Private Pensions: Issues of Coverage and Increasing Contribution Limits for Defined Contribution Plans

A letter report issued by the General Accounting Office with an abstract that begins "Proposals to expand pension coverage and promote pension savings have recently received much attention. In the Economic Growth and Tax Relief Reconciliation Act of 2001, for example, Congress raised statutory limits on tax-deferred pension contributions and benefits and made other changes to the law governing qualified pension plans. Some believe that increasing these limits will encourage employers to start new plans and improve existing plan coverage, especially for employees of small businesses. Others contend that these measures will primarily benefit higher-paid individuals and may not improve pension coverage for low-or moderate-income workers. Forty-seven percent of all workers participated in a pension plan, and 36 percent of all workers participated in a defined contribution (DC) plan. Most pension plan participants had low or moderate earnings (less than $40,000 per year) and were men. About eight percent of all DC participants, or 3.1 million people, were likely direct beneficiaries of a simultaneous increase in all the statutory contribution limits GAO analyzed. Higher earners were more likely than low and moderate earners, and men were more likely than women, to benefit directly from such an increase; this was also true of increases in each of the separate dollar limits on contributions. About 721,000 DC participants, or 11 percent of eligible DC participants, were likely to benefit from a so-called "catch-up" provision allowing persons aged 50 or older to make additional contributions to DC plans. Higher earners were more likely to benefit directly from this option than were low and moderate earners. However, neither male more female DC participants were significantly more likely to benefit directly from this option.