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.

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.

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’“).