Pensions and Individual Retirement Accounts
June 1, 2022
(IRAs): An Overview
Elizabeth A. Myers,
A pension is a voluntary benefit that employers can offer to assist employees in providing for
Coordinator
their financial security in retirement. Pension plans receive a number of tax advantages and vary
Analyst in Income Security
along a number of characteristics, such as whether the employer that sponsors the plan is in the

public or private sector and whether the benefit is paid according to a specified formula (a
John J. Topoleski
defined benefit [DB] plan) or is based on funds that accumulate in a worker’s account (a defined
Specialist in Income
contribution [DC] plan). In 2021, nearly three-quarters (71%) of the U.S. civilian workforce had
Security
access to, and more than half (56%) participated in, pension plans at their workplaces.

The earliest pensions in what later became the United States were provided by several of the
Paul S. Davies
colonies or by the Continental Congress for disabled members of the military. The first private-
Specialist in Income
sector pension plan appears to have been created by the American Express Company in 1875. In
Security

the public sector, the earliest pensions were provided by some cities for disabled police and
firefighters. The first pension plan to cover general state employees began in Massachusetts in
Katelin P. Isaacs
1911. During this time, pension plans had limited oversight or benefit protections at the federal or
Specialist in Income
state level. In 1963, the bankruptcy of the Studebaker automobile company resulted in a number
Security
of plan participants receiving either a fraction of their promised benefits or losing their benefits

entirely. The incident became the catalyst for the reform of legislation covering private-sector
pensions, leading to the passage of the Employee Retirement Income Security Act of 1974

(ERISA, P.L. 93-406).
Since ERISA, an increasing number of private-sector workers have been covered by DC plans rather than DB plans. In 1984,
the number of active participants in the private sector in DC plans surpassed the number of active participants in DB plans
and, by 2019, was six times as large. In contrast, state and local government employees continue to be covered mostly by DB
plans. More than 97% of current civilian federal employees participate in both a DB and a DC plan.
While pension plans are sponsored by employers, Individual Retirement Accounts (IRAs) are retirement savings accounts
workers may establish independently at financial institutions. IRAs serve multiple purposes. Workers, including those
without access to pension plans through their employers, may be eligible to save for retirement outside of the workplace
through IRAs. Also, a worker can deposit DC savings, or a lump sum payment from a DB pension (if available), into an IRA
at job change in a process called a rollover. Rollovers preserve the tax advantages of workers’ DC savings. IRA-based
retirement plans also allow employers to offer their employees a retirement savings option with minimal employer
involvement.
In recent years, some states have authorized or implemented state-facilitated retirement savings programs for workers who do
not have access to employer-sponsored plans. Most of the state-facilitated programs are IRA-based plans; others include
retirement marketplaces and multiple-employer plans.
This report provides an overview of employer-sponsored pensions: both DB and DC plans sponsored by the federal, state,
and local governments and employers in the private sector; IRAs (including IRA-based retirement plans); and state-facilitated
retirement savings programs. The report provides context for understanding current legislative efforts to improve retirement
security.
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Pensions and Individual Retirement Accounts (IRAs): An Overview

Introduction
A pension is a voluntary benefit offered by employers to assist employees in providing for their
financial security in retirement. Savings in employer-sponsored pensions are one of three possible
income sources in retirement, along with Social Security (a federal program that provides
monthly cash benefits to most retired or disabled workers and their family members) and private
savings.1 Private savings include Individual Retirement Accounts (IRAs), state-facilitated
retirement savings programs, and other non-IRA savings, such as annuities (see Figure 1).2
Figure 1. U.S. Retirement Income

Source: CRS.
This report provides an overview of employer-sponsored pensions, IRAs (including IRA-based
retirement plans), and state-facilitated retirement savings programs. Pension plans vary along a
number of dimensions, such as whether the employer that sponsors the plan is in the public or
private sector and whether the benefit is paid according to a specified formula or is based on
funds that accumulate in a worker’s individual account. In 2021, nearly three-quarters (71%) of
U.S workers had access to, and more than half (56%) participated in, pension plans at their

1 Social Security also provides benefits for the eligible family members of insured deceased workers. More information
about Social Security is available in CRS In Focus IF10426, Social Security Overview.
2 Annuities are insurance products that provide regular—typically monthly—payments for a specified number of years
or for an individual’s and spouse’s life, if married. Annuities can be purchased either as a lump sum or as an ongoing
purchase and either as a standalone product, in a retirement plan, or in an IRA. For example, individuals can convert
part or all of their retirement savings for monthly payments for life or use part or all of their regular retirement
contributions to purchase annuities that will provide monthly payments in retirements. For more information, see
Investor.gov, “Annuities,” https://www.investor.gov/introduction-investing/investing-basics/glossary/annuities.
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Pensions and Individual Retirement Accounts (IRAs): An Overview

workplaces. Pensions and retirement policy is an area of ongoing congressional interest as
lawmakers seek ways to improve the retirement system for both employers and employees.
History of Pensions
The earliest pensions in what later became the United States were provided by several of the
colonies and then by the Continental Congress for disabled members of the military. The U.S.
Army pension plan was funded out of general revenue (current benefits were paid from current
government revenue) while the U.S. Navy pension plan was funded by prizes from captured
ships. The prizes that funded the U.S. Navy pension plan were invested in an effort to provide a
consistent source of revenue for the plan.3
The first private-sector pension plan appears to have been created by the American Express
Company in 1875. By 1925, about 400 pension plans covering about 4 million employees had
been established, mostly by large companies in the railroad and utility industries.4 During the
Second World War, wage and price controls prevented employers from using higher wages to
attract scarce labor. Instead, an increasing number of employers offered other forms of
compensation, such as pensions, to recruit and retain employees.5
The bankruptcy of the Studebaker automobile company in 1963 resulted in a number of pension
plan participants receiving either a fraction of their promised benefits or losing their benefits
entirely. The incident became the catalyst for pension reform, eventually leading to the passage of
the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406).6 When ERISA was
enacted, defined benefit (DB) pension plans had more participants than defined contribution (DC)
pension plans did, though by 1984, the number of active participants in DC plans surpassed the
number of active participants in DB plans and was six times as large in 2019.7
In the public sector, the earliest pensions were provided by some cities for disabled police and
firefighters. The first pension plan to cover general state employees was in Massachusetts in
1911.8 Because government workers were generally excluded from Social Security when it was
created in 1935 due to concerns about the constitutionality of the federal government taxing state
governments, and because some states already provided pensions for their employees, an
increasing number of states created pension plans to cover their employees. By 1950, nearly half
of the largest state pension plans had been established.9 State and local government employees

3 As a result of poor investment returns, in 1841, Congress passed legislation that began paying Navy pensions from the
general fund of the U.S. Treasury again. See Public Statutes at Large, ed. Richard Peters, vol. 5 (Boston: Charles C.
Little and James Brown, 1848), p. 440. See Robert L. Clark, Lee A. Craig, and Jack W. Wilson, A History of Public
Sector Pensions in the United States (Pension Research Council, 2003).
4 See Raymond Schmitt, The Historical Development of the Private Pension System, Congressional Research Service,
72-77 ED, March 24, 1972, pp. 6-7.
5 See Patrick W. Seaburn, “Evolution of Employer Provided Defined Benefit Pensions,” Bureau of Labor Statistics,
December 1991, https://www.bls.gov/mlr/1991/12/art3full.pdf.
6 See James Wooten, “‘The Most Glorious Story of Failure in the Business’: The Studebaker-Packard Corporation and
the Origins of ERISA,” in The Employee Retirement Income Security Act of 1974: A Political History (Berkley:
University of California Press, 2005).
7 Active participants are individuals who are earning credit under DB plans or are making, or are eligible to make,
contributions to DC plans. See CRS In Focus IF12007, A Visual Depiction of the Shift from Defined Benefit (DB) to
Defined Contribution (DC) Pension Plans in the Private Sector.
8 See Clark, Craig, and Wilson, A History of Public Sector Pensions in the United States.
9 Clark, Craig, and Wilson, A History of Public Sector Pensions in the United States.
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Pensions and Individual Retirement Accounts (IRAs): An Overview

