D.C. area housing market feels the pinch from lower jumbo mortgage limits
This article was first published on Saturday, November 5, by the Washington Post.
By Katherine Reynolds Lewis
Srinivasan Soundararajan and Jennifer Nordin have been thinking about selling their Potomac townhouse and moving into a detached house for some time. With two small children, 1 and 3 years old, they are beginning to outgrow their three-bedroom house.
This past summer, the couple stayed out of the market because of Congress’s gridlock over the U.S. debt ceiling; they feared that a spike in interest rates could disrupt a pending house purchase. Once lawmakers agreed to raise the ceiling, they started looking at houses again.
Now that they’re close to making an offer on a property, a change in federal housing policy has hampered their plans.
On Oct. 1, Fannie Mae and Freddie Mac lowered the maximum size of so-called jumbo mortgages that they would back to $625,500. Before Oct. 1, Washington-area mortgages as big as $729,750 could be purchased by Fannie and Freddie and repackaged to sell to bond investors, or guaranteed by the Federal Housing Administration. The change was the result of a law Congress passed in 2008 to stimulate the housing market in the depths of the crisis.
As a result, the upper end of the Washington real estate market is feeling the pain as buyers have fewer options to finance the purchase of a house. And sellers, like Soundararajan and Nordin, feel the change constrains the pool of potential buyers for their townhouse, which they expect to list at $725,000.
“It would definitely affect the ability of someone to buy our house,” said Soundararajan, a 43-year-old attorney, noting that his sale price equals the new cap plus a down payment of $100,000. “That’s not a first-time buyer. We’re going to lose that market.”
The back-up plan
It's not sexy, but it can save your bacon. Get to know your emergency fund.
This article was originally published by USA Today in the fall 2011 issue of Men's Health Magazine.
By Katherine Reynolds Lewis
The emergency fund: it's that pile of cash that's just sitting there, ready for you to lose your job. The traditional advice is to save six to 12 months' living expenses.
How could you possibly save that much -- and why would you want to keep such a large chunk of change in an account earning 0.1 percent annual interest anyway?
Don't sweat it.
By rethinking the very nature of the emergency fund, you can piece together enough cash, safe investments, credit, and other resources to carry you through a job loss, illness, or other unexpected emergency.
And if you're not there yet: Read on, so that you'll know what to do when those paychecks get a little fatter. Read the entire article (page down after you click through).
Invest like a girl
This article was originally published by USA Today in the fall 2011 issue of Men's Health Magazine.
By Katherine Reynolds Lewis
Given how the world of high finances is dominated by men, you'd be forgiven for thinking that they make better investors than women. But the fact is piles of research show that it's men's better halves who produce better returns.
Female hedge fund managers achieve higher returns than their male counterparts, according to industry tracker Hedge Fund Research. During the 2008 financial collapse, men were more likely to abandon equities, missing out on the stock market's rally since then, according to Vanguard. And University of California researchers studying 35,000 households over six years found that men traded 45 percent more frequently than women, reducing their net returns.
So it might be time to buck up and figure out what women are doing right. Read the full article.
7 Myths That Could Wreck Your Retirement Savings
This article was originally published by the Fiscal Times on Tuesday, July 19, 2011.
By Katherine Reynolds Lewis, The Fiscal Times
Despite the sluggish recovery, Americans are starting to feel a little better about their prospects. But that may not be good news for retirement savings. While the recession shocked us into boosting our near-zero savings levels, we’re already being less frugal.
After climbing to 7.2 percent in the second quarter of 2009, the U.S. savings rate dipped to 5.1 percent in the first quarter of this year, the lowest level since the financial meltdown, according to the Bureau of Economic Analysis. Meanwhile, the average 401(k) balance hit $74,900, according to Fidelity Investments. That’s only enough to cover about three years of retirement expenses.
Are you ready for retirement? Investment advisers like to trot out handy rules for savings plan. But some of this conventional wisdom makes it easy to slide off the thrifty path. Here are seven myths about retirement that can trip you up.
Myth No. 1: Max out your 401(k) contribution and you’re set.
The ‘Warren Report’ - GOP Attacks Consumer Agency
This article was originally published by the Fiscal Times on Thursday, May 19, 2011.
By Katherine Reynolds Lewis
Even before it formally opens its doors this summer, the new federal agency created to protect consumers from unscrupulous financial industry practices is coming under withering attack by Wall Street and Republican lawmakers. And despite a months-long charm offensive by Elizabeth Warren, the former Harvard professor and chief architect of the new agency, Warren has been unable to win over many of her critics on Wall Street and within the GOP.
