Tip of the Day: Hit all the right target dates next month

Mark your calendars, pros; there's some don't-miss action going on at Capitol Hill next month regarding target-date funds.

The first date to put in your Outlook is June 18, when the Department of Labor and Securities and Exchange Commission will hold a joint one-day hearing on the issues (read: abysmal '08 performance) surrounding target-date funds.

According to a press release from the agencies, the hearing will "examine the need for additional guidance given the importance of these investments to the retirement savings of investors." By "importance," they mean the large number of participants with savings in these funds. (Last year, 53% of 401(k) plans use target-dates as the default option.)

The hearing will cover topics like "portfolio composition, risk, and disclosure," according to DOL's website. Not very specific, is it? That's why the second don't-miss date is June 10 -- the day the agencies say they'll release the hearing agenda.

The last date to mark is June 5. That's the deadline for written requests to testify at the hearing. Make your voice heard! Send requests to e-ORI@dol.gov, or to Office of Regulations and Interpretations, Employee Benefits Security Administration, 200 Constitution Ave., N.W., Washington, D. C. 20210.

Tip of the Day: Get target practice

It's ironic; thanks to the recession, target-date funds may have a bullseye on them. In EBN this month, one consultant said the funds' '08 performance was "like a bad Greek tragedy," and a high-profile senator recently teed up the funds for a closer look from lawmakers.

However, EBN contributors Bill Noyes and Steve Smith say the next generation of target-date funds hold promise through plan-specific solutions and, in a "Five Minutes With ..." podcast, Van Kampen Investments' Andrew Scherer outlines several ways for plan sponsors to assess and communicate target-date funds to get the best results for participants.

So, get to target practice, and let me know if you hit the bullseye.

News You Can Use: Allstate all out of target-date biz

The news is going from bad to worse on target-date funds. Performance is flagging, and the latest from EBN's sister publication Money Management Executive: Allstate has decided to cancel its seven ClearTarget Retirement Funds after only 10 months, saying that it has decided to exit the target-date mutual fund business due to lackluster sales.

“This action is part of a strategy to reduce expenses at Allstate Financial and focus on a narrower set of products that meet everyday Americans’ protection and retirement needs and offer the greatest opportunity for Allstate Financial to compete effectively,” said an Allstate spokeswoman.

News You Can Use: Kohl calls for increased scrutiny of target-date funds

From EBN's sister publication Money Management Executive: The chairman of the Senate Special Committee on Aging has called for more scrutiny of target-date retirement funds after several 2010 target-date funds posted huge losses in 2008.

"While it may be too late for those who already have suffered substantial and irreversible financial losses, it is vital that aggressive and timely action be taken to protect the retirement income of all Americans," said Chairman Herb Kohl (D-Wisc.), in letters to Securities and Exchange Commission Chairman Mary Schapiro and U.S. Labor Secretary Hilda Solis.

Target-date funds are meant to automatically rebalance an investor's portfolio to more conservative asset allocations as they approach retirement. In theory, 2010 funds should be very conservative, yet one 2010 fund lost 41% last year, Kohl said.

Because taking excessive risk can be devastating to investors who are close to retirement, he said new regulation or legislation may be needed to make investors more aware of the risk of these funds.

News You Can Use: Target-date funds falter

Is any retirement vehicle safe? I keep looking, but all I see are returns that are the financial equivalent of auto crash tests where the dummy's body snaps all around then slumps over the wheel. Know what I mean?

Although target-date funds were supposed be set it and forgettable savings vehicles for employee-investors -- pick your dream retirement date and let the fund do the rest -- a recent Wall Street Journal report cites data from Morningstar that show that some 2010 funds have lost as much as 20%. Among other funds, Morningstar examined 275 of them, and found 50 posted more than 38.5% drops in 2008, including the Oppenheimer 2010 fund, that lost 41.3%.

Yikes.

Mark your calendar to check out an EBN report on 2010 funds in our March issue.

What has been your experience with target-date funds? Comment below.

Tip of the Day

Not all target-date funds are alike, so make sure you select one that ensures your specific workforce can hit the retirement bullseye. This checklist from the National Association of Government Defined Contribution Administrators (just rolls off the tongue, doesn't it?) can help you make the best choice.