continue to be covered mostly by DB pension plans.10 Since the late 1990s, an increasing number
of states and localities have modified their pension plans, with many offering hybrid cash balance
plans or DC plans as alternatives or enhancements to traditional DB benefits.11
Congress passed the Civil Service Retirement Act of 1920 (P.L. 66-215) to provide pension
benefits for federal employees. Federal employees were not covered by Social Security when it
was created in 1935 and remained outside of it until Congress passed the Social Security
Amendments of 1983 (P.L. 98-21), which required all civilian federal employees hired after 1983
to participate in Social Security.12 As a result, the Federal Employees’ Retirement System (FERS)
Act of 1986 (P.L. 99-335) created a new retirement plan that is fully integrated with Social
Security. The FERS benefit package has three elements: Social Security benefits; the FERS DB
pension (which provides smaller benefits than the CSRS standalone DB pension does); and the
Thrift Savings Plan (TSP), a DC pension.13
Types of Retirement Plans
Pension plans can be classified along several dimensions, such as whether the employee receives
a monthly payment in retirement (DB pensions) or accrues funds in an individual account (DC
pensions), whether the plan sponsor is a private-sector or public-sector employer, and whether
the plan is sponsored by one employer or more than one employer.
Pension discussions also frequently include IRAs, which are tax-advantaged accounts for
individuals to save for retirement outside of employer-sponsored plans. Often individuals with
savings in DC plans, or with lump sum payments from DB plans, roll over their savings to IRAs
at job change or retirement. In addition, Congress has authorized several types of IRA-based
retirement plans that employers can offer, such as SIMPLE IRAs and SEP-IRAs (described
below). In IRA-based plans, employers establish IRAs for employees at financial institutions.
Employers may also offer payroll deduction IRAs, which are available to employers who want to
provide their employees a retirement savings option while limiting employer involvement. In
addition, some states have established state-facilitated retirement savings programs, often IRA-
based, for private-sector employees.

10 See, for example, Urban Institute, State and Local Finance Initiative: State and Local Government Pensions,
https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-
backgrounders/state-and-local-government-pensions.
11 A cash balance plan is a type of DB plan in which participants’ benefits are calculated using a formula, but the
benefit is expressed as an account balance that is paid as an annuity (or lump sum, if offered by the plan). See Alicia H.
Munnell, Jean-Pierre Aubry, and Mark Cafarelli, Defined Contribution Plans in the Public Sector: An Update, Center
for Retirement Research at Boston College, April 2014, https://crr.bc.edu/wp-content/uploads/2014/04/SLP_37-1.pdf;
Jean-Pierre Aubry and Kevin Wandrei, Have Localities Shifted Away from Traditional Defined Benefit Plans?, Center
for State and Local Government Excellence, April 2020, https://slge.org/wp-content/uploads/2020/04/local-dc-brief-
april-2020.pdf.
12 The Servicemen’s and Veterans’ Survivor Benefits Act of 1956 (P.L. 84-881) granted Social Security wage credits
for all military service performed before 1957 and brought military service performed after 1956 fully under the Social
Security Act. Since 1957, military service has been subject to Social Security payroll taxes and has been counted as
covered employment for all Social Security benefits. See CRS Report 98-810, Federal Employees’ Retirement System:
Benefits and Financing.
13 See CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing.
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Pensions and Individual Retirement Accounts (IRAs): An Overview

Defined Benefit and Defined Contribution Pension Plans
The two types of pension plans based on benefit structure are (1) plans in which participants
typically receive their benefits as monthly payments in retirement (DB plans) and (2) plans in
which participants’ benefits accrue in individual savings accounts (DC plans).
Defined Benefit (DB) Plans
In DB plans (sometimes referred to as traditional pension plans), participants typically receive
monthly payments in retirement based on a formula that uses either (1) a combination of length of
service, accrual rate, and average of final years’ salary; or (2) a flat dollar amount times the
number of months or years in the plan.14 Some plans offer participants the option to receive their
benefits as a lump-sum amount.
Generally, DB plans are meant to be fully funded, meaning that sufficient funds are set aside in
order to pay for promised future benefits. Employer contributions to a DB plan consist of benefits
earned by participants during the year (called normal cost) and a portion of plan underfunding
(for example, due to investment losses, called amortization cost).
Some DB plans require employee contributions. In 2011 (the most recent data available), 4% of
private-sector workers with DB plans were in plans that required employee contributions.15 In
contrast, in 2021, 91% of state and local government workers in DB plans were in plans that
required employee contributions.16 This percentage has steadily increased since 2011, when 79%
of state and local employees were in plans requiring employee contributions.17 The DB plans that
cover nearly all federal employees require employee contributions.
Cash Balance Plans
Instead of a traditional DB plan, some companies have established “hybrid” cash balance plans.
Cash balance plans combine features of DB and DC plans: Participants’ benefits are calculated
using a formula, but the benefit is expressed as an account balance that is paid as an annuity (or
lump sum, if offered by the plan). About 46% of DB plans in the private sector were cash balance
plans in 2019, and 30.6% of DB plan participants in 2019 were in cash balance plans.18
Defined Contribution (DC) Plans
In DC plans, workers are provided individual accounts funded by their own contributions,
contributions from their employers, or both. The funds in the account may accrue investment
earnings, which can then be used as a source of income in retirement.

14 For example, a plan might specify that retirees receive an annual amount equal to (1) 1.5% of their pay for each year
of service, where the pay is the average of a worker’s salary during a specified number of years (for example, a
participant who worked for 30 years, with an average salary of $100,000 during his or her highest-paid five years,
would receive $45,000 per year in retirement), or (2) $40 multiplied by the number of months worked in the plan (for
example, a worker who worked for 30 years [i.e., 360 months] would receive $14,400 per year in retirement).
15 See U.S. Department of Labor (DOL), Bureau of Labor Statistics (BLS), “National Compensation Survey: Employee
Benefits in the United States, March 2011,” Table 3, https://www.bls.gov/ncs/ebs/benefits/2011/ebbl0048.pdf.
16 See BLS, “ National Compensation Survey: Employee Benefits in the United States, March 2021,” Table 4,
https://www.bls.gov/ncs/ebs/benefits/2021/employee-benefits-in-the-united-states-march-2021.pdf.
17 See BLS, “National Compensation Survey: Employee Benefits in the United States, March 2011,” Table 3.
18 The remainder were in traditional DB pension plans in which the benefit is expressed as a monthly payment in
retirement. See DOL, Private Pension Plan Bulletin, Table A1, https://www.dol.gov/sites/dolgov/files/EBSA/
researchers/statistics/retirement-bulletins/private-pension-plan-bulletins-abstract-2019.pdf.
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Pensions and Individual Retirement Accounts (IRAs): An Overview

The type of DC plan that an employer may offer depends on the type of employer (for example,
the types of plans offered by public-sector employers are different from those offered by private-
sector employers), as well as the employer’s choices regarding plan features (for example,
private-sector employers have a number of types of DC plans they can offer). The plan sponsor
has to make various decisions about plan features. These include, for example, whether to fund
the accounts solely with employee contributions, solely with employer contributions, or with
both; whether and how much to match employee contributions; and whether to allow distributions
before retirement such as through hardship withdrawals or loans.
Employers may have several types of DC plans from which to choose, as outlined below:
 401(k) plan. A 401(k) plan allows employees to contribute a portion of their
wages to their individual accounts. Employers can also contribute to the accounts
as a match of the employee’s contributions or as a profit-sharing contribution.
Employers must demonstrate that their 401(k) plans benefit a wide variety of
employees (and not just well-paid employees) through a process called
nondiscrimination testing.19
Additionally, there are several types of 401(k) plans available to certain
employers:
 Safe Harbor 401(k) plans are available to employers of any size. These plans
are exempt from nondiscrimination testing, provided they follow certain
contribution rules.
 SIMPLE 401(k) plans are available to employers with 100 or fewer
employees and are exempt from nondiscrimination requirements. Employers
are required to make either (1) matching contributions up to 3% of each
employee’s pay or (2) nonelective contributions of 2% of each employee’s
pay.
 Solo 401(k) plans cover a business owner with no employees (or the owner
and spouse, if applicable).
 Profit-sharing plans and stock bonus plans. In a profit-sharing plan, an
employer makes a contribution to each eligible participant’s account based on a
formula established by the employer.20 Employee contributions are not permitted.
Profit-sharing plans provide flexibility to employers because they can choose
whether to contribute to employees’ accounts each year. Profit-sharing
contributions do not need to be tied to a company’s profits, if any. A stock bonus
plan is a type of profit-sharing plan in which employer contributions are paid in
employer stock rather than cash. Profit-sharing plans and stock bonus plans may
have a 401(k) component, in which case employee contributions are allowed.
 Money purchase plan. In a money purchase plan, the employer contributes an
amount to each eligible employee’s account as a percentage of compensation.
Employees are not permitted to contribute to the plan.
 Employee stock ownership plan (ESOP). An ESOP is a type of DC plan in
which the investments are primarily in employer stock.

