Senate Committee Takes Aim at Target-Dates

February 25, 2009 (PLANSPONSOR.com) - The U.S. Senate Special Committee on Aging held a hearing on the economic downturn's effect on retirement security, particularly for those who are on the brink of retirement.

The panel took a particularly close look 401(k) target date funds, which are designed to gradually shift to more conservative investments as workers approach retirement - and Committee Chairman Senator Herb Kohl (D-Wisconsin) also unveiled findings from a Committee investigation of 401(k) funds designed for people planning to retire in 2010, which, according to an  announcement , "revealed a wide variety of objectives, portfolio composition and risk within same-year target date funds."  

"Despite their growing popularity, there are absolutely no regulations regarding the composition of target date funds," said Kohl. "With more and more Americans relying on 401(k)s and other defined contribution plans as their primary source for retirement savings, we need to make sure their savings are well-protected with strong oversight and regulation."

In an  announcement following the hearing, it was noted that, even though by authority of the Pension Protection Act of 2006, the U.S. Department of Labor (DOL) has issued regulations allowing target date funds to be used as a qualified default investment alternative (QDIA) in employer-sponsored retirement plans, there are no requirements regarding the composition of target date funds and the appropriate ratio of stocks and bonds as the fund nears its target.  

"Target date funds only made up roughly 3 percent of defined contribution savings in 2006, but are expected to increase to 20 percent in 2010," according to the announcement, which went on to note that by 2015, "it is expected that more than one-third of all defined contribution savings will be in target date funds."

In conjunction with the hearing, Kohl is sending letters to newly enshrined U.S. Secretary of Labor Hilda Solis and U.S. Securities and Exchange Commission Chairwoman Mary Schapiro, "urging them to immediately commence a review of target date funds and begin work on regulations to protect plan participants."