Pension tax preferences are structured to provide incentives for employers to start and maintain voluntary, tax-qualified pension plans and to ensure that participants receive an equitable share of the tax-favored benefits. The tax treatment for DC and defined benefit (DB) plans are similar. However, DC plan contributions are subject to specific limits and DB plans allow deductions for contributions to fund future benefits (plus a cushion amount), which may total several times the DC tax-deferred contribution dollar limit. Importantly, such benefits cannot exceed the maximum yearly benefit—which is $195,000 per participant per year— and the allowable contribution in any year also depends on a variety of actuarial factors, including the ages of the participants and the funded status of the plan. (See table 1 for a summary of DC contribution limits.) One important requirement for tax-qualified pension plans of private employers is that contributions or benefits be apportioned in a nondiscriminatory manner between highly compensated employees or other workers. There are standard off-the-shelf plan designs, termed “safe harbors,” which allow employers to easily comply with this requirement. Alternatively, employers can develop a custom-tailored plan design and apply general testing methods (as required by law) to a plan’s apportionment of contributions or benefit accruals each year. These methods for custom-tailored plan designs are complex, but they generally require the employer to provide both coverage and contributions or benefits for employees other than the most highly compensated at rates that do not differ too greatly from the rates at which the employer provides coverage and contributions or benefits for its most highly compensated employees. The purpose of the legal limits that constrain tax-deferred contributions to tax-qualified retirement plans is to prevent tax preferences from being used to subsidize excessively large pension benefits. Tax-deferred pension contributions are also limited by the application of other statutory limits. In addition to the legal limits, some plans set their own limits on contributions. In DC plans with plan-specific contribution limits, tax- deferred contributions are limited to the statutory limit or the plan specific limit, whichever is smaller. Employers set plan-specific limits, in part, to ensure that the plans they sponsor pass statutory and regulatory requirements, such as the requirement that contributions or benefits not be skewed too heavily in favor of highly compensated employees. The Employee Retirement Income Security Act of 1974 imposed dollar and percentage-of-compensation limitations on combined employer and employee tax-deferred contributions. Subsequently, the Revenue Act of 1978 included a provision that became Internal Revenue Code section 401(k), under which employees are not taxed on the portion of income they elect to receive as deferred compensation. The Tax Reform Act of 1986 introduced a dollar limitation (i.e., a maximum dollar contribution) on employees’ tax-deferred contributions to DC plans. In 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permitted greater contributions to such tax-advantaged savings plans beginning in 2002. The scheduled increases were to be fully implemented by 2006 and expire at the close of 2010. At the time, some asserted that increasing these limits would enhance employer incentives to start new plans and improve existing plan coverage, especially for employees of small businesses. EGTRRA also allowed a so-called catch-up provision, where persons aged 50 or older are permitted to make additional tax-deferred contributions, in excess of other applicable statutory limits, to 401(k) and similar DC plans. The provision is intended to encourage older workers who had not previously been able to save sufficiently to make larger catch-up contributions in order to reach more adequate levels of retirement savings. (See table 1.) However, these EGTRRA provisions had also been scheduled to expire on December 31, 2010. In 2006, the Pension Protection Act made permanent the higher benefit limits in DB plans, higher contribution limits for IRAs and DC plans, and catch-up contributions for workers 50 and older that were included in EGTRRA. Additionally, in order to encourage low- and middle-income individuals and families to save for retirement, EGTRRA authorized a nonrefundable tax credit (the Saver’s Credit) of up to $1,000 against federal income tax. Eligibility for the Saver’s Credit is based on workers’ adjusted gross income (AGI) and contributions to 401(k) and other retirement savings plans and IRAs. The Saver’s Credit phases out as AGI increases so that eligible tax filers with higher AGI receive a lower credit rate (see table 2). The credit amount is equal to the amount of contributions to a qualified retirement plan or IRA (up to $2,000 for individuals and $4,000 for households) multiplied by the credit rate. Federal revenue losses for the Saver’s Credit are estimated to amount to $1.4 billion in fiscal year 2011 and $6.5 billion for fiscal years 2012–2016. Over the last three decades, DC plans have replaced