Bills pending in the House would curb the power of the Consumer Financial Protection Bureau, while 44 Republican senators have promised to block confirmation of a director for the new agency unless those restrictive measures are approved.
With Democrats in control of the White House and the Senate, but not of the House, the legislation is unlikely to become law. But between the Senate GOP ultimatum and financial industry criticism of Warren, few believe she could be confirmed if President Obama nominates her as the director.
As a result, Obama may have little choice but to name Warren as director during a congressional recess in order for the agency to have someone at the helm when it begins to wield regulatory power this summer. Warren currently is overseeing the creation of the consumer protection bureau as a special assistant to the president. If she is made director through a recess appointment that would all but assure a politically bumpy future for the agency.
The Senate GOP pledge "creates a climate that is ugly. That is an in-your-face kind of attack that I haven't seen in 20 years in Washington," said Ed Mierzwinski, director of the consumer program at the advocacy organization U.S. PIRG. "Elizabeth Warren wants to come in and make that marketplace fair. Wall Street would prefer to decide on their own how to make money."
Economy Grows, But Jobs Don’t
This article was originally published by the Fiscal Times on Thursday, March 24, 2011.
By Katherine Reynolds Lewis
Of all the woes of the Great Recession, one anomaly is the most troubling: How can the economy be growing while unemployment remains so high? The breakdown in the historic relationship between GDP growth and jobs has confounded experts ranging from White House Chief Economist Austan Goolsbee to Cato Institute scholar Mark Calabria.
Under the principle known as Okun's law, named for Arthur M. Okun, an economist who worked for Presidents John F. Kennedy and Lyndon Johnson, a 3 percent increase in U.S. gross domestic product should lead to a 1 percent drop in the unemployment rate. Yet as the U.S. economy rebounds from the latest downturn, the jobless rate remains stubbornly high — as much as 2 percentage points higher than economic theory predicted. Possible explanations include overly cautious employers, a lack of worker mobility and simple measurement error.
New Tax Laws Make Filing a Bureaucratic Nightmare
This article was originally published by the Fiscal Times on Friday, March 18, 2011.
By Katherine Reynolds Lewis
Taxes are never fun, but this year is proving especially painful. Not only did the Internal Revenue Service fail to finalize all its systems and forms until mid-February, some popular tax breaks expired in 2010.
It wasn’t until mid-December that Congress reached a compromise for legislation to extend tax cuts enacted under President George W. Bush that were set to expire at the end of last year. As a result, the IRS wouldn’t accept tax returns filed electronically until mid-February, as it updated its tax guidance, instructions and software, and many tax preparers waited until that point to begin work on clients' returns.
The delay was unavoidable because of the late action by Congress, said IRS spokesman Eric Smith. "Some returns could not be actually sent electronically until mid-February."
This year's headaches reflect the increasingly complicated tax code and contentious debate over tax legislation, which leads to last-minute legislation with short-term compromises. In the near term, lawmakers struggling to agree on a budget -- and pare a projected $1.6 trillion deficit -- are in their fifth month of stop-gap measures to keep the government operating. In the long term, they hope to reduce the federal debt and deficit without sending tax rates through the roof or eliminating cherished federal programs.
"We've had so many changes in tax law in the last 18 months that people are genuinely confused about what the rules are," said Joseph McLeod, tax partner in the Raleigh, N.C. office of Cherry, Bekaert & Holland, a certified public accounting firm. "Tax-return preparation has gotten more lengthy, more complicated. It takes more of our time, so we have to bill more at the very point in time when people want to pay less."
Investors Beware: Return to Stocks May Be Too Late
This article was originally published by the Fiscal Times on Monday, March 7, 2011.
By Katherine Reynolds Lewis
Investors are worried about the federal deficit, still-high unemployment and rising oil prices, which are raising the specter of inflation. But they’re buying stocks, afraid of being left out as major indexes rise to their highest levels in nearly three years. They may be too late.
Individuals tend to sell out of the market near the bottom and buy back close to the top — realizing their losses and missing out on potential gains, experts say. After the flash crash in May 2010, massive amounts of money flowed out of stock mutual funds: $82.3 billion in the eight following months, according to Chicago-based research firm Morningstar. The Standard & Poor’s 500 index went on to double from its low in March 2009, the fastest such increase in the index's history.
