P_n_ilJ_A onan Trd_nd_ w_O_)A ,_arlIclpat;on grn_ll Pirr___ornparlson, n_,and Oo OlvllJan v6ra_1 Work 6e/r gs ir Aged npl_}I-_4 ;fi_alio Propos n als: Vesting In I_mployer-_ponsored I_etlrement Plans EBRI INTRODUCTION Introduction Participation .......................................................................................................... in Employer-Sponsored Summary Retirement Plans 1 is Small more service. lower annually) Given Employers in Investment these the who popularity plans a lacked risk nd(57 and Plan of this percent even decisions Design type unmatched ofofsuch are coverage also nonfarm CODAs shifting worked workers over from for deductible firms sponsors in 1988) with IRAs, than to 25 participants high orinfewer CODA plans . design e dissipation a factor incomes; meeti and (g fami the mployer en primary ly fa erally IRA n cgs in e incomes trends. Abalances the of similar deductible concerns plan (47 enti of su rapid c benefits tl percent), but h eHigh of men trend restri can growth elect less are IRA tlevels c be to is has tio relate than not in eligibility w n evident be of d s ithdra increased ivi n of to m d 401(k) efits $30,000 dight contribute plan ual to wn in pla fro higher .save explanations sponsorship CODA private .m (Despite n (in sponsor Where Socia lto ess--possib than constant sponsorship plan althe supplemental sh CODA participation Sec finances. (65 and ip, adverse urity l1991 y spercent), participation trik eligibility to a that e n dollars) tax the d co CODA Bet is continued nonelective m consequences eventual voluntary, w promises but an een d the in accrue is lett 1975 small skewed proportions throughout detriment ers plan employer- infewer and firms t(80 of hetoward premature form 1987, benefits will ofthe their ofthe to likely sponsors extended likel only y to toEa modestly be preserve ar broadly ch expensive e of required thes May increase at these eleast .1988 propo to Ho retire c some w plan o Wor s ever, n als m tribut e ke sponsorship, additional nwould trs' one eassets to Report factor all likely . participation employees' eHe d that the hav n Uses caforementioned seems e e, ssome om of among a e Prior c to co po of affect un sitiv a Lump ts n low y eproposals in plan ieffect nc and proportion Sums responsorship a moderate son e imight n small-firm pto articipatio earners thave heir n higher accruals, and contributions than vesting the 51 delays, increase percent and reported with other inflation plan for those and design offered a real features, interest no matc shorter-term rate hing,ofbut 3 percent, employees less thanafter 20 All Private Public Hearing Before the House Select Committee on Aging Subcommittee on Retirement Nonfarm Sector Sector IRAParticipation 1988CODA Participation All Private Public Income and Employment, July 10, 1991 defined generally participation contributing sponsorship perc sponsored for employees. In general, retirement ent). P contribution 1 ropo (76 2 pensions) 22 there were does rates rpercent). tion than 7 has anot may tel percent they shares alone ybeen ensure fewe be Also might to are attributable ra ofsm deductible that not shift total insufficient otherwise. all surprising, workers away employe assets, in IRAs .from part will Second, This contributions, rs participation and to more th accrue testimony apsychology n 39l"paternalistic" while ar percent ge substantial sponso in and under was CODAs to rather benefits asked CODAs traditional rbenefits a plan n than is y.tokind grew skewed designs, evaluate Among .economics. plans Where ofrom f toward those toward benefit 28 distributions, only pay, lower complex would likely Percent plan limited sponsorship. subject remain incomes. result Plan Good using regulations impact Design to af elusive more inentire terno the CODA certain than Safe o on accrual Trends n unless specifying distribution Mr plan participation maximums one harbors . Ch ............................................................................................... and large sponsorship million airm just consumption from as a .subsidies n, 27 workers is how indicated: and higher 401(k) . me much are accepted m than CODA of bers flexibility offered small IRA ofnondiscrimination the such participation benefits orS isstrict u a Qualified b allowed cash com prior mandates mout and i.ttee tobetween rules .less retirement ICurrent aare m skewed can Josep imposed. January help rather h2S. derives retirement 1980s. from And security. employer profit-motivated Just efforts as restrictions to private market initiatives that CODA seek participation rather to target thantax to government rank-and-file benefits broadly subsidies: employees among universal. generally years will result. a worker tend 16 On A the towould definitive benefit otheraccumulate hand, less study from proposals found or retirement 11,100 near that might universal or programs $16,600, help participation expand than or enough dothe longer-term role (99 forof percent) 15 CODAs annual employees. in among Pre- Post- Post-TRA Eligible1987 All1987 Percentage of all workers reporting: Nonfarm Sector Sector retirement Consumption Joseph S. Piacentini, Research Associate, Employee Benefit Research Institute TRA '86a TRA '86all b '66eligible c workers workers The Work Force Overall more individual The choice Shift and Toward responsibility Defined . Contribution These trends, Plans evident .......................................... among both large and 3 whether higher toward accrual under r Unmatched 1987 etirement and age earners higher levels individual May p 35, CODAs rogare incomes; the ra 1988.19) more m. predetermined proportions decisions and Among than deductible CODA Thus, isthose regarding parti were in eligibility by order cwho ipation IRAs 6formulas, percent the for do provide is spons in IRAs use lower retirement and under of similar and or than these 47 pl CODAs CODAs apercent ns, deductible economic vehicles, plans sm .to a participants lle generally. achieve ropportunities IRA employe particularly eligibility the can rIn s policy m at 1988, contribute for or and younger etax Complexity, percent Piacentini, Either than preretirement reduce likely the contributes of While The the In to these accumulation the Research 39 regulatory resulting SEPs cash face percent, Flexibility, approaches to of outs the are Associate complexity burdens such 35 and popularity relatively are percent un would and preservation available, cat associated ertainty, conflicts the the simple of be to CODAs Employ costly. 67 Prospects participation itpercent, of and with is with substantial worth ee over Increasingly inexpensive another the Ben and IRAs considering administrative e for does fit32 employer Res benefits among Increased percent flexible not to e saving arch administer, ensure whether eligible for goal--the Institut costs plan toretirement. Sponsorship 46 that designs, employees. of new e percent, some .complexity benefits Idesire apolicy msmall which ple to a will and sed and 401(k) Could the workers marketing reCODAs ceive must benefit be of among retirement balanced at retirement non-highly with plan age from employer products compensated pension interests to employers employees that determine byoffered service100 plan providers. percent sponsorship, matching This last so current inflation-adjusted Because plan sponsors, ofpayments low compensation, such as $900 a universal or high $1,350, administrative relaxation respectively of costs, CODA (all and nondiscrimination in constant other economic year rules, 1 Participation Rates:Contributors asaPercentacje ofAllWorkers Percentage of Participation orall retirement recipients of plan, all1979 workers reporting: 25% 1 1% 21% 34% 45% All Workers 18% 13% 12% 55% 16% Could receive benefit at retirement age from pension small POWER private-sector AND OTHER employers PROPOSALS and TO in the STRENGTHEN public sector, EMPLOYER appear to-SPONSORED be continuing. Family nonfarm control ages commonly deferred somewhat of respectively as objective restrictions those little and Incom While While P administrative or ol workers retirement receiving of lower ic skewed as sponso e on ies (bolstering 1 (see among CODA much 99 the that income 15) earning rtable) toward allocation less see savings. (subject defined participation eligible costs kretirement than .t levels, 2 oless .higher enh 9to cont workers of In $1,000 a However, certain than are n a employer c rincomes. ibution sense, is eincome consistent fu $20,000 higher tu CODAs maximums) reCODAs because pl rand eti security, a than The ns. re annually are with m employee e deductible interaction might n Fo more economies tas this se rty participation c they -two accounted u be popular objective. ricontributions ty perceived choose. by IRA 5% of peof st r these cent than r participation scale en must for gt Hence, deductibl of as patterns .h53 e help be n full-time offering However, ing percent accompanied 43% o larger the ramong is e ext IRAs, a effect further eof more nding firms these allof to factor be employers generally Pr must initiatives osp testi preserved e restrictions may fc ytsat appeal might may be this fofor rSmall difficult important find enjoy to In that use cemployers re Employers SEPs' a target during to private sed legislate. he lack aring tax retirement. Plan assistance and and of preferences on participants flexibility Spon Plan issues .so Design rSpecifically, ship con prohibitive. toward and ............................................................ fronting foster retirement do the If plan service employers U.S. sponsorship, income syst providers em view recognize of e might the mploy believe e5 r- in dollars). 1986, but Proposals less than thatuniversal allow safe participation harbors based (65 percent) on provision of those for matching offered matches of circumstances might lower participation, facing small particularly employers, among direct government lower earners action whocould might achieve elect to large or retirement plan, 1988 29 24 54 Less than$30,000 6 7 7 39 8 employer-sponsored RETIREMENT PROGRAMS retirement programs must recognize the implications of current plan-design of thoseThere earning is broad less consensus than $20,000 thatinsi1988 nce the enactment of 7% ERISA in 1974, 36% the rules Employer sponsors pension or retirement, 1979 61% 55% 87% Could receive benefit at retirement age or lump sum on $30,000-$49,999 15 14 14 54 17 trends The Shift and the Toward obstaclesDefined to plan sponsorship Contribution at smallPlans firms. "painless" voluntary eligible by employees preservation. The workers plans or in evaluation more pron iv ataparticipation te lower preemptive es offered tabli income shment here might way levels, snecessarily of with besaving, accompanied CODA fewerthrough is participation--like thless an 1 by than 00 periodic aemployees downward definitive, salary IRAp for effect a participation-- reduction rticip twoon areasons ted thein a .ny workers, d Employer cope complicated individual Voluntary eductibl with37 esponsors interests administrative IRA Participation percent by The the eligibility nondeductible Effect that of pension all influence is complexity, of participants mor Voluntary oreretirement, wid IRA savings econtributions larger spread, in Participation any decisions 1988 firms type espe of can made cially . and plan, buy Preservation at 5 byand 9low some some e 25 r incom measure higher percent 5 ......................... 2 eincome lev of ofe all ls flexibility 9CODA wh 2 er5 e it s simultaneously that provision positive contributions ponsored theAt The influences proposals of least retir most proportionate do ethreaten four ment not important will on current assure programs. plan open retirement benefits economic sponsorship proposals up anynew accrual EBRI tosecurity markets? certain reason include iswould for a nonpro if employees rank-and-file that provisions workers be Vigorous small mitigated fit, nonpartisan, elect employers (for marketing aimed workers. example, by to safe-harbor at contribute r rarely expanding of eTherefore, sthose e retirement arch offer little contribution and expected retirement plans the or plan cash role isto between contribute increases75 in little percent plan or sponsorship nothing. and 99 In percent other and .worker 17 words, participation expanding the at role small of firms CODAs onlyinat low- separation from service, from pension or retirement, $50,000-$74,999 29 19 26 62 24 Employer sponsors pension or retirement, deferred Source: governing EBRI the administration tabulations of of May retirement 1979 and plans Mayhave 1988become Current increasingly Population Survey complex. This testimony was asked to comment on the potentialof POWER and other Employer-sponsored programs are moving toward more individual choice and deferred $75,000 or profit more sharir_ or stock plan, 50 or CODA, 28 1988 38 39 70 33 31 69 SMALL FIRMS: A PERSISTENTLY LOW COVERAGE SECTOR CONCLUSION magnitude r rises contributions, participants First, eti profit rement with a One sharing definitive The income of plaspe (see a benefit n Growing rather or in .cevaluation t table). stock 1990 of That accruals than the Role , plan, comp is, trend out-of-pocket. of eligible would among or ar Defined from ed CODA, require with workers some paternalism Contribution 81 1988 participants. Probably comprehensive pe with rcent toward higher Plans more of those Evidence growing 6 incomes in 3 important, data the at on Private lindividual ar on are ge all 5the remployers 7 more individual est Sector size ac blishments hoi likely of 9 c elective e3 who is to the in workers more is generally easily The who supplements growing than univ are e can not rsa .role l. Voluntary eligible smaller 13 ofSixty- salary for firms. fParticipation deductible ive reduction percentcontributions CODAs, o ............................................................... f civilian including .workers 14 private-sector were eligible 401(k) for a 6 be out e probably plan Percentage responsibility, products requirements of ducation proposed short-term early sponsorship, .the to of organization, all small simpler away overall and workers employees) from firms other especially lower and in"paternalism 1988 d by remaining more edicat compensation service as reporting: among flexible contributing ed .to "providers obstacles Decisions providing small CODAs levels firms, little could regarding to in objective common to small-firm low through labor compliment and participation, to in moderate productivity, simplification fsmall ormation plan new sponsorship. employers. how earners' on federal they much b and ene retirement might current incentives, frelaxation Nineteen it-related view pay Age substantial coverage In addition, sectors cost. For probably actual example, CODA holds a participation more tax credit promise ofappears up fortoincreased 14 topercent fall short participation of of contributions the savings than 3° does would Under 35 8 7 6 47 13 to Complex proposals defer, and rules towhether increase may to discourage save plan deferrals sponsorship plan forsponsorship, retirement among small or spend particularly firms, them and sooner, among to bolst are small eshifting r future firms, away which Statement on 35-54 22 16 14 59 18 Any vested benefits at current job 39% All 33%Private Public 69% from plans deferrals ongoing Participating sponsor participate resources 1989plan . and The Howeve CODAs shift sponsors, is for other indiscussed relatively IRAs from in retirement r,often pension similar de toward and defined fined low make Voluntary later CODAs arrangements, and participants. levels or cont benefit concerted in expected retirement, ributi this than of Preservation pension to o testimony are ndefined By p efforts retirement is ar those 1987 1979 ticip associated c.ove to c 32 a with ............................................................... ontribution tion persuade rper age needs; lower su cent with found rpa of incomes. ssed such 50 their decreasing retirement plan at small data defined employees participants, are firms 43 plans. overall benefit not to have up available contribute. from Mu along 77 tcsm h 13.all 9 po $2, helping li0cy 00issues The This In IRA to 1978, spur .d interplay testimony eAs duction plan Congress such, formation. ofprovides in itthese d 198 o established es 7; n factors th background oteadvocate following re Simplified cently particu on year resulted, current Employee 29 lar p pe o trends rcent licies coincidentally, Pensions . o in A f n these employer-sponsored y opini (SEPs), workers o innsdistributions expressed 24w in ere percent of the income expanding restrictions costGiven POWER security of of the nonfarm providing . the role The depends and low of workers Bush those other CODAs popularity on administration's r benefits eat those cin ently firms high-coverage ofworkers' introduc as current-law with an fewer unacceptable POWER e own dsectors. simpli than SEPs, deferral proposal fication 25it regulatory employees decisions. appears and in part coverag burden that earned would simplicity e. proposals establish Regulatory more alone than a is intentions have raised workers the 1987 express participation . Seventy-nine rate inpercent small private of adults firms responding (with fewer to athan 199025 55 or older 35 28 27 64 16 Eligible for lump sum upon separation from current job 28 23 54 percent in 1975, participated in defined contribution plans only, and 39 Non- 1975 percent Sector participated 1987 sector in Participating in pension or retirement, 1988 44 3 8 77 do retir not emenjoy e Cash nt sethe curity outseconomies may among erode today's ofretirement scale low inand certain benefits moderate aspects . Baseline incom of plan e projections work administration ers. Thes of future e that twobenefit large Pension Trends, Small Firms, and Coverage/Simplification Proposals Eligible for lump sum, but not retirement benefit, at current job 8 7 14 PercentacjeDistribution of Contributors supplemental defined contribution plans, up from 21 percent. By 1988, farm cash or deferred participation--especially Participating These Second, defined c est eommanded ligible ablishments; efforts Only Retirement for cit ontribution would a a the salary in may small a pension attention require t Savings reflect lar rgrowth e part ge duction the est among of or of concern Decisions a CODAs' poli is retirement, acceptance blishments CODA. attributable clower ym over akers. and superior Among earners employees of the deferred the to some Yet Role reve popularity salary .thos despite rof subjective se e retirement CODAs w redu with apo sappears c lt li e r tion c ue ss y and criteria efforts security than (see cash IRAs to for $30,000 tbe a or to ............................ ble). and income attributable e deferred ncourag the inadequacy, desire family e small to the 1 to1 here retirement response of r Voluntary Pr ecently os IRA pe are c and ts introduc my to programs, Preservation CODA own the for perception eand d, In participation c whether reased should with particular that deem not Retirement incomplex be the ed attributed work attention desirabl administrative, force Se to ec or to urity overall EBRI not, small or se that firms. rve record anywere to other focus keeping, It nearly describes party. attethe ntion andsame. trends reporting on several in $20,000 employees) % burden, not new EBRI DC sufficient type /Gallup ofLower-paid in all annually ofthis plans CODA from survey to context, spur 17 inworkers for on May percent substantial small retirement refers 1988. do firms. tonot participate 26 increases This planning to percent, Firms administrative compares with in in said and elective plan 100 if the with sponsorship. offered, or complexity CODAs overall fewer 35 percent they employees participation in but substantial would For 67% oftopurposes workers lack contribute would rate of numbers. be at of from 78% firms exempt to 41 an If current proposals succeeded in adding to rank-and-file participation and arrangements (CODAs)--mostly private 401(k) plans--served as the primary plan for 16 percent %profit participating, sharin,q or of stock all CODA-eligible plan r or CODA workers, r 1988 among: 4 8 4 2 7 8 outcomes companies payments are from do.not employer-sponsored By synonymous. 1991, the annual Planretirement sponsorship per-participant programs is tongoing he first generally o administrative f many assume steps involved cost constant of plans in Any vested benefits from Hearing any past onjob "The Illusory Promise of Retirement 13 Security" 12 16 All % contributors DC of total participation 100% 100% 100% 26% 100% 48% of participants, and as a supplementfor another 16 percent. While 39 percent of all workers had a all workers 57% 59% 50% plan incom meet which Received arrangements Among matching employers design e nondiscrimination is,While Between all lump beyond 90 contributions to 1987 p and sum eparticipation e rc stablish (CO Eligible the e from participation, 1979 nt civilian D scope wer As), any which and Workers plans epast requirements workers, e of in in ligibl 1988, c job this luding employers employer-sponsored to and ...................................................................................... e c testimony over fparti or offers 1987 private an ctheir ipation without commonly IRA eviden .IRA -employees, Nonetheless, se de c participation declined tor duction crestricting e make retirement on 401(k) worker and gene as data to high-paid plans these a 7 (including 1r9 ally plans proportion on behavior pe IRA and rc plans no e has nt and measurable employees' .similar both 7 where wdecreased of e CODA In re the CODAs deductible eligibl work eas 9for 1a2a expanding flexibility from requirements important CODA Employer-sponsored . qu sponsorship, Ine nondiscrimination stions were other discouraging words, regarding thewhile retirement proposed th rules e small SEPs role that new employers programs o may frestrict eplans mploy offerthe differ play e from relief r-sponsor disparity an from sponsoring from important e SEPs the dbetween retir regulatory primarily retirement eand ment contributions growing programs burden inplans. their role of inin with Half unmatched of 25 eligible While to 99 CODA the employees, nonfarm potential that did low not 40 for and provide percent increased moderate preretirement of those plan earners sponsorship at firms cash contributed with outs.under 100 The to to CODAs actual current 249, CODA and insimplification 1988, 50 percent percent % Family accof ruals, active Income tothe 44(1991 participants effe percent, $) ct of this accwith ording development primary to one DC estimate. on retirement The security proposal would would 1 3% depend have cost onthe 32% vested right to a benefit in 1988, 28 percent could receive all or part of it as a lump sum upon Already received all vested benefits from past job(s) as Before the United States House of Representatives, those with Percentage Less 15 earning than participants $30,000 of all lessworkers than was$20,000 $455 whose 15 foremployers annually defined 20 benefit sponsorplans plans 34 (up reporting: 181 43%percent 19 44% in 10 years) 41% fplan ostering design retir within ement economic security sectors. through eIn mployer-s particular, ponso they red assume plans.that In within order to each receiv sector, e % of active participants with supplemental DC 21% 39% separation from service. lump sum(s) 6 6 8 $30,000-$49,999 26 Select Committee 30 on Aging, 39 31 contributions, of those at firms among The with Work other 250Force or factors. more. Overall 28 Provision ........................................................................... of matching contributions and efforts to 1 5 those progress lacking CODA. and participation SEPs arrangements, contribution force, proportion nondeductible were earning even employer Higher has of P as designed decisions e and the been rcentage $20,000 plan in income work preservation whi contributions, contributions) made. sponsorship cto h by force, of or workers parti allow income Full-Time This more cvesting ipation are simple la remained 52 annually (wit increased groups ck voluntary. percent h of E has is m administration, family p volunta ploy roffer ogress risen. nearly with ee of incom s some In ry eligible incomes Participati suggests But stable this and es insights. ano c c o .large ontext ontingent fworkers $75, routine Put n from that g proportion 000 another iit n small 64% 7 considers E contributed, percent reporting, on m orployer-Sponsored firms' employee mor way, of 67% e of vested )a relative the and those wgrowing e including rlikely eflexibility mor 55% withe fthe proposals allowance administrative made uture retirement by retir oris e for on m modest, egreater nt complexity income behalf incom of prospects flexibility security e highly sfor ecurity. compensated small of in forallocation U.S. increased In employers, this retirees. cont and ofretirement benefits enon-highly xt, they Acth cording e carry . proposals security Because compensated the to base-line additional for shar thelow e proposals employees many projections, toregulatory moderate featur temper , ethe s. federal participation % deferring preservation. DC ofgovernment total an average rate assets As among noted $1.1 of earlier, 6eligible billion, percent lower nonfarm orof$380 pay. earners workers per Participation new receiving inplan 1988 smaller rates participant, waswere 57 cash 2 8percent. % slightly annually outs are higher The at generally 3 9 1987 % in $50,000-$74,999 31 27 14 30 Subcommittee on Retirement Income and Employment Plan participation slipped to 48 percent of the work force by 1988, as the role of CODAs and $228 for defined contribution Retirement plans (up 99 Programs percent in 10 years). This compares substantial Participating cash outs will bein n be epension fits no more from or e available mployer-sponsored retirement, in the1979 future retir than em they ent 81% are plans, today work .79% If ers instead must 88% lump work % DC of total contributions 35% 67% $75,000 or more 28 21 11 20 grew. Source:Participation EBRI tabulations in these voluntary of May plans 1979 isand lower May than 1988 in plans Current generally, Population especially Survey among c workers Eligible ontributions. areWeligible orkers In addition, to receive defined all or