Goebel also requested that the SEC clarify how the proposed rules would apply to marketing materials for a complex's overall product line or materials intended for use by retirement plans and their participants. He said Fidelity recommends that the Commission exempt specific types of materials, such as marketing materials that do not reference a specific target-date fund or funds (e.g., family ads) or communications that are not intended as marketing materials (e.g., shareholder reports and retirement plan enrollment materials).
Fidelity also requested that the Commission provide an exception for materials where inclusion of this information is not practicable, such as post cards and materials designed for viewing on mobile communications devices. Such exceptions could be conditioned upon the availability of information contained in the fund's prospectus, on a Web site or upon request from the party publishing the marketing material, according to Goebel.
Both Fidelity and ICI recommended that the SEC consider a "one--click away" approach for electronic communications, which has proven effective for communications with limitations on space.
McMillan said ICI supports the Commission's narrative disclosure, but modified in several respects, including that the Commission not apply all of the narrative disclosure requirements to radio, television, or other similar modes of communication. Similarly, we support the Commission's approach of not applying the proposed illustration requirement to radio, television, or other similar modes of communication.
In addition, Goebel urged the SEC not to define "target-date fund" as any fund with a date in the name because such a definition would capture certain funds designed to help investors manage assets after retirement, such as Fidelity's Income Replacement Funds. Goebel noted that these funds are not designed to help investors save up to and through a target retirement date; instead, they are designed to enable investors to withdraw money over time up to a target year after which remaining principal is returned to the investor. “Because these funds have an entirely different type of target-date, they should not be subject to the same disclosure requirements,” Goebel said.
Like lawmakers responding to the SEC’s proposed rules, McMillan said the ICI recommends that the DoL impose similar rules on non-mutual fund target date funds and arrangements to assure that all retirement investors receive the same basic information (see Lawmakers Respond to SEC Proposed Rules for Target-Date Funds).
While most commenters supported the idea of simplifying disclosures, the Certified Financial Planner Board of Standards, Inc. recommended the SEC go further, including:
Requiring funds to identify the average target equity allocation for all target-date funds with the same target-date and disclose the extent to which its target equity allocation differs from the average, and provide a graphical comparison of the average glide path for all target-date funds with the same target-date along with the fund’s stated glide path.
Requiring sufficient disclosures to allow investors to know whether the glide path is designed to extend “to” or “through” the target date, including a narrative statement immediately following the required disclosure of the fund’s asset allocation and a table, chart or graph that visually depicts the glide path.
Requiring a statement suggesting that investors periodically revisit whether a fund remains an appropriate investment given particular circumstances and needs.
Requiring disclosure of whether, and the extent to which, the intended asset allocations can be modified without a shareholder vote.
Requiring disclosure of the underlying assumptions used in developing a target-date fund’s glide path, including life expectancy, inflation, savings rate, other investments, additional retirement income, and withdrawal rates in the prospectus and summary prospectus.
The CFP Board also suggested the SEC conduct focus groups and surveys of investors to assess the effect the proposed disclosures might have on investor behavior, and work with its Office of Investor Education and Advocacy and the DoL to explore more appropriate means of educating investors about target-date funds.
Comments to the SEC’s proposed rule are posted at http://sec.gov/comments/s7-12-10/s71210.shtml.