DCIIA and SIFMA 

Target Date Disclosure Comment Letter 

 

January 14, 2011 

Submitted Electronically 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Room N-5665 

U.S. Department of Labor 

200 Constitution Avenue, NW. 

Washington, DC 20210 

Attention: Target Date Fund Amendments 

RE: Proposed Amendments to Target Date Fund Disclosure Rules under the Qualified 

Default Investment Alternative Regulation (QDIA) and the Participant Level 

Disclosure Regulation (Published on November 30, 2010)

Target date funds are important to members of the Defined Contribution Institutional Investment 

Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) for the role 

target date funds play in defined contribution plan (DC plan) investment policies and as QDIAs. The 

majority of DC plans now use target date funds as their QDIA.1

 What’s more, the average DC plan with 

a target date fund has about one-fifth of its assets invested in target date funds. 2 

DCIIA and SIFMA support efforts to enhance target date fund disclosures and appreciate the 

opportunity to comment on the Employee Benefits Security Administration's (EBSA's) proposed 

amendments to target date fund disclosure rules. 

Importantly, a number of disclosures required by the proposed amendments could be unworkable for 

certain established investment strategies for target date funds. Without revision, the required 

disclosures could also discourage innovation for target date funds, to the detriment of participant 

retirement outcomes. We believe this result is unintended, especially since it is contrary to EBSA's 

 

1 According to Callan Associates, Inc.'s 2010 DC Trends survey: 

 90% of DC plans have a QDIA,

 69% use a target date fund for default investments not made by active participant 

investment elections.

2

 Callan Associates, Inc., DC Index (March 31, 2010). 
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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

stated intent (in the preamble for the QDIA regulations) to be "sufficiently flexible to accommodate 

future innovations and developments in retirement products."3

 

Accordingly we respectfully submit the following comments to the proposed amendments. In summary, 

DCIIA and SIFMA are requesting that EBSA revise the amendments so as not to inappropriately imply 

that all target date fund asset allocations will be stationary or static over time and to support innovation 

in target fund design and in related retirement income strategies that may be facilitated by target date 

fund structures. DCIIA and SIFMA also request that EBSA coordinate its efforts with Securities and 

Exchange Commission (SEC) initiatives on target date fund disclosures to avoid inconsistent 

rulemaking for SEC registered funds. As well, DCIIA and SIFMA ask that EBSA provide transition relief 

to allow for implementation of necessary processes and services to support compliance with the 

amendments. 

The Proposed Amendments May Inappropriately Imply Static Target Date Asset Allocations. 

For target date funds, the proposed amendments would require disclosure of the fund's: 

asset allocation, how the asset allocation will change over time, and the point in time when the 

alternative will reach its most conservative asset allocation; including a chart, table, or other 

graphical representation that illustrates such change in asset allocation over time...4

 

The requirements to identify how the asset allocation "will" change over time and "the point in time" 

when the fund "will" reach its "most" conservative asset allocation appear to inappropriately imply that 

target date funds have stationary or static asset allocation properties that remain constant over a period 

of time. 

“Static” can be a difficult assumption to maintain. In fact, over the past few years, several fund families 

have adjusted the strategic asset allocations in their target date fund series for a variety of reasons – 

performance enhancement, risk mitigation, expense reduction or new asset-class introductions, as 

examples. 

The word “will” also suggests an asset allocation change could (or should) be disclosed in advance. 

Disclosing such a change in the markets in advance could undermine the fund manager’s ability to 

make portfolio adjustments at normal prices. 

Another concern around the “static” assumption relates to asset allocation methodologies that adjust to 

market conditions. Where the fund has a dynamic asset allocation, it could be misleading to provide a 

chart, table or other graphical representation reflecting a precise or static asset allocation as of any 

specific time that does not reflect how the allocation could change over time. Few would suggest that 

investment risk and return behave in a consistent, straight-line manner. Tactical asset allocation is a 

powerful tool which can help protect plan participants retirement assets and make them less vulnerable 

to market declines. 

 

3

 Default Investment Alternatives Under Participant Directed Individual Account Plans; Final Rule, 72 

Fed. Reg. 60452, 60460 (October 24, 2007). 

4

 EBSA proposed rule §§2550.404a-5(i)(4)(i) and 2550.404c-5(d)(3)(vi)(A). 
January 14, 2011 

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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

For example, a target date fund that utilizes tactical asset allocation could have an asset allocation that 

becomes more conservative over time. However, the asset class allocations may vary as the 

risk/return characteristics of individual asset classes and market or other conditions change. Target 

date fund disclosures should accommodate dynamic asset allocation that uses "relative" asset 

allocation and other strategies and methodologies, including the ability to manage portfolio risk or to 

capitalize on short-term asset class disruptions. 

