The Department of Labor’s Employee Benefits Security Administration (EBSA) and the Securities and Exchange Commission (SEC) have published a bulletin about target date retirement funds (also known as “life cycle funds”) that is intended to help investors and plan participants understand and evaluate such investments. The bulletin also is a useful resource for retirement plan sponsors and investment committees that are responsible for selecting and monitoring the investment alternatives available under retirement plans.
Target date funds are intended to simplify retirement investing for plan participants and other investors by using a combination of investments that is gradually adjusted to become more and more conservative as a fund’s “target date” approaches. Investors often choose a particular target date fund based on their retirement time horizon. However, the investment strategies and adjustment timelines of different target date funds vary widely. Many investors and plan fiduciaries may not be aware of these differences, or may not know how to assess the differences. The EBSA/SEC guidance is intended to assist plan participants and other investors in evaluating the benefits and risks associated with target date funds and the appropriateness of investing their retirement assets in such funds.
The bulletin provides an overview of how target date funds are designed and intended to operate, including examples of differences in asset allocation methods and adjustment timeframes that may be used by various funds. The guidance discusses key considerations for evaluating target date funds and outlines factors for investors to consider before investing in a particular target date fund. The bulletin also lists other resources issued by the Department of Labor, the SEC and the Financial Industry Regulatory Authority that may be helpful to investors.
The guidance, “Investor Bulletin: Target Date Retirement Funds,” is available here. According to Louis Campagna, chief of the EBSA Division of Fiduciary Interpretations, EBSA also is compiling a target date funds checklist for retirement plan sponsors.