UpFront | Published in July 2012

From Abroad

GAO finds international DC approaches may be helpful in the U.S.

By Tara Cantore | July 2012
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Illustration by James Yang

The U.S. Government Accountability Office (GAO) has concluded that defined contribution (DC) plan approaches employed in other countries may be beneficial here. The countries GAO reviewed use risk-based approaches to target practices deemed most potentially harmful to participants, as well as to develop preventative measures. While the role of service providers varies, defined contribution plans and service providers in the four 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 periodically collects data on service provider fees and 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 could hurt participants, instead of relying only on a compliance-based approach. For example, in Chile, pensions agency officials evaluate key features of the defined contribution 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 that using a risk-based approach enables the pensions regulator to take proactive measures to ensure the defined contribution plans operate in the best interest of participants. These countries have overseen service providers in this way for a number of years, while the U.S. Department of Labor (DOL) has just begun to develop a risk-based approach in its efforts to monitor U.S. defined contribution plans and service providers.