U.S. urged not to tamper with target-date funds

* Funds say govt shouldn't dictate mix of investments

* Say meddling in asset mix would be unprecedented

* SEC says recent fund performance raises questions

* SEC staff reviewing disclosure of asset allocations

WASHINGTON, June 18 (Reuters) -The U.S. government should not dictate how fund managers allocate assets in target-date funds, which have become increasingly popular among investors saving for retirement, mutual fund industry executives said on Thursday.

The plea came in the wake of dramatic losses at many of the funds in 2008, including funds designed for investors nearing retirement, because of heavy exposure to stocks.

Securities regulators and the Department of Labor are examining target-date funds, whose mix of assets typically becomes more conservative as the fund nears its target date.

The mutual fund trade group, the Investment Company Institute, told a public hearing that government agencies should not regulate how target-date fund managers allocate assets among stocks, bonds, cash and other investment categories.

"In the 70-year history of mutual fund regulation, the government has never regulated the investment choices of mutual funds," said ICI General Counsel Karrie McMillan. "Nor should it start now."

A typical fund with a 2010 target date, which would be marketed to investors hoping to retire around that time, lost almost a quarter of its value in 2008, according to Mary Schapiro, chairman of the U.S. Securities and Exchange Commission.

The data also shows that returns for such funds ranged from minus 3.6 percent to minus 41 percent.

"These varying results should cause all of us to pause and consider whether regulatory changes, industry reforms or other revisions are needed with respect to target date funds," Schapiro told the public hearing.

SEC staff is reviewing how target-date funds disclose their asset allocations and any changes to them. The agency is also considering whether the use of a target date in a fund's name may be misleading or confusing to investors.

The mutual fund industry urged the SEC and Labor Department not to create any labels to identify funds as conservative, moderate or aggressive.

Investors could benefit from better disclosure of key information such as the relevance of the target date used in a fund name and what happens on the target date, the funds said.

Other important information included the age group for whom the fund was designed and a statement that risks associated with such a fund included the risk of loss near or after the target date. (Reporting by Rachelle Younglai; Editing by Tim Dobbyn)