Private Pensions: Plan Features Provided By Employers That Sponsor Only
Defined Contribution Plans (Letter Report, 12/01/97, GAO/GGD-98-23).

Pursuant to a congressional request, GAO reviewed the general features
of defined contribution (DC) plans in the private sector, focusing on:
(1) eligibility requirements for employee participation; (2)
arrangements for employer and participant contributions; (3) eligibility
requirements for employee rights to accrued benefits; (4) employee
investment options; (5) loan and other provisions for participant access
to plan assets while still employed; (6) options for withdrawal of
benefits upon separation or retirement; (7) the six features for the
Thrift Savings Plan; and (8) a summary of the explanations provided in
retirement literature and by pension experts on why employers might
decide to sponsor more than one pension plan for the same groups of
employees.

GAO noted that: (1) the designs of DC plans for the 3,297 employers with
100 or more employees that sponsored only single-employer plans in 1993
varied greatly with respect to eligibility requirements, contribution
arrangements, accrual of benefits, investment options, loan provisions,
and withdrawal options so that no single plan design could be identified
as representing a typical DC plan; (2) the employers reported that they
generally established eligibility requirements that their employees must
satisfy to participate in their plans; (3) ninety-seven percent of the
3,297 employers provided for employer contributions to the plan rather
than requiring participants to fully fund their own pensions; (4)
employers generally did not include enough information in their summary
plan descriptions to allow GAO to determine the maximum potential cost,
or liability, of making employer contributions, expressed as a
percentage of compensation; (5) although by law participants have always
owned their own contributions (and earnings on those contributions) to
DC plans, employers have often established minimum service requirements
that participants were required to meet before they could own, or become
vested in, employer contributions to the plan; (6) the employers used
vesting requirements that generally required fewer years of service for
employees to own matching contributions, as compared with non-matching
contributions; (7) a significant portion of the employers did not
specify in their summary plan descriptions whether participants could
direct how the contributions made to their accounts were invested,
although the subset of larger employers were more likely to so specify;
(8) nearly two-thirds of the employers reported providing plan
participants access to a portion of their account balances prior to
separation from employment; (9) nearly all the employers allowed
participants to take their account balances as a lump-sum distribution
when they retired; while two thirds allowed participants to withdraw
their accounts in even installment payments over a specified period of
time, and nearly half provided for an annuity that would produce a
regular monthly payment for the rest of the participant's life; and (10)
according to pension experts, and pension-related literature, private
employers design their pension programs principally to control costs,
maximize federal tax incentives, and comply with the Employee Retirement
Income Security Act of 1994, as amended, while at the same time
structuring their compensation and benefits to support their overall
business and financial goals.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-98-23
     TITLE:  Private Pensions: Plan Features Provided By Employers That 
             Sponsor Only Defined Contribution Plans
      DATE:  12/01/97
   SUBJECT:  Retirement benefits
             Federal employee retirement programs
             Investments
             Eligibility criteria
             Retirement pensions
             Non-government enterprises
             Comparative analysis
             Employee retirement plans
IDENTIFIER:  Federal Employees Retirement System
             Federal Thrift Savings Plan
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee On Civil Service, Committee On
Government Reform and Oversight, House of Representatives

December 1997

PRIVATE PENSIONS - PLAN FEATURES
PROVIDED BY EMPLOYERS THAT SPONSOR
ONLY DEFINED CONTRIBUTION PLANS

GAO/GGD-98-23

Private Pensions DC Plans

(410080)


Abbreviations
=============================================================== ABBREV

  CSRS - Civil Service Retirement System
  DB - defined benefit
  DC - defined contribution
  DOL - Department of Labor
  ERISA - Employee Retirement Income Security Act of 1994
  ESOP - employee stock option plan
  FERS - Federal Employees Retirement System
  IRS - Internal Revenue Service
  SPD - summary plan description
  TSP - Thrift Savings Plan

Letter
=============================================================== LETTER


B-275103

December 1, 1997

The Honorable John L.  Mica
Chairman, Subcommittee on Civil Service
Committee on Government Reform and Oversight
House of Representatives

Dear Mr.  Chairman: 

In accordance with your interest in considering possible changes to
the structure of federal employee retirement plans, you asked that we
develop information on the approaches private employers are using to
provide retirement benefits to their employees, the extent to which
these approaches may be changing, and the specific features of these
pension plans.  In partial response, we reported on the trends in the
numbers and types of pension plans sponsored nationwide by private
employers in October 1996.\1

As agreed with the Subcommittee, this report, which completes our
work in response to your request, identifies the general features of
defined contribution (DC) plans in the private sector.  DC plans
provide retirement benefits that are based on employer and/or
employee contributions to individual employee accounts and the
investment experience of those accounts.  Specifically, this report
describes patterns in the plans' (1) eligibility requirements for
employee participation, (2) arrangements for employer and participant
contributions, (3) eligibility requirements for employee rights to
accrued benefits, (4) employee investment options, (5) loan and other
provisions for participant access to plan assets while still
employed, and (6) options for withdrawal of benefits upon separation
or retirement.  Consistent with the Subcommittee's interest, this
report also presents information on the six features for the Thrift
Savings Plan (TSP)--the defined contribution plan component of the
Federal Employees Retirement System (FERS)--for comparison.  Also as
agreed, this report summarizes the explanations provided in
retirement literature and by pension experts with whom we consulted
on why employers might decide to sponsor more than one pension plan
for the same groups of employees. 

We developed data on the features of pension plans sponsored by a
representative sample of private employers with 100 or more employees
that sponsored only single-employer DC plans in 1993 by reviewing
summary plan descriptions (SPD)--documents describing plans' features
that private employers were to file with the Department of Labor
(DOL) for each pension plan they sponsored.  We also report on the
subset of employers with 10,000 or more employees because these
employers may provide a more relevant comparison with the federal
government.  Using a computerized research database maintained by
DOL, we also developed information on the number of plans offered by
all employers with two or more employees that sponsored only
single-employer DC plans in 1993 as well as other information useful
for our analysis.\2

All the numbers presented in this report are point estimates of
population values and have an associated sampling error of not more
than 10 percent at the 95-percent confidence level unless otherwise
specified.  As agreed with the Subcommittee, because we obtained our
plan information from published SPDs rather than directly from
employers, we generally were able to describe how employers
structured their DC plans to the extent that the information was
available in these descriptions, and we were not able to provide the
rationale behind the employers' decisions regarding plan design.  We
gathered the information on TSP that is presented in this report from
published documents. 


--------------------
\1 Private Pensions:  Most Employers That Offer Pensions Use Defined
Contribution Plans (GAO/GGD-97-1, Oct.  3, 1996). 

\2 In 1993, approximately 490,000 employers with 2 or more employees
sponsored only single-employer DC plans.  For reasons described in
appendix I, our sample of 419 employers was drawn from the subset of
3,297 of these employers that had 100 or more employees. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Employer-sponsored pension plans, in combination with Social Security
and personal savings, provide millions of retirees and their families
with retirement income.  As we reported in our October 1996 report,
most employers that sponsor pension plans provide benefits using a DC
plan.\3 For a DC plan, the employer establishes an individual account
for each eligible employee and generally promises to make a specified
contribution to that account each year.  Employee contributions are
also often allowed or required and can be made on either a pretax or
after-tax basis.  Pretax contributions are not taxed in the year they
are earned, but rather, they are taxed when withdrawn from the
employee's account.  After-tax contributions are taxable in the year
that they are earned as part of the employee's annual income. 
Employers can make "matching" contributions, which are made only if
employees also contribute to their accounts, and/or "nonmatching"
contributions that are made regardless of whether or not employees
contribute to their accounts.  The employee's retirement benefits
depend on the total of employer and employee contributions to the
account as well as the account's investment gains and losses.\4

In the early 1980s, Congress began to consider a new retirement
system for federal civilian employees that would be more like private
sector retirement systems and include a DC plan component.  As a
result, in 1986 the Federal Employees' Retirement System Act was
enacted, which closed the Civil Service Retirement System (CSRS) to
new entrants and established FERS for employees generally hired after
December 31, 1983.\5 FERS is a three-tiered program that includes a
basic annuity in addition to the defined contribution TSP and Social
Security.\6 Although FERS provides an annuity in addition to Social
Security and DC pension benefits, many financial planners believe
that under current market conditions income from participant and
government contributions to TSP alone could generate 50 percent or
more of the retirement income available to most FERS participants. 
Thus, it may be useful for policymakers to know how the features of
TSP compare with the features of private sector DC plans. 

In comparing the features of private and public sector pension plans,
it is important to consider key differences between private and
public employers.  Notably, private sector employers can deduct the
cost of providing pension benefits from their taxable revenues.  To
qualify for these tax advantages, however, private employers must be
in compliance with complex and frequently changing laws and
regulations.  Public employers need not comply with all of the rules
that private employers face in designing and modifying their pension
systems.  Public sector pension benefits must be legislated, and
changes to retirement programs for public employees involve political
as well as business, financial, and human resource management issues. 

Notwithstanding the different environments in which private and
public pensions evolve, it is also important to recognize that all
employers that sponsor pension and other employee benefit programs do
so for the same underlying business and financial reasons, which
include to (1) attract and maintain an effective workforce in a
competitive marketplace, (2) motivate employees to work towards
meeting their employers' goals, and (3) manage the transition of
older employees from work to retirement. 


--------------------
\3 In 1993, approximately 44 million employees participated in
private single-employer pension plans, and about 20 million (or 45
percent) of these participants were covered by plans of employers
that sponsored only DC plans.  Both of these statistics include only
those participants covered by employers' primary plans to prevent
double-counting of participants covered by more than one plan;
however, the statistics undercount the number of participants covered
when employers offer multiple plans to different groups of employees. 

\4 Private employers are not required to provide their employees with
pension benefits; however, those employers that do so must meet
certain minimum legal standards.  In particular, under the Employee
Retirement Income Security Act of 1974 (ERISA), as amended, private
employers that provide pension benefits are to manage pension plan
funds prudently and in the best interests of participants and their
beneficiaries, inform participants of their rights and obligations,
and adequately disclose the plan's terms and activities.  ERISA also
provides certain minimum standards for various plan features,
including those discussed in this report. 

\5 For a more complete description of the legislative history of
FERS, its early implementation, and features see Federal Pensions: 
Thrift Savings Plan Has Key Role in Retirement Benefits
(GAO/HEHS-96-1, Oct.  19, 1995) and Federal Retirement: 
Implementation of the Federal Employees Retirement System
(GAO/GGD-88-107, Aug.  4, 1988). 

\6 Although employees covered by CSRS can contribute to TSP, the
government does not make contributions to their accounts.  In this
report, we describe TSP as it applies to employees covered by FERS to
more fully describe all of its features. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The designs of DC plans for the 3,297 employers with 100 or more
employees that sponsored only single-employer plans in 1993 varied
greatly with respect to eligibility requirements, contribution
arrangements, accrual of benefits, investment options, loan
provisions, and withdrawal options so that no single plan design
could be identified as representing a "typical" DC plan.  With
respect to eligibility requirements, the employers reported that they
generally established eligibility requirements that their employees
must satisfy to participate in their plans.  In 1993, 51 percent of
the employers specified that employees must meet a combination of age
and service requirements--usually age 21 and 1 year of service. 
Fifty-five percent of the 100 larger employers with 10,000 or more
employees reported requiring that employees meet length of service
requirements, generally 1 year of service, with no corresponding age
requirements.  Under the federal government's TSP, newly hired
employees covered by FERS must have from 6 to 12 months of federal
service before they become eligible to participate. 

Ninety-seven percent of the 3,297 employers provided for employer
contributions to the plan rather than requiring participants to fully
fund their own pensions.  Under the most common funding arrangement,
employers made automatic, or nonmatching, contributions to the plan
with no participant contributions allowed or required.  The subset of
100 larger employers were more likely to allow participants to
contribute to their plans on a pretax basis, with the most common
funding arrangement consisting of employer nonmatching, matching, and
participant pretax contributions--the same arrangement provided for
under the federal TSP.  Fifty-one percent of the employers that
provided for pretax contributions (and 60 percent of the larger
employers) allowed participants to contribute more than 10 percent of
their salaries, whereas federal employees who participate in TSP are
limited to contributing 10 percent of their basic pay on a pretax
basis. 

