PRIVATE PENSIONS

Better Agency Coordination 

Could Help Small 

Employers Address 

Challenges To Plan 

Sponsorship 

Statement of Charles A. Jeszeck, Director

Education, Workforce, and Income Security

Testimony 

Before the Special Committee on Aging, 

U.S. Senate

For Release on Delivery 

Expected at 2:00 p.m. EST

Wednesday, March 7, 2012

GAO-12-459T

United States Government Accountability Office

GAO
 

Page 1 GAO-12-459T 

Chairman Kohl, Ranking Member Corker, and Members of the 

Committee:

I am pleased to be here today to discuss the challenges that small 

employers face when sponsoring retirement plans for their workers. About 

42 million workers, or about one third of all private-sector employees, 

work for employers with less than 100 employees and recent federal data 

suggest many of these workers lack access to a work-based retirement 

plan to save for retirement. An estimated 51 to 71 percent of workers at 

employers with less than 100 workers do not have access to a workbased retirement plan, compared to an estimated 19 to 35 percent of 

those that work for employers with 100 or more workers. Small employers 

face a number of barriers to starting and maintaining a plan for their 

workers. Certain characteristics associated with small employers may 

contribute to the challenges of sponsoring a plan. For example, in 2008, 

we reported on challenges that can limit small employer sponsorship of 

Individual Retirement Arrangement1 (IRA) plans, including administrative 

costs, contribution requirements, and eligibility based on employee tenure 

and compensation, among others.2

My statement is based on our report released today that examines (1) the 

characteristics associated with small employers that are more or less 

likely to sponsor a retirement plan, (2) challenges small employers face in 

establishing and maintaining a retirement plan, and (3) options that exist 

to address those challenges and increase small employer sponsorship.

Additionally, federal data suggest that 

about half of all new businesses (nearly all of which are small) do not 

survive for more than 5 years.

3

To answer these objectives, we combined and analyzed retirement plan 

data from the Department of Labor (Labor) and the Internal Revenue 

Service (IRS) employer data to produce a regression analysis and 

 

1

An IRA is a personal savings arrangement that offers certain tax advantages. IRAs may 

include individual retirement accounts and individual retirement annuities.

2

GAO, Individual Retirement Accounts: Government Actions Could Encourage More 

Employers to Offer IRAs to Employees, GAO-08-590 (Washington, D.C.: June 4, 2008).

3

GAO, Private Pensions: Better Agency Coordination Could Help Small Employers 

Address Challenges to Plan Sponsorship, GAO-12-326 (Washington, D.C.: March 5, 

2012). 

 
 

Page 2 GAO-12-459T 

descriptive statistics on 5.3 million small employers.4 We conducted 

literature reviews and interviewed groups of small employers in five cities5

as well as other stakeholders.

6

In summary, we found that the likelihood that a small employer will 

sponsor a retirement plan largely depends on the size of the employer’s 

workforce and the workers’ average wages. Small employers, retirement 

experts, and other stakeholders also identified a number of challenges— 

such as plan complexity and resource constraints—to starting and 

maintaining retirement plans. In addition, stakeholders offered options for 

addressing some challenges to plan sponsorship, which included 

simplifying federal requirements for plan administration and increasing the 

tax credit for plan startup costs. Although Labor, IRS, and the Small 

Business Administration (SBA) collaborate in conducting education and 

outreach on retirement plans, agencies disseminate information online 

through separate websites and in a largely uncoordinated fashion. In 

addition, IRS currently does not have the means to collect information on 

employers that sponsor a certain type of IRA plan. As a result of our 

findings, we are recommending efforts for greater collaboration among 

federal agencies to foster small employer plan sponsorship and more 

complete collection of IRA plan sponsorship data.

We conducted our work in accordance 

with generally accepted government auditing standards from October 

2010 to March 2012. More complete information on our scope and 

methodology is available in our issued report. 

