ICI slammed over target date defense

The BrightScope 401(k) plan ratings service is skewering the Investment Company Institute over its defense of target date funds. Last month, in response to increasing scrutiny of target date funds from members of Congress, the ICI published a paper, “Dispelling Target Retirement Date Fund Myths With Facts.” In the paper, the ICI gave its counterarguments to what it called six “myths” about target date funds. In the paper, the ICI sought to refute the following statements: ● Target date funds need new or different fiduciary standards. ● The funds are not transparent. ● They involve conflicts of interest. ● They use underperforming proprietary funds. ● They often have high fee funds. ● Their use of high-yield bond funds is inappropriate. But on its blog today, BrightScope responded to the ICI's paper, attacking each of the points the ICI made. “The ICI list misrepresented many of the basic facts about target date funds and painted an overly rosy picture of the target date fund marketplace,” the firm states in its blog posting. “This paper intends to set the facts straight.” Among the points that BrightScope disputes, is the contention by ICI that the 1940 Investment Company Act is sufficient in governing target date funds. Rather, BrightScope argued that these funds need to be regulated under the Employee Retirement Income Security Act of 1974. “With all the abuses that have been uncovered in the mutual fund industry, does the ICI really expect us to stick our collective heads in the sand?” the paper asks. “If these practices and more exist within the mutual fund already, is that the regulatory model we want to use to protect America's retirement savings. We argue that it is not.” BrightScope also argued that more disclosure is needed around the holdings in target date funds since large firms such as Morningstar Inc. are having trouble getting the information they need to analyze these offerings. “If it is hard for Morningstar to get information it needs to analyze target date funds, imagine the burden placed upon plan sponsor fiduciaries and individual investors to determine the objectives and holdings of individual target date funds,” the company said in the posting. Ianthe Zabel, a spokeswoman for the ICI, said the group stands by the facts and analysis in its paper. "We are reviewing BrightScope's analysis and see nothing in their piece that changes the facts, the data, or our analysis," she said.