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Offer Beneficial Strategies in Several Areas' which was released on 
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United States Government Accountability Office: GAO: 

Report to Congressional Requesters: 

March 2012: 

Defined Contribution Plans: 

Approaches in Other Countries Offer Beneficial Strategies in Several 
Areas: 

GAO-12-328: 

GAO Highlights: 

Highlights of GAO-12-328, a report to congressional requesters. 

Why GAO Did This Study: 

Service providers play important roles in the U.S. defined 
contribution (DC) retirement system since they provide services, such 
as administration and fund management, necessary for operating DC 
plans. Plan sponsors rely on such providers, yet it is unclear how 
much participants are paying in fees for these services. Other 
countries with well-established DC systems face similar issues and 
some use a variety of approaches to oversee DC plans and service 
providers and actively focus on fees charged to participants. GAO was 
asked to examine, for selected countries’ DC systems, (1) how are 
service providers overseen by regulatory agencies; (2) what key 
strategies are used to improve fee disclosure to participants; and (3) 
what key strategies are used to reduce fees? GAO selected Australia, 
Chile, Sweden and the United Kingdom based on, among other factors, 
the importance of the DC plans to the country’s retirement system and 
the use of strategies to address service providers’ fees. GAO reviewed 
research on DC plans; collected and analyzed available data; and 
interviewed government officials, pension experts, service providers, 
and other relevant representatives in the U.S. and selected countries. 

What GAO Found: 

In overseeing DC plans and service providers, regulatory agencies in 
the countries GAO reviewed use risk-based approaches to target 
practices deemed most likely to harm participants and to develop 
preventative measures. While the role of service providers varies, DC 
plans and service providers in the 4 countries GAO reviewed are 
overseen by multiple agencies-—primarily a pensions regulator and a 
securities regulator. In each of these countries, the pensions 
regulator is the agency that regularly collects data on service 
provider fees, as well as other plan features, which are used to 
inform their oversight activities. In particular, in several of these 
countries, the pensions regulator uses these data as part of a risk-
based approach to identify service provider practices that may harm 
participants, instead of relying only on a compliance-based approach. 
For example, in Chile, pensions agency officials evaluate key features 
of the DC system, such as the service providers’ management of the 
individual accounts and the composition and role of the board of 
directors of the service provider. In both Chile and Australia, agency 
officials said using a risk-based approach enables the pensions 
regulator to take proactive measures to ensure the DC plans are 
operating in the best interest of participants. These countries have 
used risk-based approaches to oversee service providers for a number 
of years, while the U.S. Department of Labor (Labor) has just begun to 
develop a risk-based approach in its efforts to oversee U.S. DC plans 
and service providers. 

Other countries have used key strategies to improve the disclosures 
participants receive about the fees they pay for their DC plans, 
including presenting disclosures in a consistent, summary format, 
which has increased transparency. In particular, these countries have 
made disclosures simpler and more uniform to facilitate comparisons, 
and one has required that providers highlight the long term impact of 
fees on participants’ account balances. In addition, some countries 
require that participants receive personalized information about the 
total amount they pay in fees over a given time period. In Chile, 
participants not only receive personalized fee disclosures, but they 
also receive a statement that tells them what they would have paid had 
they chosen the lowest-cost option. Many of these requirements exceed 
Labor’s disclosure requirements for U.S. DC plan participants. 

Other countries use several targeted strategies—-including 
consolidating and streamlining administrative services and 
establishing low-cost default funds—-to keep the fees paid by their DC 
plan participants at reasonable levels. According to officials in the 
countries GAO reviewed, it was important to use these targeted 
strategies because many of their DC plan participants remain 
disengaged from retirement savings issues despite improved 
disclosures. For example, in Sweden and the United Kingdom, 
consolidating administrative functions eliminates the need for fund 
managers to maintain individual accounts. Representatives from service 
providers in both countries said this structure allows them to 
significantly lower their fees. In addition, for individuals who do 
not actively choose where to invest their contributions, some 
countries have established low-cost default options through a variety 
of measures, such as creating a nonprofit entity to run the default 
fund under a low-cost mandate, increasing the use of online services, 
and eliminating marketing costs. These countries also take other 
targeted approaches to lower fees, such as direct regulation of fees. 

What GAO Recommends: 

GAO is recommending that Labor consider other countries’ experiences 
as it continues to improve its supervision and requirements related to 
fee disclosures. In commenting on a draft of this report, Labor 
generally agreed with the findings and noted that it will consider GAO’
s recommendations carefully. 

View [hyperlink, http://www.gao.gov/products/GAO-12-328]. For more 
information, contact Charles Jeszeck at (202) 512-7215 or 
jeszeckc@gao.gov. 

Contents: 

Letter: 

Background: 

Risk-Based Oversight Helps Some Countries' Regulatory Agencies Monitor 
Service Providers and Could Inform Labor as It Improves Its Oversight 
Approach: 

Fee Disclosure Strategies Improved Transparency in Some Countries, and 
Similar Strategies Could Benefit U.S. Participants: 

Targeted Strategies Used by Some Countries Lower Fees: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Key Features of DC Pension Systems in Australia, Chile, 
Sweden and the United Kingdom: 

Appendix III: Comments from the Department of Labor: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Labor's 401(k) Participant Fee Disclosure Requirements: 

Table 2: Key Features of Case Study Countries' DC Systems: 

Table 3: Key roles of DC Service Providers by Country: 

Table 4: Main Features of Alternate Regulatory Approaches: 

Table 5: Australia's Fee Disclosure Requirements: 

Table 6: Australia's Proposed Regulations to Reduce Costs through a 
Variety of Methods: 

Table 7: Australia's Proposed MySuper Default Products Will Be Limited 
to Certain Fees: 

Table 8: Other Strategies That Have Reduced Fees: 

Figures: 

Figure 1: Structure of Service Provider Arrangements in 401(k) Plans: 

Figure 2: Economic Data for the United States, Australia, Chile, 
Sweden, and the United Kingdom, 2010: 

Figure 3: Consumer Advisory Warning Box in Australian Product 
Disclosure Statement: 

Figure 4: Example of Sweden's Fee Disclosure Requirements for Premium 
Pension Participants: 

Figure 5: Example of Chile's Fee Disclosure Requirements: 

Figure 6: Example of Labor's 401(k) Participant Disclosure Requirement 
Demonstrating the Effect of Fees: 

Figure 7: Example of Annual Fee Disclosure Requirements for 401(k) 
Participants under Labor's New Regulations: 

Figure 8: The Structure of Sweden's Premium Pension System Helps Lower 
Administrative and Fund Management Fees: 

Figure 9: The United Kingdom Has Structured Its Nationally Available 
Plan to Reduce Administrative and Fund Management Fees: 

Abbreviations: 

AFP: Administradoras de Fondos de Pensiones: 

DB: defined benefit: 

DC: defined contribution: 

EBSA: Employee Benefits Security Administration: 

ERISA: Employee Retirement Income Security Act of 1974: 

GDP: gross domestic product: 

IOPS: International Organisation of Pension Supervisors: 

Labor: U.S. Department of Labor: 

NEST: National Employment Savings Trust: 

OECD: Organisation for Economic Co-operation and Development: 

SEC: Securities and Exchange Commission: 

U.K. United Kingdom: 

[End of section] 

United States Government Accountability Office: Washington, DC 20548: 

March 22, 2012: 

The Honorable George Miller:
Ranking Member:
Committee on Education and the Workforce: House of Representatives: 

The Honorable Robert E. Andrews:
Ranking Member:
Subcommittee on Health, Employment, Labor, and Pensions: House of 
Representatives: 

Service providers--companies that employers hire to provide the 
services necessary to operate defined contribution (DC) retirement 
plans, such as investment management, consulting and financial advice, 
recordkeeping, custodial or trustee based services for plan assets, 
and basic customer service--play an important role in the U.S. DC 
system. As employers who offer DC plans rely on these providers, whose 
fee arrangements are becoming increasingly complex, it is unclear how 
much participants are paying for their services. Because the amount of 
a participant's retirement savings in a DC plan depends on their 
investment rate of return net of fees, higher direct and indirect fees 
charged by DC plan service providers can significantly decrease the 
income available to participants in retirement. Furthermore, oversight 
of these companies has become more complex because their services and 
activities may fall within the jurisdiction of multiple regulatory 
agencies. In order to improve employers' abilities to adequately 
oversee service providers and monitor the fees participants are 
charged for their services, the U.S. Department of Labor (Labor) 
issued an interim final rule in 2010 to increase the transparency of 
direct and indirect fees in DC plans to plan sponsors. The final rule 
will go into effect in 2012, and its impact remains to be seen. 
[Footnote 1] 

Other countries with well-established DC systems face similar issues, 
and some use a variety of approaches to oversee DC plans and service 
providers and actively focus on fees charged to participants. Congress 
is interested in understanding what approaches other countries are 
using to address these issues compared to the approaches used in the 
United States. In particular, Congress is interested in whether U.S. 
regulators can benefit from learning about these alternative 
approaches as well as the challenges those countries encounter in 
utilizing and overseeing service providers in their DC plans. In light 
of this, you asked us to answer the following questions: 

1. How are service providers in other countries' DC systems overseen 
by regulatory agencies? 

2. What key strategies are used in other countries to improve fee 
disclosure to participants? 

3. What key strategies are used in other countries' DC systems to 
reduce fees? 

To answer these questions, we selected four countries in which to 
conduct case studies: Australia, Chile, Sweden, and the United Kingdom 
(U.K.). To select these countries, we initially reviewed scholarly and 
nonlegal sources describing the DC retirement systems in other 
countries. Based on our analysis of relevant research and interviews 
with pension experts, we identified 10 countries that had DC systems 
with key features designed to address fees. From those 10 countries, 
we established selection criteria based on the importance of the DC 
system to the country's retirement system and the use of strategies to 
address service providers' fees, among other factors. By focusing on 
countries in which the DC system is an important pillar of the 
retirement system, we increased our opportunity to identify practices 
used in countries with well developed capital markets and where risks 
to participants are comparable to those faced by participants in the 
United States. For each of the four countries selected, we reviewed 
research and other available documentation and interviewed officials 
and industry experts to determine the role that service providers play 
in these countries' DC systems and how they are overseen, and to 
identify the strategies designed to address fees. We obtained broad 
perspectives on the benefits and drawbacks of the identified 
strategies from government officials, academics, industry experts, 
service providers, and other relevant representatives in each country. 
Where possible, we attempted to obtain and analyze available data on 
the types and amounts of fees paid in DC plans in those countries. We 
did not conduct any independent legal analysis to verify the 
information provided by or about those countries laws or regulations. 
Appendix I provides additional information on our scope and 
methodology. 

We conducted this performance audit from March 2011 through March 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Roughly 40 percent of all U.S. workers participate in pension plans 
offered by their employers.[Footnote 2] Under Title I of the Employee 
Retirement Income Security Act of 1974 (ERISA), employers are 
permitted to offer their employees two broad types of retirement 
plans, defined benefit (DB) and DC. Over the past three decades, there 
has been a general shift by employers away from DB plans to DC plans, 
the most predominant of which is the 401(k) plan. According to 
estimates by industry researchers, 51 million American workers were 
active 401(k) plan participants in 2010 and, by year end, 401(k) plan 
assets amounted to $3.0 trillion.[Footnote 3] Unlike DB plans, 
employers that offer 401(k) plans do not promise employees a specific 
benefit amount at retirement--instead, the employee and/or the 
employer contribute money to an individual account held in trust for 
the employee.[Footnote 4] Participants direct these contributions to 
mutual funds and other financial market investments; the amount 
available at retirement is dependent on, among other things, 
investment returns net of fees. In this way, 401(k) plan participants 
have more control over their retirement assets than DB plan 
participants but also bear the responsibility for ensuring they have 
adequate retirement savings. 

Employers who offer these plans are considered plan sponsors and 
generally have the responsibility to act prudently and in the best 
interest of the plan's participants as they hire various outside 
companies to help run the plan and choose investment options to offer 
in the plan.[Footnote 5] Most 401(k) plans allow participants to 
direct the investment of their contributions, but their choices are 
generally limited to those investment options their plan sponsor 
chooses to offer. Participants also pay a number of fees, including 
expenses, commissions, or other charges associated with operating a 
401(k) plan.[Footnote 6] Fees are charged by the various outside 
companies that the plan sponsor hires to provide a number of services 
necessary to operate the plan. Services can include investment 
management (e.g., selecting and managing the securities included in a 
mutual fund); consulting and providing financial advice (e.g., 
selecting vendors for investment options or other services); 
recordkeeping (e.g., tracking individual account contributions); 
custodial or trustee services for plan assets (e.g., holding the plan 
assets in a bank); and telephone or web-based customer services for 
participants. An investment company, bank, advisor, or insurance 
company may offer any or all of these types of investment products as 
plan options to a 401(k) plan. As shown in figure 1, service providers 
can be used to provide a number of services necessary to operate a 
401(k) plan. 

Figure 1: Structure of Service Provider Arrangements in 401(k) Plans: 

[Refer to PDF for image: illustration] 

401(k) plan: 

Plan participant: 
Makes contributions and allocates them according to options available 
within the plan. 

Plan sponsor: 
Establishes and maintains 11401(k) plan; may make matching 
contributions. 

Some 401(k) plans delegate much of the fund's daily operation to a 
bundled plan service provider. 

Bundled plan service provider: 
Directly employs or contracts with an array of service providers to 
offer a number of services. 

Investment advisor: 
Assists with selecting investment options for the plan. 

Other participant customer services: Provides telephone or web-based 
service to participants. 

Fund manager: 
Manages the assets of investment funds selected by participant. 

Plan asset trustee or custodian: 
Secures 401(k) plan's assets in a bank. 

Record keeper: 
Tracks individual account contributions and returns. 

Source: GAO analysis of information from industry practitioners. 

Note: Services can be bundled or unbundled with investment management 
services or advisory services. Under a bundled service arrangement, 
the plan sponsor hires a company that provides multiple services 
directly or through subcontracts. Under unbundled arrangements, the 
sponsor uses a combination of service providers. 

[End of figure] 

401(k) service providers are typically overseen by various U.S. 
federal and state regulators. Labor's Employee Benefits Security 
Administration (EBSA) has numerous responsibilities related to the 
oversight of 401(k) plans and protection of 401(k) participants' 
assets,[Footnote 7] including educating and assisting plan sponsors 
and participants, investigating alleged violations of ERISA, 
responding to requests for interpretations of ERISA through advisory 
opinions and rulings, and making determinations to exempt transactions 
that would otherwise be prohibited under ERISA. However, as we have 
previously reported, Labor's civil enforcement efforts for plan 
service providers are largely limited by the extent to which the 
provider functions as a fiduciary under ERISA,[Footnote 8] and many 
providers are reported to commonly structure their relationships with 
sponsors in a manner that avoids being subject to these fiduciary 
standards.[Footnote 9] To carry out its enforcement duties, Labor has 
offered voluntary compliance programs and has relied primarily on 
leads from participants, plan sponsors, and other agencies to conduct 
targeted investigations on specific types of plans and service 
providers.[Footnote 10] In addition to Labor's role, the specific 
investment products commonly offered in 401(k) plans fall under the 
authority of the applicable securities, banking, or insurance 
regulators. These regulators include the Securities and Exchange 
Commission (SEC), federal and state banking agencies, and state 
insurance commissioners as follows: 

* SEC, among other responsibilities, regulates securities markets and 
issuers, including mutual funds, under various securities laws. 

* Federal agencies charged with oversight of banks--primarily the 
Federal Reserve Board, the Office of the Comptroller of the Currency, 
the Federal Deposit Insurance Corporation, and state banking agencies--
oversee bank investment products. 

* State insurance agencies generally regulate insurance products. Some 
investment products may also include one or more insurance elements, 
which are not present in other investment options. Generally, these 
elements include an annuity feature and interest and expense 
guarantees.[Footnote 11] 

Labor published final regulations on October 20, 2010, to improve U.S. 
participant fee disclosure, as summarized in table 1.[Footnote 12] 
These regulations require that plan sponsors provide participants core 
information about investments available under the plan, including 
performance and fee information, prior to investing and at least on an 
annual basis thereafter, in a chart or similar format designed to 
facilitate investment comparisons. Pursuant to these new regulations, 
participants will receive information about pertinent administrative 
expenses, individual expenses, and investment-related fees and 
expenses that they may pay throughout the year. Participants will also 
receive quarterly statements on plan fees and expenses deducted from 
their accounts along with a description of the services for which the 
charge or deduction was made. 

