The SEC’s Investor Advisory Committee has recently recommended that the agency revise and expand on a 2010 SEC proposal to require increased disclosure to investors about the risks and fees associated with target-date retirement funds. Target-date retirement funds generally shift their portfolio holdings over time to less risky investments as investors approach retirement. The Committee notes that target-date funds have become a popular default option provided to employees joining defined contribution plans.
The Committee’s recommendations would require that funds develop a glide path illustration based on risk as a replacement of, or supplement to, existing glide path illustrations based on asset allocation, employ standard methodology for all illustrations, disclose risk assumptions in fund prospectuses, warn investors that funds are not guaranteed and that losses are possible in marketing materials, and enhance fee disclosure of costs over the course of the investment. Although the SEC has made no indication regarding the timing for preparing a concrete new rule proposal in response to the Investor Advisory Committee’s recommendations, SEC Commissioner Daniel Gallagher has said the recommendations are non-controversial. Consequently, action by the SEC on the recommendations may be forthcoming in the near future. The text of the Committee’s recommendations is available here.