contribution part of their plans benefits allow inpreretire a lump m sum ent upon cash outs communicate likely incomes burden proportion relu 34 % regarding earning percent ctan toc of be e of the of to less reduced of e less ligibl those amount sponso plan those than than efeatures who for with flexibility. r$20,000 $30,000 of plans aworked contributions family CODA toisemployees annually, to rooted incomes for (44 28plan p percent each e in rcent) of: sponsors of c are irc year. less umstan of evidence and those than In failed und cprincipal, es $30,000 e with that rthat to current participate employers incomes ara e and SEP law resistant 41 of .lcan eare percent ss $75,000 Atbe lik to concerned least epoli operated lyofto some or cy those be more. with of Th earners proportion exemptions effects provided Participating ey draw of Lower-paid and that POWER ofatt from employees all in they eRetirement ntion aged pension nondiscrimination 1 contribute employees and to families of other the or In small cp 2 ome retirement, eproposals typically that percent rsist firms Adequacy e benefit ntly rules are of face to low-participation 1988 pay from mixed. with strengthen .................................................................... lower forthese certain all marginal Retirement employees programs employer-sponsored contribution 7small- 5 taxsecurity and frates c irm ould have 7s requirements, 2 than e grow prospects ctor, no higher retirement from other and 8 3 are in 40 paid s1 o7 difference was particularly acute at younger ages and lower incomes. Among those aged levels. less planslikely to Making which thanfirms the other tax also participants credit contributed refundable to . 33 preserve This would suggests their raisebenefits the thatsmall-firm new forsimplified retirement, rate to CODAs, 28 electing percent, if Source: % DC ofEBRI totalestimates benefits and projections based on Census Bureau data and Social 32%Security Administration 46% younger workers and lower earners. In addition, 10 July as1991 opportunities for preretirement cash outs all workers supplements. 53% 54% 47% Establishments with fewer Establishments with 100 sum cash outs were universally available (and roll over rates remained constant), then fParticipating with or plan 500-participant sponsors. in pension Ne plan xt, e or costs ithretirement, er bof y m $133 eansdeferred for of edefined lective contributions benefit plans to (up a CO 136 DA percent) or assumptions. proliferate, the contribution of employer-sponsored programs toward retirement security may under separation more cage ommonly Among 35 from (see eligible th service atable) n do wo .defined rkers, priorthan to CODAs benefit retirement 100 plans. are employees, m . ore popular 1990than or more IRAs, employees, at all income1989 levels all participation eligible The with intervention. however, retirement following relatively Small for their a levels Firms: fThis year, ully plan little effect .deductible hypothesis administrative CODA participants A on Sixty-four Persistently sponsorship participation IR isA percent sup (22 cost Low po isrted .percent) likely increased Coverage of Yet by CODA-eligible to despite resear (see bewith Sector small. c table). h. these incomes ............................................. civilian efforts, 37% along workers small-firm a 35% similar in 1988 pattern plan 40% 1 9 employees, percent at this complicated programs, doing retirement a growing cost raise This inof with plans 1988 fand undamental testimony $1.7 by rift attention .participation, therefore between to billion. A77 bill was per 31 questions entitled to plan have casked ent the portability, sponsorship less role in "The to regarding 2020, incentive consider of Pension complexity and reflecting and plan to preservation the defer A participation cpotential sponsorship cess relative increases income Simplification for issues. toand is other reduced decisions. in associated taxes participation While factors Act .complexity In They of these with addition, in1991" the that con the issues to plan front (H.R. 18-34, sponsored instead profit 79 sharing to forgo percent by firms or potential stock ofthat adults plan, previously tax benefits say or they CODA, had and would no spend 1988 retirement contribute, now. Because plans, while 7 6 would 49 of this, percent 7 mean 3 proposals of participation eligible 8that 4 a1982, before the Tax Reform Act of 1986 (TRA '86) restricted IRAdeductions for certain higher-inocme workers. by decrease--again, especially among lower earners,who are less likely to save. Source: EBRI tabulations based on U.S. Department of Labor, Pension and Welfare Lower earners receiving smaller distributions are less likely to preserve cash Any plan 4 2 % 81% all 70 CODA percentparticipants of aged families would receive employer-sponsored 25% benefits 25% in 2020, 29% bAll and automatic workers approximately employ in 1987. er$85 or employee for defined contributions contributiontoplans a non(up elective 56 percent). plan, they Thus, must accru per- e Benefits Administration data. Defined WorkerEligibility benefitforPre-TaxRetire20% ment Savings:Eligible Civilian Work63% ers Aged21-64asa Percentage of and reported Planages Sponsorship The Between Sin that . crole In e their 1974, 1987, of1979 employer-sponsored employer many 12 Levels and percent employers 1988, contributes of the eligible programs have proportion to civilian the curt plan isac iled onstrained of workers . 1°all orCODA nonfarm eliminated aged by sponsors persistently 21 workers their to 64 responding defined low made reporting rates benefit of toplan a continued growing from 8 percent role until ofPlan the to voluntary 31 late Sponsorship percent. 1970s, plans.tighter Workers Levelsvesting .......................................................................... with family standards incomes imposed underafter $30,000 1974 accounted and 1986, 1 9 th sponsorship can sponsorship bolster given 2730, and e uneasy be accruals competing introduced All plan expected else compromis decision, sponsorship has forequal, many current June to remained moderate and 24 additional e proposals consumption and b by the etw low. House participation e obstacles retirement enlow By that restrictions Ways and 1990, needs, permit that .security moderate and The just lie they greater that Means between low 1gains may target percent earners. popularity Committee flexibility be from plan tax reluctant ofany b sponsorship full-time e of in nChairman newly e SEPs fallocation its to and defer workers established suggests and th Dan a e ofsubstantial benefit flat benefits exibility that plans, workers Source: allow for Despite contributed EBRI or emphasize tabulations the economi in 1988. flexibility of c obstacles, May Among might 1979 those result and however, May with in an there 1988 family allocation is Current incomes evidence ofPopulation new of that less tax private benefits than Survey $20,000, and CWorkerseligible for a $2,000 IRA deduction Joseph in 1987. S. Piacentini AllSuchWorkers outs for retirement. IRA and An CODA estimated Participation 8.5 Comparison, million civilian Civilian workers Workers in Aged 1988 21-64 had received a Defined Contribution 27% 36% sponsorship among small firms. Eighteen percent of workers at private firms with fewer than 25 Source: compared participants substantial EBRI to badministrative e77 ne tabulations fpercent its. Theunder y must of costs the baseline re generally May main1988 on assumptions; th are Current e job higher long Population the and enough average haveto Survey grown meet total benefit any faster employee vesting at received smaller benefit supplements. Research Associate employees worked for a sponsor in 1988. These low rates are attributable to a number of factors, plans, 1990 survey often Poli In 1988, cy supplementing rated makers' 59matching percent conceror n contributions ofabout repla all nonfarm cing small them and firms workers ease with is founded defined ofreported payroll contribution in deduction that fact.their In as M pemployers lay ans. the 1988, greatest Probably just for delivery and eligibility deductible 20 recent percent supplement. in tocontributions increases retirement. receive Complexity, of all benefits in 1987 labor toIRA Flexibility, IRAs; ffrom orce participants 7a attachment the pension and following the and or am Prospects 19 retirement o year ng percent w55 omen. for percent of plan Increased allupon 1988 of eligible reaching CODA1987 private portion simplicity other through that Rostenkowski) fost aspects of establishments e less rs their alone plan costly of pay, would is fcurrent ormation. insufficient whether and provide with less proposals Employee fewer Historically as restri similar to elective than spur ctive might Benefit relief 100 contributions small-firm th safe further es in employees e Research harbors compromises exchange the plan to retirement from Institute parti asponsorship. for CODA c nondiscrimination hav a ipated uniform e se or h ce urity as in lpe a automatic 3 d Adding SEP. goals percent incre 25 tests, ase of flexibility both will 72 initiatives retirement percent In can this security of sometimes adults context, that sayit isthey accomplish is more useful would concentrated tocontribute, what distinguish government among while simplification higher 43 subsidies percent 1988 earners CODA and either of eligible flexibility than Participation cannot participation workers proposals Among did Retirement Income Adequacy $2,000IRADeduction, CODA,1988 including complexity, lack of flexibility, economic forces, and possibly access to information. Source: lump sumU.S. distribution Bureau in of the Labor past Statistics. . The average lump sum amounted to an estimated Sponsorship and Participation ................................................................. 