The financial crisis and Great Recession shook Americans' confidence in the markets, and investors withdrew $216 billion from stock mutual funds from 2007 through 2010, according to Morningstar. "This was fundamentally different from past bear markets," said Morningstar analyst Kevin McDevitt. "There are a lot of people who felt they didn’t want to play this game anymore and felt the whole system was rigged against them." The S&P is still down about 5 percent from the start of 2007.
Sentiment started to change this January, when $15.8 billion flowed into U.S. equity funds, the biggest January since 2004, though small relative to the $3.5 trillion in overall assets held in the funds. A new Wells Fargo-Gallup poll found that retail investors remain wary of investing in stocks, but the market's climb is pulling many back in. The federal budget deficit — tied with unemployment — is the top worry of individual investors, a concern for 71 percent of those surveyed.
"It's shocking to me that the federal budget deficit would rank ahead of energy prices, ahead of access to credit, ahead of the questions that have dominated the media," said David M. Carroll, a senior executive vice president at Wells Fargo. "It's food for thought for our representatives in Washington."
Homeowners Exhale as Fed Reverses Course on Mortgages
This article was originally published by the Fiscal Times on Tuesday, Feb. 15, 2011.
By Katherine Reynolds Lewis
Millions of homeowners facing foreclosure dodged a bullet when the Federal Reserve Board changed course on proposed changes to mortgage rules, instead deferring to the nascent Consumer Financial Protection Bureau in the first skirmish over regulatory authority under last year’s sweeping financial reform legislation.
A coalition of consumer groups took the unprecedented step of asking the Fed to withdraw two sets of rule proposals on consumer mortgages and turn them over to the new bureau created by the Dodd-Frank Act. In a brief statement this month, the Fed cited more than 5,000 comments received on the matter and said it plans to wait for the bureau, which will take over authority on consumer mortgage rules in July 2011.
If the Fed had finalized the rule proposals, it would have eliminated a longtime consumer right to void a mortgage under certain circumstances, one of the best tools homeowners have to halt foreclosure. Consumer advocates say the rule also would have opened the door to risky reverse mortgages, and would allow changes in advertising that would permit false statements.
Nearly 11 million Americans owe more on their homes than the properties are worth, and 3.4 million homes have been lost to foreclosure since the recession began, according to CoreLogic. The foreclosure crisis has spawned accusations that lenders used improper documentation and procedures to seize homes, prompting investigations by state attorneys general and members of Congress, as well as lawsuits estimated to end up costing banks as much as $52 billion.
The Fed’s proposed rules "would have been disastrous for homeowners … At the time of the worst foreclosure crisis in anyone's memory, they were pulling the rug out from the most vulnerable consumers this law intended to protect," said Nina Simon, director of litigation at the Center for Responsible Lending, which filed joint comments with the National Consumer Law Center, the National Fair Housing Alliance, Consumers Union, the National Community Reinvestment Coalition and other consumer groups.
Treasury Plan to Wind Down Fannie and Freddie
This article was originally published by the Fiscal Times on Friday, Feb. 11, 2011.
The Obama administration released a white paper proposing the gradual winding down of Fannie Mae and Freddie Mac and overhauling the mortgage securities market.
By Katherine Reynolds Lewis
The Obama administration Friday laid out an ambitious vision for U.S. housing finance reform, in which the government gradually diminishes its role and private investors return to the mortgage securities market.
But the plan doesn't specify how to overhaul or eliminate Fannie Mae and Freddie Mac, instead setting out three possible options for the mortgage giants, which have been operating under government conservatorship since September 2008. Under the landmark Dodd-Frank financial overhaul legislation approved last year, the Treasury Department was supposed to present to Congress by Jan. 31 a report on the government-sponsored enterprises (GSEs) to help lawmakers write legislation to reform the agencies.
"This is a plan for fundamental reform — to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it," said Treasury Secretary Timothy Geithner in a statement. "We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."
At stake are the health of the real estate market, economic growth and, some argue, the future of the 30-year fixed-rate mortgage. The challenge for policymakers is to attract private investors back into the mortgage market while retaining the benefits that Fannie and Freddie established — a liquid secondary mortgage market and greater access to homeownership. The administration and lawmakers are also attempting to prevent a repeat of the excessive risk-taking and inadequate supervision of the housing market that led to the 2008 financial crisis, while reassuring foreign investors in housing bonds and U.S. government debt.
