The SEC should revisit its proposed rule on target-date funds, the agency's investor advisory committee recommended at its meeting Thursday.
The committee, chaired by Joseph Dear, chief investment officer for the $258.3 billion California Public Employees' Retirement System, Sacramento, acted on the recommendations of its “investor as purchaser” subcommittee, which found a lack of understanding about the risks and costs of target-date funds.
“Even many professional pension fund consultants who help select retirement plan fund options offered through defined contribution plans underestimate the degree of risk in many target-date funds,” the subcommittee wrote in its recommendations to the full group.
In 2010, the Securities and Exchange Commission voted to amend its rules to enhance information to investors on the risk profile and glidepath of such funds, and to disclose asset allocations at the projected retirement date more prominently.
The five additional recommendations from the committee are: developing a glidepath illustration based on risk; having standard methodology for all illustrations; requiring fund prospectuses to disclose risk assumptions; requiring warnings in marketing materials that funds are not guaranteed; and enhancing fee disclosure of costs over the lifetime of the investment.
“Investors value target-date funds, and we remain committed to working with the SEC and others to assure that the key features are well-understood,” said David Abbey, senior counsel for pension regulation with the Investment Company Institute.
Calls to the SEC on the timing of the rule proposal were not returned by press time.