2 0 firms by requir recipients than ements, at larger would so that ones. be be$7,725 ne 23 fits will (inbe constant "portable 1988 " whe dollars), n they le rather ave. than Finall$8,920. y, they 6 must Much of this growing rift between plan sponsorship and participation is probably IRA Participation 1987 Eligible(1987 of1987 Workers Workers) The shift toward defined contribution plans is continuing. Defined benefit PLAN DESIGN TRENDS All sponsored workers incentives 18 is. more Workers per im cent po contributed for rt aant, of"pension participation privat the se to e-se c or a tors csalary to retirement by rof nonfarm non-highly the reduction ecplan," onomy workers compensated CODA. down where in8 from firms tr Among a 65% dition 61 employees. with percent a eligible lfewer defined in workers than But 1979 benefit respondents 25 . 29% with employees However, plan 1987 participants; compl contribution, retirement new and exity; A In Despite existing final numerous increased th those and e piece these nplans. ewould w with of surveys, proposals from gains, evidence family simplify 25 Pre- however, percent small incomes strive that and Post-TRA the employers to to relax protection of increasing f29 ind $75,000 Post-TRA percent. nondiscrimination compromis cite under role or regulatory more Counting ofemployer-sponsored evoluntary s that accounted and rules offer workers CODAs administrative Employer for great for all reporting e has 21 r401(k) retirement simplicity. No percent employer to employer accomplish aimed likely simpli add at The city sectors contributions more or proportionately might cannot plan where increase sponsorship acto complish sponsorship higher some sponsorship, .administrative other alone. Foris type example, currently Research but ofcosts plan. the one low, faced suggests effect of Small such the by on smaller safe employers that as participation small access harbors firms firms, may might to allowed is information in from uncertain. be turn alleviated under those be on ill If contribute. Similarly, intentions expressed regarding the amount of contributions A definitive evaluation of whether IRA and CODA participation patterns are $6,800, and if invested in a qualified retirement vehicle (such as an individual Family RETIREMENT Income(19915) SAVINGS DECISIONS AND THE ROLE OF CODAS AND IRAS Economic Obstacles, Access to Information, and the Prospects for pr byesimplification. serve Complexity the valu Yet, e in osimplified f pension their beemployer nregulations efit to provid pensions often e incom (SEPs) reflects e up remain attempts to and unpopular_just throughout to reconcile r1 etirem percent ent. of attributable to the growing role of CODAs. Of all nonfarm workers who reported that TRA '86a '86 allb '86 eligiblec All contributes contribution terminations Lessthan $30,000 accelerated after 1987, according to Internal 90 Revenue Service 19 and Pension some full-time c eligibility contributed and also reported overage cited 20 workers workers percent, that for is direct to most atheir the do at retirement meetings respectively not small growing firmly employe identify establishments established, with benefit rift r sponsored deferred (see between perspective or table). participated a in profit c plan lump luding any 15 enrollees sharing sponsorship type sum heavily inof 1990 from or as retirement stock unionized -- the any suggesting and best plans employer-sponsored participation: plan. way and or that to CODAs--plans older At communicate simplification larger industrial among firms, plan, all alone that the programs burdens CODAs. firms AndChandler thexcluded eSince yas acknowl Two remains abill--50 the major bills, Increased many e enactment dg less each impediment e cents employees and than Sponsorship entitled addr per of universal, the e dollar ss to from "The Employee the plan matching and flexible Employee question with sponsorship. Participation 48 Retirement plans, up o percent fBenefits pr to e 6 26 participation se percent ................................................ rv of Income This ation Simplification all is nonfarm o offSecurity not retir pay--would could surprising em workers Act e suffer, Act nt assets. of (ERISA) cost given 1991" andless This the 2(S. in 2 equipped extended Because However, to to all addemployers. plan retirement the new sponsorship proposals The plan extension contributions does contain notof ensure provisions safe on top harbors participation of that existing from might and nondiscrimination payroll, encourage accruals, given more proposals tight tests or to retirement exceed theplans actualmay contributions play a role made in small by participants. employers' Among decisions adults . In who one say survey, theyplan would consistent with the policy objective of retirement income adequacy is not possible. Participation Rates: Contributors as a Percenta(:jeof All Workers $30,000-$49,999 75 31 retirement account) could have grown to between $13,900 and $19,800 by the time the is not sufficient to spur sponsorship. policymakers' Both sm goals all and with large employers' private employers concerns. appear For example, to be shifting policymakers from defin generally ed benefit All The Workers poten One tialofimpac ten-cited t of policy POW 18% ER purpose and 13% sim for ilar thpr e 12% o eposals lective o tax n fut 55% de ufre errals retirement pe 56% rmitte income d und 52% er their employer sponsors a plan in 1988, 43 percent were offered a CODA as either a $50,000-$74,999 20 38 Benefit Guaranty Corporation statistics. Participation in defined contribution plans-- 7Not all workers were eligible to make deductible contributions to IRAs in 1987, enrollment information, and cited individual meetings and individual participant account nonfarm 39 sectors, percent have workers were generally vested whose cemployers in ontra some cted way or sponsored grown in 1988. more some Twenty-eight slowly type than of plan percent other in 1988, se attributed ctors 7 where percent at least plan than participating testimony were Family policymakers' disproportionately 1974, re 1364, port the e Income relatively introduced employer-sponsored d POWER uniform sis po(19915) nsorship int indesire euncommon 1988. nd and June 3 e high percent dOther to was not 25 Persistently administrative distribute by to higher: Proposals retirement in of advocate Senate 1979--as pay tax employer 47 Finance low toany plans benefits per costs Strengthen levels "pension cparticular ent have Committee contribution facing at broadly of fi changed or retirement Employer-Sponsored rms small alt retirement" e could with Chairman rnative, required firms dramatically. 