19 Nondiscrimination tests are used to demonstrate that the plans are being used by both highly compensated employees
and rank-and-file employees.
20 For more information, see Internal Revenue Service (IRS), “Choosing a Retirement Plan: Profit-Sharing Plan,”
https://www.irs.gov/retirement-plans/choosing-a-retirement-plan-profit-sharing-plan.
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Pensions and Individual Retirement Accounts (IRAs): An Overview

 403(b) plan. A 403(b) plan (or tax-sheltered annuity plan) is a pension plan
offered by public schools, 501(c)(3) tax-exempt organizations, and churches.
Investment options for 403(b) plans were originally restricted to annuity
contracts until 1974, after which investments in mutual funds were also
permitted.
 457(b) plan. State and local governments and tax-exempt 501(c)(3) employers
can establish 457(b) plans. While they share many features with 401(k) plans,
they differ in some respects—for example, investments in 457(b) plans are
limited to purchases of annuity contracts and mutual funds, and some withdrawal
rules differ.
Public-Sector Pension Plans
Both private- and public-sector employers offer pension plans to their employees.21 Some
provisions of the Internal Revenue Code (IRC, Title 26 of the U.S. Code) apply to both private-
and public-sector plans, while some apply to one. For example, taxes on most distributions are
deferred until the funds are received—this provision applies to both private- and public-sector
plans. Public-sector employers are more likely to offer DB plans, while private-sector employers
are more likely to offer DC plans.
To try to protect the interests of pension plan participants and beneficiaries, Congress enacted
ERISA (P.L. 93-406). ERISA covers most private-sector pension plans and is included in both the
IRC and in the Labor Code (Title 29 of the U.S. Code). State and local pension plans are exempt
from ERISA, and thus, ERISA provisions in the IRC (such as funding requirements for DB plans)
and in the Labor Code (such as standards of conduct for individuals who make decisions within a
plan) do not apply. However, state and local plans are subject to certain pre-ERISA IRC
provisions, such as vesting requirements (how long a person must work for an employer to be
covered) in place as of September 1, 1974.
State and Local Government Pension Plans
Most public-sector employees are covered by pension plans. Those covered are more likely to be
covered by DB plans than by DC plans. In March 2021, 92% of all state and local government
workers had access to a pension plan, with 86% having access to DB plans and 38% having
access to DC plans.22 In the same month, 82% of state and local government workers participated
in a pension plan.23
State and Local DB Plans
In FY2020, state and local government entities—including municipalities, townships, counties,
school districts, and special districts—administered 5,340 DB plans with 33.2 million participants
covering workers such as police officers, firefighters, teachers, and city and state government

21 Plans sponsored by nonprofit companies are included in the discussion of private-sector pensions.
22 Total does not sum to 100% because some workers have access to both types of plans.
23 Among state and local government workers, 75% participated in DB plans and 18% participated in DC plans in
March 2021. See BLS, National Compensation Survey: Employee Benefits in the United States, March 2021,
September 2021, state and local government tables, Table 2, https://www.bls.gov/ncs/ebs/benefits/2021/home.htm.
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employees.24 Most participants are in the largest DB plans: 95% of state and local plan
participants are in the 210 largest state and local DB plans (119 state, 91 local).25
While nearly all private-sector workers are covered by Social Security, 28.4% of state and local
DB plan participants were not covered by Social Security in 2018.26 The states with the largest
number of state and local government employees not covered by Social Security in 2018 were
California, Texas, Ohio, Illinois, and Massachusetts.27 The states with the highest percentage of
state and local government employees not covered by Social Security in 2018 were Ohio,
Massachusetts, Nevada, Louisiana, and Colorado.28 Most noncovered local government
employees are police officers, firefighters, and teachers.29
State and local plans are governed by state laws, contract law, and/or state constitutions, which
provide protections for accrued and prospective benefits. Accrued benefits in many states are
protected from the beginning of employment or once plan vesting requirements have been met.
Future benefit accruals for current participants are typically protected in many states as well.
Cost-of-living adjustments (COLAs) are generally less protected than benefit accruals.30 Between
2009 and 2018, DB pension systems in most states implemented reforms to improve plan
funding, including increased employee contribution rates, reduced benefit levels, and reduced
COLAs. Given the pension protections mentioned above, many of these reforms primarily affect
new hires.31
State and Local DC Plans
In March 2021, 38% of all state and local government workers had access to DC plans and 18%
participated in DC plans.32 State and local DC plans had about $500 billion in assets in 2020.33
Since the financial crisis and recession of 2007-2009, states and localities have modified their
pension plans, with many offering hybrid cash balance plans or DC plans as alternatives or
enhancements to traditional DB plans.34 In 2019, 18 states offered retirement benefits other than
sole DB plans. Between 2001 and 2018, the proportion of local governments offering retirement
benefits outside traditional DB plans increased from 11% to 19%.35
Depending on the employer, state and local DC plan types include 401(a), 401(k), 403(b), and
457(b) plans. Employee participation and contributions may be mandatory or optional, depending

24 The fiscal year for most states begins on July 1. See U.S. Census Bureau, 2020 Annual Survey of Public Pensions:
State and Local Tables, https://www.census.gov/data/tables/2020/econ/aspp/aspp-historical-tables.html.
25 Center for Retirement Research at Boston College, “Public Plans Data,” https://publicplansdata.org/public-plans-
database.
26 See CRS Report R46961, Social Security Coverage of State and Local Government Employees.
27 Ibid.
28 Ibid.
29 IRS Publication 963, Federal-State Reference Guide, Rev. 7-2020, p. 1, https://www.irs.gov/pub/irs-pdf/p963.pdf.
30 American Academy of Actuaries Pension Webinar Series, Retirement Plan Coverage in America Part Two: Focus
on Public Pension Plans, April 23, 2020.
31 Keith Brainard and Alex Brown, Spotlight on Significant Reforms to State Retirement Systems, National Association
of State Retirement Administrators, December 2018, https://www.nasra.org/files/Spotlight/Significant%20Reforms.pdf.
32 BLS, National Compensation Survey: Employee Benefits in the United States, March 2021, state and local
government tables, Table 2.
33 See CRS Insight IN11659, U.S. Retirement Assets in 2020.
34 Munnell, Aubry, and Cafarelli, Defined Contribution Plans in the Public Sector.
35 Aubry and Wandrei, Have Localities Shifted Away from Traditional Defined Benefit Plans?
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on the structure of the plan as determined by the employer.36 A 401(a) plan may be available to
state and local government workers as part of a DB-DC combination plan or a hybrid cash
balance plan.37 A 403(b) plan may be offered to employees of public schools, churches, and
certain charitable tax-exempt entities.38 A 457(b) plan is a voluntary, supplementary DC savings
vehicle, often offered to state and local government employees in conjunction with a traditional
DB pension.39
Federal Pension Plans40
In its role as an employer, the federal government sponsors a number of DB and DC pension
plans for civilian federal employees. The vast majority of these federal employees are covered by
two DB plans funded through the Civil Service Retirement and Disability Fund: the older, now-
closed Civil Service Retirement System (CSRS) and FERS. In addition, most employees are
eligible to participate in a DC plan for federal employees, the TSP.
A number of smaller DB and DC plans have been established for certain employees within
various agencies. There are a few additional plans that provide federal pensions to a non-trivial
number of civilian federal employees. The Foreign Service Retirement and Disability System
(FSRDS) and the Foreign Service Pension System (FSPS) are DB plans that cover Foreign
Service Officers (FSOs) based on their date of hire in a similar way to CSRS and FERS. The
Federal Reserve also operates its own DB and DC plans on behalf of its bank and board
employees and certain other employees.41

