More detail? Less detail? Groups disagree about the DOL's plan to hike disclosure about the funds
Retirement and investment industry participants are seeking greater detail from the Labor Department on its proposed enhanced disclosures for target date funds in retirement plans.
The Certified Financial Planner Board of Standards Inc., the American Society of Pension Professionals and Actuaries and its sister group, the National Association of Independent Retirement Plan Advisors praised the DOL's attempts to give plan participants more information on the target date funds in their retirement plans.
Last Friday was the final day for comments on the proposal.
That proposal included requiring greater disclosure of a fund's asset allocation, how the allocation would change over time, and when the allocation would be at its most conservative. Under the DOL's proposal, plan participants would also receive details on the age group for whom a fund were designed (if the investment's name referred to a specific date), plus information on the date's relevance and assumptions of the participant's contribution and withdrawal intentions on or after the date.
While the CFP Board, ASPPA and NAIRPA cheered the regulator's efforts, the groups think employees deserve even more details about the plans. ASPPA and NAIRPA suggested that there be disclosure on how a lump-sum cash distribution at retirement would affect 401(k) plan participants.
“Even if they roll their distributions over to an [individual retirement account], they may not be reinvest in the same target date funds,” ASPPA and NAIRPA noted in their joint letter. “Thus any fund in which the landing point is 20 years after retirement may be wholly inappropriate for that participant.”
The groups also called for disclosures on how age differences between spouses — as well as different life expectancies — should factor into choosing a target date fund.
Meanwhile, the CFP Board noted that a proposal on target date fund disclosure from the Securities and Exchange Commission goes “somewhat further” in required disclosures of target date funds' asset allocation — and suggested that the DOL do the same. The SEC's proposal, which was pitched last summer, would mandate that a target date fund provider disclose the underlying asset classes in which the fund were invested.
The CFP board also suggested that plan fiduciaries should be required to disclose the fund's asset allocation at the target date and indicate when the fund's asset allocation will become fixed. “Many investors and plan participants do not understand that some target date funds are designed to re-balance ‘through' the target date and that the asset mix will therefore continue to change after the target date and during the participant's expected period of retirement,” the CFP Board noted in its letter.
The group also said that a narrative statement in the disclosure can let participants know whether a fund's glide path is managed “to retirement” or “through retirement.” The former means the fund will maintain a conservative allocation at the target date, while the latter means that the fund will be managed as far as 25 years beyond retirement and will be invested more aggressively.
The Investment Company Institute, however, called for greater simplicity behind the disclosures. The ICI noted that too much detailed information could confuse a plan participant.
“The fund need not state, for example, that it is designed for workers contributing 6% of pay to the fund or for workers that expect at retirement to withdraw 5% of the assets during the first year,” the ICI noted.
Instead, the disclosures should indicate that the participant is expected to stop making contributions around the target date or that the fund is designed for a participant who expects to make gradual withdrawals in retirement, the ICI wrote.
