The GAO also recommends that the Internal Revenue Service (IRS) consider modifying tax forms to gather complete, reliable information about Simplified Employee Pension (SEP) IRAs. The Department of Labor (DoL) disagreed with the GAO’s recommendation to create a single Web portal for federal guidance. However, because federal resources are scattered across different sites, the GAO believes consolidating plan information onto one Web portal could benefit small employers.
Small employers and retirement experts identified several challenges to starting and maintaining retirement plans, according to a GAO report. Many small employers said they feel overwhelmed by the number of retirement plan options, administration requirements and fiduciary responsibilities. For example, many are concerned about the potential risks associated with sponsoring a plan.
Although federal agencies conduct education and outreach on retirement plans, a number of small employers and other stakeholders said small employers were unaware of these initiatives. The GAO noted that the DoL, IRS and the Small Business Administration (SBA) collaborate to develop and disseminate information and guidance online but do so through separate websites and in a largely uncoordinated fashion.Small employers and other stakeholders also cited other challenges to plan sponsorship, including a lack of financial resources, time and personnel. However, some small employers said their employees prioritized health benefits over retirement benefits. To address some of the challenges to plan sponsorship, some small employers said they use contracted service providers that perform plan administration tasks.
Small employers and other stakeholders offered options for addressing some challenges and reducing the complexity of plan sponsorship for small employers. Options included simplification of federal requirements for plan administration, such as easing or eliminating certain plan testing requirements. Some stakeholders said increasing the tax credit for plan startup costs could further defray costs and help boost plan sponsorship. Some stakeholders also said that the federal government could conduct more education and outreach efforts to inform small employers about plans.
Pension reform proposals in the U.S., 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, the GAO said. For example, asset pooling is a feature that allows small employers to pool resources for economies of scale, which can lower plan costs. “In light of the variety of options, DoL, the Department of the Treasury, IRS and SBA should jointly evaluate existing options and develop new proposals with the goal of mitigating barriers to small employer plan sponsorship,” the report stated.
Based on data the GAO studied, about 14% of small employers sponsor some type of retirement plan. Overall, the GAO 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 more than on the industry in which the employer operates and the geographic region in which the employer is located. The GAO found the greatest likelihood of plan sponsorship was among small employers with larger numbers of employees and those paying an average annual wage of $50,000 to $99,999.
The GAO also found that the most common plans sponsored by small employers are 401(k)s and Savings Incentive Match Plans for Employees (SIMPLE) Individual Retirement Arrangements (IRA), at 46% and 40%, respectively, of total plans. However, the IRS currently does not have the means to collect information on employers that sponsor another type of IRA plan designed for small employers, the Simplified Employee Pension (SEP) IRA plan, which limits what is known about employers that sponsor these plans.The full report can be downloaded from http://www.gao.gov/products/GAO-12-326.
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