WASHINGTON — Federal regulators on Wednesday proposed new disclosure rules for target-date retirement funds that would require sponsors to spell out how they are investing the money and to warn about risks.
The Securities and Exchange Commission voted 5-0 to propose that marketing materials for target-date funds include how investments are being allocated among stocks, bonds, cash and such.
The proposed rules could be formally adopted sometime after a 60-day public comment period, possibly with changes.
Target-date funds, also called life-cycle funds, are pegged to a person’s expected retirement year. They are an increasingly popular way to invest in 401(k) accounts and are appealing because of their “set-it-and-forget-it” approach. Usually named for the year the investor expects to retire, the funds now command a total of about $270 billion in assets.
The funds allocate investments among various types of assets, shifting to a more conservative mix as the target date for retirement approaches. The shift is called the fund’s “glide path.” The funds drew criticism in the market meltdown of 2008 for wide variations in their returns, and excessive risks and high fees for some funds.
More than 40 companies offer target-date funds. The funds’ complexities are so great that comparison tools from financial analysis companies are geared toward advisers and retirement plan administrators, not individual investors. It’s difficult to make comparisons because of the wide variation in asset mixes.
Under the SEC proposal, target-date funds’ marketing materials, whether electronic or in print, would have to include a prominent table, chart or graph showing the allocations among the various assets over the life of the fund. A statement would have to explain that the asset allocation changes over time.
The marketing materials also would have to include a statement telling prospective investors that it is possible to lose money in the fund.