Table 1: Labor's 401(k) Participant Fee Disclosure Requirements: 

Annual statements: 

Administrative fees. An explanation of the fees and expenses for 
general plan administrative services and how these fees will affect 
the balance of a worker's account. These fees may include legal, 
accounting, trustee, recordkeeping, and other administrative fees and 
expenses associated with maintaining the plan. 

Individual fees and expenses. An explanation of any fees and expenses 
charged to the balance of a worker's account on an individual basis, 
rather than on a plan-wide basis. These fees are associated with a 
service or transaction that an individual may select and may include 
fees and expenses for plan loans, processing qualified domestic 
relations orders, investment advice, and brokerage windows[A]. 

Investment-related fees. For each investment option in the plan, 
pertinent performance information, fees and expenses, and investment 
restrictions: 
* Variable investments. The amount (in percent and per $1,000) of fund 
management fees and any shareholder fees; 
* Fixed investments. The fixed or stated rate of return and any 
shareholder fees. 

Statement on effect of fees over time. 

Quarterly statements: 

Administrative fees. Actual type and amount (in dollars) of plan 
administrative fees charged. 

Individual fees and expenses. Actual type and amount (in dollars) of 
individual fees and expenses charged. 

Source: GAO summary of Department of Labor regulations, 75 Fed. Reg. 
64,910. 

[A] Brokerage windows are self-directed investment options in which 
participants can invest in individual stocks or mutual funds. 

[End of table] 

In addition to the United States, the U.K., Australia, Chile, and 
Sweden each have extensive DC pension systems. However, in drawing 
comparisons between countries, it is important to recognize the 
significant social and economic differences that exist among them and 
with the United States. While the economies of the U.K., Australia, 
Chile and Sweden can be characterized as market-based, the U.K. and 
Sweden generally have more extensive and generous social welfare 
provisions than that of the United States.[Footnote 13] As shown in 
figure 2, the size of each country's economy is far smaller than that 
of the United States as measured by gross domestic product (GDP). The 
standard of living, as measured by GDP per capita, ranges from $15,040 
in Chile to $46,860 in the United States.[Footnote 14] In addition, 
pension assets as a share of GDP varies from 73 percent in Chile to 
239.8 percent in Sweden, and DC assets as a share of total pension 
assets from 5.6 percent in Sweden to 100 percent in Chile. 

Figure 2: Economic Data for the United States, Australia, Chile, 
Sweden, and the United Kingdom, 2010[A]: 

[Refer to PDF for image: illustrated world map] 

United States: 
GDP (U.S. dollars in billions): $14,526.6; GDP per capita: $46,860; 
Pension assets as a share of GDP: 72.6%; DC assets as a share of total 
pension assets: 54.9%. 

United Kingdom: 
GDP (U.S. dollars in billions): $2,250.2; GDP per capita: $35,059; 
Pension assets as a share of GDP: 147%; DC assets as a share of total 
pension assets: 40%. 

Sweden: 
GDP (U.S. dollars in billions): $458.7; GDP per capita: $38,204; 
Pension assets as a share of GDP: 239.8%; DC assets as a share of 
total pension assets: 5.6%. 

Chile: 
GDP (U.S. dollars in billions): $203.3; GDP per capita: $15,040; 
Pension assets as a share of GDP: 73.0; DC assets as a share of total 
pension assets: 100%. 

Australia: 
GDP (U.S. dollars in billions): $1,237.4; GDP per capita: $39,764; 
Pension assets as a share of GDP: 90.0%; DC assets as a share of total 
pension assets: 82.4%. 

Source: IMF World Economic Outlook Database September 2011, and OECD 
StatExtracts, Funded Pension Indicators (statistics) extracted on 
October 23, 2011, government agency officials in foreign countries; 
ArtExplosion (flags); Naional Atlas (base map). 

[A] Total population estimates for these countries in 2011: Australia: 
21.8 million, Chile: 16.9 million, United Kingdom: 62.7 million, 
United States: 313.2 million, Sweden: 9.1 million (see CIA World 
Factbook). 

[End of figure] 

In addition, each country's DC system is slightly different based on 
their different economic and political conditions. Table 2 has key 
features of each country's DC system. 

Table 2: Key Features of Case Study Countries' DC Systems: 

Dollars in billions USD: 

Country: Australia; 
Description of DC system: Australian employers have been required to 
make a minimum contribution to a pension account based on a percent of 
employees' salaries, since 1992. The current requirement is 9 percent; 
Types of plan(s): Plans in Australia are generally set up as trusts. 
There are three types of trust-based private pension plans available 
in the Australian market: industry-wide or single-employer plans with 
nonprofit trustees; retail plans with for-profit trustees; and self-
managed accounts, where the individual is his/her own trustee; 
Approximate total DC assets in 2010: $853. 

Country: Chile; 
Description of DC system: Since 1981, Chilean workers have been 
required to contribute 10 percent of their salary, plus an additional 
contribution to cover certain fees, to a DC pension plan; Types of 
plan(s): Workers choose among for-profit pension service providers 
known as AFPs (Administradoras de Fondos de Pensiones) for their 
individual DC pension plans. There are currently 6 AFPs workers can 
choose from; Approximate total DC assets in 2010: $148. 

Country: Sweden; 
Description of DC system: All Swedish workers and their employers have 
been required to contribute a total of 2.5 percent of the covered 
portion of workers' salaries to individual DC accounts in the Premium 
Pension System, which was introduced in pension reform passed in 
1998[A]; Types of plan(s): Individual accounts in the Swedish system 
are all part of one plan managed by a government-run clearinghouse, 
the Swedish Pensions Agency; Approximate total DC assets in 2010: $62. 

Country: United Kingdom; 
Description of DC system: Voluntary DC plans make up most of the 
private pension system in the U.K. An individual may be a member of a 
number of different pension plans simultaneously. Since 2001, all 
employers with five or more workers, who were not already sponsoring a 
pension plan, have been required to designate a stakeholder pension 
provider and offer it to their workers.[B] From 2012 to 2017, all 
employers will be required to automatically enroll eligible employees 
into a pension plan and provide a minimum contribution. Employers who 
do not offer a qualifying pension plan will be able to auto-enroll 
their employees into a new national DC pension option, called the 
National Employment Savings Trust (NEST)[C]; Types of plan(s): There 
are two fundamental types of DC pension plans available in the U.K. 
private pension system: trust-based schemes, which are set up by 
employers, and contract-based schemes, which may be facilitated by the 
employer but are owned entirely by the individual; Approximate total 
DC assets in 2010: $1,320. 

Source: GAO analysis of foreign documentation and interviews with 
industry experts: 

[A] An additional 16 percent of the covered portion of workers' 
salaries are contributed to notional, or non-financial, DC plans, 
which are designed to mimic DC plans where the pension depends on 
contributions and investment returns. However, in these notional 
accounts, the return that contributions earn is a notional one 
determined by average earnings growth and adjusted as necessary, not 
the product of investment returns in the markets. Moreover, notional 
DC plans are basically pay-as-you-go financed (i.e. current 
contributions pay for current benefits). However, Sweden also 
currently has a substantial buffer fund, holding assets equivalent to 
25 percent of GDP, which the regulator projects will co-finance 
benefits beyond 2040. 

[B] Stakeholder pensions are a type of low-cost personal pension with 
limits on the charges that providers can impose. 

[C] The pensions regulator noted that a number of new trust-based 
plans not associated with particular employers have been launched to 
compete with NEST in the new auto-enrollment market. 

[End of table] 

Risk-Based Oversight Helps Some Countries' Regulatory Agencies Monitor 
Service Providers and Could Inform Labor as It Improves Its Oversight 
Approach: 

Service Providers' Role and Oversight: 

As in the U.S. DC system, service providers in the countries we 
reviewed play an important role and perform a range of administrative 
and investment management functions. The structure and role of service 
providers in each country's DC system varies, as described in table 3. 
For example, in Australia and the U.K., DC plans can be offered 
through different arrangements and the role of service providers 
varies accordingly. In some cases, the plan is run by a nonprofit 
entity managed by a board of trustees with representation from both 
employers and workers. In other cases, the plan is managed by a for-
profit financial service provider with the employer playing little or 
no role. To address potential conflicts of interest, financial 
industry representatives in Australia told us that these plans, known 
as retail plans, have licensed trustees who are legally obliged to act 
in the best interests of participants, such as by reviewing the use of 
internal service providers. Agency officials said they look for 
documentation of this review of the use of service providers. 

Table 3: Key roles of DC Service Providers by Country: 

Australia: 

Key roles of DC service providers: In general, trustees of Australian 
plans have authority to hire service providers, but the service 
providers' roles vary based on the type of plan: Industry-wide and 
single-employer plans: nonprofit entities managed by a board of 
trustees that typically hire separate service providers for 
recordkeeping and investment management services; Recordkeeping 
services: [Check]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Empty]. 

Key roles of DC service providers: Retail plans: an employee deals 
directly with a for-profit service provider which performs 
recordkeeping, investment management, and trustee services[A]; 
Recordkeeping services: [Check]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Check]. 

Key roles of DC service providers: Self-managed plans: set-up by 
employees and entail establishing a trust and a bank account. The 
trust is required to be audited by a third party. Up to four people 
can be in the trust. The employees are the trustees and can select 
their investment options. The employees may hire a financial adviser 
or other experts to select investment options; Recordkeeping services: 
[Check]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Empty]. 

Chile: 

Key roles of DC service providers: In Chile, service providers play a 
key role in running the DC plans. For-profit pension service providers 
known as AFPs (Administradoras de Fondos de Pensiones) directly manage 
participants' individual accounts and provide both recordkeeping and 
investment management services. Each AFP offers five different 
investment funds with varying risk levels subject to specific 
regulations. AFPs hire external fund managers to provide some of these 
investment options; Recordkeeping services: [Check]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Empty]. 

Sweden: 

Key roles of DC service providers: The Swedish Pensions Agency, a 
government agency, contracts with service providers to perform 
investment management for the DC portion of the public pension 
system.[B] Nearly 800 investment options are available for 
participants to choose from; Recordkeeping services: [Empty]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Empty]. 

United Kingdom: 

Key roles of DC service providers: In the U.K., the key roles of 
service providers vary based on the type of plan: Trust-based plans: 
nonprofit entities typically hire one or more service providers for 
recordkeeping and investment management services. The plan trustees 
are responsible for selecting and vetting the investment options. 
NEST, a new nationally available plan, operates in this way; 
Recordkeeping services: [Check]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Empty]. 

Key roles of DC service providers: Contract-based plans: an employee 
deals directly with a for-profit service provider which may perform 
both recordkeeping and investment management services. The service 
provider, in conjunction with an advisor or employer if necessary, 
selects which investment options are available to the participant; 
Recordkeeping services: [Check]; 
Investment management services: [Check]; Trustee or trustee-like 
services: [Check]. 

Source: GAO analysis of foreign agency documentation and interviews 
with industry experts. 

[A] According to agency officials, service providers for retail plans 
are often part of a conglomerate where related companies provide 
services for the plan. 

[B] The DC portion of the public pension system is known as the 
Premium Pension. 

[End of table] 

In each of the countries we examined, some of the service providers 
are large U.S.-based companies. For example, in Australia and the 
U.K., representatives of U.S. service providers we spoke with said 
they perform a variety of functions ranging from consulting services 
to managing the plan, including both administrative and investment 
management functions. In contrast, because of the structure of the DC 
systems in Chile and Sweden, U.S. service providers play a more 
limited role and generally provide fund management or other consulting 
services. 

While the role of service providers varies, in most of the countries 
we reviewed DC plans and service providers are overseen by multiple 
agencies--primarily a pensions regulator and a securities regulator, 
as described below. Moreover, in Australia and the U.K., where DC 
plans can be offered through different arrangements, the oversight 
structure differs based on the type of plan. 

* In Australia, for industry-wide, single-employer and retail pension 
plans--called superannuation plans--the pensions regulator licenses 
trustees and oversees their management of the plan, including the use 
of service providers. Self-managed superannuation plans, on the other 
hand, are primarily overseen by the tax authority. In conjunction with 
both of these agencies, the Australian securities regulator oversees 
financial services, including the disclosure of fees for 
superannuation plans. 

* In the U.K., the pensions regulator oversees trust-based plans and 
their use of service providers, while the securities regulator 
oversees the investment funds offered in these plans--particularly 
disclosures--and acts as the primary regulator for individual contract-
based plans.[Footnote 15] For other contract-based plans designated by 
employers but administered by for-profit service providers, oversight 
is jointly conducted by both the pensions regulator and the securities 
regulator. 

* In Chile, the pensions regulator intensively oversees plan 
providers, including issuing licenses for them to participate in the 
system. On an ongoing basis, the pensions regulator monitors plan 
providers for compliance with investment option guidelines, reserve 
requirements, fee structure, and other requirements. The Chilean 
Ministry of Finance and the Central Bank coordinate with the pensions 
regulator on certain issues related to investment regulation. 

* In Sweden, the pensions regulator administers the plan and 
establishes terms of participation for investment fund providers. The 
Swedish securities regulator, meanwhile, oversees the funds offered in 
the Swedish pension system, along with other investment products and 
services provided by the financial services industry. In addition, the 
securities regulator monitors the Swedish Pensions Agency as the 
annuity provider for the DC system. 

Risk-Based Oversight Approach: 

In each of the four countries we reviewed, regulators use a risk-based 
approach to oversee DC plans and service providers and identify 
practices that may harm participants. In general, risk-based oversight 
involves developing a structured approach to identify potential risks 
faced by the DC system and assessing the processes in place to address 
those risks.[Footnote 16] For example, in Chile, agency officials 
evaluate key features of the DC system, such as the service providers' 
management of the individual accounts and the composition and role of 
the service providers' board of directors and investment committee. 
Based on this assessment, the regulatory agency decides if supervisory 
action is necessary and, if so, what type of action--ranging from 
issuing guidance to imposing sanctions or withdrawing licenses to 
operate as a DC plan provider--is appropriate. 

Based on discussions with these countries' officials and a review of 
the International Organisation of Pension Supervisors (IOPS) risk-
based supervision literature, using a risk-based approach allows 
regulatory agencies in other countries to identify potential problems 
before they become widespread and take proactive measures to address 
them.[Footnote 17] For example, in both Chile and Australia, agency 
officials said risk-based supervision enables the pensions regulator 
to implement supervisory actions proactively to ensure DC plans are 
operating in the best interests of participants. A review of 
supervisory approaches by IOPS also notes that a risk-based approach 
is preventative in nature and increases the likelihood that 
significant problems will be identified and addressed at an early 
stage. For example, in the U.K., as part of their risk-based approach 
agency officials said they conduct an annual survey of plan trustees 
to help identify potential problems which could include high fees or 
conflicts of interest.[Footnote 18] In addition, in Australia, the 
pensions regulator's approach is forward-looking in that it actively 
monitors and assesses the performance and situation of DC plans on an 
ongoing basis and then estimates the plans' capacities to manage risk. 
[Footnote 19] Based on this assessment, the pensions regulator 
determines what actions need to be taken, such as more frequent and 
detailed data collection or working with the plan to restructure their 
operations or merge with another plan.[Footnote 20] 

In addition, agency officials and a review of supervisory approaches 
by IOPS cite a number of other beneficial effects of using a risk-
based approach. For example, using a risk-based approach, regulators 
can take the following actions: 

* Allocate scarce resources more efficiently to target key risks. By 
prioritizing risks, the agency can determine which DC plans or service 
providers require more attention and spend minimal effort on issues 
that pose the least threat or likely have little impact. For example, 
in Australia, the need for the pensions regulator to monitor a 
relatively large number of institutions may make compliance-based 
supervision either too costly or ineffective. As a result, the 
pensions regulator focuses on identifying higher-risk institutions 
that require more intensive oversight. Likewise, officials from the 
securities regulator in Sweden said the main advantage of risk-based 
supervision is the more efficient use of resources. Specifically, 
these officials told us that the Swedish securities regulator would 
not be able to conduct in-depth reviews of every fund management 
service provider every year; instead, the official believed that 
investigating only those potentially problematic service providers, as 
indicated by the data the regulator collects, better utilized its 
limited resources. In addition, the U.K. established a new risk-based 
pensions regulator in 2005 after a review of the previous regulator 
revealed inefficiencies with the compliance-based approach. In 
particular, the review found that numerous low-risk cases typically 
overwhelmed the high-risk, high-profile cases. 

