KOHL APPLAUDS AGENCIES FOR CONSIDERING REGULATION OF TARGET DATE FUNDS
Aging Committee Chairman Calls for Standardization of Target Date Funds
WASHINGTON -U.S. Senate Special Committee on Aging Chairman Herb Kohl (D-WI) released the following statement in response to today's joint hearing held by the U.S. Department of Labor and the U.S. Securities and Exchange Commission on 401(k) target date funds.
"I am thankful that these agencies are taking a hard look at target date funds. As more and more Americans are defaulted into these 401(k) plans, the question still remains: are target date funds doing what they're defined to do? Do we even have a firm definition? My hope is that after today's hearing, we'll be closer to one, as DOL and SEC work together to issue regulations to standardize the composition of target date funds."
In February, the
Aging Committee held a hearing on 401(k) target date funds, which are designed to gradually shift to more conservative investments as workers approach retirement. Kohl unveiled
findings from a Committee investigation
of 401(k) funds designed for people planning to retire in 2010, which revealed a wide variety of objectives, portfolio composition and risk within same-year target date funds. The results of excessive risk can be devastating for those on the brink of retirement: one 2010 target date fund lost 41 percent in 2008. In conjunction with the hearing, Kohl sent letters to U.S. Secretary of Labor Hilda Solis and U.S. Securities and Exchange Commission Chairwoman Mary Schapiro, urging them to immediately commence a review of target date funds and begin work on regulations to protect plan participants.
Target date funds are designed to simplify long-term investing by automatically adjusting to more conservative investments as the fund approaches a set date. By authority of the Pension Protection Act of 2006, the U.S. Department of Labor (DOL) has issued regulations allowing target date funds to be used as a qualified default investment alternative (QDIA) in employer-sponsored retirement plans. However, under the Employee Retirement Income Security Act (ERISA) and DOL guidelines, there are no requirements regarding the composition of target date funds and the appropriate ratio of stocks and bonds as the fund nears its target. As a result of the decision to allow target date funds to be used as QDIAs, they are increasingly used as the primary investment option for millions of Americans. Target date funds only made up roughly 3 percent of defined contribution savings in 2006, but are expected to increase to 20 percent in 2010. By 2015, it is expected that more than one-third of
all defined contribution savings will be in target date funds.
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For information about the Aging Committee's February 2009 hearing on target date funds, click here:
To read the findings from the Aging Committee's target date fund investigation, click here:
