In a proposal dated April 3, 2012, the SEC has reopened the comment period for its Target Date Retirement Fund proposal, which now ends May 21, 2012. This will allow for comments on a study of investor testing of comprehension of target date retirement fund characteristics that was sponsored by the SEC and submitted in February 2012. The SEC is concerned that investors do not understand the risks associated with, and the differences among, target date funds. Substantial differences in comparably named target date fund performance during the market downturn in 2008 caused concern that investors had an inadequate understanding of these funds and the related risks.

Target date funds are particularly popular investments for 401(k) plans, and are often designated by plan sponsors as default investments. The date appearing in a fund’s name is used to represent the anticipated year of retirement, or the expected end of investor contributions to the fund. Withdrawals may be expected to begin thereafter, perhaps over an extended period of years, to fund living expenses or as a result of IRS required minimum distributions.

The schedule by which a target date fund’s asset allocation is adjusted is commonly referred to as the fund’s “glide path.” The glide path typically becomes more conservative by decreasing equity exposure and increasing exposure to fixed income investments and/or cash over the life of the fund, reaching a particular allocation in the stated year, and then continuing to become more conservative until reaching a “landing point” after which the allocation remains relatively static. Allocations differ dramatically between different fund families, and the time differential between the target date and the landing point ranges from zero to 30 years. As a result, funds with similar names may have dramatically different asset allocations, a fact that apparently is not well understood by prospective investors.

Originally issued on June 16, 2010, the proposal would require changes to the way information regarding target date retirement funds is included in prospectuses, advertisements and marketing literature. Among the proposed revisions is a requirement that such funds disclose the fund’s asset allocation at the target date immediately adjacent to the first use of the fund’s name in marketing materials. Marketing materials with “more than insubstantial focus” on a target date fund would also be required to include a table, chart or graph depicting the fund’s asset allocation over time (both historical and projected, in increments no greater than five years), together with a statement that would highlight the fund’s final (landing point) asset allocation. Disclosure of a range of asset allocations may also be permissible, subject to a possible limitation on the breadth of that range, which is yet to be determined and subject to comment. Additional required disclosure would include a statement (i) that a target date retirement fund should not be selected based solely upon age or retirement date, (ii) that such fund is not a guaranteed investment, and (iii) disclosing the extent to which stated target asset allocations may be subject to change without a shareholder vote. Target date funds that have reached their target date would be required to disclose actual asset allocations rather than target allocations. Sales literature for any type of fund could be considered misleading if it suggests that a fund is a simple investment plan or requires little or no monitoring, or if it places emphasis on a single factor (such as the investor’s age or tax bracket) as the basis for determining that the investment is appropriate.

Improved disclosure and increased understanding of the glide path of target date funds and their landing points is a worthy goal which would allow investors to make more informed choices. However, this detailed projection of the glide path over various periods creates potential risk of liability for advisers that may, for good reason, deviate in future years from a glide path previously provided to prospective investors, perhaps decades earlier.

Investment Company Advertising: Target Date Retirement Fund Names and Marketing, SEC Release No. IC-30026 (Apr. 3, 2012), available at; SEC Release No. IC-29301 (June 16, 2010), available at