Employers generally did not include enough information in their SPDs
to allow us to determine the maximum potential cost, or liability, of
making employer contributions, expressed as a percentage of
compensation.  Moreover, we could not determine an employer's
liability for contributions without also knowing the portion of these
contributions that were used to reduce the employer's corporate tax
liability in any given year.  However, for the 27 percent of the
employers for which we could determine the liability for
contributions, not taking corporate taxes into consideration, 59
percent had a liability of up to 5 percent of participant
compensation, and 41 percent had a liability of 6 percent or more of
participant compensation.\7 For the subset of larger employers, 76
percent had a liability of up to 5 percent of participant
compensation, and 24 percent had a liability of 6 percent or more of
participant compensation.  In comparison, the government's maximum
potential liability for contributions under TSP is 5 percent of
participant compensation, assuming participants contribute at a rate
that maximizes government matching contributions.\8

Although by law participants have always owned their own
contributions (and earnings on those contributions) to DC plans,
employers have often established minimum service requirements that
participants were required to meet before they could own, or become
"vested" in, employer contributions to the plan.  About one-third of
the employers provided for immediate vesting of matching
contributions and one-eighth for immediate vesting of nonmatching
contributions.  The subset of employers with 10,000 or more employees
were more likely to use immediate vesting for matching (52 percent
versus 35 percent) and nonmatching contributions (23 percent versus
13 percent) compared with all of the employers included in our
review. 

The employers used vesting requirements that generally required fewer
years of service for employees to own matching contributions, as
compared with nonmatching contributions.  That is, 44 percent of
employers provided for participants becoming fully vested in matching
contributions within 4 years, while 22 percent provided for full
vesting for nonmatching contributions within the same time period. 
Federal employees are immediately vested in any government matching
contributions made to their accounts, and most become fully vested in
the government's automatic 1 percent nonmatching contribution after
completing 3 years of service. 

A significant portion of the employers did not specify in their SPDs
whether participants could direct how the contributions made to their
accounts were invested, although the subset of larger employers were
more likely to so specify.  The majority of those employers that
specified participants could direct the investment of their accounts
and specified the number of investment options available in their
SPDs provided at least four investment options.  These employers
frequently included investment options such as employer stock, stock
mutual funds, and bond mutual funds.  Federal employees who
participate in TSP may direct the investment of their accounts using
three funds--a nonmarketable government securities fund, a
diversified stock fund, and a diversified bond fund.  Two additional
funds--an international and a small company stock fund--are scheduled
to become available in 2 to 3 years. 

Nearly two-thirds of the employers reported providing plan
participants access to a portion of their account balances prior to
separation from employment.  Nearly half allowed participants to
borrow from their accounts up to certain legal limits, and some also
allowed participants to withdraw some or all of their own
contributions, usually in the event of a personal financial hardship. 
The larger employers were somewhat more likely to allow participants
to borrow from their accounts or make financial hardship withdrawals;
however, they were less likely to allow withdrawals for reasons other
than financial hardship.  The federal TSP includes a loan program and
allows participants to make hardship withdrawals and a one-time
withdrawal at age 59ï¿½ or later without separating from federal
service. 

Nearly all the employers allowed participants to take their account
balances as a lump-sum distribution when they retired; while two
thirds allowed participants to withdraw their accounts in even
installment payments over some specified period of time, and nearly
half provided for an annuity that would produce a regular monthly
payment for the rest of a participant's life.  The subset of larger
employers were less likely to provide an installment or annuity
option in their plans.  Employers generally provided the same
withdrawal options to participants who separated for reasons other
than retirement; however, most of these participants could opt to
defer any withdrawal from their accounts until some future date not
to exceed the year following the year in which they turn age 70ï¿½. 
TSP allows federal employees to select from all three withdrawal
options--a lump-sum distribution, installment payments, or an
annuity.  Federal employees who separate from the government before
retirement may also choose to defer their withdrawal until the year
following the year in which they turn age 70ï¿½. 

A small portion (12 percent) of the approximately 490,000 employers
with 2 or more employees that sponsored only single-employer DC plans
also sponsored more than one DC plan for the same groups of
employees.  Employers with fewer than 100 employees were more likely
to sponsor multiple plans covering the same groups of employees than
employers with 100 or more employees.  Experts with whom we consulted
suggested that smaller employers might be better able to manage
multiple plans because they had fewer accounts to manage, while
larger employers might be more likely to offer multiple plans to
compete with other employers.  According to pension experts with whom
we consulted and pension-related literature, private employers design
their pension programs principally to control costs, maximize federal
tax incentives, and comply with ERISA, as amended, while at the same
time structuring their compensation and benefits to support their
overall business and financial goals. 


--------------------
\7 Because we were able to determine the liability for contributions
for only a small portion of the employers in our sample, these
estimates have a sample error of 15 percent. 

\8 In 1996, federal agencies contributed about $2 billion to FERS
employees' TSP accounts. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To provide the requested information on patterns in plans' features,
we reviewed SPDs--documents that all private employers were to file
with DOL for each pension plan they sponsored--for a sample of
private sector employers with 100 or more employees that sponsored
only single-employer DC plans to supplement their employees' Social
Security retirement benefits.  We stratified our sample by employer
size using 3 groups--employers with 100 to 999 employees, 1,000 to
9,999 employees, and 10,000 or more employees.  Because of the larger
sampling error associated with the first two strata, we reported on
two groups--all the employers in our sample and the subset of larger
employers with 10,000 or more employees, the one stratum for which
our sample included the entire population of such employers.  Because
DOL officials told us that the Department would not be able to
provide SPDs for all the employers in our sample, we requested SPDs
from DOL and directly from the employers.\9 As a result, we were able
to obtain and analyze 281 SPDs--67 percent of the 419 employers in
our sample.  In considering the representativeness of the sample of
employers for which we had obtained SPDs, we found that the 281
employers were generally comparable to our universe of 3,297
employers, in terms of employer size, industry type, and geographic
region. 

We also analyzed pension plan information that was available from
DOL's research database from which we had selected our sample of
employers to provide additional information on the plans' features. 
To provide information on TSP, we reviewed summary documents
published by the Federal Retirement Thrift Board. 

As agreed with the Subcommittee, we limited the scope of our analyses
involving SPDs to those employers with 100 or more employees.  Also
as agreed, our review included the largest primary plan offered by
private employers that sponsored only DC plans in 1993, the most
recent data available at the time of our review.  We included only
single-employer plans in our analyses, because the research database
did not identify all of the employers associated with each
multiemployer plan.  Unless specifically noted, the estimates
presented in this report are generalizable to the population of
employers with 100 or more employees that sponsored only
single-employer DC plans in 1993 with a sampling error of no more
than 10 percent at the 95-percent confidence level.\10

Also, as agreed with the Subcommittee, we did not independently
verify the accuracy of the information (1) described in the SPDs or
(2) contained in the DOL research database.  Moreover, we could not
confirm that the SPDs provided by DOL represented the most up-to-date
information for each DC plan in our sample.  Lastly, due to
differences such as those described in the background section of this
report, pension plan experiences in the private sector may not be
applicable to the federal government. 

To provide information on the use of multiple plans, we used the DOL
research database to identify the number of private employers with
two or more employees that sponsored more than one DC plan to provide
benefits for the same groups of employees in 1993.  We did not
independently verify DOL's criteria for identifying plans in their
research database as primary versus supplementary.  To obtain
insights on what factors employers may consider in deciding whether
to sponsor multiple plans, we reviewed retirement-related literature
and consulted with pension experts, which we selected on the basis of
prior work we had done on private sector pensions. 

Appendixes I and II provide more detailed information on our
objectives, scope, and methodology and the results obtained,
respectively. 

We requested comments on a draft of this report from the Secretary of
Labor.  These comments are discussed at the end of this letter.  We
did our review in Washington, D.C., from October 1996 to July 1997 in
accordance with generally accepted government auditing standards. 


--------------------
\9 Officials told us that DOL did not monitor or enforce employer
compliance with the SPD filing requirement because of limited
resources and other competing priorities.  Effective August 5, 1997,
with the passage of the Taxpayer Relief Act of 1997, private
employers subject to ERISA are required to file copies of their SPDs
with DOL only upon request. 

\10 Approximately 8 million participants are covered by plans
sponsored by the employers in our population. 


   ELIGIBILITY REQUIREMENTS
------------------------------------------------------------ Letter :4

Employers that sponsor DC plans generally establish certain minimum
age and/or service requirements that employees must meet before they
are allowed to participate in these plans.  These eligibility
requirements allow employers to reduce the administrative costs
associated with establishing individual accounts for employees. 
Flexibility to establish minimum participation requirements may be
especially useful to employers facing high turnover rates.  Such
requirements allow employers to use their resources to benefit
employees who are more likely to remain with the employer for the
long term.  Under ERISA, as amended, employers cannot require
employees to be over age 21 or to have completed more than 1 year of
service with the employer.  However, an exception applies to plans
where participants immediately own all employer contributions made to
individual accounts--employers may require that employees complete 2
years of service to be eligible to participate in these plans. 

Of the 3,297 employers with 100 or more employees that sponsored only
single-employer DC plans in 1993, 51 percent (1,673 employers)
reported using some combination of age and length of service to
determine when an employee was eligible to participate in the plan. 
The most common combination, which was used by 73 percent of these
1,673 employers, was that an employee must be age 21 with 1 year of
service--the legal limit.  For the 100 larger employers, 55 percent
used only length of service to determine eligibility (with most
requiring 1 year of service), while 28 percent used a combination of
age and service (with 93 percent requiring an age of 21 and 1 year of
service).  Figure 1 shows the distribution of employers according to
the type of eligibility requirement used. 

   Figure 1:  Percentage of
   Employers Using Various
   Eligibility Requirements, by
   Employer Size (1993)

   (See figure in printed
   edition.)

Source:  GAO analysis of SPD data (see app.  II, table II.1). 

Although the summary plan documents did not provide information on
the rate of participation among covered employees, we were able to
determine the percentage of employees with active accounts in 1993
for 2,127 (or 65 percent) of the employers in our review using DOL's
research database.  For these employers, 74 percent had a
participation rate of 76 to 100 percent, 18 percent had 51 to 75
percent participation, 4 percent had 26 to 50 percent participation,
and 4 percent had 25 percent participation or less.  We could
determine the participation rate for 72 of the larger employers. 
These employers showed a considerably lower rate of participation--15
percent had a participation rate of 76 to 100 percent, 24 percent had
51 to 75 percent participation, 15 percent had 26 to 50 percent
participation, and 47 percent had 25 percent participation or less. 
A high or low rate of participation may be a reflection of whether or
not employers contributed to their plans.  According to experts with
whom we consulted, employers that reported 100 percent participation
generally made contributions automatically to participant accounts. 

Newly hired federal employees covered by FERS are eligible to
participate in TSP during the second open season after they are
hired.  Two open seasons are held each year (May 15 to July 31 and
November 15 to January 31); thus, the minimum service required to
participate ranges from 6 to 12 months.  The government establishes
and makes automatic contributions to accounts for all eligible
employees covered by FERS.  As of March 1997, 83 percent of eligible
FERS employees made contributions to their accounts. 


   TYPES OF EMPLOYER AND
   PARTICIPANT CONTRIBUTIONS
------------------------------------------------------------ Letter :5

DC plans are funded by means of employer and/or participant
contributions.  Employer contributions can be based on the amount a
participant contributes (i.e., matching contributions), on some other
criteria unrelated to participant contributions (i.e., nonmatching
contributions), or on some combination of the two.  For example, an
employer could make matching contributions by providing $1 for each
dollar a participant contributes up to a specified maximum. 
Alternatively, an employer could make nonmatching contributions
determined on the basis of annual profitability or a specified
percentage of participant compensation. 

