January 13, 2011 

Submitted via electronic mail to: e-ORI@dol.gov

Division of Regulations 

Employee Benefits Security Administration 

200 Constitution Avenue NW 

FP Building, Room N-5655 

Washington, DC 20210 

 Re: Target Date Amendments 

 RIN1210-AB38 

Ladies and Gentlemen: 

AARP appreciates the opportunity to comment on the Department of Labor’s (Department) 

request for comments on the proposed amendment to the qualified default investment 

alternative (QDIA) regulation to provide more specificity as to the information that must be 

disclosed to participants. In particular, AARP focuses on questions surrounding the 

increased use of “target date” or “lifecycle” funds and other similar investments (TDFs), 

both as investment alternatives for 401(k) plans generally and as QDIAs for participants 

that do not provide investment direction. AARP agrees with the Department’s suggestion 

that both plan fiduciaries and plan participants would benefit from additional guidance 

concerning TDFs.1 Therefore AARP’s comments apply to the amendment of sections 

2550.404a-5(d)(3),2550.404c-1(b)(2)(i)(B)(1)(viii) and (ix), and 2250.404c-1(b)(2)(i)(B)(2).2

 

Inasmuch as AARP is mindful of the Securities and Exchange Commission’s 

(Commission) requirements as to required disclosures for TDFs, AARP’s suggested 

 

1

 Because fiduciaries must assess whether TDFs, in general and in particular, are prudent for their plans, 

AARP suggests that the DOL develop a Selection and Monitoring Target Date Tool, similar to other 

compliance assistance the Department has issued, in order to assist fiduciaries to better meet their fiduciary 

duties in selecting target date funds. The tool should provide suggested areas of inquiry for evaluation, 

including but not limited to asset classes, allocation, number and quality of underlying funds, “glide paths,” 

and fees and expense ratios for both the fund itself and any other mutual funds in which the target date fund 

invests. The DOL may also wish to issue compliance assistance for fiduciaries on best practices. We 

believe such guidance will be particularly helpful to small and mid-size employers which do not make use of 

outside consultants. 

2

 AARP represents persons age 50 or older, and helps them gain independence, choice and control in ways 

that are beneficial and affordable to them and to society. Almost half of AARP’s members are working. 

AARP fosters the economic security of individuals as they age by seeking to increase the availability, 

security, equity, and adequacy of retirement, health, disability, and other employee benefits. AARP also 

devotes a considerable amount of work to protecting consumers from exploitation in the marketplace, 

including by advocating for strong and effective state consumer protections. 
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January 13, 2011 

Page 2 

disclosure enhancements which follow are proposed to supplement Commission-required 

disclosures, not in any manner to substitute for them. 

AARP believes that more extensive disclosure requirements for TDFs would add 

immeasurably to the confidence and the capacity of investors who frequent the 

marketplace for such investments to make rational and prudent selection of investments 

which are best suited to their circumstances. AARP’s focus is principally on the 

disclosures required in connection with TDFs that are geared to retirement planning, but 

we recognize that the fundamentals which we address may well have application, either 

directly or with minor modification, to other lifecycle events, such as birth, education, 

marriage, etc. 

AARP submits the following specific comments on the proposed regulations: 

I. The Fund Name Should Clearly Reflect the Meaning of the Fund’s 

Target Date and the Meaning of the Date Used in the Fund Name Should 

Be Clearly Explained. 

There is no standard across the various TDFs as to the significance of the date 

used in the fund name. For example, the “target date” which is incorporated in the 

fund’s name could refer to the date by which the fund has liquidated the entire 

equity portion of its investment portfolio. It could, on the other hand, refer to the 

date at which the equity portion of the investment portfolio is at its lowest point in 

the entire life of the fund. Another possibility is that the date in the fund’s name 

indicates the date on or near which it is assumed that the owner(s) of the fund have 

identified as a probable retirement date. Finally, the date in the fund name may 

indicate the date upon which the fund assumes that holders of the fund will cease 

further investment contributions into the fund and will commence gradual 

withdrawals of their fund holdings. Any one or more of the possibilities mentioned 

may describe the significance of the target fund name, and other possible 

significance may attach. Consequently, AARP urges the Department to require 

that TDFs reflect their purpose in the fund name and fully and clearly state in terms 

“calculated to be understood by the average plan participant”, 29 U.S.C. 1022, the 

meaning of the date which is used in the fund’s name. 

The issue as to the meaning of the date in the fund name is generally referred to as 

the “Target To or Target Through” dichotomy, or the “target date or target death or 

landing point.” Whatever terminology is used to describe the issue, the critical point 

is that the Fund name and disclosures must make it abundantly clear whether the 

Fund is designed to take the investor to retirement or to carry the investor through 

retirement or to another point. Indeed, descriptive (perhaps standardized) fund 

names that reflect the different objectives would be helpful to consumers, especially 

those who choose these types of funds for the very reason that they do not want to 

wade through disclosure documents. Moreover, the Funds should be required to 

furnish each investor prior to entry by the investor into the Fund adequate notice to 

permit the average plan participant to identify the Fund’s goals on the Target to or 
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January 13, 2011 

Page 3 

Target through issue, so that the investor will have sufficient opportunity to 

determine whether the investor and the Fund are well matched. AARP believes that 

requiring one or two descriptive sentences to accompany each fund name could 

also serve to effectively communicate essential fund information to the investor. 

