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New Rules Proposed for Target-Date Disclosure

Plus, TCW sues DoubleLine Trust, and more.

Morningstar Analysts, 12/06/2010

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Fiduciaries for the nearly 500,000 participant-directed plans, such as 401(k)s, will have to begin providing participants with more-detailed disclosure--including how target-date funds' asset allocations change over time--under new regulations proposed this week by the Department of Labor. These proposed rules follow the SEC's June 2010 recommendations for target-date fund advertising. Target-date funds have been playing an increasingly big role in the investment lineups of 401(k) plans and other similar vehicles, which have approximately 72 million participants and about $3 trillion in assets, according to the Labor Department's Employee Benefits Security Administration.

The proposed amendments include a requirement that plan participants and beneficiaries receive both narrative explanations and graphical illustrations of how the target-date fund's asset allocation will change over time. Also, a target-date fund whose name refers to a particular date or that mentions a retirement or related target date in its stated objective will have to be accompanied by an explanation of the date's relevance. More detailed descriptions including investment strategies and objectives, performance history (with a notice that past performance doesn't indicate future performance), risk and return characteristics, fees, and expenses are also part of the proposal. The amendment would also require notification that the investments might lose money, including around the time of retirement.

Comments from the public are due by Jan. 14, 2011.

TCW Sues DoubleLine Trust
There's a new wrinkle in the ongoing legal battle between fixed-income portfolio manager Jeffrey Gundlach and his former employer, TCW Group Inc. TCW has filed a lawsuit against the DoubleLine Funds Trust (which oversees DoubleLine's mutual funds) and individual trustees.

The suit alleges that the trust and trustees either knowingly or unknowingly aided in misappropriation of confidential TCW data and trade secrets. TCW seeks unspecified damages and asks that the Trust be prevented from operating for a period of not less than six months because of its "illegal head start." If TCW's suit is ultimately successful on all fronts, it could mean that DoubleLine will be permanently prevented from managing the funds.

In response to this lawsuit, a DoubleLine spokesperson said, "TCW has been making false allegations against DoubleLine for 11 months now, and their case isn't going at all well. This latest legal maneuver is redundant and meaningless."

The accusations in the most recent suit are similar to those found in TCW's January 2010 lawsuit following its dismissal of Gundlach. He filed a cross-complaint in February 2010, alleging that he and his team were terminated in order to prevent them from collecting management and performance fees totaling at least $600 million and possibly as much as $1.25 billion.

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