DC Plans, IRAs Imply Economic Advantage

Households without employer-sponsored defined contribution (DC) plans or individual retirement accounts (IRA) had lower incomes and paid less taxes than peers with access to such plans, a study found.


A study by the Government Accountability Office (GAO) found households not paying into a DC plan or IRA are more likely to have limited additional resources to draw upon during retirement.

In dollar terms, the median adjusted gross income for households without DC plans or IRAs lagged more than $40,000 behind households able to take advantage of some kind of retirement account—earning $32,000 annually, compared with $75,000. The income gap corresponds to a 10% difference in median marginal tax rates between the two groups. DC plan and IRA users paid 25% of income in taxes, while those without paid 15%.

Another finding was that just 15% of married households and 11% of single households without a DC plan or IRA could rely on a defined benefit (DB) plan for supplemental income during retirement.

GAO researchers examined the impact of the Savers Credit offered by the Internal Revenue Service (IRS) to workers saving for retirement, which could result in a small increase in a household’s retirement annuity. As it stands, the median annuity increase caused by the Savers Credit for households in the lowest earnings quartile (those making less than $34,377) is about $155.

Researchers stressed that making the Savers Credit refundable—meaning it could generate a tax refund in excess of tax paid—it could result in an $876 boost to annuity values for the lowest earning households.

Other findings suggested implementing automatic IRAs is a modestly effective way to increase retirement annuities for households at all earning levels, especially among households with low-income workers. The projected median dollar increase for these households’ annual retirement annuity would be $479.

Additional information about the study’s goals and methodology can be found here.