36 State and local government 401(k) plans are legacy plans that were implemented before the Tax Reform Act of 1986,
after which the implementation of such plans was prohibited. National Association of State Retirement Administrators,
Defined Contribution Plans Administered by State Retirement Systems or Available to State Employees, April 2019,
https://www.nasra.org/files/Topical%20Reports/DC%20plans/statewidedcplans.pdf.
37 MissionSquare Retirement, “401(a) Money Purchase Plan,” https://www.icmarc.org/products-and-services/
401%28a%29-defined-contribution-plans.html. PRRL, “The State of Public Sector DC Plans: A First Look at the
PRRL Database,” February 25, 2021, https://www.nagdca.org/wp-content/uploads/2021/02/PRRL-Study_The-State-of-
DC-Plans_A-First-Look_FINAL.pdf.
38 IRS, IRC 403(b) Tax-Sheltered Annuity Plans, https://www.irs.gov/retirement-plans/irc-403b-tax-sheltered-annuity-
plans.
39 IRS, 457(b) Plans for State or Local Governments: Key Characteristics, https://www.irs.gov/retirement-plans/457b-
plans-for-state-or-local-governments-key-characteristics. IRS, Comparison of Governmental 457(b) Plans and 401(k)
Plans: Features and Corrections, https://www.irs.gov/retirement-plans/comparison-of-governmental-457b-plans-and-
401k-plans-features-and-corrections.
40 For additional information on pension plans for civilian federal employees, see CRS Report R47084, Federal
Retirement Plans: Frequently Asked Questions. Military servicemembers are covered by a separate retirement system,
which is not discussed in this report. For details on retirement benefits for military servicemembers, see CRS Report
RL34751, Military Retirement: Background and Recent Developments.
41 The Central Intelligence Agency Retirement and Disability System (CIARDS), which covered certain special
category employees, has been closed to new entrants since 1984. Special category CIA employees first hired in 1984 or
later are covered by FERS (like other CIA employees).
The last time that an audit of all “federal pension plans” (using a definition of pension plan subject to reporting
requirements under P.L. 95-595) was in 1996 by the Government Accountability Office (GAO). This GAO
investigation identified 34 federal DB plans and 17 federal DC plans. Some of these identified plans provide retirement
coverage for federal entities that do not employ federal employees (e.g., employees of the Tennessee Valley Authority
[Tennessee Valley Authority Retirement System]) or for individual employees (e.g., the former heads of the GAO
[Comptrollers’ General Retirement Plan]). See GAO, Public Pensions: Summary of Federal Pension Plan Data,
AIMD-96-6, February 16, 1996, https://www.gao.gov/assets/aimd-96-6.pdf.
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Defined Benefit Plans for Civilian Federal Employees
Most civilian federal employees who were first hired before 1984 are covered by CSRS. CSRS
was created by the Civil Service Retirement Act of 1920 (P.L. 66-215). Under CSRS, employees
do not pay Social Security taxes or earn Social Security benefits but may be eligible for a
standalone DB annuity if they make required contributions and meet age and years of service
conditions.42 Monthly CSRS retirement benefits are calculated based on a formula that multiplies
years of service, the average of the highest three consecutive years of basic pay, and an accrual
rate set out under statute.43 Most civilian federal employees first hired in 1984 or later are covered
by FERS, which was created under the Federal Employees’ Retirement System Act of 1986 (P.L.
99-335). All federal employees who are enrolled in FERS pay Social Security taxes and earn
Social Security benefits along with a monthly DB annuity under FERS that is calculated using a
formula similar to CSRS but replaces a lower amount of earnings than does the CSRS benefit due
to smaller benefit accrual rate.44 The Office of Personnel Management administers CSRS and
FERS, although employing agencies handle pre-retirement paperwork and provide retirement
counseling to employees. According to the FY2020 Actuarial Report of the Civil Service
Retirement and Disability Fund, at the beginning of FY2020, there were 70,000 active CSRS
employees, 2,474,000 active FERS employees, 1,717,000 CSRS annuitants, and 966,000 FERS
annuitants.45
Two additional federal pension plans run by the State Department provide retirement benefits to
FSOs.46 These plans are authorized under current law: FSRDS was created by Section 18 of the
Foreign Service Act of 1924 (P.L. 68-135); FSPS was created by the Foreign Service Act of 1980
(P.L. 96-465). Similar to the distinction between CSRS and FERS, FSRDS is the older retirement
system that is not integrated with Social Security and provides a standalone DB pension for FSOs
first hired before 1984. FSPS, which is integrated with Social Security, provides a retirement
benefit package to FSOs hired in 1984 or later. FSRDS and FSPS also have eligibility
requirements and benefit calculations set out under current law.47 According to the FY2020
Actuarial Report of the Foreign Service Retirement and Disability Fund, as of June 2020, there
were 33 active FSRDS employees, 15,208 active FSPS employees, 9,209 FSRDS annuitants, and
7,220 FSPS annuitants.48

42 For details on CSRS eligibility requirements, see CRS Report R47084, Federal Retirement Plans: Frequently Asked
Questions.
43 For details on the calculation of CSRS benefits, see CRS Report R47084, Federal Retirement Plans: Frequently
Asked Questions.
44 For details on FERS eligibility requirements and benefit calculations, see CRS Report R47084, Federal Retirement
Plans: Frequently Asked Questions.
45 Office of Personnel Management, Annual Report of the Board of Actuaries, Civil Service Retirement and Disability
Fund, Fiscal Year Ended September 30, 2020, February 2021, p. 16, https://www.opm.gov/about-us/budget-
performance/other-reports/fy-2020-csrdf-annual-report.pdf. Counts of annuitants include both retirees and survivors.
FY2020 data are the most recently available program data from the Office of Personnel Management.
46 Other employees of the State Department (i.e., civil service employees) are covered by CSRS or FERS, depending on
their date of hire.
47 For FRSDS, see 22 U.S.C. Chapter 52, Subchapter 8, Part I (i.e., 22 U.S.C. §§4041-4069); for FSPS, see 22 U.S.C.
Chapter 52, Subchapter 8, Part II (i.e., 22 U.S.C. §§4071 et seq.).
48 U.S. Department of State, Foreign Service Retirement and Disability Fund, Actuarial Report for the September 30,
2020 Valuation Fiscal Year Ended September 30, 2020, December 8, 2020, Table 1.1, p. 4. Counts of annuitants
include both retirees and survivors. FY2020 data are the most recently available program data from the State
Department.
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Under general authority provided by Title 10 of the Federal Reserve Act of 1913 (P.L. 63-43), the
Federal Reserve operates its own pension plan—the Federal Reserve System (FRS)—for
employees of Federal Reserve Banks, the Office of Employee Benefits, the Federal Reserve
Board of Governors, and the Consumer Financial Protection Bureau. The FRS provides a DB
benefit, and covered employees also participate in Social Security. Unlike CSRS, FERS, FRDS,
and FSPS, the FRB DB plan does not require any contributions from covered employees. As of
January 1, 2020, there were 23,675 active FRB employees and 21,085 FRB annuitants.49
Defined Contribution Plans for Civilian Federal Employees
Federal employees enrolled in either CSRS or FERS may also contribute to the TSP, a DC
pension plan similar to the 401(k) plans provided by many private-sector employers. However,
only employees enrolled in FERS are eligible for employer matching contributions under TSP.
Newly hired FERS employees are automatically enrolled in TSP and contribute 5% of their pay,
though they have the option to decline participation or change the amount of their contributions.
TSP participants may contribute up to the lesser of (1) their salary or (2) the DC contribution
limit.50 Employees covered by FERS receive an automatic 1% contribution and a match equal to
100% of the worker’s first 3% of basic pay and 50% of the next 2% of basic pay.51
Also similar to CSRS and FERS, FSDRS employees may contribute to TSP, but only FSPS
employees are eligible for TSP employer matching contributions. The Federal Reserve also
operates its own DC plan: the Thrift Plan, which is distinct from TSP. Employees covered by FRS
are eligible for employer matching under the Thrift Plan.
Private-Sector Pension Plans
Private-sector pension plans, which include those sponsored by nonprofit companies, are subject
to ERISA and the tax code. ERISA sets standards that private-sector pension plans must follow
with regard to (1) plan participation (who must be covered); (2) minimum vesting requirements
(how long a person must work for an employer to be covered); (3) fiduciary duties (how
individuals who oversee the plan must behave, such as operating the plan in the sole interest of
plan participants); and (4) DB plan funding (how much employers must set aside to pay for future
benefits).
Most pension-related legislation is targeted to private-sector plans, which are governed by
ERISA, unlike public-sector plans.
Private-sector pension plans are classified by whether they are sponsored by one or more than one
employer:
 A single-employer plan is sponsored by one employer.
 A multiple-employer plan has more than one participating employer but is not
maintained as part of a collective bargaining agreement. These plans are

