In a changing world where workers are increasingly responsible for managing their own retirement portfolios, target date funds -- mutual funds pegged to a person's expected retirement date -- may seem like a simple way to handle a complex job.

All the investor has to do is pick the mutual fund that matches the date he or she plans to retire and the fund is supposed to automatically change the investment mix over time so that the portfolio is more heavily weighted in bonds rather than stocks as the target retirement date gets near.

But target date funds did not fulfill their promise to many people who had planned to retire in 2010.

They wound up losing an enormous chunk of their life savings during the financial crisis of 2008, which prompted the Securities and Exchange Commission to take a closer look at target date funds. The SEC recently proposed new rules requiring the operators of such funds to start spelling out exactly how they are investing the money.

"Target date funds to a degree are misleading," said Mike Blehar, a financial adviser at Fort Pitt Capital Group in Green Tree. "People think if they pick a date they want to retire, target date funds make it all happen and bring you to the promised land."

Although 2008 was an admittedly tough year for all investments, target date funds for people planning to retire in 2010 lost an average of nearly 24 percent that year, according to the SEC. Losses ranged from 9 percent to a whopping 41 percent.

"If you have 10 different target date funds in 10 years, you'll have 10 different variations on asset allocations," said Walt J. Woerheide, a professor of investments at The American College in Bryn Mawr. "If the consumer doesn't fully investigate, [he] won't know what [he's] getting.

"Target date funds are a triumph of marketing over intelligent investing. Were I an active planner, I would not advocate target date funds."

Also known as Life Cycle Funds, target date funds are differentiated by retirement goals usually spaced five years apart, such as 2010, 2015, 2020. Since the inception of target date funds in the 1990s, assets held by these funds have grown considerably. Today, assets of target date funds registered with the SEC total about $270 billion.

These funds have become more prevalent in 401(k) plans because the U.S. Department of Labor has designated them as qualified default investment alternatives. That means that employers are protected from liability if they invest an employee's contributions in a target date fund when that employee has not otherwise made an investment choice.

The use of target date funds is more likely among participants who are younger, have lower account balances and have shorter tenure at their current job, according to a study released Thursday by the Employee Benefit Research Institute, a nonprofit research institute based in Washington, D.C. The reason is that new workers are the most likely to be automatically enrolled in their employer's 401(k) plan, with a target date fund often being the default option.

The share of all 401(k) plan participants using target date funds increased from 25 percent in 2007 to 31 percent in 2008, the study reports.

"The problem with target date funds is that they gave older participants a false sense of security," said Ary Rosenbaum, a lawyer specializing in employee benefit plans with the Rosenbaum Law Firm in Garden City, N.Y. "There was no regulation or criteria that differentiated a 2015 target date fund from a 2025 target date fund.

"Legally, they could have the same exposure to stocks and the 401(k) participant would have no idea. Participants assumed that the target date funds were more secure as the date came closer, but they had more exposure to equity than any participant could have ever thought."

Because of the differing opinions of the fund managers, different mutual funds with the same retirement date can vary widely in their "glide path," the percentage of equity versus bonds in the portfolios.

A comparison of target date 2015 funds conducted this year by Morningstar showed that the AllianceBern 2015 Retirement fund had an allocation of 71 percent stocks, 28 percent invested in bonds and 1 percent cash; Oppenheimer Transition 2015 had a mix of 65 percent in stocks, 24 percent in bonds and 11 percent cash; and the Vanguard Target Retirement 2015 fund was 60 percent stocks, 37 percent bonds, 3 percent cash.

"You have no idea how or when they are shifting the allocation," said Jim Peters, CEO of Tactical Allocation Group, Birmingham, Mich. "You are really at the mercy of the fund and have no idea what [it] is doing. It's just terrible."

Adviser Jim Emanuel of Emanuel Financial Consultants in Mt. Lebanon, said he had been reluctant to use target date funds because it's hard to know what the asset allocation is as the client gets closer to retirement, but he has found them useful for some clients with small accounts.

"I have a lot of clients with small accounts of only about $1,000 and I'm not going to spend a lot of time on an account like that simply because I can't afford to do it," Mr. Emanuel said. "For someone in that situation, I think target date funds are a godsend.

"For most clients with larger accounts, I prefer to take that responsibility myself, especially as they get closer to retirement," he said, adding that he thought the new rules being proposed by the SEC for target date funds would be good for the industry.

The SEC staff recently reviewed some target date fund marketing materials and concluded: "Even though the marketing materials for target date funds often included some information about associated risks, they often accompanied this disclosure with slogan-type messages or other catch phrases encouraging investors to conclude that they can simply choose a fund without any need to consider their individual circumstances or monitor the fund over time."

The SEC voted 5- 0 last month to propose new rules related to disclosure. One of the proposed rules would require a fund that has "target date" in the name to disclose immediately next to the first use of its name in marketing material the fund's asset allocation at the target date.

Other rules would require more disclosure in marketing materials regarding the fund's glide path and asset allocation at the landing point as well as risks and considerations that are important when deciding to invest in target date funds.

The proposed rules could be formally adopted sometime after a 60-day public comment period that started on June 23, possibly with changes.

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