DEFINED 

CONTRIBUTION 

PLANS 

Approaches in Other 

Countries Offer 

Beneficial Strategies 

in Several Areas 

Report to Congressional Requesters

March 2012 

GAO-12-328 

United States Government Accountability Office

GAO 
United States Government Accountability Office

Highlights of GAO-12-328, a report to 

congressional requesters

March 2012

DEFINED CONTRIBUTION PLANS

Approaches in Other Countries Offer Beneficial 

Strategies in Several Areas

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 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.

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 riskbased 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.

View GAO-12-328. For more information, 

contact Charles Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov.
Page i GAO-12-328 Defined Contribution Plans

Letter 1

Background 3

Risk-Based Oversight Helps Some Countries’ Regulatory Agencies 

Monitor Service Providers and Could Inform Labor as It 

Improves Its Oversight Approach 11

Fee Disclosure Strategies Improved Transparency in Some 

Countries, and Similar Strategies Could Benefit U.S. Participants 22

Targeted Strategies Used by Some Countries Lower Fees 32

Conclusions 43

Recommendations for Executive Action 44

Agency Comments and Our Evaluation 44

Appendix I Objectives, Scope, and Methodology 48

Appendix II Key Features of DC Pension Systems in Australia, Chile, 

Sweden and the United Kingdom 50

Appendix III Comments from the Department of Labor 55

Appendix IV GAO Contact and Staff Acknowledgments 59

Tables

Table 1: Labor’s 401(k) Participant Fee Disclosure Requirements 8

Table 2: Key Features of Case Study Countries’ DC Systems 10

Table 3: Key roles of DC Service Providers by Country 12

Table 4: Main Features of Alternate Regulatory Approaches 17

Table 5: Australia’s Fee Disclosure Requirements 25

Table 6: Australia’s Proposed Regulations to Reduce Costs through 

a Variety of Methods 36

Table 7: Australia’s Proposed MySuper Default Products Will Be 

Limited to Certain Fees 40

Table 8: Other Strategies That Have Reduced Fees 43

Contents
Page ii GAO-12-328 Defined Contribution Plans

Figures

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

Plans 5

Figure 2: Economic Data for the United States, Australia, Chile, 

Sweden, and the United Kingdom, 2010 9

Figure 3: Consumer Advisory Warning Box in Australian Product 

Disclosure Statement 26

Figure 4: Example of Sweden’s Fee Disclosure Requirements for 

Premium Pension Participants 28

Figure 5: Example of Chile’s Fee Disclosure Requirements 29

Figure 6: Example of Labor’s 401(k) Participant Disclosure 

Requirement Demonstrating the Effect of Fees 30

Figure 7: Example of Annual Fee Disclosure Requirements for 

401(k) Participants under Labor’s New Regulations 31

Figure 8: The Structure of Sweden’s Premium Pension System 

Helps Lower Administrative and Fund Management Fees 34

Figure 9: The United Kingdom Has Structured Its Nationally Available 

Plan to Reduce Administrative and Fund Management Fees 35

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

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

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necessary if you wish to reproduce this material separately.
Page 1 GAO-12-328 Defined Contribution Plans

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.1

Other countries with well-established DC systems face similar issues, and 

some use a variety of approaches to oversee DC plans and service 

 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). 
Page 2 GAO-12-328 Defined Contribution Plans

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. 
Page 3 GAO-12-328 Defined Contribution Plans

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.

Roughly 40 percent of all U.S. workers participate in pension plans 

offered by their employers.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.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.4

 2

Employee Benefit Research Institute, Employment-Based Retirement Plan Participation: 

Geographic Differences and Trends, 2010, Issue Brief No. 363 (Washington D.C.: October 

2011).

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.

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. 

Background
Page 4 GAO-12-328 Defined Contribution Plans

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.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.6

 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.

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.

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, GAO-07-21 (Washington, D.C.: Nov.16, 2006). 
Page 5 GAO-12-328 Defined Contribution Plans

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

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.