29 plan beto but that frustrated. plans. by Lloyd 99 sponsorship to sponsor the employees, frame Bentsen Including There Rostenkowski th traditional ein has son e6these 2 that uncertain $75,000 relaxor profit nondiscrimination moremargins. Small rules firms raise that thesponsor potentialplans 22 for increased tend to beconcentration those 44 with higher- of sponsorship contribute, participants existing plans intended at was which allrelated earnings contributions currently to levels theface type averaged to these of preserve institutions tests 10 retirement generally percent that of provided would assets. pay, compared not financial For addexample, toto advice plan the average to the However, Small there firms is may someresist evidence SEPs in that part retirement because SEPs planning offer may littleflexibility sometimes regarding be secondary the because the Tax Reform Act of 1986 restricted IRA deductions for workers with recipient reached age 65. Eleven percent of these recipients reported rolling their Less than $30,000 6 7 7 39 41 34 to IRAs defined and Retirement salary contribution reduction Programs plans. CODAs .......................................................................................... The is defined to encourag contribution e and facilitate share the of total achieactive vement participation of 2 5 security strive Age to must ensure be that assessed the tax in benefits view of effects associated on plan withsponsorship, retirement plans and the arecoincident broadly primary or supplemental plan. Among all participants, 16 percent reported that a CODA allocation of benefits among workers. Flexibility might foster sponsorship, but might frustrate especially Under $30,000-$49,999 35 in CODAs-continued 15 to grow 14 through 14 1989, 74a Labor 54 Department 54 27 survey 54of employer-sponsored pensions and income over certain thresholds. Affected workers statements diversity related opted part ofnot issues, their isto(which greater. vesting participate, andperiodically fill to As in lump-sum a including some result, report relevant an 10 eligibility; account in percent cfreasing acts. 8of transactions percent proportion those earning were and ofvested all balances) less employer than for a$20,000 as lump -sponsored the sum most behalf defined certain safe been workers, per Eco cn ent harbor oa mi of sectors--particularly shift benefit at cSen. inthose in 1988 Ob away all David splans ta with but 63 cfrom les Pryor, the percent ,or 100 traditional (to Access extreme to and aamong 249, reported lesser Hcase .R. tand defined o small degree) 2641, Inf that 83 where orm per benefit private their introduced atic all traditional o ent n,employers employees plans at firms--represent athose nd June defined toward the sponsored with 13 elected Pr by an contribution 250 os Rep. pe increasingly to a or cdefer tconstraint some sRod more. fo6 r Chandler), plans. kind 2° percent diverse on of of efforts retirement paid, skilled to distribute plan work tax tax forces, benefits preferences according among broadly to higher-paid one by leaving studyemployees. .29 some workers However, without substantial by fostering benefits. plan small provisions sponsorship 6 percent firms. of to 32 or pay repeal This rank-and-file actually suggests 5-year contributed forward participation that private averaging by nonfarm in marketing the for short CODA lump-sum efforts run. participants by (Some distributions, companies might in 1988.18 contend that or provide to that to other concerns in individuals' participation decisions. $50,000-$74,999 29 19 26 62 64 57 35-54 56 31 entire cash out into such a vehicle. Thirty-four percent spent the entire distribution. remain eligible for nondeductible IRA contributions to the degree that they are restricted has increased in both large and small private sector plans. In plans with fewer than 100 distributed retir Incre ea m se ent d income among SpProspects onso adequacy rank-and-file rship for and Increased for workers individuals ParticPlan ipati rather o whos Sponsorship n than e othconcentrated er .............................................. earmarked among retirement higher-paid assets2 6 prospects served as for theirparticipation, primary plan;benefit another accruals, 16 percent portability, reportedand participating preservation. in a $75,000 or more 50 28 38 70 72 65 55orolder 64 34 Small-firm plan sponsorship is also impeded by relatively low pay levels, which suggest a medium and large private establishments suggests. 3 from making 14Including deductible thosecontributions. eligible for a nondeductible (Some higher or income partially workers deductible remain IRA eligible Moreover, only. annually effective retirement Thirteen and means plan small 5 percent percent parti of -firm maintaining cipants plan of of all those spo workers derive nsorship earning participant all reported or more appears pinterest art (see that ofto .they table) their 11 be falling had In .work a become 1989 -.based In su 1988, rv vested retirement ey, 17 76 for per percent benefits cent of of future array sponsorship retirement pay However, orof levels more. Low defined itplan. raises compensation such of For pension benefit Taken proposals this the reason, question: and together, receipt isdefined may often the reflected why increase these Chandler associated contribution arefigures SEPs in opportunities bill projections. with might suggest not plans, other more add and for economic that popular? Moreover, more assorted income overall new factors and plan plans retirement recent tax combinations that than trends deferral inhibit the planinfor would it would create help ensure safe harbors plan continuation from 401(k)inCODA the long nondiscrimination run). Instead, itrequirements might reducefor the Age retirement repeal transitional Theplan relationship services rules between can that help permit IRA spur 10 and plan year CODA sponsorship averaging contributions .andAggressive other and retirement tax IRA preferences marketing incomefor For example, while employer matching contributions are associated with higher less skilled and possibly less attached work force. Lower earners may prefer not to defer pay, and Source: EBRIestimatesandprojectionsbasedon CensusBureaudataandSocialSecurityAdministration Smaller distributions and distributions received by lower earners were less likely to be for deductible IRAs because they lack employer-sponsored pensions.) contribution, Under 35 98 percent of workers 8 with 7 family6 incomes of 47$75,000 49 or more were 41 participants, defined contribution plans accounted for 79 percent of active participation employees, Along In general, in with accordance Prospects the regulatory simplification for with Increased burdens, their own provisions Retirement what subjective other andSecurity standards factors relaxation ......................................... underlie ofof equity certain small-firms' andrestrictions in light low of2 8 supplemental CODA (see table). small firms assumptions. may be reluctant to add benefits atop pay for perceivedly shorter-term employees. 35-54 22 16 14 59 60 56 In this discussion, workers eligible for salary reduction CODAs All are Private compared Public to eligible Rostenkowski to contribute bill. $2,000 to an IRA in 1987. Under current law, the proportion of nonfarm at prote responding a past ction workers job; from CODA 7 percent defined at sponsors firms had contribution with communicated received less than aplans. lump 25their sum, employ CODA and ees 6to percent reported employees had that already initially their employe received through r all sponsorship rank-and-file plan design Part toward of has workers the remained answer voluntary as well. nearly may participation The reside stable outc in and ome SEPs' and may would preretirement lack have depend of edged flexibility on up access individual slightly. regarding to benefits Nonetheless, deferral the have by retirement employers and adequacy sponsoring hybrids. is plan who firms' further Along sponsorship provide incentives with complicated certain this . shift to For contributions. market by have example, thecome potential CODA less several The participation skilled forPryor fundamental preretirement employees /Bentsen to their changes bill may consumption rank-and-file extends be in easier how the oftosafe IRA certain Therefore, efforts that lump substantial followed sums, would increases the extension generally in participation of make the IRA preretirement at small deduction firms might to consumption allrequire workers large of in these subsidies 1981 might . CODA participation, participation often remains less than universal even where 55 or older 35 28 27 64 64 64 those saved. eligible Conclusion Five for percent deductible ............................................................................................................ of those IRAs, receiving because less thethan tax incentives $1,000 rolled inNon- these over the situations Sector entire are amount; Sector most 3 1 workers eligible for a fully deductible IRA is falling. See Joseph Piacentini, "IRA in 1987, up from 62 percent in 1975. In larger plans, the defined All contribution Private share Public contained associated rate of plan infederal sponsorship? currentrevenue proposals And losses. would what Employers types likelyofhave policy commonly a tools modest might seek positive raise to retain effect that flexibility rate, on small-firm andin along IRA and CODA participation in the work force overall reflects an interaction of Source: EBRI estimates and projections based on Census Bureau data and Social Security Administration Finally,small employers might lack easy access to pension information. Private marketing nearly the same. However, this approach may somewhat understate deductible IRA elections. Deduction Eligibility Falls under TRA '86," EBRI Employee Benefit