In addition to employer matching and nonmatching contributions,
participants may be allowed or required to contribute to their DC
plan.  Plans can provide for participant contributions to be made on
a pretax or after-tax basis or on some combination of the two.  For
pretax contributions, employers generally reduce a participant's
salary by an agreed upon amount and contribute these funds directly
to the participant's DC account, thereby allowing the participant to
defer paying income taxes on this portion of their salary until the
funds are withdrawn from the account, presumably at or during
retirement. 

Regardless of the type(s) of contributions employers and/or
participants make to the plan, each employer must ensure that total
contributions to participant accounts do not exceed certain legal
limits set by ERISA, as amended.  Specifically, the annual dollar
contribution limit to a DC participant account is the lesser of
$30,000, or 25 percent of participant compensation.\11 Moreover,
participant pretax contributions are limited to $9,500 per year and
participant after-tax contributions may be limited to allow employers
to satisfy certain nondiscrimination rules.\12 Contributions that are
calculated as a percentage of participant compensation are limited to
including a maximum annual compensation of $160,000.  Each of the
above limits is indexed to the consumer price index to adjust for
changes in the cost of living over time. 


--------------------
\11 Special limits are applicable through December 31, 1999, for
employers that sponsor both basic annuity and DC plans covering the
same group of employees. 

\12 Nondiscrimination rules are designed to ensure that employers
only receive tax advantages for those pension plans that provide
coverage to a broad base of their employees rather than to
highly-paid employees or managers of the company exclusively. 


      MOST EMPLOYERS CONTRIBUTE TO
      THEIR DC PLANS
---------------------------------------------------------- Letter :5.1

Of the 3,297 employers with 100 or more employees that sponsored only
single-employer DC plans in 1993, 97 percent reported providing for
matching and/or nonmatching contributions to the plan, and 1 percent
funded the plan solely on the basis of participant contributions. 
For the 100 larger employers, 94 percent provided for employer
contributions, and 6 percent provided only for participant
contributions to the plan.  Thus, most employers that sponsor only DC
plans contribute towards their employees' retirement benefits rather
than require that their employees bear the entire cost.  As shown in
figure 2, 85 percent of the 3,297 employers provided for employer
nonmatching, 43 percent for employer matching, 50 percent for
participant pretax, and 16 percent for participant after-tax
contributions.  For the 100 larger employers, 68 percent of employers
provided for employer nonmatching, 54 percent for employer matching,
72 percent for participant pretax, and 11 percent for participant
after-tax contributions. 

   Figure 2:  Percentage of
   Employers That Provide for
   Various Types of Contributions,
   by Employer Size (1993)

   (See figure in printed
   edition.)

Note:  Because employers can provide for more than one type of
contribution to a plan, percentages do not add to 100 percent. 

Source:  GAO analysis of SPD data (see app.  II, table II.2)

The two most common arrangements for employer and participant
contributions were to provide for (1) employer nonmatching
contributions and no participant contributions (41 percent) or (2)
employer matching and nonmatching contributions plus participant
pretax contributions (25 percent).  None of the other arrangements
were used by more than 8 percent of the employers that sponsored only
single-employer DC plans. 

The subset of larger employers were more likely to provide for
participant pretax contributions to their plans than the overall
group of employers in our review--72 percent versus 50 percent,
respectively.  The most common contribution arrangements were also
somewhat different for these employers.  Specifically, 26 percent of
the larger employers provided for matching, nonmatching, and
participant pretax contributions--the same arrangement provided under
TSP for those federal employees covered by FERS; 23 percent provided
for nonmatching contributions only; 18 percent provided for matching
and participant pretax contributions; and 11 percent provided for
nonmatching and participant pretax contributions.  None of the other
combinations of contributions were used by more than 6 percent of the
larger employers.  Table II.2 (see app.  II) provides more details on
the combinations of contributions that the employers specified in
their SPDs. 

The employers that provided for matching contributions to their plans
used a wide variety of matching arrangements.  For example, employers
applied different limits on what level of participant contributions
would be eligible to receive a match, matched different amounts of
each dollar contributed by participants, and sometimes provided
different matching contributions for different levels or types of
participant contributions. 

Of the 1,410 employers that provided for matching contributions, 815
employers (and 32 of the subset of larger employers) specified the
level of participant contributions that they were willing to match
and the amount of matching contributions that would be provided for
each participant dollar contributed.  Of these employers, 60 percent
offered to match participant contributions that did not exceed 5
percent of the participants' compensation, and 40 percent offered to
match participant contributions that did not exceed 6 percent or more
of compensation.  Fifty-eight percent of the employers matched 50
cents or less for each eligible participant dollar contributed, and
42 percent matched more than 50 cents for each eligible participant
dollar contributed.\13 How an employer combined these two
factors--the amount of participant contributions eligible to be
matched and the level of matching contributions provided for each
eligible participant dollar contributed--determined the maximum
potential amount of an employer's matching contributions.  Our
analyses showed that employer matching practices were not related to
participant contribution eligibility practices.  That is, employers
did not provide a high rate of matching contributions only when the
percentage of eligible participant contributions was low, nor did
they provide a low rate of matching contributions only when the
percentage of eligible participant contributions was high. 

Of the larger employers, 45 percent offered to match participant
contributions that represented up to 5 percent of their compensation,
and 55 percent offered to match participant contributions that
represented 6 percent or more of compensation.  Further, 62 percent
of the larger employers matched $1 or more for each eligible
participant dollar.  In comparison, TSP provides for government
matching contributions on participant contributions not exceeding 5
percent of compensation, and the government match equates to 80 cents
for each eligible dollar of participant contribution, assuming
participants contribute at least 5 percent of their salary.\14

For the 2,786 employers that provided for nonmatching contributions
to their plans, 45 percent specified that the dollar amount to be
contributed to participant accounts would be determined on the basis
of some percentage of annual profits, while another 45 percent
specified that the dollar amount would be determined on the basis of
some percentage of participant compensation.  Seventy-nine percent of
these employers did not specify in their SPDs the exact percentage
that would be used to determine nonmatching contributions. 
Similarly, of the 68 larger employers that provided for nonmatching
contributions to their plans, 45 percent determined nonmatching
contributions on the basis of profits, and 36 percent, on the basis
of participant compensation.  Sixty-six percent of these larger
employers did not specify the exact percentages used to determine
nonmatching contributions.  TSP provides for government nonmatching
contributions equal to 1 percent of employee compensation for those
employees covered by FERS. 


--------------------
\13 Because only a small portion of the employers in our sample
provided for matching contributions and specified the maximum level
of participant contributions eligible for employer matching
contributions and the rate of matching contributions provided for
each dollar participants contributed, the sample errors for these
estimates are 15 percent. 

\14 TSP provides for matching contributions using a graduated
schedule--participants covered by FERS receive a dollar-for-dollar
match on the first 3 percent of salary that they contribute and a 50
cents match for each dollar contributed for the next 2 percent of
salary.  Thus, participants who contribute less than 5 percent of
their salary experience a higher overall level of match for each
dollar contributed.  For example, if participants contributed 3
percent of their salary to the plan, they would receive a
dollar-for-dollar match from the government. 


      MOST EMPLOYERS ALLOW
      PARTICIPANTS TO CONTRIBUTE
      TO THEIR DC PLANS
---------------------------------------------------------- Letter :5.2

Of the 3,297 employers that sponsored only single-employer DC plans
to provide pensions for their employees, 1,862 (or 56 percent) of
these employers allowed participants to make contributions to their
plans.  Of these 1,862 employers, 71 percent allowed participants to
contribute on a pretax basis, 18 percent on either a pretax and/or
after-tax basis, and 11 percent on an after-tax basis.  Seventy-three
of the 100 larger employers provided for participant
contributions--85 percent of these 73 employers allowed pretax
contributions, and 15 percent allowed both pretax and after-tax
contributions. 

Of the 1,656 employers that provided for pretax contributions (and
thus allowed participants to shelter a portion of their income from
current taxation as well as accumulate savings for retirement), 51
percent allowed participants to contribute more than 10 percent of
their annual compensation to the plan (not to exceed the Internal
Revenue Service limit).  Similarly, 60 percent of the 73 larger
employers that provided for pretax contributions allowed participants
to contribute more than 10 percent of their annual compensation to
the plan.  Federal employees covered by FERS are allowed to
contribute up to 10 percent of their basic pay on a pretax basis to
TSP, up to the current legal maximum of $9,500.\15 Figure 3 shows the
maximum participant pretax contributions allowed for plans sponsored
by employers that only offer single- employer DC plans. 

   Figure 3:  Percentage of
   Employers That Provide for
   Various Levels of Participant
   Pretax Contributions (1993)

   (See figure in printed
   edition.)

Source:  GAO analysis of SPD data (see app.  II, table II.8). 


--------------------
\15 Basic pay is the rate fixed by applicable law or regulation
before any deductions.  Basic pay (1) includes locality-based
comparability payments and certain categories of differential or
premium pay and (2) excludes other types of pay, including bonuses,
allowances, overtime, and holiday pay. 


      MOST EMPLOYERS DID NOT
      SPECIFY THEIR LIABILITY FOR
      CONTRIBUTIONS IN THEIR SPDS
---------------------------------------------------------- Letter :5.3

Of the 3,297 employers included in our review, 883 (or 27 percent) of
the employers included enough information in their SPDs to allow us
to calculate the maximum potential cost, or liability, of making
employer contributions--matching, nonmatching, or both--to their
plans.  Thus, our results regarding employer liability for
contributions are not generalizable to all the employers included in
our review.  Of the 883 employers, 59 percent had a liability of up
to 5 percent of participant compensation, and 41 percent had a
liability of 6 percent or more of participant compensation (with the
greatest liability being 18 percent).\16

An employer's actual liability for contributions may be less than the
potential maximum in any given year for a variety of reasons,
including when participants do not contribute enough to maximize
employer matching contributions or when employers elect to contribute
less than the maximum allowable nonmatching contributions in any
given year.  Moreover, an employer's effective cost of contributions
cannot be determined without knowing what portion of those
contributions may have been deducted from the employer's corporate
taxes in any given year. 

We could determine the maximum employer liability for contributions
for 38 of the 100 larger employers.  Of these 38 employers, 76
percent had a liability of up to 5 percent of participant
compensation, and 24 percent had a liability of 6 percent or more of
participant compensation.  In comparison, the government's maximum
potential liability for contributions for employees covered by FERS
is 5 percent of compensation--consisting of up to 4 percent in
matching contributions plus 1 percent in nonmatching contributions. 
In 1996, government agencies contributed about $2 billion to FERS
employees' TSP accounts. 


--------------------
\16 Because we could only determine the employer's liability for
contributions for a small portion of the employers in our sample,
these estimates have a sample error of 15 percent. 


   VESTING
------------------------------------------------------------ Letter :6

Participants of DC plans accrue the right to pension benefits, or
become "vested," by meeting certain requirements established by
employers.  By law, participants are always fully vested in any
pretax or after-tax contributions that they make to their accounts,
whether these contributions are voluntary or mandatory.  Thus,
employer vesting requirements apply only to the participant's right
to employer-matching and/or nonmatching contributions.  ERISA, as
amended, requires that participants become fully vested in 100
percent of employer contributions to their accounts (1) within 5
years if the employer uses "cliff" vesting, where no rights to
benefits are earned in prior years or (2) within 7 years if the
employer uses "graduated" vesting, where rights to benefits are
earned gradually over the period starting no later than the third
year.  Employers may also use more liberal vesting requirements if
they choose.  For example, immediate vesting occurs when an employer
sets no vesting requirements.  Employers can use vesting schedules to
reduce the cost of providing pension benefits to employees who do not
remain with an employer for at least 5 to 7 years. 