AARP believes that it may be desirable for the Department and the SEC jointly to 

explore whether more standardized fund names and descriptions would also be 

efficacious. 

II. The Fund Should Be Required to State the Underlying Assumptions 

Which Are Made by the Fund with Respect to the Intentions of the 

Average Fund Investor as to the Manner and Timing of the Investor’s 

Withdrawal of Distributions from the Fund. 

The Fund should declare whether it assumes that investors will withdraw their Fund 

investment in a lump sum, in roughly equal installments so as to constitute a stream 

of income, or in some other manner. The Fund should also state whether it 

assumes that investors in the Fund will commence distributions from the Fund at 

the target date or at some earlier or later time. 

III. The Fund Should Be Required to State the Age and Other Relevant 

Characteristics of Investors for Whom It Deems the Fund Most Suited. 

The Fund should identify the characteristics of investors for whom it views the Fund

most suited. For example, the Fund should state the age and relevant retirement 

plans, such as anticipated date of retirement, age of retirement, and plans with 

respect to anticipated timing of Fund withdrawals and distributions of the ideal Fund 

investor. This will enable the fiduciaries and the participants to determine whether 

the fund is appropriate for its workforce or for them individually. 

IV. The Fund Should Be Required to Describe the Asset Allocation Path 

(Glide Path) That the Fund Intends to Follow and to State Whether and 

to What Extent the Fund’s Governing Instruments Permit the Fund to 

Deviate From Its Planned Allocation.

The Fund should be required to disclose to the plan participants the asset mix that 

is contemplated to be held by the Fund at certain time intervals during the Fund’s 

investment life, including, at a minimum the asset allocations projected as of the 

target date, the Fund’s landing point or end date, and at significant measuring 

points along the path from fund inception to fund termination. Examples of 

significant points in time are: the respective points in time at which the Fund holds it 

highest and lowest allocations of equity investments; the respective points in time at 

which the Fund holds its highest and lowest allocations of fixed income investments; 

and the respective points in time at which the Fund holds its highest and lowest 

allocations of cash equivalent investment assets. At each point in time pertaining to 

which the Fund discloses the Fund’s asset mix, the mix should be described in 
Division of Regulations 

January 13, 2011 

Page 4 

terms of the total percentage of Fund assets invested in each class of assets 

mentioned above and such others as may be held by the Fund.

 

V. The Fund Should Be Required to Furnish Graphs, Charts, and Tables, 

as Appropriate, for the Purpose of Graphically Illustrating the Fund’s 

Intended Glide Path.

The Fund’s graphic illustrations of essential data to be disclosed should be 

designed and intended to inform the average plan participant. AARP believes that a 

satisfactory example of the graphic illustration chart for which we advocate appears 

in the mock-up Fund Fact Sheet in the June 18, 2009 Investment Company Institute 

publication entitled, Principles To Enhance Understanding of Target Date Funds: 

Recommended by the ICI Target Date Fund Disclosure Working Group.3

 Other 

examples may be effective as well. 

VI. The Fund Should Be Required to Disclose the Risks and the Expenses 

Associated with Investing in the Fund. 

The Fund should be required to describe the risks associated with investing in 

assets drawn from each and every one of the asset classes which comprise the 

investment assets contemplated to be held by the Fund. Disclosures should also 

state the extent of any investment returns that are guaranteed by the Fund, and if 

no such returns are guaranteed, then Fund disclosures should so state. Similarly, 

the Fund should disclose any protection the Fund offers to maintain the investor’s 

principal investment, and if there is none, then the disclosures should so state, 

including the possibility that the investor may suffer loss of all or a part of the 

investor’s principal investment. 

Participants’ expect that their first line of defense against unreasonable fees is the 

due diligence that their plan fiduciaries take in choosing plan investment options. In 

2007 AARP surveyed 401(k) participants to gauge their understanding of fees and 

investment choices. [“401(k) Participants’ Awareness and Understanding of Fees,” 

July 2007]. The survey results emphatically demonstrated that participants look to 

plan administrators and the plan’s service providers to provide plan investment and 

fee disclosures. 

 

Comprehensive information on plan fees and expenses will enable both plan 

fiduciaries, participants and other investors to ensure that fees and expenses are 

reasonable. They need to have access to costs associated with various 

components, not just total costs. Consequently, TDFs should be required to 

disclose not only the total fees they are charging, but also the fees of the underlying 

component funds or other investments that comprise the TDF. The Department 

 

3

 Available at http://www.ici.org/pdf/ppr_09_principles.pdf. 
Division of Regulations 

January 13, 2011 

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could either specify this requirement in this regulation or issue guidance interpreting 

its fee regulation. 

Finally, AARP believes that the Fund should be required to disclose in unambiguous 

language whether or not the Fund reserves any rights to alter the fee and expense 

structure of the Fund during the Fund’s lifetime, and if it does reserve such a right, 

whether the Fund anticipates doing so. Moreover, if applicable, the Fund should be 

required to identify the conditions under which it anticipates an alteration in the 

Fund’s fee and expense structure. 

AARP appreciates having the opportunity to provide its views on the proposed rules 

relating to Target Date Funds. If you have any questions, please do not hesitate to contact 

Tom Nicholls at 202.434.3765 or Jay Sushelsky at 202.434.2151. 

Sincerely, 

David Certner 

Legislative Counsel & Legislative Policy Director 

cc: Robert Doyle 

 Director, Office of Regulations and Interpretations 

 Jeffrey Turner 

 Chief, Division of Regulations