TDF Investors Need Better Graphics and Data

May 22, 2012 ( - Several Morningstar divisions sent a letter to the Securities and Exchange Commission (SEC) urging the regulator to require target-date series to provide more details about the investments.

By PLANSPONSOR staff | May 22, 2012
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The SEC proposed amendments to rules 482 and 156 under the Securities Act of 1933 and rule 34b-1 under the Investment Company Act of 1940 regarding target-date retirement funds.  

In a letter sent Friday from Morningstar to Elizabeth Murphy, secretary of the SEC, the investment company outlined its suggestions for improving the disclosure of the management and structure of target-date funds to investors as well as financial advisers, consultants and plan sponsors. Investors need to be able to understand how the funds are run, and plan professionals and administrators need to able to adequately assess their potential risks and rewards, Morningstar said, as well as to evaluate them side by side.  

Morningstar estimates that target-date mutual funds held approximately $378 billion at year-end 2011, and billions more are invested in institutional and private target-date accounts, such as collective investment trusts, that are not yet required to disclose assets under management.  

These funds have also become more diverse. There are now 48 distinct target-date mutual fund series, each with its own interpretation of how a target-date fund should be constructed. While some target-date series are relatively straightforward, many of the industry's newest entrants are notable for their very distinctive designs, according to Morningstar.