Australia Releases Draft Legislation on Pension Fiduciary Obligations

As part of its effort to reform its private-sector, employer-based pension (known there as superannuation) system, Australia just issued proposed legislation and an accompanying explanation on revised fiduciary obligations.  http://strongersuper.treasury.gov.au/content/Content.aspx?doc=exposure_drafts/trustee/default.htm

Australia has been engaged in a methodical review of its mandatory superannuation system, which currently requires a 9% contribution to DC accounts on behalf of nearly all workers, since mid-2009.  One of the major changes being implemented is a new set of default investment products, known as "MySuper" products.

The new fiduciary standards and general requirements enhance the duties of the trustees (typically entities) that are legally responsible for superannuation funds (each 'fund' is a collection of investment products).  Australia's reform also addresses the duties of the trustee-directors (the individuals who are directors of the trustees).  And, additional duties will be imposed on trustees and trustee-directors with respect to MySuper products.

The Australian superannuation guarantee system is quite different from the U.S. system (for more detail, see my article:  Building Value in the Australian Defined Contribution System:  A Values Perspective at 33 Comparative Labor Law & Policy Journal 93-135 (2011) or email me an I'll be happy to send you a copy).  Australia's system is mandatory, employees have very broad choices on which fund and which product within the fund holds contributions made on their behalf, and their government-administered system (the closest parallel to U.S. the Social Security system) is means tested through both asset and income tests.  It also is far smaller in terms of numbers of employers and employees and overall asset levels. 

A few things standout though about the Australian approach to private-sector employer-based savings for retirement.  Its system was recently rated second in the world (true, a limited number of countries were studied but they included the leading countries in pension provision) whereas the U.S. came in below the median.  Over the past two and a half years Australia has performed a thorough review of its system, accepted most of the recommendations in that review, and is in process of implementing them.  It has imposed fiduciary obligations on the financial services entities that provide investment funds and products.  And, it is in the process of enhancing the obligations of those entities and the individuals responsible for governing the entities.

In short, Australia is moving ahead with reform of its employer-based system while the U.S. remains stuck with a legal framework enacted back before 401(k) plans even existed.