Whistleblower Rule: Business Leaders Want it Changed
This article was originally published by the Fiscal Times on Monday, Feb. 7, 2011.
The SEC will soon issue a rule giving corporate whistleblowers the chance to collect big money for reporting securities violations, but the business community fears a wave of frivolous claims.
By Katherine Reynolds Lewis
In his continuing outreach to business leaders, President Obama spoke at the U.S. Chamber of Commerce this morning about global competition, technological innovation and the outdated or unnecessary government regulations. But a major concern of many corporate leaders is a proposed federal rule giving corporate whistleblowers an opportunity to collect hundreds of thousands of dollars for reporting securities law violations. The rule has alarmed the business community, which argues that the plan would encourage frivolous claims and undermine a decade of work to provide safe reporting channels for whistleblowers.
By April 17, the Securities and Exchange Commission must give final approval to the rule, which Congress ordered as part of the Dodd-Frank financial overhaul law aiming to prevent a repeat of the 2008 financial crisis.
Corporate lawyers and lobbyists have asked the SEC to require whistleblowers to report problems internally before going to the government, to limit the people eligible to collect a bounty and to extend the time a company has to correct violations. On the other side, lawyers who represent whistleblowers say the provisions the SEC proposed are needed to protect tipsters from retaliation and prevent corporate cover-ups.
The rulemaking is the latest in a series of government attempts to encourage corporate employees with knowledge of fraud or other violations to come forward. The Sarbanes-Oxley Act of 2002 — which Congress passed in response to accounting fraud at Enron, WorldCom and other corporate giants — required companies to establish internal reporting programs and made boards of directors and top executives personally liable for neglecting to investigate fraud complaints. In both 2001 and 2008, scandals over the activities of publicly traded companies quickly spread from the stock market to the broader economy, affecting everyday Americans as well as shareholders.
"This is one of the most explosive issues that has come up in a while for such a broad group of companies," said Alice Joe, a senior director at the U.S. Chamber of Commerce, which represents more than three million businesses. "Our companies have spent millions of dollars over the past 10 years trying to build up these compliance programs. Now you've got a rule that the SEC has proposed that is going to incentivize whistleblowers to completely bypass these systems."
Use the Web to save $8,000 a year
This article was originally published by MSN Money on Monday, Jan. 31, 2011.
Smart shoppers use the Internet to save a bundle through comparison sites, coupons and online services. Just be sure you're not wasting time and money to save a buck.
By Katherine Reynolds Lewis
Savvy Internet users can save nearly $8,000 a year through smarter shopping, online discounts and Web-based services such as bill paying, according to a report compiled for the Internet Innovation Alliance.
Gale Swanson, 53, can attest to the value of an Internet connection. Since her children gave her a computer in 2009, her Web usage has saved her more than $5,000 on gifts, entertainment, food and travel purchased through the Internet -- and ended her weekly trips to Big Lots and Wal-Mart.
"Because I'm on a fixed income and a budget, I have to make sure I don't spend my money frivolously," said Swanson, a retired office manager in Van Nuys, Calif. "The ease of being able to find things that are discounted is great."
Financial Advisors: New Rules Protect Consumers
This article was originally published by the Fiscal Times on Friday, Nov. 5, 2010
With more than 100 professional designations for financial-services providers, it can be hard to figure out who you can trust with your with your money. New government regulations may change that.
By Katherine Reynolds Lewis
Wondering whether to jump back into the market after the Federal Reserve's plan to pump $600 billion into the economy sent stocks to their highest level since September 2008, but worried about the uncertain outlook? People looking for good financial advice can have a hard time.
There are no federal rules for the training or conduct of someone who hangs a shingle as a financial planner. “Certified” financial service providers include more than 100 professional designations, with acronyms like CFP, CFM, CIMA, CFA, CLU, CPA, EA and PFC, representing everything from a single self-study course to years of education, professional training, continuing education, testing and ethics.
Adela Pena, 63, thought she was being responsible when she took early retirement from a telecommunications company in 1998 and invested a $400,000 lump sum pension payment in an annuity recommended by a financial adviser. She watched the value of her portfolio plummet and the adviser stopped returning phone calls. By 2008, she had only $49,000 left.
“Now all I’m living off is my Social Security and the generosity of my children,” she said in an interview from her San Jose, Calif., home. “It’s not like I spend my money foolishly. My children and I never really went on vacation because I wanted to make sure I had some money in my old age so they wouldn’t have to worry about me.”
