401(k) PLANS

Other Countries’ 

Experiences Offer 

Lessons in Policies 

and Oversight of 

Spend-down Options

Report to Congressional Requesters

November 2013

GAO-14-9

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-9, a report to 

congressional requesters

November 2013

401(k) PLANS

Other Countries’ Experiences Offer Lessons in

Policies and Oversight of Spend-down Options

Why GAO Did This Study

American workers are primarily saving 

for retirement through their 401(k) 

plans and will likely need assistance 

making complicated decisions about 

how to spend their money throughout 

retirement. Other countries with 

defined contribution (DC) systems are 

also dealing with this spend-down 

challenge. To identify lessons for the 

U.S. from the experiences of other 

countries, GAO examined selected 

countries’ (1) approaches to offering 

retirement spend-down options; (2) 

strategies to help participants make 

sound decisions; and (3) approaches 

to regulating and overseeing options. 

An initial review of countries with 

established DC systems indicated that 

some countries including the six GAO 

selected—Australia, Canada, Chile, 

Singapore, Switzerland, and the United 

Kingdom—have developed innovative 

spend-down policies that have the 

potential to yield useful lessons for the 

U.S. experience. GAO reviewed 

reports on DC plans; and interviewed 

experts and government officials in the 

U.S. and selected countries.

What GAO Recommends

GAO recommends that DOL and 

Treasury, as part of their ongoing 

efforts, consider other countries’ 

approaches in helping 401(k) plan 

sponsors expand access to a mix of 

spend-down options for participants. 

GAO also recommends that DOL

consider other countries’ approaches 

in providing information about options 

and regulating the selection of 

annuities within DC plans. In response, 

DOL generally agreed with GAO’s 

recommendations and will evaluate 

approaches.

What GAO Found

The six countries GAO reviewed can offer U.S. regulators lessons on how to 

expand access to a mix of spend-down options for 401(k) participants that meet 

various retirement needs. Five of the six countries generally ensure that 

participants can choose among three main plan options: a lump sum payment, a 

programmed withdrawal of participants’ savings, or an annuity. In the last several 

decades, all the countries took steps to increase participant access to multiple 

spend-down options, with some first conducting reviews of participants’ 

retirement needs that resulted in policy changes, as shown below. In the United 

States, 401(k) plans typically offer only lump sums, leaving some participants at 

risk of outliving their savings. The U.S. Departments of Labor (DOL) and the 

Treasury (Treasury) have begun to explore the possibility of expanding options 

for participants, but have not yet helped plan sponsors address key challenges to 

offering a mix of options through their plan.

Example of Steps Taken by Other Countries to Strengthen Access to Multiple Spend-down 

Options

Note: GAO did not conduct an independent legal analysis of the laws, regulations, or policies of the 

countries selected for this study. 

Countries reviewed used various strategies to increase participants’ knowledge 

and understanding of spend-down options, which may be useful to DOL in its 

ongoing efforts. Strategies used by other countries include (1) communicating 

spend-down options to participants in an understandable and timely manner, and 

(2) helping participants see how their savings would translate into a stream of 

income in retirement by providing them with projections of retirement income in 

their annual benefit statements. Currently, 401(k) participants have difficulty 

predicting how long their savings will last because most benefit statements do 

not focus on the stream of income it can generate. DOL is currently considering

including income projections in statements, which may help participants better 

understand what their balance could provide on a monthly basis once they retire. 

Regulators in the countries GAO reviewed employed several approaches to 

overseeing the spend-down phase aimed at helping participants sustain an 

income throughout retirement. For example, most of the countries used 

withdrawal rules and restrictions for lump sums and programmed withdrawals to 

help protect participants from outliving their savings. With respect to annuities, 

DOL continues to consider current regulatory barriers that may prevent 401(k) 

plan sponsors from offering annuities, which do not exist in other countries. 

Looking at what other countries require may help DOL in its efforts. 

For GAO-14-9 and interactive retirement 

materials, go to www.gao.gov/products/GAO14-9. For more information, contact Charles 

Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov. 
Page i GAO-14-9 401(k) Plans

Letter 1 

Background 4

Countries Used Multiple Approaches to Broaden Participants’ 

Retirement Options for the Spend-down Phase 15

Strategies Used by the Countries We Studied Helped Participants 

Make More Informed Decisions 24

Countries’ Regulation and Oversight of Spend-down Options Offer 

Lessons for U.S. Regulators 35

Conclusions 39

Recommendations for Executive Action 41

Agency Comments and Our Evaluation 42

Appendix I Objectives, Scope, and Methodology 44

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

Chile, Singapore, Switzerland, and the United Kingdom 47

Appendix III Comments from the Department of Labor 60

Appendix IV GAO Contact and Staff Acknowledgments 62

Related GAO Products 63

Tables

Table 1: Key Features of DC Plans by Country 7

Table 2: Examples of Trade-offs That Participants Face in 

Choosing among Spend-Down Options 11

Figures

Figure 1: Hypothetical Projection of Monthly Retirement Income 

for a 65-Year-Old 401(k) Plan Participant 13

Contents 
Page ii GAO-14-9 401(k) Plans

Figure 2: Timeline of Key Retirement Spend-down Policy Changes 

in Six Countries Leading to Facilitated Access to Multiple 

Options for DC Plan Participants 17

Figure 3: Steps Singapore Took to Strengthen Pathways to Multiple 

Spend-down Options 19

Figure 4: Steps DOL and Treasury Have Taken to Explore Spenddown Options for DC Plan Participants 22

Figure 5: Example of Information on Spend-down Options 

Developed for Participants Approaching Retirement in 

Australia 25

Figure 6: United Kingdom Cover Letter Example of Best Practices 

for Communicating Spend-down Decisions and Options to 

Participants 27

Figure 7: Example of Chile’s Benefit Statement Illustrating 

Projected Income 29
Page iii GAO-14-9 401(k) Plans

Abbreviations

ABI Association of British Insurers

AFP Administradoras de Fondos de Pensiones

APRA Australian Prudential Regulatory Authority

CPF Central Provident Fund

DB defined benefit

DC defined contribution

DOL Department of Labor

EBSA Employee Benefits Security Administration

ERISA Employee Retirement Income Security Act of 1974

FIO Federal Insurance Office

IRS Internal Revenue Service

NAIC National Association of Insurance Commissioners

OECD Organisation of Economic Co-operation and Development

Treasury Department of the Treasury

U.K. United Kingdom

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

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

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Page 1 GAO-14-9 401(k) Plans

441 G St. N.W.

Washington, DC 20548

November 20, 2013

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

Committee on Education and the Workforce

House of Representatives

American workers are primarily saving for retirement through 401(k) 

plans, which have become the dominant type of plan private sector 

employers are offering in the United States.1 Since the inception of 401(k) 

plans, regulators have focused their efforts on ensuring that plan 

participants accumulate savings for retirement.2 With many participants 

who have had defined contribution (DC) plans throughout their career 

nearing retirement, regulators have begun to focus on the decumulation 

 

1 In 2012, the Advisory Council on Employee Welfare and Pension Benefit Plans, also 

known as the ERISA Advisory Council, reported that the percentage of private employers 

offering single-employer DB plans has decreased to less than 9 percent. In contrast, the 

percentage of private employers offering DC plans has increased to more than 88 percent. 

See ERISA Advisory Council, Examining Income Replacement During Retirement Years 

In a Defined Contribution Plan System, (Washington, D.C.: December 2012). Another 

study calculated that 68 percent of workers covered by employer retirement plans only 

had access to DC plans in 2010 based on U.S. Board of Governors of the Federal 

Reserve System, Survey of Consumer Finances (1983 and 2010). Alicia H. Munnell, 

Anthony Webb, and Francis M. Vitagliano, The Economic Implications of the Department 

of Labor’s 2010 Proposals for Broker-dealers, Center for Retirement Research at Boston 

College Working Paper 2013-4 (February 2013).

2 We have reported on numerous issues that have hampered participants’ efforts to save 

for their retirement, such as fees, participant inertia, and limited financial literacy. For more 

on these issues, see GAO, 401(k) Plans: Labor and IRS Could Improve the Rollover 

Process for Participants, GAO-13-30 (Washington, D.C.: Mar. 7, 2013); 401(k) Plans: 

Increased Educational Outreach and Broader Oversight May Help Reduce Plan Fees, 

GAO-12-325 (Washington, D.C.: Apr. 24, 2012); 401(k) Plans: Improved Regulation Could 

Better Protect Participants from Conflicts of Interest, GAO-11-119 (Washington, D.C.: Jan. 

28, 2011); and Retirement Savings: Automatic Enrollment Shows Promise for Some 

Workers, but Proposals to Broaden Retirement Savings for Other Workers Could Face 

Challenges, GAO-10-31 (Washington, D.C.: Oct. 23, 2009).

 
 

Page 2 GAO-14-9 401(k) Plans

phase, or the spending down of retirement savings, because of the real 

possibility that some retirees may outlive their savings. Unlike 

participants in traditional defined benefit (DB) plans who are offered a 

specific periodic benefit for life at retirement, 401(k) plan participants must 

take responsibility for the complex decisions required in the spend-down 

phase. By 2015, participants whose retirement savings will be primarily 

made up of what they accumulated in their 401(k) plans, which were 

introduced in 1978, will be eligible to retire. Typically, 401(k) plan 

participants receive benefits as a lump sum payment and are thus 

primarily left on their own to manage their money in a way that ensures 

they do not outlive their retirement savings.3 Current regulatory efforts by 

the Department of Labor (DOL) and the Department of the Treasury 

(Treasury) have begun to focus on the spend-down phase as it has 

become clearer that workers in the United States are increasingly subject 

to financial risks in retirement that can cause them to either outlive their 

savings or to lower their standard of living.

The United States is not alone in facing this growing concern for retirees. 

Other countries with retirement systems dominated by DC plans similar to 

401(k) plans face the same problem of ensuring that plan participants 

effectively manage the spending of their retirement savings, whether 

under a mandatory or voluntary system. This is particularly important 

given the common challenges of low average balances of DC plan 

participants and the longer average life expectancies.4 Some countries 

have developed innovative approaches and strategies that can help 

participants better manage their DC plan savings throughout their lives, 

while the United States has just begun to explore ways to help 401(k) 

plan participants. As DOL and Treasury move forward, you expressed 

interest in potential lessons learned from countries that have addressed 

these issues. This report addresses the following questions:

 

3 In addition, in the United States, although DB plan participants must be offered a life 

annuity option at retirement, there is a growing trend in traditional DB plans to offer 

participants lump sum payout options. While we note that the challenge of managing the 

spend-down phase is not solely an issue for DC plans, the spend-down phase in the 

context of DB plans is outside the scope of this report.

4 According to the Organisation for Economic Co-operation and Development (OECD), 

between 1960 and 2010, the average life expectancy at age 65 increased by around 3.9 

years for men (from about 12.7 to 16.6 years) and 5.4 years for women (from about 14.7 

to 20.1 years), among OECD countries. Furthermore, the United Nations projects life 

expectancy at age 65 will increase to 20.3 years for men and 24.6 years for women in 

2050. 
 

Page 3 GAO-14-9 401(k) Plans

1. What approaches have other countries with DC plans taken to offer 

participants certain retirement spend-down options?

2. What key strategies are used in other countries with DC plans to help 

participants make sound spend-down decisions to improve retirement 

outcomes?

3. What approaches have other countries used to regulate and oversee 

spend-down options?

To answer these questions, we selected six countries with extensive or 

growing DC systems in which to conduct in-depth reviews of retirement 

spend-down phase strategies: Australia, Canada, Chile, Singapore, 

Switzerland,5 and the United Kingdom (U.K.). We selected these 

countries from an initial review of countries with well-developed account 

based retirement systems. In selecting these six countries, we considered 

if the country had (1) developed innovative spend-down phase policies or 

options; (2) a clearly defined and well-established oversight structure for 

the DC plan spend-down phase and providers, such as insurance 

companies, that offer spend-down products; and (3) an approach to the 

spend-down phase that was different from the other countries we 

selected. As part of our initial review, we interviewed and obtained 

comparative studies of DC systems published by academics, the 

Organisation for Economic Co-operation and Development, The World 

Bank, and other industry experts, such as international benefits consulting 

firms, as well as our prior work.6 We then examined the characteristics of 

each country’s DC system for policies, practices, and requirements 

related to retirement spend-down options. On the basis of this initial 

review, we determined that the six countries selected could potentially 

provide lessons for the United States given their experience and unique 

approach to the spend-down phase. For each of the six countries 

selected, we reviewed publicly available research and reports about each 

 

5 Most occupational retirement plans in Switzerland are hybrid plans that incorporate 

some DC features, such as individual accounts, within a DB plan structure. Switzerland 

mandates the rate of return credited to participants’ contributions during the accumulation 

phase as well as the terms for pricing annuities that participants can purchase with these 

savings.

6 GAO, Defined Contribution Plans: Approaches in Other Countries Offer Beneficial 

Strategies in Several Areas, GAO-12-328 (Washington, D.C.: Mar. 22, 2012); Private 

Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits, GAO-11-79

(Washington, D.C.: Oct. 18, 2010); and Private Pensions: Alternative Approaches Could 

Address Retirement Risks Faced by Workers but Pose Trade-offs, GAO-09-642

(Washington, D.C.: July 24, 2009).
 

Page 4 GAO-14-9 401(k) Plans

country’s spend-down options, oversight framework, and initiatives to 

educate participants about options. We also interviewed pension experts, 

service providers, regulatory agencies and other government officials 

from the countries selected. We did not conduct an independent legal 

analysis to verify the information provided about the laws, regulations, or 

policies of the foreign countries selected for this study. Instead, we relied 

on appropriate secondary sources, interviews with relevant officials, and 

other sources to support our work. We submitted key report excerpts to 

agency officials in each country for their review and verification, and we 

incorporated their technical corrections as necessary. To provide context 

for various spend-down options and illustrate some of the factors that can 

affect retirement income we designed a retirement model and 

hypothetical scenarios. To create this, we consulted with actuaries to 

develop a formula for pricing annuities based on benchmarks typically 

used by insurance companies in U.S. retail markets. We also reviewed 

data from the Federal Reserve Economic Database, including 10-year 

Treasury constant maturity rates, and Thrift Savings Plan to establish 

historical ranges for interest rates, inflation, and investment returns on 

401(k) accounts. Appendix I provides additional information on our scope 

and methodology.

We conducted this performance audit from June 2012 through November

2013 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.

