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July 3, 2014

By E-Mail: e-ORI@dol.gov

Office of Regulations and Interpretations

Employee Benefits Security Administration

Room N-5655

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

RE: RIN 1210-AB38; Target Date Disclosure

Allianz Global Investors (“AllianzGI”) is grateful for the opportunity to comment on the Department of Labor 

(“DOL”) request regarding disclosure requirements for target date funds (“TDFs”). On June 3, 2014, the DOL 

published a notice reopening the comment period for its 2010 proposal relating to enhanced disclosure for target 

date funds. The attached response presents AllianzGI’s support for the adoption by the Securities of Exchange 

Commission (“SEC”) and the DOL of additional mandatory risk-based disclosure for TDFs.

We believe that product and data providers alike must increase the level of care and attention they take in offering 

these unique funds to plan participants. Participant-level disclosure about risk parameters is one important piece 

of this, but we are pleased to offer additional suggestions aimed at helping plan sponsors better fulfill their fiduciary 

duties, as well as suggestions for how sponsors can provide participants with the best chance of meeting their 

retirement savings goals. 

The proposals contained in the attached response cover two primary areas:

◾ Section 1: Disclosure requirements to help plan participants

– Naming convention of TDFs

– Disclosure proximity to the TDF name

– Risk-based glide path in disclosure

– Public target date benchmark

◾ Section 2: Additional comments on best practices for plan sponsors that could have an effect on the proposal

– Investment policy statement addendum

– Assessment of risk tolerance of defaulting participant population

– Assessment of risk structure of TDFs

– TDF selection

– Benchmarking and monitoring

Adopting these enhanced participant-level disclosures and additional suggestions for plan sponsors will, in our 

view, help correct the “truth-in-labeling” problem that has developed in recent years. 
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With the establishment of TDFs as Qualified Default Investment Alternatives (“QDIAs”) under the Pension 

Protection Act of 2006, millions of Americans have been able to benefit from the simplicity and widespread 

availability of these default investment choices. 

However, simply choosing a TDF—a decision that, based on observed participant behavior, is frequently made 

solely on the basis of the date in a TDF’s name—cannot insulate plan participants from market turmoil. This 

became apparent in 2008 and early 2009, when the wide range of differences across TDF families added up to 

large losses and real consequences for far too many participants—particularly those invested in 2010 funds. 

Clearly, if plan sponsors and participants had known what they were invested in—which is at the core of TDFs’ 

truth-in-labeling problem—many of them might not have been invested in those 2010 funds. Better labeling could 

have also reduced the level of surprise many participants felt when they witnessed the impact the downturn had 

on their accounts, which may in turn have prevented them from reacting by cashing out and locking in losses just 

before retirement. 

In addition, while the “safe harbor” status for being a QDIA makes it easier for plan sponsors to select a TDF as a 

default option, defined contribution (“DC”) plan sponsors still have a fiduciary responsibility to document that their 

plans’ investment choices—including QDIAs—have been prudently selected and are periodically monitored. 

Further magnifying the problem, there is no widely accepted selection process for TDFs, and analysts have 

difficulty abandoning traditional evaluation methods when reviewing these unique products. Plan sponsors may 

have extensive experience selecting general investments for their DC plans, but other factors need to be weighed 

when selecting and monitoring a TDF. Without proper knowledge or tools, plan sponsors have been hesitant to 

re-evaluate their default TDF option.

All of these factors have increased the importance of TDFs and rightfully enhanced greater scrutiny of these 

products. Allianz Global Investors is committed to helping every American retire with dignity and welcomes the 

opportunity to work with the DOL to consider enhanced industry-wide standards that will improve transparency 

about TDFs and any other retirement issues.

If you have any questions, please contact me at (212) 739-4275.

Sincerely,

Glenn Dial

Managing Director

Head of Retirement Strategy
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Target Date Disclosure

A Response to the Department of Labor Request for Comments 

to the Proposal for Enhanced Disclosure for Target Date Funds

Prepared by:

Glenn Dial, Managing Director

Head of Retirement Strategy

Mark Hathaway, CFA, Director

Senior Product Specialist – Target Date Funds

July 3, 2014
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Section 1: Disclosure requirements to help plan participants

I. Naming convention of target date funds

In our view, the current challenge at hand is that the 

retirement industry has developed a serious, albeit wellintentioned, “truth in labeling” problem with TDFs that needs 

to be addressed. Based on the observed participant behavior 

that many of these investment decisions are made using 

the TDF name alone, Allianz Global Investors recommends 

the DOL establish revised naming conventions that are 

transparent and descriptive about the TDF’s investment 

philosophy and approach to managing risk. 

