Guess which kind of retirement plan Americans have stocked with the most money - traditional pensions, individual retirement accounts or defined contribution plans such as 401(k)s?
I would have guessed 401(k)s and their cousins, which have been replacing "defined benefit" pension plans for decades. But the answer, said the Government Accountability Office, is IRAs. In 2004, IRAs had about $3.5 trillion in assets, defined contribution plans had about $2.6 trillion, and pension plans had about $1.9 trillion.
The reason makes sense when you hear it. Even though workers don't put much into IRA plans directly, they usually roll over 401(k) plans into an IRA when they switch employers. So a lot of the IRA money started out as 401(k) money.
In 2004, people rolled $214 billion into IRAs from other plans but contributed only $48 billion directly.
Government could do a better job of promoting consistent, direct IRA contributions, especially among small employers that don't offer pensions and 401(k)s, the GAO said. In 1999, 4.1 million taxpayers contributed to traditional IRAs, but fewer than half contributed the next three years. The Labor Department should focus on increasing creation of employer-sponsored IRAs and getting workers to contribute, GAO said.
It's not like the country has too much savings. Promoting SIMPLE IRAs, streamlined plans created in 1996 for companies with 100 or fewer employees, seems like a good start.