Notes, Vol. 12 No. 5, sponsored any employee measure, In 1987, meetings, a "pension participation defined 80or percent contribution reti has rement fallen. through " plans plan, While individual c aompared cc50 ounted percent explanations, with for of 78 21 workers per pe Non- and c rent cent 88 in ofin Sector 1979 all percent 1979. private reported 21 through Sector In contributed employer-sponsored of % allocation their optingvested out, oftocontributions of small benefits workers declines plans from atamong plan contribute past in pension sponsors, employees. jobs as toparticipation lump workers' among: With sums very retirement (even (see limited table) as farm plan security .exceptions, sponsorship . Parti SEP cipation, has distributions replace, well harbor employees. have to Unfortunately, reducing employers contributed less attractive. emphasis providing to thethe magnitude on immediate Other retention uniform provisions of .the contributions and And effects large that lower-paid increase serve of equal various to employees in ease toproposals IRA 3 percent or contributions (in may the on of be plan case pay, younger that of or the or and CODA accounts. CODAs typically allow full cash outs upon separation from service, substantial assumptions. matches are offered, especially among non-highly compensated employees. efforts are often given partial credit for the historical popularity of IRAs and, at large firms, 401(k) all contributions 43 such percent workers spent relative it all. to salary Among reduction recipients CODA earning contributions, less than $20,000 since 7% workers in8 % 1988, excluded 74 % May Prior 1991; Jobs, and Receipt Dallas and Salisbury, Use of Preretirement "Statement Before Lump-Sum the Committee Distributions, on Finance, and Tenure U.S. at reached 52 percent, up from 25 percent. 4 farm plan designing with it sponsorship participation the compensation . Given amongthe small-firm structure relaxed restrictions for employees? different and employees Research the small or suggests size employee of uniform thatgroups, there are two patterns: the distribution of participation among eligible workers, and the a1982, before the Tax Reform Act of 1986 (TRA '86) restricted IRAdeductions for certain higher-inocme workers. CODAs. If policies spur pension marketingtoward small firms, sponsorship might rise. from eligibility for deductible IRAs are higher income workers, and higher income Current Senate, Job," Hearing EBRI on Savings Special Report and Individual No. 7, June Retirement 1990. Accounts," 16 May 1991, EBRI plans, participating those 1983 letters. , earning 68 up Sponsors from perc in ent less 67 a of also "pension per than "c cent ore commonly $20,000 in workers or 1975 retirement annually followed . " At (those theplan," up same aged communications by time, 25 1988 tothe 64 48 defined who per efforts 1 0% work cent contribution through 1,000 reported 12% hours employee share 6% orof contributions traditionally remained Proposals nearly automatic thatstable) that match in provide and nonhighly covered increased safe jobs, compensated harbors the is now potential based frequently employees' onfor uniform preretirement voluntary elective contributions and deferrals consumption contingent for dollar all on offor sponsorship more % Pryor offered loosely bill) CODAs, require can attac not hed of the be all to roll estimated workers the over labor at of with force; plan certain confidence. sponsors that distributions is, they Complete may could beproposals shorter-term 43% further affe typically 43% cemployees. t savings include 42% followed.More Similar generally, effortsthe directed establishment at large companies of new plans might by former have been non-sponsors an important bAll workers in 1987. That workers often forgo these substantial subsidies to retirement saving suggests that workers Testimony percent rolled areNo. more itT-79. over likely andto36 contribute percent spent to IRAs. (see In table) 1982, . 5 when all workers were eligible The those Eff earning Policies ect othat $20,000 f Voffer oluntary employers or more Parti annually simplicity cipationwithaadditional nd Prese but rva limited tion 5%flexibility 6% would likely 2% contributions considering 6Research labor required productivity currently under underway some and labor proposed at costs EBRI simplified . will Policymakers, explore programs, the realizing variation the impact that behind such on these % sound withand primary substantial CODAs, economic of all retirement reasons why plan small participants employers rarely 1 6% sponsor 1 8% plans, 1 1% and distribution of eligibility within the work force overall. Deductible IRA participation CWorkerseligible for a $2,000 IRA deduction in 1987. for IRA deductions (and tax rates were higher), 18 percent of workers contributed. The have a positive, 2The particularly but modest,sharp effect on rise small-firm in the defined plan sponsorship contribution and participation. share of total If increased total part 15Since icipation 1987, grewmiddle-income from 26 percent workers' to 48 per IRA cent. deduction The pro eligibility portion has of all fallen, activeand participating averages. benefits dollar employee on . the If contributions More these first in amobile 3"pension trends percent . workers continue, Benefits, of orpay retirement" and and future traditionally those 50 cents benefit or most "deferred distributed on receipt likely the dollar tocould profit spend ason asharing lag the monthly lump-sum base-line nextor 2annuity stock" percent distributions in .plan The % both employees Retirement with provisions supplemental would plansthat are essentially foster often CODAs, cited sponsorship, achieve of as all retention ret. 100plan such percent tools participants as .simplification, participation Moreover, because among 1and 6% provisions employees of 1 7% gradual that of 1 benefit 4% behavior. necessarily Such adds provisions to participation. might Even help foster if participation retirement in security these new forplans at least depends some on some workers' retirement saving decisions may be complicated by perceived lack of flexibility effect of were this bias extended is mitigated to traditionally in thehigh-coverage comparison of larger deductible firms, and IRA this and extension salary reduction resulted in a contributions 16Massachusetts is probably partly Mutual,attributable 401(k) Survey to theReport, reductions 1990. in defined benefit Source: under current AsEBRI planlaw tabulations design will continue trends of the toward toMay fall.greater 1988 This Current may individual reduce Population choice IRA participation and Survey responsibility employee amonghave benefit this would participation that policy face tools the and greatest that benefit would variation accruals increase among in eventual sponsorship low and pension moderate andreceipt participation earners depending is in likely small on lump-sum to firms be more are among eligible workers is lower than CODA participation, and skewed toward higher 1 9Although 9joseph S. IRA Piacen contributions tini, "Preserving are generally Portable subject Pensio to ns: lower An maximums, Analysis of Pens the ion growing 241n role for 1986, flexible thisplans concept such was as CODAs, expanded participation with the in that introduction sector might of salary slip, especially reduction contributions CODA contributions that followed among the eligible favorable workers financial within market income performance groups, whichoffollows the mid- . participants whose primary plan was defined contribution grew from 13 percent to 32 group retirement, . 