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© Fiduciary Plan Governance, LLC 2011-2014

July 10, 2014

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

U.S. Department of Labor 

200 Constitution Avenue NW 

Room N-5655 

Washington, DC 20210 

Submitted to: e-ORI@dol.gov 

Re: Target Date Disclosure 

 RIN 1210–AB38

Ladies and Gentlemen: 

Fiduciary Plan Governance, LLC and its affiliates (collectively, “FPG”) appreciate the 

opportunity to respond to the Department of Labor’s (Department) request for comments on the 

proposed regulatory amendments requiring enhanced disclosures for target date or similar 

investments (TDFs).

FPG is an ERISA plan fiduciary risk and consulting firm with offices and affiliates in New 

England, greater-Philadelphia, Atlanta, Nashville, and the Great Lakes region. Our staff is 

comprised of attorneys, accountants, investment advisers and consultants with many years 

employee benefits experience. Our client mission is to improve plan management and 

governance, reduce exposure to fiduciary risk, and to reduce plan fees to enhance retirement 

income security. Over the last several years we have had the opportunity to consult with many 

clients regarding the challenges of TDFs.

Comments Summarized. The purpose of this comment letter is to recommend that the 

Department require in the new rule that target date disclosures include information about the 

dangers of equity exposure in target date funds in the five-year period prior to the target date. As 

explained below, these exposures are significant and not necessarily known to participantinvestors. 

The Risks of TDFs to Uninformed Plan Participants are Significant. FPG recognizes that the 

use of TDFs has grown significantly and will become the dominant form of investment in 

defined contribution plans. Just six years ago, when the “great recession” hit, TDF assets were 

around $200 billion. In that year, 2008, the S&P 500 Index lost 37 percent. Particularly hard hit 
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© Fiduciary Plan Governance, LLC 2011-2014

United States Department of Labor 

July 10, 2014

were participants invested in target date funds that had recently retired or were nearing 

retirement. Many 2010 TDFs lost between 25 and 35%. For many, retirement dreams were 

deferred or crushed as a result.

Today TDF assets are $1 trillion and represent 25% of all 401(k) plan assets. Some expect this 

percentage to grow to 40% within the next several years. Consequently many more assets are at 

risk. Many more participants will be hurt in the next downturn unless participants understand the 

risks inherent in current, commonly provided TDF strategies. 

These risks are particularly acute when participants reach their target dates, the point at which 

they are most vulnerable to market downturns. As is pointed out in the recently published book, 

Fiduciary Handbook for Understanding and Selecting Target Date Funds, by John Lohr, Mark 

Mensack, and Ron Surz, whether the TDF is a “to” or “through” fund many TDFs have 

significant equity exposure at or near their target date. They argue that TDFs are more exposed 

now than they were in 2008. 

In other words, many TDFs have significant exposure to equities near their target date and fail to 

protect participants against significant losses when these participants are most vulnerable. The 

danger is that participants are not aware of this risk. 

There is another danger. Many participants misunderstand the implications of reaching their 

target date. Some might believe, for example, that a TDF with 2020 target date is the date at 

which they can retire comfortably. Also, a given TDF is only potentially effective if (emphasis 

added), the participant is on track for retirement, which is rarely the case. That is, other factors 

have great significance in reaching retirement goals such as the rate of participants’ contributions 

and when they begin contributing. 

There is also a need for explanatory clarifications of the fund’s investment strategy or glide path. 

These are often generically described as: 

1) Conservative or To, 

2) Moderate or Hybrid or To & Thru

3) Aggressive or Thru.

Without additional clarifying disclosures of the risks inherent in each strategy or glide path, these 

“labels” and the numbers associated with them will be of very little value to participants. 

The Nature of the Problem is Demographic. Participants are invested in TDFs mostly because 

they have been defaulted there, either because they can’t make a decision or would rather have 

someone manage their investments. These individuals tend to be unsophisticated and are more 

likely to be conservative investors. They trust that their employers have put them in an 

investment that cannot lose money, without really understanding the nature of the risk. 

The SEC commissioned Siegel & Gales study supports this notion. It found that there is a 

considerable lack of understanding in TDF and non-TDF investors of the fundamental riskiness 
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© Fiduciary Plan Governance, LLC 2011-2014

United States Department of Labor 

July10, 2014

of TDFs. Even glide path information given to these investors, according to the study, did not 

raise participant awareness of changes in the percentage of investments in equity and non-equity 

investments. Thus, these participants are not protected under existing disclosure rules. 

Suggested Disclosure Regime under Proposed Regulatory Amendments. FPG urges the 

Department to include in the regulatory amendments the following:

1. Beginning in the tenth year preceding the target date of the fund and annually each year 

thereafter the participant receives a written notice.

2. The notice must:

• Disclose the specific percentage of fund assets exposed to equities and other 

investments subject to market loss in that year;

• Provide information concerning the inherent weaknesses of glide path projections; 

• Provide a warning that a loss in the fund’s value near target date could significantly 

reduce the participant’s benefit at target date or retirement.

• Inform participants that if they have concerns about losses in the value of their 

investments, that other, safer investments are available, such as money market, stable 

value/GIC or short-term bond funds. 

FPG believes that the ten years preceding the target date are a danger zone that most TDF 

investors are not aware of. Annual communications that provide the information described in the 

bullets are the best way, short of personalized investment advice, to inform them of the risk.

Support of Department’s Efforts. FPG is encouraged by the Department’s efforts to bring 

education and understanding to TDF investors. We urge the Department to stand by its proposed 

regulatory amendments and to seek ways to improve them for the protection of plan participants 

and beneficiaries. 

Fiduciary Plan Governance appreciates the opportunity to provide its views on the proposed 

amendment of rules relating to Target Date Funds. If you have any questions, please do not 

hesitate to contact Charles Humphrey at 978-662-1608 or via email a 

chumphrey@fiduciaryplangovernance.com.

Thank you for consideration of our comments.

 Sincerely, 

Charles G. Humphrey

Employee Benefits & ERISA Counsel
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© Fiduciary Plan Governance, LLC 2011-2014

United States Department of Labor 

July 10, 2014

Edward M. Lynch, Jr.

Founder & Chief Executive Officer

John Hare

Managing Director –South Region

Brian Lakkides

Managing Director – Great Lakes Region

 

Mark McCoy

FPG Affiliate - Southeast Region

Mark Mensack

FPG Affiliate – Northeast Region

cc: Joe Canary, Director, Office of Regulations and Interpretations 

 Jeffrey Turner, Deputy Director, Office of Regulations and Interpretations