Nothing in the QDIA regulation's definition of a target date fund presupposed that the asset allocation 

strategy be stationary or static. Rather, the QDIA regulation simply required that the investment 

product "apply generally accepted investment theories," "be diversified so as to minimize the risk of 

large losses," and "be designed to provide varying degrees of long-term appreciation and capital 

preservation through a mix of equity and fixed income exposures based on the participant's age, target 

retirement date (such as normal retirement age under the plan) or life expectancy," and that the 

"portfolios change their asset allocation and associated risk levels over time with the objective of 

becoming more conservative (i.e., decreasing risk of losses) with increasing age."5

DCIIA and SIFMA urge that EBSA allow the flexibility to make changes to target date fund asset 

allocations dynamically, and permit participant disclosures to acknowledge that asset allocation is not 

expected to be static, in recognition that many target date fund asset allocations are neither predetermined or nor unchanging over time. For example, we would suggest that the proposed 

disclosures should allow for asset allocation ranges and should include a risk disclosure to the effect 

that what is initially disclosed to participants is projected or hypothetical and may be revised over time. 

Target Date Fund Asset Allocations Methodologies Can Vary and Target Date Fund Innovation 

Should Be Supported. 

Target date funds also could use other methodologies to allocate assets, such as volatility targets (e.g., 

a 4% volatility target for a 2010 fund, 10% volatility target for a 2040 fund, etc.), that are not based on 

an equity/fixed income ratio. These volatility targets could also change based on factors such as 

market returns. As another example, target date funds could have separate glide paths when used in 

retirement income strategies – one for those who choose to begin receiving payouts or annuitize their 

income portfolios and one for those who do not. The two glide paths could have different expected 

"most conservative" asset allocations as a result. The actual asset allocation of some of these 

retirement income strategy target date funds over time may also vary from an asset allocation initially 

disclosed to participants to the extent the asset allocation cannot be rebalanced from the income to the 

growth portfolio. As target date fund and retirement income strategies continue to develop, DCIIA and 

SIFMA expect further innovation in asset allocation strategies for these products and asks that EBSA 

support continued product development seeking to create better retirement outcomes. 

DCIIA and SIFMA also propose that EBSA study the impact on DC plan participant behaviors of 

providing different target date fund disclosures to DC plan participants, or at least urge EBSA to draft 

disclosure requirements that are sufficiently flexible to accommodate best practices developed by 

behavioral research and other studies so as not to stifle investment innovation, risk analysis or display 

methodologies not yet developed. 

 

5

 §2550.404c-5(e)(4)(i). 
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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

DCIIA and SIFMA Recommendations. 

In support of the comments raised above, we suggest that the amendments to the disclosure 

requirements in proposed §§2550.404a-5(i)(4)(i) and 2550.404c-5(d)(3)(vi)(A) be modified to read as 

follows: 

..."asset allocation, how the asset allocation will change over time, and the time(s) or range of 

times when the alternative will reach its most conservative asset allocation; including a chart, 

table, or other graphical representation or illustrations or examples that communicate (i) a 

hypothetical or targeted change in asset allocation(s) or associated risk levels (such as 

different market conditions or other relevant factors) over time, or (ii) the current glide 

path for all funds within a family of funds, depicting where all funds fall along the current 

glide path,"... 

We also believe the required disclosures should include information about the fund manager's ability to 

adjust the glide path over time, as applicable, and that the actual asset allocation of the fund may differ 

from the charts, tables or other graphical representations or illustrations or examples presented. 

Further, we believe the risk disclosure proposed in §§ 2550.404a-5(i)(4)(iii) and 2550.404c5(d)(3)(vi)(C) should be modified as follows, to reflect the fact that all retirement investments have a risk 

of loss. 

A statement that, as with all retirement investments, the participant or beneficiary may lose 

money by investing in the alternative, including losses near and following retirement, and that 

there is no guarantee that investing in the alternative will provide adequate retirement income. 

"Additional Related Comments on Asset Allocation/Glide Path Disclosures” are included at Appendix A.

Coordination with SEC Guidance. 

