Value at age 67 of 

employee 

contributions from 

age 18-20

As a percentage 

of 401(k) 

retirement 

savings 

attributable to 

employee 

contributionsb

Nominal Adjusted for 

inflation, 2016 

dollarsa

Percent

Medium earner with 

average wage 

growth

$85,857 $23,258 5

Lower salary worker 

with flatter wage 

growth than an 

average worker

$38,411 $10,405 11.5

Source: GAO analysis of hypothetical scenarios.| GAO-17-69

a

For purposes of adjusting the nominal value to a 2016 value we assumed an annual inflation rate of 

2.7 percent. That rate is the long-term CPI-W projected under the Social Security Trustees 

intermediate economic assumptions. (The 2015 Annual Report of the Board of Trustees of the 

Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds)

b

Projected retirement savings at age 67 is $2,682,763 from employee contributions, employer 

contributions, and investment returns ($726,729 in 2016 dollars).

Table 10: Potential Savings at Retirement from Employee Contributions from 3 

Years of Savings Starting at Age 18 Versus Starting at Ages 28, 38, 48, and 58 

3 years 

savings 

made from 

age...

Value at age 67 As percentage of total potential 

employee savings ($464,056 in 

2016 dollars)

Nominal

Adjusted for 

inflation, 2016 

dollars Percent

18-20 $85,857 $23,258 5.0

28-30 $154,342 $41,809 9.0

38-40 $133,804 $36,246 7.8

48-50 $100,629 $27,259 5.9

58-60 $ 60,471 $16,381 3.5

Source: GAO analysis of hypothetical scenarios. | GAO-17-69

Note: Projected retirement savings at age 67 is $1,713,090 from employee contributions and 

investment returns ($464,056 in 2016 dollars).

Tables of Hypothetical 

Retirement Savings Using 

Alternate Assumptions
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Table 11: Comparison of Value of Potential Foregone Savings from Employee Contributions and the Effects on Total 

Page 79 GAO-17-69 401(k) Plans

Retirement Savings of Separate Incidents of 1-year Minimum-Service Eligibility Policies

Nominal Adjusted to 2016 dollars Value of foregone 

savings at retirement 

as a percentage of 

total projected 401(k) 

retirement savings 

from employee 

contributions only 

(percent)

Value of

foregone 

savings

Value of 

foregone 

savings at 

retirement

Value of 

foregone savings

Value of foregone 

savings at retirement

Age 20 $924 $27,687 $875 $7,500 1.6

Age 30 $3,808 $51,758 $2,764 $14,021 3.0

Age 40 $6,827 $43,484 $3,797 $11,779 2.5

Age 50 $10,520 $32,431 $4,482 $8,785 1.9

Age 60 $12,051 $18,578 $3,934 $5,033 1.1

Cumulative 

value

$34,129 $173,939 $15,852 $47,118 10

Source: GAO analysis of hypothetical scenarios. | GAO-17-69

Note: We assume the savings that could have been made through contributions and investment 

returns over a full year. Projected retirement savings at age 67 is $1,713,090 ($464,056 in 2016 

dollars).

Table 12: Potential Cumulative Foregone Savings from Employee Contributions from Repeated Incidents of 1-Year MinimumService Eligibility Policies, for a Worker Starting 11 New Jobs in their Career

Age in which 

ineligibility occurs

Cumulative value of lost 

savings

(2016 dollars)

Cumulative value of lost 

savings, at retirement

(2016 dollars)

Total value of lost savings at retirement as a 

percentage of total retirement savings from 

employee contributions alonea

Adjusted for inflation, 2016 dollars Percent

Age 18 $839 $8,004 1.7

Age 20 $1,670 $15,504 3.3

Age 22 $2,673 $23,885 5.1

Age 24 $4,185 $35,313 7.6

Age 26 $6,056 $48,324 10.4

Age 30 $8,208 $62,345 13.4

Age 35 $10,533 $75,576 16.3

Age 40 $13,016 $87,355 18.8

Age 45 $15,580 $97,636 21.0

Age 50 $18,118 $106,421 22.9

Age 60 $17,814b$111,454 24.0

Source: GAO analysis of hypothetical scenarios. | GAO-17-69

Note: Projected retirement savings at age 67 is $1,713,090 ($464,056 in 2016 dollars). For this table 

we show the lost savings as a cumulative value over time to reflect the reality for someone who 
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

changes jobs repeatedly and is not able to save in their employer’s plan the first year of their 

employment.

a

Projected total retirement savings from employee contributions is $464,056 in 2016 dollars.

b

The projected cumulative value for age 60 is actually slightly less than for age 50 because the added 

inflationary effect on the previous contributions outweighs the additional savings that might be added 

in relation to one year of savings at age 60.