DB plans as the dominant type of private-sector employer pension plan and, by almost any measure, have taken on a primary role in how workers save for retirement. By 2007 (the most recent year with available data), DC plans comprised 93.1 percent of all plans and active DC participants in the private sector outnumbered those in DB plans 66.9 million to 19.4 million. Meanwhile, participation in employer-sponsored plans has stayed fairly constant in the past few years. Data from the Department of Labor’s Current Population Survey show that in 2008 about 53 percent of private- sector wage and salary workers, aged 25–64, worked for employers that sponsored a retirement plan and about 44 percent participated in a plan. The Current Population Survey data show that while each of those percentages were about 2 percentage points lower than in 2007, they are indicative of the overall decline in plan coverage and participation since 2000. For instance, the percentage of private-sector wage and salary workers, aged 25–64, who worked for employers that sponsored a retirement plan in 2008 was more than 8 percentage points lower than it had been in 2000 (about 61 percent). Likewise, the percentage of private- sector wage and salary workers, aged 25–64 participating in a plan fell from more than 50 percent in 2000 to 44 percent in 2008. Similar trends are evident when looking at such percentages by full- and part-time employment status. The Current Population Survey data also show that full-time workers are more likely than part-time workers to have access to and participate in a pension plan. Moreover, the data indicate there is substantial disparity in sponsorship of retirement plans between large and small employers. Workers at establishments with fewer than 100 employees are much less likely to have access to an employer-sponsored retirement plan than workers at larger establishments. The U.S. economy went into recession in December 2007 and major stock indexes fell more than 50 percent from their peaks in October of that year until hitting their lows in March 2009. These economic conditions have not been beneficial to retirement savings, particularly given the fact that stocks have been a major type of investment for pension plans. Each year, from 2003 to 2007 (the most recent data available), private employers created thousands of new retirement plans. However, the total number of private employer-sponsored retirement plans has increased only slightly because the gains from these newly formed plans were largely offset by other plan terminations. Even though employers created more than 179,000 new plans from 2003 to 2007, the Department of Labor estimates a slight increase overall in the total number of plans from about 697,000 to only about 705,000 in the same period (see fig.1). It is important to note that some plan formations and terminations are linked as sponsors may terminate plans because of company mergers or acquisitions, and then cover the participants with other newly started or existing plans. Most of the new plans private employers created were small—about 173,000 new plans had fewer than 100 participants (about 96 percent of plans) and only about 6,000 plans had 100 participants or more (see fig. 2). Most new DB plans were even smaller than new DC plans. The median number of participants for new DB plans was just four, compared to eight members for new DC plans. However, some larger DB plans rais the average size of new DB plans (about 43 participants) above that of t average size of new DC plans (about 34 participants). Based on the 2007 SCF, about 5 percent of more than 40 million DC participants contributed at or above the statutory limits for tax deferred contributions. Most of these participants whose contributions were at or above the limits were high-earners (see fig. 4). We estimated that about 72 percent of them had individual earnings at the 90th percentile ($126,000) or above for all DC participants. In comparison, only 7 percent of the DC participants contributing below the limits had individual earnings at the 90th percentile or above. We also found that most DC participants who made contributions at or above the 2007 statutory limits came from households with other assets in addition to their DC accounts. Assets commonly held by the households of such participants included checking accounts, savings accounts, houses, IRAs, and stocks (see fig. 5). For example, 90 percent of these participants came from households that owned a home and 60 percent came from households holding stocks. DC participants contributing at or above the limits were more likely to come from households holding these assets than were DC participants contributing below the limits. For example, 65 percent of those contributing at or above the limits lived in households with an IRA, compared to only 29 percent of those contributing below the limits. In addition, according to our estimates, the value of household assets for DC participants contributing at or above the 2007 statutory limits tended to be higher, on average, than the value of household assets for participants contributing below the limits (see table 3).