US Department of Labor: Spring Regulatory Agenda 2010
Employee Benefits Security Administration (EBSA)
Topic: Target Date Fund Selection Compliance Assistance Checklist
EBSA plans to enhance retirement security by publishing compliance assistance guidance to plan sponsors regarding the evaluation and selection of target date funds as retirement plan investment options and investment choices for employees, ultimately supporting the Secretary’s good jobs for everyone policy.
Key Action: Publication – Fiduciary Checklist
The Department’s EBSA plans to publish a compliance assistance checklist in Spring 2010. This guidance will assist plan sponsors in their evaluation and selection of target date funds as plan investment options and investment choices.
Key Concern and Issues to be addressed
The popularity of target date funds in 401(k)-type plans is growing. However, target date funds are not uniformly-designed investment products. Recent attention has focused on the importance of understanding the unique characteristics that distinguish target date funds from other types of investments, the differences among the various target date funds available, and how these differences can affect the retirement savings of employees. The Department anticipates that its guidance will assist plan fiduciaries in evaluating and selecting from the different target date funds that are available.
Under the Employee Retirement Income Security Act (ERISA), plan fiduciaries responsible for selecting plan investment options must act prudently and solely in the interest of the plan’s participants and beneficiaries. In 2008, the Department’s ERISA Advisory Council studied several aspects of target date funds, include challenges faced by plan fiduciaries in selecting and monitoring appropriate target date funds for their plans, and recommended that the Department provide additional guidance to plan fiduciaries. In 2009, the Department and the U.S. Securities and Exchange Commission held a joint public hearing to examine several issues related to target date funds, including how they are selected by plan fiduciaries and by investors. Several witnesses at the hearing also indicated that plan fiduciaries would benefit from additional guidance on the evaluation and selection of target date funds.
Surveys and studies suggest that target date funds are growing in popularity in 401(k)-type plans, both as investment options generally and as qualified default investment alternatives for participants who do not provide investment direction. For example, according to a recent survey, almost 58 percent of 401(k)-type plans offered target date funds as an investment option in 2008. Also, out of the approximately 40% of 401(k)-type plans that contained an automatic enrollment feature, almost 60% of these plans used target date funds as a qualified default investment alternative. With the growing popularity of target date funds as plan investment options and choices, the Department believes that providing additional guidance to plan fiduciaries will help enhance retirement security for employees.