Of the 1,410 employers with 100 or more employees that sponsored only
single-employer DC plans in 1993 and made matching contributions to
their plans, 1,374 employers specified vesting requirements in their
SPDs.  Of these 1,374 employers, 56 percent reported using graduated
vesting; 35 percent, immediate vesting; and 9 percent, cliff
vesting.\17 Larger employers were more likely to use immediate
vesting--52 percent used immediate vesting, 26 percent used graduated
vesting, and 22 percent used cliff vesting.  Of the 2,786 employers
that made nonmatching contributions to their plans, 2,755 employers
specified vesting requirements in their SPDs.  Of these 2,755
employers, 70 percent used graduated vesting, about 17 percent used
cliff vesting, and 13 percent used immediate vesting.  For the larger
employers, about 51 percent used graduated vesting, 26 percent used
cliff vesting, and 23 percent used immediate vesting. 

Regardless of the type of vesting schedule used, employers generally
used more liberal schedules for matching contributions compared with
nonmatching contributions.  Forty-four percent of the 1,410 employers
that provided for matching contributions specified that participants
became fully vested in these contributions within 4 years, while 22
percent of the 2,786 employers that provided for nonmatching
contributions specified that participants became fully vested in
these contributions within the same time period.  Similarly, 57
percent of the subset of larger employers provided for employees to
become fully vested in any matching contributions within 4 years,
compared with 25 percent for nonmatching contributions within the
same time period.  Federal employees covered by FERS are immediately
vested in any matching contributions, and most become fully vested in
the automatic 1 percent nonmatching contributions after completing 3
years of service.\18 Figure 4 shows the length of time to full
vesting for employer-matching and nonmatching contributions for plans
sponsored by employers that only offer single- employer DC plans. 

   Figure 4:  Percentage of
   Employers That Require Various
   Lengths of Service for Full
   Vesting in Matching and
   Nonmatching Contributions, by
   Employer Size (1993)

   (See figure in printed
   edition.)

Source:  GAO analysis of SPD data (see app.  II, table II.10). 

Using DOL's research database, we were able to determine the
proportion of participants who were fully vested in 1993 for 2,825
(or 86 percent) of the employers in our review.  For these employers,
more than half of the current employees were fully vested for 62
percent of the plans, while half or less of the employees were fully
vested for 38 percent of the plans.  For the 83 larger employers for
which we were able to determine the percentage of fully vested
participants, the proportion of plans with more than half and half or
less of participants fully vested were virtually the same as for all
employers--63 percent and 37 percent of employers, respectively. 


--------------------
\17 Because only a small portion of the employers in our sample
provided for matching contributions and specified vesting
requirements in their summary plan descriptions, the sample errors
for these estimates are no greater than 11 percent. 

\18 FERS employees in congressional and certain noncareer positions
become vested in the automatic 1 percent nonmatching contributions
after completing 2 years of service. 


   INVESTMENT OF CONTRIBUTIONS
------------------------------------------------------------ Letter :7

By law, employers that sponsor DC plans can either invest employer
and participant contributions made to the plan, or they can allow
participants to direct the investment of their own accounts. 
Employers that provide for "participant-directed" accounts in their
plans must meet certain DOL regulations to insulate themselves from
being liable for any losses that result from a participant's exercise
of investment control.  Specifically, employers that allow
participants to direct their own accounts must offer a broad range of
investment alternatives, consisting of at least three diversified
investment alternatives, each having different risk and return
characteristics.  Moreover, participants must be allowed to change
their investment decisions at least once in every 3-month period. 
Employers must also provide participants with descriptive information
on each investment option, including risk and return characteristics,
transaction fees and expenses, and copies of prospectuses. 

A considerable portion of the employers with 100 or more employees
that sponsored only single-employer DC plans in 1993 did not specify
in their SPDs whether participants could direct the investment of
contributions made to their accounts, as shown in figure 5.  As also
shown, the larger employers were more likely to specify who could
direct the investment of each type of contribution.  For those
employers that did report on who could direct the investment of
account assets, participants were more frequently allowed to direct
the investment of all but nonmatching contributions made to their
accounts.  The larger employers were more likely to allow
participants to direct the investment of all types of contributions
made to their accounts. 

   Figure 5:  Percentage of
   Employers That Specified
   Participant Versus
   Employer-Directed Investment,
   by Contribution Type and
   Employer Size (1993)

   (See figure in printed
   edition.)

Source:  GAO analysis of SPD data (see app.  II, table II.11). 

Of the employers that specified participants could direct the
investment of their accounts and specified the number of investment
options in their SPDs, the majority provided participants with at
least four investment options from which to choose.  About half of
the employers did not list the specific investment choices available
to participants in their SPDs; however, investments commonly listed
included employer stock, stock mutual funds, bond mutual funds,
balanced funds consisting of both stocks and bonds, guaranteed
investment contracts providing a fixed interest rate through an
insurance company, U.S.  government securities, and money market
investments consisting of short-term securities. 

Although we could not determine the proportion of participants who
actually selected each available investment option, we were able to
determine the proportion of total plan assets invested in (1) stocks
and (2) bonds in 1993 for approximately three-fourths of the
employers in our review using DOL's research database.  For these
employers, 81 percent had 25 percent or less of their total plan
assets invested in stocks (not including an employer's own company
stock) and 95 percent had 25 percent or less of their total plan
assets invested in bonds.  For the larger employers, 93 percent had
25 percent or less of their total plan assets invested in stocks, and
100 percent had 25 percent or less invested in bonds.  We were unable
to determine what proportion of these investments resulted from
employer contributions, participant contributions, and market gains
or losses over time. 

Regardless of how plan assets are invested, employers must receive,
hold, and transmit plan assets up to the time the assets are
withdrawn by plan participants.  Employers generally do so using a
trust fund, an insurance account, or a combination of the two.  Using
the DOL research database, we were able to determine how 2,831 (or 86
percent) of the employers in our review managed their participant
accounts in 1993--70 percent of these employers used trust funds, 20
percent used a combination of trust funds and insurance accounts, and
10 percent used insurance accounts.  The larger employers also used
these same methods in approximately the same proportions. 

Federal employees who participate in TSP may direct the investment of
their accounts using three investment funds--the "G fund" that is
invested in short-term nonmarketable U.S.  Treasury securities, the
"C fund" that is invested in the stock of the same 500 companies
selected by the Standard & Poor's Corporation for its S&P 500 index,
and the "F fund" that is invested in U.S.  government, corporate, and
mortgage-backed securities.  In 2 to 3 years, participants will have
two new funds--a small company stock fund and an international
fund--which will bring the number of investment options up to five
funds.  Participant accounts are managed by the Federal Retirement
Thrift Investment Board, an independent government agency tasked with
managing TSP prudently and solely in the interest of participants and
their beneficiaries. 


   PARTICIPANT ACCESS TO ACCOUNT
   ASSETS PRIOR TO SEPARATION OR
   RETIREMENT
------------------------------------------------------------ Letter :8

Employers that sponsor DC plans can permit participants to access
some portion of their account balances while they are still actively
employed using loan, voluntary withdrawal, and/or hardship withdrawal
provisions.  Employers can include loan provisions that permit
participants to borrow a portion of their vested account balances and
repay this amount in level payments over a specified number of years
at a specified interest rate.  ERISA, as amended, generally limits a
participant's outstanding loan balance to the lesser of $50,000 or 50
percent of the participant's vested account balance.  Employers can
also allow participants to make voluntary withdrawals from their
after-tax contributions and/or employer contributions (and the
earnings on these contributions) without requiring that the funds be
repaid; however, a 10 percent tax penalty applies to most of these
distributions if they are made before age 59ï¿½.  Some employers
specify that participants will face additional penalties for making a
voluntary withdrawal, such as losing the right to make contributions
to the plan for 1 year.  An employer can allow participants to make a
hardship withdrawal from their pretax contributions (but not the
earnings on those contributions) to meet immediate and heavy
financial needs for which no other resources are available.  Needs
that meet the legal definition of a hardship include medical
expenses, purchase of a principal residence, tuition for
postsecondary education, and prevention of eviction from, or
foreclosure on, a principal residence.  Nearly two-thirds of the
3,297 employers reported providing plan participants access to a
portion of their account balances prior to separation from
employment.  Figure 6 shows the percentage of employers with 100 or
more employees that sponsored only single-employer DC plans in 1993
and provided for each type of participant access to their accounts. 

   Figure 6:  Percentage of
   Employers That Provide Various
   Types of Access to Participant
   Accounts, by Employer Size
   (1993)

   (See figure in printed
   edition.)

Note:  Because employers can provide for more than one type of access
to participant accounts, percentages do not add to 100 percent. 

Source:  GAO analysis of SPD data (see app.  II, table II.13). 

Of the 3,297 employers included in our review, 46 percent specified
that participants could borrow from their accounts; 43 percent
provided for hardship withdrawals, and 21 percent specified that
participants could make voluntary withdrawals from their accounts. 
Of the larger employers, 57 percent provided for loans, 58 percent
provided for hardship withdrawals, and 15 percent provided for
voluntary withdrawals. 

For those 1,530 employers that included a loan feature in their DC
plans, 11 percent reported allowing participants to borrow from their
accounts for any reason, while the remaining employers allowed
participants to (1) borrow from their accounts only for specified
purposes or (2) submit an application to the employer for approval. 
ERISA, as amended, allows employers to set a minimum loan amount of
up to $1,000; however, 47 percent of the employers either did not
specify a minimum loan amount in their SPDs or specified a minimum
amount that was less than $1,000.  Moreover, only 27 percent of the
employers specified that participants were limited to one outstanding
loan at any given time.  The vast majority of employers (98 percent)
allowed participants to borrow up to the legal limit of $50,000 (or
50 percent of their vested account balance, if less).  Although the
57 larger employers that provided for loans were more likely to allow
participants to borrow from their accounts for any reason (35 percent
versus 11 percent for all employers), the other components of their
loan programs were generally comparable to the group of employers as
a whole. 

Using DOL's research database, we were able to determine the
proportion of total plan assets represented by outstanding
participant loans for 787 (or 51 percent) of the employers that
allowed participants to borrow from their accounts.  For 88 percent
of these employers, participant loans represented 5 percent or less
of the plan's total assets, which suggests that the majority of plan
contributions were being held and invested for retirement rather than
being tapped by participants for preretirement spending.  An even
greater percentage--94 percent--of the 32 larger employers for which
we could determine this information had outstanding participant loans
of 5 percent or less of total plan assets. 

For those 1,419 employers that allowed participants to make hardship
withdrawals from their accounts, 86 percent specified neither limits
on the number of hardship withdrawals that could be made in 1 year
nor a required minimum amount that must be withdrawn.  Similarly, 79
percent of the 58 larger employers that provided for hardship
withdrawals did not specify such restrictions in their summary plan
documents.  However, 77 percent of the employers (and 79 percent of
the larger employers) specified some form of penalty for participants
who made a hardship withdrawal from their accounts--the most common
penalty being the suspension of a participant's right to contribute
to the plan for some period of time.  Thus, although participants may
not be able to control their need to make a hardship withdrawal from
their accounts in all circumstances, employer penalties may
discourage participants from tapping their accounts prior to
retirement. 

For those 709 employers that allowed participants to make voluntary
withdrawals from their accounts, 20 percent limited participants to
one such withdrawal per year and 13 percent specified that
participants must withdraw some minimum amount ranging from $100 to
$500.  Moreover, one-third of these employers required participants
to meet certain age and service requirements before they could make a
voluntary withdrawal from their accounts.  For example, the most
common requirement was that participants must be at least age 55 and
have 10 years of service with the employer.  Twenty-one percent of
the employers penalized participants who made voluntary withdrawals
from their accounts, for example, by suspending a participant's right
to contribute to the plan for 12 months.  For plans that provided for
employer matching contributions, such a penalty also suspended a
participant's ability to receive matching contributions over the same
time period.  The 15 larger employers that provided for voluntary
withdrawals were more likely to set a minimum amount that
participants must withdraw; however, other limits and restrictions
were generally comparable to those provided for by all the employers
included in our review.  All of the above limits, restrictions, and
penalties can reduce an employer's administrative burden for allowing
participants to make voluntary withdrawals from their accounts as
well as encourage participants to preserve their accounts for use in
retirement. 

