EBSA Unveils Target-Date Disclosure Proposal

Federal regulators on Monday released a long-awaited rule to require more disclosures about target-date funds.

An announcement from the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) said the new participant disclosure mandate comes in proposed amendments to the qualified default investment alternative (QDIA) rule and the participant-level disclosure regulation.

The proposed amendments require new disclosures about the design and operation of target-date or similar investments, EBSA said, including an explanation of:

  • The investment’s asset allocation;
  • How that allocation will change over time, with a graphic illustration; and 
  • The significance of the investment’s “target” date.

The proposed amendments also require a statement concerning the risk that a participant investing in a target-date fund may lose money in that investment, even close to retirement.

“Based on our collaborative examination of this issue with the Securities and Exchange Commission (SEC) it is clear that all participants in participant-directed individual account plans can benefit from better information about how target-date investments are designed to meet their retirement savings needs,” said Assistant Secretary of Labor for EBSA Phyllis C. Borzi.

Comments on the proposed regulation should be directed to the U.S. Department of Labor, Employee Benefits Security Administration, Room N-5655, 200 Constitution Ave. NW, Washington, DC  20210, Attention:TDF Amendments; or electronically to e-ORI@dol.gov or at http://www.regulations.gov.  Comments must be received by Jan. 14, 2011.

The proposed regulation is to be published in the November 30 edition of the Federal Register.  For a copy, visit http://www.dol.gov/ebsa

EBSA’s action Monday follows the earlier release by the SEC of its own Target-Date fund disclosure rule (SEC Releases Target-Date Fund Disclosure Proposal).  The agency said its 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.

The DoL and the SEC conducted joint hearings into the Target-Date funds in mid-2009 (see Rules/Regs:Hearing Aids?).