Table 13: Potential Value at Retirement of Savings Lost Due to a Last Day Policy

Page 80 GAO-17-69 401(k) Plans

Lost savings at each of these 

ages 

Value at age 67 of 1 year’s employer contribution 

lost due to a last day requirement

As a percentage of total potential 

401(k) retirement savings from 

employer contributions alone 

(compounded to age 67) 

Nominal Adjusted for inflation, 

2016 dollars

Percent

Age 20 $15,672 $4,100 1.6

Age 30 $29,297 $7,917 3.0

Age 40 $24,614 $6,494 2.5

Age 50 $18,357 $4,793 1.8

Age 60 $10,516 $2,580 1.0

Source: GAO analysis of hypothetical scenarios. | GAO-17-69

Note: Plans may require an additional year of service to earn the employer contribution for that year, 

which is called a “last day” policy. Percentage is calculated out of a projected total from employer 

contribution of $969,674 ($262,673 in 2016 dollars). We assume the value of the full employer’s 

contribution for the year is lost, which could occur if the employee separated at the end of the year 

but just prior to the last day. If a participant worked less than a year, they would lose less than a 

year’s worth of employer contributions due to a last day policy. To project the total potential employer 

contributions to 401(k) retirement savings, for comparative purposes we assume no lost savings due 

to “last day” policies.

Table 14: Potential Value at Retirement of Lost Savings Due to Delayed Employer Contributions to Employees’ 401(k) Plan 

Accounts

If applied to a plan 

participant from ages...

Value at retirement of savings lost from delayed 

employer contributions, during 10-year periods in 

which no interest from the investment return on 

employer contributions can compound during the year

Lost savings as a percentage of total 

employer contributions at retirement, 

when contributions are made each payperiod and investment returns compound 

Nominal Adjusted for inflation,

2016 dollars

Percent

Age 20-29 $8,709 $2,359 3.7

Age 30-39 $9,976 $2,702 3.6

Age 40-49 $7,531 $2,040 3.5

Age 50-59 $4,977 $1,348 3.3

Age 60-65 $1,885 $511 3.2

Source: GAO analysis of hypothetical scenarios. | GAO-17-69
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Note: Percentages are out of the value at retirement of total employer contributions made during that 

10-year period if those contributions had been made on a per-pay-period basis, those nominal totals 

are $232,441, $276,616, $217,932, $150,570, and $59,188, respectively.

An employer’s use of a minimum-service policy for employer contributions 

can also reduce potential retirement savings significantly. For example, 

our projections suggest that a 40-year-old worker who saves 5.3 percent 

of their own earnings (the average employee deferral percentage among 

non-highly compensated workers, according to the PSCA survey) could 

earn $526 over the year from an investment return of 7.7 percent, which 

is the net portfolio return for this age in our projections. However, if the 

worker receives an employer match of 3 percent of pay, that contribution 

amounts to a 57 percent annual return on their own contribution and an 8 

percent investment return on the employer match, and adds another 4 

percent annual return on their own contribution.

Page 81 GAO-17-69 401(k) Plans

6 Projected to retirement, 

the value of the employer contribution not received by that 40-year-old 

worker for 1 year could be $24,614 ($13,685 in 2016 dollars), or 1.4 

percent of what they could save on their own by retirement.