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) 
Page 6 GAO-12-328 Defined Contribution Plans

plans and protection of 401(k) participants’ assets,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,8 and many providers 

are reported to commonly structure their relationships with sponsors in a 

manner that avoids being subject to these fiduciary standards.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.10

• SEC, among other responsibilities, regulates securities markets and 

issuers, including mutual funds, under various securities laws.

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:

• Federal agencies charged with oversight of banks—primarily the 

Federal Reserve Board, the Office of the Comptroller of the Currency, 

 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, 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, GAO-07-703 (Washington, D.C.: June 28, 2007).

10GAO, Employee Benefits Security Administration: Enforcement Improvements Made but 

Additional Actions Could Further Enhance Pension Plan Oversight, GAO-07-22

(Washington, D.C.: Jan. 18, 2007).
Page 7 GAO-12-328 Defined Contribution Plans

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.11

Labor published final regulations on October 20, 2010, to improve U.S. 

participant fee disclosure, as summarized in table 1.12 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.

 11An 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. 

12Fiduciary 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).
Page 8 GAO-12-328 Defined Contribution Plans

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 windowsa

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.

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.13

 13While 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. 

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 
Page 9 GAO-12-328 Defined Contribution Plans

the United States.14

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

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.

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).

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.

 14GDP 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.
Page 10 GAO-12-328 Defined Contribution Plans

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

Dollars in billions USD

Country Description of DC system Types of plan(s)

Approximate total DC 

assets in 2010

Australia 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.

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 singleemployer plans with nonprofit trustees; retail 

plans with for-profit trustees; and selfmanaged accounts, where the individual is 

his/her own trustee. 

$853

Chile 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.

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. 

$148

Sweden 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

Individual accounts in the Swedish system are 

all part of one plan managed by a 

government-run clearinghouse, the Swedish 

Pensions Agency.

$62

United 

Kingdom

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

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. 

$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.
Page 11 GAO-12-328 Defined Contribution Plans

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.

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
Page 12 GAO-12-328 Defined Contribution Plans

Table 3: Key roles of DC Service Providers by Country

Key roles of DC service providers

Recordkeeping 

services

Investment 

management 

services

Trustee or 

trustee-like 

services

Australia 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.

√ √

Retail plans: an employee deals directly with a for-profit service 

provider which performs recordkeeping, investment 

management, and trustee services.a √ √ √

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.

√ √

Chile 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. 

√ √

Sweden 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. 

√

United 

Kingdom

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.

√ √

Contract-based plans: an employee deals directly with a forprofit 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.

√ √ √

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.
Page 13 GAO-12-328 Defined Contribution Plans

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 contractbased plans.15

• 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 

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.

 15Plans must also register with the tax authority in order to obtain tax benefits.
Page 14 GAO-12-328 Defined Contribution Plans

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.

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.16

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 

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.

 16Guidelines 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 Riskbased 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).

Risk-Based Oversight 

Approach
Page 15 GAO-12-328 Defined Contribution Plans

become widespread and take proactive measures to address them.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.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.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.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 

 17IOPS 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.

18According to Labor, the Paperwork Reduction Act inhibits EBSA's ability to similarly 

collect information.

19In October 2002, the Australian pensions regulator first introduced risk assessment and 

supervisory response tools that formed the centerpiece of its risk-based approach. 

20When 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.
Page 16 GAO-12-328 Defined Contribution Plans

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.21

• 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 

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.

 21The 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.
Page 17 GAO-12-328 Defined Contribution Plans

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 Compliance-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

Regulators

• focus on breach of laws, rules, and 

regulations, and

• give the same degree of attention to all 

funds

Approach is preventative, forwardlooking, flexibleApproach focuses on a given point in time, 

often relies on complaints

Supervised pension plans or service 

providers have an incentive to strengthen 

risk management 

Supervised pension plans or service 

providers focus on compliance with rules 

rather than risk management

Regulators can benchmark supervised 

entities and assess overall industry

It is difficult for regulators to get meaningful 

comparisons across supervised entities

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

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 
Page 18 GAO-12-328 Defined Contribution Plans

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.22

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,

[m]oving 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.

 22Active 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.
Page 19 GAO-12-328 Defined Contribution Plans

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.
Page 20 GAO-12-328 Defined Contribution Plans

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.
Page 21 GAO-12-328 Defined Contribution Plans

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.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 

 23GAO-07-22 and 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.