DCIIA and SIFMA ask that EBSA coordinate with the SEC's efforts to enhance target date fund 

disclosures so that SEC and EBSA rules do not provide for inconsistent disclosure requirements. In 

particular, DCIIA and SIFMA would ask EBSA to consider that if a target date fund meets SEC 

disclosure requirements for SEC registered funds, it would be deemed to satisfy EBSA's target date 

fund disclosure requirements. Overlapping or slightly different requirements create confusion. As we 

noted in our comment letter to the SEC's recent proposed target date fund rule (Investment Company 

Advertising: Target Date Retirement Fund Names and Marketing),6

 inconsistent regulation can lead to 

poor outcomes. 

Transition Relief Requested to Facilitate Compliance. 

DCIIA and SIFMA request a one-year transition period after issuance of the final amendments before 

they become effective (or at least no earlier than the applicability date of the final participant disclosure 

regulation). DCIIA and SIFMA also request that the amendments include such additional transition 

relief as was provided in the final participant disclosure regulation, which we believe would also be 

appropriate for target date funds. 

 

6 http://www.sec.gov/comments/s7-12-10/s71210-42.pdf
January 14, 2011 

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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

Increasingly, plans are adopting custom target date funds. These custom solutions allow firms to 

specifically meet the needs of their employee population, often at lower cost to participants, with greater 

control over expenses, underlying managers and transparency. Many of the structures are created 

from non-registered vehicles such as collective trusts and separately managed accounts, while others 

use model portfolios where the model dictates the asset allocation across the plan's investment 

alternatives. 

Traditionally, the issuers of investment alternatives and plan service providers have not been required 

to provide disclosure on the level prescribed by the proposed amendments. While we agree that the 

amendments can enhance important participant disclosures, many of the firms providing these 

solutions will need to make significant investments in people, and potentially systems, to generate the 

data and draft the required disclosures. Therefore, we feel it is prudent to provide additional time to 

ensure these organizations can properly and thoroughly implement these changes and achieve 

compliance. 

In addition, the amendments should include transition relief similar to the transition relief that was 

included in the final participant level disclosure regulation. For example, the final QDIA regulation 

should state expressly that historical performance data is not required for periods before inception of 

the QDIA. In addition, for investment alternatives that are not registered under the Investment 

Company Act of 1940, similar to the final QDIA regulation, the final amendment should include 

transition relief for the first 10 years after the regulation becomes effective to allow for reasonable 

estimates of expenses and other relevant factors used in creating the required disclosures. See 29 

C.F.R. § 2550.404a-5(j)(3)(ii). 

Who We Are. 

DCIIA. The Defined Contribution Institutional Investment Association (DCIIA) is a non-profit trade 

association dedicated to enhancing the retirement security of American workers. DCIIA members 

include investment managers, consultants, record keepers, insurance companies, plan sponsors and 

others committed to improving retirement outcomes for American workers by advocating for better 

defined contribution plan design and institutional investment management approaches. 

DCIIA's Core Beliefs. DCIIA members believe the current defined contribution retirement system, with 

the adoption of institutional design approaches available today, can and will provide for the retirement 

security of working Americans. The important advances contained in the Pension Protection Act, 

particularly the safe harbor protections for plan automation features and appropriate default investment 

selection, provide plans with important guidance and fiduciary safeguards which can result in higher 

participation and savings rates, more appropriate investment allocations and improved long-term 

investment performance. 

By incorporating techniques of professional pension management found in traditional defined benefit 

pension plans, defined contribution sponsors can improve retirement savings outcomes, affording their 

employees a better quality of life in retirement while managing their own fiduciary liabilities in plan 

governance. Some of the most prominent best practices include: 
January 14, 2011 

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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

1. Flexibility in Assembling Best-in-Class Plan Design 

Plan sponsors and their consultants should have the ability to select the best combination of partners to 

meet plan needs, including investment and retirement solutions, record keeper, custodian, managed 

account, advice and other service providers. 

2. Full Support for All Investment Vehicles and Product Solution Formats 

The continued development of standard industry trading systems and information sharing protocols 

provides plan sponsors with a very wide range of DC-appropriate investment and pricing options which, 

depending on plan preferences, may be best delivered through mutual fund, insurance contract, 

collective trust or individual and institutional separate account formats. 

3. Improved Default Programs as Most Effective Path to Realizing Successful Outcomes 

Auto-enrollment and sufficient auto-escalation of contribution rates – coupled with a well-constructed 

qualified default investment and an effective employee communications and education program – can 

generate sufficient balances for workers to fund an adequate income replacement rate at retirement. 

Spending needs and longevity risk can be addressed by existing as well as new post-retirement 

investment and income management solutions being introduced to the market. 