To encourage employers to sponsor retirement plans for their employees, 

the federal government provides preferential tax treatment under the 

Internal Revenue Code (IRC) for plans that meet certain requirements. In 

addition, the Employee Retirement Income Security Act of 1974 (ERISA), 

as amended, sets forth certain protections for participants in privatesector retirement plans, including fiduciary responsibilities that may apply 

 

4

For the purposes of this study, GAO defined a small employer as a for-profit firm with at 

least 1 employee and no more than 100 employees.

5

The five cities were Atlanta, Boston, Chicago, Los Angeles, and Washington, D.C.

6

Other stakeholders included retirement experts, organizations representing small 

employers, retirement plan service providers, representatives of the accounting 

profession, and officials at Labor and IRS.

Background 
 

Page 3 GAO-12-459T 

to plan sponsors, which establish certain standards of conduct for those 

that manage employee benefit plans and their assets.7

Small employers may choose a plan for their employees from one of three 

categories: employer-sponsored IRA plans; defined contribution (DC) 

plans; and defined benefit (DB) plans (often referred to as traditional 

pension plans).8 Employer-sponsored IRA plans, which can be either 

Savings Incentive Match Plans for Employees (SIMPLE) or Simplified 

Employee Pension (SEP) plans, generally allow employers and, in SIMPLE 

IRA plans, employees, to make contributions to separate IRA accounts for 

each participating employee. Employers generally have fewer 

administration and reporting requirements compared to other types of 

plans. The second plan category—DC plans—which includes 401(k) plans, 

allows employers, employees, or both to contribute to individual employee 

accounts within the plan. DC plans tend to have higher contribution limits 

for employees than employer-sponsored IRA plans; however, they also 

have more reporting requirements and other rules; for example, they may 

be subject to requirements for nondiscrimination testing or top-heavy 

testing.9 The third category is DB plans, which promise to provide a 

specified retirement benefit to employees; the employer is generally 

responsible for funding the plan.10

Over the years, Congress has responded to concerns about lack of 

access to employer-sponsored retirement plans for employees of small 

employers with legislation to lower costs, simplify requirements, and ease 

administrative burden. For example, the Revenue Act of 1978 and the 

Small Business Job Protection Act of 1996 established the SEP IRA plan 

 

7

Pub. L. No. 93-406, 88 Stat. 829. Plan sponsors assume fiduciary responsibilities to the 

extent they qualify as fiduciaries as defined by ERISA. See 29 U.S.C. §§ 1002(21), 

1101-14. 

8

For more information and the sources of the requirements for these plans, see GAO-12-

326. 

9

Some plans may be required to conduct annual nondiscrimination testing to ensure that 

the contributions or benefits do not discriminate against rank-and-file workers in favor of 

highly compensated employees. See 26 U.S.C. § 401(a)(4). Top-heavy testing may also 

be required to ensure a minimum level of benefits are provided to rank-and-file workers in 

plans sponsored by owner-dominated businesses, where the majority of benefits accrue to 

“key” employees such as owners and top executives. See 26 U.S.C. § 416.

10The retirement benefit provided by DB plans is often calculated based on factors such 

as the employee’s length of service and pay.
 

Page 4 GAO-12-459T 

and the SIMPLE IRA plan respectively, featuring fewer administration 

requirements than other plan types. The Economic Growth and Tax Relief 

Reconciliation Act of 2001 (EGTRRA) also included a number of 

provisions that affected small employers, which were made permanent by 

the Pension Protection Act of 2006 (PPA). The PPA also established 

additional provisions that support retirement plan participation by rankand-file employees, such as automatic enrollment.

Federal agencies also play a role in fostering retirement plan sponsorship 

by small employers. To help encourage sponsorship, federal agencies 

conduct education and outreach activities and provide information about 

retirement plans for small employers. Labor, IRS, and SBA—which 

maintains an extensive network of field offices—have collaborated with 

each other and with national and local organizations to develop 

information on small employers retirement plans and conduct outreach 

with small employers.

Various private-sector service providers—from individual accountants, 

investment advisers, recordkeepers, and actuaries to insurance 

companies and banks—assist sponsors with their retirement plans. Some 

sponsors hire a single provider that offers a range of plan services for one 

fee, sometimes referred to as a “bundled” services arrangement. Other 

sponsors hire different providers for individual services under an 

“unbundled” arrangement, paying a separate fee for each service. Plan 

services include legal, accounting, trustee/custodial, recordkeeping, 

actuarial (for defined benefit plans), investment management, investment 

education, or advice. Service providers can also assist with plan 

administration functions, including any required testing and filing of 

government reports.
 