17U.S See supplement. are Joseph . General increasingly Piacentini, Accounting available "IRAOffice, Deduction as lump-sum 401(k) Eligibility Plans: cash Falls outs Participation upon under separation TRA and'86," Deferral from EBRI projections, Chandler availability firms or might CODA invoking discourage ..bill's Viewed which For the safe asponsorship, harbor. assume thorough another harbor constant would However, way, discussion such in include 1988, as plan taken less ofdesigns employers 76 projected favorable alone percent within these future that of taxworkers sectors. contributions treatment required pension who all of receipt employees reported cash mightsee outs bethat .Emily to their defer S. Source: EBRI tabulations of the May 1988 Current Population Survey employee benefit participants, elective salary both deferrals, in any new andplans no nondiscrimination and in existing plans standard . is imposed, if eligibility is affordability--that is, an unwillingness to defer any portion of current pay, regardless treatment of the first $2,000 contributed is the same in both vehicles. Therefore, the among 1980s. Participation lower earners. at Current In general, and Prior policies Jobs, that Receipt foster plan andsponsorship Use of Preretirement might not ensure Lump-Sum broad SEPs, or a hybrid CODA and SEP. 3°Such a tax credit was proposed, but not enacted, under the Small Business continued, Rates Employee by 8Estimates 5Lump Plan Benefit overall sums Features Notes, participation of received CODA and Vol.eligibility Other after 12 levels No. the Information, 5, and have Tax May participation Reform slipped, 1991. GAO Act At and /PEMD-88-20FS, the of presented the 1986 same potential (which time, for CODA comparison imposed for April preretirement eligibility 1988. a 10 with modest. Andrews and Proposals Deborah to facilitate Chollet, roll "Future overs Sources of benefit of Retirement cash outs and Income: to make Whither less favorable the Baby supplement. participation. Nonetheless, proposals to increase participation must recognize employer interests Distributions, participation decisions and Tenure areateconomically Current Job,"similar, EBRI although Special Report decisions No. regarding 7, June 1990. percent, Retirement 25According and Benefit the pro Extension to portion the U.S wi.Act th Bureau supplemental of 1987 of Labor (S. 1496, defined statistics. H.R. contributi See 2793). "BLS on participa Reportstion on its grew First continued percent IRAs differ 3These These 18public penalty toslightly increase statistics findings tax attitude from onafter cash focus are those statistics 1988. summarized outs onpresented how that (See arecommonly are from Joseph inabove not greater "Publi rolled Piacentini, employees for c detail Attitudes over) comparison in were "U.S. of Joseph on plan somewhat Pension with Retirement sponsors Piacentini, employer- Trends more participate Inc"U.S. ome likely and and toin insufficient Moreover, employer 3 Boom," percent Policy insponsored of Susan other topay, proposals provide federal M. matched Wachter, some a policies, that meaningful kind elective seek ed., of including to Social retirement deferrals income enhance Security tax supplement of plan rates, future up and participated, toand retirement 3 Private percent in economic retirement. Pensions: compared of income pay factors, dollar security For to Providing such a81 for worker percent dollar, by as for The views Yet, expressed while rigid in this preservation statement are provisions solely those would of thecertainly author and help should target not be retirement attributed of subsidy. CODA sponsors responding to a 1990 survey reported a participation rate of that determine plan sponsorship. contribution amounts are economically different. Survey 2°Joseph 22Emily of Employee S.S. Andrews, Piacentini BenefitsPensi in and Small on Michael Policy Private Aand . Anzick, Establishments," Small "Employee EmployersU.S : Benefits At . Department What in Price Total of sponsored be Pension saved, 28Based Trends with plans18 on and generally, percent EBRI Implications tabulations of forrecipients two forreasons. of Portability the rolling May First, itand 1988 all the and Preservation," Current former 26 percent Population refer aspending to paper 1987 Survey presented civilian it all. Retirement Implications 31Emily in forthe SPortability . Andrews, Twenty-First and Pension Preservation," Century Policy (Lexington and a Small paper Books: Employers: presented Lexington, May At What 2, MA, 1991 Price 1988) at. anFor the to the tax Employee Given treatment that Benefit of CODA cash Research participation outs that Institute, areisnot typically its officers, rolled voluntary over trustees, could and sponsors, help contingent foster or other preservation, onstaff. employee Thebut Savings," and EBRI Poll conducted by the Gallup Organization, Inc. during September 12Data from Buck Consultants. Labor, Bureau lIncreased OSee Dallas ofparticipation Labor L. Statistics, Salisbury, is not synonymous News, "Individual USDL with Saving 91-260, increased for 10 Retirement--The retirement June 1991. security 401(k) for those and Compensation," employee from Coverage? 21 percent benefit (Employee EBRI to supplement 39 Issue Benefit percent. . Brief Research No. 111, Institute: February Washington, 1991. DC, 1989). workers any Detailed Mayplan 2, 1991, who to findings any were atdegree an on eligible EBRI-ERF worker . But forvoluntary eligibility aPolicy CODAplans Forum to in receive 1988; affect on the "Pension preretirement benefit latter accruals Portability refer to lump in 1988 at and sum least nonfarm Preservation: distributions two of business details strengthening EBRI-ERF Employee Coverage? workers on 27As cycles Benefit the who Policy (Employee aassumptions or result and in Research extending Forum 1979 compensation ofBenefit this reported on Institute and employer-sponsored "Pension rigid Research methods allocation that is levels, a nonprofit, Portability their underlying Institute: also employer criterion, affect nonpartisan and retirement Washington, the plan SEP Preservation: sponsored projections sponsorship sponsors public programs DC, policy a pension reported Assuring are 1989). decisions. must research spared or here, recognize Adequate the see earning or 1990, matched EBRI $20,000 elective Report annually, deferrals No. G-16 a.of contribution CODA up to 6participation percent of 2 percent of pay and 50 deferral (POWER) cents rates onor the are 3 dollar. percent detailed in assets and tax preferences toward retirement income supplementation, they might 76 percent for non-highly compensated employees offered 100 percent matching-- workers who take and spend preretirement distributions. However, restrictions on preretirement IRA experiences," EBRI Issue Brief No. 95, October 1989. organization. s Assuring workers and Retirement urvey the qu 4EBRI 21Joseph 1receipt eligible 3W Adequate estions or Income ktabu ers and for S. where lwh ations a into Retirement Piacentini, use o CODA sethe of actua based in such co 21st that l mes "Pension Income responses on distributions year Century.") fall U.S. . belo into Second, Departme Coverage are w the are CODA the mi 21 the s presented n specified sing; st tand of participation former Century Labor, Benefit the thresh latter reflect in ." Pension Joseph Entitlement: Copies o in reflect lds imputed allS. a and are re income only Piacentini, eligibl Welfare available responses New actual groups e forfrom a to administrative Lewin/ICF, 23Hay 26Emily 1The Pension /"Pension Huggins burden S. Andrews, and of Opportunities Company, Retirement certain Pension complex IncIncome ., for Policy Pension Workers nondiscrimination and Simulation Plan Small Expanded Cost Employers: Model Study, requirements Retirement" (PRISM): report At What prepared Key proposal, associated Pricefor the contributions, Joseph low and29Emily 33joseph Piacentini, moderate it S. isPAndrews, earners not "High-Earners' iacentini, surprising receiving Pension "High-Earners' that Elective relatively Policy participation Deferrals Elective and small Small among Exceed Deferrals cash Employers: out employees Those Exceed would of Atlikely Low of Those What plan and remain Price of sponsors Moderate Low least and 32Emily S. Andrews, Pension Policy and Small Employers: At What Price cash outs might sometimes conflict with individual interests that influence savings decisions. EBRI. Benefits Administration data. survey "Preserving responses 11Massachusetts Portable as reported Pensions: Mutual, by the An401(k) Census Analysis Survey Bureau. of Pension Report,Participation 1990. at Current and additional $2,000 Assumptions, Findings with However, retirement Pension Moderate Coverage? may have other dedu Benefit from given ways. risen Earners," plan plans (Employee ctible draft 1988," that as .(see Guaranty First, IRA well. documentation (as EBRI table). EBRI CODAs contribution Benefit noted Notes, Corporation, Issue above) Research areVol. dated Brief often assubstantial 12 long September No. June supplemental Institute: No. as 94, 3, 1991. they March new September Washington, 1990. earn tax plans. 1991. subsidies $2,000 1989. Workers DC, orhave more 1989) who been .that participate estimated year. in (Rostenkowski) the Earners," Coverage? unveiled obstacles April EBRI (Employee to 30, would Notes, plan 1991, sponsorship amount Benefit Vol by. 12 theto Research No U.S $400 .in.3,certain Department March or Institute: $600, sectors 1991. respectively, of Washington, and Labor. the implications per DC, year. 1989). of Assuming current plan pay Coverage? (Employee Benefit Research Institute: Washington, DC, 1989). sometimes serve to thwart other policy goals. Workers who are reluctant to defer pay in EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 13 12 10 14 5 4 27 31 21 16 22 11 19 20 15 2 28 23 26 25 29 17 18 24 30 Telephone 202-659-0670 FAX 202-775-6312