A second, additional year of service before eligibility for the employer 

contributions results in more potential lost savings for the worker. If 

subject to a second year minimum-service policy three times over a 

career,7 a worker could miss out on 6 years of employer contributions. As 

shown in table 15 below, three employers applying a 2-year minimumservice policy for employer contributions (at ages 20, 30, and 40) could 

reduce potential 401(k) savings by $137,912 at retirement, which is 14 

percent of the total savings at retirement that a worker could potentially 

have from employer contributions alone.8

 

6This projection is based on a 40-year-old saving $6,827 ($3,796 in 2016 dollars) or 5.3 

percent of their pay. The employer’s contribution is a match of 3 percent of pay, which is 

$3,864 ($2,148 in 2016 dollars). The value of the investment return on the employer 

contribution is $298 ($166 in 2016 dollars). For details about assumptions used see above 

in Appendix II. 

7According to BLS data, the average workers starts about 11 new jobs, but not every 

workplace plan will have a second year service policy, so for illustrative purposes we 

assume only about a quarter (3) of those plans have this policy.

8That amount is $8,440 in 2016 dollars. Values in this calculation are for jobs started at 

age 20, 30 and 40, which reflects the fact that turnover is more common at younger ages. 

Percentages are calculated based on projected total retirement savings of $969,674 

($262,673 in 2016 dollars) and based on employer contributions alone. 

Minimum-Service Policy for 

Employer Contributions
Appendix II: Explanation of Hypothetical 

Scenarios and Projected Retirement Savings

Table 15: Total Value of Potential Lost Savings from Five Episodes of 2-Year Minimum-Service Policies for Employer 

Page 82 GAO-17-69 401(k) Plans

Contributions

Age at which ineligibility 

occurs

Cumulative lost savings 

from not receiving 

employer contributions

Cumulative lost savings from 

not receiving employer 

contributions, at retirement 

Cumulative lost savings at 

retirement as a percentage of 

total potential retirement 

savings from employer 

contributions 

Age 20-21 $1,070 $30,806 3.2%

Age 30-31 $5,548 $89,327 9.2%

Age 40-41 $13,465 $137,912 14.2%

Age 50-51 $25,580 $173,963 17.9%

Age 60-61 $39,011 $194,004 20.0%

Source: GAO analysis of hypothetical scenarios. | GAO-17-69

Note: Dollar values are nominal. Percentages are calculated based on projected retirement savings of 

$969,674 at age 67 ($262,673 in 2016 dollars), derived from continuous employee contributions for 

ages 18 through 66.
Appendix III: Comments from the Department 

of Labor

Page 83 GAO-17-69 401(k) Plans

Appendix III: Comments from the 

Department of Labor
Appendix III: Comments from the Department 

of Labor

Page 84 GAO-17-69 401(k) Plans
Appendix IV: GAO Contact and Staff 

Acknowledgments

Charles A. Jeszeck, (202) 512-7215 or jeszeckc@gao.gov

In addition to the contact named above, Tamara Cross (Assistant 

Director), Angie Jacobs (Analyst in Charge), Sherwin Chapman, 

Katherine D. Morris, Rhiannon Patterson, and Stacy Spence made 

significant contributions to this report. Additional support was provided by 

Jessica Artis, Deborah Bland, Julianne Cutts, Laura Hoffrey, Saida 

Hussain, Gene Kuehneman, Jill Lacey, Sheila McCoy, Mimi Nguyen, Dae 

Park, Joe Silvestri, Frank Todisco, Walter Vance, Kate Van Gelder, Adam 

Wendel, Jill Yost, and Chris Zbrozek.

Page 85 GAO-17-69 401(k) Plans

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Appendix V: Accessible Data

Page 86 GAO-17-69 401(k) Plans

U.S. Department of Labor

Assistant Secretary for Employee Benefits Security Administration

Washington, D.C. 20210

OCT 05 2016

Mr. Charles A. Jeszeck

Director, Education, Workforce, and Income Security

United States Government Accountability Office

Washington, DC 20548

Dear Mr. Jeszeck:

Thank you for the opportunity to review the Government Accountability 

Office's (GAO) draft report entitled "401 (k) Plans: Effects of Eligibility and 

Vesting Policies on Workers' Retirement Savings." The draft contains two 

recommendations for the Secretary of Labor: (1) provide assistance to the 

Department of the Treasury in evaluating the appropriateness of existing 

maximum vesting policies for individual account plans and in seeking 

legislative action to revise vesting schedules, if deemed necessary; and 

(2) develop guidance for plan sponsors that identifies best practices for 

communicating information about eligibility and vesting policies in a clear 

manner in summary plan descriptions (SPDs).

