SHAPING AMERICA’S RETIREMENT

 

Filed Electronically

January 13, 2011 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5655 

U.S. Department of Labor 

200 Constitution Ave., NW 

Washington, DC 20210 

Attention: Target Date Amendments 

Re: Proposed Regulation for Target Date Fund Disclosure

Ladies and Gentlemen: 

The SPARK Institute, Inc.1

 appreciates this opportunity to comment on the proposed regulation 

for target date fund disclosure (the “Proposed Regulation”) published by the Employee Benefits 

Security Administration (“EBSA”) on November 30, 2010.2 The SPARK Institute members 

include the industry’s leading retirement plan service providers, including record keepers and 

investment fund managers, who will be directly affected by the Proposed Regulation. 

At the outset, we note that we support EBSA’s efforts to educate plan participants about target 

date funds and to ensure that they have information about the funds available to them as plan 

investment options. After reviewing the Proposed Regulation with our members, we have 

identified several issues that we believe require clarifications or modifications. This comment 

letter summarizes our issues and concerns, and includes recommended changes. 

 

 

1

 The SPARK Institute represents the interests of a broad based cross section of retirement plan service providers 

and investment managers, including banks, mutual fund companies, insurance companies, third party 

administrators, trade clearing firms and benefits consultants. Members include most of the largest firms that 

provide record keeping services to employer-sponsored retirement plans, ranging from one participant programs 

to plans that cover tens of thousands of employees. The combined membership services approximately 70 

million employer-sponsored plan participants. 

2

 75 Fed. Reg. 73987 (Nov. 30, 2010).
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A. “Glide Path” Illustration – The Proposed Regulation requires the plan administrator to 

provide an explanation of the fund’s asset allocation, how the asset allocation will change 

over time, and the point in time that the fund will reach its most conservative asset 

allocation.3 The Proposed Regulation also requires the plan administrator to include a chart, 

table or other graphical representation that illustrates the change in asset allocation over time 

and “does not obscure or impede a participant’s or beneficiary’s understanding of the 

information explained pursuant to the [applicable section].” (Emphasis added.) 

Although it appears that EBSA’s goal is for participants to receive simple and understandable 

information, we are very concerned that the disclosure requirement includes the subjective 

qualitative standard that the chart, table or illustration does not obscure or impede a 

participant’s understanding of the other disclosures. We believe that the standard is too 

subjective, is vague and is subject to very different interpretations. We are also concerned 

that meeting or failing to meet the standard appears to be dependent on participants’ 

subjective and potentially biased evaluation of the materials and their understanding of them. 

The materials may, in order to convey critical information and in order to mitigate risk of 

litigation, include complex concepts and disclosures. Service providers, including record 

keepers and investment managers, will likely be reluctant to assume responsibility for 

providing or for assuring plan administrators that any such materials comply with the 

proposed standard. Additionally, we are concerned that the standard lays the groundwork for 

potentially significant and frivolous litigation that will be based on factual disputes about the 

understandability and clarity of charts and illustrations that, as noted above, may have to 

include complex information. The threat of litigation is significant because the inherent 

factual nature of such claims and the cost to defend against them make them especially 

appealing to class action lawyers whose primary goal in bringing lawsuits is to obtain a 

financial settlement rather than to protect the interests of plans and participants. 

 

Accordingly, in order to resolve this issue and address our concerns, we urge EBSA to 

modify the Proposed Regulation by replacing the following language “does not obscure or 

impede a participant’s or beneficiary’s understanding of the information explained pursuant 

to the [applicable section]” with “is presented in a manner calculated to be understood by the 

average participant.” Our recommended language has been used by EBSA in regulations 

related to preparing summary plan descriptions. We believe the alternative language strikes a 

balance between EBSA’s objectives and our concerns that are summarized above. 

B. Risk of Loss Statement – The Proposed Regulation requires the plan administrator to 

include with target date fund disclosures a statement that the participant “may lose money by 

investing in the alternative, including losses near and following retirement, and that there is 

no guarantee that the alternative will provide adequate retirement income.”4 Although we 

understand EBSA’s intentions in requiring this disclosure, we are concerned that it may have 

 

3

 2550.404a-5(i)(4)(i), and 2550.404c-5(d)(vi)(A).

4

 2550.404a-5(i)(4)(iii), and 2550.404c-5(d)(vi)(C). 
SHAPING AMERICA’S RETIREMENT 3

the unintended consequence of creating a potentially negative perception of target date funds 

in comparison to other plan investment options. Target date funds, as well as any plan 

investment option that has a variable rate of return, involve the risk of loss to the investor 

near and after retirement, and do not provide a guarantee of adequate income in retirement. 

The risks vary in degree among the investment alternatives based on the asset class, 

investment style, and other factors. However, the Proposed Regulation singles out target date 

funds by requiring this special risk of loss notice. In addition to our concern that this special 

notice could create a negative perception of target date funds, it could also have the 

unintended consequence of suggesting to participants that the other funds offered as 

investment alternatives do not involve such risks. Additionally, the notice could cause some 

participants to avoid target date funds entirely, even though such funds may be a good 

choice. 

