GAO Recommends Expanded Spend-Down Options

The report, “401(k) Plans: Other Countries’ Experiences Offer Lessons in Policies and Oversight of Spend-Down Options,” was released by the U.S. Government Accountability Office (GAO). It recommends that the Department of Labor (DOL) and the U.S. Treasury Department consider other countries’ approaches in helping 401(k) plan sponsors expand access to a mix of spend-down options for participants.

The GAO also recommends that the DOL consider these other approaches in providing information about options and regulating the selection of annuities within defined contribution (DC) retirement plans.

U.S. employees are primarily saving for retirement through their 401(k) plans, report authors argue, but those employees need help in deciding how to “spend down” their money during retirement. The concern is that inadequate planning and growing costs, from factors such as health care, could leave employees with the very real possibility of outliving their retirement savings.

Six countries with established DC systems were reviewed for the report. These include Australia, Canada, Chile, Singapore, Switzerland and the United Kingdom. The GAO found that many have developed innovative spend-down policies with the potential to yield useful lessons for the United States. The GAO reviewed reports on DC plans and interviewed experts and government officials in the U.S. and the other countries.

Currently, most U.S. retirement plans only offer employees a lump sum distribution and are not required to provide employees with lifetime income projections about how long this lump sum will last. The other countries studied tend to offer spend-down options in addition to the lump sum approach, such as pre-programmed withdrawal of participants’ savings or an annuity.

The report also reveals that these countries make use of strategies such as communicating spend-down options in a timely and easy-to-understand way, as well as illustrating to employees how their savings may be spent during retirement via income projections on their benefit statements.

According to the GAO, the DOL generally agreed with the recommendations in the report and will evaluate these approaches. The DOL is, in fact, already in the midst of evaluating comments on proposed regulations that would require plan sponsors to provide participants with lifetime income projections as part of their benefit statements (see “Income Projections: Showing Participants a Better Way”).

More information about the report, including where to download the full text or highlights, can be found here.