The first recommendation, as noted in your draft report, involves matters 

within the jurisdiction of the Department of the Treasury/Internal Revenue 

Service (IRS). Specifically, the substantive provisions of Title I of ERISA 

governing eligibility and vesting provisions in 401 (k) plans are under the 

Appendix V: Accessible Data

Agency Comment 

Letter

Text of Appendix III: 

Comments from the 

Department of Labor

Page 1
Appendix V: Accessible Data

interpretive and regulatory jurisdiction of the Secretary of the Treasury 

pursuant to Section 3002(c) of ERISA and section 101 of Reorganization 

Plan No. 4 of 1978. We understand that your draft report is being 

submitted to the Treasury Department for it to evaluate your 

recommendation and consider possible legislative proposals. The 

Treasury Department and IRS generally consult with the Department of 

Labor on subjects of joint interest and we expect they will do so in the 

case of your report.

With respect to the second recommendation, although the Department of 

Labor has general interpretive and regulatory authority over the 

participant disclosure and fiduciary responsibility provisions in Parts 1 and 

4 of Title I of ERISA, we do not agree that implementing the 

recommendation allows best use of our limited resources. We agree that 

disclosures to participants that explain the eligibility and vesting 

provisions in their 401 (k) plans are important to their ability to make 

informed choices about retirement savings. As your report notes, Title I of 

ERISA and the Department's regulations already require the SPD for a 

401 (k) plan to be written in a manner calculated to be understood by the 

average plan participant. The SPD must be sufficiently comprehensive to 

inform participants regarding their rights and obligations under the plan, 

including the plan's requirements respecting eligibility for participation and 

vesting of benefits. The information in the SPD cannot be presented in a 

way that would have the effect of misleading, misinforming or failing to 

inform participants and beneficiaries. Any exceptions, limitations, 

reductions and other restrictions on plan benefits cannot be minimized, 

rendered obscure, or otherwise be made to appear unimportant. The SPD 

also must clearly identify circumstances that may result in disqualification, 

ineligibility, or denial, loss, forfeiture,

suspension, offset, or reduction of any benefits that a participant or 

beneficiary might otherwise reasonably expect the plan to provide based 

on the SPD's description of benefits under the plan.

An evaluation of "best practices" regarding eligibility, benefit accrual, and 

vesting disclosures should consider other disclosures provided to plan 

participants. For example, your report references the benefit statements 

that 401(k) plans must provide to participants regarding their individual 

accounts, and notes other tools that plan sponsors and plan fiduciaries 

use to communicate information to plan participants. We have a long-term 

project on our current regulatory agenda relating to the individual benefit 

statement requirements. Additional input from a broader range of plan 

sponsors and plan fiduciaries, possibly in the form of a Request for 

Page 87 GAO-17-69 401(k) Plans

Page 2
Appendix V: Accessible Data

Information published in the Federal Register, could supplement the 

information GAO gathered and contribute to an informed development of 

"best practices" guidance.

We do not believe it would be appropriate at this time to reallocate 

resources away from our existing priority projects to a new "best 

practices" project focused on the recommendations in your draft report, 

especially given the regulatory requirements that currently apply to SPD 

disclosures on eligibility and vesting. We will, however, review our 

existing outreach materials on plan administration and compliance for 

opportunities to highlight the issues and recommendations in your draft 

report. We will also consider your recommendations in our ongoing 

development and prioritization of EBSA's agenda for regulations and subregulatory guidance.

We appreciate having had the opportunity to review and comment on 

your draft report. Please do not hesitate to contact us if you have 

questions concerning this response or if we can be of further assistance.