* Adapt to the changing nature and complexity of financial risks. By 
evaluating potential risks on an ongoing basis, a risk-based approach 
provides regulators flexibility to adapt to the continuing evolution 
of financial investment options. For example, in Chile, the pensions 
regulator introduced a risk-based approach to adapt to the increasing 
complexity of the financial markets.[Footnote 21] Chile has gradually 
been relaxing investment regulation and, at the same time, 
strengthening the governance of plan providers by ensuring sound risk 
management practices and internal controls. Such practices include 
requiring plan providers to develop an investment policy and establish 
committees to monitor and address investments and conflicts of 
interest. Furthermore, in Australia, in addition to ongoing oversight 
of DC plans, the pensions regulator conducts ad hoc studies to address 
new and emerging trends, such as a study prompted by the financial 
crisis to increase their monitoring of the liquidity of DC investment 
funds. 

* Encourage pension plans to have sound risk management practices. By 
assessing the processes in place for the plan to manage key risks, the 
regulator provides an incentive for plans to adopt good practices to 
improve their risk rating. For example, in its supervision of the 
superannuation industry, the Australian pensions regulator's main 
priority during 2010 and 2011 was to encourage more robust governance 
and risk management practices. To do so, it has been strengthening the 
capacity of some of its analysts and utilizing industry-wide analysis 
techniques to advise plans about the particular aspects of risk 
management for which they may lag behind their peers, which the 
regulator has found to be helpful in focusing the plans on areas where 
improvement is needed. 

* Promote trust and confidence in the regulator's role. Establishing a 
systematic and consistent approach enhances confidence in the 
regulator's methods and in the pension system in general. For example, 
the Australian pensions regulator's use of a structured framework for 
risk assessment in pension plans in its risk-based approach is 
reported to have improved the consistency of its oversight outcomes by 
allowing for more standardized reactions to supervisory issues across 
a large number of service providers and supervisors, which enhances 
the pension industry's confidence in the regulator's methods and 
procedures. 

Table 4 below summarizes the main differences between risk-based and 
compliance-based approaches. 

Table 4: Main Features of Alternate Regulatory Approaches: 

Risk-based: 
Regulators: 
* identify potential risks; 
* assess mitigating factors and proper management of all risks, and; 
* target scarce supervisory resources at supervised entities deemed as 
most at risk; 

Compliance-based: 
Regulators: 
* focus on breach of laws, rules, and regulations, and; 
* give the same degree of attention to all funds. 

Risk-based: 
Approach is preventative, forward-looking, flexible; Compliance-based: 
Approach focuses on a given point in time, often relies on complaints. 

Risk-based: 
Supervised pension plans or service providers have an incentive to 
strengthen risk management; Compliance-based: 
Supervised pension plans or service providers focus on compliance with 
rules rather than risk management. 

Risk-based: 
Regulators can benchmark supervised entities and assess overall 
industry; Compliance-based: 
It is difficult for regulators to get meaningful comparisons across 
supervised entities. 

Source: GAO summary of International Organisation of pension 
Supervisors documentation. 

[End of table] 

IOPS notes that the introduction of risk-based supervision should be 
viewed as a movement along a continuum from one extreme of complete 
reliance on a compliance-based system to one where the emphasis of 
supervision is a function of risk, as described in the text box below. 
In addition, according to IOPS, regulators in many countries have been 
or are planning to utilize risk-based supervisory approaches, but 
implementation varies. For example, the Chilean pensions regulator has 
maintained some compliance procedures around quantitative investment 
limits in addition to its assessments of AFPs’ (Administradoras de 
Fondos de Pensiones) investment risks. Thus, a risk-based approach may 
contain compliance-based elements. IOPS also notes that the regulator’
s active communication with the pension community can help it overcome 
the challenges associated with moving to risk-based oversight from 
compliance-based oversight.[Footnote 22] 

[Text box: Moving from Risk-Based to Compliance-Based Supervision: 

International Organisation of Pension Supervisors (IOPS) guidance to 
pensions supervisors in its Toolkit for Risk-Based Pensions 
Supervision, includes a discussion about the interaction and 
complementary nature of risk-based and compliance-based supervision. 
According to IOPS, 

moving towards RBS [risk-based supervision] is often accompanied by 
the deregulation of strict rules and a move towards a more ‘prudential’
approach to regulation, applying more high level principles. Yet RBS 
can be applied whether a rules-based or a principles-based form of 
regulation is in place. There is no one, perfectly deregulated model 
which all countries should be striving towards. Some pension systems 
(e.g. mandatory systems) requiring greater levels of protection are 
likely to apply more comprehensive rules than others. Whether risk is 
controlled via rules or via prudential regulations simply changes the 
nature and focus of the supervisory approach. Likewise, there is no 
need for an either/or choice between RBS and a more traditional or 
rules-based supervisory approach (i.e. simply checking for compliance 
with regulations). RBS does not mean having no rules or compliance 
procedures in place... Both methods can and should be blended 
according to the nature of the pension system which is being overseen. 
The key is to find the mix which is most appropriate according to the 
nature of the pension system, the capacity of the supervisory 
authority, and the level of development of the pension industry. 

Source: IOPS Toolkit for Risk-based Pensions Supervision, Module 0. 
End of text box] 

In general, risk-based oversight requires extensive data collection 
and analysis to identify individual risks at the entity level, as well 
as systemic risks that occur as a result of changes in the financial, 
economic, or social environment, and affect all or most of the 
entities in the DC system. However, the implementation of a risk-based 
approach varies and the regulators in the countries we reviewed adapt 
it to the unique features of their DC system, as described in the text 
box below. 

[Text box: Examples of Risk-Based Supervision by Other Countries’ 
Pensions Regulators: 

Australia: 
The pensions regulator identifies main risk areas and evaluates how 
plans are addressing them, which include (1) board membership and 
management of the plan, (2) market and investment risk, and (3) 
operational risk (recordkeeping and management of outsourcing 
contracts). For each risk category, the pensions regulator scores 
plans from low (zero) to high (4). For example, to assess investment 
risk, it evaluates whether the plan has a clear investment strategy. A 
plan rated as “extreme risk” would have a high concentration of assets 
in one product market and high exposure to volatility. For the board 
of the plan, the regulator’s staff evaluates key factors, such as the 
quality, skills, and experience of all directors, whether the board 
meets composition and independence requirements, and potential 
conflicts of interest at the board level. In determining the risk 
ratings, the regulator’s staff collects and analyzes financial data 
and other information on a regular basis. Superannuation plans with at 
least $50 million in assets are required to report quarterly 
performance data, in addition to the standard annual reporting. The 
pensions regulator uses quarterly data on returns to check for unusual 
trends, which may prompt further investigation. If necessary, staff 
also conduct on-site visits with plans and service providers. 

Chile: 
The pensions regulator evaluates key aspects of the DC system, such as 
management of the plan provider, investment risk, and operational 
risk. The limited number of plan providers, six as of 2011, allows the 
regulator to closely monitor the operation and performance of each 
one, including risk areas specific to a plan provider. For example, 
the regulator collects and analyzes data from plan providers on a 
daily and ad hoc basis on investment holdings and other issues. 
Pension industry representatives said that the regulator’s data 
collection efforts help to keep the agency knowledgeable about the 
system and well-positioned to act when necessary. 

United Kingdom: 
The pensions regulator uses a standard model for risk assessment, but 
does not apply individual risk scores to each plan on an annual basis 
because of the large number of plans the agency oversees—nearly 46,000 
DC plans and over 1,000 hybrid plans with some DC benefits. Instead, 
the regulator collects information annually from large DC plans and up 
to every 3 years from smaller DC plans, which inform the regulator’s 
risk-based approach. 

Source: GAO analysis of foreign agency documentation and interviews 
with officials and industry experts. 

Note: The Swedish pensions regulator operates the Swedish Premium 
Pension system and has direct agreements with service providers, from 
which it collects information on service provider fees and transaction 
costs, among other things. The Swedish securities regulator takes a 
risk-based approach in its oversight of Swedish funds that can be 
included in the Premium Pension system. End of text box] 

Labor's Oversight Approach: Risk-Based versus Compliance-Based: 

In contrast to the other countries we reviewed, in the United States, 
Labor has not yet targeted enforcement efforts based on broad, ongoing 
risk assessments, or assessments of key areas of noncompliance with 
ERISA. Rather than using a risk-based approach, Labor has primarily 
relied on reports or complaints obtained from participants, plan 
sponsors, the media, and other agencies to conduct targeted 
investigations on specific topics. As we reported in 2007 and 2011, 
this approach generally limits Labor to leads identified by these 
sources and not those potential violations that may be more complex or 
hidden in nature.[Footnote 23] 

To address these limitations, in 2011 Labor officials told us that 
they have taken preliminary actions to develop a more risk-based 
approach to enforcement. For example, agency officials said Labor has 
adopted the following measures: 

* Labor has begun implementing routine compliance examinations. These 
examinations will allow Labor to assess the effectiveness of its 
current enforcement efforts and allow better targeting of its limited 
resources. 

* To address risk assessment trends, Labor has established a National 
Enforcement Library to serve as a "knowledge management" tool for the 
agency, which will provide information on current trends and emerging 
developments in plan investment and management. 

While Labor is taking preliminary steps to improve its oversight, the 
more extensive risk-based approaches taken by the countries we 
reviewed allow them to take preventative measures and address the 
shortcomings of relying only on complaints. For example, the Chilean 
pension regulator started introducing a risk-based approach in 2006 to 
adapt to the increasing complexity of financial markets given that it 
is not feasible to monitor all the operations of financial 
institutions. Agency officials said that adopting a risk-based 
approach allows them to take action that is preventative in nature. 
Furthermore, in the U.K., officials from the pensions regulator said 
that they rely, in part, on participant complaints and whistle-blowing 
to identify problems, but this is not effective with DC plans because 
of the asymmetry in information between service providers and 
participants. In general, officials said that participants tend to be 
disengaged and, even if they review disclosures, many lack the 
knowledge to understand the information provided to them. As a result, 
officials said that participants do not understand enough about their 
plans to identify potential problems. By adopting a risk-based 
approach instead, the pensions regulator, in its view, has been able 
to identify the greatest risks and work with plans to resolve issues. 
[Footnote 24] 

Fee Disclosure Strategies Improved Transparency in Some Countries, and 
Similar Strategies Could Benefit U.S. Participants: 

Fee Disclosure Formats: 

Some other countries with well-developed DC systems, including Chile, 
Sweden, and Australia, have taken steps to make fee disclosures 
simpler and more comparable, requiring that disclosures to 
participants be presented in consistent, summary formats. Officials in 
each of these countries told us that improved fee disclosures provide 
their participants transparency about the fees they are paying for 
their DC plans, which may help participants make informed decisions 
about their investments.[Footnote 25] Consistent with the approaches 
taken by these countries, research based on behavioral economics 
indicates that useful disclosure approaches include standardizing the 
types of fees and the formats in which they are presented in order to 
facilitate comparisons across different investment options.[Footnote 
26] For example, Chile, Sweden, and Australia reported making the 
following changes to their fee disclosures to increase transparency 
from previous disclosures: 

* To increase awareness of fees among Chilean workers, the Chilean 
pensions regulator requires that statements sent to participants every 
4 months use more understandable vocabulary and provide a summary of 
fees paid in the participant's statement. The summary includes 
graphics and a table with a comparison of fees across plans, as well 
as a personal pension projection (which translates the current account 
balance into an estimated total benefit amount received at retirement 
given certain assumptions). Fees included in the participant 
statements are expressed as a percentage and in Chilean pesos and 
reflect all administration fees and some fund management fees that a 
participant may pay.[Footnote 27] 

* In Sweden, the Swedish Pensions Agency sends fee information to all 
Premium Pension participants as part of an annual, individualized 
participant statement. This includes the total administration and fund 
management fee that participants paid and summary information on fund 
management fees for each fund a participant is invested in that allow 
comparison among the options chosen.[Footnote 28] Funds are required 
to report their fees to the Swedish Pensions Agency, and the Swedish 
Pensions Agency consolidates it in a standard format for participants. 
In addition, the Swedish Pensions Agency publishes fund management 
fees for all investment options in the system on its website, which 
further allows individuals the opportunity to compare investment fund 
fees. A Swedish official noted that transparency is higher now than it 
was 10 years ago and that awareness of the importance of fees seems to 
have increased among participants and the media. 

* The Australian government has made improvements to its participant 
disclosures. Participants receive a Product Disclosure Statement when 
they first join an Australian superannuation plan and periodic 
statements at least annually thereafter that itemize fund earnings and 
how much has been taken out of a participant's account in aggregate 
administrative and investment management fees.[Footnote 29] As 
described in table 5, 2005 regulations have enhanced and streamlined 
the fee disclosures that participants receive and provide greater 
certainty and consistency by defining the fees and costs that were 
included in a standardized fees and costs template. Officials noted 
that these improved disclosures have increased the transparency and 
comparability of data and felt that participants were more aware of 
cost issues with respect to their superannuation plans. For example, 
Australian officials said that the purpose of requiring the "example 
of annual fees and costs table" in participant disclosures is to 
create a more easily comparable format for fees across different 
service providers. 

Table 5: Australia's Fee Disclosure Requirements: 

Product Disclosure Statements (provided before consumer purchases 
product): 

Fees and costs template; 
A standardized fee template that simplifies the disclosure of fees and 
costs and allows for more effective comparison across products. This 
template includes information about the amount of a fee or cost, how 
the fee or cost is charged, the frequency of the payment, its timing, 
and whether it is negotiable. 

Additional explanation of fees and costs section: A separate section 
that includes additional important information about fees and costs, 
such as adviser compensation, transactional and operational costs, how 
to negotiate lower fees, and details about any fee changes. This 
information is kept separate in order to preserve the simplicity of 
the fees and costs template. 

Example of annual fees and costs table: 
Provides an illustrative 
example of fees and charges in a balanced investment option[A] for a 
typical account balance and level of contributions (e.g., AUD 50,000 
account balance and an annual contribution of AUD 5,000). 

Consumer advisory warning box: 
Emphasizes to consumers the 
importance of considering the benefit they will receive from the 
services they will pay for. It also shows the compounding value of 
fees and costs and how a small difference in a fund's investment 
performance or fees can have a significant effect on long-term 
investment returns. 

Shorter Product Disclosure Statement requirements[B]: 
Maximum 8-page Product Disclosure Statement with prescribed minimum 
font size and section headings so consumers can easily find important 
information in the Product Disclosure Statement and compare across 
products. 

Periodic statements (ongoing disclosures provided at least annually): 

Other management costs: 
An item that shows the approximate amount, stated in Australian 
dollars, of management costs that were not paid directly out of a 
worker's account but may have affected their investments. This may 
include costs of investing through a trust or other structure that 
holds underlying investment assets, which ensures that layers of 
management costs are captured when there is a chain of entities 
involved. 

Total fees paid by participant: 
An item that shows a single dollar amount--in Australian dollars--that 
includes the total fees a member or product holder paid during the 
period. This amount does not include transactional and operational 
costs that may have been incurred. 

Source: GAO summary of foreign agency documentation. 

[A] A balanced investment option is defined as the investment option 
in the plan with an asset mix of 70 percent higher-risk investments 
and 30 percent lower-risk investments, or the investment option in the 
plan that is as close as practicable to this asset mix. This option 
was considered to be the most appropriate for comparison purposes 
across plans. If the plan does not offer a balanced investment option, 
the example table is to be based on the plan's default investment 
option. If the plan offers neither, the example should be based on the 
investment option with the most funds invested. 

