PENSIONS: BACKGROUNDS, TRENDS AND ISSUES -- PENSIONS: BACKGROUNDS, TRENDS AND ISSUES -- RETIREMENT ISSUES, PLANS AND LIFESTYLES -- CONTENTS -- PREFACE -- GUIDANCE NEEDED TO BETTER INFORM PLANS OF THE CHALLENGES AND RISKS OF INVESTING IN HEDGE FUNDS AND PRIVATE EQUITY -- WHY GAO DID THIS STUDY -- WHAT GAO RECOMMENDS -- WHAT GAO FOUND -- ABBREVIATIONS -- RESULTS IN BRIEF -- BACKGROUND -- Hedge Funds Use Broad Range of Investment Strategies to Achieve Desired Return -- Private Equity Funds Obtain Returns from Manager Skill and Investing Capital in a Limited Number of Private Firms -- A GROWING NUMBER OF PENSION PLANS ARE INVESTING IN HEDGE FUNDS OR PRIVATE EQUITY, BUT SUCH INVESTMENTS ARE GENERALLY A SMALL PORTION OF PLAN ASSETS -- Investments in Hedge Funds and Private Equity Typically Comprise a Small Share of Total Plan Assets -- While More Pension Plans Invest in Private Equity, the Number of Plans with Investments in Hedge Funds Has Experienced Greater Growth in Recent Years -- Investments in Hedge Funds and Private Equity Are More Commonplace among Larger Pension Plans -- PENSION PLANS SEEK VARIOUS INVESTMENT OBJECTIVES THROUGH HEDGE FUNDS, AND SUCH INVESTMENTS POSE CHALLENGES THAT REQUIRE CONSIDERABLE EFFORT AND EXPERTISE TO ADDRESS -- Broad Market Events and a Desire for Specific Benefits Have Driven Pension Plans' Allocations to Hedge Funds -- Hedge Funds Pose Significant Challenges and Risks, Beyond Those Posed by Traditional Investments -- Investment Risks -- Lack of Transparency -- Liquidity Limitations -- Operational Risk -- Addressing the Challenges and Risks of Hedge Fund Investing Requires Considerable Effort and Expertise -- Clear Investment Purpose and Strategy -- Identification and Negotiation of Important Investment Terms -- Due Diligence and Monitoring -- Investing via Funds of Hedge Funds.

Some Pension Plans May Not Be Able to Meet the Demands of Hedge Fund Investing -- PRIVATE EQUITY INVESTMENTS MAY PROVIDE IMPORTANT BENEFITS, BUT PENSION PLANS FACE LIMITED ACCESS TO TOP- PERFORMING FUNDS AND OTHER CHALLENGES -- Plans Have Long Investment History in Private Equity and Primarily Seek Returns Superior to Those Attained in the Stock Market -- Pension Plans Face Several Challenges and Risks When Investing in Private Equity -- Investment Risk -- Variation of Performance among Private Equity Funds -- Long-Term Commitment of Private Equity Funds -- Valuation of Private Equity Fund Investments -- Taking Steps to Address the Challenges and Risks of Investing in Private Equity May Be Too Costly and Complex for Some Plans -- Selection of Private Equity Fund Investments -- Diversification -- Planning for Liquidity Needs -- Negotiation of Key Terms of the Investment Contract -- Due Diligence and Ongoing Monitoring -- Funds of Private Equity Funds -- THE FEDERAL GOVERNMENT DOES NOT SPECIFICALLY LIMIT OR MONITOR PRIVATE SECTOR PLANS' INVESTMENTS IN HEDGE FUNDS AND PRIVATE EQUITY, BUT SOME STATES DO SO FOR PUBLIC SECTOR PLANS THROUGH VARIOUS APPROACHES -- The Federal Government Does Not Specifically Limit or Monitor Pension Plans' Investments in Hedge Funds or Private Equity nor Has It Provided Recommended Guidance -- Some Selected States Regulate and Monitor Investments of Public Sector Plans Using Varying Approaches -- CONCLUSIONS -- RECOMMENDATION FOR EXECUTIVE ACTION -- AGENCY COMMENTS AND OUR EVALUATION -- APPENDIX I : OBJECTIVES, SCOPE, AND METHODOLOGY -- APPENDIX II : COMMENTS FROM THE DEPARTMENT OF LABOR -- APPENDIX III : COMMENTS FROM THE PENSION BENEFIT GUARANTY CORPORATION -- End Notes -- PLAN FREEZES AFFECT MILLIONS OF PARTICIPANTS AND MAY POSE RETIREMENT INCOME CHALLENGES -- WHY GAO DID THIS STUDY -- WHAT GAO FOUND -- ABBREVIATIONS.

