ASPPA Comments on Target-Date Fund Disclosures

Addressing the Department of Labor’s Employee Benefits Security Administration, the groups recommended the disclosures for participants include: 

• The impact on 401(k) participants who take a lump sum cash distribution at retirement. In the groups’ experience, most participants take their distributions in cash lump sums at retirement. Even if they roll their distributions over to an IRA, they may not reinvest (or be able to reinvest) in the same target date funds. Thus, any fund in which the landing point is 20 years after retirement may be wholly inappropriate for that participant. “Our point is not to engage in a debate of the “to” versus “through” glidepaths, but to emphasize that disclosure of asset allocation at the target date and/or the landing point, while helpful, may not be sufficient.” 
• A statement as to the potential impact of disparate ages between spouses. A target date fund for a participant who intends to retire at age 70 (with a life expectancy of 16 years) and a spouse that is age 68 (with a life expectancy of 22 years) may not be appropriate for a 70 year-old with a 55 year-old spouse (whose life expectancy may be 35 years). 

In addition, as did the SPARK Institute in its comment letter to the Employee Benefits Security Administration (see “SPARK Calls for Clarification of Proposed TDF Disclosure Rules“), ASPPA and NAIRPA  asked for more clarification on the requirement in the Proposed Regulations that a chart, table or other graphical representation not “obscure or impede” a participant’s or beneficiary’s understanding of information required to be explained.  

“Given the ambiguity in the language in the Proposed Regulation, plan fiduciaries will have difficulty determining whether they have satisfied this requirement,” the letter said. “As a result, ASPPA and NAIRPA suggest that the Department adopt the standard for target date fund disclosures that is used in the context of summary plan descriptions, i.e., where information must be provided “in a manner calculated to be understood by the average plan participant.”