Page 5 GAO-12-459T 

We found that the number of employees and average wages greatly 

influence the likelihood that a small employer will sponsor a retirement 

plan.11

A separate analysis we conducted using Labor and IRS data found an 

overall small employer sponsorship rate of 14 percent in 2009.

Further, our regression analysis using Labor and IRS data found 

that small employers with larger numbers of employees were the most 

likely of all small employers to sponsor a plan, as were those paying 

average annual wages of $50,000-$99,999. Conversely, employers with 

the fewest employees and the lowest average annual wages were very 

unlikely to sponsor a plan.

12

Further examination found that small employers with 26 to 100 

employees had the highest sponsorship rate—31 percent—while small 

employers with 1 to 4 employees had the lowest rate—5 percent 

(See fig 1).

It is 

important to note, however, that this sponsorship rate does not include 

small employers that sponsor SEP IRA plans because IRS currently does 

not have a means to collect data on employers that sponsor this plan 

type.

 

11Several experts stated that a firm’s age could also affect the likelihood of plan 

sponsorship, with newer employers less likely to sponsor a plan. However, our analysis 

was unable to address the number of years in operation due to technical challenges. For 

further discussion of the technical challenges, see GAO-12-326. 

12The sponsorship rate cited in this testimony is limited to single employers that sponsor a 

plan. Consequently, the rate does not include small employers that participated only in 

multiple employer plans or multiemployer plans, which are outside the scope of this study. 

We are currently conducting ongoing work on these plan types and their role in the private 

pension system.

Number of Employees 

and Average Pay Level 

Greatly Influence Plan 

Sponsorship 

More Employees and 

Higher Average Wages 

Increase the Likelihood of 

Plan Sponsorship
 

Page 6 GAO-12-459T 

Figure 1: Small Employer Plan Sponsorship by Number of Employees in 2009

In our examination of average annual wage characteristics, small 

employers with average annual wages of $50,000 to $99,999 had the 

highest rate of plan sponsorship at 34 percent while small employers with 

average wages of under $10,000 had the lowest sponsorship rate—3 

percent. In examining the interaction between both characteristics—the 

number of employees and average annual wages—we found that the 

sponsorship rate for small employers with 26 to 100 employees exceeded 

75 percent when average wages were $50,000 or more. In contrast, small 

employers with one to four employees reached their highest sponsorship 

rate of 13 percent when average annual wages were $50,000 or more.

We also found differences in sponsorship rates in different parts of the 

country, and found small employers in the Midwest and Northeast were 

more likely to sponsor plans while employers in the West and South were 

less likely.13

 

13For purposes of this analysis, we used Census Bureau geographic regions.

Connecticut, Wisconsin, and Washington, D.C. had the 

highest sponsorship rates—with Washington, D.C., showing the top rate 

of 23 percent. Mississippi and Florida had the lowest sponsorship rates at 

fewer than 10 percent (see fig 2).
 

Page 7 GAO-12-459T 

Figure 2: Small Employer Plan Sponsorship by State in 2009

According to our analysis of Labor and IRS data, 401(k) and SIMPLE IRA 

plans were overwhelmingly the most common types of plans sponsored 

by small employers. Out of slightly more than 712,000 small employers 

that sponsored a single type of plan, about 86 percent sponsored either a 

401(k) or a SIMPLE IRA plan.14

 

14Three percent of the small employer population sponsored more than one plan; 

however, these small employers were excluded from our plan type analysis to avoid 

double counting plans. 

Figure 3 shows the proportion of plan 

types sponsored by small employers. 

401(k)s and SIMPLE IRAs 

Were the Most Common 

Plan Types
 

Page 8 GAO-12-459T 

Figure 3: Small Employer Plan Sponsorship by Plan Type in 2009

Notes: Percentages in figure do not add up to 100 due to rounding.