There are two categories of proposed changes to TDF 

naming conventions: one for “To” funds and one for 

“Through” funds.1

◾ “To” TDFs that are designed to reduce overall risk by the 

retirement target date—and thereby give participants 

more options at that date—may use the current “year” 

convention in the fund name, with or without additional 

descriptive phrases.

◾ “Through” TDFs that are designed to have a higher level 

of risk at the retirement target date—and meant for 

participants who intend to remain invested after the target 

date—must use a modified form of the current “year” 

convention, with or without other descriptive phrases.

Examples

◾ For “To” funds (examples use a target date of 2015)

1. 2015 Target Date Fund

2. 2015 Retirement Fund

3. Reach Retirement by 2015 Fund

4. 2015 Wealth Builder Fund

5. Arrive at 2015 Retirement Fund

6. Income-Ready at 2015 Retirement Fund

◾ For “Through” Funds (examples use a target date of 2015)

1. 2015 +30 Year Fund

2. 2015 to End of Retirement Fund

3. 2015-2045 Twilight Fund

4. 2015-2045 Lifespan Fund

5. Stay Invested Past 2015 Fund

6. Invest Beyond 2015 Retirement Fund

7. Growth After 2015 Retirement Fund

8. Maintain Growth Potential at 2015 Retirement Fund

II. Disclosure in proximity to the TDF name

In an effort to help participants and plan sponsors make 

smart retirement decisions by providing an added layer of 

disclosure near the revised TDF name, we propose a twotiered approach to this additional participant-level disclosure 

to address established patterns of investor behavior, and to 

highlight the TDF’s risk level at retirement. 

◾ The first tier is a mandated “Participant Profile” statement 

near the fund name (see below). 

◾ The second tier is a metric that measures the “Portfolio 

Risk Level” at the target date. This could be based on 

percentage of equity exposure, downside capture, volatility 

or other factors (see below).

Examples

◾ 2015 Fund

Participant Profile: For investors who are unsure of how they 

will invest after the targeted 2015 retirement date, and want 

reduced risk near 2015. 

Risk of loss within 5 years of 2015: Low

◾ 2015 +30 Years Fund

Participant Profile: For investors who intend to leave their 

money in the plan for up to 30 years after their targeted 

2015 retirement date. 

Risk of loss within 5 years of 2015: High

1. Allianz Global Investors makes the following distinctions between “To” funds and “Through” funds. 

◾ A “To” fund is a TDF with a low amount of volatility at retirement, regardless of whether the equity glide path continues to decrease over time. 

◾ A “Through” fund is a TDF with a high degree of volatility at retirement, regardless of whether the equity glide path continues to decrease over time. 
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III. Risk-based glide path in disclosure

Allianz Global Investors (“AllianzGI”) agrees with the 

Securities and Exchange Commission’s Investor Advisory 

Committee that implementing a risk-based glide path would 

provide enhanced information to investors and reduce the 

potential for investors to be confused or misled regarding 

TDFs. We also agree that developing a glide path illustration 

for TDFs that is based on a standardized measure of fund 

risk is achievable and should be considered best practice. 

AllianzGI’s view is that improving participant-level disclosure 

about risk parameters in this way should help provide clarity 

to investors, particularly in the absence of clear standardized 

benchmarks and peer groups for TDFs.

Beta is the simplest and most accepted risk measure relative 

to equities. The asset allocation glide path illustration that 

depicts a TDF’s asset allocation over time has become a 

standard and accepted feature in marketing materials for 

TDFs. This two-variable asset allocation glide path primarily 

tracks exposure to equities. Thus, it would be appropriate to 

supplement the asset allocation glide path illustration with 

an illustration that essentially provides a risk overlay on the 

equity exposure.

As some might suggest, creating a more complex asset 

allocation glide path that depicts multiple asset classes 

beyond equities and bonds is one approach to provide 

greater transparency to investors. However, we believe that 

simply creating a more complex asset allocation glide path 

would not provide the appropriate level of risk measurement 

for investors. The addition of multiple asset classes in the 

glide path depiction adds a significant layer of complexity, 

placing the responsibility on the investor to determine the 

amount of additional volatility that should be expected with 

the incremental additions of various asset classes. Due to 

this potential variance in risk, and staying mindful of the 

goal of providing investors with useful information that is 

not confusing or misleading, we recommend providing an 

equity-beta glide path, which we believe would improve the 

measurability and credibility of equity risk within the target 

date series.

An asset allocation glide path, even in its simplest form, 

can hold great variance in risk. Consider, for example, the 

difficulty of comparing portfolios invested in high-beta 

stocks (i.e., technology) and high-yield bonds with portfolios 

invested in lower beta stocks (i.e., utilities) and cash. 