[B] These requirements for superannuation plans are still being 
implemented. According to the Australian Securities and Investments 
Commission, all new plans and certain existing plans had to comply as 
of June 22, 2011, but all other Product Disclosure Statements have to 
comply by June 22, 2012. 

[End of table] 

As described in table 5, Australian Product Disclosure Statements are 
required to include a "consumer advisory warning box" which encourages 
consumers to shop around and contains an example that displays the 
effect of fees and expenses on a participant's account. This example, 
depicted in figure 3, shows the actual impact of fees over time in 
Australian dollar amounts, demonstrating to participants why they 
should pay attention to even small differences in fees. 

Figure 3: Consumer Advisory Warning Box in Australian Product 
Disclosure Statement: 

[Refer to PDF for image: illustration] 

Did You Know? 

Small differences in both investment performance and fees and costs 
can have a substantial impact on your long term returns. 

[Bolded box: For example, total annual fees and costs of 2% of your 
fund balance rather than 1% could reduce your final return by up to 
20% over a 30 year period (for example, reduce it from $100,000 to 
$80,000). End bolded box] 

You should consider whether features such as superior investment 
performance or the provision of better member services justify higher 
fees and costs.  

You may be able to negotiate to pay lower contribution fees and 
management costs where applicable. Ask the fund or your financial 
adviser. 

To Find Out More: 

If you would like to find out more, or see the impact of the fees 
based on your own circumstances, the Australian Securities and 
Investments Commission (ASIC) website [hyperlink, 
http://www.fido.asic.dov.au] has a [superannuation or managed 
investment fee] calculator to help you check out different fee 
options.  

Source: Mercer Legal Pty Ltd. 

Note: Example provided by Mercer Legal Pty Ltd. According to Mercer 
representatives, the example includes prescribed wording and format 
required by Australian law (regulations made under the Corporations 
Act 2001) for superannuation product disclosure as of November 2011. 
Bolded box added for emphasis. 

[End of figure] 

Personalized Fee Information: 

Some countries require that participants receive personalized 
information about the total amount they pay in fees over a given time 
period and a comparison of that personalized information to a 
benchmark (lowest-cost fee or fee paid by the average participant) for 
additional context. For example, in Sweden, as shown in figure 4, the 
participant statement sent annually includes standard information on 
administrative and fund management fees paid for each fund.[Footnote 
30] The "fund fee percent" is presented for each fund the participant 
invested in, and an "average pension saver" fund fee percent is 
provided for comparison. In addition, the total amount subtracted for 
administrative and fund fees from the participant's account balance 
for the year is disclosed. 

Figure 4: Example of Sweden's Fee Disclosure Requirements for Premium 
Pension Participants: 

[Refer to PDF for image: illustration] 
    
Your pension accounts: 

Your savings towards the national public pension during 2010. 

Changes in 2010 in SEK: Value 2009-12-31; 
Income pension: 823,514; 
Premium pension [bolded]: 70,761. 

Changes in 2010 in SEK: Pension credit for 2009; 
Income pension: 50,480; 
Premium pension [bolded]: 7,887. 

Changes in 2010 in SEK: From deceased contributors; 
Income pension: 582; 
Premium pension [bolded]: 54. 

Changes in 2010 in SEK: Administration and fund fees [bolded]; 
Income pension: -383; 
Premium pension [bolded]: -330. 

Changes in 2010 in SEK: Change in value; 
Income pension: -23,885; 
Premium pension [bolded]: 8,258[A].     

Changes in 2010 in SEK: Value 2010-12-31; 
Income pension: 850,308; 
Premium pension [bolded]: 86,630. 
        
[A] 539 SEK is included here as interest on pension credit for 2009. 

To date you have saved this much towards your national public pension: 
936,938 SEK [bolded]. 

Your premium pension: 

In the table you can see the development of your premium pension 
during 2010 and the fees that you pay for fund management. You can 
compare this with the information for the average pension saver. New 
premium pension credits are invested according to the breakdown of 
your latest choice. 

Premium Pension Account 2010-12-31: 

Equity Fund Sverige; 
Value in SEK: 29,895; 
Change in value per cent: 18; 
Fund fee per cent [bolded]: 0.19; 
Chosen allocation per cent[A]: 30; 
Current allocation per cent: 35. 

Equity Fund Global; 
Value in SEK: 22,286; 
Change in value per cent: 14; 
Fund fee per cent [bolded]: 0.35; 
Chosen allocation per cent[A]: 25; 
Current allocation per cent: 26. 

Interest Fund Sverige; 
Value in SEK: 7,087; 
Change in value per cent: 2; 
Fund fee per cent [bolded]: 0.14; 
Chosen allocation per cent[A]: 10; 
Current allocation per cent: 8. 

Generation Fund; 
Value in SEK: 20,812; 
Change in value per cent: 11; 
Fund fee per cent [bolded]: 0.19; 
Chosen allocation per cent[A]: 25; 
Current allocation per cent: 24. 

Medical Products Fund; 
Value in SEK: 6,550; 
Change in value per cent: 1; 
Fund fee per cent [bolded]: 0.50; 
Chosen allocation per cent[A]: 10; 
Current allocation per cent: 7. 

Total [bolded]; 
Value in SEK: 86,630; 
Change in value per cent: 13; 
Fund fee per cent [bolded]: 0.26; 
Chosen allocation per cent[A]: 100; 
Current allocation per cent: 100. 

The average pension saver [bolded]; 
Change in value per cent: 12; 
Fund fee per cent [bolded]: 0.32. 
        
Source: Swedish Pensions Agency. 

Note: These excerpts from an example of an annual Swedish participant 
statement simply and clearly show the total amount--in Swedish kronor--
that the participant paid in fees. In addition, the disclosure 
document also shows the participant's fee detail for the specific 
funds in which a participant has chosen to invest their Premium 
Pension contributions, by fund and in total, and provides the total 
fund fee as a percent for the average pension saver for comparison 
purposes. Bolded boxes added for emphasis. 

[End of figure] 

In Chile, participants not only receive personalized fee disclosures, 
but they also receive information about what the participant would 
have been charged if they belonged to the other five plans, including 
the lowest-cost option as shown in figure 5. Thus, the participant can 
see the specific difference in fees they are paying through their plan 
compared to the lowest-cost option.[Footnote 31] 

Figure 5: Example of Chile's Fee Disclosure Requirements: 

[Refer to PDF for image: illustration] 

Personalized fee disclosure example: 
(Individual with a taxable income of US $760 as of November 2011): 

Fee Costs: 
If someone would make monthly contributions for 12 months, the total 
fees paid to the system would be: 

A.F.P.: Capital 
Total annual percentage fee: 1.44; 
US$: 131; 
Annual difference with respect to the least costly AFP (US$): $27. 

A.F.P.: Cuprum 
Total annual percentage fee: 1.48; 
US$: 135; 
Annual difference with respect to the least costly AFP (US$): $31. 

A.F.P.: Habitat 
Total annual percentage fee: 1.36; 
US$: 124; 
Annual difference with respect to the least costly AFP (US$): $20. 

A.F.P.: Modelo 
Total annual percentage fee: 1.14; 
US$: 104; 
Annual difference with respect to the least costly AFP (US$): 0. 

A.F.P.: Planvital 
Total annual percentage fee: 2.36; 
US$: 215; 
Annual difference with respect to the least costly AFP (US$): $111. 

A.F.P.: Provida 
Total annual percentage fee: 1.54; 
US$: 140; 
Annual difference with respect to the least costly AFP (US$): $36. 

Source: Superintendence of Pensions, Chile. 

Note: Every four months, Chilean participants receive a pension 
disclosure that includes a table of personalized costs, such as the 
one seen in this excerpt, which shows--in Chilean pesos and as a 
percent--the total fees they would pay in any of the plans in which 
they could invest their pension contributions and the annual 
difference between the plans' fees. For the purpose of this example, 
the Chilean pensions supervisor has provided the table in U.S. dollars 
based on the exchange rates in November 2011. Bolded box added for 
emphasis. 

[End of figure] 

Labor's Fee Disclosure Requirements: 

In their current form, Labor's fee disclosure improvements will not 
actually show U.S. participants the effect of fees on their accounts 
over time. Instead, Labor's recently issued regulations will require 
that participant disclosures include generic language on the long-term 
impact of fees and expenses, including that the cumulative effect of 
fees and expenses can reduce the growth of a participant's account, as 
shown in figure 6. This generic language does not include the actual 
effect of fees over time in dollar amounts. 

Figure 6: Example of Labor's 401(k) Participant Disclosure Requirement 
Demonstrating the Effect of Fees: 

[Refer to PDF for image: illustration] 

The cumulative effect of fees and expenses can substantially reduce 
the growth of your retirement savings. Visit the Department of Labor's 
Web site for an example showing the long-term effect of fees and 
expenses at http://www.dol.gov/ebsa/publications/401kemployee.html]. 
Fees and expenses are only one of many factors to consider when you 
decide to invest in an option. You may also want to think about 
whether an investment in a particular option, along with your other 
investments, will help you achieve your financial goals. 

Source: U.S. Department of Labor. 

Note: Labor's recently issued regulations will require that 
participant disclosures include generic language on the long-term 
impact of fees and expenses, an example of which is shown in this 
excerpt. This example states that the cumulative effect of fees and 
expenses can substantially reduce the growth of a participant's 
account but does not show, in dollar amounts, how a participant's 
account balance could differ given differing fee levels. The link to 
Labor's website, which is provided in this example, does show, in 
dollar amounts, how a participant's account balance could differ given 
differing fee levels, but participants do not specifically see this 
level of detail in their fee disclosures. 

[End of figure] 

In addition, the fee disclosures U.S. participants will receive under 
Labor's new fee disclosure requirements do not provide participants 
the total amount that they have actually paid in one place, or a 
cumulative cost amount. Labor's new participant disclosure regulations 
will require that participants receive quarterly statements on some 
plan fees and expenses deducted from their accounts along with a 
description of the services for which the charge or deduction was 
made. However, fund management fees are not included in this quarterly 
requirement. For these fund management fees, as shown in figure 7, 
participants will receive annual disclosures that report them as a 
percentage and as a dollar amount (based on a $1,000 account balance), 
but do not specifically report the dollar amount of fees paid by a 
participant based on their account balance. In order to discern their 
total fee, participants will have to calculate the fund management 
fees they paid based on their account balance and the information 
provided in the annual disclosure, and add the fees separately 
disclosed in their quarterly statements to that calculated amount. 

Figure 7: Example of Annual Fee Disclosure Requirements for 401(k) 
Participants under Labor's New Regulations: 

[Refer to PDF for image: illustration] 

Table 3: Fees and Expenses: 

Equity Funds: 

Name/Type of Option: A Index Fund/S&P 500; 
Total Annual Operating Expenses: 
As a percentage [bolded]: 0.18%; 
Per $1000 [bolded]: $1.80; 
Shareholder-Type Fees: $20 annual service charge subtracted from 
investments held in this option if valued at less than $10,000.
   
Name/Type of Option: B Fund/Large Cap; 
Total Annual Operating Expenses: 
As a percentage [bolded]: 2.45%; 
Per $1000 [bolded]: $24.50; 
Shareholder-Type Fees: 2.25% deferred sales charge subtracted from 
amounts withdrawn within 12 months of purchase.
   
Name/Type of Option: C Fund/International Stock; 
Total Annual Operating Expenses: 
As a percentage [bolded]: 0.79%; 
Per $1000 [bolded]: $7.90; 
Shareholder-Type Fees: 15.75% sales charge subtracted from amounts 
invested. 

Name/Type of Option: D Fund/Mid Cap ETF; 
Total Annual Operating Expenses: 
As a percentage [bolded]: 0.20%; 
Per $1000 [bolded]: $2.00; 
Shareholder-Type Fees: 4.25% sales charge subtracted from amounts 
withdrawn. 
  
Source: U.S. Department of Labor. 

Note: Bolded box added for emphasis. 

[End of figure] 

While Labor has made recent improvements to U.S. participants' fee 
disclosures, fee disclosure improvements made by some of the countries 
we reviewed may provide more transparent disclosures. U.S. 
participants typically do not receive the simple, useful, and more 
targeted information about their DC retirement plans and investment 
options that is provided to participants in Chile, Sweden, and 
Australia, which could be why recent research shows that U.S. 
participants have misconceptions about the fees they pay.[Footnote 32] 
For example the Australian consumer advisory warning box shows how a 
small difference in a fund's investment performance or fees can have a 
significant effect on long-term investment returns. (See figure 3.) In 
addition, participants in Sweden and Chile received personalized fee 
information that shows the exact amount, in Swedish kronor and Chilean 
pesos, that participants paid, without any need for calculation on the 
part of the participant. (See figure 4 and 5) 

Targeted Strategies Used by Some Countries Lower Fees: 

[Side bar: 
The Importance of Using Direct Measures to Address Fees: 

While simpler, personalized disclosures increase transparency and can 
help participants make informed decisions about their accounts, 
officials and industry experts in the countries we reviewed noted that 
disclosure alone has not been successful at reducing fees. In 
particular, officials and industry experts in each country said that 
many participants are disengaged and do not make active decisions, 
even when it would lower their fees. Thus, officials in these 
countries told us that they have decided not only to improve 
participant disclosures but also to take complementary approaches to 
reduce fees, since fees can significantly reduce participants' account 
balances over time. Officials in some of the countries we reviewed 
emphasized the importance of taking direct measures to lower fees—
research shows that a failure to ensure adequate retirement savings 
may increase reliance on public retirement programs, which would 
further increase governments' future financial burdens. 

Source: GAO analysis of foreign agency documentation and interviews 
with officials and industry experts. End of side bar] 

Consolidating and Streamlining Service Providers' Administrative 
Functions: 

Officials in the countries we reviewed told us they have been 
successful at reducing administrative and fund management fees by 
consolidating and streamlining administrative functions, such as 
account processing, recordkeeping, and participant communications. 
[Footnote 33] Moreover, each country uses a slightly different 
approach to provide this efficiency. For example, Sweden and the U.K. 
have each consolidated administrative services into one entity, which 
has improved administrative efficiency by eliminating duplicative 
processing functions and allowed that entity to complete bulk trades 
with fund providers.[Footnote 34] Representatives from service 
providers in both countries said this structure allows them to 
significantly reduce their costs--and thus to lower their fees--
because they only receive one aggregate transfer each day from the 
administrator, they do not have to maintain individual accounts, and 
they do not have to market to participants. As shown in figure 8, 
Sweden's centralized entity is a government body and it requires that 
providers rebate a substantial portion of their charges to 
participants in order to acknowledge the cost savings at the fund 
level of not completing those consolidated administrative activities. 
[Footnote 35] Because of this consolidated structure, average total 
administration and fund management fees that the participant pays are 
about 0.50 percent,[Footnote 36] which have been shown to be lower 
than the rest of the Swedish market and low by global standards. 
[Footnote 37] 

Figure 8: The Structure of Sweden's Premium Pension System Helps Lower 
Administrative and Fund Management Fees: 

[Refer to PDF for image: illustration] 

Employers: Submit combined contributions for employers and employees. 

Tax authority: 
Collects contributions using existing resources of the national tax 
system. 

Contributions are invested in a fixed-income portfolio before transfer 
to Swedish Pensions Agency.  

Swedish Pensions Agency: 
Government clearinghouse acts as centralized administrator, holding 
all the system's assets and trading only once per day in a single 
large transaction to a hold down administrative costs. 

Default fund: 
Independent, nonprofit, government entity administers default fund, 
which has some of the lowest fees in the Premium Pension system. 

Other fund providers: 
Premium Pension system offers almost 800 funds and providers do not 
maintain individual accounts
  
Rebates: Swedish Pensions Agency requires fund providers to give 
participants specific rebates based on the fund's total assets. 
 
Source: GAO analysis of foreign agency documentation and interviews 
with industry experts. 

