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Letter to SEC: Target-Date Investors Need Help With Big Picture

Proposed disclosure rules strike right tone, but don't go far enough.

Laura Pavlenko Lutton, 08/25/2010

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Office.

Monday afternoon, Morningstar's Fund Research Group submitted a comment letter to the SEC urging the commission to require funds to take new steps aimed at helping investors better understand target-date funds. Target-date funds typically are on the menu in companies' 401(k) plans, but no two target-date funds are alike and their asset allocation shifts to grow more conservative as investors near the retirement date in the funds' names.

Morningstar maintains that investors need better tools to evaluate these investments, specifically graphics and data depicting the funds' changing asset allocation, as well as details on the funds' expected subasset allocation. If investors know what their target-date funds own, they'll be better able to anticipate how they'll perform and stack up relative to other funds with the same target date. The text of Morningstar's letter follows.

Aug. 23, 2010

Elizabeth M. Murphy
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549-1090

RE: Comments on File Number S7-12-10

Dear Ms. Murphy,

Morningstar appreciates the opportunity to comment on the Securities and Exchange Commission's proposed rule amendments that seek to improve investors' knowledge and understanding of target-date funds. This letter reflects the views of Morningstar's Fund Research Group, the team responsible for the Morningstar Target-Date Series Ratings and Reports, which are issued quarterly, as well as the annual Morningstar Target-Date Series Research Paper.

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