for participants by the plan. We would be happy to meet with the Department to
discuss specific language for the final regulation that would best address these
issues.

¢ Clarification of FAB 2012-02 Q. 28—Q. 28 should be clarified with further
guidance to establish uniform disclosure requirements to “clearly present” and
“clearly explain” non-DIA target date and other complex model portfolios. We
recommend adopting the target date disclosure requirements of the Proposal, and
further, that composite investment performance, a composite performance
benchmark, and composite fees of such target date portfolios be presented in the
same comparative format required of a DIA model portfolio.

Conclusion:

We believe that target date investments serve an important purpose in plan investment
menus. However, we do not believe that participants can make informed choices about
using target date investments unless they have the information necessary to evaluate and
compare them to other similar investments available. The potential for non-DIA target
date model portfolios to be misused, or to provide inadequate information to participants
is high unless the Department modifies the Proposal, and clarifies the guidance in FAB
2012-02 Q. 28.

Thank you for the opportunity to comment on the Proposal. We look forward to working
with you to improve the retirement security of America’s workers, and we would be
happy to meet with you to discuss our concerns. Please feel free to call me at (303) 737-
3086 with any questions you may have.

Sincerely,

oll.

Charles P. Nelson
President, Great-West Retirement Services


alternative that is [a target date investment under the QDIA regulation]. ..[emphasis
added].”

Q. 28 of FAB 2012-02 offers new guidance interpreting when a model portfolio is a DIA
and when it is not. While the new guidance determined that many model portfolios are
DIAs, it stated that:

“A model portfolio ordinarily is not required to be treated as a designated investment alternative
under the regulation if it is clearly presented to the participants and beneficiaries as merely a
means of allocating account assets among specific designated investment alternatives... When a
model portfolio is simply a means of allocating account assets among specific designated
investment alternatives, the plan administrator also must clearly explain how it differs from the
plan's designated investment alternatives. [emphasis added]...”

While this guidance suggests that there is some additional disclosure required for a “non-
DIA” target date model portfolio beyond the minimum (the “clearly presented” and
“clearly explain” language of Q. 28), it is not clear what this disclosure would entail, or
that it would be the same as the information required by the Proposal. The lack of
uniform standards in the guidance for such target date portfolios raises significant
concerns that participants would not receive the information needed to evaluate target
date model portfolios that utilize only DIAs for asset allocation.

What is clear from the guidance is that a target date model portfolio that is “merely
allocating assets among specific designated investment alternatives” is not itself a DIA.
Therefore, as currently written, the Proposal would not apply to such a model portfolio.

Accordingly, we offer our suggestions below for ensuring that all target date investments,
regardless of their technical descriptions or DIA status, provide participants and plans
with the information necessary to understand and evaluate the target date options
available to them.

Recommendations for Modifications to the Proposal:

To achieve the Department’s objective in the Proposal, we offer the following
suggestions to modify the Proposal:

¢ Modification of 404a-5(i)(4): Rather than limiting the application of the

participant disclosure requirements to DIAs, the final regulation should broadly
apply to target date and similar investments. We recommend replacing “In the
case of a designated investment alternative described in...” with “In the case of an
investment option available in the plan (other than investments made through a
brokerage window or similar investment alternative) described in...” This
description would ensure that any target date investment selected by the plan
would be covered by the proposal, regardless of its status as a DIA, while
excluding those options not selected by the plan. Investments made by
participants through a brokerage window should not be covered by the participant
disclosure regulation—whether target date investments, mutual funds, individual
securities, or any other kind of investment—because they have not been selected

4


AX.

8515 East Orchard Road

° Greenwood Village, CO 80111
(303) 737-3000
Great-West Address mail to: P.O. 173764

SS Derwer.’C0 80217-3764
RETIREMENT SERVICES ° —

July 5, 2011
Submitted Electronically —- Re: Target Date Disclosure (RIN 1210-AB38)

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor

200 Constitution Ave., NW

Washington, DC 20210

e-ORI@dol.gov

Ladies and Gentlemen:

We respectfully submit our comments on the Department’s proposed rule (the Proposal)'
requiring the disclosure of certain information regarding target date and similar
investments when such investments are Qualified Default Investment Alternatives
(QDIAs) or designated investment alternatives (DIAs) in participant-directed, individual
account plans. Given the significance of these disclosures in helping participants
understand target date and lifecycle investments, we very much appreciate the
opportunity to share our thoughts with you.

About Us:

Great-West Retirement Services”, a business unit of Great-West Life & Annuity
Insurance Company, is the fourth-largest retirement plan record-keeper in the United
States based on total participant accounts at year-end 2011, according to Pensions &
Investments, April 2012. We provide 401(k), 401(a), 403(b) and 457 retirement plan
services to 25,000 plans representing 4.5 million participant accounts and $166 billion in
assets at March 31, 2012.” We offer several different investment “platforms” that include
both proprietary and unaffiliated investment products. In addition, we offer tools to our
platform customers to assist their decision-making, including Fund Performance Reviews
that provide information about the performance of platform investment options against

"75 FR 73987 (November 30, 2010)

? Great-West Retirement Services” refers to products and services provided by Great-West Life & Annuity

Insurance Company, its wholly owned subsidiary FASCore, LLC, and other subsidiaries. Recordkeeping numbers
reflect all FASCore customers: those of institutional clients, third-party administrator clients, and Great-West
Retirement Services.


selected criteria. Our services and products are marketed both by employees of Great-
West and also by independent broker-dealers, Registered Investment Advisors, insurance
agents and other financial advisers. Our extensive experience in assisting retirement plan
fiduciaries and participants informs our analysis of the Proposal.

