Sen. Kohl targets target date fund managers

Legislation that in some cases would require target date fund managers to take on fiduciary responsibilities will be introduced by Senate Special Committee on Aging Chairman Herb Kohl, D-Wis.
DEC 23, 2009
Legislation that in some cases would require target date fund managers to take on fiduciary responsibilities will be introduced by Senate Special Committee on Aging Chairman Herb Kohl, D-Wis., the senator announced today. Mr. Kohl said the legislation is aimed at employers who want to use target date funds as automatic investments for 401(k) participants who do not select their own investments. To be able to do so, he wants to require target date fund managers to take on the heightened regulation and legal liability of acting as a fiduciary. Mr. Kohl's committee has examined target date funds and found that many of the funds, which are supposed to be managed more conservatively as people get closer to retirement, suffered huge losses in portfolios intended for people near retirement. “The discovery that many 2010 target date funds contain junk bonds is troubling, but not surprising,” Mr. Kohl said in a statement. “Many target date funds are composed of hidden underlying funds that can have high fees, low performance or excessive risk. With more than 90% of employers choosing off-the-shelf target date funds as their employees' standard option, there is no question that we need greater regulation and transparency of these products.” Last week, the Labor Department released an advisory opinion stating that the fiduciary responsibility for target date funds currently resides with employers. But employers are often unaware of investments in the funds, according to the release, issued by Mr. Kohl. Increasing employers' fiduciary liabilities may decrease the likelihood that they will adopt auto-enrollment policies. Auto enrollment has led to increased enrollment of employees in defined-contribution plans. “Target date products operate under less stringent fiduciary-responsibility guidelines,” Mr. Kohl said. “The problem is that the people who are defaulted into target date funds are the ones who need someone looking out for their financial interests the most.”

Latest News

Add Commonwealth Financial – a blockbuster – to the list of potential LPL targets
Add Commonwealth Financial – a blockbuster – to the list of potential LPL targets

Chatter about LPL, a behemoth, buying Commonwealth Financial Network, a boutique, has been building all week.

Younger Americans are changing the dynamics of IRAs
Younger Americans are changing the dynamics of IRAs

Millennials, Gen Zs are not following the preferences of older generations.

How does your schedule stack up against a typical advisor?
How does your schedule stack up against a typical advisor?

Report reveals how advisors in RIAs, broker-dealers split their time.

Global stock selloff continues into a third day
Global stock selloff continues into a third day

Tariffs are the focus as risk aversity intensifies.

Gold sets new record at $3,077 as trade war fears rise
Gold sets new record at $3,077 as trade war fears rise

Havens are in demand as investors weigh likely impact of tariffs.

SPONSORED Retirement plan balances are flourishing. Why are so many advisors missing out on a $3 trillion opportunity?

Participants who receive professional 401(k) advice see higher returns on average, net, than those who don't.

SPONSORED Focus on clients, not compliance – why Gary Corderman found his fit with Farther

This wealth management platform finally delivers on the technology promises other firms couldn't - giving advisors a better way to scale and serve