Employers can sponsor two broad types of retirement plans, referred to in 

the Employee Retirement Income Security Act of 1974 (ERISA) as 

pension plans: (1) DB plans, which promise to provide benefits generally 

based on an employee’s years of service and frequently are based on 

salary, regardless of the performance of the plans’ investments, and (2) 

DC plans, in which benefits are based on contributions and the 

performance of the investments in participants’ individual accounts. Since 

the inception of ERISA, employers have shifted away from sponsoring DB 

plans and moved toward sponsoring DC plans. The dominant type of DC 

plan is a 401(k) plan. In 2011, U.S. employers sponsored over 510,000 

Background 

U.S. 401(k) Plans and 

Their Oversight 

Framework
 

Page 5 GAO-14-9 401(k) Plans

401(k) plans covering more than 61 million workers with more than $3.1

trillion in plan assets.7 Unlike DB plans, in which plan participants are 

eligible for a specific payment for life, 401(k) plan participants typically 

must make their own, sometimes complex, choices about their account 

balance both before and during retirement. For example, participants 

need to decide how much to contribute, how to invest, and how to spend 

down savings in retirement.

In the United States, 401(k) plans are subject to provisions of ERISA, 

which are generally enforced by DOL’s Employee Benefits Security 

Administration (EBSA) and Treasury’s Internal Revenue Service (IRS).8

To carry out its responsibilities under ERISA, EBSA issues regulations 

and other guidance. The IRS, under Title II of ERISA, and subsequent 

amendments to the Internal Revenue Code, generally is responsible for 

ensuring that plans meet certain requirements for tax qualification, among 

other things. Tax advantages are intended to encourage employers to 

establish and maintain pension plans and encourage employees to 

participate in the plans. For example, employer contributions to qualified 

plans are, within limits, tax deductible and, in general, contributions and 

investment earnings are not taxed as income until the employee 

withdraws them from the plan.

In recent years, EBSA and IRS have increased their focus on the 

decumulation phase of 401(k) plans, exploring ways to facilitate access to 

lifetime retirement income products, such as annuities. For example, in 

2008, EBSA issued a new safe harbor regulation for selecting annuity 

providers as an optional way for sponsors and other plan fiduciaries of 

DC plans to satisfy their responsibilities under ERISA to act prudently and 

in the interest of the plan’s participants and their beneficiaries.9

Subsequently, in 2010, EBSA and IRS sought public comments to aid the 

agencies in thinking about how they might facilitate access to and the use 

 

7 U.S. Department of Labor, Employee Benefits Security Administration, Private Pension 

Plan Bulletin: Abstract of 2011 Form 5500 Annual Reports, Version 1.0 (Washington, 

D.C.: June 2013).

8 Additionally, ERISA provides for the establishment of the ERISA Advisory Council to 

advise the Secretary of Labor and make recommendations on the Secretary’s functions 

under ERISA.

9 Selection of Annuity Providers—Safe Harbor for Individual Account Plans, 73 Fed. Reg. 

58,447 (Oct. 7, 2008)(codified at 29 C.F.R. § 2550.404a-4). 
 

Page 6 GAO-14-9 401(k) Plans

of lifetime income streams after retirement.10 More recently, IRS proposed 

a new regulation in February 2012 to encourage retirement plans to offer 

a longevity annuity option, also referred to by some as deeply deferred 

annuities, in which payments initiate at an advanced age, such as age 

80.11 This regulation has not been finalized.

In addition, other entities play a role in overseeing and monitoring 

insurance companies that sell annuities—guaranteed income payments 

for life or a specified term—either through 401(k) plans or in the retail 

market to individual investors. For example, state insurance regulators 

are responsible for enforcing state insurance laws and regulations, 

including those covering the licensing of agents, reviewing insurance 

products (including annuities) and their rates, and examining insurers’ 

financial solvency and market conduct. In addition to state insurance 

regulators, the National Association of Insurance Commissioners 

(NAIC)—a voluntary association of the heads of insurance departments 

from the 50 states, the District of Columbia, and five U.S. territories—

plays a role in insurance regulation. Although NAIC is not a regulator, it

provides guidance and services designed to more efficiently coordinate 

interactions between insurers and state regulators.12 Additionally, 

although the Federal Insurance Office (FIO) is not directly involved in the 

supervision of private and public pension plans, it has a role in 

coordinating and developing insurance policies. FIO advises the 

Secretary of the Treasury on domestic and international insurance policy 

issues; and consults with states regarding insurance matters of national 

and international importance. FIO also coordinates federal efforts and 

develops federal policy on prudential aspects of international insurance 

matters. For example, FIO has been working with international regulators 

to develop a methodology and indicators for identifying global 

systemically important insurers, meaning that their failure might threaten 

global financial stability.

 

10 Request for Information Regarding Lifetime Income Options for Participants and 

Beneficiaries in Retirement Plans, 75 Fed. Reg. 5253 (Feb. 2, 2010).

11 Longevity Annuity Contracts, 77 Fed. Reg. 5443 (Feb. 3, 2012)(to be codified at 26 

C.F.R. pt. 1). 

12 NAIC services include providing detailed insurance data to help regulators understand 

insurance sales and practices; maintaining a range of databases useful to regulators; and 

coordinating regulatory efforts by providing guidance, model laws and regulations, and 

information-sharing tools. 
 

Page 7 GAO-14-9 401(k) Plans

In addition to the United States, the selected countries for this review—

Australia, Canada, Chile, Singapore, Switzerland, and the United 

Kingdom—each have extensive or growing DC retirement systems. As 

shown in table 1, the key features of each country’s predominant DC plan 

vary.13

Table 1: Key Features of DC Plans by Country

Country Key features of DC system Contributions

DC assets

as a percentage of national

gross domestic product, 2011

Australia Mandatory plans are known as 

superannuation funds, which may be 

established by a single employer, groups 

of employers in an industry, financial 

service companies, or even by 

individuals themselves.

There is a mandatory employer 

contribution rate of 9.25 percent of an 

employee’s earnings, which is scheduled 

to gradually increase to 12 percent by 

2022. 

91.6%

Canada Employers can voluntarily sponsor 

plans, which may be administered by a 

single employer, groups of employers in 

an industry, or financial service 

companies.

Contribution rates by employer and 

employee vary by plan. DC plans typically 

require employee contributions of 5 

percent of earnings and matching 

employer contribution. 

2.8 

Chile Mandatory individual retirement plans 

are managed by for-profit entities called 

Administradoras de Fondos de 

Pensiones (AFP).

Employers are not required to contribute 

to a participant’s account.

Employees are required to contribute 10 

percent of applicable earnings and pay 

monthly administrative fees to their AFP.

61.3 

 

13 Countries we reviewed, including the United States, have taken steps to address the 

challenges of the accumulation phase for their participants. For example, in order to 

increase the adequacy of workers’ accumulations, Australia is increasing the level of 

mandatory employer contributions to DC plans, known as superannuation funds, from 

9.25 percent in 2013 to 12 percent by 2020. To increase participation and savings in DC 

and other employer-sponsored retirement plans, in October 2012 the United Kingdom 

began implementing a mandate on employers to automatically enroll workers into 

retirement plans and make contributions on their behalf. In the United States, to increase 

participation in 401(k) plans, Congress, IRS, and DOL took steps to promote the adoption 

of automatic enrollment and appropriate default investment options for the accumulation 

phase.

Key Aspects of DC 

Systems in the United 

States and Selected 

Countries 
 

Page 8 GAO-14-9 401(k) Plans

Country Key features of DC system Contributions

DC assets

as a percentage of national

gross domestic product, 2011

Singapore Mandatory plans are administered by the 

Central Provident Fund (CPF) Board.

For participants under age 50, employers 

are required to contribute 16 percent and 

employees 20 percent. From age 50 and 

older, rates gradually reduce to 6.5 

percent and 5 percent for the employer 

and employee, respectively at age 65. 

Contributions are credited to accounts for 

retirement and for other things, such as 

housing and health care.

62.9 

Switzerland Mandatory occupational plans, which are 

administered by independent 

foundations and may be sponsored by a 

single employer industry associations, or 

insurance companies. These plans have 

minimum rates of returns on savings and 

a minimum conversion factor for 

annuities.

Age-based contributions range from 7 

percent of income for younger employees 

to 18 percent for employees approaching 

retirement. Employers are required to pay 

at least half of these contributions.

a

110.3 

United 

Kingdom

Starting in October 2012, the United 

Kingdom began phasing in a 

requirement over 6 years that employers

automatically enroll workers in a plan 

and make contributions to it. These 

plans can either be governed by a board 

of trustees or under a contract set up 

between participants and a financial 

service company.

In 2013, minimum contributions were 2 

percent with at least 1 percent by the 

employer. These rates are scheduled to 

increase to 8 and 3 percent by October 

2018, respectively. 

25.2

United 

States 

Employers can voluntarily sponsor 

several types of DC plans. The most 

popular type of DC plan is 401(k) plan. 

These plans are administered by 

employers, who may hire private 

companies to service the plan.

Employers, employees, or both may make 

contributions to the individual employee 

accounts. Employers may choose to make 

additional contributions (such as

contributing a percentage of each eligible 

employee’s salary), match the amount 

contributed by the employee, or both. 

Under IRS tax rules, contributions are 

limited.

20.9 

b

Source: GAO analysis of foreign documentation, interviews with industry experts, and data from the International Monetary Fund World 

Economic Outlook September 2011 database. GAO did not conduct an independent legal analysis of the laws, regulations, or policies 

of the countries selected for this review.

a

Officials in Switzerland said the majority of plans in Switzerland are hybrid plans. These hybrid plans 

are similar to cash balance plans, which in the United States are legally classified as DB plans 

because participants’ benefits are determined by a benefit formula. However, a cash balance plan 

has certain features, such as notional or hypothetical “individual accounts,” that make it resemble a 

DC plan.

b

In the United States, the maximum annual limit for employee individual contributions to a 401(k) plan 

was $17,500 for 2013. The catch-up contribution limit for employees aged 50 and over was $5,500.
 

Page 9 GAO-14-9 401(k) Plans

At retirement, participants in DC plans enter the distribution, or spenddown phase, during which they use their savings to meet their retirement 

needs.14 DC participants are typically offered one or more of three main 

types of spend-down options at retirement, although the availability of 

these options and the rules related to their use vary by country: 

• Lump sum payments are a single distribution of some or all of a 

participant’s retirement savings. For example, in the United States, 

participants generally only have the option to withdraw all or part of 

their account balance, which can, at the participant’s discretion, then 

be used to invest in retail financial markets, among other things.

• Programmed withdrawals are a series of fixed or variable payments 

from a participant’s account and may be administered either within a 

plan or in retail financial markets.15 Programmed withdrawals attempt 

to produce relatively stable annual income for the lifetime of the 

retiree. For example, a participant could set up their own programmed 

withdrawal strategy and decide to draw down a certain percentage of 

their assets each month or year to meet their retirement needs. 

Governments could also set minimum and maximum drawdown limits.

• Annuities are guaranteed payments that are normally secured 

through a contract with an insurance company for either a set period 

or for the participant’s lifetime. Annuities come in a variety of forms.16

For example, deferred annuities allow participants to delay the start 

date of payments to a later point in retirement. Variable annuity 

 

14 Participants in 401(k) plans may make withdraws on their retirement savings account 

before retirement under certain limited conditions, typically referred to as leakage. For 

additional information on the incidence, amount, and relative significance of different forms 

of 401(k) plan leakages, see GAO, 401(k) Plans: Policy Changes Could Reduce the Longterm Effects of Leakage on Workers’ Retirement Savings, GAO-09-715 (Washington, 

D.C.: Aug. 28, 2009).

15 In the United States, programmed withdrawals may be referred to as “systematic 

withdrawals”.

16 This report provides examples of some annuities in the United States and countries we 

reviewed, and is not an exhaustive list of all types of annuities.

Retirement Spend-Down 

Options 
 

Page 10 GAO-14-9 401(k) Plans

payments are not guaranteed and vary based on the performance of 

underlying investments selected by the participant.17

Factors that affect annuity payment calculations can vary by country

Annuity payment amounts may depend on a number of factors beyond simply the amount 

of retirement savings a participant can use to purchase the annuity less fees charged by 

insurers. These factors vary by country and may, depending on the country, include such 

factors as:

• Age: Participants can generally expect to receive higher payments the higher the age 

at which payments commence.

• Gender: Men typically receive higher payments compared to women of the same age, 

since studies have shown that women tend to live longer than men. This may not 

apply, however, in countries and market sectors that require annuities to be offered 

on a gender-neutral basis—such as for an annuity offered through a plan in the 

United States. 

• Health: Participants with certain health conditions or lifestyle habits such as smoking 

can in some cases obtain higher payments.

• Interest rates: Participants who purchase annuities during periods of low interest rates 

may lock in lower payments than if they had purchased during a period of higher 

interest rates.

Participants face trade-offs in choosing among spend-down options 

because no single option protects against all the various risks participants 

may encounter in retirement, such as longevity18 and inflation risk. To 

choose suitable options, participants approaching retirement must weigh 

the strengths and shortcomings of each against their own unique 

retirement needs. They also need to consider their other sources of 

retirement income, including government benefits and personal savings.19

Table 2 illustrates some of the trade-offs participants face in choosing 

among spend-down options.

 

17 Variable annuities may include riders, such as guaranteed lifetime withdrawal benefits, 

to provide various protections or additional features, subject to certain restrictions. In the 

United States, these newer products have raised some questions about their cost, 

complexity, vesting rules, and protections of state guaranty associations, among other 

issues. For additional information about the consumer benefits and risks of newer annuity 

products in the United States, see GAO, Retirement Security: Annuities with Guaranteed 

Lifetime Withdrawals Have Both Benefits and Risks, but Regulation Varies across States, 

GAO-13-75 (Washington, D.C.: Dec. 10, 2012).

18 Longevity risk is the risk of living longer than anticipated at the time of retirement. In 

such cases, even large savings may be exhausted and prove inadequate.

19 In addition to government benefits and personal savings, in the United States, other 

potential sources of retirement income include other financial assets, such as pension 

income from DB and DC plans and nonfinancial assets such as home equity.
 

Page 11 GAO-14-9 401(k) Plans

Table 2: Examples of Trade-offs That Participants Face in Choosing among Spend-Down Options

Spend-down 

option Protects you against some risks But may expose you to others

Lump sum 

payments

• Provide immediate access to retirement savings, 

some of which can be used to pay off debt and 

cover the costs of unforeseen events, such as 

unexpected high medical costs.

a

• Unused savings can be left as an inheritance.

• Participant is responsible for ensuring that retirement 

savings last their lifetime.

• Lump sum payments do not protect against inflation.

b

• Participant assumes investment risk for any retirement 

savings they reinvest.

c

Programmed 

withdrawals

d

• Enable participants to keep retirement savings 

invested. e

• Offer flexibility to choose the level and timing of 

payments drawn from the plan, sometimes 

subject to any minimum or maximum 

requirements.

• Provide access to retirement savings to cover the 

costs of unforeseen events.

• Unused savings can be left as an inheritance.

• Payments from programmed withdrawals are not 

guaranteed to last for life.

• Programmed withdrawals do not protect against 

inflation.

