ICI: Sponsors of target funds need to educate investors better

When it comes to target date funds, ignorance is not bliss. Sponsors of the funds, therefore, should be required to do more to ensure that investors understand what they are buying, the Investment Company Institute said in a statement it released at a hearing today by the Department of Labor and the Securities and Exchange Commission. Even though the funds “currently do a good job of disclosing the key information that fund investors want and need, we think sponsors of target date funds, whether mutual funds or other products, can and should do more to ensure better investor understanding,” said Karrie McMillan, general counsel at the Washington-based ICI. Lawmakers are reviewing the funds, which could result in new rules for disclosure and standards for asset allocation. Target date funds, designed as a one-stop retirement investment, establish a stock and bond allocation that changes over time and attains a specific mix at retirement. Information about the funds should be displayed in a prominent fashion, the ICI said in the statement. This information should include “the relevance of the target date, including what happens on the target date, the funds’ assumptions about the investor’s withdrawal plans at and after the target date, and the age group for which the fund is designed,” according to the statement.