The letter, written on behalf of Avatar Associates, LLC said that in the department’s view, the fact
that a target-date or lifecycle mutual fund’s assets consist of shares of
affiliated mutual funds does not, on that basis alone, make the assets of the
target-date or lifecycle mutual fund “plan assets” of investing
employee benefit plans or the investment advisers to such mutual funds fiduciaries
to the investing plans under the Employee Retirement Income Security Act (ERISA).
The letter pointed out that Section 3(21)(B) of ERISA provides
that a plan’s investment in a registered investment company “shall not by
itself cause such investment company or such investment company’s investment
adviser or principal underwriter to be deemed to be a fiduciary or a party in
interest as those terms are defined in [Title I of ERISA], except insofar as
such investment company or its investment adviser or principal underwriter acts
in connection with an employee benefit plan covering employees of the
investment company, the investment adviser, or its principal underwriter.”
In addition, the letter said, section 401(b)(1) of ERISA provides that when a
plan invests in a security issued by a registered investment company, “the
assets of such plan shall be deemed to include such security but shall not,
solely by reason of such investment, be deemed to include any assets of such
According to the letter, in the DoL’s view, there is nothing in section 3(21)(B) or section 401(b)(1) that suggests that a registered investment company’s investment in the shares of affiliated mutual funds would, by itself, affect the application of the Act’s exclusion. “We note that the concept of mutual funds structured as ‘funds of funds’ existed at the time of ERISA’s enactment and, accordingly, had Congress intended a different rule to apply, it could have so provided,” the letter said.
In testimony during a recent Senate hearing, Michael Case Smith of Avatar Associates raised concerns about the
fiduciary status (or lack thereof) of the firms that put together target-date
funds, often with proprietary offerings, and on platforms where participants –
and even plan sponsors – don’t really have access to the full variety of
choices in the marketplace (see Target-date Fund Practices Targeted in Senate Hearing).