The U.S. Government Accountability Office (GAO) has
concluded that defined contribution (DC) plan approaches employed in other
countries may be beneficial here. The countries GAO reviewed use risk-based
approaches to target practices deemed most potentially harmful to participants,
as well as to develop preventative measures. While the role of service
providers varies, defined contribution plans and service providers in the four
countries GAO reviewed are overseen by multiple agencies—primarily a pensions
regulator and a securities regulator. In each of these countries, the pensions
regulator is the agency that periodically collects data on service provider fees
and plan features, which are used to inform their oversight activities.
In particular, in several of these countries, the pensions
regulator uses these data as part of a risk-based approach to identify service
provider practices that could hurt participants, instead of relying only on a
compliance-based approach. For example, in Chile, pensions agency officials
evaluate key features of the defined contribution system, such as the service
providers’ management of the individual accounts and the composition and role
of the board of directors of the service provider.
In both Chile and Australia, agency officials said that
using a risk-based approach enables the pensions regulator to take proactive
measures to ensure the defined contribution plans operate in the best interest
of participants. These countries have overseen service providers in this way
for a number of years, while the U.S. Department of Labor (DOL) has just begun
to develop a risk-based approach in its efforts to monitor U.S. defined contribution
plans and service providers.