Over the past 25 years, defined contribution (DC) plans have become the most prevalent form of employer-sponsored retirement plan in the United States. According to the Bureau of Labor Statistics (BLS), 51% of workers in the private sector participated in an employer-sponsored retirement plan of some kind in 2007. Only 20% of all private-sector workers were covered by traditional pensions—also called defined benefit or "DB" plans—whereas 43% participated in 401(k) plans and other DC plans. Twelve percent of workers participated in both types of plan. One of the key distinctions between a defined benefit plan and a defined contribution plan is that in a DB plan, it is the employer who bears the investment risk. The employer must ensure that the pension plan has sufficient assets to pay the benefits promised to workers and their surviving dependents. In a DC plan, the worker bears the investment risk. The worker's account balance at retirement will depend on how much has been contributed to the plan over the years and on the performance of the assets in which the plan is invested. In a typical 401(k) plan, a worker must decide whether to participate, how much to contribute, how to invest the contributions, what to do with the account if he or she changes jobs, and how to take money out of the account after retiring. The majority of assets held in DC plans are invested in stocks and stock mutual funds, and as a result, the decline in the major stock market indices in 2008 greatly reduced the value of many families' retirement savings. According to the Federal Reserve Board, assets held in DC plans fell from $3.73 trillion at year-end 2007 to $2.66 trillion at year-end 2008, a decline of 28.7%. The decline would have been even greater if not for ongoing contributions to the plans by workers and employers. The effect of stock market volatility on families' retirement savings is just one issue of concern to Congress with respect to DC plans. Other issues that have received attention in hearings and through proposed legislation include increasing access to employer-sponsored plans, raising participation and contribution rates, helping participants make better investment choices, requiring clearer disclosure of fees charged to plan participants, preserving retirement savings when workers face economic hardship or change jobs, and promoting life annuities as a source of retirement income. This CRS report describes these seven major policy issues with respect to DC plans: access to employer-sponsored retirement plans, participation in employer-sponsored plans, contribution rates, investment choices, fee disclosure, leakage from retirement savings, and converting retirement savings into income. According to the National Compensation Survey (NCS), 61% of private-sector workers were employed at establishments that offered one or more retirement plans in 2007. Twenty-one percent worked for employers that offered a DB plan, 55% worked for employers that offered a DC plan, and 15% worked for employers that offered both types of plan. Thus, almost 4 out of 10 workers in the private sector did not have the opportunity to participate in a retirement plan where they worked. Moreover, there is a substantial disparity in sponsorship of retirement plans between large employers 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 are workers at larger establishments. (See Table 1 .) Policies that would increase the number of small employers that offer retirement plans could expand access to these plans to include millions more workers. Surveys of households and employers illustrate the gap in retirement plan sponsorship between large and small employers. Data collected by the Bureau of the Census indicate that there were 75 million private-sector workers between the ages of 25 and 64 who were employed year-round, full-time in 2007. Thirty million of these workers, or 40%, worked for employers that did not sponsor a retirement plan of any kind. Of these 30 million workers, 19.1 million, or 64%, worked for firms with fewer than 100 employees. Likewise, data from the Department of Labor's 2007 National Compensation Survey show that 78% of workers at establishments with 100 or more employees worked for employers that sponsored retirement plans in 2007, compared with just 45% of workers at establishments with fewer than 100 employees. Although workers at small establishments are less likely to be offered a retirement plan, when one is offered, they are as likely as employees at larger businesses to participate in the plan. In 2007, for example, 70% of workers at establishments with 100 or more employees were offered a DC plan, and the take-up rate among those offered a DC plan was 76%. At establishments with fewer than 100 employees, 42% of workers were offered a DC plan, and the take-up rate among those offered a DC plan was 79%. Workers at firms with fewer than 100 employees comprised 44% of all private-sector workers in the United States in 2007. If employees at small firms had been offered DC plans at the same rate as employees of