Docket: EBSA-2010-0053 

Target Date Disclosure 

Comment On: EBSA-2010-0053-0001 

Target Date Disclosure 

Document: EBSA-2010-0053-DRAFT-0001 

Comment on FR Doc # 2010-29509 

Submitter Information 

Name: Anthony Agbay 

Address: 

1450 W. Long lake Road 

Suite 150 

Troy, MI, 48098 

Email: anthony@agbaygroup.com 

Phone: 248-502-0806 

Organization: The Agbay Group - A division of Leonard & Co. 

General Comment 

See attached file(s) 

Attachments 

PUBLIC SUBMISSION 

As of: January 12, 2011 

Received: January 10, 2011 

Status: Pending_Post 

Tracking No. 80bc80a6 

Comments Due: January 14, 2011

Submission Type: Web

EBSA-2010-0053-DRAFT-0001.1: Comment on FR Doc # 2010-29509

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Bear markets make for greater scrutiny in the financial markets and, more specifically, financial products. 

Since the early part of the decade, TDFs have seen their assets swell at parabolic rates. Unfortunately, many 

mutual fund companies (in the face of stiff competition) increased more risky asset classes in exchange for 

more attractive performance records during the bull markets of 2003 to 2007. 

Many investors and plan sponsors were evaluating these investments the way the fund companies anticipated 

they would – based on performance. Let’s face it, who in their right mind would buy a 2030 fund that was 

under performing a competitor’s 2030 fund? The problem is no two TDFs are created equal. For example, in a 

bull market a “go-go” 2030 fund comprised of 70% stock should outperform its counterpart at another firm with 

a 50% stock exposure. However, the converse will hold true in a market decline and will be more profound as 

the declines steepen. 

The variations in returns illustrate the radical differences in allocations to stocks in the same target date 

category with equity exposure ranging drastically from 65% to 25%.  Take for example the market turmoil of 

2008 when investment losses for funds with a target date of 2010 were as high as -41% and as low as -9%, with 

an average loss of -23% according to Morningstar. 

The legislative guidance in the Pension Protection Act of 2006 made target date funds a Qualified Default 

Investment Alternative (QDIA) providing safe harbor protection for plan fiduciaries. They have quickly 

become staples in the retirement plan marketplace. As in the case of plan sponsors and fiduciaries who monitor 

funds and when necessary remove certain funds from a plan’s investment options, similar oversight is required 

for target date funds but it is often mismanaged. There tends to be general and vague language describing the 

selection and monitoring of target date funds 

The majority of plan sponsors take great pride in their fund review process as outlined in their Investment 

Policy Statement but tend to fall short in this area when it comes to target date funds. The reason is simple. 

Most target date funds are comprised entirely of proprietary funds of the underlying fund family and/or its 

affiliates. So by design, the sponsors have limited oversight capabilities pertaining to the holdings – at no fault 

of the plan sponsors. However, according to ERISA attorney Fred Reish, “A plan sponsor must also be aware 

whether the management of the target date fund is limited in its ability to select the underlying investments 

and/or has embedded conflicts of interest (for example, is the manager of the target date fund required, either as 

a practical matter or a written restriction, to select only the mutual funds of the affiliated manager?).” 

It is unlikely for one investment management company to have the best in class offering across the entire range 

of asset classes. Most would agree the premier retirement plan investment menu is comprised of a multi-family, 

best in class investment lineup – the target date strategy should not be any different. Unfortunately, most plan 

sponsors include a single family target date line up that invests completely in proprietary funds. For example, 

the three largest target date fund families invest completely in their own proprietary funds as underlying assets. 

Glide Path 

The glide path is a predetermined allocation based on stocks, bonds and cash; the younger a participant, the 

more exposure to stock. As the participant nears retirement, the allocation automatically shifts to a lower 

concentration in stock and to more conservative bond and cash investments. 

The concept with the “through” approach is investors will need to have their assets grow throughout retirement. 

Conversely, the “to” strategy provides less risk for investors at retirement for those who do not have the 

tolerance for riskier allocations to stock. 
I am not sure how many of us can say we consciously decided on which style (to or though) was best for the 

plan when the TDF strategy was chosen, especially if they were chosen over three years ago. One reason was 

because there weren’t many tools available to do so - until now. I believe we’re judged on the decisions we 

make based on the prevailing circumstances at the time the decisions were made. So not having the tools 

available makes the actions understandable then. 

ERISA does not impose a duty of clairvoyance on fiduciaries. However, since times have changed and so too 

have the circumstances, plan sponsors can’t continue the old course of action as though they are still best 

practices today. Yesterday’s best practices generally aren’t tomorrow’s so procedures in evaluating and 

choosing the TDF strategy should also evolve. 

Quadrant & Glide Path Analysis 

Since the tools are now readily available to determine the appropriate target date style, the prudent and 

documented selection process should include: 

1. Asset allocation analysis 

2. Glide path analysis 

3. Needs, ages and participants behavior 

4. Evaluation and monitoring of fees 

Each target date has a unique glide path and falls into one of four equity exposure quadrants. It is incumbent 

upon plan sponsors and consultants to know and document the decision they’ve made regarding both. 

Source: Lipper, a Thomson Reuters Company and industry prospectuses. 

For illustrative purposes only. 

These tools and reports are designed to provide a framework for identifying and evaluating target date funds 

that align more closely to a plan’s overall goals and its participants’ needs. The goal of the tool is to help plan 

sponsors assess their retirement plan’s desired level of equity exposure for participants at or near retirement and 

asset class diversification – two important characteristics of TDFs. 

The framework also encourages plan sponsors to understand and consider the characteristics and behaviors of 

their workforce as part of the target date selection process – factors the Department of Labor (DOL) has also 

stated fiduciaries should take into account when designing the investment menu for a defined contribution plan. 

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Proposed DOL Regulations 

On November 30, 2010, the Department of Labor proposed new regulations requiring plan fiduciaries to 

provide enhanced disclosures about target date funds to retirement plan participants. The proposal would also 

amplify the investment information that must be disclosed about a plan’s qualified default investment 

alternative, even if it is not a target date fund.

This transparency is intended to help participants make more informed decisions about their investments. 

However, the majority of participants investing in TDFs do so because they do not have the time, knowledge or 

inclination to analyze and manage their investment portfolio on a regular basis. Only time will tell if providing 

participants with more information on a subject they rely on others to handle will create the results the DOL 

anticipated. 

The proposed regulations do not encourage a revision of the target date strategies but do create additional 

transparency and oversight. In other words plan participants will still be offered the same strategies but with 

government mandated disclosures creating the same investment outcome as before. 

The solution is to change the strategy and/or the process in producing it and not endorse the current product 

with greater government regulation. In the multi-manager target date fund structure, the underlying mutual 

funds are chosen from a broad universe of investment managers. Taking it a step further, custom target date 

models create the target date funds using the investments offered in the menu of options (typically multimanger) which are already being monitored by the plan committee and, if applicable, an independent 

investment consultant. This gives greater fiduciary oversight and control to the plan sponsor thus helping them 

fulfill their fiduciary obligations and making them better stewards for the participants. 

The fiduciary oversight should be required by plan sponsors and consultants to ensure the product is appropriate 

at the plan level – either a pre-package target date product or a custom model. In either example, the legislation 

should focus on the “what” and also the “why” when it comes to the appropriateness of certain target date funds 

at the plan level. In other words, the process not the product might be more important to legislate or monitor. 

Just like the process is critical in investment selection, monitoring and removal at the plan level, the same 

process standards should be required in the target date selection.