[End of figure] 

As described in figure 9, the U.K. has also set up its nationally 
available, low-cost plan by consolidating administrative functions, 
but it has used one for-profit service provider for administration and 
a limited number of additional for-profit service providers for fund 
management.[Footnote 38] U.K. plan representatives said that 
consolidating administrative functions has increased their scale and 
bargaining power, which has allowed them to attain lower fees from 
service providers. In addition, the U.K. plan will be highly automated 
and provide for many self-service functions, which they expect will 
lower costs. This low-cost plan is expected to particularly help low-
income workers employed by small employers, and experts we spoke to 
noted that they anticipate huge cost savings for those workers if 
their employers offer the plan. Total administrative and fund 
management fees for this nationally available DC plan will be 0.30 
percent, which is generally lower than fees participants pay for other 
DC plans offered in the U.K.--which typically range from 0.40 to 2.00 
percent.[Footnote 39] 

Figure 9: The United Kingdom Has Structured Its Nationally Available 
Plan to Reduce Administrative and Fund Management Fees: 

[Refer to PDF for image: illustration] 

Employers: 
Contributions from employers and workers are sent to administrator;   
government provides tax relief. 

Trustee body: 
Non-profit body runs the low-cost plan and uses a competitive 
procurement process to find low-cost service providers. 
Oversees service providers: 

Administrator: 
A single for-profit provider handles all administrative functions and 
lowers fees through standardized, automated processing, as well as the 
use of online and self-services. 

Custodian: 
Holds system's assets and mixes nine funds to provide participants 
passively managed, diversified investments; trades only once per day 
per fund manager. 

Fund managers: 
For-profit fund managers receive only one trade per fund per day, 
which lowers administrative costs since they do not have to maintain 
individual accounts. 

Source: GAO analysis of foreign agency documentation and interviews 
with industry experts. 

[End of figure] 

In contrast to Sweden and the U.K.'s approach to consolidate 
administrative functions into one entity, the Australian pensions 
regulator has encouraged mergers among superannuation plans that have 
lowered administration fees for some participants and has also 
recently proposed standardized requirements to streamline 
administrative services within each service provider that are intended 
to lower fees for all participants. For example, Australia will adopt 
data standards to make superannuation transactions more timely and 
efficient, will reduce the number of accounts per member, and will 
make other changes, as shown in table 6. Industry experts thought that 
modernizing and standardizing administration, including enhanced use 
of technology, would effectively decrease fees in the Australian 
superannuation system, and a consultant estimated the new requirements 
would decrease fees by about 7 percent. Furthermore, industry 
officials estimated that the proposed requirements would save the 
Australian superannuation system up to AUD 1 billion annually. 
[Footnote 40] 

Table 6: Australia's Proposed Regulations to Reduce Costs through a 
Variety of Methods: 

Reform: SuperStream reforms; 
Proposed measures: 
* Implement new data and e-commerce standards for superannuation 
transactions to improve the quality of data in the system; 
* Allow the use of tax file numbers as the primary locator of member 
accounts; 
* Encourage the use of technology to improve processing efficiency, 
removing substantial manual processing; 
* Improve the way plan-to-plan rollovers are processed and the way 
contributions are made by developing standardized forms and supporting 
electronic transactions; 
* Help participants avoid paying unnecessary fees on multiple accounts 
by streamlining the process to consolidate accounts, such as through 
automatically consolidating any accounts with less than AUD 1,000 to 
the current active account unless the member opts out and allowing 
superannuation plans to search the Australian Taxation Office 
registers for any lost or unclaimed superannuation and advise the 
member that they may wish to consolidate their superannuation accounts; 
* Enhance new employee enrollment process where employees will be able 
to access a listing of all their superannuation accounts from 
Australian Taxation Office online to assist with exercising choice; 
* Establish an advisory governance body to advise on the 
implementation and maintenance of the standards. 

Reform: Securing Super reforms; 
Proposed measures: 
* Provide better information about the amount and timing of 
superannuation payments to employees; 
* Provide notification from plans to members on whether contributions 
have or have not been received. 

Source: GAO summary of Australian government publication. 

[End of table] 

Default Options Are Designed to Charge Low Fees: 

For participants who do not actively choose where to invest their 
contributions, some countries have established default options that 
lower fees in a variety of ways, such as creating a public option 
default fund, increasing the use of online services, and eliminating 
marketing costs. For example, the Swedish government established an 
independent, nonprofit entity to administer the default investment 
fund. Officials noted that fund management fees for this fund are low 
compared to the other funds in the system--the equity portion charges 
a 0.15 percent fee and the bond portion charges a 0.09 percent fee--
because it is a public option mandated by the government to be cost-
effective and because it has sufficient size to command low fees from 
outsourced service providers.[Footnote 41] A default fund official 
also noted that this low fee is made possible through a government 
subsidy for the default fund's startup costs, implemented to lessen 
the inequities in fees charged across generations. According to this 
official, 2011 is the second year in a row that the default fund 
generated a surplus; by 2016, the fund expects to repay the government 
loan and, as a result, to further decrease fees. 

Similarly, in Chile, all new entrants are defaulted to the lowest-cost 
plan provider for 2 years as determined by a bidding process. Most 
participants do not monitor or actively manage their accounts and 
officials noted that they tend not to switch service providers to get 
lower fees. The total cost for the plan provider that won the first 
bidding process is considerably lower than for some other providers--
1.14 percent of salary[Footnote 42] compared to a range of 1.36 to 
2.36 percent of salary for other providers.[Footnote 43] Even though 
costs for each plan provider differ, service providers stated that 
plan investment returns were very similar. Furthermore, Chilean 
officials reported that new participants who have no or low 
accumulated balances actually achieve a higher return in the low-cost 
plan provider than if they had chosen the provider with the best 
yield, which showed that these participants could save on fees without 
sacrificing returns. However, while the bidding process has lowered 
fees for new participants, it has not done so for existing 
participants because most have stayed with their current provider even 
though these providers did not lower their fees. Officials said they 
expect future bidding processes to lead to more competition and, thus, 
lower fees even further for future participants or participants who 
decide to switch providers. 

In Australia, government officials and industry experts said recently 
proposed requirements for a new, simple, cost-effective default 
superannuation product, called MySuper, should result in considerably 
lower fees.[Footnote 44] An industry consultant estimated that the 
MySuper proposals could charge around 0.66 percent of assets, which is 
about 30 percent less than the current industry average. In addition, 
MySuper default funds will have a single, diversified investment 
strategy and a standard set of fees. As seen in table 7, officials 
expect to see reduced fees since certain types of fees will be 
limited, but they have not explicitly capped fees.[Footnote 45] All 
fees must be included under the standard descriptions, which officials 
said will allow workers, employers, and market analysts to compare 
funds more easily. Employers will have better information to assist 
with selecting a default fund and confidence that any MySuper product 
will meet minimum standards and offer a cost-effective superannuation 
plan for their workers.[Footnote 46] It will also ensure that workers 
do not pay for any additional features or services they do not need or 
use. In particular, the MySuper product is restricted from including 
investment advice as a standard service, which an industry expert said 
is not widely used by participants. 

Table 7: Australia's Proposed MySuper Default Products Will Be Limited 
to Certain Fees: 

Type of fee[A]: Administration fee; 
Description: These are fees for recordkeeping and general services 
required for day-to-day administration of the plan. They are typically 
disclosed as a fixed dollar amount, in Australian dollars; 
Amount allowed: No limitation. 

Type of fee[A]: Investment fee (including a performance-based fee); 
Description: These fees are typically expressed as a percentage of 
assets and represent the cost of managing the plan's assets, including 
custody and indirect expenses; 
Amount allowed: Performance-based fees are subject to the following 
limitations:[B] 
* A reduced base fee that reflects the potential gains the investment 
manager receives from performance-based fees, taking into account any 
fee cap; 
* measurement of performance on an after-tax and after-cost basis; 
* an appropriate benchmark and hurdle for the asset class reflecting 
the risks of the actual investments; 
* an appropriate testing period; and; 
* provisions for the adjustment of the performance-based fee to recoup 
any prior or subsequent under-performance (for example, high water 
marks, clawbacks, vesting arrangements, and rolling testing 
periods)[C]. 

Type of fee[A]: Buy and sell spreads; 
Description: Implicit when a fund buys or sells assets, the buy and 
sell spread is the difference between an asset's entry price and exit 
price and is a cost incurred by the fund each time it invests or 
withdraws funds; 
Amount allowed: Limited to provider's cost recovery. 

Type of fee[A]: Exit fee; 
Description: Fees charged when an individual removes his/her 
investments from the plan (at retirement or to move into another plan); 
Amount allowed: Limited to provider's cost recovery. 

Type of fee[A]: Switching fee; 
Description: Fees charged when the participant changes his/her 
investment options within the plan; 
Amount allowed: Limited to provider's cost recovery. 

Source: GAO analysis and summary of Australian government publication. 

[A] MySuper default products are limited to these fees; MySuper 
providers are prohibited from charging any other fees, including 
hidden fees such as trailing commissions--fees paid to advisors each 
year the participant owns the fund so that the advisor will review the 
participant's holdings and provide advice. Plan trustees can charge 
for certain member-specific costs, such as account splitting following 
a family law decision. 

[B] If a performance-based fee arrangement does not contain each of 
these provisions, the MySuper trustee must be able to justify that the 
differing arrangement continues to be in the best financial interests 
of the members of the MySuper product. 

[C] High water marks provide that payment of performance fees is 
conditional on exceeding the maximum fund value for which the fund 
manager has already received performance fees. Clawbacks require 
recent performance fees to be paid back to plan participants if the 
fund suffers subsequent significant losses. Vesting arrangements lock 
performance fees, wholly or partially, for a period of time to align 
the fund manager's interests with the plan participants' interests. 
Rolling testing periods require that performance fees should be 
calculated on an ongoing basis so a longer period can be used to 
assess performance. 

[End of table] 

Other Targeted Approaches: 

The countries we reviewed have also taken other targeted approaches 
which have been effective at lowering fees, such as the following: 

* Direct regulation of types or amounts of fees. Chile and Australia 
have reduced some fees participants pay by directly banning certain 
fees or types of fees, while the U.K. has seen certain fees decline 
because of explicit fee caps. Chile officials told us that they banned 
fees as a percent of assets and fixed fees because some participants' 
account balances were severely diminished after periods of little or 
no contributions.[Footnote 47] Similarly, Australia has recently moved 
to restrict commission-based compensation for investment advisors 
because they noticed that some participants were being charged ongoing 
fees by advisors to plans but were not receiving ongoing advice. In 
the U.K., on the other hand, officials recognized that total fees 
could be lower for participants and implemented certain plans with 
explicit fee caps. According to officials we spoke to, although not 
many participants actually utilized these plans, their presence 
increased competition in the industry and substantially lowered fees. 
[Footnote 48] 

* Direct regulation of certain service provider practices. Australia 
and Sweden have moved to ban practices that have increased fees. 
Australia has proposed a ban on "flipping"--when a service provider 
rolls a participant's superannuation plan account into a personal 
plan, for which fees can be 2 to 3 times higher. Government officials 
focused on this practice because it is typically done without 
participants' consent. Sweden also recently banned the practice of 
investment advisors changing funds for their customers en-masse via 
computerized systems, which some advisors were doing frequently 
without providing individualized advice to their customers. According 
to Swedish representatives, this practice significantly increased 
transaction costs and inflated fees for some participants. 

* Increased education and licensing requirements for certain 
occupations. In Australia and Chile, increased requirements for 
education and licensing of different industry stakeholders have 
decreased fees. In Australia, officials told us that increased 
requirements for plan trustees led to significant consolidation among 
certain types of plans.[Footnote 49] For example, an official told us 
that nearly 4,000 of those plans collapsed to 400 or 500 through 
mergers. According to an industry expert, many of these consolidations 
occurred because trustees of certain superannuation plans may have 
decided that they had less expertise in running a superannuation plan 
than running their business. According to agency officials, the 
increased size of plans after consolidation may have led to decreased 
fees. In Chile, on the other hand, increased requirements for pension 
advisors have reduced the number of advisors and have imposed stricter 
rules for switching accounts among AFPs. Prior to the increased 
requirements, Chilean officials told us that advisors often used 
abusive practices to provide incentives for workers to switch 
accounts, such as giving workers part of the advisor's commission or 
other bribes and filling out the worker's form with potentially 
fraudulent signatures, which also caused large system costs. One 
service provider noted that the education and licensing requirements 
prohibited these practices and, thus, reduced overall costs in the 
system and fees for participants over time. The stricter rules for 
switching accounts also led to mergers and acquisitions among AFPs 
with less market share, which increased the size of the remaining 
AFPs, allowing them to charge lower fees and still remain competitive. 

* Other strategies. The countries we reviewed have also taken other 
targeted approaches that have reduced fees, which are summarized in 
table 8, but the reduction in fees from any one of these approaches 
may not have been significant for all participants in the DC systems. 

Table 8: Other Strategies That Have Reduced Fees: 

Country: Chile; 
Strategy: Participants can only invest through one plan (AFP); 
Description: The Chilean system avoids duplicative administrative 
costs associated with multiple accounts. 

Country: United Kingdom; 
Strategy: Pensions Quality Mark; 
Description: Introduced by the National Association of Pension Funds, 
an industry group of plan professionals and service providers, this 
voluntary mark sets a standard of excellence for employer-offered DC 
plans that employers can use to promote their plan. One component of 
the mark limits fee levels. 

Country: United Kingdom; 
Strategy: Efforts to improve participant selection of annuity provider; 
Description: The national Money Advice Service, which was started by 
the U.K. securities regulator but has since become an independent 
organization, publishes annuity prices on its website. It also 
provides information to help participants select the type of annuity 
best suited for them since the data shows that 2 in 3 participants 
select their DC plan provider for an annuity even though the cost can 
be up to 40 percent higher than with other providers. 

Source: GAO analysis of foreign agency documentation and interviews 
with industry experts. 

[End of table] 

Conclusions: 

The countries we reviewed have taken a variety of steps to oversee 
service providers and improve fee disclosures. However, these nations 
typically did not rely primarily on improved transparency to lower 
fees paid by participants, but combined transparency improvements with 
other targeted approaches to reduce fees. Despite important social, 
economic, and institutional differences between the United States and 
these countries, the key strategies these countries used to 
effectively lower fees offer some potential options for the U.S. 
experience. Given that a number of major U.S. service providers 
operate in several of the countries we reviewed and have adjusted to 
the regulatory requirements of these strategies, similar practices 
could be feasible in the United States. In addition, given the size of 
the U.S. DC system, implementation of some of the innovative 
approaches to reduce fees taken by these other countries may prove to 
be less expensive and more efficient for U.S. service providers. As 
more American workers rely on DC plans for their retirement savings 
and since excessive fees can have an adverse effect on net savings, it 
is important that Labor continue to address the impact of fees on 
participants. Consideration of approaches used by these countries that 
have proven to be successful could help Labor in this effort. 

Labor could learn from the positive experiences of other countries as 
it improves its supervisory approach and refines its participant 
disclosure regulations. In particular, regulatory agencies in the 
countries we reviewed have developed and already put into practice 
risk-based supervisory practices that could help Labor as it moves 
toward a risk-based approach in its own enforcement efforts. Given the 
significant role of service providers in the U.S. DC system and the 
complexity of fees charged for their services--including the impact of 
fees on participants' account balances--it is important that Labor 
effectively oversees plans' use of service providers. Similarly, 
Labor's current efforts to improve participant disclosures are a 
promising development, but may be strengthened by taking steps to 
evaluate their effectiveness, costs, and potential effect on coverage, 
and, as necessary, making further improvements. In this respect, the 
efforts taken by several countries that have improved their 
disclosures by making them more personalized and significantly 
highlighting the long-term impact of fees could prove instructive, 
relevant, and positive to the U.S. experience. If no action is taken 
to monitor and respond to potential shortcomings in participant 
disclosures, some participants will continue to be unaware of the fees 
they are paying and the long-term impact of those fees on their 
retirement savings. 

Recommendations for Executive Action: 

We recommend that the Secretary of Labor take the following two 
actions: 

* Consider other countries' experiences as Labor continues its efforts 
to develop a risk-based approach in supervising DC plans and their 
service providers, such as adopting risk-based oversight practices 
developed by the International Organisation of Pension Supervisors and 
used by the countries we reviewed that have helped them better oversee 
their DC plans. 

