The report, titled Private Pensions: Improving Worker Coverage And Benefits, found that traditional reforms to the voluntary, single-employer pension system may have limited potential overall to expand pension coverage and improve benefits for workers.
The report notes that while pension reforms have been targeted at encouraging sponsorship and reducing the burden of maintaining a plan by small employers, those results can be offset by other actions.
The GAO report notes that laws that broaden access to pension income, through actions such as accelerated vesting, can actually result in less employer sponsorship of these programs. Additionally, more recent efforts to improve retirement savings rates by restricting worker access to their 401(k) accounts could actually lead to lower participation and contribution rates by workers concerned about their ability to afford to save for retirement.
Citing analysts that question if incremental reforms can truly make a difference for those who lack pensions, the GAO report suggests that it may be time to look beyond the voluntary, single-employer private pension system for a solution.
Beyond private pensions, the GAO acknowledges three broad categories of pension reform;
- pooled employer reforms
- universal access reforms
- universal participation reforms.
All have shortcomings, according to the report. Pooled employer reforms generally suffer from a lack of employer interest due to their loss of control of plan design and concern about cost and administrative requirements. Universal-access reforms try to offer workers a chance to save, but without an employer match, these efforts do little to help low-income workers who are already unable to make the commitment.
Finally, while universal-participation reforms aim to ensure coverage and retirement income for all workers by mandating pension availability and participation, those programs raise concerns about the size of the employers’ administrative burden, as well as potential adjustments to other forms of compensation to offset higher pension costs.
The GAO acknowledged that private pensions, as a key supplement to Social Security, can help assure that workers receive adequate incomes in retirement. However, millions of workers have no individual pension coverage, which places them at risk of inadequate income during their retirement years. In fact, since the 1970s, only about half of the nation’s workers have been covered by private employer-sponsored pensions, according to the report. The GAO notes that at present only 52% of retirees currently receive pension income.
Ultimately, the report concludes that while several pension-related proposals aimed at improving the situation for lower-earning workers are similar to current proposals to introduce an individual account-based option into Social Security, such approaches do entail both cost and design changes.
Read the full report at GAO site.