A SARSEP plan is a type of SEP IRA plan set up before 1997 that permits employee salary reduction 

contributions. Employee salary reductions under SEP IRA plans were eliminated beginning in 1997; 

however, SARSEP plans established prior to 1997 may continue to offer salary reductions. 26 U.S.C. 

§ 408(k)(6)(H).

While SIMPLE IRA plans were the most common plan type along with 

401(k) plans, they made up a smaller proportion of overall contributions. 

Contributions to SIMPLE IRA plans in 2009 amounted to $4.3 billion or 11 

percent of the total contributions made by small employers and their 

employees into the plan types we analyzed. By contrast, 401(k) 

contributions amounted to $29.2 billion, or 76 percent of all contributions.
 

Page 9 GAO-12-459T 

Small employers and other stakeholders we interviewed identified various

plan options, administration requirements, fiduciary responsibilities, and 

top-heavy testing requirements as complex and burdensome—often citing 

these factors as barriers to sponsoring retirement plans or as reasons for 

terminating them.

Plan options and administration requirements: Small employers and 

other stakeholders said that plan options and administration requirements 

are frequently complex and burdensome and discourage some small 

employers from sponsoring a plan. For example, some small employers 

and retirement experts said that the broad range of plan types and 

features makes it difficult for small employers to compare and choose a 

plan that best meets their needs. Some stakeholders also described the 

administrative burden on small employers of plan paperwork, such as 

reviewing complicated quarterly investment reports or complying with 

federal reporting requirements—like those associated with required 

annual statements—as particularly burdensome.15

Fiduciary responsibilities: A number of stakeholders indicated that 

understanding and carrying out a sponsor’s fiduciary responsibilities with 

respect to managing or controlling plan assets presents significant 

 

15Most tax-qualified plans are required to annually file Form 5500, developed jointly by 

Labor, IRS, and the Pension Benefit Guaranty Corporation to satisfy the annual reporting 

requirements under ERISA and the IRC. ERISA established a reporting and disclosure 

framework, in part, to protect the interests of participants and beneficiaries by requiring 

that certain financial and other information be provided to participants and beneficiaries, 

as well as to the federal government. Modifications or exceptions to the general reporting 

requirements may be available to some small plans.

Plan Complexity and 

Resource Constraints 

Were Most Frequently 

Cited Barriers to 

Retirement Plan 

Sponsorship 

Many Small Employers 

Find Retirement Plans 

Complex and Burdensome 

to Start and Administer
 

Page 10 GAO-12-459T 

challenges to some small employers.16

Top-heavy requirements: Top-heavy requirements are more likely to 

affect smaller plans (those with fewer than 100 participants) than larger 

ones, according to IRS. A number of stakeholders said compliance with 

requirements is often burdensome and poses a major barrier to small 

employer plan sponsorship.

Some small employer sponsors 

found the selection of investment fund choices for their plans particularly 

challenging. Further, a number of stakeholders said some small 

employers may not have an adequate understanding of their fiduciary 

duties and are not always aware of all their responsibilities under the law.

17 According to some experts, some small 

employers with high employee turnover may face an even greater 

likelihood of becoming top-heavy as they replace departing employees 

while key employees—such as business owners or executives—continue 

to contribute to the plan. A number of stakeholders stated that compliance 

with top-heavy rules is confusing and can pose significant burdens on 

some small employers. For example, some retirement experts said that 

small employers whose plans are found to be top-heavy may encounter a 

number of additional costs in the effort to make their plans compliant. 

These plans can incur additional costs associated with hiring a plan 

professional to make corrections to plan documents and instituting a 

minimum top-heavy employer contribution for all participating rank-andfile employees. While sponsors can avoid top-heavy testing by adopting a 

safe harbor 401(k) plan that is not subject to top-heavy requirements, 

experts pointed out that the employer contributions required for such 

plans may offset the advantages of sponsoring such a plan.

 

16To the extent they qualify as fiduciaries under ERISA, plan sponsors may assume 

fiduciary responsibilities, such as the duty to act prudently, solely in the interest of plan 

participants and their beneficiaries, and to diversify the investments of the plan. 

