Federal regulators are questioning the performance of retirement savings funds that are supposed to shift toward more conservative allocations as participants near retirement age.
Concerns about “target date funds” surfaced today in Washington at a hearing organized by the U.S. Department of Labor.
One participant, U.S. Securities and Exchange Commission Chairman Mary Schapiro, acknowledged that target-date funds have become an increasingly popular, “set it and forget it” savings option.
“But the reality of target date funds was quite surprising to many investors last year,” Schapiro said at the hearing, according to a written version of her remarks.
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In 2008, the performance of what should have been the most conservative target-date funds – funds aimed at participants expecting to retire in 2010 — ranged from minus 3.6% to minus 41%, Schapiro reported.
“These varying results should cause all of us to pause and consider whether regulatory changes, industry reforms or other revisions are needed with respect to target date funds,” Schapiro said.
Ian Kopelman, the legal counsel for the Profit Sharing/401(k) Council of America, Chicago, urged regulators to adopt a long-term perspective when looking at target-date funds.
“Plan investments are for long-term investing, and questioning their propriety based on short-term performance will create havoc for the employer provided retirement plan system,” Kopelman said, according to the written version of his testimony. “Even prudent investors can suffer an investment loss!”
In 2008, Kopelman said, the PSCA found that 58% of private-employer defined contribution retirement plans offered target-date funds in 2008, up from 25% in 2005.
In April, another PSCA survey collected responses from about 400 plan sponsors that have been using target-date funds.