On June 18th, the DOL and SEC held a joint hearing on target date funds (TDFs). The hearings were precipitated by the surprisingly large investment losses in target date funds (and particularly for 2010 funds) in 2008. Senator Kohl of Wisconsin (who is Chair of the Senate Special Committee on Aging) held hearings on the subject earlier this year and then urged the SEC and DOL to follow up on those hearings.

On May 22nd, the Agencies published a notice concerning the hearings. In that notice, the Agencies focused on the following four issues:

    • How TDF managers determine asset allocations and changes to asset allocations (including glide paths) over the course of a TDF’s operation;

    • How they select and monitor underlying investments;

    • How the foregoing, and related risks, are disclosed to investors; and

    • The approaches or factors for comparing and evaluating TDFs.

If the government is interested in knowing the answers to those questions, then plan sponsors and their advisers should know the answers. The role of the adviser is to obtain the answers from the provider of the target date investments and to explain those answers, and their significance, to plan sponsors.

Forewarned is forearmed.

Disclaimer Required by IRS Rules of Practice:
Any discussion of tax matters contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed under Federal tax laws.

Source: Adviser Report