Overview:

We believe target date, lifecycle and similar investments offer significant benefits to
plans and participants who understand and use them correctly. These options are widely
used in part because they can “simplify” the process by which participants manage their
retirement assets, preventing participants from having to make frequent and potentially
difficult investment decisions. However, despite their simplicity in concept, target date
and similar investments can be very complex in operation, and may have very different
investment philosophies. For example, two target date investments with the same target
date may be quite different from one another, utilizing very different “glidepaths” or asset
allocation strategies, and presenting very different profiles in volatility, risk, and expense.
Accordingly, we agree with the Department that plans and participants should receive the
information necessary to understand and evaluate these investments, and we support the
goal of the Department’s proposed regulation.

However, we are very concerned that recent guidance issued by the Department in Field
Assistance Bulletin 2012-02 (FAB 2012-02) Q. 28 may inadvertently limit the scope of
the Proposal, excluding from its coverage certain target date investments operated as so-
called “non-DIA” model portfolios—target date model portfolios that allocate only
among the plan’s current designated investment alternatives (DIAs) and therefore are not
DIAs themselves. While the Proposal clearly applies to model portfolios,’ it is limited to
target date investments that are QDIAs or that are DIAs under the participant disclosure
regulation.’ Thus, a target date model portfolio that is not a DIA by virtue of FAB 2012-
02 Q. 28 would not be covered by the Proposal, even though it presents the same issues
to plans and participants as any other kind of target date fund or model.

We applaud the Department for reopening comments on the Proposal, as the regulatory
and market environments continue to change. For example, this issue presented by the
recent guidance in FAB 2012-02 is the product of final implementation efforts related to
the participant disclosure regulation—this concern could not have been readily
anticipated in 2010. Thus, while we are raising this issue for the first time, it is
nonetheless timely, and could not have been addressed during the original comment
period.

We do not believe our concern is merely technical—in fact, the potential “loophole” is
quite significant. Custom target date model portfolios are very common investment

3 The Proposal defines target date investments for disclosure purposes by referencing the first type of QDIA
described in the QDIA regulation at “29 CFR § 2550.404(c)-5(e)(4)(1) [sic].” This type of QDIA is an “investment
fund product or model portfolio...[emphasis added]” (We assume the reference to “5S(e)(4)(1)” is a typographical
error in the published Proposal at 75 FR 73994 and that the intended reference is “S(e)(4)(i)”).

* See Proposal’s amendments to 404a-5(i)(4) and to 404c-5(c)(4) at 75 FR 73994 (November 30, 2010).


options for the participant-directed, individual account plans subject to the Proposal. In
January 2011, a survey by PlanSponsor magazine specifically examined plan interest in
building a customized target date series utilizing the plan’s current fund line-up (in other
words, a model portfolio operating much as a target date mutual fund but composed of
existing plan investment options—a “non-DIA” target date model portfolio under Q. 28).
Nearly | in 5 plans had adopted or were considering adopting such model portfolios. The
largest plans were nearly twice as likely to embrace the custom model portfolios, with
about 38% of the largest plans either already using this investment option or considering
doing so. This represents a significant fraction of plan participants.

It is unlikely the Department intended to permit some target date investments to avoid the
Proposal’s disclosure requirements, as, from the participant’s perspective, there is no
difference between a “non-DIA” target date model portfolio and any other target date
investment—the participant needs to understand the significance of the target date and
the underlying investment philosophy. The issue for the participant is not whether he or
she can, with enough effort, look up the separate information about each of the
underlying DIA investments to which the model portfolio allocates. The issue for the
participant is how the underlying DIA investments fit together, the decisions the model
operator made in determining what the allocations should be, and how these allocations
will change over time relative to the target date. None of this information is available
simply because the underlying investments are individually DIAs.

The Scope of the Proposal:

The Proposal separately amends the participant disclosure regulation and the QDIA
regulation to require additional target date investment information. However, both use
the same definition of target date investment, the description of the first type of eligible
QDIA found at 29 CFR § 2550.404(c)-5(e)(4)(i). For the purposes of the Proposal, this
defines a target date investment as:

“An investment fund product or model portfolio that applies generally accepted investment
theories, is diversified so as to minimize the risk of large losses and that is 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. Such products and portfolios change their asset
allocations and associated risk levels over time with the objective of becoming more conservative
(i.e. , decreasing risk of losses) with increasing age. For purposes of this paragraph (e)(4)(i), asset
allocation decisions for such products and portfolios are not required to take into account risk
tolerances, investments or other preferences of an individual participant. An example of such a
fund or portfolio may be a “life-cycle” or “targeted-retirement-date” fund or account.

As a result, the Proposal would always apply to a model portfolio that was used as a
QDIA. However, the language used in the Proposal to require disclosure from target date
investments in the participant disclosure regulation is limited to those investment options
that are DIAs. The Proposal amends the participant disclosure regulation by inserting
language into 29 CFR § 2550.404c-5(i)(4) (a location reserved for this purpose in the
participant disclosure regulation) that reads, “In the case of a designated investment