The federal TSP includes a loan program, which allows participants to
borrow from their own contributions (and earnings on those
contributions) for any reason.  The federal program sets the minimum
loan amount at $1,000, allows two loans outstanding at any one time,
and is limited to the same $50,000 limit as private sector plans. 
The federal program also provides for hardship withdrawals, and
participants who are at least age 59ï¿½ may make a one-time voluntary
withdrawal from their accounts while they are still in federal
service. 


   BENEFIT WITHDRAWAL OPTIONS
------------------------------------------------------------ Letter :9

Employers that sponsor DC plans can allow participants to receive
their pension benefits from their individual accounts in a variety of
ways at retirement--generally as a lump-sum distribution or an
annuity.  For a lump-sum distribution, employers disburse a
participant's entire account within 1 taxable year.  For an annuity,
the participant receives regular payments for the participant's
remaining lifetime.  Employers that offer annuities must also offer a
joint and survivor annuity that provides a surviving spouse with at
least one-half the amount of the participant's benefits.  Employers
generally pay for the additional survivor benefits by reducing the
participant's monthly benefit.  In addition to a lump sum or annuity,
some employers allow participants to withdraw their accounts using
installment payments that deplete the account over a period of time
that can be specified by the employer or the participant.  Employers
are currently required to begin disbursements from pension accounts
no later than April of the year following the year participants turn
age 70ï¿½. 

Of the 3,297 employers with 100 or more employees that sponsored only
single-employer DC plans in 1993, 92 percent reported providing for
lump-sum distributions, 67 percent for installment payments, and 47
percent for annuities when participants separated from the employer
at retirement.  Of the 100 larger employers, 97 percent provided for
lump-sum distributions, 52 percent for installment payments, and 32
percent for annuities when participants retired.  Although the
majority of employers provided more than one withdrawal option in
their plans, less than one-third of the plans specified that
participants could opt to withdraw their accounts using a combination
of withdrawal options--for example, by taking a portion of their
account as a lump-sum withdrawal and purchasing an annuity with the
remainder of their account balance.  Limiting participants to one
withdrawal option may allow employers to control their administrative
costs.  Figure 7 shows the combinations of withdrawal options
provided for by employers that sponsor only single-employer DC plans. 

   Figure 7:  Percentage of
   Employers That Provide for
   Various Combinations of
   Withdrawal Options at
   Retirement, by Employer Size
   (1993)

   (See figure in printed
   edition.)

Source:  GAO analysis of SPD data (see app.  II, table II.14). 

For those participants who separate from an employer for reasons
other than retirement, employers generally provided for the same
withdrawal options as those available at retirement.  However, the
majority of the employers allowed participants to defer making a
withdrawal from their accounts until a later date, thus providing
them an option to avoid the 10 percent tax penalty assessed on
pension assets withdrawn prior to age 59ï¿½.  The ability to maintain
vested account balances with a prior employer or to "roll over" funds
to either a special individual retirement account or a new employer's
retirement plan reflects the portability of DC plans.  ERISA, as
amended, allows employers to unilaterally cash out a participant
account if the balance is $5,000 or less--72 percent of the employers
(and 80 percent of the larger employers) specified that participants
with small account balances would be required to receive a lump-sum
distribution of their accounts. 

Under TSP, participants can choose to withdraw their accounts as a
lump-sum distribution, an annuity, or regular monthly installment
payments.  For married participants who withdraw their accounts as a
lump sum or monthly installment payments, their spouses must first
waive their rights to a 50-percent joint life annuity.  Participants
with vested account balances of $3,500 or less are to be
automatically cashed out unless participants select another
withdrawal option or elect to leave the funds in the plan. 
Participants may defer receiving any immediate withdrawals from their
accounts until April of the year following the year they turn
70ï¿½--the legal limit for pension deferral. 


   USE OF MULTIPLE PLANS AND
   POSSIBLE EXPLANATIONS PROVIDED
   BY EXPERTS AND THE LITERATURE
----------------------------------------------------------- Letter :10

According to DOL's research database, in 1993, 12 percent of the
approximately 490,000 employers that sponsored only single-employer
DC plans covering 2 or more participants sponsored more than one DC
plan for the same group of employees.  An employer may sponsor
multiple plans to provide primary benefits to different groups of
employees, primary and supplementary benefits to the same group of
employees, or a combination of both.  It is important to note that
employers that sponsor supplementary pension plans do not necessarily
offer more comprehensive or "generous" retirement benefits than
employers that offer only a primary plan.  Administrative costs are
generally insignificant compared with the cost of employer
contributions, and pension programs with either one or multiple plans
can be designed to result in the same total cost to an employer. 

The proportion of employers that sponsored multiple plans covering
the same groups of employees was fairly consistent across different
employer size categories--12 percent of employers with fewer than 100
employees sponsored supplementary plans, as compared with 9 percent
of employers with 100 to 9,999 employees and 14 percent of employers
with 10,000 or more employees.  One expert with whom we consulted
suggested that a greater proportion of larger employers may sponsor
supplementary plans, because these employers are more likely to have
initially sponsored plans that were later supplemented with a 401(k)
plan to compete with other employers.\19 This same expert also noted
that smaller employers were better able to cope with managing
multiple plans during the period before computer technology was
readily available. 

The proportion of employers that sponsored multiple plans covering
the same groups of employees were also fairly evenly distributed
across different industry categories, although employers in the
services industry were about 30 percent more likely to sponsor
supplementary plans, on average.  Employers in the mining,
communications, and utilities industries as well as tax-exempt
employers were the least likely to sponsor supplementary plans. 
Appendix III provides more detailed information on the number of
employers that sponsored primary and supplementary plans in 1993,
stratified by employer size and industry group. 

Pension experts with whom we consulted and pension-related literature
suggested various factors that may explain why some employers might
choose to offer more than one pension plan to their employees. 
According to these sources, employers that sponsor pension plans are
primarily concerned with controlling benefit costs, maximizing the
federal tax incentives for providing pensions, and meeting the legal
requirements of ERISA, as amended.  Employers must also design their
compensation and benefit packages to support their overall business
and financial goals.  For example, employers may use multiple pension
plans to (1) recruit and retain certain groups of employees while
also satisfying longer-tenured employees, (2) enhance productivity
and employee morale, (3) reduce pension liabilities by shifting a
portion of pension contributions to employees, and/or (4) link
compensation to performance for higher paid employees, as described
in more detail below.  These sources also said that computer
technology has made it possible for more employers to manage multiple
pension plans than would have been practical using only paper
records.  As a result, employers may choose to sponsor multiple plans
that provide different combinations of pay and benefits to different
groups of employees. 

According to the experts, employers must meet industry benefit
standards to remain competitive in attracting new employees and
encouraging those employees to stay with the company.  By providing
more than one pension plan, employers can encourage career employment
while meeting the needs of younger, more mobile, workers with desired
skills.  For example, younger and more mobile workers may demand a
401(k) plan in their benefits packages to allow them to build up
retirement benefits that are fully portable should they change jobs. 
On the other hand, a basic annuity (or "defined benefit") plan may
provide better benefits for employees who remain with an employer for
the long term.  By offering a pension program consisting of both
these types of plans, employers can satisfy the needs of both groups
of employees. 

Employers may sponsor employee stock option plans (ESOP) and profit
sharing plans for a variety of reasons, only one of which is to
provide employees with primary or supplementary retirement benefits. 
These plans can enhance employee productivity by increasing employee
identification with the company and providing a more direct incentive
for improved job performance.  These plans also give employers the
option of whether to contribute to the plan in any given year,
depending on company profitability.  For an ESOP, other benefits can
include creating a more liquid market for closely held stock, raising
new capital, obtaining financing at below-market interest rates, and
sheltering profits from corporate income taxes. 

New retirement programs that include one or more DC plans may reflect
a cultural shift away from benefits paid solely by the employer
towards a partnership relationship between the employer and
employees.  By offering a combination of pension plans, employers
allow employees to influence their own level of benefits according to
their participation and investment choices.  Employers that offer a
combination of a basic annuity and a DC plan can guarantee a certain
minimum level of retirement benefits, while employees can choose the
extent to which they participate in supplementary plans to increase
their potential benefits upon retirement.\20

Employers can increase the benefits available to their senior
executives and other highly paid employees by sponsoring
supplementary plans that are not covered by ERISA and benefit only
selected groups of employees.  Although these "nonqualified" plans
are not accorded preferential tax treatment, and therefore do not
provide employers with tax benefits, employers can use them to
motivate executives by linking the amount of benefits to some
measurable level of performance, such as total sales.  Nonqualified
plans also allow employers to provide higher-paid employees with the
same retirement income replacement rate as lower-paid employees,
while still complying with ERISA's nondiscrimination regulations and
annual limits on employee contributions to the employer's other
qualified pension plans.\21


--------------------
\19 Under a 401(k) plan, participants may direct their employers to
defer a portion of their compensation to be directly deposited into
their pension accounts.  Taxes on these contributions, as well as any
investment earnings, are deferred until the participant receives a
distribution from the account. 

\20 Under FERS, the government guarantees that each participant will
receive a certain minimum level of retirement benefits from their
basic annuities and Social Security and a 1 percent automatic
contribution to TSP.  Participants who choose to contribute to their
TSP accounts can add to this guaranteed level of benefits. 

\21 Because employers and/or participants are legally limited in the
amount of contributions they can make to a qualified plan account
each year, certain higher-paid employees cannot accrue benefits at
the same rate as lower-paid employees under some plans.  For example,
for plans that allow participants to contribute up to 10 percent of
their salaries on a pretax basis, those participants that earn more
than $95,000 will not be able to contribute a full 10 percent of
their salaries because of the $9,500 annual limit on pretax
contributions.  Some employers sponsor additional plans that cover
only those higher-paid employees that cannot accrue benefits at the
same rate as lower-paid employees under the employers' other pension
plans.  Because these additional plans explicitly exclude lower-paid
employees (i.e., they do not meet nondiscrimination rules established
by ERISA, as amended), they are nonqualified plans. 


   AGENCY COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :11

We requested comments on a draft of this report from the Secretary of
Labor.  In a letter dated October 28, 1997, the Assistant Secretary
of Labor for Pension and Welfare Benefits provided Labor's comments. 
(See app.  IV.) DOL provided no substantive comments; however they
did make one technical comment regarding the fact that nonqualified
plans are not accorded preferential tax treatment.  We clarified the
report to reflect this comment. 


--------------------------------------------------------- Letter :11.1

As agreed with the Subcommittee, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this report.  We will then send
copies of this report to the Ranking Minority Member of the
Subcommittee, the Chairman and Ranking Minority Member of the Senate
Governmental Affairs Committee, the Secretary of Labor, and other
interested parties.  We will also make copies available to others on
request. 

Major contributors to this report are listed in appendix V.  If you
have any questions, please call me at (202) 512-8676. 

Sincerely yours,

Michael Brostek
Associate Director, Federal Management
 and Workforce Issues


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The Chairman, Subcommittee on Civil Service, House Committee on
Government Reform and Oversight, asked us to provide information on
the use of defined contribution (DC) plans in the private sector.\1
He said that such information would assist congressional
decisionmakers as they consider whether to design a retirement system
for new federal hires.  Among the information requested was an
analysis of the features of private sector DC plans.  This review was
undertaken in response to that part of the request.  The objective of
our review was to determine, for employers that sponsored only DC
plans, the

  -- eligibility requirements for employee participation,

  -- arrangements for employer and participant contributions,

  -- eligibility requirements for employee rights to accrued
     benefits,

  -- employee investment options,

  -- loan and other provisions for participant access to plan assets
     while still employed, and

  -- options for withdrawal of benefits upon separation or
     retirement. 

To address an additional interest of the requester, we also
determined the number of employers that sponsored more than one DC
plan to provide retirement benefits to the same groups of employees,
and their potential reasons for doing so. 