• Participant assumes investment risk for retirement 

savings invested.

c

Annuities

f

• Provide regular payments that can be 

guaranteed to last the participant’s lifetime.

• Protect against investment risk, which the 

insurance company assumes.g

• The decision to purchase an annuity is often 

irreversible. When there is an option to discontinue an 

annuity, it may subject the participant to relatively high 

surrender charges.

• Retirement savings used to purchase an annuity 

cannot be left as an inheritance.

• The participant risks purchasing an annuity when 

interest rates are low, therefore receiving lower 

monthly payments than expected.

• Participant is at some risk of inflation unless they 

purchase a fully inflation indexed annuity.

Source: GAO analysis.

h

a

A participant who takes a lump sum payment from a plan may later, at the participant’s discretion, 

use these assets to purchase a retail annuity or invest in retail financial markets, among other things.

b

Depending on the tax treatment of retirement income, participants may also pay higher taxes by 

taking their retirement savings as a single payment in one year rather than as a series of payments 

spread over multiple years.

c

In taking a lump sum payment or a programmed withdrawal, the participant is responsible for 

identifying and developing strategies to protect against inflation, such as purchasing an inflation 

protected retail annuity or achieving the investment returns necessary, net of commissions and fees, 

to finance increasing withdrawals.

d

Participants can in some cases maintain preferential tax treatment on their retirement savings by 

rolling such savings into an individual retirement account (IRA), but as we have previously reported, 

the rollover process can be confusing for participants. See GAO-13-30. 

e

In the United States, there is some limited indication that plan sponsors may allow participants to set 

up a programmed withdrawal within a 401(k) plan. We previously found that 401(k) plans generally 

have lower fees and better comparative information, as well as fiduciary requirements for selecting 

and managing investment options relative to IRAs, see GAO-13-30. 

f

Another factor affecting the sustainability of programmed withdrawals is the sequence of investment 

returns—in other words, the order in which years of positive and negative investment returns occur—

during the drawdown period. See GAO, Retirement Income: Ensuring Income throughout Retirement 

Requires Difficult Choices, GAO-11-400 (Washington, D.C.: June 7, 2011).
 

Page 12 GAO-14-9 401(k) Plans

g

This is not the case for variable annuities. Payments for variable annuities vary based on the 

performance of investments. The insurance company continues to assume the longevity risk, but the 

investment risk is transferred to the annuitant.

h

Increasing payment annuities generally provide some protection against rising prices, but may not 

fully protect against inflation. For example, according to the Insured Retirement Institute, very few life 

insurance companies offer true inflation-protected annuities in the United States.

To effectively weigh the trade-offs between spend-down options, 

participants have to understand how interest rates, investment returns, 

and inflation, among other key factors, can affect their retirement income. 

Figure 1 below illustrates how investment returns can affect the 

retirement income a programmed withdrawal provides. In contrast, an 

annuity, once purchased, protects against investment risk over the course 

of retirement. Purchasing an annuity, however, may be irreversible, 

thereby potentially limiting the ability to leave an inheritance or cover 

unforeseen costs in retirement. And interest rates at the date of purchase 

can affect the size of payments from an annuity. In all cases, even 

modest inflation can erode the purchasing power of retirement income 

over the course of an extended retirement.
 

Page 13 GAO-14-9 401(k) Plans

Figure 1: Hypothetical Projection of Monthly Retirement Income for a 65-Year-Old 401(k) Plan Participant

Note: Annuities in this example convert 401(k) savings of $200,000—the average 401(k) plan balance 

for individuals in their 60s with 30 years of contributions, according to an Employee Benefit Research 

Institute analysis of 401(k) balances at the end of 2011—into monthly retirement income for a 65-year 

old male assuming interest rates of 2 percent. We selected this interest rate based on federal Thrift 

Savings Plan annuity rates as of May 2013. The programmed withdrawals in the figure provide 

monthly income totaling 4 percent of the participant’s account balance each year assuming annual 

investment returns of either three or seven percent. These returns are in line with average 10-year 

historical returns on Thrift Savings Plan funds that track major U.S. stock, corporate bond, and 

government securities indices. There is no assurance that future investment returns will match 

historical returns. This example does not account for inflation, which reduces the purchasing power of 

retirement income. Projected monthly income does not reflect any federal income taxes on 

distributions from tax-deferred accounts. This example also does not account for changes in behavior 

in response to investment returns, such as increasing the rate of withdrawals in order to maintain a 

standard of living or reducing the rate of withdrawals when faced with the prospect of running out of 

savings.

To see the effect these factors can have on retirement income from the three main spenddown options, see the interactive retirement model available at 

http://www.gao.gov/products/GAO-14-9. 
 

Page 14 GAO-14-9 401(k) Plans

In the last decade, some experts have emphasized an aspect of 

behavioral economics to help improve retirement outcomes for 

participants in 401(k) plans. In these plans, individuals face greater 

responsibility and risks in managing their retirement income needs both 

during the accumulation and spend-down phases, such as having 

insufficient savings to support a comfortable retirement and not having 

the right tools to make sound financial decisions about how to use what 

they have accumulated.20 Our prior work found literature arguing that 

information or financial education, including improving financial literacy, is 

not necessarily the best or only approach to ensuring good retirement 

outcomes. They have proposed alternative strategies, sometimes in 

combination with information and financial education, that aim to help 

participants reach financial goals by making use of insights from 

behavioral economics—which blends economics and psychology—that 

indicate people are often prone to inertia and procrastination, and have 

difficulty processing complex information. For example, participants in 

401(k) plans do not always receive timely, clear information to help them 

understand their options, as well as the risks and trade-offs of managing 

income throughout retirement. Even when such information is available, 

participants do not always make choices that are in their best interest. 

Insights from behavioral economics have led to strategies that use inertia 

to bolster or facilitate positive policy outcomes, such as default enrollment 

in 401(k) plans to increase retirement savings. Researchers and 

practitioners have proposed similar interventions for the spend-down 

phase, such as encouraging or “nudging” some participants toward 

annuitizing a portion of their retirement wealth.

 

20 Possible explanations for low savings rates—even in countries where participation in 

retirement plans is mandatory—include low incomes, which constrain an individual’s ability 

to save for retirement in light of more short-term competing demands, and discontinuous 

or interrupted work histories, where unemployment or exiting the labor market may be due 

to childbearing or care giving needs and can interrupt retirement plan contributions. Where 

participation is voluntary, plan coverage may be low, because employers may not be 

offering a pension plan, or even if they do, employees may not join, or may choose to opt 

out if they are automatically enrolled.

Strategies to Improve 

Retirement Outcomes 

Have Relied on Behavioral 

Economics 
 

Page 15 GAO-14-9 401(k) Plans

Although DC systems in countries we reviewed often varied in their 

features, structure, and regulatory oversight,21 all six countries ensured 

that participants have institutionally-facilitated access to a mix of spenddown options through their plans to help them manage retirement risks.22

Five of the six countries make the three main spend-down options—lump 

sum payments that offer participants flexibility to access and use their 

retirement savings, programmed withdrawals that allow participants to 

keep their account balances invested and draw on savings as needed, 

and annuities that offer guaranteed retirement income and protection 

against investment risk—explicitly available to DC participants. The 

countries we reviewed also allow participants to combine spend-down 

options to meet changing needs over the course of an extended 

retirement. For example, within certain conditions, participants in 

Singapore can take a partial lump sum after age 55 and purchase an 

annuity that guarantees them some amount of retirement income for life. 

Other sources of retirement income, such as those from national pension 

systems, can address some retirement risks, but all the countries we

reviewed recognize the importance of their DC system in improving 

retirement outcomes and have taken steps to increase participant access 

to multiple spend-down options. For example, Switzerland has a national 

 

21 Each country’s retirement system reflects that country’s unique historical and political 

experience, making generalizations difficult. For example, widespread choice by 

participants of lump sum payments in Australia may in part reflect the country’s longstanding tradition of providing retirement benefits in a single payment, a practice that 

predates Australia’s current mandated DC system.

22 GAO did not conduct an independent legal analysis of the laws, regulations, or policies 

of the countries selected for this study.

Countries Used 

Multiple Approaches 

to Broaden 

Participants’ 

Retirement Options 

for the Spend-down 

Phase 

Instituting Multiple Spenddown Options Helped 

Participants Address 

Varied and Changing Risks
 

Page 16 GAO-14-9 401(k) Plans

pension system that provides some level of guaranteed retirement 

income, similar to the annuity option available to participants through their 

plan. Even with this system in place, in 2005 Switzerland required plans 

to offer participants at least 25 percent of their account balance as a lump 

sum payment, an option that had previously only been made at the 

discretion of the plan. One financial advisor we spoke with told us this 

policy change benefits participants who decide they already have 

sufficient retirement income and would accept lower annuity payments 

through their plan in exchange for more access to their savings at 

retirement.

National pension system in Switzerland

Switzerland’s national pension system has two components: an earnings-related public 

pension funded mainly by payroll contributions and an income-tested supplementary 

benefit funded by general revenues. Payment amounts for the earnings-related benefit are 

based on lifetime earnings. Payments in retirement are indexed to prices and earnings. 

For information about the national pension systems in the other countries we reviewed, 

see appendix II.

Source: The World Bank and OECD. 

Historically, five of the six countries tended toward one spend-down 

option,23 but all have more recently expanded access to additional 

options, in some cases substantially altering the retirement decisions of 

participants, as shown in figure 2. For example, Canada had traditionally 

“locked in” participants’ assets for the purpose of securing a stream of 

retirement income, which participants could previously only do by 

purchasing an annuity. In the 1990s, however, Canada expanded the 

spend-down options that would meet this locking-in requirement to 

include programmed withdrawals.24 Government officials and a financial 

professional in Canada told us this was done in response to participants’ 

reluctance to lose access to their assets and their desire to leave an 

inheritance. Programmed withdrawals have since become the most 

widely used spend-down option in Canada.

 

23 Chile instituted pathways to all three main spend-down options at the inception of their 

DC system in 1981.

24 Retirement plans in Canada are generally regulated at the provincial level, so policies 

such as locking-in provisions requiring participants to purchase an annuity vary by 

province.
 

Page 17 GAO-14-9 401(k) Plans

Figure 2: Timeline of Key Retirement Spend-down Policy Changes in Six Countries Leading to Facilitated Access to Multiple 

Options for DC Plan Participants

Note: GAO did not conduct an independent legal analysis of the laws, regulations, or policies of the 

countries selected for this study.

a

The introduction in some jurisdictions of programmed withdrawal arrangements with maximum limits 

on withdrawals gave participants an alternative to purchasing an annuity at retirement to meet 

Canada’s restrictions on drawing down DC plan assets. Previously, participants could only meet 

these restrictions by purchasing an annuity.

b

Switzerland does not offer programmed withdrawals as a spend-down option for participants.

While each of the six countries we reviewed has multiple spend-down 

options to help DC plan participants tailor a retirement income strategy to 

fit their unique circumstances, in the United States, 401(k) plans generally 
 

Page 18 GAO-14-9 401(k) Plans

only offer participants one option—a lump sum payment—leaving 

participants on their own to identify and develop strategies to manage 

retirement risks.25 Although some 401(k) plan sponsors may offer all three 

of these options to participants, most do not offer annuities or 

programmed withdrawals similar to the systematic or formalized options26

offered in other countries.27 As a result, U.S. plan participants typically 

take a lump sum payment, and then have to make difficult choices in 

order for their financial assets to last throughout retirement.

We also found that three of the six countries conducted reviews of 

participants’ retirement needs and concerns in the spend-down phase, 

which resulted in governments taking actions that led to additional spenddown options to meet those specific needs. For example, in 2007 and 

2008, Singapore conducted a review of its retirement phase and 

determined a programmed withdrawal option designed to last 

approximately 20 years was not adequate to meet the needs of many 

participants based on their increasing longevity (see fig. 3 for the key 

steps taken.)28 Singapore consulted with a broad spectrum of 

 

25 In the United States, participants who do not have access to annuities or programmed

withdrawals through their plan may roll over their account balance into an IRA, where they 

can develop their own systematic withdrawal strategy, or purchase an annuity in the retail 

market.

26 U.S. participants that remain invested in their 401(k) plan past age 70 1⁄2 are required to 

comply with certain provisions of the Internal Revenue Code that set required minimum 

distributions from tax-deferred accounts, such as 401(k) plans, generally by April 1 in the 

year following the year in which the participant reaches age 70 1⁄2. Although considered a 

minimum distribution, this is different than the formalized programmed withdrawals that 

other countries offer to participants when retiring prior to age 70.

27 According to an IRS survey of 1,200 randomly selected plan sponsors, for plan years 

2006 through 2008 only 38 percent of 401(k) plans in the United States offered 

programmed withdrawals, only 19 percent offered qualified joint and survivor annuities, 

and only 11 percent offered single life annuities. The total percent of plans offering some 

kind of annuity may be less than 30 percent because the percentages may include plans 

that reported offering both qualified joint and survivor annuities and single life annuities. 

Department of the Treasury, IRS Tax Exempt and Government Entities Division, Section 

401(k) Compliance Check Questionnaire: Final Report, (Washington, D.C.: March 2013). 

28 Singapore appointed a committee in 2007 to study the needs of participants and design 

government-managed annuities. The committee examined mortality data in Singapore and 

found that more than half of participants were at risk of outliving their programmed 

withdrawals if they retired at age 65. The committee created retirement simulations 

comparing retirement provided by the existing programmed withdrawal option against that 

of the proposed annuities under varying conditions.

Countries Undertook 

Reviews of the Spenddown Phase to Help 

Address Participants’ 

Retirement Needs
 

Page 19 GAO-14-9 401(k) Plans

stakeholders, including working adults, community and social sector 

leaders, and insurance companies and industry associations, in designing 

a new spend-down option to better meet participants’ needs. Singapore 

concluded from this consultation that Singaporeans wanted an annuity 

scheme that provided an income for life and that would replace the 

programmed withdrawal option, where payouts stop completely after 

about 20 years. As a result, in 2009 Singapore began offering 

government-managed annuities, known as the Central Provident Fund 

Lifelong Income Scheme for the Elderly (CPF LIFE), on an opt-in basis. In 

2013, Singapore set one of these CPF LIFE annuities as the default 

option for certain participants.

Figure 3: Steps Singapore Took to Strengthen Pathways to Multiple Spend-down Options

Note: GAO did not conduct an independent legal analysis of the laws, regulations, or policies of the 

countries selected for this study.

a

Participants can discontinue their annuity and get a refund of their premium less any monthly 

payments already made and a fee.

