GAO Report Insists Feds Should Do More to Help Small Employers Sponsor Retirement Plans

About 14 percent of small employers sponsor a retirement plan, either a 401(k) or Savings Incentive Match Plans for Employees IRA, according to the GAO report. Congress and federal agencies have tried to encourage small employers to sponsor retirement plans for their employees, but federal data show workers’ access to plans remains limited, leaving many without a work-based savings plan.

A business is considered small if it has 100 or fewer employees. The report found that nearly one-third of private-sector employees in the U.S. work for small employers. Some options for addressing these challenges to retirement plan sponsorship include simplifying federal requirements for plan administration, such as easing or eliminating certain plan testing requirements. Increasing the tax credit for plan startup costs could further defray costs and help boost plan sponsorship, the report found. The federal government also could conduct more education and outreach efforts to inform small employers about plans.

Pension reform proposals in the United States, along with certain features of pension systems in other countries, may provide additional options that could increase plan sponsorship and increase workers’ access to retirement plans. For example, asset pooling is a feature that allows small employers to pool resources for economies of scale, which can lower plan costs.