To accomplish the first objective, we reviewed Summary Plan
Descriptions (SPD)--documents describing the terms and conditions of
pension plans that all private employers were to file with the
Department of Labor (DOL) for each pension plan they sponsored--for a
random stratified sample of private sector employers that sponsored
only DC plans to supplement their employees' Social Security.  We
also included additional plan information that was available from the
DOL research database, which we used to draw our sample of employers. 

During our early design work, DOL officials told us that the
Department did not monitor or enforce employer compliance with the
SPD filing requirement because of limited resources and other
competing priorities.\2 For this reason, we identified a preliminary
sample of employers and mailed written requests for the employers'
SPDs.  On the basis of this initial request, we determined that it
would be difficult to obtain SPDs from employers with less than 100
employees, because these employers had a very high nonresponse rate
to our request.  Moreover, DOL officials told us that smaller
employers were also much less likely to file an SPD with DOL,
compared with larger employers.  Therefore, as agreed with the
Subcommittee, we limited the review of SPDs to employers with 100 or
more employees. 

It is important to note that the data shown in this report may
reflect only part of each sampled employer's retirement benefits
program, because it does not include information on (1) additional DC
plans that some employers offer or (2) Social Security benefits that
most workers will qualify for upon retirement. 


--------------------
\1 A DC plan is one in which retirement benefits depend upon the
amounts contributed to individual employee accounts and the
investment experience of that account up to the time of retirement. 

\2 Effective August 5, 1997, with the passage of the Taxpayer Relief
Act of 1997, private employers subject to ERISA are required to file
copies of their SPDs with DOL only upon request. 


      SAMPLE SELECTION
------------------------------------------------------- Appendix I:0.1

To select our nationwide sample from employers with 100 or more
employees that sponsored only single-employer DC plans, we used the
1993 research database of computerized Internal Revenue Service (IRS)
Form 5500 reports maintained by the Pension and Welfare Benefits
Administration of the Department of Labor (DOL)--the most recent data
available when we designed our review.  Under the Employee Retirement
Income Security Act of 1974, private employers must annually file a
separate Form 5500 report with the IRS for each of their pension
plans.  Each report is to contain financial, participant, and
actuarial data. 

We did not independently verify the accuracy of the DOL research
database.  However, IRS edits the reports by checking addition and
consistency on financial and other record items and corresponds with
filers to obtain corrected data before providing the computerized
data to DOL.  DOL further edits the Form 5500 data to identify
problems, such as truncated or incorrect entries, before constructing
its research database, which consists of (1) all plans with 100 or
more participants for which a Form 5500 was filed and (2) a
10-percent sample that is weighted to represent the universe of all
plans with less than 100 participants. 

According to the DOL research database, approximately 490,000
employers with 2 or more employees sponsored only single-employer DC
plans in 1993.  We excluded employers that (1) had fewer than 100
employees, (2) sponsored only multiemployer DC plans, because of
incomplete data,\3 or (3) sponsored only DC plans that were either
terminated or consolidated with another plan during 1993, because we
wanted to review plans that had the greatest probability of still
being in existence at the time we issued a report.  Finally, we
excluded those employers that offered only DC plans for which we
could not determine the number of employees from the 5500 reports. 
We selected a sample of 419 employers from the remaining universe of
3,297 employers.\4

Because we randomly selected the sample of private employers that
sponsor only DC plans, the results are subject to some uncertainty or
sampling error.  The sampling error consists of two parts: 
confidence levels and ranges.  The confidence level indicates the
degree of confidence that can be placed in the estimates derived from
the sample.  The range is the upper and lower limits between which
the actual universe estimates may be found.  Our sample was designed
so that the sampling error would not be greater than 10 percent at
the 95-percent confidence level; however, where we further subdivided
the sample along particular groups (e.g., employers that provided for
matching contributions), the resulting number of employers was too
small to meet this criteria.  In the letter portion of this report,
we indicate when the sampling errors are greater than 10 percent;
these sampling errors are also at the 95-percent confidence level. 
In appendix II, which provides the detailed results of our analyses,
we do not provide individual sample errors, because the number of
such individual estimates would be prohibitive. 

We stratified our sample according to employer size using 3
categories--100 to 999; 1,000 to 9,999; and 10,000 or more employees. 
We included in our sample all the employers that had 10,000 or more
employees, because these employers may provide a more relevant
comparison with the federal government.  Table I.1 shows the
distribution of the employers from which we selected our sample and
the 419 employers selected according to employer size. 



                               Table I.1
                
                  Distribution of the 419 Employers by
                             Employer Size

                                         Number of           Number of
                                      employers in        employers in
Number of employees                sample universe              sample
------------------------------  ------------------  ------------------
100-999                                      2,498                 158
1,000-9,999                                    699                 161
10,000 or more                                 100                 100
======================================================================
Total                                        3,297                 419
----------------------------------------------------------------------
Source:  GAO analysis of data obtained from DOL. 


--------------------
\3 A multiemployer plan is one to which more than one employer is
required to contribute pursuant to one or more collective bargaining
agreements.  Only one Form 5500 is filed for each multiemployer plan,
using one of the sponsoring employers' identification numbers. 
Therefore, we could not identify all of the participating employers. 

\4 We originally selected a sample of 430 employers; however, we
excluded 11 of these employers from our study because of incorrect
codes in the DOL research database. 


      RESPONSE RATE CALCULATION
------------------------------------------------------- Appendix I:0.2

For the 419 employers in our sample, we (1) identified the unique
plan number for each employer's primary DC plan using the DOL
research database and (2) sent each employer a letter requesting that
an SPD for the identified plan be provided to us.  For those
employers that sponsored more than one such plan (each covering
different groups of employees), we requested information on the
employer's largest primary plan.\5 For 50 of the employers, our
letters were returned as nondeliverable.  From the remaining 369
employers, we received 138 SPDs.  Forty-four employers provided us
with a different plan than the one we requested; however, the plans
provided appeared to be a primary DC plan and were included in our
review. 

To obtain the 281 SPDs that we did not receive directly from
employers, we requested that DOL provide us copies from its files. 
DOL provided 143 of the requested SPDs and told us that 138 of the
SPDs were not available, because the employer never filed a copy as
required by law. 

Overall, we were able to obtain SPDs for 281 of the 419 employers in
our sample, for a response rate of 67 percent.  We were unable to
determine if the SPDs provided by employers or DOL reflected the most
current information available.  Table I.2 shows the disposition of
each of the 419 employers in our sample by employer size. 



                               Table I.2
                
                 Disposition of Employers in the Sample
                            by Employer Size

                                         Number of employees
                                --------------------------------------
                                            1,000-    10,000
Employers in sample              100-999     9,999   or more     Total
------------------------------  --------  --------  --------  ========
SPD provided by employer              47        60        31       138
SPD provided by DOL                   60        49        34       143
======================================================================
Subtotal                             107       109        65       281
SPD not provided by employer          51        52        35       138
 or DOL
======================================================================
Total                                158       161       100       419
----------------------------------------------------------------------
To examine the extent to which our results were generalizable, we
compared the 281 employers for which we obtained an SPD to the
universe of employers with 100 or more employees that offered only
single-employer DC plans on the basis of employer size, industry
type, and geographic region.  The results of these analyses showed
that the sample respondents were generally comparable to employers in
our universe for these characteristics. 


--------------------
\5 Approximately 6 percent of the employers in our universe sponsored
more than one primary plan. 


      ANALYSIS OF SPD DATA
------------------------------------------------------- Appendix I:0.3

To identify and summarize the general characteristics of the 281 DC
plans for which we obtained an SPD, we developed a detailed data
collection instrument to allow information from each SPD to be
recorded in a consistent and standardized way.  Each SPD was reviewed
twice--the second review was completed by a more experienced analyst
to provide 100 percent verification of the information collected.  We
did not independently verify the accuracy of the information
described in the SPDs. 

We entered the information from the data collection instruments into
a database to determine the frequency of the data elements and
reviewed our results for patterns and relationships. 


      REVIEW OF THRIFT SAVINGS
      PLAN PROVISIONS
------------------------------------------------------- Appendix I:0.4

To identify information on the federal Thrift Savings Plan (TSP), we
reviewed various publications that we obtained from the Federal
Retirement Thrift Investment Board.  We included this information in
our report to provide a general basis for comparison between the
government's existing DC plan and those plans sponsored in the
private sector. 


      ANALYSIS OF RESEARCH
      DATABASE
------------------------------------------------------- Appendix I:0.5

To supplement the data available from the SPDs, we pulled additional
plan information from DOL's research database--the same database from
which we selected our sample.  We used this information to analyze
the rate at which eligible employees chose to participate in the
plans, the employers' methods of managing accounts, the proportion of
participants that were fully vested, and the percentage of plan
assets invested in employer stocks, stocks, bonds, and outstanding
participant loans.  We were able to supplement only those SPDs that
described plans included in the 1993 research database. 


      REVIEW OF MULTIPLE PLANS
------------------------------------------------------- Appendix I:0.6

To address part of the second objective, which was to identify the
number of employers that sponsored more than one DC plan covering the
same groups of employees, we used the 1993 DOL research database and
included employers with two or more employees.  To determine why
employers might decide to sponsor multiple plans, the remainder of
the second objective, we (1) reviewed retirement-related literature
that we identified using an on-line business periodical system and
(2) consulted with experts in the field of pensions.  The experts
with whom we consulted were Mr.  Ray Schmitt, Specialist, and Ms. 
Carolyn Merck, Specialist, the Congressional Research Service; Mr. 
Dallas Salisbury, President, the Employee Benefit Research Institute;
Mr.  Richard R.  Joss, Resource Actuary, Watson Wyatt Worldwide; and
Ms.  Martha Priddy Patterson, Director of Employee Benefits, Policy
and Analysis, KPMG Peat Marwick.  We selected these individuals
because we had identified them as experts during prior work we had
done on private sector pension issues. 

To identify whether plans in its research database provided primary
versus supplementary benefits, DOL used a set of assumptions, which
it validated for a small sample of plans.  Employers that sponsored
only one plan, by definition, sponsored a primary plan.  For
employers that sponsored more than one plan, DOL's assumptions
identified (1) multiple DC plans of the same type as primary plans
covering different groups of employees and (2) multiple DC plans of
different types as primary and supplementary plans covering the same
group of employees, with the largest one being the primary plan.  We
did not independently verify the accuracy of DOL's criteria for
identifying the primary versus supplementary status of plans. 
According to DOL officials, their validation analyses indicated that
their assumptions were not accurate in all cases; however, they
appeared to be valid for the large majority of situations where
employers sponsor more than one pension plan. 

We obtained and analyzed the sample of SPDs and completed the review
of multiple plans between October 1996 and July 1997 in accordance
with generally accepted government auditing standards. 


SUMMARY PLAN DESCRIPTION ANALYSIS
RESULTS
========================================================== Appendix II



                                    Table II.1
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                      Participation Requirement and Employer
                                   Size (1993)

                                         Number of employees
                      ----------------------------------------------------------
                              100 or more                 10,000 or more\a
                      ----------------------------  ----------------------------
Parti
cipat
ion
requi
remen                        Number        Percent         Number        Percent
t      -------------  -------------  -------------  -------------  -------------
Age    18                       254              8              8              8
 (in
 year
 s)
       19                        47              1              0              0
       20                        60              2              0              0
       20.5                      85              3              2              2
       21                     1,564             47             34             34
       None\b                 1,232             37             54             54
       Not specified             56              2              3              3
================================================================================
       Total                  3,297            100            100            100
Lengt  1 month                   33              1              3              3
 h of
 serv
 ice
       3 months                  97              3              2              2
       4 months                  23              1              0              0
       6 months                 460             14              8              8
       9 months                   6              0              0              0
       1 year                 2,159             65             69             69
       1.25 years                 6              0              0              0
       2 years                   91              3              2              2
       None\c                   365             11             14             14
       Not specified             56              2              3              3
================================================================================
       Total                  3,297            100            100            100
--------------------------------------------------------------------------------
Note:  Due to rounding, numbers and percentages do not always add to
the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

\b Because 1,093 employers with 100 or more employees (and 51
employers with 10,000 or more employees) were silent regarding an age
requirement but explicitly specified that employees must meet a
particular length-of-service requirement--we included these employers
under the "none" rather than "not specified" category. 

