Summary

In response to a congressional request, GAO provided information on employer-sponsored retirement savings plans as provided for under section 401(k) of the Internal Revenue Code, specifically the: (1) incidence of 401(k) plans and their relationships to other plans; (2) variations in plan provisions and experiences across firms; (3) extent to which plans benefit employees at various salary levels; and (4) anticipated effects of the Tax Reform Act of 1986 on 401(k) plans.

GAO found that: (1) only 4 percent of all U.S. corporations sponsored 401(k) plans; (2) most 401(k) sponsors provided other retirement plans and made matching contributions to the 401(k) plans; (3) nearly all firms with 5,000 or more employees sponsored 401(k) plans in 1986; (4) most participants used 401(k) plans predominately as retirement savings plans rather than tax-favored ordinary savings or investment instruments; (5) 34 percent of active 401(k) plan contributors had salaries of $30,000 or more and tended to make larger contributions; (6) 68 percent of the participants earning $30,000 contributed $1,200 or more, where 53 percent of those earning $10,000 to $29,000 contributed less than $1,200 per year to their plans; and (7) although some of the provisions of the Tax Reform Act could reduce employee participation, little change was expected.