WASHINGTON Nov 22 U.S. securities regulators will seek public comment on a proposal requiring "target date" funds to give certain illustrations to help investors understand investment risks and how their portfolio holdings will change as they near retirement.
Securities and Exchange Commission Chair Mary Jo White disclosed the agency's plans on Friday during a meeting at SEC headquarters before an advisory panel that had recommended the target date fund reforms earlier this year.
"In recent months, the experts in our Investment Management Division have considered your recommendation and have indicated that they believe it would be useful for us to request additional comment," White told the SEC's Investor Advisory Committee, which makes policy suggestions to the agency.
"I agree with the division. It would be useful," she added, noting that other SEC commissioners also agree.
Target date funds are a popular retirement vehicle that invest in a mix of stocks and fixed-income securities.
The portfolio's allocation automatically changes over time, growing more conservative as a person gets closer to retirement age. In industry parlance, the switch in the allocation is known as a "glide path."
But in recent years, the SEC has raised some concerns about target date funds and whether they were adequately disclosing information about the glide path and changes in the asset allocation.
One concern, for instance, centered on how funds are named. In many cases, the names of target date funds include the year a person intends to retire.
But the SEC said that funds with the same year in the name do not always share the same kinds of strategies or risks.
In 2010, the SEC proposed rules that sought to increase disclosures. Those rules have yet to be adopted.
The proposal would require marketing materials with the retirement target date in the fund name to give details about asset allocation.
The proposed regulation also calls for target date funds to give investors charts or graphs that show the asset allocations over the entire life of the fund.
In April, however, the Investor Advisory Committee told the SEC it felt the proposal fell short and needed some tweaks.
The panel said it feared that investors, and even professional pension consultants, are ill-equipped to identify "risk disparities" among similar types of target date funds.
"The goal should be to ensure that the information provides an accurate and easily comparable depiction of fund risk," the committee wrote at the time.
The panel said the SEC should develop a glide path illustration for target date funds that is based on a standardized measure of fund risk.
This illustration, the panel said, could either replace or supplement the glide path graphics that the SEC proposed in 2010.
White said she was still unsure whether the SEC will ultimately repropose the 2010 target date fund plan or move forward with adoption. She added that she hopes target date fund rules can be addressed in 2014.