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Guest Article

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(From the December 13, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

More Explicit Disclosures Are Proposed For Target Date Funds

The Department of Labor is proposing that additional disclosures be provided when target date retirement funds (TDFs) are offered in participant-directed individual account plans. If adopted, the rule would require that participants be provided with an explanation of how the fund's asset allocation changes over time, the point at which the allocation becomes it's most conservative, and - if the fund is described with reference to a specific date - the significance of the date.

Confusion and Fund Uniqueness Are the Drivers

Recognizing that TDFs are not managed according to uniform strategies and that participants suffer from confusion about them, the Department of Labor proposed that certain specific disclosures be provided. The proposal takes the form of an amendment to the qualified default investment alternative (QDIA) regulation (which relieves fiduciaries of liability when the participant's account is invested in a QDIA in the absence of participant direction) and an identical amendment to the participant-level disclosure regulation (which requires certain disclosures to be made regarding the designated investment alternatives in participant-directed individual account plans). The goal is to ensure that all participants - not just those who are invested in a QDIA - receive the information. The Department expects that any changes it makes going forward will apply to under both regulations.

Specific Disclosures Proposed

Under the amendment proposed, to satisfy the fiduciary disclosure requirements under ERISA § 404(a) regarding a plan's designated investment alternatives, and to obtain the fiduciary relief under ERISA § 404(c)(5) for default investments made in a QDIA, the following information regarding TDFs and similar funds would have to be disclosed to the participants:

  • Asset Allocation - An explanation of the asset allocation, how it will change over time, and the point in time when it will reach its most conservative allocation (including a chart, table, or other graphical representation which illustrates the change in asset allocation over time).
  • Particular Date - If the fund is named, or otherwise described, with reference to a particular date (e.g., a target date), an explanation of the age group for whom the investment is designed, the relevance of the date, and any assumptions about a participant's contributions or withdrawals on or after that date.
  • Losses - If applicable, a statement that the participant may lose money by investing in the fund, including losses near and following retirement, and that there is no guarantee that the investment will provide adequate retirement income.

A fact sheet was also released. If approved, the change will become effective 90 days after the final regulation is published. Comments on the proposed regulation are requested by January 14, 2011. The Department also intends to publish a series of tips to assist plan administrators in selecting and monitoring TDFs as an investment option in participant-directed retirement plans.

Deloitte logoThe information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact:

Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

Copyright 2010, Deloitte.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.
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