United States Senate Special Committee on Aging

Hearings

KOHL STATEMENT ON DOL PROPOSED RULE FOR TARGET DATE FUNDS

November 30, 2010

WASHINGTON, D.C. – Today U.S. Senator Herb Kohl (D-WI), chairman of the Senate Special Committee on Aging, applauded the U.S. Department of Labor (DOL) for announcing its proposed regulations to enhance target date fund disclosures to participants. Target date funds, sometimes called lifecycle funds, are a type of mutual fund that is supposed to automatically rebalance to a more conservative asset allocation as the participant approaches their target retirement date. The huge losses suffered in 2008 during the economic downturn by target date fund participants on the brink of retirement prompted an Aging Committee investigation into the design and transparency of these funds.

“The proposed rule is certainly a good first step for those American workers who wish to better understand the target date fund options within their retirement plans,” said Kohl. “However, the fact remains that many employees are automatically placed in such investments without reviewing such disclosures. For those consumers, it’s important to provide adequate protection from loopholes and conflicts of interest, which is something we are actively pursuing.”

Kohl is crafting legislation to require target date fund managers to take on a fiduciary responsibility in order for such funds to be eligible for the designation of QDIA. In February 2009, the Aging Committee issued a report on the excessive stock risk found in many 2010 funds. At an October 2010 hearing on strengthening the 401(k) system, the Aging Committee heard testimony concerning the difficulty of determining the underlying composition of target date funds and issued another report highlighting concerns about fees and the lack of clarity among target date funds. Witnesses demonstrated that these funds are often created with inherit conflicts of interest, and can be composed entirely of proprietary products.

Since DOL designated target date funds as a Qualified Default Investment Alternative (QDIA) in 401(k) plans, they have experienced an explosive growth in popularity. Target date funds only made up roughly three percent of defined contribution savings in 2006, but are expected to increase to 20 percent in 2010. By 2015, it is expected that more than one-third of all defined contribution savings will be in target date funds.

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Hearings KOHL STATEMENT ON DOL PROPOSED RULE FOR TARGET DATE FUNDS November 30, 2010 WASHINGTON, D.C. – Today U.S. Senator Herb Kohl (D-WI), chairman of the Senate Special Committee on Aging, applauded the U.S. Department of Labor (DOL) for announcing its proposed regulations to enhance target date fund disclosures to participants. Target date funds, sometimes called lifecycle funds, are a type of mutual fund that is supposed to automatically rebalance to a more conservative asset allocation as the participant approaches their target retirement date. The huge losses suffered in 2008 during the economic downturn by target date fund participants on the brink of retirement prompted an Aging Committee investigation into the design and transparency of these funds. “The proposed rule is certainly a good first step for those American workers who wish to better understand the target date fund options within their retirement plans,” said Kohl. “However, the fact remains that many employees are automatically placed in such investments without reviewing such disclosures. For those consumers, it’s important to provide adequate protection from loopholes and conflicts of interest, which is something we are actively pursuing.” Kohl is crafting legislation to require target date fund managers to take on a fiduciary responsibility in order for such funds to be eligible for the designation of QDIA. In February 2009, the Aging Committee issued a report on the excessive stock risk found in many 2010 funds. At an October 2010 hearing on strengthening the 401(k) system, the Aging Committee heard testimony concerning the difficulty of determining the underlying composition of target date funds and issued another report highlighting concerns about fees and the lack of clarity among target date funds. Witnesses demonstrated that these funds are often created with inherit conflicts of interest, and can be composed entirely of proprietary products. Since DOL designated target date funds as a Qualified Default Investment Alternative (QDIA) in 401(k) plans, they have experienced an explosive growth in popularity. Target date funds only made up roughly three percent of defined contribution savings in 2006, but are expected to increase to 20 percent in 2010. By 2015, it is expected that more than one-third of all defined contribution savings will be in target date funds. # # #
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