Private Pensions:

Most Employers That Offer Pensions Use Defined Contribution Plans

GGD-97-1: Published: Oct 3, 1996. Publicly Released: Oct 3, 1996.

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Pursuant to a congressional request, GAO provided information on the: (1) numbers and types of pension plans sponsored nationwide by private employers from 1984 to 1993; (2) proportions of total contributions made to these plans by employers and employees; (3) average administrative expense for these plans; and (4) reasons employers sponsor certain types of pension plans.

GAO found that: (1) using a computerized database of reports employers have filed with the Internal Revenue Service, GAO found that in 1993, 88 percent of private employers with single-employer pension plans sponsored only defined contribution (DC) plans; (2) this represented a sizable increase over 1984 when 68 percent of private employers reported they had only DC plans; (3) from 1984 to 1993, the percentage of employers that offered only defined benefit (DB) plans decreased from 24 to 9 percent, and those employers offering both DC and DB plans decreased from 8 to 3 percent; (4) the growth in DC plans occurred across all employer sizes and industries; however, the percentage of employers with 2,500 or more employees that sponsored both DC and DB plans increased over the same period and nearly half of these employers continued to sponsor a DB plan in 1993; (5) the data showed that private employers generally did not require employees to contribute to DB plans and that employers provided a greater proportion of total contributions to DC plans that were the only plan offered to employees compared with DC plans that supplemented a DB plan; and (6) from 1988 to 1993, administrative expenses remained fairly constant for DC and DB plans, and the average reported administrative expense per participant was lowest for employers that offered only DC plans. GAO also found that: (1) its review of retirement literature revealed a variety of possible explanations for why employers might prefer DC over DB plans if they decide to sponsor only one type of plan; (2) these factors included increasingly complex regulations for DB plans, a surge in the number of employers terminating DB plans to acquire capital assets, and employees' growing preference for pension benefits that they can retain when they change jobs; (3) the literature also noted that an employment shift has occurred away from industries in which employers traditionally favored DB plans toward industries in which employers favored DC plans; and (4) because the literature primarily addressed factors that influence private-sector decisionmaking on pension plan design, these factors may or may not be relevant to the federal government and other public employers.

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