Providing a beta glide path as a supplement to the existing 

asset allocation glide path disclosure would address the 

concerns of the Committee while providing investors with 

meaningful and useful information on the risks associated 

with investing in TDFs. A beta glide path is a best effort to 

demonstrate how much equity volatility has existed in the 

portfolio. This, combined with the asset allocation glide 

path, gives a clearer picture not only of asset allocation but 

volatility due to the allocation.

We understand that there is disagreement in the industry 

with respect to developing a standard methodology to 

measure risk, but we strongly believe that the lack of a single 

perfect solution should not impede efforts to enhance the 

quality of information provided to investors. As stated above, 

beta is the simplest and most accepted risk measure relative 

to equities. As the asset allocation glide path tracks exposure 

to equities, it would be appropriate to use beta as a risk 

measure in a supplemental glide path.

IV. Public target date benchmark

In conjunction with the inclusion of a beta glide path, 

AllianzGI recommends the selection of a public glide pathbased benchmark for TDFs.

The use of a public benchmark as a basis for measurement 

of performance and risk is a standard practice in the 

mutual-fund industry. However, within the TDF, public glide 

path-based benchmarks are rarely used. We believe the use 

of a public glide path-based benchmark is both beneficial 

and achievable.

Today’s index providers, such as Morningstar, S&P and 

Dow Jones, currently offer several options for public glide 

path-based benchmarks, which makes it easier to achieve 

widespread implementation of these benchmarks. The 

utilization of a public glide path-based benchmark will allow 

investors to better analyze TDFs by applying three decades of 

best practices in the U.S. investment-management industry. 

By using a public glide path-based benchmark, each TDF 

portfolio could be compared to the benchmark portfolio, 

resulting in effective comparison among the available 

choices in the market. 
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Section 2: Additional comments on best practices for plan 

sponsors that could have an effect on the proposal

Outlined below are several additional suggestions for best practices that we recommend plan sponsors adopt with 

respect to evaluating, selecting and monitoring TDFs.

I. Investment policy statement addendum

The criteria for evaluation of TDFs should be set forth in the 

plan’s investment policy statement. 

Due to the unique structure of TDFs and the requirements 

of QDIAs, a traditional investment policy statement 

covering selection criteria of core menu line-up options 

is not adequate and often not appropriate. While certain 

common screening characteristics are still relevant—such 

as management tenure, inception date and fees—additional 

characteristics beyond an investment team’s philosophy and 

process should be considered for TDFs. 

II. Assessment of risk tolerance within defaulting 

participants

It is our view that an effective process for evaluating TDFs 

should assess the risk tolerance of the defaulting 

participant base of the plan. Factors for the plan sponsor to 

consider include: 

◾ Plan design, including default options such as default 

rate, auto escalation rates, company match amount and 

additional retirement benefits, including profit sharing, 

existence of a DB plan, etc.

◾ Sophistication of the participants

◾ Level of dependency on assets in the DC plan for retirement

◾ Participant behavior at or near retirement

III. Assessment of risk structure

Once the participant risk tolerance is determined, the 

universe of available TDFs should be narrowed to those 

with comparable risk structures. If it is determined that the 

participants have a lower risk tolerance, particularly near 

retirement, a “To” fund (a fund with less volatility and a smaller 

allocation to risky assets near the retirement date) should be 

considered. However, if the participant base has a higher risk 

tolerance, a “Through” fund (a fund with higher volatility and 

a larger allocation to risky assets) may more appropriate.

Plan sponsors should include the following key factors when 

determining the risk structure (“To” or “Through”) of a fund 

series near retirement:

◾ Beta

◾ Standard deviation

◾ Allocation to risky assets 

IV. TDF selection

When selecting the appropriate TDF for a plan, plan sponsors 

should compare TDFs side-by-side using consistent analytic 

measures. In addition, plan sponsors should consider the 

specific concerns of plan participants, including:

◾ Fees

◾ Consistency of management (changes to glide path and 

manager tenure)

◾ Diversification across asset classes 

◾ Structure

◾ Accounting for inflation

◾ Up/down capture related to risk based assets; beta glide 

path may also be used

◾ Focus on risk-adjusted returns

V. Benchmarking and monitoring

After the TDF selection is made, a plan sponsor must have 

in place a continuing monitoring process that includes a 

periodic review of the risk tolerance of plan participants, 

inclusive of changes to plan design as well as an assessment 

of the performance in light of market conditions of the TDF 

series versus a public target date benchmark. This is to 

assess not only if the TDF is deemed appropriate by risk 

structure, but also whether the TDF has been successful by 

manager execution.