The SEC has proposed rule amendments to help clarify the use of target date funds, which are typically tied to a date an investor is set to retire.
The rule changes proposed would enable investors to better assess the anticipated investment glide path and risk profile of a target date fund by requiring graphic depictions of asset allocations in fund advertisements, for example. The rules also would require an asset allocation tag line adjacent to a target date fund's name and advertisement.
Funds that had a target date of 2010 averaged a nearly 24% loss, according to the SEC. The losses for 2010 funds ranged between approximately nine and 41%. In 2009, the returns continued to vary widely for 2010 funds, ranging between approximately seven and 31%, with an average return of approximately 22%. Since their launch in the mid-1990s, target date funds registered with the SEC total approximately $270 billion.
In June 2009, the SEC and the Department of Labor held a joint hearing on the funds. One of the concerns raised was whether marketing materials provided to 401(k) plan participants and other investors may have contributed to a lack of understanding by investors of those funds and their investment strategies and risks.
The SEC is seeking feedback on the proposed amendments.