Target date fund proposal targeted by industry group

The Labor Department’s call for greater disclosure on target date funds is generating criticism as the deadline for public comment on the proposed rule approaches.
The rule, revealed by the DOL’s Employee Benefits Security Administration in late November, calls for a slew of enhanced disclosures on qualified default investment alternatives, including target date funds — plus a statement that plan participants may lose money in the investments.
That requirement raised the ire of The Spark Institute, which represents retirement plan service providers and investment managers. The institute submitted its comment letter on the rule today, a day ahead of the deadline.
“We’re concerned that this statement will have the unintended consequence of creating a potentially negative perception of target date funds in comparison with other investment options,” Larry H. Goldbrum, The Spark Institute’s general counsel, wrote.
The Labor Department is also seeking more-comprehensive disclosure about target date funds. Specifically, the DOL is calling for an explanation of a fund’s asset allocation, how it will change over time and when the allocation will be at its most conservative, plus a chart or table depicting the change in allocation over time.
Further, if the fund’s name refers to a specific date, there also must be details about the age group for whom the investment is designed. The department also wants fund providers to offer information about the relevance of the date, and any assumptions about a participant’s contribution and withdrawal intentions on or after the date.
Mr. Goldbrum noted that that the regulator is trying to help participants discern whether a fund is designed to be invested “to retirement” — where the fund will maintain a conservative allocation at the target date — or “through retirement” — which means the fund will be managed as far as 25 years beyond retirement and have a higher equity allocation.
“We support EBSA’s goal but are concerned that the language used in the proposal is subject to different interpretations by plan administrators, investment managers and other service providers,” Mr. Goldbrum wrote. He noted that plan sponsors likely will count on service providers and fund companies to give them the explanations needed to meet the disclosure requirements.
Those Spark Institute members who are fund managers feel that the proposed disclosures would be too long and complicated for the average participant to understand, Mr. Goldbrum wrote.
Noting that plan administrators are already saddled with new rules on plan and participant disclosures — plus a proposed rule that would change the definition of “fiduciary” — Mr. Goldbrum requested more time to help plan sponsors and service providers get on board with the target date rule.
That would bump back the effective date to one year after the rule is finalized and published in the Federal Register, rather than 90 days.