WASHINGTON BUREAU — The U.S. Department of Labor is calling for retirement plan participants to get more information about the target-date funds offered on plan investment menus.
The proposed regulation would amend the department’s qualified default investment alternative (QDIA) regulation and a participant-level disclosure regulation.
The existing regulations set guidelines for how 401(k) plan sponsors should handle plan participants who do not say how they want plan assets allocated.
Congress developed the framework for the QDIA regulations in 2005, out of concern that too many plans were making fixed-rate investments with a low potential rate of return the default investment option.
The Labor Department’s QDIA regulations, put into effect shortly before stock prices slumped, encourage plan sponsors to use options such as target-date funds as the QDIA and discourage sponsors from using fixed annuities or stable-value funds as the default option.
The proposed regulation would require issuers of target-date funds and similar funds used as QDIAs to tell investors about the fund’s initial asset allocation; provide a graphic showing how the allocation will change over time; and discuss the significance of the investment’s “target” date.
Fund issuers also would have to give participants a statement concerning the risk that a participant investing in a target-date fund might lose money in that investment, even close to retirement.
The proposed regulation is set to appear in the Federal Register Tuesday.