\c Because 47 employers with 100 or more employees were silent
regarding a length-of-service requirement but explicitly specified
that employees must meet a particular age requirement--we included
these employers under the "none" rather than "not specified"
category. 

Source:  GAO analysis of summary plan description data. 



                                    Table II.2
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                         Contribution Source and Type and
                               Employer Size (1993)

    Contribution source and type                 Number of employees
------------------------------------  ------------------------------------------
 Participant          Employer            100 or more         10,000 or more\a
--------------  --------------------  --------------------  --------------------
Pre     After-             Nonmatchi
tax        tax   Matching         ng     Number    Percent     Number    Percent
---  ---------  ---------  ---------  ---------  ---------  ---------  ---------
ï¿½                                            42          1          6          6
ï¿½            ï¿½          ï¿½                  107\          3         5\          5
ï¿½            ï¿½          ï¿½          ï¿½       165\          5         3\          3
ï¿½            ï¿½                     ï¿½         63          2          3          3
ï¿½                       ï¿½                   265          8         18         18
ï¿½                       ï¿½          ï¿½        819         25         26         26
ï¿½                                  ï¿½        196          6         11         11
             ï¿½          ï¿½                    23          1          0          0
             ï¿½                     ï¿½        183          6          0          0
                      ï¿½\b                    23          1          0          0
                      ï¿½\b          ï¿½          8          0          2          2
                                   ï¿½      1,354         41         23         23
Not                                          50          2          3          3
 sp
 ec
 if
 ie
 d
================================================================================
Tot                                       3,297        100        100        100
 al
--------------------------------------------------------------------------------
Note:  Due to rounding, numbers and percentages do not always add to
the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

\b These employers provided matching contributions on the basis of
contributions that participants made to a separate pension plan. 

Source:  GAO analysis of summary plan description data. 



                               Table II.3
                
                  Number and Percent of Employers That
                  Sponsor Only Single-Employer Primary
                 Defined Contribution Pension Plans by
                      Basis for Making Nonmatching
                 Contributions and Employer Size (1993)

                                         Number of employees
                                --------------------------------------
                                   100 or more       10,000 or more\a
                                ------------------  ------------------
Basis for making nonmatching
contributions                     Number   Percent    Number   Percent
------------------------------  --------  --------  --------  --------
Some percent of profits,           1,238        44        26        38
 allocated by participant
 compensation
Participant compensation           1,251        45        25        37
Profits and participant               24         1         5         7
 compensation
Some percent of profits,              11         0         5         7
 allocated by participant
 contributions
Other                                107         4         5         7
Not specified                        156         6         3         4
======================================================================
Total                              2,786       100        68       100
----------------------------------------------------------------------
Note:  Due to rounding, numbers and percentages do not always add to
the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                               Table II.4
                
                  Number and Percent of Employers That
                  Sponsor Only Single-Employer Primary
                 Defined Contribution Pension Plans by
                      Maximum Employer Nonmatching
                 Contributions and Employer Size (1993)

                                         Number of employees
                                --------------------------------------
                                   100 or more       10,000 or more\a
                                ------------------  ------------------
Maximum employer nonmatching
contributions expressed (as a
percent of participant salary)    Number   Percent    Number   Percent
------------------------------  --------  --------  --------  --------
5 percent or less                    223         8        17        25
6 to 10 percent                      196         7         5         7
More than 10 percent                 154         6         2         3
Not specified                      2,212        79        45        66
======================================================================
Total                              2,786       100        68       100
----------------------------------------------------------------------
Note:  Due to rounding, numbers and percentages do not always add to
the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                               Table II.5
                
                  Number and Percent of Employers That
                  Sponsor Only Single-Employer Primary
                 Defined Contribution Pension Plans by
                      Maximum Level of Participant
                  Contributions Eligible for Employer
                   Matching and Employer Size (1993)

                                         Number of employees
                                --------------------------------------
                                   100 or more       10,000 or more\b
                                ------------------  ------------------
Maximum participant
contribution eligible for
employer matching\a (percent
of salary)                        Number   Percent    Number   Percent
------------------------------  --------  --------  --------  --------
1 percent                              0         0         0         0
2 percent                             93        11         0         0
3 percent                             78        10         6        18
4 percent                            222        27         8        23
5 percent                             97        12         2         5
6 percent                            231        28        14        41
7 percent                             48         6         2         5
8 percent                             23         3         0         0
9 percent                              0         0         0         0
10 percent                             8         1         2         5
More than 10 percent                  14         2         2         5
======================================================================
Total                                816       100        34       100
----------------------------------------------------------------------
Note 1:  Of the 3,297 employers with 100 or more employees in our
study, 1,410 employers provided matching contributions to the primary
plan.  We could only determine the maximum participant contributions
eligible for employer matching contributions for 816 of these 1,410
employers, because the summary plan descriptions for the remaining
594 employers did not contain this information. 

Note 2:  Due to rounding, numbers and percentages do not always add
to the total. 

\a This column represents the maximum participant contribution,
expressed as a percent of salary, for which employers will provide
some level of matching contributions.  However, participants are
frequently allowed to contribute a greater percent of salary than
that which is eligible for matching contributions.  For example, an
employer may allow participants to contribute up to 10 percent of
their salary to a plan but provide matching contributions for only
the first 6 percent contributed. 

\b Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                               Table II.6
                
                  Number and Percent of Employers That
                  Sponsor Only Single-Employer Primary
                 Defined Contribution Pension Plans by
                 the Maximum Level of Employer Matching
                 Contributions and Employer Size (1993)

                                         Number of employees
                                --------------------------------------
                                   100 or more       10,000 or more\b
                                ------------------  ------------------
Maximum level of employer
matching of eligible
participant contributions\a       Number   Percent    Number   Percent
------------------------------  --------  --------  --------  --------
Less than 25 percent                  43         5         0         0
25 percent                           162        20         3         9
26 to 49 percent                      19         2         0         0
50 percent                           248        30         8        25
51 to 74 percent                      38         5         2         6
75 percent                            23         3         0         0
76 to 99 percent                       0         0         0         0
100 percent                          249        31        17        53
More than 100 percent                 33         4         3         9
======================================================================
Total                                815       100        32       100
----------------------------------------------------------------------
Note 1:  Of the 3,297 employers with 100 or more employees in our
study, 1,410 employers provided matching contributions to the primary
plan.  We could only determine the maximum level of employer matching
of eligible participant contributions for 815 of these 1,410
employers, because the summary plan descriptions for the remaining
595 employers did not contain this information. 

Note 2:  Due to rounding, numbers and percentages do not always add
to the total. 

\a This column represents the overall level of matching contributions
that employers provided for eligible participant contributions.  For
example, if an employer provided $1 dollar for each dollar of a
participant's contribution that was eligible for employer matching,
then the overall level of matching contributions would be 100
percent.  If an employer provided 50 cents for each dollar of a
participant's contribution that was eligible for employer matching,
then the overall level of matching contributions would be 50 percent. 

\b Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                               Table II.7
                
                  Number and Percent of Employers That
                  Sponsor Only Single-Employer Primary
                 Defined Contribution Pension Plans by
                 the Maximum Potential Employer Cost of
                 Contributions and Employer Size (1993)

                                         Number of employees
                                --------------------------------------
                                   100 or more       10,000 or more\b
                                ------------------  ------------------
Maximum potential employer
cost of contributions\a
(percent of salary)               Number   Percent    Number   Percent
------------------------------  --------  --------  --------  --------
Employer does not contribute          42         5         6        16
 to plan
1 percent                             31         4         2         4
2 percent                            120        14         5        12
3 percent                            120        14         5        12
4 percent                            138        16         6        16
5 percent                             72         8         6        16
6 percent                             46         5         3         8
7 percent                             55         6         2         4
8 percent                             13         1         0         0
9 percent                              2         0         2         4
10 percent                           114        13         2         4
11 to 15 percent                     106        12         0         0
16 to 18 percent                      25         3         2         4
======================================================================
Total                                883       100        38       100
----------------------------------------------------------------------
Note 1:  Of the 3,297 employers with 100 or more employees in our
study, 3,205 employers specified that they made matching and/or
nonmatching contributions to the primary plan.  Of these 3,205
employers, we could only determine the maximum potential employer
cost of contributions for 883 employers, because the summary plan
descriptions for the remaining 2,322 employers did not contain this
information. 

Note 2:  Due to rounding, numbers and percentages do not always add
to the total. 

\a This column represents the maximum potential employer cost of
making contributions to the primary plan.  An employer's actual cost
of contributions may be less than this maximum.  For example,
participants might not contribute enough to maximize employer
matching contributions or the employer might elect to contribute less
than the maximum allowable nonmatching contribution in any given
year. 

\b Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                                    Table II.8
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                      the Maximum Participant Contributions
                         Allowed and Employer Size (1993)

                                               Number of employees
                                  ----------------------------------------------
                                       100 or more           10,000 or more\a
                                  ----------------------  ----------------------
                 Maximum rate of
                 participant
                 contribution
Type of          allowed
participant      (percent of
contributions    salary)              Number     Percent      Number     Percent
allowed          ---------------  ----------  ----------  ----------  ----------
Pretax only      1 to 5 percent           38           3           2           3
                 6 to 10 percent         292          22          14          23
                 11 to 15                622          47          35          56
                  percent
                 16 to 20                119           9           6          10
                  percent
                 21 to 25                 23           2           0           0
                  percent
                 Not specified           228          17           5           8
================================================================================
                 Total                 1,322         100          62         100
After-tax only   1 to 5 percent            0           0           0           0
                 6 to 10 percent          83          40           0           0
                 11 to 15                  0           0           0           0
                  percent
                 16 to 20                  0           0           0           0
                  percent
                 21 to 25                  0           0           0           0
                  percent
                 Not specified           123          60           0           0
================================================================================
                 Total                   206         100           0           0
Pretax and       1 to 5 percent            0           0           0           0
 after-tax
                 6 to 10 percent          54          16           5          45
                 11 to 15                 66          20           0           0
                  percent
                 16 to 20                  9           3           3          27
                  percent
                 21 to 25                  6           2           0           0
                  percent
                 Not specified           199          60           3          27
================================================================================
                 Total                   334         100          11         100
--------------------------------------------------------------------------------
Note:  Due to rounding, numbers and percentages do not always add to
the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                                    Table II.9
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                         Type of Vesting for Matching and
                      Nonmatching Contributions and Employer
                                   Size (1993)

                                               Number of employees
                                  ----------------------------------------------
                                       100 or more           10,000 or more\b
                                  ----------------------  ----------------------
Type of          Type of
employer         vesting\a            Number     Percent      Number     Percent
contribution     ---------------  ----------  ----------  ----------  ----------
Matching         Immediate               478          34          28          52
                 Cliff                   127           9          12          22
                 Graduated               768          54          14          26
                 Not specified            36           3           0           0
================================================================================
                 Total                 1,410         100          54         100
Nonmatching      Immediate               356          13          15          22
                 Cliff                   483          17          17          25
                 Graduated             1,917          69          34          50
                 Not specified            31           1           2           3
================================================================================
                 Total                 2,786         100          68         100
--------------------------------------------------------------------------------
Note 1:  For defined contribution plans, the term "vesting" refers to
a participant's ownership rights to employer contributions made to
his or her individual plan account (and the earnings that accrue from
those contributions) even if the participant separates from the
employer.  Participants are always fully vested in any pretax or
after-tax contributions that they make to the plan. 

Note 2:  Due to rounding, numbers and percentages do not always add
to the total. 

\a Three common forms of vesting include immediate, cliff, and
graduated vested.  Under immediate vesting, participants are fully
vested in employer contributions at the time they are made.  Under
cliff vesting, participants become fully vested after a specified
number of years of service, with no vesting prior to that number of
years.  Under graduated vesting, participants are partially vested
over a period of years according to an increasing schedule until full
vesting is achieved. 