Similarly, the United Kingdom undertook a review to address concerns 

with the spend-down phase, which resulted in policy changes that 

provided increased flexibility for participants to choose how to spend 

down their account assets. Specifically, the United Kingdom determined 

that its long-standing rules that effectively required individuals to 

purchase an annuity by the age of 75 were too restrictive for an 

increasing number of participants—who were both living longer and 

working longer—and for some was acting as a barrier to saving in DC 
 

Page 20 GAO-14-9 401(k) Plans

plans. As part of the review, the United Kingdom consulted with a range 

of stakeholders, including individuals, service providers, and industry and 

consumer representatives, on how to ensure that participants make 

appropriate spend-down choices in the absence of the annuity 

requirement. Based on this review, the United Kingdom removed its 

annuitization requirement in 2011, making this option voluntary, and 

expanded access to programmed withdrawals in order to give participants 

more flexibility to choose spend-down options that best suit them.29 As a 

result, participants can remain invested in their plans and manage the 

timing and amount of withdrawals from their plans, within certain 

limitations, or delay the purchase of an annuity until interest rates are 

more favorable. Government officials and experts we spoke to agreed 

that most participants at present have not accumulated sufficient 

retirement savings to be eligible for and make full use of programmed 

withdrawals as a spend-down option.30 According to government officials 

and one financial service provider, annuities remain the most widespread 

form of distribution from DC plans in the United Kingdom.31 Despite 

current low rates of saving, the structure is in place to give workers more 

flexibility in planning for retirement as the DC system in the United 

Kingdom matures and workers accumulate larger account balances.

 

29 The government also cited participants’ negative perceptions of annuities as a reason 

for this change. The government attributed these perceptions in part to a decline in the 

size of payments from annuities in response to falling interest rates and increases in 

longevity. The government also attributed negative perceptions to a lack of understanding 

about how annuities work. Regulators, policymakers, and the pension industry in the 

United Kingdom have taken steps to raise awareness among participants about strategies 

for getting more income from annuities, for example, by shopping for annuities that 

provide larger payments to individuals with certain health conditions or lifestyles that may 

reduce their longevity. Sales of enhanced annuities, which are annuities that provide 

larger payments because the annuitant has a shorter life expectancy, have grown rapidly 

since their introduction in 1995. According to Towers Watson, sales of enhanced annuities 

increased from £419.6 million ($635.8 million) in 2001 to nearly £4.5 billion ($6.8 billion) in 

2012.

30 In order to take programmed withdrawals without restriction, known as flexible 

drawdown, participants must document that they have a secure pension—for example, 

from an annuity—of at least £20,000 (about $30,300) per year. Participants that do not 

meet this requirement may take capped drawdowns, generally limited to 120 percent of 

the value of an equivalent single-life level annuity. 

31 According to the financial service provider, in 2011, programmed withdrawals 

accounted for about £2 billion ($3 billion) in DC plan distributions, whereas annuities 

account for about £12 billion ($18.1 billion). See Mark J. Warshawsky, DC Plan Payout 

Practices and Policies in Canada, Switzerland, U.K., Australia, and Singapore, Towers 

Watson Insider (Arlington, VA: January 2013). 
 

Page 21 GAO-14-9 401(k) Plans

In the United States, as shown in figure 4, similar to the steps taken by 

some of the other countries, DOL and Treasury have recently begun to 

explore the possibility of expanding 401(k) participants’ access to spenddown options through their plans that offer lifetime income, but they have 

not yet made a concerted effort to help plan sponsors offer a mix of 

options to their participants. Most 401(k) plans typically only offer 

participants the option to take their benefits as lump sum payments, 

which leaves participants on their own, or to the retail market, to ensure 

their savings last throughout retirement. In recognition of the potential risk 

workers face under current conditions, DOL and Treasury undertook 

efforts in 2010 to collect detailed information from the public to determine 

what, if any, steps they could take to enhance the retirement security of 

401(k) plan participants by facilitating access to, and use of, options 

designed to provide a stream of lifetime income after retirement.32

Through this process, DOL and Treasury received feedback from 

financial service providers and other stakeholders on the challenges plan 

sponsors face in offering a mix of spend-down options to participants 

through their respective plans.33 But the feedback also highlighted some 

existing flexibilities 401(k) plan sponsors have to offer multiple spenddown options. One large service provider described a range of spenddown options it offers participants, including programmed withdrawals 

and investment strategies that generate retirement income, such as 

mutual funds designed with built-in payment streams. Another service 

provider discussed how technology enables sponsors to offer participants 

access to competitive online annuity markets that can provide the benefit 

of competition and improved pricing at a reasonable cost.

 

32 See 75 Fed. Reg. 5253 (Feb. 2, 2010). The agencies asked for information on issues 

such as advantages and disadvantages of receiving benefits in the form of lifetime 

payments, types of lifetime income products currently available to participants through 

their plan, and regulatory barriers to offering lifetime income, among other issues. In 

September 2010, DOL and Treasury held a joint hearing to discuss their request for 

information and further consider specific issues relating to spend-down options intended to 

produce retirement income for participants.

33 For example, one respondent said that IRS rules requiring minimum distributions from 

401(k) plans beginning at age 70 1⁄2 can act as a barrier to some lifetime income options 

such as “deeply” deferred annuities that begin payments at an advanced age, such as 80 

or 85. Respondents also described challenges for participants in comparing annuity prices 

and features. Respondents also cited participants’ reluctance to choose lifetime income 

options even when they are made available, which some attributed to a lack of 

understanding of these options.

U.S. Regulators Have 

Begun to Explore the 

Spend-down Phase, but 

Have Not Yet Strengthened 

Access to a Mix of Spenddown Options
 

Page 22 GAO-14-9 401(k) Plans

Figure 4: Steps DOL and Treasury Have Taken to Explore Spend-down Options for DC Plan Participants

a

For example, DOL is considering developing a rule that would require a participant’s account 

balance to be expressed on his or her benefit statement as an estimated lifetime stream of payments. 

Pension Benefit Statements, 78 Fed. Reg. 26,727 (May 8, 2013).

Since 2010, DOL and Treasury have begun taking steps to improve the 

information participants receive about the spend-down phase and expand 

access to spend-down options. For example, in May 2013, DOL proposed 

rules that would require 401(k) participants’ benefits statements to show 

how their account balances would translate into a stream of lifetime 

income payments.34 And in February 2012, Treasury proposed rules that 

would make it easier to purchase deeply deferred annuities.35 However, in 

contrast to the steps taken by other countries, DOL and Treasury have 

 

34 These lifetime payment projections would be based on both the current value of their 

account and the projected value of their account balance at the normal retirement age. As 

part of this advance notice of proposed rulemaking, DOL requested comments from the 

public on whether and how this could be done. Pension Benefit Statements, 78 Fed. Reg. 

26,727 (May 8, 2013). 

35 Longevity Annuity Contracts, 77 Fed. Reg. 5443 (Feb. 3, 2012)(to be codified at 26 

C.F.R. pt. 1). At present, 401(k) participants who use a portion of their account balance to 

purchase a deeply deferred annuity may risk violating IRS rules requiring minimum 

distributions from IRAs beginning at age 70 1⁄2. In April 2013, the Australian government 

announced that it would encourage the take-up of deferred annuities by providing these 

products with the same concessional tax treatment that superannuation assets in 

programmed withdrawal products receive. This reform, which was to apply starting on July 

1, 2014, has not yet been implemented. 
 

Page 23 GAO-14-9 401(k) Plans

not yet used the information they collected to develop and implement a 

strategy that would help 401(k) plan sponsors leverage existing 

flexibilities and address challenges in offering their participants a mix of 

spend-down options that meet varying retirement needs. Without 

additional steps by U.S. regulators to help ensure sponsors are providing 

participants with access to a mix of options, most 401(k) plan participants 

are likely to continue taking a lump sum payment at retirement, 

regardless of whether this option is the most appropriate to meet their 

particular needs. By doing so, participants are at risk of either spending 

their assets too quickly and outliving their savings, or being too 

conservative with their assets, forcing them to accept a lower standard of 

living than necessary. Low rates of saving for retirement in the United 

States highlight the need to make the most of participants’ 401(k) account 

balances. Simulations conducted by the Employee Benefit Research 

Institute in 2010 indicate that nearly half of workers in the United States 

above the age of 35 may be at risk of not having enough retirement 

income to meet their needs. Moreover, this problem may be more acute 

for those with lower incomes. When ranked by pre-retirement income, 

households in the lowest one-third may be at risk more than 70 percent of 

the time. Although all of the countries we reviewed are similarly coping 

with the challenge of small account balances, we found that offering a mix 

of options allows participants to select options that can best meet their

unique circumstances.
 

Page 24 GAO-14-9 401(k) Plans

Most of the countries we reviewed used various mechanisms such as 

communicating simple and consistent information in a timely manner to 

help participants make more informed spend-down decisions.36 For 

example, in Australia, the government developed a booklet for 

participants that lays out the various spend-down options as they 

approach retirement with simple illustrative examples, together with the 

benefits and drawbacks of each, as shown in figure 5.37 As a result, 

participants have access to information to plan for retirement by weighing 

the pros and cons of different ways to manage and make the most of their 

retirement savings.

 

36 GAO did not conduct an independent legal analysis of the laws, regulations, or policies 

of the countries selected for this study.

37 Australian Securities and Investments Commission, “Financial Decisions at Retirement: 

How to make the most of your money and avoid costly mistakes,” accessed July 26, 2013, 

www.MoneySmart.gov.au. 

Strategies Used by the 

Countries We Studied 

Helped Participants 

Make More Informed 

Decisions 

Several Approaches Used 

by Other Countries to 

Increase Participants’ 

Knowledge and 

Understanding of Spenddown Options Could Help 

DOL’s Efforts to Provide 

Information 
 

Page 25 GAO-14-9 401(k) Plans

Figure 5: Example of Information on Spend-down Options Developed for Participants Approaching Retirement in Australia

Additionally, in the United Kingdom, plans are required to send a “wake 

up” information pack to participants 4 to 6 months before their retirement 

date that explains the key spend-down options, which has helped 

participants better understand their options.38 The pack is also used to 

 

38 In particular, the pack highlights the various annuity options, including the enhanced 

annuities that potentially offer a much higher income for individuals with health or lifestyle 

conditions that may result in a shorter life expectancy.
 

Page 26 GAO-14-9 401(k) Plans

help plans meet the requirement to inform participants of their right to buy 

an annuity from a provider other than the one that holds their pension 

savings. In consultation with the government, the Association of British 

Insurers (ABI) developed a code of conduct, which requires its 

members—insurance companies—to communicate certain information to 

participants.39 According to ABI’s code of conduct, as shown in figure 6, 

the information in the pack should be in plain, clear language and include 

a cover letter detailing the participant’s options and additional literature, 

such as a brochure on retirement facts by the U.K. government. It points 

participants to sources of advice and support, such as regulated advisers 

and independent advice organizations. In addition, the U.K. financial 

regulator requires that plans send participants a follow-up pack 6 to 10 

weeks prior to retirement, which emphasizes the need to make a 

decision, among other things. ABI expects its members, who are service 

plan providers, to send participants communications that are in line with 

these practices. U.K. pension regulators told us that they also expects 

trust-based plan communications to meet the standards developed by the 

ABI, so participants in plans administered by trusts and insurance 

companies receive comparable information. According to a 2009 ABI 

study, the wake up pack increased the proportion of participants feeling 

quite or very comfortable about understanding their retirement options 

from 70 to 80 percent.40 Their study also found that participants generally 

thought the information in the pack was relevant to their situations. In 

addition, a 2013 ABI study found that 85 percent of people who read preretirement information agreed that information from their provider made 

them more aware of their options at retirement.41

 

39 ABI is a trade association made up of insurance companies in the United Kingdom. It 

has over 300 member companies, accounting for 90 percent of the U.K. insurance market. 

The associations speaks on behalf of U.K. insurers and works work with government, 

regulators and policymakers—both in the United Kingdom and internationally—to ensure 

the insurance industry meets the highest standards. ABI, Consumers in the Retirement 

Income Market: Code of Conduct on Retirement Choices (London, U.K.: March 2012).

40 Kevin Crouch, Ian Sparham, and Richard Fincham, Pre-retirement Wake-up Pack: 

Results of Customer Research, ABI Research Paper No 18 (London, U.K.: ABI, 2009).

41 Kevin Crouch, Gemma Allen, Fiona Whitehead, Anthony Carter and Rachel Levy, 

Retirement Choices: Baseline to Measure Effectiveness of the code of Conduct, ABI, 

(London, U.K., May 2013).
 

Page 27 GAO-14-9 401(k) Plans

Figure 6: United Kingdom Cover Letter Example of Best Practices for Communicating Spend-down Decisions and Options to 

Participants
 

Page 28 GAO-14-9 401(k) Plans

Countries we reviewed did not rely solely on the disclosure of information 

but also found ways to show how the information provided to participants 

applied to their particular circumstances. In particular, two of the six 

countries—Chile and the United Kingdom—help participants see how 

their savings would translate into a stream of retirement income by 

requiring plans to provide participants with monthly or yearly projections 

in their benefit statements, a comparison which can be useful for making 

retirement decisions.42 Since 2005, Chile has required pension plans to 

estimate retirement income in the annual statements using multiple 

assumptions about the participant’s expected retirement date, as shown 

in figure 7. For older participants about 10 years from retirement, one 

estimate assumes the participant stops working at the normal retirement 

age, while a second estimate assumes that the participant postpones 

retirement and continues to make contributions for 3 more years.43

According to Chilean pension officials, the aim of these scenarios is to 

help participants compare their current income to expected future 

retirement income and to encourage them to make additional voluntary 

contributions in case their retirement income looks low. In fact, a 2011 

study of the impact of providing these personalized pension projections to 

Chilean participants suggests that the receipt of this information resulted 

in participants making additional contributions to improve their retirement 

prospects.44

 

42 Similarly, the Australian Securities and Insurance Commission issued new guidelines in 

2011 for DC plans that choose to include retirement estimates in participants’ annual 

benefit statements. These estimates supply the projected retirement savings in a lump 

sum format at age 65 and the annual stream of income that this lump sum balance is 

expected to provide from age 65 to 90.

43 For younger workers, their statements will include estimates of expected pension 

income under two scenarios where the participant (1) makes no additional contributions 

and (2) continues contributing until the normal retirement age.

44 Eduardo Fajnzylber and Gonzalo Reyes, Knowledge, Information and retirement saving 

decisions: Evidence from a large scale intervention in Chile, Working Papers from Adolfo 

Ibáñez University, School of Government (May 2011).
 

Page 29 GAO-14-9 401(k) Plans

Figure 7: Example of Chile’s Benefit Statement Illustrating Projected Income

Finally, enabling participants to compare across various spend-down 

options and products within an option also helps them to plan for 

retirement. For example, we found that two of the six countries—Chile 

and the United Kingdom—provide electronic quotations to help nearretirees make informed decisions.

