Compliance June 16, 2010

Kohl Senate Panel Eyes Lifetime Income Options

U.S. Senator Herb Kohl, (D-Wisconsin) Chairman of the Special Committee on Aging, held a hearing Wednesday about lifetime income options in retirement plans.
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A Kohl news release said the intent of the hearing was to take a close look at the decisions plan participants must make in a defined contribution world to ensure they can have a secure retirement. Kohl expressed his interest in drafting legislation to make it easier for employers to offer lifetime income options to workers.

“So far, the focus of most of our education efforts have been on encouraging people to save, but we have done little to help the average retiree make the difficult choices about how to make their savings last,” said Kohl, in the announcement. “With Americans living longer, the stakes are high for not adequately managing one’s savings.”

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At the hearing, Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis Borzi and Deputy Assistant Secretary for Retirement and Health Policy at the Treasury Department Mark Iwry presented their early analysis of responses they have received to their joint Request for Information (RFI) about the lifetime income options (see “DoL Set to Issue Annuity Project RFI“).

Much of the hearing focused on annuity products. While annuities may be the right fit for some retirees, they can also be highly complex and, in the retail market, they have often been associated with aggressive sales tactics, Kohl said in the news release.

Finally, Kohl sent a letter to the Government Accountability Office (GAO) requesting that it conduct a review of how the current regulatory structures ensure that institutions that sell annuities will be able to meet the financial commitments they entail, and the types of state guarantee funds that exist to protect purchasers of annuities, including how they are structured, how they are monitored, and the circumstances under which they have been used to compensate owners of annuities.

Borzi’s testimony is online here.

Compliance June 16, 2010

SEC Releases Target-Date Fund Disclosure Proposal

The Securities and Exchange Commission (SEC) unanimously approved proposed rule amendments to enhance the information provided to target-date fund investors.
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An SEC news release said the rule changes would enable investors to better assess the anticipated investment glide path and risk profile of a target-date fund by, for example, requiring graphic depictions of asset allocations in fund advertisements.

The proposals would also require that the table, chart, or graph be immediately preceded by a statement explaining that the asset allocation changes over time, noting that the asset allocation eventually becomes final and stops changing, stating the number of years after the target date at which the asset allocation becomes final, and providing the final asset allocation, the SEC said.

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The SEC’s proposal would require marketing materials for a target-date fund that includes the target date in its name to disclose the asset allocation of the fund. The types of investments would need to appear with the fund’s name the first time the fund’s name is used.

The rules also would require an asset allocation “tag line” adjacent to a target date fund’s name in an advertisement, the SEC said.

“These proposed rule changes would help clarify the meaning of the date in a target-date fund and improve the information provided when these funds are advertised and marketed to investors,” said SEC Chairman Mary L. Schapiro. “Together these rule amendments are designed to foster investor understanding of target-date funds and reduce the possibility that investors will be confused or misled.”

The SEC is seeking public comment on the rule amendments proposed today for a period of 60 days following their publication in the Federal Register.

The text of a speech about the new proposals by Chairman Schapiro is here.

The SEC issued an Invest or Bulletin in May with the Department of Labor explaining target-date funds and various aspects that an investor should consider before investing in one (see “DoL, SEC Offer TDF ‘Primer’“).

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