\b Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                                   Table II.10
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                       Number of Years to Full Vesting for
                      Matching and Nonmatching Contributions
                             and Employer Size (1993)

                                               Number of employees
                                  ----------------------------------------------
                                       100 or more           10,000 or more\a
                                  ----------------------  ----------------------
Type of          Number of years
employer         to full vesting      Number     Percent      Number     Percent
contribution     ---------------  ----------  ----------  ----------  ----------
Matching         Immediate               478          34          28          52
                 1 year                    0           0           0           0
                 2 years                   6           0           0           0
                 3 years                  84           6           2           4
                 4 years                  44           3           2           4
                 5 years                 256          18          16          30
                 6 years                 136          10           6          11
                 7 years                 369          26           2           4
                 Not specified            36           3           0           0
================================================================================
                 Total                 1,410         100          54         100
Nonmatching      Immediate               356          13          15          22
                 1 year                    6           0           0           0
                 2 years                   6           0           0           0
                 3 years                 154           6           2           3
                 4 years                  96           3           0           0
                 5 years                 716          26          23          34
                 6 years                 449          16           3           4
                 7 years                 995          36          23          34
                 Not specified             8           0           2           3
================================================================================
                 Total                 2,786         100          68         100
--------------------------------------------------------------------------------
Note 1:  For defined contribution plans, the term "vesting" refers to
a participant's ownership rights to employer contributions made to
his or her individual plan account (and the earnings that accrue from
those contributions) even if the participant separates from the
employer.  Participants are always fully vested in any pretax or
after-tax contributions that they make to the plan. 

Note 2:  Due to rounding, numbers and percentages do not always add
to the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                                   Table II.11
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                      Number of Investment Options for Each
                      Type of Contribution and Employer Size
                                      (1993)

                                               Number of employees
                                  ----------------------------------------------
                                       100 or more           10,000 or more\a
                                  ----------------------  ----------------------
                 Number of
                 investment
Type of          options              Number     Percent      Number     Percent
contribution     ---------------  ----------  ----------  ----------  ----------
Pretax           None--employer          248          15           6           8
                  directs
                  investments
                 2 to 3 options           75           5           9          13
                 4 to 9 options          467          28          35          49
                 10 or more               88           5           3           4
                  options
                 Not specified           777          47          19          26
================================================================================
                 Total                 1,656         100          72         100
After-tax        None--employer          123          23           0           0
                  directs
                  investments
                 2 to 3 options           38           7           2          18
                 4 to 9 options          138          26           6          55
                 10 or more               13           2           0           0
                  options
                 Not specified           228          42           3          27
================================================================================
                 Total                   540         100          11         100
Matching         None--employer          232          16          11          20
                  directs
                  investments
                 2 to 3 options           50           4           8          15
                 4 to 9 options          377          27          20          37
                 10 or more               75           5           3           6
                  options
                 Not specified           675          48          13          24
================================================================================
                 Total                 1,410         100          54         100
Nonmatching      None--employer        1,253          45          31          46
                  directs
                  investments
                 2 to 3 options          111           4           5           7
                 4 to 9 options          434          16          15          22
                 10 or more               61           2           2           3
                  options
                 Not specified           927          33          16          24
================================================================================
                 Total                 2,786         100          68         100
--------------------------------------------------------------------------------
Note:  Due to rounding, numbers and percentages do not always add to
the total. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 



                                   Table II.12
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                          Type of Investment Options for
                      Participant and Employer Contributions
                             and Employer Size (1993)

                                               Number of employees
                                  ----------------------------------------------
                                       100 or more           10,000 or more\b
                                  ----------------------  ----------------------
                 Type of
                 investment
Type of          option\a             Number   Percent\c      Number   Percent\c
contribution     ---------------  ----------  ----------  ----------  ----------
Participant      Employer stock          129           4          18          18
                 Stock funds             604          18          45          45
                 Bond funds              343          10          20          20
                 Balanced funds          397          12          29          29
                 Guaranteed              469          14          25          25
                  investment
                  contract
                 U.S. government         172           5           6           6
                  securities
                 Money market            337          10          31          31
Employer         Employer stock          605          18          31          31
                 Stock funds             745          23          43          43
                 Bond funds              451          14          26          26
                 Balanced funds          565          17          31          31
                 Guaranteed              625          19          28          28
                  investment
                  contract
                 U.S. government         217           7           5           5
                  securities
                 Money market            446          14          31          31
--------------------------------------------------------------------------------
\a Employers can provide participants with a variety of options for
investing participant and/or employer contributions.  Some common
investment options include shares of the employer's stock; shares of
stock in other companies; bonds offered by other companies; balanced
funds, which invest in both stocks and bonds; guaranteed investment
contracts, which are offered by insurance companies and provide a
guaranteed rate of return for a specified period of time; U.S. 
government securities; and money market funds, which are invested in
short-term securities such as Treasury bills and bank certificates of
deposit. 

\b Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

\c Because some employers offered more than one of these investment
options, percentages will not add to 100 percent. 

Source:  GAO analysis of summary plan description data. 



                                   Table II.13
                     
                       Number and Percent of Employers That
                       Sponsor Only Single-Employer Primary
                      Defined Contribution Pension Plans by
                      Type of Participant Access to Account
                         Assets and Employer Size (1993)

 Type of participant access
  to vested account assets                   Number of employees
----------------------------  --------------------------------------------------
                                    100 or more             10,000 or more\a
                              ------------------------  ------------------------
Ha
rd
sh
ip
wi
th
dr
aw
al                 Voluntary
s\               withdrawals
b       Loans\b           \c       Number      Percent       Number      Percent
--  -----------  -----------  -----------  -----------  -----------  -----------
ï¿½                                     283            9            9            9
ï¿½             ï¿½                       759           23           34           34
ï¿½             ï¿½            ï¿½          269            8            9            9
ï¿½                          ï¿½          108            3            6            6
              ï¿½                       403           12           14           14
              ï¿½            ï¿½          100            3            0            0
                           ï¿½          232            7            0            0
No                                  1,144           35           28           28
 t
 s
 p
 e
 c
 i
 f
 i
 e
 d
--------------------------------------------------------------------------------
Note:  Employers can design defined contribution plans to allow
participants access to a portion of their vested account balance
before retirement using a variety of plan features, including
hardship withdrawals, loans, and voluntary withdrawals.  Participants
who use a withdrawal option may be subject to various IRS and/or
employer limits and penalties. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

\b Hardship withdrawal provisions allow participants to withdraw a
portion of their own contributions to the plan if they suffer a
financial hardship, as defined by the IRS. 

\c Loan provisions allow participants to withdraw a portion of their
account, subject to IRS limits, and repay their account within a
specified period at a specified rate of interest. 

\d Voluntary withdrawal provisions allow participants to withdraw a
portion of their after-tax contributions and/or employer
contributions for any reason and without having to repay their
accounts. 

Source:  GAO analysis of summary plan description data. 



                              Table II.14
                
                  Number and Percent of Employers That
                  Sponsor Only Single-Employer Primary
                 Defined Contribution Pension Plans by
                   Withdrawal Options Available Upon
                  Retirement and Employer Size (1993)

                                         Number of employees
                                --------------------------------------
                                   100 or more       10,000 or more\a
                                ------------------  ------------------
Withdrawal options available
upon retirement                   Number   Percent    Number   Percent
------------------------------  --------  --------  --------  --------
Lump-sum distribution              3,022        92        97        97
Annuity                            1,537        47        32        32
Installment payments               2,216        67        52        52
Access to account balance as          14         0         2         2
 needed
Other                                 78         2         2         2
Not specified                        175         5         3         3
----------------------------------------------------------------------
Note:  Because some employers offer more than one withdrawal option,
percentages do not add to 100 percent. 

\a Employers with 10,000 or more employees represent a subset of the
employers with 100 or more employees. 

Source:  GAO analysis of summary plan description data. 


IRS FORM 5500 ANALYSIS RESULTS
========================================================= Appendix III



                              Table III.1
                
                Number of Private Sector Employers That
                  Sponsor Only Single-Employer Defined
                 Contribution Pension Plans, by Type of
                 Pension Plan Offered and Employer Size
                                 (1993)

                                              Number of  Proportion of
                               Number of      employers      employers
                               employers           that           that
                                    that      sponsored      sponsored
Number of                      sponsored  supplementary  supplementary
employees                  primary plans          plans          plans
-------------------------  -------------  -------------  -------------
2-9                              173,762         28,938          0.167
10-24                            110,089         11,093          0.101
25-49                             62,107          4,441          0.072
50-99                             39,556          2,579          0.065
100-249                           29,073          2,288          0.079
250-499                            9,455            874          0.092
500-999                            4,960            506          0.102
1,000-2,499                        2,622            290          0.111
2,500-4,999                          969            162          0.167
5,000-9,999                          427             65          0.152
10,000-19,999                        261             40          0.153
20,000-49,999                        143             19          0.133
50,000 or more                       145             19          0.131
Not reported                      56,689          5,711          0.101
======================================================================
Total                            490,258         57,025          0.116
----------------------------------------------------------------------
Note 1:  This table includes those employers that sponsored only
single-employer DC pension plans covering two or more participants. 

Note 2:  The database that we analyzed categorizes pension plans as
primary or supplementary using a set of criteria established by DOL. 
According to these criteria, employers that sponsored only one plan,
by definition, sponsored a primary plan.  For employers that
sponsored more than one plan, DOL's assumptions identified (1)
multiple DC plans of the same type as primary plans covering
different groups of employees and (2) multiple DC plans of different
types as primary and supplementary plans covering the same group of
employees, with the largest one being the primary plan. 

Source:  GAO analysis of IRS Form 5500 data. 



                                   Table III.2
                     
                     Number of Private Sector Employers That
                       Sponsor Only Single-Employer Defined
                      Contribution Pension Plans, by Type of
                     Pension Plan Offered and Industry Group
                                      (1993)

                                                  Number of
                              Number of      employers that        Proportion of
                         employers that           sponsored       employers that
                      sponsored primary       supplementary            sponsored
Industry group                    plans               plans  supplementary plans
-------------------  ------------------  ------------------  -------------------
Agriculture                       8,285                 687                0.083
Mining                            2,455                 136                0.055
Construction                     33,147               3,415                0.103
Manufacturing                    56,348               4,193                0.074
Transportation                    6,665                 512                0.077
Communications and                3,987                 240                0.060
 utilities
Wholesale trade                  36,899               3,316                0.090
Retail trade                     47,273               3,373                0.071
Finance, insurance,              34,786               3,064                0.088
 and real estate
Services                        247,056              37,692                0.153
Tax-exempt                       15,363                 612                0.040
 organizations
Not reported                        703                  61                0.087
================================================================================
Total                           492,967              57,301                0.116
--------------------------------------------------------------------------------
Note 1:  This table includes those employers that only sponsored
single-employer DC pension plans. 

Note 2:  The database that we analyzed categorizes pension plans as
primary or supplementary using a set of criteria established by DOL. 
According to these criteria, employers that sponsored only one plan,
by definition, sponsored a primary plan.  For employers that
sponsored more than one plan, DOL's assumptions identified (1)
multiple DC plans of the same type as primary plans covering
different groups of employees, and (2) multiple DC plans of different
types as primary and supplementary plans covering the same group of
employees, with the largest one being the primary plan. 

Source:  GAO analysis of IRS Form 5500 data. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
LABOR
========================================================= Appendix III


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Margaret T.  Wrightson, Assistant Director, Federal Management and
 Workforce Issues
James A.  Bell, Assistant Director
Jennifer S.  Cruise, Evaluator-in-Charge
Gregory H.  Wilmoth, Senior Social Science Analyst
George H.  Quinn, Jr., Computer Specialist
Ernestine B.  Burt, Issue Area Assistant
Carol B.  Quick, Intern

*** End of document. ***