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SEC's Rominger: Agency Using 'Investor Testing' in Target Date Rulemaking Process

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The Securities and Exchange Commission is conducting “investor testing” as part of its rulemaking efforts on target date funds, to help the agency assess “the types of information that investors believe are most useful when they choose their investments,” Eileen Rominger, director of the SEC’s Division of Investment Management, said Tuesday.

Eileen Rominger of the SEC (Photo:AP)In 2010, the SEC proposed rule changes to address concerns regarding target date fund names and information presented in target date fund marketing materials, Rominger said in a speech before securities lawyers. To date, Rominger (left) continued, target date fund disclosures have been tested on about 1,000 investors.

“After we analyze the testing data and consider public comments on the proposed rule, the division will evaluate whether to recommend that the commission adopt rule changes to address target date funds,” she said.  

As of October, assets in target date funds had reached approximately $360 billion, Rominger said. The new cash flow that target date funds netted in 2010, she said, was over 10 times what it was 10 years ago. She cited a recent survey that found that 70% of U.S. employers use target date funds as the default investment in their defined contribution plans.

“The increasing significance of target date funds in 401(k) retirement plans–together with the market losses suffered in 2008–gave rise to concerns about those funds.”

The SEC, Rominger said, will continue in 2012 to incorporate “empirical data” into the regulatory process. The SEC’s oversight of money market funds, she said, “is a good example of our continued focus on improving information collection and utilization.”

As a result of the first phase of money market reform approved by the commission in February 2010, the SEC has been receiving detailed holdings data for each of the past 12 months, which is submitted via form N-MFP and is “extensively analyzed and considered by the SEC staff,” Rominger explained.

In the last year, the SEC has received filings from over 650 money market funds each month, or about 8,000 filings altogether. Each month, she said, “these funds report about 70,000 different positions in all their portfolios, and we are using the data to monitor characteristics and trends of holdings, and to identify areas that raise questions.” This data will also help us better assist other regulators with systemic risk monitoring responsibilities, such as Treasury and the Federal Reserve.

The data, she continued, is increasingly used as a point of reference during examinations. “As our IM staff participates in exams of money market funds, we will occasionally ask questions about holdings and trends. This is helpful in gaining a general sense of the portfolio decision-making process. If you are part of one of these discussions, I encourage you to avoid reading too much into these high level questions, as it is not our intention to convey a specific point of view on these individual securities.”


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