Labor’s Oversight 

Approach: Risk-Based 

versus Compliance-Based
Page 22 GAO-12-328 Defined Contribution Plans

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.24

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.25

 24The 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).

25These 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. 

Fee Disclosure 

Strategies Improved 

Transparency in Some 

Countries, and Similar 

Strategies Could 

Benefit U.S. 

Participants

Fee Disclosure Formats
Page 23 GAO-12-328 Defined Contribution Plans

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.26

• 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.

For example, Chile, Sweden, and Australia reported making the 

following changes to their fee disclosures to increase transparency from 

previous disclosures:

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.28

 26John 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).

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 

27Fees 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. 

28Because the Swedish Pensions Agency charges one administrative charge for all 

participants, the fund management fee is the pertinent fee for comparison purposes.
Page 24 GAO-12-328 Defined Contribution Plans

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.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.

 29Self-managed superannuation funds require a lower level of disclosure, but are still 

subject to some of the same disclosure requirements as other superannuation plans. 
Page 25 GAO-12-328 Defined Contribution Plans

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 

optiona 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 

requirementsb

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.

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.
Page 26 GAO-12-328 Defined Contribution Plans

Figure 3: Consumer Advisory Warning Box in Australian Product Disclosure 

Statement

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.
Page 27 GAO-12-328 Defined Contribution Plans

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.30

 30Transaction fees, however, are directly deducted from the fund returns and reported in 

aggregate in the Swedish Pensions Agency’s annual report. 

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.

Personalized Fee 

Information
Page 28 GAO-12-328 Defined Contribution Plans

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

Participants

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.
Page 29 GAO-12-328 Defined Contribution Plans

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.31

Figure 5: Example of Chile’s Fee Disclosure Requirements

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.

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 

 31Because 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.

Labor’s Fee Disclosure 

Requirements
Page 30 GAO-12-328 Defined Contribution Plans

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

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.

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.
Page 31 GAO-12-328 Defined Contribution Plans

Figure 7: Example of Annual Fee Disclosure Requirements for 401(k) Participants 

under Labor’s New Regulations

Note: Bolded box added for emphasis.

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.32

 32According 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). 

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 

fig. 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 figs. 4 and 5.)
 

Page 32 GAO-12-328 Defined Contribution Plans 

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.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 

 

33In 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, GAO-09-641 (Washington, D.C.: Sept. 4, 2009). 

Targeted Strategies 

Used by Some 

Countries Lower Fees 

Consolidating and 

Streamlining Service 

Providers’ Administrative 

Functions 
 

Page 33 GAO-12-328 Defined Contribution Plans 

duplicative processing functions and allowed that entity to complete bulk 

trades with fund providers.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.35 Because of this consolidated structure, average 

total administration and fund management fees that the participant pays 

are about 0.50 percent,36 which have been shown to be lower than the 

rest of the Swedish market and low by global standards.37

 

34Sweden’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. 

35According 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. 

36Administrative 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. 

37Turner 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. 
Page 34 GAO-12-328 Defined Contribution Plans

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

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.38

 38While 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.

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 
Page 35 GAO-12-328 Defined Contribution Plans

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.39

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

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. 

 39The 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.
Page 36 GAO-12-328 Defined Contribution Plans

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.40

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

Methods 

Reform Proposed measures

SuperStream 

reforms

• 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

Securing Super 

reforms

• 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.

 40Super System Review: Review of the Governance, Efficiency, Structure and Operation 

of Australia’s Superannuation System (Commonwealth of Australia, June 30, 2010).
Page 37 GAO-12-328 Defined Contribution Plans

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.41

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

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.

42

 41In 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.

compared to a range of 1.36 to 2.36 percent of salary for other 

42The 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.

Default Options Are 

Designed to Charge Low 

Fees
Page 38 GAO-12-328 Defined Contribution Plans

providers.43

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.

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 lowcost 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.

44

 43Fee 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. 

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 

44If 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.
Page 39 GAO-12-328 Defined Contribution Plans

capped fees.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.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.

 45Officials 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.

