The federal government wants retirement savers to have more information about the risks and benefits of investing in target-date funds. The Labor Department’s Employee Benefits Security Administration (EBSA) announced a proposed amendment yesterday aimed at providing investors with comprehensive information about their retirement plan’s target-date fund offerings.
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This rule would amend an October 2007 regulation that allows plan sponsors, in the absence of directions from a participant, to invest 401(k) account holders in a qualified default investment. One of the most popular default investments has been target-date funds, a type of mutual fund that automatically rebalances to a more conservative asset allocation as the participant approaches their selected retirement date. This new amendment would require that additional and more specific information be provided to all investors who are automatically enrolled or voluntarily sign up for a target-date fund in their retirement account.
Target-date funds differ significantly in the percentage of the fund allocated to equities at various stages of a person’s lifetime and the fees changed to participants. EBSA will publish a checklist to aid employers in selecting target-date funds that meet their worker’s retirement savings needs. The publication will point out the differences among various types of target-date funds and how they can affect the retirement preparedness of employees. The complete proposed amendment will be published in August 2010.