Accordingly, in order to resolve our concerns, we urge EBSA to modify the Proposed 

Regulation by eliminating the risk of loss notice requirement. The SPARK Institute urges 

EBSA not to single out specific types of funds for disclosure about investment risks that 

generally apply to all plan investment options. 

C. Fund Design Disclosures – The Proposed Regulation requires the plan administrator to 

make certain additional disclosures about a target date fund that is named or described with 

reference to a date.5 Specifically, the Proposed Regulation requires an explanation of the age 

group for whom the alternative is designed, the relevance of the date and any assumptions 

about a participant’s....contribution and withdrawal intentions on or after such date.6 It 

appears that EBSA is attempting to clarify for participants whether a particular fund is 

designed for investment “to” a participant’s retirement date or “through” the participant’s 

retirement. We support EBSA’s goal but are concerned that the language used in the 

proposal is subject to different interpretations by plan administrators, investment managers 

and other service providers. Plan administrators are likely to expect that their service 

providers and the fund companies will help them by providing information and explanations 

that are intended to meet the disclosure requirements. After discussing the language used in 

the proposal with our members who are fund managers and viewing it from their 

perspectives, it became evident that the disclosures that are developed by them in order to 

satisfy the regulations, as currently written, could be lengthy and complicated. 

Many fund managers that we have discussed this with are concerned that the contribution and 

withdrawal explanation requirement, as written, could be interpreted as requiring an 

explanation of the quantitative analysis used by the fund manager in constructing the glide 

path for the fund. An explanation of that type would be lengthy and complicated, and is not 

likely to be readily understood by the average plan participant. We do not believe that EBSA 

intended to require such explanation to be included in the disclosures to participants. We 

believe that EBSA intended that the disclosure provide an explanation about whether a fund 

 

5

 2550.404a-5(i)(4)(ii), and 2550.404c-5(d)(vi)(B).

6

 Id.
SHAPING AMERICA’S RETIREMENT 4

is designed for investors who intend to withdraw their money upon reaching retirement age 

or for those who intend to keep their money in the fund beyond reaching retirement age. To 

ensure that EBSA’s intent is carried out, and in order to help the regulated community 

understand the disclosure requirements, we have proposed clarifying language below. 

We urge EBSA to modify the proposal by deleting the following language “and any 

assumptions about a participant’s or beneficiary’s contribution and withdrawal intentions on 

or after such date;” and replacing it with the following “and a statement identifying whether 

the fund is designed for investors who intend to withdraw their money upon reaching 

retirement age or for those who intend to keep their money in the fund, either inside the plan 

or outside of the plan, beyond reaching retirement age;” 

 

D. Required Disclosures for All Qualified Default Investment Alternatives (“QDIAs”) – 

The Proposed Regulation amends the disclosure rules for QDIAs by requiring the plan 

sponsor to provide participants with more detailed fee and performance information. We are 

concerned that some of the newly required information does not directly apply to, or may not 

be available from, a QDIA that is an investment management service (e.g., managed 

account”) as described under the existing QDIA regulations.7 Specifically, the Proposed 

Regulation requires disclosure of the “investment’s issuer”,8 the investment’s historical 

performance data,9 and the investment’s attendant fees and expenses including, among other 

things, any annual operating expenses (e.g., expense ratio).10 

Managed accounts do not have an “investment issuer” because, by definition, they are 

products and services that involve managing or allocating a participant’s account based on 

particular investment principles. Additionally, managed account products and services may 

not have historical performance data because the performance history is generally based on 

the results within individual participant accounts, which will vary based on a number of 

factors such as age and risk tolerance. Similarly, managed accounts will not have an expense 

ratio that can be disclosed because of the variation in the investment of participant accounts. 

For example, when the underlying investments in such accounts are mutual funds, the fees 

attendant to the account will vary based on the participant’s asset allocation and the expense 

ratios of the underlying funds. 

Accordingly, we request that EBSA modify or clarify the disclosure requirements with 

respect to a QDIA that is an investment management service as follows. The identity of the 

investment manager for the managed account product or service should be required to be 

disclosed, instead of the investment issuer. The historical performance data disclosure 

requirement for such services should be eliminated. The fee disclosure requirement should 

be modified to require disclosure of the fees charged by the investment manager of the 

 

7

 2550. 404c-5(e)(4)(iii).

8

 2550.404c-5(d)(3)(i).

9

 2550.404c-5(d)(3)(iv).

10 2550.404c-5(d)(3)(v)(B).
SHAPING AMERICA’S RETIREMENT 5

accounts, and an estimated range of the annual operating expense for the underlying 

investments in which the participant's account may be invested under the service. 