29 U.S.C. § 1104(a).

17Top-heavy testing is required annually for certain plans and the requirements ensure a 

minimum level of benefits are provided to rank-and-file workers in plans that are 

sponsored by owner-dominated businesses, where the majority of benefits accrue to “key” 

employees, such as owners and top executives. Certain plans, such as SIMPLE IRAs, are 

not subject to the top-heavy requirements. 26 U.S.C. § 416.
 

Page 11 GAO-12-459T 

Federal agencies provide guidance that can assist small employers in 

addressing some of the challenges they face in starting and maintaining 

retirement plans. Labor and IRS, often in collaboration with SBA, have 

produced publications, conducted workshops, and developed online 

resources, among other efforts, to assist small employers. However, a 

number of stakeholders, including the IRS Advisory Committee on Tax 

Exempt and Government Entities, indicated that many small employers

are unaware of federal resources on retirement plans, which may, in part, 

be due to difficulties in finding useful, relevant information across a 

number of different federal websites. For example, IRS’s Retirement 

Plans Navigator, a web-based tool designed to help small employers 

better understand retirement plan options, is located on a separate 

website from the rest of the agency’s online plan resources for small 

employers. Furthermore, Labor and IRS each present retirement plan 

information separately on their respective websites. Neither agency 

maintains a central web portal for all information relevant to small 

employer plan sponsorship, though such portals exist for federal 

information resources in other areas such as healthcare.18

Small employers that lack sufficient financial resources, time, and 

personnel, such as smaller or newer firms, may be unwilling or unable to 

sponsor plans.

Financial resources: Small employers, especially those with lower profit 

margins or an unstable cash flow, could be less willing or less able to 

sponsor a retirement plan. One-time costs associated with starting a plan 

and the ongoing costs involved with maintaining the plan—as well as any 

requirement to match employee contributions or make mandatory 

contributions to an employee’s account—were cited as barriers to plan 

sponsorship. Further, small employers we interviewed stated that general 

economic uncertainty makes them reluctant to commit to such long-term 

expenses and explained that they needed to reach a certain level of 

profitability before they would consider sponsoring a plan.

Time and personnel: Some small employers stated they may not have 

sufficient time to administer a plan themselves or lacked the personnel to 

take on those responsibilities. Further, small employers may not have 

 

18For example, see: http://www.healthcare.gov/. 

Federal Guidance Is 

Available to Address the 

Complexities Associated 

with Plan Sponsorship But 

May Lack Visibility among 

Small Employers

Small Employers Identified 

Lack of Financial 

Resources, Time, and 

Personnel as Deterrents to 

Sponsoring Retirement 

Plans 
 

Page 12 GAO-12-459T 

time to develop the expertise needed to investigate and choose financial 

products, select the best investment options, or track their performance.

For example, one small employer described how business owners without 

the financial expertise to compare and select from among different plan 

options would likely find the experience intimidating. 

Some small employers we interviewed stated that they may be less likely 

to sponsor a retirement plan if they do not perceive sufficient benefits to 

the business or themselves. For example, several small employers stated 

that their firms sponsored plans in order to provide owners with a taxdeferred retirement savings vehicle and one employer described how the 

firm annually assesses the plan to determine if it continues to benefit the 

owners. Additionally, a number of small employers stated that employees 

prioritized healthcare benefits over retirement benefits. Some small 

employers, such as those who described having younger or lower paid 

workforces, stated that their employees were less concerned about 

saving for retirement or were living paycheck to paycheck and did not 

have funds left over to contribute to a plan. As a result, both types of 

workers were not demanding retirement benefits.

A number of small employers indicated that they use plan service 

providers to address various aspects of plan administration, which 

enabled them to overcome some of the challenges of starting and 

maintaining a plan. For example, one employer noted that her business 

would not have the time or the expertise to administer its plan without the 

help of a service provider. While some service providers said they offer 

affordable plan options and some small employers said the fees service 

providers charge were affordable, others said they were too high. Further, 

some stakeholders pointed to other limitations of using service providers, 

such as the difficulties of choosing providers, setting up a new plan 

through a provider, switching from one provider to another, as well as the 

significant responsibilities that may remain with the sponsor, such as 

managing plan enrollments and separations and carrying out their 

fiduciary duties, where applicable.

