1. Supervision of Private Pension Systems with a Large Number of Funds Richard Hinz U.S. Department of Labor April 2002

2. Basic Functions of Regulation & Supervision Rules Defining the Structure and Organization of FundsRules Defining the Structure and Organization of Funds Requirements for the Operation of FundsRequirements for the Operation of Funds Authority for Supervision, Sanctions & Remedial ActionAuthority for Supervision, Sanctions & Remedial Action

3. Structure of Pension Funds Licensing of Fund OperatorsLicensing of Fund Operators Governance of FundsGovernance of Funds Capital and ReservesCapital and Reserves Segregation of AssetsSegregation of Assets Custody of AssetsCustody of Assets

4. Operation of Pension Funds Investment GuidelinesInvestment Guidelines External Audit RequirementExternal Audit Requirement Reporting and DisclosureReporting and Disclosure Limits on Fees and ExpensesLimits on Fees and Expenses GuaranteesGuarantees

5. Characteristics of Environment Occupational based arrangementsOccupational based arrangements Voluntary system with high degree of flexibility and variationVoluntary system with high degree of flexibility and variation Substantial tax incentivesSubstantial tax incentives Minimal entry barriersMinimal entry barriers Procedural (prudent person) frameworkProcedural (prudent person) framework Highly developed and regulated financial marketsHighly developed and regulated financial markets Multiple levels of financial intermediationMultiple levels of financial intermediation

6. Basic Strategies Associated with Large Numbers of Funds Reliance on deterrenceReliance on deterrence Leverage limited resourcesLeverage limited resources Focused Agenda - Strategic Case SelectionFocused Agenda - Strategic Case Selection Voluntary Compliance & AssistanceVoluntary Compliance & Assistance Mandatory Indemnification/InsuranceMandatory Indemnification/Insurance Outcome oriented measurement and evaluationOutcome oriented measurement and evaluation

7. Credible Deterrence Comprehensive Reporting StructureComprehensive Reporting Structure –Periodic Financial and Operating Reports –Individual Accounts Balance and Benefits –Public Disclosure of Reports –Reporting Enforcement Program –Automation of Reported Data Consistent Application of SanctionsConsistent Application of Sanctions Publicize Enforcement ActionsPublicize Enforcement Actions

8. Leverage Limit Resources Cooperative/Referral Arrangements With Other Authorities (Banks, Insurance, Securities Markets)Cooperative/Referral Arrangements With Other Authorities (Banks, Insurance, Securities Markets) Focus on Major Service Providers/Financial Institutions to Multiply Access to FundsFocus on Major Service Providers/Financial Institutions to Multiply Access to Funds Utilize Independent Auditors to Identify Potential ProblemsUtilize Independent Auditors to Identify Potential Problems Facilitate Public Access to Supervisor to Enhance Case Identification and SelectionFacilitate Public Access to Supervisor to Enhance Case Identification and Selection

9. Strategic Agenda Setting Annual Identification of Major IssuesAnnual Identification of Major Issues Rotating Focus Specific Issues to Maximize ImpactRotating Focus Specific Issues to Maximize Impact Coordinate Agenda With Regulatory Issues and Broader Market ConditionsCoordinate Agenda With Regulatory Issues and Broader Market Conditions

10. Technical Assistance & Education Outreach and Technical Assistance to Prevent Violations of StandardsOutreach and Technical Assistance to Prevent Violations of Standards –Publications and Seminars –Internet Based Resources Strategic Partnerships With Relevant Industry GroupsStrategic Partnerships With Relevant Industry Groups Participant Education of RightsParticipant Education of Rights

11. Voluntary Compliance Structured Program of Voluntary Agreements/SettlementsStructured Program of Voluntary Agreements/Settlements Incentives for Self Correction of ViolationsIncentives for Self Correction of Violations –Relief from Monetary Penalties –Waiver of Admission of Violations in Specifically Defined Circumstances Cohesive Program to Publicize Imposition of SanctionsCohesive Program to Publicize Imposition of Sanctions

12. Indemnification and Insurance Mandatory Bonding or Prudential/Fiduciary InsuranceMandatory Bonding or Prudential/Fiduciary Insurance Required Involvement and Liability for Custodians and AuditorsRequired Involvement and Liability for Custodians and Auditors Knowing Participation and Joint liability StandardsKnowing Participation and Joint liability Standards Access to “Deep Pockets”Access to “Deep Pockets”

13. Outcome Measurement & Evaluation Outcome Rather Than Process Oriented Performance ObjectivesOutcome Rather Than Process Oriented Performance Objectives Integrated Strategic Planning and Outcome EvaluationIntegrated Strategic Planning and Outcome Evaluation Sampling and Inferential Methods to Establish Baseline & Intervention ImpactsSampling and Inferential Methods to Establish Baseline & Intervention Impacts Alignment of Management Evaluation and Incentives With Strategic ObjectivesAlignment of Management Evaluation and Incentives With Strategic Objectives

14. Some Formidable Challenges Political Acceptance Of the Inability To Address All ViolationsPolitical Acceptance Of the Inability To Address All Violations Resource Rationing DecisionsResource Rationing Decisions Sustaining Strategic ObjectivesSustaining Strategic Objectives Policy Consistency Over TimePolicy Consistency Over Time Reconciling Conflicts With Other Regulated SectorsReconciling Conflicts With Other Regulated Sectors