New Government Oversight
Now, for the first time, financial planners could be subject to government oversight and broker-dealers could be required to act in their customers’ best interests, after two landmark reviews ordered by Congress in this summer's financial regulatory overhaul. The initiatives could reshape the marketplace for financial and investment advice. Policymakers hope new rules will restore some of the confidence shaken by the global financial crisis and stock market collapse in 2008, and better protect investors for the future.
“If I go to someone who markets himself as a doctor or a lawyer, I know that person has passed an exam and that person is subject to a code of professional conduct,” said Marilyn Mohrman-Gillis, managing director for public policy at the Certified Financial Planner Board of Standards, the organization that grants the CFP designation. “It’s easier to be a financial planner than it is to be a cosmetologist.”
High College Dropout Rate Threatens U.S. Growth
This article was originally published by the Fiscal Times on Tuesday, Oct. 28, 2010
Just over half the students who enter a four-year college complete their degree and even fewer community college students graduate, leaving many without the qualifications they need to land a job.
By Katherine Reynolds Lewis
Millions of first-year college students and their families now paying for the most expensive postsecondary education in U.S. history face a land mine: just 56 percent of those who enroll in a four-year college earn a bachelor’s degree. Those new undergraduates are now reaching the end of the first semester, a critical crossroads between finishing and dropping out.
Some students drop out because of trouble paying the cost — the average college debt upon graduation is a whopping $24,000. Others struggle to hold down a job while also attending college — tuition, room and board at many private universities tops $50,000 a year, and some state schools charges $10,000 a year just for tuition. But more than half of first-year students are simply underprepared for college-level work, said Jeff King, director of the Koehler Center for Teaching Excellence at Texas Christian University, which is developing a tool to identify students who are most at risk of dropping out. “There’s increasing pressure … to prove that after these thousands of dollars that parents are paying for a credential, the students are learning,” King said.
Education policymakers for decades have focused on opening the doors to higher education to more students, without much thought about whether those students are prepared and what happens if they’re not. Now, they’re starting to take action. Over the past decade, the U.S. has fallen from leader to 12th place in the ratio of young people with the equivalent of a bachelor’s degree, well behind Russia, Canada, Korea and Japan.
Study Harder
This article was originally published by Financial Planning magazine in October 2010.
The Dodd-Frank legislation calls for studies of fiduciary duty and financial planning oversight. What they find could change the industry.
By Katherine Reynolds Lewis
The buzz of activity in Washington over financial regulatory reform hasn't died since Congress passed the sweeping Dodd-Frank legislation and President Barack Obama signed it into law on July 21; it's merely moved from the halls of Congress to the regulatory agencies. For planners, the legislation kick-started two major initiatives that could transform the way financial advice is regulated and for the first time subject financial planning to explicit regulatory oversight.
The first is a study by the SEC about the obligations of brokers, dealers and investment advisors toward their clients. This study is likely to result in new rules imposing a fiduciary duty on all professionals who provide personalized investment advice, given SEC Chair Mary Schapiro's support for a uniform fiduciary standard. The second is a study by the Government Accountability Office (GAO) on the oversight of financial planning, which will result in recommendations to Congress of any legislation needed to close regulatory gaps and protect investors. Both studies are due in six months.
"It's very significant. Many major policy initiatives grow from government studies," says Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board of Standards. "This regulatory reform bill provides a golden opportunity to start important change in the industry."
Sue the debt collector
This article was originally published by MSN Money, on Monday, March 29, 2010
Federal law sets clear limits on what debt collectors can do. If their tactics go beyond those limits, you can win money -- and it's a surprisingly easy process.
By Katherine Reynolds Lewis
If you're overdue on your bills, you may know all too well the headaches of phone calls, letters and threats from creditors.
Now some debtors are hitting back by suing when debt collectors violate their rights.
"People will take a lot of crap until it gets to the point where they're so desperate they feel they have nothing to lose by fighting back," said Steven Katz of Tucson, Ariz. Katz is the founder of Debtorboards, where consumers post their frustrations and successes with the collection industry.
Suing is a surprisingly easy process. Federal law lets individuals receive $1,000 for each abuse of their rights, plus any damages or attorney fees. Sometimes, a single phone call from a collector involves multiple violations.
Cash a check, maybe go to jail
This article was originally published by MSN Money, on Friday, Dec. 11, 2009.