Small Employers Report 

That Insufficient 

Incentives and Lack of 

Employee Demand 

Discourage Plan 

Sponsorship 

Plan Service Providers 

Help Small Employers 

Meet Some But Not All 

Retirement Plan Needs
 

Page 13 GAO-12-459T 

Stakeholders proposed several options to address some of the 

administrative and financial challenges that inhibit plan sponsorship.19

Simplify plan administration requirements: Some stakeholders 

suggested options that could simplify plan administration requirements. 

Options included reducing the frequency of statements sent to plan 

participants and allowing some required disclosures to be made available 

solely online. IRS officials stated that the agency is also considering 

proposals to replace a requirement for some interim amendments

These options included simplifying plan administration rules, revising or 

eliminating top-heavy testing requirements, and increasing tax credits.

20—

which stakeholders have identified as a burden for some small 

employers—with a requirement for notices to be sent directly to 

employees, which would reduce the number of times plan documents 

must be amended and submitted to IRS.21

Revise or eliminate top-heavy testing: A number of stakeholders 

proposed revising or eliminating top-heavy testing requirements to ease 

administrative and financial burdens. For example, representatives of the 

accounting profession told us that top-heavy testing is duplicative 

because other plan testing requirements help detect and prevent plan 

discrimination against rank-and-file employees.22

 

19The key proposals discussed in our full report are not exhaustive, and we did not 

attempt to quantify the costs and benefits of each proposal or their potential effectiveness 

in encouraging small employer plan sponsorship.

Representatives of a 

large service provider told us that lack of plan participation or high 

turnover among a business’ rank-and file employees frequently cause 

plans sponsored by small employers to become top-heavy.

20When statutes and regulations change, some sponsors may be required to modify plan 

documentation and submit it to IRS. Each year since 2004, IRS has published a 

cumulative list of changes in plan requirements that must be incorporated by plan 

sponsors. See, for example, IRS Notices 2011-97. 

21Under these proposals, the amendments that would be subject to the less-stringent 

requirement would be those triggered by changes to laws and regulations but which do 

not affect plan benefits.

22For example, some plans must conduct nondiscrimination testing—in addition to topheavy testing—to ensure that the contributions or benefits provided under the plan do not 

discriminate in favor of highly compensated employees. See 26 U.S.C. § 401(a)(4) and 26 

C.F.R. §§ 1.401(a)(4)-1 through 1.401(a)(4)-4. We did not specifically assess duplication 

between top-heavy and nondiscrimination testing requirements.

Proposed Options to 

Spur Plan 

Sponsorship Target 

Simplification, 

Incentives, and 

Education 
 

Page 14 GAO-12-459T 

Increase tax credits: Some stakeholders believed that tax credits, in 

general, are effective in encouraging plan sponsorship, but other 

stakeholders said that the current tax credit for starting a plan is 

insufficient. A national organization representing small employers cited 

tax credits as a top factor in an employer’s decision to sponsor a plan, 

adding that an employer’s willingness to start a plan depends, to some 

degree, on the extent to which the tax credit offsets plan-related costs.23

Similarly, some small employers stated that larger tax credits could ease 

the financial burden of starting a plan by offsetting plan-related costs. 

Additionally, one small employer said the incentive needs to be larger as 

sponsorship costs can amount to $2,000 or more per year.

Numerous stakeholders agreed that the federal government could 

increase education and outreach efforts to inform small employers about 

plan options and requirements; however, opinions varied on the 

appropriateness of the federal government’s role in these efforts. Officials 

of a service provider to small employers stated that, because clients are 

generally not aware of the retirement plan options available to them, the 

federal government should offer more education and outreach to improve 

awareness of the types of plans that are available and the rules that apply 

to each. Several small employers also offered ideas. For example, a 

small employer said the federal government should focus education and 

outreach efforts on service providers instead of on small employers. 

Conversely, some small employers said the federal government should 

have a limited role or no role in providing education and outreach efforts.