• The Chilean government introduced its central electronic quotation 

system (SCOMP)45 in 2004, which lowers participant search costs and 

gives them easy access to transparent, reliable information by 

showing different spend-down options in a comparable format. The 

SCOMP offers individuals who are ready to retire comparable 

quotations for the programmed withdrawals and annuity options in a 

single document replacing the traditional way people looked for and 

bought retirement products through brokers. The SCOMP has 

 

45 SCOMP is the Spanish acronym for Electronic Consultation and Offer System for 

Annuities and Phased Withdrawals.
 

Page 30 GAO-14-9 401(k) Plans

enabled participants to more easily receive a larger amount of quality 

information by making all possible offers available to them without the 

need to hire financial intermediaries such as sales agents and 

brokers.46

• A similar benefit is available in the United Kingdom through the Money 

Advice Service47 set up by the government, which allows participants 

to compare a range of illustrative annuity quotes on a voluntary basis. 

This service offers free and unbiased advice on financial matters. 

Specifically, Money Advice Service’s website provides comparable 

annuity quotes from participating insurance companies, once an 

individual answers a set of standard questions. The individual is then 

presented with a table listing insurance companies and his or her 

annuity quotes, both in monthly, quarterly, and yearly amounts. The 

U.K. developed the service to provide those who do not know how to 

or cannot afford to get advice about annuities from other sources, 

particularly those with relatively small account balances. U.K. 

regulators told us that although participants may benefit from seeing 

quotes, most participants’ plan balances are too small for the service 

to be useful for them. However, this service may become more 

important as more workers are automatically enrolled in plans and 

assets grow.48

 

46 Although all quotes appear in one document, many participants seem to have difficulty 

making a decision about the spend-down option by themselves and often use a financial 

intermediary to help, according to focus groups conducted by the Chilean government. As 

a result, the government is taking steps to simplify and shorten the document. SCOMP 

was introduced to increase transparency but also competition among annuity providers. 

47 The Money Advice Service was set up as an independent body in April 2010 as the 

Consumer Financial Education Body, which was established under the Financial Services 

Act in 2010 with statutory functions to enhance people’s understanding and knowledge of 

financial matters, and their ability to manage their own financial affairs. The Money Advice 

Service was launched in April 2011 with online, telephone, and United Kingdom-wide 

face-to-face services.

48 Since 2012, most U.K. employers were required to automatically enroll some or all of 

their workers into a qualifying plan that meets certain minimum standards and pay 

contributions on their behalf. The U.K. government established the National Employment 

Savings Trust (NEST) to help employers meet this new requirement. According to a report 

by the U.K. Department for Work and Pensions, NEST is a low-cost, trust-based, 

occupational pension scheme focused on people with low to moderate earnings and 

employers that the existing pensions industry does not serve well.
 

Page 31 GAO-14-9 401(k) Plans

In the United States, plans must provide participants certain disclosures 

related to their benefits and options under the plan. For example, benefit 

statements with the individual’s account balance are required to be 

provided to 401(k) plan participants at least quarterly.49 However, the 

disclosures do not require that participants receive information about their 

spend-down options before they make a decision. As a result, 401(k) plan 

participants may lack key information, such as the benefits and 

drawbacks of various spend-down options, needed to make an informed 

decision, and which could affect their retirement outcomes. In addition, 

although plan sponsors are permitted to provide information and 

education to participants, there is no specific guidance for sponsors to 

provide participants approaching retirement with information on spenddown options. Consequently, some plan sponsors may not provide 

participants with sufficient information, which may result in participants 

potentially making decisions that fail to sustain their incomes throughout 

retirement.

DOL has begun to consider including lifetime income projections in 

benefit statements, which may yield positive outcomes for participants. 

Currently, 401(k) plan benefit statements generally only show a 

participant’s account balance, and according to DOL officials participants 

may have difficulty predicting how long their savings will last. An April 

2013 study funded by DOL found that more than half of a sample of plan 

statements did not include projections of the participant’s balance at 

retirement, estimates of the retirement income they might be able to 

expect at retirement, or the “relationship between future outcomes and 

current savings or investment behavior.”

50 In May 2013, DOL announced 

that it was considering developing proposed regulations regarding DC 

plan benefit statements, and solicited public comments to inform its 

 

49 The administrator of an individual account plan shall provide a pension benefit 

statement at least quarterly to a participant or beneficiary in a participant-directed 401(k) 

plan and annually to participants or beneficiaries who have accounts in which they do not 

have the right to direct the investments of assets in those accounts. 29 U.S.C § 

1025(a)(1)(A)(i) and (ii).

50 Jack Clift, Lauren A. Fleishman-Mayer, Angela Hung, Caroline Tassot, and Joanne 

Yoong, Designing Better Pension Benefit Statements: Current Status, Best Practices and 

Insights from the Field of Judgment and Decisionmaking (RAND Corporation, April 19, 

2013). 
 

Page 32 GAO-14-9 401(k) Plans

thinking as it considers possible regulatory proposals.51 One idea is to 

show a participant’s current account balance and an estimated lifetime 

stream of payments based on such balance, assuming the participant is 

at normal retirement age as of the date of the statement, even if he or she 

is younger. The second idea is aimed at participants who have not yet 

reached normal retirement age, which shows a projected account balance 

at normal retirement age and then converts to an estimated lifetime 

stream of payments. As shown in Chile, including lifetime income 

projections on plan statements, similar to those being considered by DOL, 

can help participants envision and understand the lifetime monthly 

income that can be generated from an account balance.

Recognizing that disclosure of information alone is not always sufficient to 

ensure good retirement outcomes, several countries also use subtle 

incentives or nudges to promote particular kinds of behavior. In particular, 

two countries we reviewed—Singapore and Switzerland—use defaults to 

exploit inertia and promote a specific option.52 In Switzerland, for 

example, some plans use annuities as the default spend-down option 

allowing for the possibility of opting out. One study suggests the take-up 

rate of annuities is higher in such plans relative to those where the lump 

sum option is the default.53 In contrast, the United Kingdom is attempting 

to address participants’ inertia in shopping for annuities. Until recently, 

most participants purchased an annuity from their existing service 

 

51 Pension Benefit Statements, 78 Fed. Reg. 26,727 (May 8, 2013). As of August 2013, 

DOL was reviewing comments submitted in response to this advance notice of proposed 

rulemaking.

52 Singapore has made annuity payments from CPF LIFE the default option for 

participants with account balances above a threshold, following recent pension reforms, 

recognizing that the previous standard practice of programmed withdrawals over 20 years 

was no longer adequate to ensure lifelong retirement income in light of increasing 

longevity. Participants with account balances below the threshold, on the other hand, are 

defaulted into the programmed withdrawal option.

53 The researchers analyzed the spend-down selections of participants from 10 Swiss 

companies in the public and private sector between 1996 and 2006. Nine of the 10 

companies offered an annuity as the default spend-down option, while the tenth company 

offered a partial lump sum payment as the standard option. Overall the default option was 

preferred by more than two-thirds of the sample. Participants at the company that offered 

a partial lump sum as the standard option, however, only chose an annuity about 10 

percent of the time. See Monika Butler and Federica Tappa. “The Choice Between an 

Annuity and a Lump Sum: Results from Swiss Pension Funds,” Journal of Public 

Economics, 91 (2007): 1944-66.

Most of the Countries We 

Reviewed Use Incentives 

to Encourage Certain 

Kinds of Participant 

Behavior
 

Page 33 GAO-14-9 401(k) Plans

provider, partly because the wake up pack they received shortly before 

retiring included an application for an annuity with that provider, although 

it might not have offered the best rate. Working together, the U.K. 

government and ABI agreed that to promote the search for better annuity 

rates providers should not include an annuity application in the pack.54

In addition, tax incentives are also used to encourage or deter the use of 

certain spend-down options. For example, in 2007, the Australian 

government removed the favorable tax treatment enjoyed by annuities, 

which caused the relatively small market for life annuities to virtually 

disappear, and negatively affected the market for term annuities as well, 

according to researchers. In addition, researchers found that a series of 

reforms between 2005 and 2007 contributed to the rapid increase in the 

demand for programmed withdrawals.55 For example, the reforms 

exempted from taxes all earnings or investment returns on assets kept in 

superannuation funds to support programmed withdrawals, provided that 

minimum age-based annual drawdowns are satisfied. A report by the 

Australian pension regulators showed an increase in the proportion of 

retirement income taken as programmed withdrawals from one third in 

2005 to one half by 2012.56 Over the same period, the proportion of 

superannuation funds offering programmed withdrawals increased from 

35 percent to 80 percent.

 

54 Although people have had the right to shop around for annuities, referred to as “Open 

Market Option,” since 1978, and pension providers have been recommended to include a 

letter reiterating that right in the wake up pack since 2004 most people were still using 

their current pension provider to supply their annuity at retirement. 

55 Around the same time, reforms eliminated taxes on all retirement spend-down options 

taken on or after age 60. The introduction of key legislation was a significant factor leading 

to the expansion of the market for programmed withdrawals, according to researchers 

Bateman, Hazel and John Piggott. “Too Much Risk to Insure: the Australian (non-) Market 

for Life Annuities,” in Olivia Mitchell, John Piggott and Noriyuki Takayama (eds.), 

Revisiting Retirement Payouts (Oxford University Press, 2011), 81-105. In more recent 

years, sales of annuities in Australia appear to have recovered somewhat. In June 2013,

Challenger Limited, Australia’s largest provider of annuities projected sales of lifetime 

annuities for the year of over $220 million (AUD 240 million), approaching the roughly 

$260 million (AUD 280 million) in annuities sold by all insurers in Australia in 2004, prior to 

the reforms.

56 Australian Prudential Regulation Authority, Annual Superannuation Bulletin June 2012 

(Sydney, Australia: Jan. 9, 2013).
 

Page 34 GAO-14-9 401(k) Plans

Three of the countries we reviewed implemented policies to strengthen 

safeguards regarding financial advisors, so that DC plan participants 

seeking professional advice have the opportunity to receive fair and 

objective information that enables them to better manage their retirement 

income. These countries recognized that spend-down decisions can be 

complex for participants, who may choose to rely on the assistance of a 

financial advisor to help make appropriate choices. As a result, countries 

such as the United Kingdom have taken steps to protect DC participants 

against inappropriate fees and unscrupulous advice in making spenddown decisions. For example, since January 1, 2013, financial advisors in 

the United Kingdom are prohibited from receiving commissions on 

products they sell in order to reduce the sale of costly and unfit products 

and minimize conflicts of interest. Instead, they now have to explain to 

participants how much advice will cost and reach agreement with the 

participant on a price and method of payment, such as an upfront fee or 

installments. Since 2008, Chile requires that those who previously worked 

as annuity brokers broaden their knowledge to all aspects of pensions 

before being registered as advisors. This knowledge enables them to 

provide participants and their beneficiaries with comprehensive 

information needed to make informed decisions about their benefits 

based on their needs and interests.

Countries Also Assist 

Participants Who Rely on 

Financial Advisors
 

Page 35 GAO-14-9 401(k) Plans

Most of the countries we reviewed imposed income requirements or 

withdrawal limits on lump sum payments to help those who take this 

option mitigate retirement risks.57 For example, in three of the six 

countries, participants must meet retirement income requirements if they 

wish to withdraw all or part of their DC plan assets as a lump sum. 

Specifically, in order for participants in Chile to be eligible to access part 

of their account, they would need to accumulate enough income to 

finance 100 percent of the maximum pension with a government 

supplement and a 70 percent or higher replacement rate based on the 

last 10 years of their salaries.58 According to the Chilean pensions 

regulator, participants who meet these conditions can withdraw any 

amount in excess of the amount needed to meet the minimum.59 Under 

these rules, relatively few participants have taken partial lump sum 

payments and, of those who did, the amounts were generally quite small. 

In contrast, Australia does not place an upper limit on the amount 

participants can withdraw as a lump sum. According to researchers and 

 

57 GAO did not conduct an independent legal analysis of the laws, regulations, or policies 

of the countries selected for this study.

58 According to Chilean pensions regulators, both eligibility conditions should be met 

jointly so if the equivalent amount of 70 percent of income is lower than the maximum 

pension with a supplement, known as the Pension Solidarity Complement, the participant 

will not be allowed to take a partial lump sum. For additional information about Chile’s 

pension system, see appendix II.

59 The rules for accessing a partial lump sum distribution were initially designed as part of 

early retirement rules. Subsequently, the Chilean government became concerned that the 

earlier workers retired, the more likely it was that over time it would have to supplement a 

retiree’s benefit with government pension benefits. As a result, the accumulation 

conditions were revised in 2004 and 2008 from 50 percent of the minimum to 150 percent. 

In accordance with the introduction of the new solidarity pillar in the 2008 reform, the 

requirement of financing a pension equal or higher than 150 percent of the minimum 

pension guarantee was amended to financing a pension equal or higher than 100 percent 

of the maximum pension with the Pension Solidarity Complement.

Countries’ Regulation 

and Oversight of 

Spend-down Options 

Offer Lessons for U.S. 

Regulators 

Most of the Countries We 

Reviewed Used 

Withdrawal Rules to Help 

Protect Participants from 

Outliving Their Savings
 

Page 36 GAO-14-9 401(k) Plans

government officials, participants in Australia who choose this option may 

run the risk of outliving their savings and becoming solely reliant on 

government benefits for retirement income. However, some researchers 

and government officials we spoke with said retirees in Australia may 

actually be overly cautious in spending down their assets and face the 

opposite risk of accepting a lower standard of living than is necessary to 

meet their retirement needs. In the United States, lump sum distributions 

from 401(k) plans are subject to few restrictions. During our 2011 review 

of the choices retirees make in managing their assets, we found that 

some U.S. plan participants prefer to have access to their full 401(k) plan 

retirement savings, such as by rolling their assets over into an individual 

retirement account (IRA) or withdrawing them when they retire. At 

retirement, 401(k) plan participants may withdraw their full account 

balance as a lump sum and may be required to pay federal and state 

income taxes on that amount.60

Of the five countries that offer programmed withdrawals, four countries 

regulate them to help prevent participants from spending their savings too 

quickly. For example, Chile’s 2008 pension reforms introduced an 

additional actuarial factor in the government calculation of the maximum 

withdrawal amount to account for longevity risks. The maximum 

withdrawal amount is calculated so payments do not drop below a certain 

floor, 30 percent of the first payment, by the time participants reaches the 

age of 98. As a result of these reforms, a retiree’s benefits can vary year 

to year based on life expectancy estimates and projected returns on 

investments, but will not fall below a certain amount.61 Canada also limits 

the annual amount a participant can withdraw from programmed 

withdrawal products. Regulators in some Canadian jurisdictions impose 

 

60 When 401(k) plan participants separate from their employers, leaving their plan savings 

in the plan, rolling or moving the money into a new qualified employer plan, or rolling the 

money into an IRA, would preserve the tax-deferred status of their plan savings. Lump 

sum distributions are subject to ordinary income tax. Participants who take an early 

distribution, those taken before age 59 1⁄2, generally pay a 10 percent additional income 

tax and incomes taxes on the lump sum distribution amount, in order to discourage the 

use of plan funds for the purposes other than retirement and ensure that the favorable tax 

treatment for plan funds is limited to those that are, in fact, used to provide retirement 

income. See GAO-13-30 for more information.

