Regulation and Supervision
of Pension Plans in the USA
The Honorable Phyllis C. Borzi
Former Assistant Secretary of Labor
Employee Benefit Security Administration
U.S. Department of Labor
General Pension Supervision in the US
• There is no single source of supervision for US pension funds
• Instead, they are subject to a variety of rules administered by a
wide range of governmental entities
• The supervisory structure is primarily a Federal system of pension
supervision, but with some exceptions
• Because generous federal tax benefits flow to “qualified” pension
funds, Federal tax regulation through the Internal Revenue Code
(IRC) administered by the Internal Revenue Service (IRS) and the
US Treasury Department is the most comprehensive scheme in
scope, although the rules vary based on the type of pension fund
General Pension Supervision, cont.
• Other key Federal pension regulators
• US Department of Labor (DOL):
• Pension plans sponsored by private sector employers (including contributing
employers to multiemployer plans) are subject to the Employee Retirement
Income Security Act of 1974 (ERISA)
• Pension Benefit Guaranty Corporation
• Defined benefit pension plans sponsored by private sector employers (including
contributing employers to multiemployer plans) are subject to Title IV of ERISA
• Office of Personnel Management (OPM)
• Retirement system for employees of the Federal government (including, under
some circumstances, the military) are subject to the Civil Service Retirement
Act, as amended, and other Federal laws
Scope of Oversight and Regulation
of Pension Funds
• Multiple levels of supervision:
• Fiduciaries with respect to the pension fund
• Pension fund itself
• Service providers to funds
• By type of entities
• By type of service or function
• Services and products purchased by funds
Supervision of Service Providers to Pension Funds
And Products That Are Recommended/Sold
• In addition to direct supervision of the funds themselves, various
service providers to those funds are subject to regulation by other
Federal and/or state bodies and the products they sell may be
regulated by other Federal and/or state agencies
• Typically that supervision may apply more broadly than just to
transactions involving pension funds, but to the extent that
services are provided to pension funds, these entities are also
subject to the Department of Labor’s supervision for the pensionrelated activities
Supervision of Pension Service Providers,
Producers and Investment Products, cont.
• For example:
• Insurance companies and their agents are primarily regulated by state insurance departments,
but the products they offer may be regulated by state and/or federal entities.
• investment advisers and brokers who recommend insurance products that are securities are also
subject to Federal and state securities regulation
• Securities exchanges, registered investment advisers (RIA) and securities broker-dealers and
mutual funds are subject to Federal regulation by the US Securities and Exchange Commission
and state securities regulation
• Brokers and dealers must also register with FINRA (the Financial Industry Regulatory Authority), a selfregulatory organization under the supervision of the SEC which is responsible for regulating and
examining securities firms that do business with the public.
• Banks are subject to supervision by the Comptroller of the Currency as well as state banking
regulators
• Bank employees that provide financial advice to customers may also be subject to Federal and state
insurance and/or Federal and state securities regulation depending on the products they recommend
• The Federal Deposit Insurance Corporation protects funds consumers deposit in insured banks and
savings associations that are invested in certain types of products. The insurance covers both principal
and interest on these investments.
Financial and Investment Advice for
Pension Funds and Investors
• Individuals who are paid directly or indirectly to provide financial
and investment advice to pension funds and individuals saving for
retirement through Individual Retirement Accounts or Annuities
(IRAs) are regulated by Federal and/or state regulators, including
the US Department of Labor under the Employee Retirement
Income Security Act of 1974 (ERISA)
• For example, in addition to DOL regulation:
• Securities are regulated by the SEC and state securities departments
• Insurance products are regulated by state insurance departments; variable
annuities are also treated as securities and therefore regulated by the SEC
and state securities regulators as well
Case Study #1 - Insurance
• In the US, insurance is primarily regulated by the states
• However, if insurance products are also securities, the sales of those products
are also regulated under securities laws by the SEC and state securities
departments
• For example, variable annuities are treated as securities (indexed and fixed annuities are
not)
• Sales by insurance agents and brokers are regulated by the states and these individuals
must be licensed to sell specific insurance products; sales involving securities sold by
those individuals are covered under the Federal and state securities laws
• Under the 2010 Dodd-Frank Act, Congress also extended supervisory authority to a new
office, the Federal Insurance Office (FIO), created in the Department of the Treasury
• Investments by retirement plans subject to ERISA and IRAs in insurance products
are also regulated by the DOL
Case Study #2 – Investment Advice Fiduciaries
• Anyone who gives “investment advice” for a fee or compensation (direct or indirect) is a
fiduciary under ERISA and/or the IRC
• If the advice involves a security, the firm/individual must register with the SEC and/or state
securities departments
• Note that the federal securities laws administered by the SEC involve a narrower category of investments
than ERISA and/or the IRC (all transactions in securities) but involve a broader category of investors (all
customers, not just retirement savers)
• Investment advice with respect to securities and the individuals who provide it (registered
investment advisers (RIAs) and brokers and dealers (BDs)) are also subject to a variety of
other governing authorities
• The following chart (Fig. 2.2) reflects a simple summary of this supervisory structure that
appears in “Regulating Advice Markets,” the Regulatory Impact Analysis that accompanies the
publication of the Final Rule and Exemptions on Conflicts of Interest. This can be found at
https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-andregulations/completed-rulemaking/1210-AB32-2/conflict-of-interest-ria.pdf) at page 31.
Case Study #2 – Investment Advice
Fiduciaries, cont.
Possible Approaches to Reduce Supervisory
Inconsistency and Conflict
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Deregulation movement
Single regulator
Consolidation of regulatory authority
Coordination among supervisory agencies
• Major supervisory responsibility
• Peripheral but important supervisors (for example, in US, the Equal
Economic Opportunity Commission (EEOC))