46Trustees wanting to offer a MySuper product will be required to apply to the pensions 

regulator to be authorized for each MySuper product.
Page 40 GAO-12-328 Defined Contribution Plans

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

Type of feea Description Amount allowed

Administration fee 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.

No limitation

Investment fee (including a 

performance-based fee)

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. 

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 performancebased fee to recoup any prior or subsequent underperformance (for example, high water marks, 

clawbacks, vesting arrangements, and rolling 

testing periods).c

Buy and sell spreads 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. 

Limited to provider’s cost recovery

Exit fee Fees charged when an individual removes 

his/her investments from the plan (at 

retirement or to move into another plan).

Limited to provider’s cost recovery

Switching fee Fees charged when the participant changes 

his/her investment options within the plan.

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.
Page 41 GAO-12-328 Defined Contribution Plans

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.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.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 

 47Chile 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. 

48Officials 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. 

Other Targeted 

Approaches
Page 42 GAO-12-328 Defined Contribution Plans

decreased fees. In Australia, officials told us that increased 

requirements for plan trustees led to significant consolidation among 

certain types of plans.49

• 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.

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.

 49Requirements 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.
Page 43 GAO-12-328 Defined Contribution Plans

Table 8: Other Strategies That Have Reduced Fees

Country Strategy Description

Chile Participants can only invest through 

one plan (AFP)

The Chilean system avoids duplicative administrative costs associated with 

multiple accounts.

United 

Kingdom

Pensions Quality Mark 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. 

Efforts to improve participant 

selection of annuity provider 

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.

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 

Conclusions
Page 44 GAO-12-328 Defined Contribution Plans

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 longterm 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.

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.

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.

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 45 GAO-12-328 Defined Contribution Plans

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.
Page 46 GAO-12-328 Defined Contribution Plans

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.
Page 47 GAO-12-328 Defined Contribution Plans

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 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.

Charles A. Jeszeck

Director

Education, Workforce, 

and Income Security Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 48 GAO-12-328 Defined Contribution Plans

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.

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 49 GAO-12-328 Defined Contribution Plans

• 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.
Appendix II: Key Features of DC Pension 

Systems in Australia, Chile, Sweden and the 

United Kingdom

Page 50 GAO-12-328 Defined Contribution Plans

Appendix II: Key Features of DC Pension 

Systems in Australia, Chile, Sweden and the 

United Kingdom
Page 51 GAO-12-328 Defined Contribution Plans

Appendix II 3/22/2012

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.2 Employers and participants may also 

choose to make additional contributions subject to a cap.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.

 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.

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.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 singleemployer 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. 

Australia
Page 52 GAO-12-328 Defined Contribution Plans

Appendix II 3/22/2012

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.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. 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.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.9

 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).

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.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.5

Type of plan in the system

Workers can choose which licensed forprofit 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. 

Chile
Page 53 GAO-12-328 Defined Contribution Plans

Appendix II 3/22/2012

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.11

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.

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.

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,13

• with profit annuity—participants’ holdings are sold and moved into 

an insurance product that pays at least a set amount per year.

or 

14

 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.

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.

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. 

Sweden
Page 54 GAO-12-328 Defined Contribution Plans

Appendix II 3/22/2012

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.

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.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. 

 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.

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 employersponsored (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 employersponsored 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 forprofit service provider which performs 

both recordkeeping and investment 

management services.15

Source: GAO analysis of foreign agency documentation and 

interviews with U.K. officials and industry experts. 

The service 

provider selects which investment 

options are available to the participant. 

These plans are owned entirely by the 

worker.

United Kingdom
Appendix III: Comments from the Department 

of Labor

Page 55 GAO-12-328 Defined Contribution Plans

Appendix III: Comments from the 

Department of Labor
Appendix III: Comments from the Department 

of Labor

Page 56 GAO-12-328 Defined Contribution Plans
Appendix III: Comments from the Department 

of Labor

Page 57 GAO-12-328 Defined Contribution Plans
Appendix III: Comments from the Department 

of Labor

Page 58 GAO-12-328 Defined Contribution Plans
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 59 GAO-12-328 Defined Contribution Plans

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

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.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Acknowledgments

(131065)
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