61 In Chile, retirees who chose the programmed withdrawal option and exhaust their funds 

by outliving their actuarial life expectancy could also be eligible for governmentguaranteed benefits.
 

Page 37 GAO-14-9 401(k) Plans

an annual maximum withdrawal, which helps to ensure participants have 

a regular income up to age 90.

Most 401(k) plan participants in the United States do not have access to 

programmed withdrawal products through their plans similar to the ones 

we found in other countries. The primary programmed withdrawal option 

that U.S. plan participants may be aware of is the required minimum 

distributions in tax-deferred plans, such as 401(k) plans, when a 

participant reaches 70 1⁄2.62 If a plan offers a systematic withdrawal and 

the participant designs and manages their programmed withdrawal, the 

extent to which their strategy is successful at providing income throughout 

retirement depends on a number of factors, such as the rate of 

drawdown, future investment returns, inflation, and longevity. For an 

illustration about how some of these factors may affect retirement income, 

see the additional materials at http://www.gao.gov/products/GAO-14-9. 

DOL is in the process of reviewing regulatory barriers that may prevent or 

discourage 401(k) plan sponsors from offering annuities to participants. In 

the United States, 401(k) plan sponsors who offer an annuity to their 

participants through their plan are subject to fiduciary standards in their 

selection of an annuity provider, which require them to act solely in the 

interest of the plan’s participants and their beneficiaries. In 2008, DOL 

issued new final regulations, in the form of a safe harbor, for the selection 

of annuity providers to help plans prudently choose them and to some 

extent encourage plans to offer annuities.63 In proposing the safe harbor 

DOL speculated that an annuity option would give more participants the 

opportunity to annuitize their savings, while not impeding them from 

choosing other options.64 Even with this safe harbor, according to some 

U.S. retirement experts and plan service providers, sponsors of 401(k) 

plans may be hesitant to offer an annuity to their participants because of 

 

62 Participants that remain invested in their 401(k) plan past age 70 1⁄2 are required to 

comply with certain provisions of the Internal Revenue Code that set required minimum 

distributions from tax-deferred accounts, such as 401(k) plans, generally by April 1 in the 

year following the year in which the participant reaches age 70 1⁄2.

63 Selection of Annuity Providers—Safe Harbor for Individual Account Plans, 73 Fed. Reg. 

58,447 (Oct. 7, 2008) (codified at 29 C.F.R. § 2550.404a-4). 

64 Selection of Annuity Providers for Individual Account Plans, 72 Fed. Reg. 52,021, 

52,023 (Sept. 12, 2007)(to be codified at 29 C.F.R. § 2550.404a-4). 

DOL Continues to Look at 

Barriers Plan Sponsors 

Face in Offering Annuities 

to 401(k) Plan 

Participants, Which Do 

Not Exist in the Countries 

We Reviewed
 

Page 38 GAO-14-9 401(k) Plans

the additional burden and the potential liability sponsors may incur. In 

2010, some respondents to DOL’s request for information on lifetime 

income options, which included some questions related to the existing 

safe harbor provision, suggested that DOL revise one condition of the 

safe harbor that requires sponsors to assess the ability of an insurance 

company to make all future payments under an annuity contract. 

Respondents in favor of DOL revising the condition noted that it could 

help ease some DC plan sponsors’ concerns about offering an annuity as 

a spend-down option. Additionally, this could help participants who would 

otherwise purchase an annuity in the retail market gain access to group 

prices, which are typically lower than individual prices.65 In December 

2012, the ERISA Advisory Council reported on the importance to the 

retirement community that DOL develop guidance designed to provide 

meaningful assistance to plan sponsors and participants by modifying the 

existing safe harbor provision that governs the selection of an annuity

provider. In its report, the ERISA Advisory Council also encouraged DOL 

to partner with NAIC to help with its effort to develop a more workable 

safe harbor for the selection of annuities and other lifetime income 

products.66 In 2012, DOL began working with the NAIC ERISA Retirement 

Income Working Group as they consider possible options for easing plan 

sponsor concerns with the financial soundness of annuity providers as 

related to the DOL safe harbor for the selection of an annuity provider and 

fiduciary responsibilities.

In the countries we reviewed, employers are not expected to assess an 

annuity provider’s ability to make future payments before contracting with 

them to offer an annuity through their plans. According to regulators in 

each of the countries we reviewed, there are no requirements for 

employers to assess the financial stability of an insurer and countries 

generally rely on insurance regulations and industry standards to oversee 

and monitor insurance companies, including those that sell annuities.67

 

65 In the United States, annuities offered in pension plans must be offered on a genderneutral basis. Arizona Governing Committee v. Norris, 463 U.S. 1073 (1983). By contrast, 

annuities offered in the retail market, including IRAs that are not employer-sponsored, are 

not subject to the same rule, and these annuities may vary based on gender. Women may 

find more favorable single-life annuity rates through pension plans, but men may find more 

favorable rates through the retail market. 

66 See ERISA Advisory Council (December 2012).

67 It should be noted that, with the exception of Canada, the other countries we reviewed 

have national regulatory frameworks for insurance. In the United States, insurance 

regulations are governed at the state level. 
 

Page 39 GAO-14-9 401(k) Plans

For example, in Canada, regulators told us that insurers must meet 

solvency requirements68 and financial market conduct standards, and all 

insurers are members of an association that promotes consistent 

insurance practices and standards by issuing guidelines to its members. 

Moreover, in four of the six countries regulators and industry practitioners 

told us that the main responsibility of employers is to contribute to the 

plan during accumulation, and their obligations typically cease at 

retirement.69 In the United Kingdom, where plans are required to inform 

participants of their right to shop around for an annuity, there are no 

requirements to assess the potential annuity provider the participant may 

select through the plan. According to U.K. government officials, plan 

trustees and participants do not have the expertise to assess the 

solvency of an annuity provider and are not expected to do so. 

Furthermore, they noted that this responsibility lies with the bank and 

insurance company regulators, so plans offering and participants 

purchasing an annuity are assured of the provider’s solvency. 

Additionally, because plans do not need to take steps to assess annuity 

providers, there are no additional administrative costs associated with 

offering an annuity through the plan. As some of the countries we 

reviewed illustrate, the absence of a requirement for plan sponsors to 

assess annuity providers allows plans to more easily provide participants 

a way to annuitize their retirement savings, if they so choose.

The DC systems in the countries we reviewed differ from the United 

States in a number of ways, and not all the lessons they have to offer 

would apply here, but their experiences illustrate additional steps DOL 

and Treasury could consider to help 401(k) plan sponsors make the most 

of existing flexibilities to offer multiple spend-down options through their 

plan and broaden participants’ retirement options. By 2015, participants 

whose retirement savings will be primarily made up of what they 

 

68 We did not assess the adequacy of solvency requirements in the countries we reviewed 

because this was beyond the scope of this study. Our recent work found that the effects of

the financial crisis on insurers and policyholders were generally limited, with a few 

exceptions. For more information, see GAO, Insurance Markets: Impacts of and 

Regulatory Response to the 2007-2009 Financial Crisis, GAO-13-583 (Washington: D.C.: 

June 27, 2013).

69 In Switzerland, where plans are legally required to provide a minimum benefit, plan 

sponsors have some financial responsibility for annuity payments, according to Swiss 

regulators.

Conclusions 
 

Page 40 GAO-14-9 401(k) Plans

accumulated in their 401(k) plans will either be eligible to retire or 

approaching retirement and many will be faced with the challenge of 

ensuring they do not outlive their retirement savings. Yet, most of these 

participants’ 401(k) plans will offer lump sum payments as the primary 

spend-down option for participants, leaving them to their own devices to 

figure out how to make their savings meet their needs and last throughout 

their retirement. Some participants may prefer having complete access to 

their retirement savings upon retirement. Others, however, could benefit 

from knowing that there are options offered through the plan—other than 

a lump sum payment—that might be optimal for them. The experiences of 

other countries have shown that participants benefit from being able to 

select among multiple, competitively priced and easily accessible options 

to address their diverse and changing retirement needs. Although DOL 

and Treasury have taken some initial steps to explore how the United 

States might expand the options available to 401(k) participants at 

retirement, they could do more to ensure that plan sponsors offer flexible 

options to participants, enabling them to choose the spend-down option 

that best fits their particular circumstances.

Our work also shows that information provided in an easy to understand 

format at appropriate times before a participant retires can help 

participants think about and plan for the amount they will need on a 

monthly basis during retirement. Receiving information on projected 

income with their account statements helps workers develop and focus on 

retirement income targets, which in turn can lead to positive changes in 

participant behavior, such as working longer to improve their prospects 

for a successful retirement. Comparing available spend-down options and 

longevity risk can also help participants understand the advantages and 

disadvantages of each option available to them. In addition, as illustrated 

in our interactive retirement model, learning to understand the effects of 

interest rates, inflation, and returns on each type of spend-down option 

can help participants begin to interpret financial information that can 

impact their retirement income. Given that DOL is considering various 

approaches to improve 401(k) plan participants’ understanding of 

retirement income, it is clear that including information about spend-down 

options and estimated income can further help participants make more 

sound decisions about their retirement income.

Finally, unlike within 401(k) plans in the United States, in the countries we 

reviewed annuities were generally an option available to participants 

through their plans. Because few 401(k) plans in the United States 

choose to offer annuities to participants, they may be missing a beneficial 

spend-down option that can provide lifetime income at discounted group 
 

Page 41 GAO-14-9 401(k) Plans

prices. As DOL continues to look at the barriers to 401(k) plans offering 

annuities, the lack of requirements for plan sponsors in other countries to 

assess an annuity provider’s ability to make future payments—relying 

instead on the adequacy of insurance regulation—may be something to 

explore. Our work shows that offering annuities to participants can be 

done in an easy cost-effective manner enabling participants, if they prefer 

to consider this spend-down option and not dismiss it as being too 

expensive to obtain.

As DOL and Treasury continue their efforts to determine the actions 

needed to enhance the retirement security of 401(k) plan participants, we 

recommend they consider the approaches taken by other countries to 

formalize access to multiple spend-down options for U.S. plan 

participants that address varying retirement risks and needs. To the 

extent possible, lessons from other countries should be used to help DOL

and Treasury ensure plan sponsors have information about their 

flexibilities and the ability to facilitate access to a mix of appropriate 

options for 401(k) plan participants.

In addition, as DOL considers changes to participant benefit statements 

and other disclosures, we recommend that the Secretary of DOL consider 

strategies other countries have employed to help participants make sound 

decisions, such as providing timely information at or before retirement 

about available spend-down options and projections of future retirement 

income.

We also recommend that as DOL continues to review regulatory barriers 

to lifetime income options for 401(k) plan participants it consider other 

countries’ approaches to plans offering annuities, such as their reliance 

on existing solvency requirements and insurance industry standards to 

provide assurances rather than place responsibility on plan sponsors to 

make an assessment of an annuity provider’s financial stability. As DOL 

considers the approaches of other countries and continues to work with 

NAIC, which facilitates interactions between insurance companies and 

state insurance regulators, DOL may wish to consult with the Federal 

Insurance Office, which coordinates federal efforts on prudential aspects 

of international insurance matters.

Recommendations for 

Executive Action
 

Page 42 GAO-14-9 401(k) Plans

We provided a draft of this report to DOL and Treasury for comment. Both 

agencies provided technical comments that were incorporated, as 

appropriate. DOL also provided written comments, which are reproduced 

in appendix III. In its written response, DOL generally agreed with our 

recommendations and stated that it will take steps to address these 

recommendations in its ongoing efforts. Moreover, DOL will be focusing 

on two areas for further consideration that we highlighted in our report, 

participant education and providing regulatory assistance to plan 

sponsors considering an annuity option in defined contribution plans.

Regarding our recommendation that DOL and Treasury consider the 

approaches of other countries to formalize access to multiple spend-down 

options for 401(k) plan participants, DOL commented that expanding 

access to additional options involves plan design features, which 

historically have not been subject to DOL’s regulatory authority under 

Title I of ERISA. DOL noted that it will evaluate whether there are 

available regulatory approaches to address this recommendation. As we 

addressed in the report, participants can benefit from having access to a 

mix of options allows participants to select options that can best meet 

their unique circumstances. Therefore, we support DOL’s efforts to look 

into available regulatory approaches to address our recommendation and 

would encourage the agency to fully consider the steps it could take 

within the scope of its current authority. 

With respect to our recommendation to consider the strategies of other 

countries to help participants make sound retirement decisions, DOL 

agreed that participants should have timely information at or before 

retirement about available spend-down options and projections of future 

retirement income and stated that they will explore their options for 

actions. As we illustrated in our report, having timely information and 

projections of future income can help plan participants make more 

informed retirement saving decisions. We would again encourage DOL to 

fully consider what steps it could take within the scope of its current 

authority. 

Finally, with respect to our third recommendation that DOL consider other 

countries’ approaches as it reviews regulatory barriers to lifetime income 

options to 401(k) plan participants, DOL stated that it will evaluate the 

available regulatory approaches to address our recommendation. We 

also suggested that DOL consult with NAIC and FIO in its efforts. DOL 

commented that it began working with a NAIC Working Group to consider 

possible options for easing plan sponsor concerns with the financial 

soundness of annuity providers in connection with DOL’s safe harbor for 

Agency Comments 

and Our Evaluation
 

Page 43 GAO-14-9 401(k) Plans

the selection of annuity providers and fiduciary responsibilities. DOL 

noted that the NAIC Working Group plans on providing EBSA with a list of 

“best practices” for fiduciaries when asking states for information about 

insurers, and that it will continue to work with NAIC, Treasury, FIO, and 

others as it evaluates regulatory approaches to address our 

recommendation. In response to DOL’s comment, we revised our draft to 

reflect the status of DOL’s efforts to collaborate with NAIC on the safe 

harbor for the selection of annuity providers. We commend DOL for its 

initiative to develop a more workable safe harbor, but continue to 

encourage DOL to review alternative approaches taken by other 

countries, such as their reliance on existing solvency requirements and 

insurance standards. As shown in our report, these approaches can ease 

the burden on plan sponsors. As a result of DOL’s review and potential 

action, 401(k) plans could more easily offer annuities to plan participants, 

which allow them greater flexibility to choose spend-down options that 

meet their needs and preferences.

As arranged with your office, 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 Secretary of 

Labor, the Secretary of the Treasury, and other interested parties. In 

addition, the report is available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-7215 or jeszeckc@gao.gov. 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 44 GAO-14-9 401(k) Plans

Our objectives for this review were to examine selected countries’ (1) 

approaches to offering retirement spend-down options; (2) key strategies 

to help participants make sound decisions; and (3) approaches to 

regulating and overseeing options.

