DOL and SEC Release Target Date Fund Guidance for Investors

May 17, 2010

The Department of Labor (DOL) and the Securities and Exchange Commission (SEC) recently released their long-awaited Investor Bulletin on Target Date Retirement Funds. The four-page document is designed to provide investors with a better understanding of how target date funds work and the risks associated with them.

The Bulletin suggests that after determining whether a target date fund would best meet their needs, investors take the following into account:

• basic purpose and construction;
• strategy and risks;
• how the investment mix will change over time;
• whether the investment mix best fits a lump sum withdrawal at retirement or continued investment after retirement; and
• fees.

In addition to explaining the basic purpose and construction of target date funds, the guidance also highlights the different types of glide paths that target date funds utilize. It also mentions that a target date fund manager can make changes to the investment mix without investor approval and that investors should monitor their funds.

The DOL has plans to release additional guidance – for plan fiduciaries to use in selecting and monitoring target date funds – at a date to be determined.