DOL, SEC Hearing Considers Further Target Date Oversight, but Show Little Interest in More Regulations

Securities and Exchange Commission (SEC) Chair Mary Shapiro and a series of mutual fund industry representatives were among those considering changes in how target date funds are structured and marketed in a Joint Hearing on Target Date Funds held June 18 at the Department of Labor (DOL).

The hearing, organized by DOL and SEC, was called to decide if more regulatory oversight is needed for how assets are allocated and so-called "glide paths" are calculated in target date funds.

Shapiro said her goal is to better understand disclosure requirements and whether funds should be renamed to reflect how they would be used in retirement. At issue is the disparity among similarly named target date funds that contain much different portfolios. For example, among 2010 funds there were some with 20 percent stock exposure, and others with 60 percent stock exposure.

As a result, some of the funds were harder hit in the market fall than others, despite having the same target date. These varying "glide paths" need to be explained to investors so they can make informed decisions on which funds are best for their retirement plan, Shapiro said.

To clarify the difference, some speakers supported the idea of labeling "to funds" as "retirement funds" about which more investment decisions would have to be made at retirement, and "through funds" meant to be used throughout retirement that would be labeled "lifetime funds." The "to funds" would contain a lesser percentage of stock holdings to reduce risk as investors neared retirement. The "lifetime funds" would contain a greater percentage of stock holdings to reflect that they would be held by investors for a longer period of time.

Both DOL and SEC representatives indicated a reluctance to impose regulatory constraints on asset allocation and "glide paths." But they did appear to be considering how disclosures could be improved. Agency officials did not indicate what steps could be taken next or any timetable for their considerations. The issue could also be addressed in the context of fee disclosure legislation.