Target Date Fund Guidance

May 2009

Congress has been examining target date funds after questions arose regarding their performance in the current financial markets when many 2010 target date funds lost money. These particular funds are at the center of the issue as they were utilized by workers about to retire. Congressional critics and others argue that a 2010 target date fund should have been designed with a more conservative investment blend in order to better weather a stock market downturn. Congress will likely direct the regulatory agencies to issue guidance on how retirement plan sponsors should select and monitor target date funds.

Even prior to any legislative directive, the Department of Labor (DOL) and Securities and Exchange Commission are exploring the possibility of issuing more guidance on target date funds, both on how they should be selected and overseen and potentially on how they are described and advertised. Indeed, guidance in this area is extremely likely. DOL is also likely to rework and then issue its pending regulations on 401(k) fee disclosure to plan sponsors and plan participants, focusing on more transparency and perhaps unbundling fees into three categories: investment, administrative and transaction charges.