* Consider recent international initiatives to improve fee 
transparency to assess their relevance and utility for U.S. 401(k) 
plan participants, such as improvements that provide summarized and 
personalized fee information and that show the effects of fees over 
time. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Departments of Labor, State, 
and the Treasury, and the Securities and Exchange Commission (SEC) for 
their review and comment. SEC and the Department of State did not 
provide comments. The Departments of the Treasury and Labor provided 
technical comments, which we have incorporated where appropriate. The 
Department of Labor (Labor) also provided written comments, which are 
reproduced in appendix III. Overall, Labor generally agreed with our 
findings and noted that it will consider our recommendations carefully 
as it derives insights from its own multinational pension research and 
policy discussions. 

Regarding our recommendation on risk-based supervision, Labor agreed 
that other countries' experiences can sometimes be useful in 
evaluating U.S. policies and programs but highlighted some differences 
that exist among the private pension systems of the United States, 
Australia, Chile, Sweden, and the U.K. In general, we agree that the 
voluntary and heavily employer-based U.S. system has its own unique 
institutional and operational features--as does each other system we 
reviewed--and the diversity of each system makes it impossible to 
apply risk-based supervisory principles in a strict, uniform manner. 
This is why we explain that risk-based supervision can be, and has 
been, implemented to varying degrees along a continuum with compliance-
based supervision. Specifically, Labor pointed out that the U.S. DC 
system is voluntary and, unlike its foreign counterparts, U.S. 
regulators must take account of the risk that employers will simply 
decline to sponsor retirement plans. We note that other countries have 
implemented risk-based supervision within voluntary systems and that, 
even in some of the more compulsory systems we reviewed, the fund 
provider or trustee involvement may not be required. For example, the 
Australian pensions regulator's risk-based approach has not driven 
away trustees of over 4,000 regulated superannuation plans even though 
it is not mandatory for those trustees to offer plans--it is only 
mandatory for employers to remit a portion of their employees' 
salaries to those plans. 

Labor also noted that U.S. plans are not licensed and that Labor's 
foreign counterparts generally have more discretion to intervene and 
require actions as part of supervision of their licensed entities, 
whereas Labor generally must establish a violation before it can 
compel action. While we understand the distinction Labor makes between 
a regulator's authority over licensed entities versus that over 
nonlicensed entities, we note that Labor does have the authority to 
influence U.S. fiduciaries by providing guidance, publishing 
regulations, targeting enforcement efforts, and, if necessary, seeking 
legislative changes. Risk-based supervision is focused on how the 
regulator can better utilize its limited resources to oversee 
regulated entities regardless of the type of retirement savings 
vehicle they offer--it does not increase employers' risks. In fact, 
irrespective of the supervisory approach taken, regulators must decide 
the level of compliance complexity that the regulated entities must 
meet. Consequently, we believe that Labor could encourage employers to 
sponsor plans while balancing the complexity of compliance to avoid 
excessive burden. Overall, we commend Labor on starting to pursue a 
risk-based approach that is suitable to U.S. circumstances as part of 
its overall enforcement strategy--in concert with the other 
enforcement efforts Labor detailed in its letter. 

Regarding our recommendation on fee disclosure, Labor agreed that it 
will look into the global experiences described in our report for 
possible areas of improvement as it monitors the implementation of its 
new regulations. Labor commended us on the excellent summary of fee 
transparency activities being implemented in the countries we 
reviewed, and noted that it is open to learning from global 
experiences that help drive down costs and improve retirement saving 
results for workers. Although Labor was impressed that regulators in 
the countries we reviewed tended to focus on the same issues that 
Labor did in its recent efforts to improve fee disclosure, it did not 
believe it was an appropriate time to propose changes to recent fee 
disclosure regulations. We continue to believe that it is important to 
look at what has worked well in other countries as Labor moves forward 
in evaluating the implementation of its new regulations. Regarding our 
fee disclosure findings, Labor was unclear whether the countries we 
reviewed had as complex of a fee structure--particularly with respect 
to indirect fees--as is common in the United States, whether the 
reported amounts for actual fees paid were precise or estimates, or 
what such disclosures cost. We note that there are indeed indirect 
fees charged in these countries, and that they are already trying to 
find ways to disclose to their plan participants actual fees paid in 
as precise a way as possible within their cost structures because they 
believe that their plan participants benefit from such disclosures. We 
continue to believe that Labor should consider our findings as a 
starting point for considering whether to require the disclosure of 
total actual fees paid within its own parameters, including cost to 
participants. Finally, Labor noted that its disclosure regulations 
require a statement about the effect of fees over time and a reference 
to Labor's website where examples can be found. As we state in our 
report, participants continue to be unaware of the fees they are being 
charged, which is why we believe it is more useful for the example to 
be given directly after such a statement, as other nations, like 
Australia, currently do. 

As arranged with your offices, unless you publicly announce its 
contents earlier, we plan no further distribution of this report until 
30 days from the date of this letter. At that time, we will send 
copies to the Secretaries of Labor, Treasury, and State, the Chairman 
of the Securities and Exchange Commission, and other interested 
parties. The report also will be available at no charge on the GAO 
website at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions concerning this report, 
please contact me at (202) 512-7215. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made key contributions to this 
report are listed in appendix IV. 

Signed by: 

Charles A. Jeszeck: 
Director: 
Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

We were asked to answer the following questions: (1) How are service 
providers in other countries' defined contribution (DC) systems 
overseen by regulatory agencies? (2) What key strategies are used in 
other countries to improve fee disclosure to participants? (3) What 
key strategies are used in other countries' DC systems to reduce fees? 

To answer these questions, we selected four countries in which to 
conduct case studies: Australia, Chile, Sweden, and the United Kingdom 
(U.K.). To determine which countries should be used as case studies, 
we conducted an initial broad review of DC systems in a larger sample 
of countries. In conducting this initial review, we analyzed relevant 
nonlegal research and interviewed pension experts to identify 10 
countries that had DC systems with key features designed to address 
fees. Specifically, we obtained comparative and country-specific 
studies of DC systems published by academics; the Organisation for 
Economic Co-operation and Development (OECD), whose review also 
included non-OECD countries; and other industry experts, such as the 
International Organisation of Pension Supervisors. We solicited 
recommendations from representatives of the OECD, government 
officials, academics, industry practitioners, and representatives of 
industry groups. We then examined the characteristics of each 
country's DC system for key elements designed to address service 
providers' costs. From the 10 countries, we used the following 
selection criteria to select 4 countries for in-depth case studies: 

* DC retirement plans are an important pillar of the country's 
retirement system. By focusing on countries in which the DC system is 
an important pillar of the retirement system, we increased our 
opportunity to identify practices used in countries with well 
developed capital markets and where risks to participants are 
comparable to those faced by participants in the United States. 

* DC retirement plan regulators use explicit strategies to address and 
oversee service providers' costs. The selected countries as a group 
should address all of the key strategies we have identified, although 
no single country needs to address all of them. 

* The country was identified through our research and the consensus of 
external experts as having strong potential for yielding useful 
lessons for the U.S. experience. 

* The country's DC retirement plan is not duplicative. Where similar 
plans exist in multiple countries, we will select the one that best 
addresses the other selection criteria. 

For each of the four countries selected, we determined how service 
providers are overseen by regulatory agencies and identified the key 
strategies designed to improve fee disclosure to participants and 
reduce fees by reviewing nonlegal research and other available 
documentation and interviewing officials and industry experts. 
Specifically, we interviewed industry groups, service providers, and 
government officials from each country, as well as academics, 
representatives from the OECD and The World Bank, and pension experts 
based in the United States. We obtained broad perspectives on the 
benefits and drawbacks of the countries' regulatory oversight 
activities and the identified key strategies. Where possible, we 
attempted to obtain basic demographic data and available data on the 
types and amounts of fees paid in DC plans in those countries from 
government officials, pension experts, and others we interviewed. We 
used these data for the purpose of providing background information 
and context, or examples, of the effect of certain strategies on fees. 
We performed some basic reasonableness checks of the data against 
other sources of information. We did not compare fees across countries 
because each country, and sometimes plans within a country, can charge 
different fees; instead, we looked at the types and amounts of fees in 
each country to gain a better understanding of the effect of key 
strategies used to lower fees. We did not conduct an independent legal 
analysis to verify the information provided by or about the laws or 
regulations of the foreign countries selected for this study. Instead, 
we relied on appropriate secondary sources and interviews to support 
our work. Following our interviews, we submitted key statements of 
facts for review and verification by agency officials in each country 
and incorporated technical corrections as necessary. 

We conducted this performance audit from March 2011 through March 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Key Features of DC Pension Systems in Australia, Chile, 
Sweden and the United Kingdom: 

Australia: 

At a glance: 

Since 1992, Australia has had a mandatory pension system, known as 
superannuation. 

Total system assets: Pension assets totaled about $1.04 trillion USD 
in 2010, of which approximately 82 percent were in defined 
contribution (DC) plans. 

Coverage: Employers are required to offer a pension plan to eligible 
workers and provide a minimum level of contributions. The plan may be 
defined benefit (DB) or DC, but the majority of plans are DC.[Footnote 
1] 

Types of plans in the system: 

Industry-wide or single-employer (28% of private plan assets) The plan 
is a nonprofit entity managed by a board of trustees, some of which 
must have equal representation from employers and participants. 
Trustees must be licensed by the government and are subject to a “fit 
and proper” test, which specifies certain standards, including 
experience and educational and technical qualifications. 

Retail (34% of private plan assets) A participant deals directly with 
a for-profit service provider which manages their account. Within the 
service provider, the plan is managed by a board of trustees. Similar 
to industry-wide and single-employer plans, trustees must be licensed 
and are subject to a “fit and proper” test. 

Self-managed (38% of private plan assets) A participant manages 
his/her own account, which entails establishing a trust and a bank 
account. Up to four people can be in a trust. The participant is the 
trustee and can select investment options. 

Source: GAO analysis of foreign agency documentation and interviews 
with Australian officials and industry experts. 

Pension system highlights: 

Contributions: The current minimum employer contribution rate is 9 
percent of the worker’s earnings. The government has proposed to 
increase this amount to 12 percent. The contribution is required for a 
band of earnings, which is capped at about 2.5 times average wages.
[Footnote 2] Employers and participants may also choose to make 
additional contributions subject to a cap.[Footnote 3] 

Investment options: Most plans offer participants a choice of 
investment options. On average, retail plans offer 219 investment 
options and industry funds offer 10 investment options. Participants 
can choose to receive investment advice for a fee from their plan or 
from an external advisor. According to agency officials, one-on-one 
advice can entail high fees and few participants use it. Individuals 
can voluntarily make contributions when they are unemployed. 

Default option: Since 2005, employers have been required to designate 
a default plan for those participants who do not specify in which plan 
they want their contributions deposited. Australia is in the process 
of implementing a new set of standards for the default investment 
option, known as MySuper. Under MySuper, all default investment 
options must be approved by the pensions regulator and meet standards 
for diversification and fees. In addition, the default investment 
options must be unbundled from additional services, such as investment 
advice. 

Leakage: Participants are generally not allowed to access their 
accounts prior to age 55. When workers change jobs they may leave 
their account at their previous plan or roll it over into a new plan. 
As part of the recommendations made from a 2010 review of the 
superannuation system, Australia is considering implementing a process 
called “auto consolidation,” which would match a worker who is 
starting a new job to any pre-existing superannuation accounts they 
may already have. 

Drawdown: The minimum age to begin drawing down benefits is currently 
55, set to increase to 60 by 2025. The accumulated benefit can be 
withdrawn as a lump-sum or as an annuity. Most benefits are taken as a 
lump-sum. Participants over age 55 who are still working may start 
drawing down benefits. Employers are required to continue to 
contribute to a worker’s fund until the worker reaches age 70, or the 
worker retires or separates from the employer. 

Footnotes: 

[1] The Australian pensions regulator reports that, as of June 2010, 
17.6 percent of superannuation assets for entities with more than four 
members were in DB plans. 

[2] Employers are not required to contribute for workers earning less 
than about $500 USD a month. 

[3] According to the Australian Tax Office, there is a cap of about 
$25,600 USD per year on tax deductible contributions for participants 
up to age 50. For participants age 50 and above, the cap is about 
$51,100 USD. 

[End of fact sheet] 

Chile: 

At a glance: 
Chile replaced its DB public pension system with individual accounts 
in 1981. Workers who entered the labor market after that date are 
mandated to join an individual DC account.[Footnote 4] 

Total system assets: The value of pension assets totaled $148.4 
billion USD in 2010, according to the pensions regulator. 

Coverage: Workers are required to contribute to an individual DC 
account. About 60 percent of those employed participate in the system. 
[Footnote 5] 

Type of plan in the system: 

Workers can choose which licensed for-profit service provider, known 
as an AFP (Administradoras de Fondos de Pensiones), manages their 
individual accounts. Currently, there are six AFPs. New entrants to 
the labor force are defaulted to the AFP with the lowest fee as 
determined by a bidding process, which takes place every 2 years.
Source: GAO analysis of foreign agency documentation and interviews 
with Chilean officials and industry experts. 

Pension system highlights: 

Contributions: Workers are required to contribute 10 percent of 
applicable earnings to their individual account—the earnings ceiling 
is equal to 67.4 indexed units (Unidades de Fomento) of accounts that 
are equivalent to about 1,500,000 Chilean pesos, or $2,900 USD a month 
as of December 2011. In addition to their contribution, participants 
pay fees to their AFP, which currently range from 1.14 percent to 2.36 
percent of earnings.[Footnote 6] 

Investment options: Workers can choose between five types of funds, 
labeled A through E (in descending order of investment risk), offered 
by each AFP.[Footnote 7] Each category of funds is subject to limits 
on the amount of equities that may be held corresponding to its risk 
level. Participants are subject to restrictions on which investment 
funds they may hold based on their age. The 2008 reforms created the 
figure of the pension advisor, a professional who will be able to 
advise individuals on a range of issues, including the choice of AFP 
and investment and drawdown options.[Footnote 8] 

Default option: For those who do not choose an investment option 
within an AFP, the default option is a lifecycle investment strategy 
in which allocations to risky funds decrease with age (e.g., B fund 
for workers under 35, C fund for men between 36 and 55 and women 
between 36 and 50, and D fund for men above 55 and women above 50). 
According to officials, about 25 percent of workers make an active 
choice. 

Leakage: Early retirement is permitted at any age provided the 
accumulated capital can finance a pension above a certain threshold. 
Otherwise, workers do not have access to their account balance before 
normal retirement age, which is 65 for men and 60 for women. 

Drawdown: Upon retirement, participants may choose one of two major 
options: (a) buy an annuity from an insurance company that pays 
lifetime benefits; or (b) set up programmed withdrawals with an AFP. 
Variations on these two options include purchasing a deferred annuity, 
which means setting a future date for purchasing an annuity and, until 
that date, making programmed withdrawals from the individual account; 
or purchasing an immediate annuity with a portion of the funds in the 
individual account and making programmed withdrawals with the rest of 
the funds.[Footnote 9] 

Footnotes: 

[4] Additional reforms in 2008 added a Basic Solidarity Pension for 
individuals with no pensions and a Solidarity Pension Payment for 
those with low pensions, both targeted to the poorest 60 percent of 
the population. 

[5] This is partly due to the fact that the self-employed (about 25 
percent of total employment) were not required to contribute and 
voluntary contributions for this group have been historically low. The 
2008 Pension Reform determines that contribution for self-employed 
workers is mandatory. The introduction of the obligation will be 
gradual. During the period 2012 to 2014, the default option will be to 
contribute with the option to opt-out. It will be mandatory for self-
employed workers to contribute from 2015 onward. 

[6] Each participant also pays a fee for disability and survivorship 
insurance, which is currently 1.49 percent of earnings. 

[7] Initially, only one type of fund was permitted to be offered by an 
AFP, which was invested in equities and fixed income (current C fund). 
Since 2000, four additional types of funds have been permitted, 
ranging from a fixed income fund (E Fund) to an aggressive equity fund 
(A Fund). 

[8] Until recently, plan participants and retirees could get advice 
from their AFPs or insurance and annuity brokers, but the pensions 
regulator recognized that this advice may not be considered impartial 
and objective. Under the current regulations, the names of pension 
advisors appear in a joint register kept by the pensions and 
securities regulators, both of which are also responsible for 
overseeing several aspects of their services. Pension advisors’ fees 
are subject to a ceiling. 