Sincerely,

Phyllis C. Borzi

Assistant Secretary

Data Table for Figure 1: Percentage of Employer Contributions to 401(k) Plans That 

Page 88 GAO-17-69 401(k) Plans

Are Nonforfeitable, Per Year of Employment, Under Maximum Cliff and Graduated 

Vesting Policies Permitted by Federal Law

Vested 

percentage 

under 

maximum 

cliff policy

Vested percentage under maximum graduated policy

100% after 

completed 3 

years or more 

of service

20% after 

completed 2 

years of 

service

40% after 

completed 3 

years of 

service

60% after 

completed 4 

years of 

service

80% after 

completed 5 

years of 

service

100% after 

completed 6 

years or 

more of 

service 

Source: GAO analysis of federal laws. | GAO-17-69

Data 

Tables/Accessible 

Text
Appendix V: Accessible Data

Accessible Text for Figure 2: A “Last Day” Policy for Employer Contributions to 

Page 89 GAO-17-69 401(k) Plans

401(k) Plans Adds to Existing Service Requirements and Continues Year after Year

Year of service

Year 1 Year 2

Year 3 

(plus 1)

Year 4 

(plus 1)

Year 5 

(plus 1)

Year 

6...(plus 1)

Maximum 1 

year

of service 

required

for plan 

eligibility

Maximum 2 

years

of service 

required

for employer 

contribution

Under a “last day” policy an additional year of 

employment can be required to receive the current 

year’s employer contributions year after year.

Source: GAO analysis of federal laws and regulations. | GAO-17-69

Data Table for Figure 3: Plans Use a Range of Schedules for Providing Employer 

Matching Contributions

Frequency of Employer Matching Contributions

Other Quarterly Monthly Annual Pay Period

1% 3% 4% 18% 74%

Source: GAO analysis of Plan Sponsor Council of America’s 57th Annual Survey. | GAO-17-69

Data Table for Figure 5: Compounding Means a Younger Worker Can Save Less 

than an Older Worker for Same Savings Amount at Retirement

Savings in dollars

Age Amount saved

Potential value of savings 

at retirement

18-20 $2,643 Each amount would grow to 

$85,857 at retirement, which 

is 5 percent of total 

projected retirement 

savings, not adjusted 

48-50 $25,979 for inflation

Source: GAO analysis based on hypothetical scenarios. | GAO-17-69

Data Table for Figure 6: Potential Accumulated Value of Lost Savings from 

Repeated Incidents of 1-Year Ineligibility for Participation in a Workplace 401(k) 

Plan
Appendix V: Accessible Data

Page 90 GAO-17-69 401(k) Plans

Age when a new job is started and 

1 year of ineligibility occurs

Value of accumulated 

lost savings (in 

dollars)

Value at retirement of 

accumulated lost 

savings (in dollars)

18 $839 $29,547

20 $1,762 $57,234

22 $2,975 $88,175

24 $4,914 $130,359

26 $7,500 $178,392

30 $11,307 $230,150

35 $16,577 $278,992

40 $23,405 $322,476

45 $32,005 $360,430

50 $42,525 $392,861

60 $54,575 $411,439

Source: GAO analysis of hypothetical scenarios. | GAO-17-69

Accessible Text for Figure 7: Potential Value of Lost Retirement Savings Due to 

401(k) Vesting Policies, Based on our Projections

401(k) Job 1 401(k) Job 2

At age 20 a participant leaves 

after 2 years

At age 40 a participant leaves after 2 years

$1,022 employer contribution

forfeited when the 3 years cliff 

vesting is unmet 

$7,546 employer contribution forfeited when the 3 

years cliff vesting is unmet

The Unvested savings from job 1 could have been worth $31,873 plus the Unvested 

savings from job 2 could have been worth $49,869 equal just two episodes of unmet 

vesting requirements could result in $81,743 less savings at retirement.