Did you get conned into joining a check-cashing scam? Even if authorities decide you're an innocent victim, you could find yourself owing a bank thousands of dollars.
By Katherine Reynolds Lewis
Cash a check, go to jail. Or at the very least, empty your own savings account and ruin your credit.
It's happened to hundreds of thousands of Americans who believed that banks don't make funds available unless the checks they've deposited are genuine.
It happened to Calvin Barnett, who could face 11 years in prison for doing what he said he thought was his work-at-home job.
As unemployment reaches its worst levels in generations, scammers are finding a growing pool of victims all too willing to deposit strangers' checks, then return part of the money by wire transfers.
"There's a knowledge gap that these scammers are clearly taking advantage of," said Susan Grant, the director of consumer protection for the Consumer Federation of America. "Under federal law here in the U.S., financial institutions have to give consumers access to the money from checks and money orders they deposit pretty quickly, usually within one to five business days. It can take much longer for counterfeits to be discovered, by which time the consumer has already sent the money."
"The problem is the con men are very persuasive," said Nessa Feddis, a vice president and senior counsel at the American Bankers Association, which is working with the Consumer Federation to educate consumers about check fraud. "People are desperate. They want to work. They want a job."
What if the Internet breaks?
This article was originally published by MSN Money, on Thursday, Dec. 10, 2009.
The 40-year-old system might be vulnerable to technical collapse and cyberattack, which could cause widespread chaos in fields from banking to health care to government.
By Katherine Reynolds Lewis
When your Internet service goes down, it's at best an inconvenience. If you rely on it for business, it can quickly cost you money.
So imagine: What happens if the Internet breaks?
Picture people wandering the streets lost without GPS or maps on their iPhones, unable to pay for food or other goods with a simple swipe of a card.
Companies would have to resort to faxes and phone calls instead of e-mail; they'd quickly reach capacity and be unable to function. Credit cards wouldn't work; stores and hospitals would run short of supplies. Even electrical power to our homes could be disrupted.
"It would be a mess," said Dave Marcus, the director of security research for McAfee. "You would be taking businesses that were designed to do all their point-of-sale and financial transactions through the Internet and going back to pen and paper and taking checks in a car to the bank. People would lose their minds."
On the 40th anniversary of the first transmission over the earliest version of the Internet, it's more than an idle question to examine the network's fragility. It's been more than 20 years since the last systemwide overhaul, and Internet infrastructure is still based on 1970s ideas about computer networks.
Headline-making outages of popular Web sites such as YouTube and Twitter merely hint at the damage a full-blown failure could wreak. The Internet protocols that allow computers to communicate in networks have infiltrated every sector of our economy.
"The Internet has moved from being a toy or ornament to something that's central to our economy," said James Lewis, a senior fellow at CSIS, a nonprofit think tank in Washington, D.C. "We've automated all these processes, which makes our economy much more efficient, which means cheap. But it also means we're now dependent."
Time to Reevaluate Target-Date Funds
This article was originally published by Financial Planning magazine on Saturday, Aug. 1, 2009.
By Katherine Reynolds Lewis
When target-date funds (TDFs) were first introduced in the early 1990s, many considered them the best financial innovation in decades. They would incorporate best behaviors in asset allocation and rebalancing, and help individuals make age-appropriate investments. The funds really took off in 2006 when they became qualified default investment alternatives (QDIAs) for 401(k)s. Today, TDFs hold more than $180 billion in assets.
But when the financial markets collapsed in 2008, TDFs got hit—hard. Employees who were about to retire lost 25% of their portfolio, on average.
As the government takes a second look at the financial world, it is evaluating whether these funds protect investors'—your clients, whether they are employers or employees—best interests. Their findings will help shape the financial reform debate, as they cover who bears fiduciary responsibility, what is accurate nomenclature and what is an appropriate level of risk for a QDIA.
The SEC and the Department of Labor's joint hearing on June 18 was the first step toward new requirements for TDFs. Officials heard from nine panels of more than 35 witnesses who recommended enhanced disclosure, standardized naming of TDFs and even new rules for fund managers.
"We must focus on how best to address TDF issues in a way that benefits the investors who have entrusted these funds with $182 billion," SEC Chairman Mary Schapiro said in a speech after the hearing. The SEC will consider improvements in disclosure and will look closely at "whether the use of a particular target date in a fund's name is materially deceptive or misleading and should be prohibited."