[9] For all these pension options, if the worker obtains a pension 
higher than 150 percent of the minimum pension guaranteed by the state 
and higher than 70 percent of his/her average monthly taxable wage for 
the previous 10 years, he/she may use of the sum of money remaining in 
the individual account as desired (after the calculation of the amount 
needed to obtain the pension has been made and this has been deducted 
from the accumulated balance). 

[End of fact sheet] 

Sweden: 

At a glance: 
In the mid-1990s, Sweden reformed its mandatory, earnings-related 
public pension scheme and added a system of individual accounts, 
called the Premium Pension system. 

Total system assets: According to officials, Premium Pension assets 
totaled approximately $62 billion USD in 2010. 

Coverage: Workers and their employers are required to contribute a 
portion of the workers’ salaries to individual DC accounts.[Footnote 10]
Self-employed workers are also required to contribute a portion of 
their salaries to individual DC accounts. 

Type of plan in the system: 

A government agency, the Swedish Pensions Agency, administers the DC 
plan and handles recordkeeping for all accounts. Any fund provider 
licensed in Sweden or registered in their own country can offer funds 
in the Premium Pension system as long as they agree to certain 
conditions set by the Swedish Pensions Agency, including a set rebate 
schedule for all funds, based on the funds’ total assets in the 
Premium Pension system. 

Source: GAO analysis of foreign agency documentation and interviews 
with Swedish officials and industry experts. 

Pension system highlights: 

Contributions: Employers and workers are required to contribute 2.5 
percent of the covered portion of a worker’s salary. In 2011, the 
ceiling for contributions was approximately $1,400 USD. Contributions 
are collected from employers by the national tax authority on a 
monthly basis. 

Investment options: Participants can choose up to five funds from 
among nearly 800 different funds—at the end of 2010 there were 789 
funds administered by 94 different fund management companies and the 
default fund provider.[Footnote 11] The Swedish Pensions Agency is 
currently developing a fund selection tool to help participants make 
fund decisions depending on, among other things, their desired 
investment risk. Participants can choose to receive investment advice 
for a fee from external advisers. According to government and industry 
officials, because of the large number of investment options, 
participants are increasingly using these advice services but it can 
be expensive and undermine the low-cost design of the system. 

Default option: For those participants who do not select specific 
funds, their contributions are placed in a default option called the 
Seventh AP Fund (AP7 Såfa). AP7 is an independent, government entity 
operated as a nonprofit with a board of directors appointed by the 
Swedish government. Since May 2010, AP7 Såfa defaults participants 
under the age of 56 into global equity funds and shifts the accounts 
for those ages 56 and older by 3 to 4 percent per year into bonds to 
reduce investment risk.[Footnote 12] 

Leakage: Participants are not allowed to access their Premium Pension 
accounts prior to age 61. 

Drawdown: At retirement, participants are required to annuitize their 
retirement savings and the Swedish Pensions Agency acts as the annuity 
provider for the Premium Pension system. When participants annuitize 
their benefit, they can choose among two options: 

* variable annuity-—participants’ holdings remain invested in their 
chosen funds and the Swedish Pensions Agency pays their benefits from 
those funds,[Footnote 13] or: 
* with profit annuity-—participants’ holdings are sold and moved into 
an insurance product that pays at least a set amount per year. 
[Footnote 14] 

Footnotes: 

[10] Employers are also required to contribute to an Income Pension 
(notional DC) for each worker and may also contribute to supplementary 
Occupational Pensions (which can be DC or DB plans), but for the 
purpose of this report we focused on the Premium Pension system. 

[11] The default fund provider allows participants to opt into and out 
of some funds they offer, which are based on risk-levels (cautious, 
balanced, and offensive). 

[12] According to a default fund representative, this high-risk 
approach was chosen because of the low percentage of participants’ 
overall pension invested in the Premium Pension system. 

[13] These annuities do not have a guaranteed value. To calculate the 
pension for these annuities, the Swedish Pensions Agency divides the 
value of the account by an annuity divisor (based on estimated average 
life expectancy) and credits the outcome with an estimated future 
interest rate minus administrative costs. The Swedish Pensions Agency 
recalculates the pension amount each year to reflect developments in 
the value of the participants’ chosen funds. For example, if returns 
in participants’ chosen funds exceed the estimated future interest 
rate, then, generally, the participants’ annual pension amount is 
increased. 

[14] However, the participants’ annual pension amount may increase 
above the set amount in any given year. 

[End of fact sheet] 

United Kingdom: 

At a glance: 
Voluntary DC plans make up most of the private pension system in the 
U.K. An individual may be a member of a number of different pension 
plans simultaneously. From 2012 to 2017, all employers will be 
required to automatically enroll eligible employees into a pension 
plan—-including a new low-cost DC pension savings plan called the 
National Employment Savings Trust (NEST)-—and provide a minimum 
contribution. 

Total system assets: According to officials, pension assets totaled 
approximately $3.3 trillion USD in 2010, of which approximately 40 
percent were in DC plans. 

Coverage: Individuals in the U.K. can voluntarily contribute to 
pension arrangements that can be employer-sponsored (DB or DC) or 
individually arranged (DC). These arrangements are utilized by about 
half of the working age population, and of those workers only about 30 
percent of participants are members of DC plans, including public and 
private pensions. 

Types of plans in the system: 

Trust-based plans (45% of DC participants): These are employer-
sponsored plans and are usually nonprofit entities managed by a board 
of trustees that typically hire one or more service providers for 
recordkeeping and investment management services. The trustees are 
responsible for selecting and vetting the investment options. 

Contract-based plans (55% of DC participants): For contract-based 
plans, an employee deals directly with a for-profit service provider 
which performs both recordkeeping and investment management services. 
[Footnote 15] The service provider selects which investment options 
are available to the participant. These plans are owned entirely by 
the worker. 

Source: GAO analysis of foreign agency documentation and interviews 
with U.K. officials and industry experts. 

Pension system highlights: 

Contributions: Employers and workers may make contributions to DC 
plans. While employers have not previously been required to make any 
contributions, beginning in 2012, they will be required to 
automatically enroll eligible workers into a pension plan and provide 
a minimum contribution. Workers will have the right to opt-out of the 
plan.[Footnote 16] The minimum total contribution of 8 percent of 
qualifying earnings will be contributed to the selected private 
pension—4 percent will usually be contributed by employees, which is 
usually matched by a compulsory 3 percent from the employer and a 
minimum 1 percent from the government, delivered through tax relief. 
[Footnote 17] 

Investment options: DC plans typically offer between 5 and 10 
investment options, but contract-based plans may offer far more than 
trust-based plans. According to a U.K. service provider, approximately 
70 percent of DC assets in the U.K. are in passively managed funds. To 
choose between the options available to them, participants can receive 
investment advice from an external advisor. 

Default option: When a default investment option is offered to 
participants within a DC plan, it was estimated in 2009 that 81 
percent of members invested in it. All plans used by employers to 
satisfy their duties for auto-enrollment will be required to have a 
default fund. 

Leakage: Currently, individuals cannot access their private pension 
savings until they reach the minimum pension age (age 55 as of April 
2010). 

Drawdown: When employer plans allow it, individuals can continue 
working while receiving pension benefits. While participants were 
previously required to annuitize their pension benefits by age 75, as 
of April 2011, participants over age 55 can now withdraw their pension 
savings by choosing one or a combination of the following options: 

* purchasing an annuity; 

* investing their funds in a Capped Drawdown account, which allows 
them to withdraw up to 100 percent of the value of an equivalent 
annuity as an income from their pension fund while leaving the 
remaining fund invested; 

* withdrawing their funds flexibly provided that individuals can 
demonstrate a secured guaranteed lifetime income of at least 
approximately $31,600 USD per year; or; 

* withdrawing their funds as a lump-sum when their accumulated balance 
is very small. 

Footnotes: 

[15] Some service providers outsource one or both of these services. 
Contract-based schemes are owned entirely by the employee, but may be 
facilitated by the employer. If they are facilitated by the employer, 
some employers appoint a committee to oversee the service providers’ 
arrangements. 

[16] This is the requirement provided that the employee’s earnings are 
above the current proposed auto-enrollment threshold of about $11,800 
USD. Employees with earnings below this level will be permitted to opt 
in to the scheme. There will be a contribution limit of about $6,800 
USD a year into NEST. 

[17] Qualifying earnings represent the portion of a worker’s salary 
over about $9,000 USD and below about $60,400 USD (as of February 
2012). For the first 5 years of auto-enrollment implementation (from 
October 1, 2012, to September 30, 2017) the minimum total contribution 
is 2 percent and minimum employer contribution is 1 percent. For the 
year after that (October 1, 2017, to September 30, 2018) the minimum 
percentages move up to 5 and 2, respectively. From October 1, 2018, 
the full 8 percent and 3 percent apply. 

[End of fact sheet] 

[End of section] 

Appendix III: Comments from the Department of Labor: 

U.S. Department of Labor: 
Assistant Secretary for Employee Benefits Security Administration: 
Washington, D.C. 20210: 

February 21, 2012: 

Mr. Charles A. Jeszeck: 
Director, Education, Workforce, and Income Security Issues: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Jeszeck: 

Thank you for the opportunity to review the Government Accountability 
Office's (GAO) draft report entitled "Defined Contribution Plans, 
Approaches in Other Countries Offer Beneficial Strategies in Several 
Areas" (GAO-12-328). The report focuses separately on enforcement and 
disclosure. Below, we address these two areas in turn. 

Enforcement: 

In the report, GAO states that EBSA has not yet targeted enforcement 
efforts based on a broad, ongoing risk assessments, or assessments of 
key areas of non-compliance with ERISA. Instead, according to the 
report, EBSA relies on reports or complaints obtained from 
participants, plan sponsors, the media, and other agencies to conduct 
targeted investigations, which limits EBSA to leads identified by 
these sources and not those potential violations that may be more 
complex or hidden. While acknowledging that EBSA has taken preliminary 
steps to improve its oversight, GAO found that the more extensive risk-
based approaches taken by Australia, Chile, Sweden, and the United
Kingdom allow them to take preventive measures and address the short-
comings associated with relying on complaints. 

EBSA agrees that other countries' experience with DC retirement plan 
regulation and supervision can sometimes be useful in evaluating U.S. 
policies and programs. However,
GAO's efforts to draw insights for the U.S. from the four countries it 
examined, which underlie GAO's recommendations, appear to have 
overlooked important distinctions among our respective systems and 
governing statutes. Below we highlight some of important differences 
that exist among the private pension systems of the U.S., Australia,
Chile, Sweden and the United Kingdom that the GAO may not have fully 
considered. These include differences in laws, institutions, and 
market practices. 

* The U.S., unlike the four analyzed countries, does not mandate that 
private employers provide pensions or individuals save for retirement. 
ERISA only requires that those who establish plans must meet certain 
minimum standards. Therefore, unlike its foreign counterparts, EBSA 
must take account of the risk that employers will simply decline to 
sponsor retirement plans. EBSA must seek to contain retirement plan 
risk and uphold the law without undermining employers' willingness to 
sponsor plans. 

* In the U.S., pension plans are truly employer-based, and EBSA's 
authority is plan- and therefore employer-focused. US plans are more 
numerous than in the other countries, and more widely diverse in both 
type (ESOP, 401(k), etc.) and detailed features. The other countries' 
private pension programs are based more in larger, often government 
licensed or run financial institutions or intermediaries, and are 
generally less diverse. Therefore it is both desirable and unavoidable 
that EBSA pursue a wider range of approaches to enforcement targeting 
(which, as elaborated below, includes risk-based approaches that are 
suited to U.S. circumstances), rather than a more singular risk-based 
strategy that is more suited for supervision of a more limited and 
homogeneous population of institutions. 

* EBSA also notes that the other countries' programs generally involve 
no, or smaller and less discretionary, roles for employers, and 
arguably tend to resemble U.S. retail IRAs more than ERISA plans. It 
does not appear that GAO considered this resemblance. 

* Along with institutions, authorities also differ. In the U.S., ERISA 
establishes standards of conduct for plan fiduciaries, who are often 
the sponsoring employers, but these standards mostly pertain to the 
care with which fiduciary duties are executed, and therefore leave 
fiduciaries wide discretion with respect to the specific actions 
taken. There are no suitability requirements for fiduciaries, nor 
licensing requirements for plans. EBSA's foreign counterparts 
generally have more discretion to intervene and require actions as 
part of supervision of licensed entities, whereas EBSA generally must 
establish a violation before it can compel action. 

* GAO notes that risk-based enforcement is inherently data driven. 
EBSA's authority to collect relevant data generally is limited by 
ERISA's provisions governing annual reporting. EBSA's implementation 
of ERISA's reporting requirements also must take into account the 
large number of employers affected and the administrative burden 
imposed on them Because of these statutory and institutional 
circumstances, EBSA's data is necessarily less detailed and less 
timely than the data possessed by the other countries. 

Notwithstanding these differences, EBSA undertakes a wide range of 
risk-based enforcement efforts, most of which we believe GAO has not 
noted. Although credible leads from participants, plan sponsors, and 
other agencies do result in case openings, EBSA also targets plans and 
service providers based on historical data, current trends, and 
emerging developments around the country or specific to a region. EBSA 
continually develops and pursues both National and Regional Projects 
that target practices or institutions where particular risk has been 
identified. Much of this targeting is data-driven, based on annual 
report analysis or tracking and analysis of enforcement data on 
violations prevalent in types of plans or service providers. Current 
examples of national projects include the Consultant/Adviser Project, 
Rapid ERISA Action Team (REACT), Employee Stock Ownership Plans 
(ESOPs), Health Benefits Security Project, and Contributory Plans 
Criminal Project. In FY 2011, EBSA devoted 45% of investigative time 
to national and regional projects, generating 90% of our monetary 
results.[Footnote 1] 

Disclosure: 

GAO also reviewed the other countries' approaches to participant fee 
disclosure, again drawing insights for the US. GAO focuses 
particularly on counties' efforts to disclose more complete 
information on indirect fees actually paid (as distinguished from 
prices associated with products available) and the compounded effect 
of fees on benefits over time. GAO recommends that EBSA consider these 
improvements EBSA commends GAO on the excellent summary of fee 
transparency activities being implemented in Sweden, the United 
Kingdom, Chile and Australia. Although there appear to be significant 
differences in the characteristics of retirement plans in the 
countries GAO studied, service provider markets, and the applicable 
legislative and regulatory regimes, we are open to learn from global 
experiences that help drive down costs and improve retirement saving 
results for workers. 

As noted in the GAO report, on February 2, 2012, the Department 
finalized a new fee transparency regulation that will provide 
employers sponsoring pension and 401(k) plans with information about 
service provider fees and investment costs associated with providing 
such plans to their workers. This final rule, and the companion 
participant-level fee disclosure rule which is also going into effect 
in 2012, will greatly increase the level of transparency in U.S.-based 
retirement plans. In fact, we were impressed that the regulatory 
approaches in the other countries GAO studied tended to focus on the 
same issues that were the focus of our regulatory efforts. Given the 
multiple year effort and extensive public input from U.S. consumer 
groups, employers, plan fiduciaries, financial services providers, and 
others that went into the development of our pension plan fee 
transparency final regulations, we do not believe it is appropriate at 
this time to propose changes to those final regulations. 

With respect to the specific issues raised by GAO, EBSA notes the 
following: 

* With respect to actual fees paid, the layering and complexity of 
U.S. market arrangements complicates the estimation of this amount 
where fees are paid indirectly. After weighing the potential expense 
to participants and potential inaccuracy of such estimation, EBSA 
elected to permit such fees to be disclosed as prices in disclosures 
intended to facilitate participants' choice of products rather than as 
actual amounts paid (indirectly) in benefit statements. It is unclear 
from GAO's report whether such complexities exist in other countries, 
whether the amounts disclosed there are precise or estimates, or what 
such disclosures cost. Nor does GAO present evidence as to whether 
such disclosures benefit participants more than price disclosure 
alone. Nonetheless GAO characterizes such disclosure as an 
"improvement" for EBSA to consider. 

