SEC seeks public comment on its proposed rule regarding Investment Company Advertising: Target Date Retirement Fund Names and Marketing.
Market losses incurred in 2008, coupled with the increasing significance of target date funds in 401(k) plans, have given rise to a number of concerns about target date funds. In particular, concerns have been raised regarding how target date funds are named and marketed. Target date funds that were close to reaching their target date suffered significant losses in 2008, and there was a wide variation in returns among target date funds with the same target date. Investment losses for funds with a target date of 2010 averaged nearly 24% in 2008. While the variations in returns among target date funds with the same target date can be explained by a number of factors, one key factor is the use of different asset allocation models by different funds, with the result that target date funds sharing the same target date have significantly different degrees of exposure to more volatile asset classes, such as stocks. Equity exposure has ranged from approximately 25% to 65% at the target date and from approximately 20% to 65% at the landing point. SEC noted that opinions differ on what an optimal glide path should be. An optimal glide path for one
investor may not be optimal for another investor with the same retirement date, with the optimal glide path depending, among other things, on an investor’s appetite for certain types of risk, other investments, retirement and labor income, expected longevity, and savings rate.
On June 16, 2010, the SEC requested comment on the proposed required disclosure of a target date fund’s target date (or current) asset allocation and Chao & Company provided its public comment.