Key Aspects of DC Systems in the United States and Selected Countries

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. Countries Used Multiple Approaches to Broaden Participants’ Retirement Options for the Spend-down Phase

		Instituting Multiple Spend- down Options Helped Participants Address Varied and Changing Risks

Although DC systems in countries we reviewed often varied in their  features, structure, and regulatory oversight, all six countries ensured  that participants have institutionally-facilitated access to a mix of spend- down options through their plans to help them manage retirement risks. U.S. Regulators Have Begun to Explore the Spend-down Phase, but Have Not Yet Strengthened Access to a Mix of Spend- down Options

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 spend- down 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. 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 Spend- down Options Could Help DOL’s Efforts to Provide Information

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. 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. 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. 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

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. 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. 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

DOL is in the process of reviewing regulatory barriers that may prevent or  discourage 401(k) plan sponsors from offering annuities to participants. 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  the additional burden and the potential liability sponsors may incur. 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. 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. Appendix I: Objectives, Scope, and Methodology

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. Defined Contribution Plans: Approaches in Other Countries Offer  Beneficial Strategies in Several Areas, GAO-12-328.
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 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.
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.

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.