The Department of Labor will begin an immediate review of target-date funds one that could lead to new regulations placed on the all-in-one investment strategies according to a letter to a key Senate committee.
In a March 26 letter sent to the Senate Special Committee on Aging this week, Department of Labor Secretary Hilda Solis said the department will begin examining target-date funds to determine if these popular 401(k) options are potentially exposing investors to too much unknown equity risk.
She also added that the DOL will coordinate its review with the staff of the Securities and Exchange Commission.
Her letter was in response to a request from Sen. Herb Kohl, D-Wis., chairman of the Senate Special Committee on Aging, who in February held a hearing to discuss target-date funds and the broader impact that the current economic crisis is having on older Americans.
Target-date funds in 401(k) plans are designed to simplify long-term investing by automatically adjusting to more conservative investments as the targeted retirement date approaches, wrote Ms. Solis in her letter to Mr. Kohl.
However, given the variation in equity holdings among funds with the same targeted retirement date, participants may be unknowingly exposing their retirement savings to financial risks.
The DOL will launch an immediate review the wide range of these funds, Ms. Solis continued, and will determine what regulatory or other guidance is necessary to address the identified problems.
A spokeswoman for the Department of Labor confirmed that Ms. Solis sent the letter to Sen. Kohl, but was not immediately able to offer further details on the review.
A spokesman for the SEC declined to comment.
Mark Bruno is a reporter at InvestmentNews.