Guest Article

(From the April 9, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Target Date Fund Disclosures: SEC Reopens Comment Period on Proposal

The Securities and Exchange Commission has reopened the comment period on its 2010 proposal to require additional disclosures in connection with target date funds. The new opportunity is being provided in light of a study commissioned by the SEC on investor understanding of the funds and their related marketing materials.

SEC and Labor Department Initiatives

Over concerns that individual investors did not sufficiently understand target date funds, in 2010 both the SEC and the Department of Labor proposed regulations that would enhance the required disclosures regarding those funds. The Labor Department's proposal would require additional disclosures where target date funds are a designated investment alternative in an individual account plan. The additional disclosures would include an explanation of the fund's asset allocation, how the asset allocation will change over time, and the point in time when it will reach its most conservative allocation. A chart, table, or other graphical representation would also be required to illustrate the change in the fund's asset allocation over time.

Also in 2010 the SEC and Labor Department jointly issued an Investor Bulletin advising participants on how they should evaluate and monitor target date funds.

SEC Proposal for Enhanced Disclosures

Separately, the SEC proposed regulations in 2010 that would apply more broadly to all funds that hold themselves out as target date funds, including those that qualify as designated investment alternatives under the Labor Department's proposal. The SEC's proposal would require, with the first use of the fund's name, the disclosure of the fund's asset allocation at the target date. Once the target date in the fund's name has been reached, the SEC's proposal would require disclosure of the fund's actual current asset allocation. These disclosures would appear immediately adjacent to (or, in a radio or television advertisement, immediately following) the first use of the fund's name in marketing materials. Like the Labor Department's proposal, marketing materials for the funds would also have to include a table, chart, or graph depicting the fund's asset allocation over time. The SEC's proposal is similar but not identical to the Labor Department's proposal.

With the proposal the SEC commissioned a study of individual investors' understanding of target date retirement funds and their related marketing materials. In the study, investors were questioned about documents that described a hypothetical target date retirement fund, including documents that contained the information that would be required under the SEC's proposal. A February 2012 report of the study was released and is now available on the SEC website. In order to provide interested persons with an opportunity to comment on the additional materials, the SEC announced it would reopen the comment period on the 2010 proposed regulations. Comments may now be submitted through the date that is 45 days after the reopen notice is published in the Federal Register.

The 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, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2012, Deloitte.