 

23Currently, small employers that sponsor plans may claim an annual tax credit of up to 

$500 based on plan startup costs for each of the first 3 years of starting a qualified plan. 

See 26 U.S.C. § 45E. However, any increase in tax incentives would have to be balanced 

by the loss of revenue to the federal government. Increasing tax credits to subsidize planrelated costs for small employers would generally reduce the amount of federal tax 

revenue collected. The Administration’s Fiscal Year 2013 Budget proposed doubling the 

tax credit limit for small employers starting a plan to $1,000 per year for a maximum of 4 

years. The Administration estimated that this proposal—along with another proposal for 

automatic IRA tax credits, would reduce revenue by $15 billion over 10 years, starting in 

2013. 

Stakeholders Said More 

Education and Outreach 

Are Needed to Increase 

Awareness of Plan Options 

and Requirements
 

Page 15 GAO-12-459T 

Domestic pension reform proposals from public policy organizations, as 

well as practices in other countries, include features such as asset 

pooling that could reduce the administrative and financial burdens of 

small employers. For example, one domestic proposal calls for the 

creation of a federally managed and federally guaranteed national 

savings plan.24 Under this proposal, participation in the program would 

generally be mandatory for workers;25 both employers and employees 

would contribute to the plan; and plan funds would be pooled and 

professionally managed.26 By pooling funds, plan administration would be 

simplified and administrative costs and asset management fees would be 

reduced. In addition, Automatic IRAs—which are individual IRAs instead 

of employer-sponsored plans—are another proposal that draws from 

several elements of the current retirement system: payroll-deposit saving, 

automatic enrollment, and IRAs. Such a proposal would provide 

employers who do not sponsor any retirement plans with a mechanism 

that allows their employees to save for retirement.27 However, as we 

reported in 2009, such proposals pose trade-offs.28

 

24T. Ghilarducci, Guaranteed Retirement Accounts Toward Retirement Income Security, 

Economic Policy Institute, Briefing Paper #204 (Nov. 20, 2007). 

For example, 

although a proposal that mandates participation would increase plan 

sponsorship and coverage for workers, employers might offset the 

resulting sponsorship costs by reducing workers’ wages and other 

benefits. Retirement systems in other countries also use asset pooling 

25Under this proposal, workers participating in equivalent or better employer DB plans 

where contributions are at least 5 percent of earnings and benefits take the form of life 

annuities would be exempt from participating in the guaranteed retirement accounts 

program.

26Recent legislation introduced in Congress, the Small Businesses Add Value for 

Employees Act (SAVE Act), would also build on the concept of asset pooling by 

establishing multiple employer plans for small employers, in which separate small 

employers would pool their resources to offer a single plan. See H.R. 1534, 112th Cong. 

(introduced Apr. 14, 2011).

27J. M. Iwry and D. C. John, Pursuing Universal Retirement Security Through Automatic 

IRAs, Retirement Security Project, No. 2009-03 (2009). In addition, the Administration’s 

Fiscal Year 2013 Budget also proposed requiring employers in business for at least two 

years that have more than 10 employees to offer an automatic IRA option. The proposal 

includes new tax credits for small employers who adopt such arrangements. The 

Administration estimates that these proposals—including the increased pension startup cost 

tax credit—would reduce revenue by $15 billion over 10 years, starting in 2013. 

28GAO, Private Pensions: Alternative Approaches Could Address Retirement Risks Faced 

by Workers but Pose Trade-offs, GAO-09-642 (Washington, D.C.: July 24, 2009).

Other Options to 

Encourage Plan 

Sponsorship Would 

Require Broader Reforms
 

Page 16 GAO-12-459T 

and other features that help reduce administrative and financial burdens 

for small employers. For example, as we previously reported, the 

predominant pension systems in the Netherlands and Switzerland pool 

plan assets into pension funds for economies of scale and for lower plan 

fees.29 The United Kingdom’s National Employment Savings Trust 

(NEST) features low fees for participating employers and employees and 

default investment strategies for plan participants.