49 CRS email communication with FRB, April 28, 2021.
50 Contribution limits are available at IRS, “Retirement Topics—Contributions,” https://www.irs.gov/retirement-plans/
plan-participant-employee/retirement-topics-contributions.
51 Participants are fully vested in the 1% agency automatic contributions to the TSP after three years (two years for
congressional employees and executive-branch political appointees). See CRS Report RL30387, Federal Employees’
Retirement System: The Role of the Thrift Savings Plan.
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generally treated as single-employer plans for the purposes of pension funding
rules and federal disclosure requirements.
 A multiemployer plan is sponsored by more than one employer and maintained
as part of a collective bargaining agreement.
Single-employer plans, multiple-employer plans, and multiemployer plans can be either DB plans
or DC plans. Private-sector DB plans are subject to funding rules found in ERISA, which outline
requirements for how much an employer must contribute to the plan each year.52 Typically, an
employer’s required contribution consists of the present value of benefits earned by participants
in the year and a share, as determined by the law, of past amounts of underfunding (such as from
a plan’s investment losses).
Private-Sector DB Pension Plans
ERISA provisions in the IRC outline funding requirements for private-sector DB plans to ensure
that plans generally have sufficient funds from which to pay participants’ earned benefits.
Separate funding rules apply to (1) single- and multiple-employer plans and (2) multiemployer
plans. The Pension Benefit Guaranty Corporation (PBGC) insures private-sector DB plans.
PBGC is a government corporation that pays participants’ benefits in the case of (1) employer
bankruptcy in the case of single-employer plans or (2) plan insolvency in the case of
multiemployer plans.
Single-Employer DB Plans
Most private-sector DB plans are single-employer plans.
Generally, plans must be fully funded. If a plan is underfunded, it must become fully funded over
time. This can be done through various methods, including increases in employer contributions or
changes to funding rules, such as increases in the discount rate that plans use to calculate benefits
or increases in the time period over which plans can amortize their losses.
A plan sponsor that has a fully funded DB plan can terminate the plan by purchasing annuities
from an insurance company for all participants. Employers can also purchase annuities for a
portion of the plan participants without terminating the plan (known as de-risking). This is
designed to accomplish two goals: (1) relieve the employer of having to make up for potential
investment losses in the future, and (2) reduce their per-participant premiums owed to the PBGC
(described later in this report).53
Community Newspaper Plans. Community newspaper plans are those maintained by certain
private community newspaper organizations that are family-controlled and have been in existence
for 30 or more years. Section 115 of the Setting Every Community up for Retirement
Enhancement Act of 2019 (SECURE Act, enacted as Division O of the Further Consolidated
Appropriations Act of 2020; P.L. 116-94) provided special funding rules for pension plans
operated by certain community newspapers that had no benefit increases for participants after
December 31, 2017.54

52 DC plans do not have funding rules.
53 As described later in this report, when an underfunded DB plan terminates due to, for example, employer bankruptcy,
PBGC becomes the trustee of the plan and pays the participants’ benefits up to a statutory maximum.
54 For these plans, the SECURE Act increased the interest rate to 8% and extended the amortization period from seven
to 30 years.
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Multiple-Employer DB Plans
Private-sector multiple-employer DB plans are fairly uncommon. In 2019, Department of Labor
(DOL) data indicated that there were 202 such plans (representing 0.4% of private-sector DB
plans) covering 1.8 million participants.55 The most widely known type of multiple-employer DB
plan is the Cooperative and Small Employer Charity plan. These plans covered 539,000
participants in 2017.56
Cooperative and Small Employer Charity (CSEC) Pension Plans. CSEC pension plans are
generally multiple-employer pension plans established by certain cooperative and charitable
organizations. Plans that meet the criteria to be CSEC plans follow special funding rules.
The Cooperative and Small Employer Charity Pension Flexibility Act of 2013 (P.L. 113-97)
established funding rules for and provided a definition of CSEC pension plans.57 Among other
provisions, this act permanently exempted these plans from the Pension Protection Act’s (P.L.
109-280) funding rules and outlined minimum funding standards for CSEC plans.58 Plans must
indicate if they use the CSEC-specific funding rules in their required annual reporting to DOL.
Multiemployer DB Plans
While most private-sector DB plans are single-employer plans, about 3% are multiemployer plans
(as of 2019).59 Multiemployer DB plans covered 11.2 million union participants in 2019. They are
commonly sponsored by employers in unionized industries such as construction, manufacturing,
and transportation.
Workers in multiemployer plans might work for a number of employers over a career and would
continue to earn pension benefits—provided those employers were signatories to the collective
bargaining agreement. Multiemployer pension plans pool risk so that the withdrawal of a few
employers from the plan typically does not place the plan in financial jeopardy.
Since 2001, the financial position of multiemployer plans has generally worsened, becoming, on
average, 42% funded in 2019.60 In 2018, about 10%-15% of participants were in plans that were
likely to become insolvent within 19 years.
Most recently, the American Rescue Plan Act of 2021 (P.L. 117-2) contained a provision
authorizing federal financial assistance to qualifying financially troubled multiemployer plans.
For more information about multiemployer plans, see CRS Report R43305, Multiemployer
Defined Benefit (DB) Pension Plans: A Primer.

55 See DOL, Private Pension Plan Bulletin, Table B1.
56 See the Appendix of CRS Report R46366, Single-Employer Defined Benefit Pension Plans: Funding Relief and
Modifications to Funding Rules.
57 The sponsors of two single-employer DB plans are included as CSEC plans.
58 The Pension Protection Act outlined new funding standards for pension plans. See CRS Report R46366, Single-
Employer Defined Benefit Pension Plans: Funding Relief and Modifications to Funding Rules.
59 See DOL, Private Pension Plan Bulletin, Table B1.
60 In the 1990s, multiemployer DB plans were generally well-funded: Except for 1996, these plans were funded at 90%
or better. See PBGC, PBGC 2019 Data Tables, Table M-9, https://www.pbgc.gov/sites/default/files/2019-pension-data-
tables.pdf.
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Pension Benefit Guaranty Corporation (PBGC)
PBGC is a government corporation established by ERISA (P.L. 93-406). It was created to protect
the pensions of participants and beneficiaries in private-sector pension plans by paying
participants’ benefits up to a statutory maximum if the pension plan is unable to do so. PBGC
insures only private-sector DB plans and is chaired by the Secretary of Labor, with the Secretaries
of the Treasury and Commerce serving as board members.
PBGC is required by ERISA to be self-supporting and receives no appropriations from federal
general revenue. ERISA Section 4002(g)(2) states that the “United States is not liable for any
obligation or liability incurred by the corporation,” and some Members of Congress have
expressed reluctance about providing financial assistance to PBGC. The most reliable source of
PBGC revenue is the premiums set by Congress and paid by the private-sector employers that
sponsor DB pension plans. Other sources of income are (1) assets from terminated single-
employer plans taken over by PBGC, (2) investment income, and (3) recoveries collected from
companies when they end underfunded pension plans.
PBGC operates two distinct insurance programs: one for single-employer DB plans and a second
for multiemployer DB plans. PBGC maintains separate reserve funds for each program. In the
case of a single-employer DB plan in financial distress, PBGC becomes the trustee of the plan
and continues to pay participants’ benefits up to a statutory maximum. PBGC does not become
trustee of multiemployer plans. An insolvent multiemployer plan does not have sufficient
resources from which to pay promised benefits. PBGC provides financial assistance to insolvent
multiemployer plans in the form of loans, although PBGC does not expect the loans to be repaid.
As in the case of single-employer plans, participants in insolvent multiemployer DB plan receive
their benefits up to a statutory maximum. The statutory maximums differ between single and
multiemployer plans. For more information on PBGC, see CRS Report 95-118, Pension Benefit
Guaranty Corporation (PBGC): A Primer.
PBGC also operates the Special Financial Assistance (SFA) program for multiemployer DB
plans. Section 9704 in Title IX, Subtitle H, of the American Rescue Plan Act of 2021 (P.L. 117-2)
provides financial assistance to qualifying financially troubled multiemployer DB plans. Eligible
plans may apply for SFA through December 31, 2025. If approved, the amount of SFA that an
eligible plan receives is the amount needed to pay participants’ full plan benefits through the
2051 plan year. For more information about SFA, see CRS In Focus IF11765, Special Financial
Assistance to Multiemployer Plans.
Private-Sector DC Plans
Over the past five decades, private-sector employees have become less likely to be covered by
DB pensions and more likely to be covered by DC pensions.61 This general shift occurred for a
number of possible reasons. First, employer costs are generally higher for DB plans than for DC
plans, because the benefit in a DB plan is typically funded entirely by the employer, while a
smaller portion of the typical DC plan benefit is from employer contributions. Second, from an
employer’s perspective, contributions to DC plans tend to be a more predictable cost than
contributions to DB plans are. This is because employer contributions to DB plans may include
additional contributions to make up for investment losses, whereas in DC plans employer
contributions are typically based on a set formula that uses employee compensation.