Source: GAO analysis. | GAO-17-69

Data Table for Figure 8: Plan Participant Responses to a National Survey on 

Financial Literacy Question About Their Understanding of the Term “Eligibility 

Requirements”

Participants who had a 

working knowledge of the 

term but could not teach it 

to someone else

Participants who did 

not know 

anything about the 

term

Participants confident of 

their understanding of the 

term

46% 15% 39%

Source: Boston Research Technologies and the National Association of Retirement Plan Participants Financial Empowerment Literacy 

and Trust (FELT) survey. | GAO-17-69
Appendix V: Accessible Data

Accessible Text for Figure 9: Vesting Schedule for Employer Contributions in One 

Page 91 GAO-17-69 401(k) Plans

401(k) Plan

Your employer matching contributions and earnings shall be vested in 

accordance with the following schedule:

Year of Service Vesting Percentage

Less than 1 0

1 20

2 40

3 60

4 80

5 100

Accessible Text for Figure 10: Comparison of Multiple Employer Contributions to a 

401(k) Plan Included in a Summary Plan Description versus Only One Actually 

Offered by the Employer

Summary Plan Description lists six employer contributions but only one contribution is 

actually made 

1. Qualified Automatic Contribution 

Arrangement (QACA)

2. Qualified Matching Contribution (QMAC)

3. Qualified Nonelective Contribution (QNEC)

4. Qualified Automatic Contribution 

Arrangement -- Actual Contribution 

Percentage (QACA-ACP)

5. Profit Sharing

6. Matching Contributions

Qualified Automatic Contribution 

Arrangement (QACA)

Accessible Text for Figure 11: Sample 401(k) Plan Highlights Document

SAMPLE COMPANY 401(K) PROFIT SHARING PLAN

PLAN HIGHLIGHTS

IMPORTANT: This is a summary of the plan features. For full details, please refer to the Summary Plan 

Description.
Appendix V: Accessible Data

Eligibility

Page 92 GAO-17-69 401(k) Plans

Description

Excluded 

Employees:

The following employees are excluded from the Plan:

•Employees covered by a collective bargaining agreement

• Leased employees

• Non-resident aliens

Elective Deferral 

Contributions, Safe 

Harbor Non-Elective 

Contributions and 

Profit Sharing 

Contributions:

You must meet the following criteria to be eligible to make Elective Deferral 

Contributions and receive Safe Harbor Non-Elective Contributions and Profit 

Sharing Contributions:

•You must attain age 21

•You must complete one (1) Year of Eligibility Service.

Enrollment Periods

Description

Elective Deferral 

Contributions, Safe 

Harbor Non-Elective 

Contributions and 

Profit Sharing 

Contributions:

On the first day of the first month and seventh month of the Plan Year coincident 

with or next following the time you meet the eligibility criteria specified above.

Special Enrollment 

Date:

If you were employed as an Eligible Employee with the Company on September 1, 

2014, effective September 1, 2014 you will be immediately eligible to participate in 

the Plan.

Contributions

Description

Elective Deferral: You may elect to defer up to 100% of your Compensation on a pre-tax basis. You 

may elect to change your elections to contribute to the Plan on the dates 

established pursuant to Plan Administrator procedures. Federal law also limits the 

amount you may elect to defer under the Plan ($18,000 in 2015).  However, if you 

are age 50 or over, you may defer an additional amount up to $6,000 (in 2015).

Profit Sharing 

Contributions:

The Company may, in its sole discretion, make a Profit Sharing Contribution on your 

behalf in an amount determined by the Company. Such contribution, if made, will be 

allocated in an amount designated by the Company to be allocated to similarly 

situated eligible Participants.
Appendix V: Accessible Data

Page 93 GAO-17-69 401(k) Plans

Rollovers: The Plan may accept a Rollover Contribution made on behalf of any Eligible 

Employee, regardless of whether such Employee has met the age and service 

requirements of the Plan. An Eligible Employee who has not yet met any of the 

eligibility requirements of the Plan will be deemed a Participant only with respect to 

amounts, if any, in his Rollover Contribution Account.

Vesting

Description

Fully Vested 

Accounts:

You will have a fully vested and nonforfeitable interest in your Elective Deferral 

Account, Rollover Contribution Account, Qualified Nonelective Contribution Account 

and Safe Harbor Non-Elective Account.

Profit Sharing 

Contributions:

Your Profit Sharing Contribution Account is subject to a 2-6 year graded vesting 

schedule (20% per year starting with two years of vesting service).

Source: Sample document provided to GAO by a retirement services provider. | GAO-17-69
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Page 94 GAO-17-69 401(k) Plans

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