Target-date funds have gained popularity as investment vehicles since they were introduced 15 years ago, and really took off after the Pension Protection Act allowed plan sponsors to make them default investments for 401(k)s in 2006. But losses in these funds over the past year—including losses in funds targeted for retirement dates less than 10 years away—have provoked much discussion over whether they are too aggressively allocated.

Senator Herb Kohl (D., Wis.), chairman of the Senate Committee on Aging, is asking the Labor Dept. to regulate the composition and marketing of these funds, as well as that of lifecycle funds. Kohl is also urging the Securities and Exchange Commission to focus on the disclosure and underlying composition of the funds.

As of Dec. 31, 2008, approximately $152 billion was invested in target-date funds, with $182 billion invested in both target-date and lifecycle funds together. This number is expected to grow to more than $1 trillion by 2013. The funds with the largest asset base are those with a target date of 2020, which hold $32 billion in assets.

Assets flowing into the funds doubled once the 2006 Pension Protection Act made them a qualified default investment alternative, meaning employees who don’t indicate their investment choices can be automatically enrolled in the funds. This implies the funds’ safety.

That safety has come into question, however, as many target-date funds have suffered steep losses during the market downturn, with one 2010 target-date fund down more than 40% in 2008, Kohl noted in a letter to the Labor Dept. on Feb. 24. Meanwhile, the four largest 2010 target-date funds lost an average 25.7% last year.

One aspect of the funds that has come into question is whether investors are, or should be, made aware of the equity allocation within the funds they’re investing in. Target-date funds are designed to automatically move into more conservative allocations as the target date—or planned year of retirement—approaches. Kohl notes in his Feb. 24 letter, though, that the percentage of stock holdings firms’ 2010 target-date funds range from 8% to 68%.

Industry insiders have expressed concern over this variance in equity exposure, noting that the funds may not be conservative enough. Some say the funds are aggressive due to competition—the best performance funds sell. Still others note that the target date is only seen as a point on the investor’s glidepath, with the real target date being the date of the investor’s death. This implies that there is a built-in assumption in the funds that any losses the funds incur in the few years before the target date can then be made up for in the subsequent 15 to 20 years, allowing for higher equity exposure in the years near the target date than many consider conservative. The Wall Street Journal says that Senator Kohl plans to meet with the Labor Dept. to discuss the issue “in coming weeks.”