The Department of Labor’s Employee Benefits Security Administration released a proposed regulation (the “Proposed Regulation”) that would require additional disclosure to participants and beneficiaries of participant-directed plans (such as 401(k) plans) regarding (a) “target date” retirement funds and other similar investment options (collectively, “TDFs”) and (b) the plan’s “qualified default investment alternatives” (or “QDIAs”). The Proposed Regulation would amend the DOL’s existing QDIA regulation (discussed in our October 30, 2007 and May 6, 2008 Financial Services Alerts) and the DOL’s recent “participant-level disclosure” regulation (discussed in our November 2, 2010 Financial Services Alert). The Proposed Regulation is part of an ongoing joint initiative by the DOL and the SEC with respect to TDFs.
The Proposed Regulation would amend the QDIA regulation to more specifically describe certain investment-related information required to be provided in notices for all QDIAs under the QDIA regulation. Such information would include the name of the issuer, and with respect to each QDIA, a description of each of the following: the QDIA’s objectives, the QDIA’s principal strategies and risks, the QDIA’s historical performance and the QDIA’s fees and expenses. The DOL intends for such additional information to complement the disclosure required with respect to all plan investment alternatives under the participant-level disclosure regulation.
The Proposed Regulation would also require disclosure of specific information about TDFs that are QDIAs or are otherwise available as investment alternatives under a plan, including (to the extent this information is not already set forth in the applicable disclosure document):
An explanation of the asset allocation of the TDF, how the asset allocation will change over time and the point in time when the TDF will reach its most conservative asset allocation (including graphic illustrations of how asset allocation will change over time);
If the TDF references a particular date, an explanation of the relevance of this date (i.e., the age group for whom the investment is designed, assumptions about the participants’ contribution or withdrawal intentions on or after this date); and
If applicable, a statement that the participant or beneficiary may lose money investing in the TDF, and there is no guarantee that the TDF will provide adequate retirement income.
The specific TDF disclosures would be required to be included, as applicable, in QDIA notices and other disclosures under the participant-level disclosure regulation. Comments on the Proposed Regulation are due by January 14, 2011.