REPORTING OBJECTIVES -- SCOPE AND METHODOLOGY -- FROZEN PLANS AFFECT ABOUT ONE-FIFTH OF ACTIVE DB PLAN PARTICIPANTS -- PLAN FREEZES HAVE VARIOUS IMPLICATIONS FOR KEY STAKEHOLDERS -- CONCLUDING OBSERVATIONS -- AGENCY COMMENTS AND OUR EVALUATION -- APPENDIX I. FROZEN DB PLAN BRIEFING SLIDES -- Survey Objective -- GAO Freeze Survey -- GAO Freeze Survey: Sampling Summary -- Background: What Is a Plan Freeze? -- Background: Freeze Data -- Overview: Survey Findings -- Finding: Plan Freezes Are a Common Occurrence -- For Sponsors' Largest Plans, Just Over Half Were Frozen during or after 2005 -- Finding: Most Sponsors Who Froze a Plan Made an Alternative Replacement Plan Available -- Finding: Sponsors Froze Plans for a Variety of Reasons -- Finding: Sponsors of DB Plans Uncertain About Future Course of Action -- Implications for Sponsors -- Implications for Participants -- Implications for PBGC -- APPENDIX II. SCOPE AND METHODOLOGY -- Population and Sample Design -- Administration of Survey -- Content Coding of Responses -- Sampling Error and Estimation -- Nonsampling Error -- Comparability of Survey Results with 2006 PBGC Results -- APPENDIX III. COMMENTS FROM THE PENSION BENEFIT GUARANTY CORPORATION -- End Notes -- PENSION SPONSORSHIP AND PARTICIPATION: SUMMARY OF RECENT TRENDS -- SUMMARY -- BACKGROUND: EMPLOYMENT AND AN AGING WORKFORCE -- Life Expectancy Continues to Increase -- Labor Force Participation Begins to Drop after Age 55 -- Congress and Retirement Income Policies -- Two Kinds of Retirement Plans: Defined Benefit and Defined Contribution -- Who Bears the Investment Risk? -- The Number of Defined Benefit Plans Is Declining -- RECENT TRENDS IN RETIREMENT PLAN SPONSORSHIP AND PARTICIPATION -- PLAN PARTICIPATION BY FULL-TIME VS. PART-TIME EMPLOYMENT -- Retirement Plans and Employer Size -- Plan Participation among Men and Women.

Plan Participation by Employee Age -- Plan Participation by Employee Race -- Plan Participation by Employee Earnings -- ANOTHER MEASURE OF RETIREMENT PLAN PARTICIPATION: THE NATIONAL COMPENSATION SURVEY -- End Notes -- CONFLICTS OF INTEREST CAN AFFECT DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS -- WHY GAO DID THIS STUDY -- WHAT GAO RECOMMENDS -- WHAT GAO FOUND -- INADEQUATE DISCLOSURE OF CONFLICTS OF INTEREST BY PENSION CONSULTANTS ARE ASSOCIATED WITH RATES OF RETURN FOR DB PLANS -- Association between Inadequate Disclosure of Conflicts and Lower Rates of Return -- PARTICIPANTS COULD BE MORE VULNERABLE TO POTENTIAL ADVERSE EFFECTS OF CONFLICTS OF INTEREST IN DC PLANS SUCH AS 401(K) PLANS -- Labor Has Proposed Regulations to Address Conflicts of Interest Issues but the Regulations Have Not Been Finalized -- CONCLUDING OBSERVATIONS -- End Notes -- FULFILLING FIDUCIARY OBLIGATIONS CAN PRESENT CHALLENGES FOR 401(K) PLAN SPONSORS -- WHY GAO DID THIS STUDY -- WHAT GAO RECOMMENDS -- WHAT GAO FOUND -- ABBREVIATIONS -- RESULTS IN BRIEF -- BACKGROUND -- Fiduciary Obligations under ERISA -- The Department of Labor's Role -- Plan Services -- SPONSORS DETERMINE A NUMBER OF COMMON PLAN FEATURES, AND THEIR DECISIONS ABOUT INVESTMENT FEATURES HAVE IMPORTANT FIDUCIARY IMPLICATIONS -- Plan Sponsors Determine Some Common Plan Features to Establish the Plan -- Sponsors' Decisions about Investment Features Have Important Fiduciary Implications -- PLAN SPONSORS CAN FACE CHALLENGES IN FULFILLING THEIR FIDUCIARY OBLIGATIONS WHEN BUSINESS ARRANGEMENTS ARE UNCLEAR OR UNDISCLOSED -- A Sponsor's Failure to Clearly Define Fiduciary Relationships Can Lead to Gaps in Oversight -- Sponsors Cannot Fulfill Their Fiduciary Obligations without Disclosures about Compensation Arrangements and Potential Conflicts of Interest.

Various Ways to Improve Fiduciary Oversight Have Been Proposed -- LABOR MONITORS SPONSORS' OPERATION OF 401(K) PLANS AND HAS MADE PROGRESS ON RECENT REGULATORY INITIATIVES -- Labor Investigates Fiduciary Breaches and Conducts Outreach to Educate Plan Sponsors -- Labor Has Made Some Progress on Relevant Regulatory Initiatives but Legislation Could Also Promote Fiduciary Oversight -- Status of Initiative on Disclosure by Plan Sponsors to Participants -- Status of Initiative on Disclosures by Service Providers to Plan Sponsors -- CONCLUDING OBSERVATIONS -- AGENCY COMMENTS AND OUR EVALUATION -- APPENDIX I. SCOPE AND METHODOLOGY -- End Notes -- CHAPTER SOURCES -- Index.