61 For an illustration of this shift, see CRS In Focus IF12007, A Visual Depiction of the Shift from Defined Benefit (DB)
to Defined Contribution (DC) Pension Plans in the Private Sector.
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Third, DC plans may be easier to administer than DB plans are. DB plan actuaries determine the
value of benefits earned by participants in a year and how much the plan must set aside to fund
those benefits, incorporating factors such as likely retirement ages and mortality rates. DC plans
do not use any of these actuarial projections.
For some employees, DC plans may be preferable to DB plans because DC plan account balances
are portable. When individuals change jobs, they can transfer (i.e., roll over) their account
balances to IRAs or, often, to their new employers’ plans. In contrast, DB plan benefits are not
portable, and the benefit formula typically takes into account the number of years a worker has
worked for an employer. Employees who change jobs and might earn benefits in several plans do
not accumulate the same benefits as employees who stay with one employer and remain in a
single plan. On the other hand, workers have more decisions to make in DC plans, such as the
amount to contribute, investments to choose, and how much and how often to withdraw funds in
retirement. In addition, retirees with DC plans face the risk of outliving their assets. Retirees
receiving DB plan benefits do not face this risk; DB plan payments continue for the life of the
participant and, if applicable, the spouse.
As a result of the shift, some have noted that the growth of DC plans since 1974 may have
resulted in a greater share of private-sector workers receiving income from retirement plans.62
The reasons may include (1) lengthy vesting provisions that may have prevented some
individuals in DB plans from qualifying for benefits and (2) the overall lower costs of DC plans,
which may have resulted in more employers offering these plans.
Private-Sector Single-Employer and Multiemployer DC Plans
Single-employer DC plans are the most common type of pension plan.63 The types of plans that
employers offer include profit-sharing and stock bonus plans—typically with a 401(k)
component—ESOPs, and, for nonprofit employers, 403(b) plans. Plans may include a Roth
component, which allows employees to make contributions with after-tax income and tax-free
withdrawals in retirement.
In DC plans, workers traditionally needed to actively choose to participate, though many DC
plans have adopted automatic enrollment provisions in which new employees are enrolled in the
plan but have the option to decline participation (also referred to as opting out).64
Multiple-Employer DC Plans
Multiple-employer plans (often called MEPs) can be attractive to employers because
administrative expenses can be shared, potentially leading to lower costs. In addition, certain
fiduciary duties can be handled by the sponsor rather than the employers. Prior to 2019,
employers in a multiple-employer plan had to have a common business interest (such as an

62 See Investment Company Institute (ICI), “A Look at Private-Sector Retirement Plan Income After ERISA, 2015,”
December 2016, https://www.ici.org/doc-server/pdf%3Aper22-08.pdf.
63 In many respects, single-employer and multiemployer DC plans are similar, so this report does not focus on them
separately.
64 Prior to the widespread adoption of automatic enrollment, about 30% of employees eligible for a DC plan opted out.
See, for example, these reports with data prior to the widespread adoption of automatic enrollment in DC plans: Patrick
Purcell, Retirement Plan Participation and Contributions: Trends from 1998 to 2006, Congressional Research Service,
January 2009, https://ecommons.cornell.edu/bitstream/handle/1813/78093/RL33116_20090130.pdf; and Vanguard,
How America Saves 2009: A Report on Vanguard 2008 Defined Contribution Plan Data, August 2009, p. 20,
https://www.pionline.com/assets/docs/CO68397126.PDF.
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organizational relationship), referred to as a common nexus. These plans are referred to as closed
MEPs. In addition, the entire plan could be disqualified if one participating employer violated a
qualification requirement, called the unified plan rule (informally referred to as the “one-bad-
apple” rule).
In an effort to increase the number of employers offering pension plans, in July 2019, DOL
published a rule that, while leaving in place the common nexus requirement, expanded the
definition of associations so that more associations could sponsor multiple-employer DC plans
(referred to as Association Retirement Plans, or ARPs). The rule also clarified the definition of
employer so that certain employer groups and professional employer organizations (PEOs) are
employers within the meaning of ERISA and could sponsor multiple-employer DC plans.65
The SECURE Act (P.L. 116-94; December 20, 2019) eliminated the requirement that employers
that participate in a multiple-employer plan must have a business connection. As a result,
unrelated employers are now able to join multiple-employer 401(k) plans.66 The SECURE Act
authorized a new type of open MEP called a Pooled Employer Plan (PEP) organized by a Pooled
Plan Provider (PPP).67 Additionally, the SECURE Act eliminated the one-bad-apple rule.
The SECURE Act also permitted individual DC plans that share similar features (such as trustees,
administrators, and investment options), referred to as a Group of Plans, to file a single,
consolidated return.68
Church Plans
Pension plans established and maintained primarily for the benefit of employees of (1) churches
or (2) conventions or associations of churches are referred to as church plans.69 Church plans can
be either DB or DC plans and are exempt from ERISA coverage, which means they are not
subject to funding rules, non-discrimination tests, fiduciary obligations, and PBGC insurance.
One rationale for this exemption stemmed from a constitutional concern: A 1973 Senate report
notes concern that “the examination of books and records that may be required in any particular
case as part of the care and responsible administration of the [PBGC’s] insurance system might
be regarded as an unjustified invasion of the confidential relationship that is believed to be
appropriate with regard to churches and their religious activities.”70 While church plans can
choose to be covered by ERISA (thus becoming electing church plans), those that do not (called
non-electing church plans) must follow certain pre-ERISA requirements in the IRC.71

65 See Employee Benefits Security Administration, “Definition of ‘Employer’ Under Section 3(5) of ERISA-
Association Retirement Plans and Other Multiple-Employer Plans,” 84 Federal Register 37508-37544, July 31, 2019.
The rule left the commonality requirement in place, as that could not be changed by regulation.
66 Currently, 403(b) plans may not form multiple-employer plans. Several bills in the 117th Congress include a
provision that would permit them to do so.
67 One advantage of a PEP is that it can file a single Form 5500 instead of one for each participating employer.
68 One issue with the Group of Plans is whether they would be able to have a single audit or if each plan would be
required to have separate audits. See Austin R. Ramsey, “Audits Are Cause for Pause in DOL Group Retirement Plan
Proposal,” Bloomberg Law, September 17, 2021, https://www.bloomberglaw.com/bloomberglawnews/daily-labor-
report/X4BB75BK000000.
69 See 29 U.S.C. §1002(33).
70 U.S. Congress, Senate Committee on Finance, Private Pension Plan Reform, 93rd Cong., 1st sess., August 21, 1973,
S. Rpt. 93-383, p. 81.
71 See IRS, “Issue Snapshot—Qualification Requirements for Non-Electing Church Plans Under IRC Section 401(a),”
https://www.irs.gov/retirement-plans/issue-snapshot-qualification-requirements-for-non-electing-church-plans-under-
irc-section-401a. In addition, non-electing church plans may be subject to state law in the states in which they operate.
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The definition of what constitutes a church or association or convention of churches for the
purpose of ERISA coverage has been the subject of litigation. For example, the Supreme Court
ruled in 2017 that the pension plans of certain religiously affiliated nonprofits that operate
hospitals and other health care facilities qualified as church plans.72
Because the plans are not subject to ERISA funding rules, there have been instances where
participants in church plans have lost part or all of their DB pension benefits promised. Because
these plans are not covered by PBGC, participants may be unable to recover their benefits.73
Individual Retirement Accounts (IRAs)
IRAs are tax-advantaged savings accounts that, in most cases, are unconnected to individuals’
workplaces. IRAs were first authorized by ERISA (P.L. 93-406) for two reasons: (1) to encourage
workers without access to employer-sponsored plans to save for retirement and (2) to allow
workers with employer plans to roll over their savings and retain tax advantages.74 Though
eligibility was originally limited to workers without pension coverage, subsequent legislation
expanded eligibility to nearly all workers.
Congress has authorized two types of IRAs: traditional and Roth. Contributions to traditional
IRAs may be deductible from taxable income (depending on household adjusted gross income
and workplace pension coverage), and withdrawals are included in taxable income. Contributions
to Roth IRAs are not tax-deductible, but qualified distributions (those made after age 59½, death,
or disability from an account that is at least five years old) are tax free. An individual can move
traditional IRA savings to a Roth IRA in what is referred to as a conversion.75
Most inflows to traditional IRAs are from rollovers of pension plan savings from employer-
sponsored plans rather than from contributions. Rollovers preserve the tax benefits of retirement
savings. In 2018 (the latest year for which data are available), about 97% of inflows to traditional
IRAs were from rollovers, while about 52% of Roth IRA inflows came from rollovers and
conversions.76 For more information on IRAs, see CRS Report RL34397, Traditional and Roth
Individual Retirement Accounts (IRAs): A Primer and CRS Report R46635, Individual Retirement
Account (IRA) Ownership: Data and Policy Issues.
IRA-Based Retirement Plans
Most individuals with IRAs independently established and contributed directly to them through
financial institutions or because they rolled over savings from employer-sponsored plans.