To address these objectives, we conducted in-depth reviews of retirement 

spend-down phase strategies in countries with extensive or growing 

defined contribution (DC) systems to determine lessons for the United 

States based on best practices used in other countries. We selected the 

following countries for this review: Australia, Canada, Chile, Singapore, 

Switzerland, and the United Kingdom (U.K.). In selecting the six 

countries, we considered if the country had (1) developed innovative 

spend-down phase policies or options; (2) a clearly defined and wellestablished oversight structure for the DC plan spend-down phase and 

providers, such as insurance companies; and (3) if the country’s 

approach to the spend-down phase was uniquely different from the other 

countries in our scope. To determine which countries to include, we 

conducted an initial review of the universe of countries with welldeveloped account based retirement systems. We reviewed comparative 

studies of DC systems published by GAO, academics, the Organisation 

for Economic Co-operation and Development (OECD), The World Bank, 

and other industry experts, such as international benefits consulting firms, 

to determine which countries have extensive or growing DC systems and 

if those countries had developed innovative spend-down policies or 

options. We solicited recommendations on countries with innovative 

spend-down phase approaches or options from representatives of the 

OECD, The World Bank, U.S. government officials, academics, and 

industry practitioners who work with multi-national companies that 

operate in other countries with DC plans. We then examined the 

characteristics of each country’s DC system for policies, practices, and 

requirements related to retirement spend-down options. Based on our 

initial review, we excluded countries in which the DC plan is structured in 

a substantially different manner from that of U.S. 401(k) plans or not welldeveloped relative to other pension options, or in which the spend-down 

phase was not well-defined. We also determined that the six countries 

selected could potentially provide lessons for the United States given their 

experience and unique approach to the spend-down phase.

For each of the six countries we selected, we reviewed publicly available 

research and reports about each country’s pension systems—particularly 

information on spend-down options, oversight framework, and initiatives 

to educate participants about options. We also interviewed pension

experts, service providers, regulatory agencies and other government 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 45 GAO-14-9 401(k) Plans

officials from the countries selected. We did not conduct an independent 

legal analysis to verify the information provided about the laws, 

regulations, or policies of the countries selected for this study. Instead, we 

relied on appropriate secondary sources, interviews with relevant officials, 

and other sources to support our work. We submitted key report excerpts 

to agency officials in each country for their review and verification, and we 

incorporated their technical corrections as necessary.

In addition to addressing these objectives, we also developed a 

retirement model to help provide contextual information on spend-down 

options and certain factors that may affect retirement income from these 

options. The retirement model to allow users to view retirement income 

under a range of circumstances provided by three main spend-down 

options: (1) a lump sum payment of their account balance; (2) a 

programmed withdrawal with payments that are either fixed or set as a 

proportion of the remaining account balance; and (3) an immediate 

annuity that makes level payments with no joint or survivor benefit. We 

developed, in consultation with GAO’s Chief Actuary and an external 

actuary with expertise in annuity pricing, a formula that was calibrated to 

approximate annuity payments similar to those found in U.S. retail annuity 

markets in July, 2013.1 We simulated retail annuity prices because 

participants in most 401(k) plans do not have access to institutionally 

priced annuities within plans. For instance, to purchase an annuity, these 

participants would instead have to roll over a lump sum payment of their 

account balance into an IRA and purchase an annuity as an individual 

investor in U.S. retail markets. To set the ranges within which users can 

adjust assumptions about interest rates, investment returns and inflation, 

we analyzed historical data on economic indicators from the Federal 

Reserve Economic Database, including 10-year Treasury constant 

maturity rates, and investment returns from Thrift Savings Plan funds that 

track broad stock, fixed income, and government securities indices. To 

ensure the annuity rates generated from our model reflected U.S. retail 

market rates as of July 31, 2013, we calibrated rates using quotes from 

ImmediateAnnuities.com. We did not assess the reliability of data used to 

set ranges or calibrate rates, mainly because the information generated 

from the interactive tool provides illustrative context for the report and is 

 

1 In the United States, annuities offered in pension plans must be offered on a genderneutral basis. Arizona Governing Committee v. Norris, 463 U.S. 1073 (1983). By contrast, 

annuities offered in the retail market are not subject to the same rule, and these annuities 

may vary based on gender.
Appendix I: Objectives, Scope, and 

Methodology

Page 46 GAO-14-9 401(k) Plans

not material to findings, conclusions, or recommendations. In addition, 

retirement income depicted in the interactive tool does not reflect any 

federal income taxes on distributions from tax-deferred 401(k) accounts.2

Dollar amounts in the interactive tool are for illustrative purposes only and 

should not be considered as quotes for spend-down products or taken as 

financial advice.

We conducted this performance audit from June 2012 to November 2013 

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.

 

2 In general, 401(k) contributions and investment earnings on those contributions are not 

taxed as income until the employee withdraws them from the plan.
Appendix II: Key Features of DC Pension 

Systems in Australia, Canada, Chile, 

Singapore, Switzerland, and the United 

Kingdom

Page 47 GAO-14-9 401(k) Plans

Appendix II: Key Features of DC Pension 

Systems in Australia, Canada, Chile, Singapore, 

Switzerland, and the United Kingdom
Appendix II

DC Spend-down options

• Lump sums: Participants may take some or all of their account 

balance as a lump sum payment.

• Programmed withdrawals: Participants have the flexibility to 

structure the timing and amount of withdrawals subject only to annual 

required minimum withdrawals. These options are known as accountbased income streams or account-based pensions. 

• Annuities: Only a small number of annuities are purchased annually, 

and most are term annuities that provide payments over a fixed period 

rather than lifetime annuities that guarantee payments for the 

participant’s life. 

 

Providers

Spend-down options may be provided by employers or a group of 

employers, banks, insurance companies, or financial service providers.

Regulators

• The Australian Prudential Regulatory Authority (APRA) is 

responsible for prudential regulation of all superannuation funds 

except for self-managed superannuation funds and some public sector 

schemes. Reforms implemented in July 2013 will enhance APRA’s 

ability to set and enforce prudential standards. According to officials, 

APRA’s authority prior to this had largely been limited to issuing, 

setting conditions on, and revoking licenses to operate superannuation 

funds. APRA is also responsible for the prudential regulation of other 

financial services entities, such as banks and insurance companies.

• The Australian Securities and Investments Commission licenses 

and monitors financial services businesses to ensure they operate 

efficiently, honestly, and fairly. This includes superannuation trustees 

who hold a license with the commission. It also operates a website 

that provides consumers information to help them make smart choices 

about their personal finances, including spend-down decisions, 

www.moneysmart.gov.au. 

The Australian Taxation Office is responsible for regulating selfmanaged superannuation funds, which it does by providing information 

to trustees on how to set up and manage their fund, checking that the 

fund complies with standards and laws, and taking enforcement 

actions to correct breaches of the law.

1 According to APRA officials, the term “guarantee” in this context reflects the policy intent that all 

could be guaranteed to be included in the mandatory arrangements, as opposed to the historical 

approach which was that superannuation was provided at the discretion of employers. There is no 

guarantee of investment performance.

2 Industry and corporate funds are non-profit entities in that dividends are not paid to shareholders of 

the trustee company. The directors of the trustee company represent the interests of the fund 

members and the employer-sponsor(s) in equal numbers, although an independent director may also 

be appointed. 

At a glance

Since 1992, Australia has had a 

mandatory defined contribution 

(DC) pension system, known as 

the superannuation guarantee.

1

Employees generally designate a 

plan, known as a superannuation 

fund, to which the employer is 

required to direct contributions. 

Employees who do not designate a 

fund are placed in a default 

accumulation option, known from 

2013 as MySuper. In 2010, 

Australia announced plans to 

gradually increase mandatory 

contributions from 9 to 12 percent 

of workers’ wages by 2022. The 

average account balance at normal 

retirement age is about AUD 

119,000 (approximately $110,000) 

as of 2012.

• Total system assets:

AUD 1.4 trillion ($1.3 trillion) as 

of 2012

• Percentage of workers

with DC accounts: not 

available during our review 

Types of plans

Industry funds are generally nonprofit entities2 established by a 

single employer or group of 

employers. Industry funds 

generally offer 5 to 15 investment 

options designed to meet most 

participants’ needs and in recent 

years many have become available 

to the public rather than being 

restricted to the employees of 

particular employers. 

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Australia

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 48 GAO-14-9 401(k) Plans
Australia (cont.)

National pension system

Australia’s Age Pension is a pay-as-you-go public pension funded out of 

general revenues. The Age Pension is designed to provide biweekly 

retirement income equal to about 28 percent of average wages,2 as well 

as other benefits such as assistance for health care and transportation, to 

residents of Australia age 65 and older.3 The Age Pension is means 

tested for both income and assets, so accumulations in superannuation 

will reduce biweekly payments from the Age Pension. According to APRA 

officials, the Age Pension is essentially a “safety-net” provided for those 

unable to provide for themselves.

2

Australia uses male total average weekly earnings as a measure of average wages. 

3

Women born before1949 become eligible at age 641⁄2.

Types of plans (cont.)

Corporate funds are set up by an 

employer for their employees, 

although many meet their 

obligations by contributing to 

industry or retail funds on behalf of 

their employees

Retail funds are for-profit entities 

usually run by banks or investment 

companies. They often have a 

large number of mid to higher 

priced investment options and are 

open to anyone.

Self-managed superannuation 

funds are available to individuals

who create and manage their own 

plan, which entails establishing a 

trust and a bank account. Up to 

four people can be in a selfmanaged fund, however each 

individual must be a trustee or 

director of the trustee company and 

no “arms-length” employees are 

permitted, according to APRA 

officials. 

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 49 GAO-14-9 401(k) Plans
Appendix II

Highlights of the spend-down phase

DC Spend-down options

• Lump sums: Partial lump sums may be available under certain 

conditions. These conditions vary by jurisdiction.

• Programmed withdrawals: Registered income funds and life income 

funds are available to participants, depending on the jurisdiction. 

Minimum distribution requirements, beginning at age 71, apply to 

these products. In addition, where life income funds are available, 

participants’ accounts may be subject to maximum distribution 

requirements, set as fixed percentages of account balances, at each 

age, designed to last up to a certain age. In a few jurisdictions, 

regulators have allowed plans to offer a type of programmed 

withdrawal, known as a variable benefit. Instead of transferring a 

participant’s balance to a third party, assets remain in the plan and are 

distributed by the plan.

• Annuities: An array of other life annuities is available in the retail 

market. The most common form is a single life pension with a 

minimum guarantee of 5 or 10 years of payments. A plan administrator 

must purchase an annuity for a participant of a DC plan if the member 

does not elect to exercise of their options. According to regulators, the 

take-up rate for annuities is relatively low.

Providers

Programmed withdrawal products are generally offered by financial 

institutions, such as banks and trustee companies. Private insurance 

companies offer annuities.

Regulators

Plans are generally regulated at the provincial level, so policies vary by 

province and the federal level. At the federal level, the Office of the 

Superintendent of Financial Institutions regulates and supervises private 

pension plans in federally regulated areas of employment, such as 

banking, telecommunications and inter-provincial transportation. It is also 

the regulator for pension plans established with respect to employment in 

the Yukon, the Northwest Territories, and Nunavut.

At a glance

Although, most private voluntary 

occupational pension plans have 

been DB, almost all new plans are 

DC, and a typical DC plan would 

require employee contributions of

5 percent of earnings and matching 

employer contribution.

• Total system assets:

47.42 billion Canadian dollars 

(about $45.16 billion) as of

2011 

• Percentage of workers

with DC accounts:

5 percent as of 2011

Types of plans

Voluntary private plans are known 

as registered private pension plans 

and can either be DC plans or DB 

plans. In general, money payable 

to a member of a plan can only be 

used to provide retirement income, 

even if a member leaves the plan. 

Once benefits are vested, they are 

usually “locked-in,” which helps to 

ensure that a member will have 

regular income at retirement, and 

creditors cannot seize locked-in 

pension benefits.

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Canada

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 50 GAO-14-9 401(k) Plans
Canada (cont.) 

National pension system

Canada has a two-tier social security system that provides the majority of 

retirement income for the average worker. The system includes the Old 

Age Security program, which provides monthly payment to residents who 

are 65 years of age and over as well as a guaranteed income 

supplement—a family income-tested benefit—to low-income pensioners; 

and the Canada Pension Plan, which pays a monthly retirement pension 

to people who have worked and contributed to the Canada Pension Plan.4

The amount of the Canada Pension Plan benefit a person is entitled to 

depends on how much and for how long that person contributed to the 

plan.

4

The Canada Pension Plan operates in every province and territory, except Quebec, which has its own 

similar pension program, the Quebec Pension Plan.

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 51 GAO-14-9 401(k) Plans
Appendix II

Highlights of the spend-down phase

DC Spend-down options

• Lump sums: Participants may take some of their account balance as 

a lump sum payment provided the remaining balance is enough to 

generate a pension equal to 100 percent of the maximum pension with 

solidarity support, 261,758 Chilean pesos (about $520) monthly as of 

December 2012, and 70 percent of the participant’s average monthly 

taxable wage for the previous 10 years. 

• Programmed withdrawals: AFPs administer this option with the 

monthly amount determined annually by a government formula based 

on account balance, expected rate of return, inflation, and genderspecific life expectancy.

• Annuities: Administered by life insurance companies, the annuity 

calculation is based on age and gender-specific life expectancy. 

Participants can combine options such as temporary programmed 

withdrawals with a deferred annuity, or purchase an immediate annuity 

with a portion of their account balance and programmed withdrawals 

with the rest. Annuities are inflation-indexed. Annuities are not allowed 

if the pension they generate is smaller than the Basic Solidarity 

pension, which as of December 2012 was 80,528 Chilean pesos 

(about $160) monthly. 

Providers

• AFPs administer programmed withdrawals. Insurance companies offer 

annuities to participants.

Regulators

• The Superintendent of Pensions closely supervises and regulates 

AFPs, including issuing licenses for them to participate in the system. 

On an ongoing basis, the Superintendent of Pensions monitors plan 

providers for compliance with investment option guidelines, reserve 

requirements, fee structure, and other requirements. 

• The Superintendent of Securities and Insurance supervises 

insurance companies, which includes setting rules and regulations 

about solvency principles and monitoring insurance company offers 

through the SCOMP system.5 Together with the Superintendent of 

Pensions, it maintains a list of approved pension advisors.

5

SCOMP is the Spanish acronym for Electronic Consultation and Offer System for Annuities and 

Phased Withdrawals. It is an electronic quotation system that shows participants different spend-down 

options in a comparable format.

At a glance

Chile instituted a DC pension 

system in 1981. Workers who 

entered the labor market after that 

date are mandated to contribute to 

an individual DC account.

