SOURCE: Avatar Associates

Avatar Associates

December 07, 2009 17:42 ET

Avatar Receives Department of Labor Clarification on ERISA Fiduciary Rules Within Proprietary Target Date (Lifecycle) Funds

NEW YORK, NY--(Marketwire - December 7, 2009) - The DOL issued Advisory Opinion 2009-04A on December 4, 2009 stating that the underlying mutual funds used by tiered mutual funds do not constitute plan assets.

By way of background, Avatar requested that the DOL provide a framework clarifying when and under what circumstances shares of tiered mutual funds constitute plan assets, an exception from the general rule exempting mutual funds from being plan assets. We thank the DOL for making it clear that current ERISA law implies that, in its opinion, tiered mutual fund shares are not considered plan assets.

With this clarification, we now know that the burden of determining the prudence of investing in tiered asset mutual funds -- especially concerning actual and/or potential conflicts of interest, self-dealing, lower rates of return, overexposure to equities, and high administrative and investment fees -- is directly the responsibility of plan sponsors, something that plan sponsors might not have fully understood prior to the issuance of this Advisory Opinion. While this Opinion may be viewed as protective of mutual fund companies, it is important to note that it increases the fiduciary burden on plan sponsors. Plan sponsors must now undertake appropriate procedural and substantive due diligence regarding target date funds.

About Avatar Associates

Avatar Associates is a New York based, independent investment manager and asset allocator, specializing in risk reduction investment strategies. Since 1970, institutional and private clients have entrusted Avatar to help them participate in market advances and protect them against market losses. Avatar was founded by Ned Babbitt and his first associate, Marty Zweig, a noted investment leader. They pioneered a number of now widely accepted investment disciplines. Avatar's monetary research was summarized by the financial world as "Don't fight the Fed." Our respect for market information became known as "Don't fight the tape." Today Avatar, a leader in implementing non-conflicted, low cost asset allocation strategies using Exchange Traded Funds (ETFs), works with 401(k) plans, institutions, wrap brokerage accounts, financial planners and advisers, and private clients. Avatar employs a quantitative, top-down, macro-economic model, refined qualitatively by a seasoned research and portfolio management team with one of the longest tenures in the industry.

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