See Groom Law Group, “View from Groom: After Advocate—Practical Considerations for Church Plan Sponsors,”
June 13, 2017, https://www.groom.com/resources/view-from-groom-after-advocate-practical-considerations-for-
church-plan-sponsors/.
72 See CRS Legal Sidebar WSLG1837, Supreme Court Delves into What Constitutes a “Church Plan” under ERISA.
73 See, for example, Groom Law Group, “Church Plan Litigation—Out of the ERISA Woods into the State Law
Forest,” December 28, 2021, https://www.groom.com/resources/church-plan-litigation-out-of-the-erisa-woods-into-the-
state-law-forest/.
74 Congressional discussions cited increasing mobility of the workforce as reason for this provision. Prior to rollovers
into IRAs, employees who changed jobs may have been able to transfer assets from one employer plan to another,
provided both employers agreed to the transfer. See Congressional Record, vol. 120, part 4 (February 26, 1974), p.
4300.
75 At the time of conversion, the individuals must include the amount of the conversion in his or her taxable income.
76 CRS analysis of data in ICI, “The US Retirement Market,” Third Quarter 2021, Table 11.
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However, some individuals have IRAs because their employers established IRA-based retirement
plans. IRA-based plans include payroll deduction IRAs, Salary Reduction Simplified Employee
Pension Plans (SARSEPs), Simplified Employee Pensions (SEPs), and Savings Incentive Match
Plan for Employees (SIMPLE) IRAs. Among other factors, these plans vary in the degree of
employer involvement.
Data from year-end 2020 indicated that assets in SARSEPs, SEPs, and SIMPLE IRAs totaled an
estimated $710 billion, or 5.8% of total IRA assets.77
Payroll Deduction IRA
In a payroll deduction IRA, an employer establishes a program through a financial institution.
Employees open either traditional or Roth IRAs and authorize the employer to deduct pay from
their paychecks to fund the IRAs. Contributions may not exceed the IRA contribution limit
($6,000 in 2022; $7,000 for individuals aged 50 and over). Employer involvement is minimal and
is limited to transmitting employees’ authorized contributions to the financial institution that
holds the employees’ IRAs. Employers do not make any contributions to employees’ IRAs.78
Salary Reduction Simplified Employee Pension Plan (SARSEP)
Under a SARSEP, employees elect to enter into a salary reduction agreement, in which part of
their compensation is contributed to their SEP-IRAs. Starting in 1997, employers were no longer
permitted to establish SARSEPs. SARSEPs could be established only by employers with 25 or
fewer eligible participants.79
Some SARSEPs established before 1997 are still in existence and must continue to follow
SARSEP requirements.80 In addition, an employee hired in 1997 or later by an employer that
operates a SARSEP may participate in the SARSEP.
Employee contributions may not exceed the lesser of (1) $20,500 in 2022 or (2) 25% of the
employee’s compensation. Employees aged 50 and older may make catch-up contributions up to
an additional $6,500. Employers may make non-elective contributions to their employees’ SEP-
IRAs.81 Employer and employee contributions (excluding catch-up contributions) may not exceed
the lesser of (1) 25% of the employee’s compensation or (2) $61,000 in 2022.82

77 CRS analysis of data in ICI, “The US Retirement Market,” Third Quarter 2021, Table 10.
78 For more information about payroll deduction IRAs, see IRS, “Payroll Deduction IRA,” https://www.irs.gov/
retirement-plans/plan-sponsor/payroll-deduction-ira.
79 In addition, state or local governments or any of their political subdivisions, agencies, or instrumentalities, or tax-
exempt organizations could not establish SARSEPs.
80 For example, if an employee’s elective deferrals equal 25% of compensation, then the employee would not receive
an employer contribution. For more information about SARSEP requirements, see IRS, “Salary Reduction Simplified
Employee Pension Plan (SARSEP),” https://www.irs.gov/retirement-plans/plan-sponsor/salary-reduction-simplified-
employee-pension-plan-sarsep, and IRS, “Retirement Plan FAQs Regarding SARSEPs,” https://www.irs.gov/
retirement-plans/retirement-plans-faqs-regarding-sarseps.
81 Non-elective contributions are those made to an employee’s account regardless of whether the employee contributes
to his or her own account.
82 See IRS, “SEP Contribution Limits (Including Grandfathered SARSEPs),” https://www.irs.gov/retirement-plans/
plan-participant-employee/sep-contribution-limits-including-grandfathered-sarseps.
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Simplified Employee Pension (SEP)
Under a SEP, employers set up and contribute to employees’ traditional IRAs (referred to as SEP-
IRAs).83 Employers of any size, including self-employed individuals, may establish SEPs.
Employer contributions to an employee’s SEP-IRA are excluded from the employee’s gross
income and may not exceed the lesser of (1) 25% of the employee’s compensation or (2) $61,000
in 2022. Employers may decide whether and how much to contribute each year by the tax filing
deadline. If an employer decides to contribute, it must do so proportionally for all employees who
worked for the business during the year for which contributions are made.
Employee contributions (and, thus, catch-up contributions) are not permitted in SEP-IRAs.
Savings Incentive Match Plan for Employees (SIMPLE) IRA
Small employers (i.e., those with 100 or fewer employees who received at least $5,000 in
compensation from the employers for the preceding year) may establish SIMPLE IRA plans.
Employees may contribute up to $14,000 in 2022. (Employees aged 50 and older may make
additional catch-up contributions up to $3,000.) Each year, employers are required to contribute
(1) matching contributions up to 3% of an employee’s compensation or (2) nonelective
contributions of 2% of compensation for each eligible employee.84 Employers that establish
SIMPLE IRA plans may not operate any other retirement plans for their employees.85
State-Facilitated Retirement Savings Programs for
Private-Sector Workers
While Congress addresses retirement security at the national level and establishes federal pension
law and savings incentives, several states have enacted or implemented state-administered
retirement savings programs to increase retirement plan access and savings among private-sector
workers. Additional states are considering similar programs.86 States have taken a variety of
approaches to these programs, such as payroll deduction IRAs, retirement marketplaces, and
multiple-employer plans.87
In some state programs, employer participation (with some exceptions) is mandatory. In other
state programs, employer participation is voluntary. Typically, eligible employees of participating
employers are automatically enrolled in state programs but can opt out at any time.
 Payroll deduction IRAs. Payroll deduction IRA programs are the most common
state-facilitated program. The four state-administered payroll deduction IRA

83 For more information on SEPs, see IRS, “Simplified Employee Pension Plan (SEP),” https://www.irs.gov/retirement-
plans/plan-sponsor/simplified-employee-pension-plan-sep.
84 For purposes of the 2% nonelective contribution, the compensation taken into account must be limited to $290,000
for 2021 ($285,000 for 2020), subject to COLAs.
85 For more information on SIMPLE IRAs, see IRS, “SIMPLE IRA Plan,” https://www.irs.gov/retirement-plans/plan-
sponsor/simple-ira-plan.
86 See, for example, John Scott, “Pennsylvania and Hawaii Consider Auto-IRA Savings Opportunities for Private
Sector Workers,” Pew Charitable Trusts, January 18, 2022, https://www.pewtrusts.org/en/research-and-analysis/
articles/2022/01/18/pennsylvania-and-hawaii-consider-auto-ira-saving-opportunities-for-private-sector-workers.
87 For more information on state retirement initiatives, see Georgetown University’s Center for Retirement Initiatives,
at https://cri.georgetown.edu/states/.
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programs in place as of the date of this report (California, Connecticut, Illinois,
Oregon) automatically enroll employees. Because of the automatic enrollment
feature, these plans are sometimes referred to as automatic, or auto, IRAs.
For more information, see CRS In Focus IF11611, State-Administered IRA
Programs: Overview and Considerations for Congress.
 Retirement marketplaces. In a retirement marketplace, employers and
individuals (including, for example, sole proprietors and “gig” workers) can
purchase savings plans through different state-approved providers. For example,
the State of Washington operates a retirement marketplace.88
 Multiple-employer plans. In a multiple-employer plan, unrelated businesses
may jointly sponsor a 401(k) plan. For example, Massachusetts’s state-
administered multiple-employer plan permits eligible small nonprofit
organizations to join the plan.89 The Office of the State Treasurer and Receiver
General acts as sponsor of the plan and performs most administrative and
investment responsibilities.
Tax Treatment of Retirement Plans
To encourage preparation for retirement, Congress makes certain tax advantages available to
employers and individuals. Contributions to retirement plans may be excluded from or deducted
from an individual’s or an employer’s taxable income, investment earnings in the plan may
accrue on a tax-deferred or tax-free basis, and distributions from the plan may or may not be
included in taxable income.
Pension plans are generally tax qualified, which means that the plan receives certain tax
advantages provided it meets IRC requirements.90 Depending on the plan, these requirements
include determining when participants have a legal right to their benefits (vesting schedules) and
determining the amounts employers must contribute to the plans they sponsor (funding
requirements).
IRAs and IRA-based plans also receive certain tax advantages but are not considered tax-
qualified plans. IRAs must follow requirements outlined in Title 26, Sections 408 and 408A, of
the U.S. Code.
DB Pension Plan Tax Treatment
Employer contributions to DB plans are tax-deductible expenses in the year they are made.
Employee contributions to DB plans are not excluded from taxable income (i.e., they are made
with after-tax income).91 Relatively few private-sector DB pensions require employee
contributions. In 2011 (the most recent data available), 4% of private-sector workers with DB