• Total system assets:

77.5 trillion Chilean pesos 

(about $162 billion)as of 2012

• Percentage of workers

with DC accounts:

About 59 percent of those in 

the labor force currently 

contribute as of 2012

Types of plans

Workers are free to choose a 

licensed for-profit service provider, 

known as an AFP (Administradoras 

de Fondos de Pensiones) to 

manage 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. They are required to 

remain in this AFP for 2 years, after 

which they can freely choose a 

service provider.

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Chile

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 52 GAO-14-9 401(k) Plans
Chile (cont.) 

National pension system

Chile has a public pension system with two components targeted at the 

poorest 60 percent of the population age 65 and over who meet residency 

requirements. There is a Basic Solidarity Pension for individuals who have 

not contributed to individual accounts and pass the means test. 

Participants who contributed to individual accounts and pass the means 

test receive a Pension Solidarity Complement if their monthly pension is 

below a threshold amount of 261,758 Chilean pesos (about $520) as of 

December 2012. 

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 53 GAO-14-9 401(k) Plans
Appendix II

Highlights of the spend-down phase

DC Spend-down options

• Lump sums: At age 55, participants may withdraw their CPF savings 

in excess of the minimum sum of $148,000 SGD (about $116,535) in 

their retirement account and a minimum of 40,500 SGD (about 

$31,900) in their medisave account. Participants who do not have 

savings in excess of the minimums are allowed to withdraw $5,000 

SGD (approximately $3,900).

• Programmed withdrawals: Prior to 2013, the primary spend-down 

option was a programmed withdrawal administered by the CPF Board 

designed to last for approximately 20 years from the participants 

“drawdown age,” which is currently 65.

• Annuities: In 2009, Singapore introduced a new governmentmanaged life annuity system, known as CPF Lifelong Income Scheme 

For the Elderly (CPF LIFE), to address the challenges of increasing life 

expectancy and an aging population. From 2013, participants with 

retirement account balances of at least 40,000 SGD (about $31,500) 

are automatically placed on CPF LIFE. The government offers two 

types of annuities, a basic and standard plan. The standard plan is the 

default plan for participants. The standard plan provides higher 

monthly payments as compared to the basic plan, but leaves a smaller 

bequest for the participant’s family and other beneficiaries

Providers

The CPF Board administers the CPF Fund and CPF LIFE. Private 

insurance companies offer a variety of annuity products in the retail 

market.

Regulators

CPF Board was established by law to be the trustee and administrator of 

CPF. The CPF Board is also responsible for investing participants’ savings 

in special securities issued by the government. The CPF Board works 

closely with the Ministry of Manpower and other relevant Ministries on 

policies that affect CPF, even though the power to initiate changes to 

provisions on CPF schemes rests with the Minister of Manpower. 

At a glance

Singapore’s mandatory DC system, 

the Central Provident Fund (CPF), 

was established in 1955 to provide 

financial security for employees in 

their retirement. The system is 

comprised of individualized 

accounts fully funded by both 

employer and employees. 

Contributions are distributed 

among three types of individual 

accounts.

• Total system assets:

230,158 million Singaporean 

dollars (SGD)

(about $181,227 million) as of 

2012

• Percentage of workers

with DC accounts: over 80

percent of the resident

workforce 

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Singapore

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 54 GAO-14-9 401(k) Plans
Singapore (cont.) 

National pension system

CPF is the main source of retirement income for workers. Singapore does 

not have a multi-pillar retirement system that is similar to the United 

States. There is no state pay-as-you-go social security. However, there is 

other government social spending, which indirectly helps retirees with 

costs, such as health care and housing. Types of plans (cont.)

Until age 55, CPF savings are 

maintained in three accounts:

• Ordinary account savings can 

be used for housing, 

investment, and other 

approved purposes.

• Special account maintains 

savings that are set aside for 

retirement and can be used for 

investment in retirementrelated financial products.

• Medisave account savings 

help CPF members meet their 

own or their immediate family’s 

hospitalization expenses. 

The retirement account is created 

for CPF members when they reach 

the age of 55. Savings from the 

ordinary and special accounts up to 

the minimum sum amount (148,000 

SGD as of 2013) are transferred to 

this account. This amount is set 

aside for the purpose of providing 

members with steady income postretirement.

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 55 GAO-14-9 401(k) Plans
Appendix II

Highlights of the spend-down phase

DC Spend-down options

• Lump sums: Since 2005, plans have been required to offer 

participants at least 25 percent of their mandatory retirement savings 

as a lump sum payment.

• Programmed withdrawals: Programmed withdrawals are not 

available to plan participants.

• Annuities: Switzerland requires that annuities have disability and 

survivor benefits. Pension funds may voluntarily index annuity 

payments for inflation if they are financially able to do so. In the 

mandatory portion of the DC system, annuities must be the default 

option. Although official data are not available, researchers estimate 

that participants annuitize about 80 percent of their account balance.

Providers

Spend-down options may be administered by independent foundations 

that manage plans. 

Regulators

• Oberaufsichtskommission (OAK Commission) came into being in 

2012 to harmonize regional oversight and regulation of trust-based 

pension plans. The Commission also oversees the Guarantee Fund 

that protects participants in the event that a pension plan becomes 

insolvent, as well as the Substitute Occupational Benefit Institution that 

extends coverage to employers who do not meet their pension 

obligation and those who are not otherwise covered and who wish to 

voluntarily be covered, such as the self-employed, among others.

• The Swiss Financial Market Supervisory Authority is responsible 

for overseeing insurance companies. It ensures that insurance 

companies comply with laws and regulations and fulfill their licensing 

requirements.

• The Federal Social Office of Insurance plans, manages, and 

monitors Switzerland’s social insurance systems to ensure they 

function effectively.

6

Officials in Switzerland said the majority of plans in Switzerland are hybrid plans. These 

hybrid plans are similar to cash balance plans, which in the United States are legally 

classified as DB plans because participants’ benefits are determined by a benefit formula. 

However, a cash balance plan has certain features, such as notional “individual accounts” 

that are similar to DC plans.

At a glance 

Since 1985, Switzerland has had a 

mandatory system of occupational 

pension plans for workers with 

incomes above a certain 

threshold.6 Participants do not have 

a choice of plan, but are placed in 

their employer’s plan. The 

government regulates minimum 

contributions, and minimum returns 

on contributions during 

accumulation. In 2005, Switzerland 

extended to some extent coverage 

of the mandatory system to lowincome and part-time workers.

• Total system assets:

SFr. 625.9 billion dollars

(about $658.8 billion) as of 

2011

• Percentage of workers

with DC accounts:

About 74 percent of the labor 

force

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Switzerland

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 56 GAO-14-9 401(k) Plans
Switzerland (cont.)

National pension system

Switzerland’s old age and survivors’ insurance (AHV/AVS) is a pay-asyou-go public pension that is funded by payroll contributions and general 

revenues. The system has two components: an earnings-related public 

pension funded mainly by payroll contributions and an income-tested 

supplementary benefit funded by general revenues. Payment amounts for 

the earnings-related benefit are based on lifetime earnings. Payments in 

retirement are indexed to prices and earnings. The government 

coordinates benefits between AHV/AVS and occupational pension plans 

so that combined, they replace about 60 percent of preretirement income 

for workers with lower incomes.

Types of plans

Mandatory occupational plans

are administered by independent 

foundations and may be sponsored 

by a single employer or group of 

employers. Plans are managed by 

boards of trustees with equal 

employer and employee 

representations. The organization 

of plans also varies by degree of 

risk coverage with respect to 

longevity, premature death or 

disability.

Autonomous plans bear all the 

risk. 

Autonomous plans with 

reinsurance hand over some of 

the risk to a reinsurance company.

Semiautonomous plans include 

two cases: (1) a plan hands over 

only the risk of death or disability to 

an insurance company and 

consequently still bears the risk of 

longevity; and (2) the plan buys the 

old-age pensions from the insurer 

too.

Fully insured plans are plans in 

which all the risks are covered by 

an insurance company.

Savings associations by 

construction bear no actuarial risks, 

because only old-age savings are 

accumulated.

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 57 GAO-14-9 401(k) Plans
Appendix II

Highlights of the spend-down phase

DC Spend-down options

• Lump sums: Participants may take up to 25 percent of plan assets as 

a tax-free lump sum, subject overall to 25 percent of the individual’s 

lifetime tax-free pension allowance and individual plan rules. 

• Programmed withdrawals: Under a capped drawdown, participants 

have the ability to withdraw up to 120 percent of the value of an 

amount equal to what they would get from a level payment single-life 

annuity each year. Plan administrators are responsible for reviewing 

these withdrawals every 3 years and resetting maximum withdrawal 

limits as needed. Participants who can demonstrate secure income of 

at least £20,000 (about $30,300) per year may take withdrawals 

without limit while leaving the balance of the fund invested. This option 

is known as flexible drawdown.

• Annuities: Participants can choose from a number of different options 

for single-life and joint-life annuities, including level or escalating 

payments, a guarantee period, and impaired or enhanced rates.

Providers

Plan administrators, which may be a trustee or for-profit provider, are 

responsible for administering programmed withdrawals. Private insurance 

companies offer a variety of annuity products in the retail market.

Regulators

• The Pensions Regulator is solely responsible for regulating trustbased plans and coordinates with other entities on regulating contractbased plans. It has the authority to oversee the administration of these 

plans and contributions made to them. For DC plans, its statutory 

objectives include protecting the benefits of plan participants and 

promoting and improving understanding of good administration of 

plans.

• The Financial Conduct Authority and the Prudential Regulatory 

Authority share oversight of contract-based plans and financial 

service providers. The Financial Conduct Authority was the successor 

to the former authority, the Financial Services Authority. It is 

responsible for ensuring fairness in the conduct of firms towards their 

employers and participants, overseeing smaller insurers, as well as 

asset managers and advisory firms. The Prudential Regulatory 

Authority, the smaller of the two new entities, is a subsidiary of the 

Bank of England and tasked with monitoring the safety and soundness 

of larger insurers, banks, and asset managers.

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 October 2012, in a staged 

process, employers were required 

to automatically enroll their eligible 

employees into a pension plan—

including a new low-cost DC 

pension saving plan called the 

National Employment Savings 

Trust—and provide a minimum 

contribution.

• Total system assets:

£385.9 billion

(about $584.70 billion)as of 

2010 

• Percentage of workers

with DC accounts: about 17 

percent of employees as of 

2012

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

United Kingdom

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 58 GAO-14-9 401(k) Plans
United Kingdom (cont.) 

National pension system

The basic state pension is a regular payment from the government once 

an individual reaches a certain age.7 The amount depends on the number 

of qualifying years, at least 30 years, individuals have of National 

Insurance contributions. As of August 2013, the maximum full basic state 

pension is £110.15 per week (about $167). There is also an earningsrelated element called the state second pension, which give individuals 

who earn lower wages or cannot work as much as other the change to 

receive a better state pension. Under current rules, there is a cap on 

annual earnings of £40,040 (about $60,700).

7

The date an individual reaches basic state pension age depends on when he or she was 

born. For men born before December 6, 1953, the current age is 65. For women born after 

April 5, 1950 but before December 6, 1953, the age is between 60 and 65. The age men 

and women are eligible for benefits is expected to increase to age 66 by October 2020.

Types of plans

Trust-based plans (41 percent of 

DC participants) These are 

employer-sponsored plans and are 

usually non-profit 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 (59 percent 

of DC participants) For contractbased plans, an employee deals 

directly with a for-profit service 

provider that performs both 

recordkeeping and investment 

management services. The service 

provider selects which investment 

options are available to the 

participant. These plans are owned 

entirely by the worker

Source: GAO analysis of foreign agency documents and 

interviews with Australian officials and industry experts;

State Department (base map); Art Explosion (flags).

Note: GAO did not conduct an independent legal analysis

of the laws, regulations, or policies of the countries selected 

for this review.

Appendix II: Key Features of DC Pension Systems in Australia, Canada, 

Chile, Singapore,Switzerland, and the United Kingdom

Page 59 GAO-14-9 401(k) Plans
Appendix III: Comments from the Department 

of Labor

Page 60 GAO-14-9 401(k) Plans

Appendix III: Comments from the 

Department of Labor
Appendix III: Comments from the Department 

of Labor

Page 61 GAO-14-9 401(k) Plans
Appendix IV: GAO Contact and Staff

Acknowledgments

Page 62 GAO-14-9 401(k) Plans

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

In addition to the contact named above, Tamara Cross (Assistant 

Director), Tom Moscovitch, Lacy Vong, and Seyda Wentworth made key 

contributions to this report. Also contributing to this report were James 

Bennett, Alicia Cackley, Grace Cho, Katie Delgado, Holly Dye, Kathy 

Leslie, Sheila McCoy, Ernest Powell, Jr., Stephen Sanford, MaryLynn 

Sergent, Jessica Smith, Roger Thomas, Frank Todisco, Kathleen van 

Gelder, and Walter Vance.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Related GAO Products

Page 63 GAO-14-9 401(k) Plans

Insurance Markets: Impacts of and Regulatory Response to the 2007-

2009 Financial Crisis, GAO-13-583. Washington: D.C.: June 27, 2013.

401(k) Plans: Labor and IRS Could Improve the Rollover Process for 

Participants, GAO-13-30. Washington, D.C.: March 7, 2013.

Retirement Security: Annuities with Guaranteed Lifetime Withdrawals 

Have Both Benefits and Risks, but Regulation Varies across States, 

GAO-13-75. Washington, D.C.: December 10, 2012.

401(k) Plans: Increased Educational Outreach and Broader Oversight 

May Help Reduce Plan Fees, GAO-12-325. Washington, D.C.: April 24, 

2012.

Defined Contribution Plans: Approaches in Other Countries Offer 

Beneficial Strategies in Several Areas, GAO-12-328. Washington, D.C.: 

March 22, 2012.

GAO, Retirement Income: Ensuring Income throughout Retirement 

Requires Difficult Choices, GAO-11-400. Washington, D.C.: June 7, 2011.

401(k) Plans: Improved Regulation Could Better Protect Participants from 

Conflicts of Interest, GAO-11-119. Washington, D.C.: January 28, 2011.

Private Pensions: Changes Needed to Better Protect Multiemployer 

Pension Benefits, GAO-11-79. Washington, D.C.: October 18, 2010.

Retirement Savings: Automatic Enrollment Shows Promise for Some 

Workers, but Proposals to Broaden Retirement Savings for Other 

Workers Could Face Challenges, GAO-10-31. Washington, D.C.: October 

23, 2009.

401(k) Plans: Policy Changes Could Reduce the Long-term Effects of 

Leakage on Workers’ Retirement Savings, GAO-09-715. Washington, 

D.C.: August 28, 2009.

Private Pensions: Alternative Approaches Could Address Retirement 

Risks Faced by Workers but Pose Trade-offs, GAO-09-642. Washington, 

D.C.: July 24, 2009.

Related GAO Products

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