With the comment period on the Securities and Exchange Commission’s (SEC) proposed rules regarding target date funds having officially closed Monday, August 23, it won’t take the securities regulator long to sift through the paltry 44 recommendations it received from industry officials and lawmakers.
The low number of responses is interesting given the fact that target date funds’ prominence in retirement portfolios continues to grow. Today, according to the SEC, assets of target date funds registered with the SEC total approximately $270 billion.
The SEC proposed its rules, which seek to provide investors with enhanced information about target date funds, on June 16. When the rules were proposed, SEC Chairman Mary Schapiro said that they “would help to clarify the meaning of the date in a target-date fund and improve the information provided when these funds are advertised and marketed.” Schapiro also said that the proposed rules “would enable investors to better assess the anticipated investment glide path and risk profile of a target-date fund by, for example, requiring graphic depictions of asset allocations in fund advertisements.” The rules also “would require an asset allocation ‘tag line’ adjacent to a target-date fund’s name in an advertisement,” she said.
Kevin Keller, CEO of the CFP Board of Standards, told the Commission in his comment letter that while the CFP Board “generally supports” the adoption of the SEC’s target date fund proposals, the SEC needs to “require certain additional disclosures in order to increase investors’ understanding of their portfolio composition and associated risks.” The SEC, Keller wrote, should require “disclosures aimed at enhanced understanding of a target date fund’s glide path and asset allocation at the target date and landing point. Further, the SEC should require additional information about specific asset sub-classes in which a target date fund invests.”
Finally, he said, “the SEC should require clear and prominent disclosures that will alert investors when a target date fund’s equity allocation differs materially at the target date, landing point, and during the five-year periods immediately preceding those dates, from the average allocations of peer funds with the same target date.”
Members of the Senate’s Committee on Help, Education, Labor and Pensions (HELP), Senators Michael Enzi (D-Wyoming) and Tom Harkin (D-Iowa), along with Senator Herb Kohl (D-Wisconsin), chairman of the Senate Special Committee on Aging, sent a joint letter to the SEC.
The Senators expressed their “deep” concern about the “limited scope” of the proposed rule in that the disclosures required would only affect mutual funds. “Not all target date
funds are mutual funds,” the Senators told the SEC. “A growing number of defined contribution plan fiduciaries are electing to use ‘custom’ target date funds (i.e., target date funds constructed from investments otherwise available through the plan) or funds that may be exempt from the Investment Company Act of 1940, such as bank maintained collective investment trusts or insurance company separate accounts,” the Senators wrote in their comment letter.