 

E. Content and Timing of Notices – The QDIA regulations11 require that participants be 

furnished with a notice generally when they become eligible to participate in the plan and 

annually thereafter.12 In the time since the QDIA regulations were issued, EBSA has 

finalized the participant disclosure regulations13 that require plan administrators to furnish all 

participants, including eligible non-participating employees, with substantial information 

about a plan’s investment alternatives.14 Under the participant disclosure regulations, 

participants must be furnished with information about the plan investments generally when 

they become eligible to direct their investments and annually thereafter.15 We are concerned 

that the combined effect of the disclosures that must be provided under both regulations will 

likely be to overwhelm and potentially confuse participants unless they are modified and 

coordinated so that plan administrators can satisfy both disclosure requirements in one or 

more documents that can be furnished to participants at the same time. We urge EBSA to 

modify the Proposed Rule to allow plan administrators to coordinate and combine the content 

of the required notices and to coordinate their timing so that they can be made together. 

There is significant overlap in the information that must be provided about the investment 

alternatives under both regulations. However, the investment alternative information that is 

required under the participant disclosure regulations is more robust and likely to be just as, if 

not more, useful to all participants than the information required under the QDIA regulations. 

Plan administrators should not be required to provide more or unique information about the 

plan investments to passive participants whose plan contributions are defaulted into the 

QDIA. Defaulted participants, by definition, are less likely than participants who actively 

manage their accounts to read the materials. If and when passive or defaulted participants 

begin to read the materials they receive and actively manage their accounts, the materials 

they would receive pursuant to the participant disclosure regulations put them in the same 

position as all other participants in the plan. Accordingly, we urge EBSA to modify the 

Proposed Regulation to provide that a plan administrator can satisfy the notice requirements 

under Section (d)(3) of the QDIA regulations by providing the investment alternative 

disclosures required under Section 2550.404a-5(d). 

We recognize that the QDIA notice must also include additional information about the 

circumstances related to the use of the default fund, and that such information is not 

otherwise required under the participant disclosure regulations. For example, the QDIA 

 

11 See Default Under Investment Alternatives Participant Directed Individual Account Plans; Final Rule, 72 Fed. 

Reg. 60452 (Oct. 24, 2007).

12 2550.404c-5(c)(3).

13 See Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans; Final Rule, 75 Fed. 

Reg. 64910 (Oct. 20, 2010).

14 2550.404a-5(b)(1). See also Id. at 64912, Supplementary Information Section B, 1. 

15 2550.404a-5(d)(1).
SHAPING AMERICA’S RETIREMENT 6

notice must include a description of the circumstance of when the participant’s account will 

be invested in the QDIA, a description of the participant’s right to transfer his funds to 

another investment alternative, and certain other disclosures.16 However, providing this 

information separate and apart from the investment related information that must be 

furnished to participants is duplicative, costly and will likely confuse participants. The 

SPARK Institute believes that the entire QDIA notice process can be simplified and 

combined with the participant disclosure requirements, which will make it less likely that 

participants will be overwhelmed with duplicative and potentially confusing separate notices 

and will also make complying with both regulations more cost effective. Accordingly, and 

consistent with the request in the preceding paragraph, we urge EBSA to clarify and modify 

the QDIA notice requirement, as needed, to allow plan administrators to combine and include 

the information required under Sections 2550.404c-5(d)(1), (2), (4) & (5) in the annual 

disclosures that must otherwise be furnished to all participants under the participant 

disclosure regulations. 

Additionally, we urge EBSA to modify the QDIA regulations to conform the timing of when 

a QDIA notice must be provided to the timing requirements under the participant disclosure 

regulations. This would allow participants to receive all of the required information 

generally when they become eligible to direct their investments and annually thereafter. 

Existing differences in the timing requirements will perpetuate the duplication of effort, add 

to the cost of compliance and will likely confuse participants. The SPARK Institute believes 

that conforming the timing requirements will provide significant advantages with little or no 

negative impact to plan participants. 

F. Effective Date – The Proposed Regulation will be effective 90 days after it is finalized and 

published in the Federal Register. Although the plan administrator is designated as being 

responsible for making the required disclosures, as a practical matter, they will be largely 

dependent on investment providers and other providers to help them gather, prepare and 

distribute the required information. As EBSA knows, an extraordinary number of broad and 

significant new rules were issued in 2010, including the 408(b)(2) regulations and participant 

disclosure regulations. Additionally, EBSA’s proposed regulation that would change the 

definition of fiduciary is still pending and being evaluated by the retirement plan community. 

The combined impact of these three initiatives on the entire retirement plan community and 

the time and resources needed to evaluate and comply with them is substantial. We urge 

EBSA to consider the combined impact of all of its rulemaking initiatives in setting any 

effective dates and compliance deadlines so that plan sponsors and service providers can 

comply with new rules in an orderly and cost-effective manner. Providing more time will not 

only improve the quality of compliance but will also help plan sponsors and service providers 

to manage the cost of doing so. Accordingly, we request that EBSA modify the effective 

date of the proposal to one year after it is finalized and published. 

* * * * * 

 

16 2550.404c-5(d)(1), (2), (4) & (5).
SHAPING AMERICA’S RETIREMENT 7

The SPARK Institute appreciates the opportunity to provide these comments to EBSA. If you 

have any questions or need additional information regarding this submission, please feel free to 

contact us at (704) 987-0533. 

Respectfully, 

Larry H. Goldbrum 

General Counsel