* With respect to the effect of fees over time, EBSA disclosure rules 
require a statement about such effects and a reference to EBSA' s 
website where examples can be found. EBSA notes that such effect will 
depend not only on the fees themselves but also on gross returns and 
on the timing of contributions and withdrawals. 

In conclusion, EBSA will consider the GAO's recommendations carefully. 
EBSA has long participated in multinational pension research and 
policy discussions and thereby derived insights for consideration in 
its own policy development. We will continue this activity, with due 
attention to the present GAO recommendations. EBSA will look into the 
global experiences described in the GAO report for possible areas of 
future improvement as we monitor the implementation of our new fee 
transparency regulations for U.S.-based pension plans. 

Again, thank you for the opportunity to review the draft report. 
Should you or your staff have any questions concerning the statements 
or requests contained herein, please do not hesitate to contact us. 

Sincerely, 

Signed by: 

Phyllis C. Borzi: 
Assistant Secretary: 

Footnote: 

[1] It should be noted that 78% of monetary results are contributed to 
ESOP project cases. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Charles A. Jeszeck, (202) 512-7215 or jeszeckc@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Tamara Cross, Assistant 
Director; Sharon Hermes and Jessica Gray, Analysts-in-Charge; Seyda 
Wentworth, and Katherine Berman made important contributions to this 
report. James Bennett, Barbara Bovbjerg, Susannah Compton, Cody 
Goebel, Kathy Leslie, Ashley McCall, Sheila McCoy, Roger Thomas, and 
Frank Todisco also provided support. 

[End of section] 

Footnotes: 

[1] Reasonable Contract or Arrangement Under Section 408(b)(2) -Fee 
Disclosure, 77 Fed. Reg. 5632 (2012) (to be codified at 29 C.F.R. pt. 
2550). 

[2] Employee Benefit Research Institute, Employment-Based Retirement 
Plan Participation: Geographic Differences and Trends, 2010, Issue 
Brief No. 363 (Washington D.C.: October 2011). 

[3] Employee Benefit Research Institute, 401(k) Plan Asset Allocation, 
Account Balances, and Loan Activity in 2010, Issue Brief No. 366 
(Washington D.C.: December 2011). 

[4] Exemptions to this trust requirement include insurance contracts 
and plan assets held by insurance companies. 

[5] 29 U.S.C. §1104(a). The law establishes that a plan fiduciary 
includes a person who has discretionary control or authority over the 
management or administration of the plan, including the plan's assets. 
Typically, the plan sponsor is a fiduciary under this definition. 
ERISA requires that plan fiduciaries carry out their responsibilities 
prudently and do so solely in the interest of the plan's participants 
and beneficiaries. In accordance with ERISA and related Labor 
regulations and guidance, plan sponsors and other fiduciaries must 
exercise an appropriate level of care and diligence given the scope of 
the plan and act for the exclusive benefit of plan participants and 
beneficiaries, rather than for their own or another party's gain. 

[6] We have previously reported that plan sponsors may still pay some 
plan recordkeeping fees but participants bear them in a growing number 
of plans. GAO, Private Pensions: Changes Needed to Provide 401(k) Plan 
Participants and the Department of Labor Better Information on Fees, 
[hyperlink, http://www.gao.gov/products/GAO-07-21] (Washington, D.C.: 
Nov.16, 2006). 

[7] The Employee Benefits Security Administration (EBSA) also has 
oversight responsibilities related to other types of DC plans, as well 
as DB plans. The Internal Revenue Service also oversees various 
aspects of 401(k) contributions under the Internal Revenue Code. 

[8] 29 U.S.C. § 1002(21)(A). On October 22, 2010, Labor proposed a 
revised definition of the term "fiduciary," 75 Fed. Reg. 65,263 (2010) 
and, subsequently, by News Release Number: 11-1382-NAT on September 
19, 2011, Labor announced it would "re-propose" its rule on the 
definition of fiduciary in early 2012. 

[9] GAO, 401(K) Plans: Improved Regulation Could Better Protect 
Participants from Conflicts of Interest, [hyperlink, 
http://www.gao.gov/products/GAO-11-119] (Washington, D.C.: Jan. 28, 
2011) and Defined Benefit Pensions: Conflicts of Interest Involving 
High Risk or Terminated Plans Pose Enforcement Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-07-703] (Washington, D.C.: June 28, 
2007). 

[10] GAO, Employee Benefits Security Administration: Enforcement 
Improvements Made but Additional Actions Could Further Enhance Pension 
Plan Oversight, [hyperlink, http://www.gao.gov/products/GAO-07-22] 
(Washington, D.C.: Jan. 18, 2007). 

[11] An annuity is an insurance agreement or contract that comes in a 
number of different forms and can (1) help individuals accumulate 
money for retirement through tax-deferred savings, (2) provide them 
with monthly income that can be guaranteed to last for as long as they 
live, or (3) do both. Payments from fixed annuities are generally a 
set regular amount, whereas payments from variable annuities may 
increase or decrease based on performance of the underlying 
investments. 

[12] Fiduciary Requirements for Disclosure in Participant-Directed 
Individual Account Plans; Final Rule, 75 Fed. Reg. 64,910 (October 20, 
2010) (codified at 29 C.F.R. § 2550.404a-5). A revised and delayed 
effective date for this regulation was published on July 19, 2011 (76 
Fed. Reg. 42539). 

[13] While the Organisation for Economic Co-operation and Development 
(OECD) recently acknowledged Chile's efforts to develop its market-
based economy, it generally is understood to have more moderate social 
welfare policies than the United States. and publicly spends less on 
social welfare as a percentage of its GDP. Australia is also generally 
considered a market-based economy, but is understood to offer similar 
social welfare provisions to that of the U.S. and publicly spends 
about the same on social welfare as a percentage of its GDP. 

[14] GDP per capita is based on purchasing power parity, which 
equalizes the purchasing power of different currencies in their home 
countries by taking into account the relative cost of living and the 
inflation rates of different countries, rather than just a nominal GDP 
comparison. 

[15] Plans must also register with the tax authority in order to 
obtain tax benefits. 

[16] Guidelines provided by the International Organisation of Pension 
Supervisors (IOPS) specify that risk-based pension supervision should 
be evaluative, data driven, and forward-looking. IOPS, Toolkit for 
Risk-based Pensions Supervision: Introduction to Risk-based Pensions 
Supervision (2011). According to an IOPS working paper, the main risks 
in DC pension systems are those that impact the accumulated pension 
savings of participants and therefore the amount of pension benefit 
participants receive in retirement. They include investment risk; high 
costs, such as excessive fees; operating risks, such as administrating 
individual accounts; and managing the transition from accumulation to 
decumulation. John Ashcroft and Fiona Stewart, Managing and 
Supervising Risks in Defined Contribution Pension Systems, IOPS 
Working Paper No. 12 (October 2010). 

[17] IOPS is an independent international body with 70 members and 
observers representing about 60 countries and territories. Its purpose 
is, among other things, to serve as the standard-setting body on 
pension supervision and regulation; to promote international 
cooperation; to provide a worldwide forum for policy dialogue and 
exchange of information on pension supervision; and to participate in 
the work of relevant international bodies in the area of pensions. 

[18] According to Labor, the Paperwork Reduction Act inhibits EBSA's 
ability to similarly collect information. 

[19] In October 2002, the Australian pensions regulator first 
introduced risk assessment and supervisory response tools that formed 
the centerpiece of its risk-based approach. 

[20] When the Australian pensions regulator identifies a 
superannuation plan that it considers too small, it initiates 
conversations with the plan trustees suggesting merger opportunities. 
Such mergers are eligible for tax relief. 

[21] The adoption of a risk-based approach in Chile followed an 
initial assessment by the World Bank and The Financial Sector 
Assessment Program. It was also recommended by the OECD during Chile's 
accession to the organization. 

[22] Active communication could include issuing guidance to regulated 
pension plans explaining requirements and good practices, ensuring 
that communication with regulated pension plans is ongoing, and 
working closely with industry professionals such as accountants and 
actuaries, which can help regulated pension plans apply standards. 

[23] [hyperlink, http://www.gao.gov/products/GAO-07-22] and 
[hyperlink, http://www.gao.gov/products/GAO-11-119]. In addition, 
Labor's enforcement efforts regarding potential conflicts of interest 
related to investment advice have not addressed potential violations 
by non-ERISA fiduciary service providers. This applies to Labor's 
civil investigations. However, according to Labor, for its criminal 
investigations the subject need not be an ERISA fiduciary because an 
allegation of fraud is sufficient to trigger Labor's jurisdiction. 

[24] The U.K. pensions regulator is currently in the process of 
developing a new regulatory framework for DC plans which will be based 
on a segmented approach (e.g., larger plans tend to be better run and 
achieve economies of scale, whereas smaller plans are more likely to 
have lower governance standards and higher charges). 

[25] These officials also noted that the enhanced disclosures may not 
capture all fees, like transaction costs, and government and industry 
surveys have shown that some participants do not read the disclosures. 
Swedish Pensions Agency, Surveys About The Orange Envelope of 2011 
(Stockholm, Sweden: April 2011). Social Protection Surveys have been 
conducted in Chile since 2002 and the last available year is 2009. In 
addition, the Chilean pensions regulator conducts focus groups. 

[26] John A. Turner and Hazel A. Witte, Fee Disclosure to Pension 
Participants: Establishing Minimum Requirements, International Centre 
for Pension Management Sponsored Research, Joseph L. Rotman School of 
Management, University of Toronto (Toronto, Canada: August 2008). 

[27] Fees for external fund management that are deducted from the 
external funds to determine the fund's performance are not included in 
this total, but the Chilean pensions regulator requires plan providers 
to report these fees to the regulator and publishes this information 
online on a regular basis. 

[28] Because the Swedish Pensions Agency charges one administrative 
charge for all participants, the fund management fee is the pertinent 
fee for comparison purposes. 

[29] Self-managed superannuation funds require a lower level of 
disclosure, but are still subject to some of the same disclosure 
requirements as other superannuation plans. 

[30] Transaction fees, however, are directly deducted from the fund 
returns and reported in aggregate in the Swedish Pensions Agency's 
annual report. 

[31] Because of the small number of plans available to Chilean 
participants, this type of disclosure is likely clearer than it would 
be if participants were offered many more choices. 

[32] According to a February 2011 survey conducted by AARP, 71 percent 
of plan participants thought they paid no 401(k) fees, while only 23 
percent knew they paid fees. In addition, the survey found that 62 
percent were unaware of how much they paid in fees for their plan and 
32 percent did not feel knowledgeable about the impact that fees could 
have on their retirement savings. AARP, 401(k) Participants' Awareness 
and Understanding of Fees (Washington, D.C.: February 2011). 

[33] In comparison, the amount of fees a DC plan participant pays in 
the U.S. can vary considerably across plans. As we previously 
reported, U.S. participants tend to pay the same types of fees (e.g. 
investment management and recordkeeping fees), but the amount of those 
fees depends on a number of factors, which could be related to the 
employer's size and actions it takes as a plan sponsor. For example, 
sponsors may decrease fees by combining or pooling assets to access 
certain investment products or negotiate with service providers. 
However, U.S. workers are limited to the plans offered by their 
employers and some of those plans charge higher fees than others. GAO, 
Retirement Savings: Better Information and Sponsor Guidance Could 
Improve Oversight and Reduce Fees for Participants, [hyperlink, 
http://www.gao.gov/products/GAO-09-641] (Washington, D.C.: Sept. 4, 
2009). 

[34] Sweden's Premium Pension system represents the only traditional 
DC portion of the public DC system. The U.K.'s NEST is a nationally 
available plan, implemented along with the U.K.'s auto-enrollment 
requirements, in order to provide all employers a low-cost plan in 
which to enroll their employees. NEST's trustee body has a public 
service obligation to accept any employer who wishes to offer the plan 
to its employees. 

[35] According to the Swedish Pensions Agency, fund providers for the 
Swedish system are required to rebate from about 55 to 81 percent of 
their retail fee based on the type of funds they offer (equity or 
bond) and their aggregate market share in the system. Providers send 
rebates to the administrative body every 3 months, although it 
distributes rebates to affected participants in the following year. 

[36] Administrative fees in Sweden have fallen from 0.30 to 0.16 
percent between 2001 and 2011. Swedish officials expect to continually 
lower administrative fees because the system's assets will continue to 
grow, and since administrative costs are typically fixed, they will 
decline per participant as the system's assets grow. Sweden charges 
fees for fund management separate from administrative fees, and these 
fees in January 2012 ranged from 0 to 2.57 percent. 

[37] Turner and Witte (2008) and Tapia, W. and J. Yermo (2008), "Fees 
in Individual Account Pension Systems: A Cross-Country Comparison", 
OECD Working Papers on Insurance and Private Pensions, No. 27, OECD 
publishing, © OECD. doi:10.1787/236114516708. 

[38] While the U.K. designed this nationally available plan to be low-
cost, decisions about the plan are made by a trustee body. The 
original members of the body were appointed by the government. The 
choice of future NEST trustee members will be made by the NEST trustee 
body and the representative member panel will participate in the 
recruitment and appointment of NEST's trustee members. 

[39] The plan also received a loan from the British government that 
will allow them to spread startup costs over a certain amount of time 
for which the plan will charge participants an additional 1.8 percent 
of contributions until the loan is paid off. Officials' calculations 
indicate that the total effective charge on participants will be about 
0.50 percent per year, based on the average participant. The officials 
stated that they expect the loan to be repaid in about 20 years. 

[40] Super System Review: Review of the Governance, Efficiency, 
Structure and Operation of Australia's Superannuation System 
(Commonwealth of Australia, June 30, 2010). 

[41] In 2010, the investment strategy for the default fund, AP7 Såfa, 
was updated to take a higher-risk, age-adapted approach since an 
increasing number of participants were choosing the default option--96 
percent of new entrants in 2010, according to a default fund official--
and many of those participants were young adults. AP7 Såfa also now 
offers different risk-level funds ("offensive," "balanced," and 
"cautious") that do not change based on a participant's age. 

[42] The second bidding process finished in February 2012 and the AFP 
that won will charge 0.77 percent of salary for the 2 years starting 
August 2012. 

[43] Fee amounts are effective as of March 2012. Participants paying 
fees as a percent of salary pay more upfront as a percent of their 
account balance than participants paying asset-based fees, which have 
a much smoother effect over time. Fees as a percent of salary in Chile 
are deducted as an additional amount of a participant's salary--
Chilean employers are required to remit to a Chilean plan provider (1) 
10 percent of a worker's salary as a contribution and, (2) on top of 
that contribution, an additional percent of salary according to the 
provider's fee. For example, if a participant contributed to a 
provider that charged a 1.48 percent fee, their employer would remit 
11.48 percent of their salary (10 percent contribution plus 1.48 
percent fee) to the provider on the participant's behalf. While this 
fee represents a large portion of participants' account balances in 
early years, it represents less of their account balances in later 
years. Over a participant's lifetime, this fee could translate into an 
approximately 0.58 percent asset-based fee at present values. 

[44] If the requirements are finalized, an Australian government 
release states that, from October 1, 2013, employers must make 
contributions for workers who have not chosen their fund, to a fund 
offering a MySuper product in order to satisfy superannuation 
guarantee obligations, and by July 1, 2017, funds will need to 
transfer the existing default balances of workers to a MySuper product. 

[45] Officials note that funds will be able to offer a discounted 
administration fee to workers of particular employers. Funds will also 
have the flexibility to offer employers with more than 500 workers a 
MySuper product tailored to the needs of the particular workplace. To 
maintain transparency of these arrangements, the details of all 
separately tailored MySuper products and discounted administration 
fees will be required to be reported to the pensions regulator and 
will also need to be separately published by trustees. 

[46] Trustees wanting to offer a MySuper product will be required to 
apply to the pensions regulator to be authorized for each MySuper 
product. 

[47] Chile also caps fees for certain drawdown products and fees that 
service providers can pay to external managers for retail class 
shares, which have both helped to bring fees down. 

[48] Officials noted that legislation requiring advisors to compare 
plans offered by for-profit providers to these low-cost plans with the 
explicit fee cap may have helped to lower fees. 

[49] Requirements of the trustee board as a whole included that they 
have appropriate knowledge, manage conflicts of interest, and have a 
policy regarding oversight of service providers. 

[End of section] 

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