The U.S. Government Accountability Office (GAO) report, prepared for U.S. Congressman George Miller (D-California), also projected that 63% of low-income workers born in 1990 will hit retirement age without any nest egg savings.

GAO researchers said they considered that many Americans dip into their retirement savings for working-age expenses and that many do not sign up for a workplace plan when their employer offers one. According to the GAO, the most recent available data indicate that 36% of workers participated in defined contribution plans in 2004.

“Unless we act now, too many workers just starting their careers today will unfortunately face a less secure retirement than did many of their parents,” said Miller, chairman of the House Education and Labor Committee, in a statement. “Today’s workers will more likely struggle to make ends meet during retirement than previous generations. While Social Security faces long-term challenges that must be addressed, this GAO report makes it clear that the real retirement security crisis is the lack of savings in private retirement plans.” Miller has proposed a bill mandating significant new disclosures about plan fees (See Retirement Plan Fee Debate Likely to Continue Past 2008 Elections).

GAO researchers also observed:

Instant eligibility significantly decreased the number of workers with no 401(k) savings and increased the amount of the available retirement savings at all income levels. The share of workers with no retirement savings decreased from 36.8% to 17.7%. Among low-income workers, the share decreased from 63% to 30%.

Automatically rolling over retirement savings into a new retirement plan when workers leave a job would increase projected retirement savings by an average 11%, with the biggest percentage increases for low-income workers.

The GAO’s statement about auto enrollment’s benefits comes as the retirement services community has already embraced the auto enrollment concept in a major way with a regulatory boost through tools provided by the Pension Protection Act.

DB to DC

The report noted the decrease in defined benefit coverage and a notable increase in DC plans. By 1994, 401(k)s and other defined-contribution plans included 64.6 million participants, while pension plan and other defined benefit plans included only 41.7 million participants.

“The DC plan has clearly overtaken the DB plan as the principal retirement plan for the nation’s private sector workforce, and its growing dominance suggests its increasingly crucial role in the retirement security of current and future generations of workers,’ the GAO observed. “The current DC-based system faces major challenges, like its DB-based predecessor, in terms of coverage, participation, and lifetime distributions.’

Representative Rob Andrews (D-New Jersey), chair of the Health, Employment, Labor, and Pensions Subcommittee, declaring the need for reform “imperative,’ asserted in the Miller statement: “Today’s GAO report is a clear indication that a large portion of Americans are heading toward retirement insecurity.’

The GAO report is available here.