4. Full Lifetime Approach to Providing Retirement Income Adequacy 

The likelihood of a successful retirement income outcome may be improved by careful attention during 

both the working (accumulation) and retirement (distribution) phases, and by including a combination of 

employer-sponsored and individual retirement accounts, to initially grow and ultimately preserve 

savings necessary to meet spending needs over an individual’s total life expectancy. 

5. Full Expense Transparency from All Service Providers 

Plan participants benefit from plan sponsors providing fiduciary oversight of plan economics, and being 

knowledgeable about the breakdown of all plan costs and sources of revenue, including but not limited 

to investment management, record keeping and other administrative expenses. 

SIFMA. SIFMA brings together the shared interests of securities firms, banks, and asset managers. 

SIFMA’s mission is to promote policies and practices that work to expand and perfect markets, foster 

the development of new products and services, and create efficiencies for member firms, while 

preserving and enhancing the public's trust and confidence in the markets and the industry. SIFMA 

works to represent its members’ interests locally and globally. It has offices in New York, Washington 

D.C., and London and its associated firm, the Asia Securities Industry and Financial Markets 

Association, is based in Hong Kong. 

* * * * * 
January 14, 2011 

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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

Thank you again for the opportunity to provide comments to your proposed amendments to target date 

fund disclosure requirements as we work toward establishing best practices to improve the retirement 

security of American workers through their use of target date funds and similar strategies in defined 

contribution plans. DCIIA and SIFMA believe that the fundamental advantages of target date funds 

have proven and will continue to prove themselves by helping DC plan participants to retain an 

appropriate asset allocation strategy over time. Target date funds have been instrumental in helping 

plan participants select and maintain well-diversified and age-appropriate investment strategies and in 

reducing the risk of investors' emotions driving their investment decisions. 

Sincerely, 

Lew Minsky 

Executive Director 

Defined Contribution Institutional Investment Association 

Lisa Bleier 

Managing Director, Government Affairs 

Securities Industry and Financial Markets Association 
January 14, 2011 

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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

Appendix A

Additional Related Comments on Glide Path/Asset Allocation Disclosures 

DCIIA and SIFMA believe that a simple and straightforward disclosure of a target date fund is 

disclosure of its full target date fund glide path(s), along with an indication of the points along the glide 

path(s) that represent the target asset allocation of a given target date fund. For example, the allocation 

to different asset classes of a glide path could be shown over time. As another example, a disclosure 

of each current glide path for all target funds in the fund family, showing where all target funds fall along 

the current glide path(s), could also be used. (Of course, alternative structures and products not yet 

developed might best be communicated in other ways.) 

Similar to ERISA’s diversification guidance, DCIIA and SIFMA recommend any glide path depict no 

fewer than three risk or asset class exposures, as applicable, and as illustrated in the example set forth 

below: 

We encourage firms to illustrate the fund’s exposure to sub-asset classes, as applicable, to improve 

transparency and better communicate the structural composition and dynamic asset allocation 

characteristics of the fund as it matures. An example reflecting six sub-asset classes is set forth below: 

DCIIA and SIFMA support broad diversification approaches and the inclusion of real assets or inflationprotection securities within a target date fund to reduce volatility and to preserve DC plan participants’ 

purchasing power. It may be informative to group smaller sub-asset-class allocations designed to 

mitigate the effects of inflation into a clearly defined allocation named “inflation-sensitive” or “real return” 

asset class. The glide path disclosure could also show the primary asset categories (e.g., Fixed 

Income, Equity, High Yield, Cash, Real Estate, etc.) with an equal or greater than 15% allocation. 

Asset categories with a lower than 15% allocation could be captured in an "Other" bucket of which the 

detailed component would be reflected in a footnote. 
January 14, 2011 

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Defined Contribution Institutional Investment Association (DCIIA) and Securities Industry and Financial Markets Association (SIFMA) 

The following represents some of the sub-asset classes or risk options for illustration within the 

glide path: 

 Cash 

 Core Fixed Income 

 High Yield 

 Non-US Fixed Income 

 Inflation-sensitive/Real Assets 

 US Large Cap Equity 

 US Mid/Small Cap Equity 

 Non-US Equity 

 Emerging Markets 

 Other 

 

A straightforward glide path disclosure would allow investors to readily conceptualize the target date 

fund’s investment strategy and how the fund’s asset allocations change over time, and to judge whether 

a given target date fund allocation is in keeping with their time horizon and risk tolerance. 

CHI:2487493.7