larger firms, an additional 11.4 million workers would have had the opportunity to participate in employer-sponsored retirement plans in 2007. If take-up rates among these employees had been the same as at firms that already offered DC plans, an additional 9.0 million workers would have participated in DC plans in 2007. Qualified retirement plans, including 401(k) plans, must comply with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC). Among the requirements for retirement plans to receive favorable tax treatment is that they are prohibited from discriminating in favor of highly-compensated employees (HCEs) in terms of contributions or benefits. This assures that rank and file employees as well as owners and managers benefit from the tax breaks that Congress has granted to tax-qualified retirement plans. The nondiscrimination tests compare the participation rates and plan contributions for HCEs to those of other employees. In a small firm, relatively modest changes in employee participation or contributions can make the difference between the plan passing or failing the nondiscrimination test. If the plan fails, some of the contributions made by HCEs must be returned to them and included in their taxable income for the year. A plan that fails the nondiscrimination test also can lose its tax-qualified status, but this penalty is applied only in rare circumstances. To encourage more employers, especially small employers, to sponsor retirement plans, Congress has authorized several kinds of defined contribution plans that are exempt from some administrative requirements that otherwise would apply. In some cases, plans that adopt certain characteristics that favor rank-and-file workers are exempt from nondiscrimination testing. In 1996, Congress authorized a "safe-harbor" 401(k) plan that exempts the plan sponsor from the annual nondiscrimination tests in exchange for the employer agreeing to make contributions to the plan. In a safe-harbor 401(k), the employer must either contribute an amount equal to 3% of pay on behalf of each eligible employee or match the first 3% of salary deferrals of each participating employee on a dollar-for-dollar basis and match the next 2% of employee deferrals at 50 cents per dollar. Any firm with one or more employees can establish a safe-harbor 401(k). The Small Business Job Protection Act of 1996 ( P.L. 104-188 ) authorized the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE). In exchange for mandatory employer contributions, the plan is exempt from the nondiscrimination tests. An employer that sponsors a SIMPLE must either contribute an amount equal to 2% of pay on behalf of every eligible employee or match 100% of the first 3% of each participating employee's contributions to the plan. The maximum allowable employee contribution to a SIMPLE is $11,500 per year in 2010 and 2011. Participants aged 50 and older can make additional contributions of up to $2,500 to a SIMPLE plan. SIMPLE plans can be established only by employers with fewer than 100 employees that do not already have retirement plans. In the Revenue Act of 1978 ( P.L. 95-600 ), Congress authorized a defined contribution plan called the Simplified Employee Pension (SEP) for firms that do not already sponsor a retirement plan. Only the employer can make contributions to a SEP, and the employer can decide from year to year whether to contribute to the plan. Employer contributions must be made on behalf of all eligible employees, and the contributions must be the same percentage of pay for all eligible employees. Contributions cannot exceed an amount equal to 25% of pay up to a maximum of $49,000 in each year 2010 and 2011 (indexed to inflation). Participants are fully and immediately vested in the employer's contributions to the plan. Any firm with one or more employees can establish a SEP. Despite the availability of the SEP, SIMPLE, and safe-harbor 401(k), there has been relatively little growth in retirement plan sponsorship among small firms over the past 20 years. According to the Bureau of Labor Statistics, 36% of employees at small private-sector establishments participated in an employer-sponsored retirement plan of some kind in 1990. By 2007, the participation rate in all types of retirement plans among employees at small private-sector establishments had increased by just one percentage point to 37%. One reason that small firms are less likely than large firms to offer retirement plans is that small employers are much more likely than large employers to go out of business in any given year. For example, over the six years from 2000 through 2005, an average of 10.2% of firms with fewer than 20 employees went out of business each year. Among firms with 20 to 99 employees, an average of 4.6% of firms went out of business annually, whereas among firms with 500 or more employees, an average of 2.3% of firms went out of business each year. Because small firms face relatively greater uncertainty about their survival from year to year, their owners are less likely to offer a retirement plan to their employees.