With a significant portion of the private-sector workforce not covered by a 

pension plan at any one time, retirement security remains a critical issue 

for our nation. Based on the limited data available, we found the rate of 

plan sponsorship among small employers, a segment of the economy 

which employs about one third of all private sector workers, was only 14 

percent in 2009. Although one would expect that the high churn rate of 

small business formation and dissolution would impede small employer 

plan sponsorship, it also means that many millions of workers in this 

sector are without access to an employer-sponsored retirement savings 

plan. Thus, while remaining sensitive to the financial challenges currently 

facing our nation, expanding coverage among small employers should be 

an important consideration of national strategies seeking to strengthen 

the pension component of retirement income security.

Our discussions with small employers and other stakeholders identified a 

variety of challenges small employers face in sponsoring retirement 

plans. One initial problem is the inability of small employers to easily 

obtain useful information on how to establish and maintain plans. 

Although Labor and IRS already provide small employers with 

considerable online information about retirement plans, information is 

scattered across multiple federal websites and portals in a largely 

uncoordinated fashion, making it difficult for busy employers to navigate 

and locate what they need. However, even if federal information about 

retirement plans were more accessible to small employers, our interviews 

with small employers identified a number of other significant challenges to 

plan sponsorship, including plan administration requirements that are 

perceived to be unduly complicated and burdensome, not having 

sufficient financial and personnel resources to sponsor a plan, and 

insufficient incentives to create and maintain a plan.

 

29GAO-09-642. 

Conclusions and 

Report 

Recommendations 
 

Page 17 GAO-12-459T 

These challenges, while very real, are also complex and in many 

instances may not lend themselves to easy answers. Because the 

expertise to address these issues is spread across multiple agencies and 

departments that may not always communicate or work together 

effectively on these issues, there is the potential that inertia and other 

competing priorities will push these issues onto the back burner. 

The report we are issuing today recommends the creation of a 

multiagency task force, to be overseen by the Department of Labor, that 

would explore and analyze these challenges in greater detail, including 

ways to make information more accessible, to streamline reporting and 

disclosure requirements in a thoughtful manner, and to identify the 

appropriateness and effectiveness of existing and proposed tax 

incentives and plan designs to boost sponsorship among small 

employers. Such a task force could help jump-start sustained action on 

what we consider to be an essential element of our nation’s retirement 

security challenge and initiate a national dialogue on the critical issues of 

pension coverage 

Finally, federal agencies’ ability to address the challenges to small 

employer plan sponsorship depends in part on the availability of relevant, 

timely, and complete data. During our work in estimating the extent of 

small employer plan sponsorship, we found that complete data on small 

employer plan sponsorship did not exist because IRS did not have the 

means to collect information on employers that sponsor SEP IRA plans. 

Although there are about 1.5 million SEP IRAs, many of these may be 

sponsored by larger businesses, and we simply do not know the 

distribution of these plans across all employers. Without a complete 

picture of small employer plan sponsorship rates, agencies may find it 

difficult to effectively target their research and outreach efforts. Thus, in 

our report we also recommend that the Secretary of the Treasury direct

the Commissioner of the Internal Revenue Service to consider modifying 

existing tax forms, such as Forms W-2 or 5498, to gather complete and 

reliable information about these plan types. Although the challenges that 

small employers face in sponsoring plans are significant, they can be 

addressed and with appropriate federal action and cooperation, as well as 

assistance from the service provider community. 

While the Department of Treasury, IRS, Labor, SBA, and the Department 

of Commerce generally agreed with our findings and conclusions, Labor 

disagreed with our recommendation to create a single web portal for 

federal guidance on retirement plans for small employers. Because 

federal resources are scattered across different sites, we believe 
 

Page 18 GAO-12-459T 

consolidating plan information onto one web portal can benefit small 

employers. A complete discussion of our recommendations, Labor’s 

comments, and our response are provided in our full report.

Chairman Kohl and Ranking Member Corker, and Members of the 

Committee, this concludes my prepared remarks. I am happy to answer 

any questions that you or other members of the committee 

may have.

For further questions on this testimony, please contact me at 

(202) 512-7215. Individuals making key contributions to this testimony 

include Edward Bodine, Kun-Fang Lee, David Lehrer, and David Reed.

(131158)
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