EBSA Issues Proposed Rule on Target Date Fund Disclosures

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a proposed rule that creates additional retirement plan disclosure requirements related to target date retirement funds (TDFs) and other similar investments offered in 401(k)-type pension plans. As discussed in an EBSA fact sheet, while TDFs are designed to be convenient vehicles for individuals to save for retirement, they are “not managed according to uniform strategies,” and are therefore subject to varying degrees of risk and investment results over time. The proposed rule seeks to provide individuals participants with more information about TDFs so that they can better evaluate them and assess their investment plans. Specifically, the proposal would amend two existing regulations – the qualified default investment alternative regulation and the participant-level disclosure regulation – to require plan fiduciaries to provide the following, among other information, to all participants and beneficiaries in participant-directed individual account plans:

  • The name of the investment issuer;
  • A detailed explanation of the investment’s asset allocation, including how the asset allocation will change over time, and the point in time when the investment will reach its most conservative position;
  • A chart, table, or other graphical representation that illustrates this change in asset allocation over time;
  • A description of the costs and fees associated with the investment;
  • For a TDF that refers to a particular date (e.g., “Retirement 2030 Fund”), an explanation of the age group for whom the investment is designed and an explanation of the relevance of the date any assumptions about a participant’s or beneficiary’s contribution and withdrawal intentions on or after such date; and
  • A statement that the participant or beneficiary may lose money by investing in the qualified default investment alternative, including losses near and following retirement, and that there is no guarantee that investment in the qualified default investment alternative will provide adequate retirement income.

In a statement, EBSA’s Assistant Secretary of Labor Phyllis C. Borzi said: “Based on our collaborative examination of this issue with the Securities and Exchange Commission, 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.”

Comments on this rule are due by January 14, 2011, and contain the regulatory identification number: RIN 1210-AB38. Commenters are encouraged to submit their comments electronically via email: e-ORI@dol.gov, or through the federal eRulemaking portal. Alternatively, comments may be sent in triplicate to: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210, Attention: Target Date Amendments.

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Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.