88 See Retirement Marketplace, https://retirement-marketplace.com/.
89 See Commonwealth of Massachusetts, “CORE Plan for Nonprofits,” https://www.mass.gov/core-plan-for-nonprofits.
90 Nonqualified plans (also referred to as nonqualified deferred compensation plans) are typically for corporate
executives to enable them to save above the tax-qualified plan contribution limits. Nonqualified plans often have some
tax advantages, such as the deferral of income taxes until the funds are received by the individual.
91 State and local plans with employee contributions often pick up employee contributions, effectively making them
employer contributions and therefore excluded from the employees’ taxable income.
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plans were in plans that required employee contributions.92 In contrast, in 2021, 91% of state and
local government workers in DB plans were in plans that required employee contributions.93 Both
CSRS and FERS for federal employees require employee contributions.
DB plan payments to participants in retirement are included in their taxable income except for
any portions that are attributable to employee contributions.
DC Pension Plan Tax Treatment
Employer contributions to tax-qualified DC plans are tax-deductible.
Employee contributions can be made on a pre-tax or an after-tax basis. Most contributions are
made on a pre-tax basis, and taxes are deferred, which means that taxes are not paid until
distributions are made from the account. Upon withdrawal, pre-tax contributions and any
investment earnings are included in taxable income.
Contributions to DC plans that are made on an after-tax basis—such as designated Roth
contributions or after-tax, non-Roth contributions—are not excluded from taxable income.94
Distributions from designated Roth accounts and those attributable to after-tax, non-Roth
contributions are made on a pro-rata (or proportional) basis combination of contributions and
earnings.
Qualified distributions (those made after age 59½, death, or disability, from accounts that are at
least five years old) from designated Roth accounts, which include contributions and any
investment earnings, are tax free in retirement. Withdrawals attributable to after-tax, non-Roth
contributions are not included in taxable income, but investment earnings attributable to those
contributions are included in taxable income.
IRA Tax Treatment
IRA tax treatment is similar to DC plan tax treatment. Traditional IRAs are funded by workers’
contributions, which may be tax deductible (depending on the IRA owner’s household income
and workplace pension coverage). Taxes are paid on both contributions and any interest earnings
when funds are distributed. Contributions to Roth IRAs are made with after-tax funds, and
qualified distributions are not included in taxable income. Investment earnings accrue free of
taxes.
Effect on U.S. Treasury
Provisions in the tax code that create revenue losses for the U.S. Treasury (e.g., through
exclusions and deductions from income) are referred to as tax expenditures. Examples include
excluding employer contributions for employee health care, the tax deduction for mortgage
interest on an individual’s residence, and the variety of tax deductions and exclusions related to
retirement plans and savings. Unlike, for example, the mortgage interest deduction, which
represents a permanent loss to the Treasury,95 retirement-related tax expenditures, in most cases,
represent a deferral of taxes.

92 See BLS, “National Compensation Survey: Employee Benefits in the United States, March 2011,” Table 3.
93 See BLS, “National Compensation Survey: Employee Benefits in the United States, March 2021,” Table 4.
94 Employer matching contributions for an individual who makes designated Roth contributions are always made on a
pre-tax basis.
95 See CRS In Focus IF11540, The Mortgage Interest Deduction.
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 Income taxes are deferred on contributions to traditional DC plans and traditional
IRAs. Investment earnings also accrue on a tax-deferred basis. Distributions from
these accounts are included in taxable income.
 Benefits earned in DB plans are also not taxed until received in retirement.
 While contributions to designated Roth accounts within DC plans and Roth IRAs
are not excluded from taxable income, investment earnings accrue on a tax-free
basis.96
The tax preferences for retirement savings are one of the largest federal tax expenditures. The
Treasury Department estimated the following tax expenditures in FY2022:
 $73.4 billion for DB plans,
 $102.9 billion for DC plans, and
 $19.9 billion for IRAs.97
The Joint Committee on Taxation (JCT) estimated the following tax expenditures in FY2022:
 $131 billion for DB plans,
 $199.5 billion for DC plans, and
 $27.2 billion for IRAs.98
The difference in the estimates may be due to differences in assumptions and methodologies.
Unlike, for example, the student loan interest deduction, which is a one-time deduction and
relatively easy to calculate, taxation on retirement plan contributions is deferred until a future
date, and the actual tax expenditure depends on many factors, such as the rate of return on
investments and the difference in marginal income tax rates at the time of contribution and
withdrawal for any given individual. Some researchers have identified issues with the calculation
methods used by Treasury and JCT and have proposed alternative methods.99

96 See Peter Brady, “The Tax Benefits and Revenue Costs of Tax Deferral,” ICI, 2012, pp. 29-34, https://www.ici.org/
pdf/ppr_12_tax_benefits.pdf.
97 See U.S. Department of the Treasury, “Tax Expenditures,” Table 1, https://home.treasury.gov/system/files/131/Tax-
Expenditures-FY2023.pdf. Treasury also estimated a tax expenditure of $33.2 billion for self-employer plans, which
refer to Keogh plans (IRA-based plans for self-employed individuals).
98 See JCT, “Estimates of Federal Tax Expenditures for Fiscal Years 2020-2024,” https://www.jct.gov/publications/
2020/jcx-23-20/. JCT also estimated a tax expenditure of $15.1 billion for Keogh plans.
99 For example, see Judy Xanthopoulos and Mary Schmitt, “Retirement Savings and Tax Expenditure Estimates,”
Retirement Saving Association, September 2016, https://www.asppa.org/sites/asppa.org/files/Comm_2016/
16.09%20ARA%20Report%20-
%20Retirement%20Savings%20and%20Tax%20Expenditure%20Estimates%20FINAL.pdf. The authors state that
current tax expenditure measures overstate costs for provisions that defer taxes compared to provisions that
permanently reduce taxes (e.g., a tax credit). The authors suggest that estimates should be made for groups based on
contribution level, age, and income to measure the effects of tax deferral (i.e., the benefit that results from taxpayers
facing a different tax rate in retirement compared to when the contributions are made) and the benefits of future
earnings (assuming a 4% rate of return).
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Appendix. Selected CRS Resources on Pension
Plans and Individual Retirement Accounts
The following CRS resources provide additional background on the different types of pensions
discussed in this report.
 CRS In Focus IF12008, Private-Sector Pensions in 2019: Number of Plans,
Participants, and Amount of Assets
 CRS Insight IN11659, U.S. Retirement Assets in 2020
Private-Sector Defined Benefit Plans
 CRS Report R46366, Single-Employer Defined Benefit Pension Plans: Funding
Relief and Modifications to Funding Rules
 CRS Report R43305, Multiemployer Defined Benefit (DB) Pension Plans: A
Primer
 CRS Report R45187, Data on Multiemployer Defined Benefit (DB) Pension
Plans
 CRS Report R45311, Policy Options for Multiemployer Defined Benefit Pension
Plans
 CRS In Focus IF11765, Special Financial Assistance to Multiemployer Plans
Private-Sector Defined Contribution Plans
 CRS In Focus IF12007, A Visual Depiction of the Shift from Defined Benefit (DB)
to Defined Contribution (DC) Pension Plans in the Private Sector
 CRS Insight IN11721, Data on Retirement Contributions to Defined Contribution
(DC) Plans
Federal, State, and Local Government Pension Plans
 CRS In Focus IF10243, Civilian Federal Retirement: Current Law, Recent
Changes, and Reform Proposals
 CRS Report 98-810, Federal Employees’ Retirement System: Benefits and
Financing
 CRS Report RL30387, Federal Employees’ Retirement System: The Role of the
Thrift Savings Plan
 CRS Report R47084, Federal Retirement Plans: Frequently Asked Questions
Individual Retirement Accounts
 CRS Report RL34397, Traditional and Roth Individual Retirement Accounts
(IRAs): A Primer
 CRS Report R41476, Ownership of Individual Retirement Accounts (IRAs) and
Policy Options for Congress
 CRS Insight IN11722, Data on Contributions to Individual Retirement Accounts
(IRAs)
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 CRS In Focus IF11611, State-Administered IRA Programs: Overview and
Considerations for Congress

Author Information

Elizabeth A. Myers, Coordinator
Paul S. Davies
Analyst in Income Security
Specialist in Income Security

John J. Topoleski
Katelin P. Isaacs
Specialist in Income Security
Specialist in Income Security

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

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