GAO: Retirement Landscape Shift Creates Disproportionate Benefits

April 29, 2011 ( – A new report from the Government Accountability Office contends that the shift from a traditional defined benefit retirement plan landscape to more defined contribution plans has resulted in disproportionate benefits for American workers.

According to the report, about 92% of newly formed plans in the period between 2003 and the end of 2007 were defined contribution (DC) plans, with the rest being defined benefit (DB) plans. Regarding the small percentage of new DB plans, professional groups such as doctors, lawyers, and dentists sponsored about 43% of new small DB plans, and more than 55% of new DB plan sponsors also sponsored DC plans. The GAO said the benefits of new DB plans disproportionately benefit workers at a few types of professional firms.  

In addition, most individuals who contributed at or above the 2007 statutory limits for DC contributions tended to have earnings that were at the 90th percentile ($126,000) or above for all DC participants, according to the GAO’s analysis of the 2007 Survey of Consumer Finance (SCF). Similarly, the GAO said, high-income workers have benefited the most from increases in the limits between 2001 and 2007. The agency found that men were about three times as likely as women to make so-called catch-up contributions when DC participants age 50 and older were allowed to contribute an extra $5,000 to their plans.  

The report said several modifications to the Saver’s Credit—a tax credit for low-income workers who make contributions to a DC plan—could provide a sizeable increase in retirement income for some low wage workers, although this group is small. For example, under the GAO’s most generous scenario, Saver’s Credit recipients who fell in the lowest earnings quartile experienced a 14% increase in annual retirement income from DC savings, on average.  

The GAO concluded that the potential troubling consequences of the recent financial crisis may be obscuring concerns over the ability of the employer-provided pension system in helping moderate and low-income workers, including those with access to a plan, save enough for retirement.  

The GAO report is here.