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SEC Commissioner Aguilar Calls for Improved Target Date Fund Disclosure

In a recent speech, SEC Commissioner Aguilar discussed investors’ need for disclosure about their investments, focusing in part on target date funds.  He stated that the simplicity of the investments combined with the fact that they can serve as the default investment in retirement plans have contributed to a significant increase in assets in the funds.

Aguilar is concerned, however, that investors may think that target date funds are safer than they actually are.  He cited an SEC commissioned study that found that investors failed to understand the meaning of the year in the target date fund’s name, that the funds do not provide guaranteed income after retirement, and that all funds with the same year are not the same.  In addition to investors’ misunderstandings, he cited a PIMCO study that showed that consultants who help select retirement plan options also underestimated the risk of target date funds.

Aguilar outlined recommendations for improvements in target date fund disclosure recommended by the SEC’s Investor Advisory Committee.  He encouraged the SEC staff to advise the Commission regarding how to move ahead with those recommendations as well as the items contained in the SEC’s 2010 target date fund proposal.