Retirement and Investment Solutions Newsletter

2011 – ISSUE 4

The case for re-enrollment
Back to the DOL drawing board for fiduciary definition
The Way Forward — keeping plan participants informed in turbulent times
Oct. 6 Webcast for participants: 401(k) boot camp
Test your retirement plan knowledge
Make every day 401(k) Day

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Availability of products and services featured in Insights varies by plan. For details, contact your J.P. Morgan representative.

The case for re-enrollment

Did you know that more than 70%¹ of defined contribution plans now offer target date funds (TDFs) in their investment lineup? This indicates a strong adoption of TDFs at the plan sponsor level – not just as additions to a pre-existing fund lineup, but also as the plan’s qualified default investment alternative (QDIA). And yet TDFs only have limited adoption by plan participants. TDFs account for just 11%¹ of defined contribution (DC) assets and less than a quarter of participants use TDFs as a single solution. On the bright side, TDFs do enjoy stronger adoption for new employees due to automatic enrollment. So how do retirement programs gain target date traction?

As it turns out, strategy matters. When TDFs are added to a plan’s investment lineup, adoption rates as a percentage of plan assets range from 1% to 5%² (incremental to assets mapped). With re-enrollment as the strategy? TDFs jump to a 40% to 60%² adoption rate. For sponsors interested in better asset allocation for their participants, but unsure how to drive TDF adoption in the face of participant inertia, effective implementation is key.

TDF implementation
It’s important to evaluate TDF implementation from a fiduciary perspective. Based on adoption rates and safe harbor considerations, re-enrollment offers a strong case as a TDF implementation strategy – that's according to a new white paper, Fiduciary implications: Using re-enrollment to improve target date fund adoption authored by leading benefits attorneys Fred Reish and Bruce Ashton of DrinkerBiddle. The paper provides helpful information to sponsors and those who consult with them and also describes fiduciary considerations for three TDF implementation strategies: add-to-menu; investment reset and re-enrollment.

Benefits to a strategic approach
A thoughtful TDF implementation plan provides:

a strategic opportunity for plan fiduciaries
an efficient way to help overcome barriers to retirement investment success
additional solutions beyond one of the most common, the add-to-menu approach, which may not achieve the plan’s desired results

According to the paper, a re-enrollment strategy offers several benefits for plan sponsors:

significant improvement in anticipated participant TDF adoption rates
safe harbor fiduciary protection by expanding assets defaulted into plan’s QDIA
no restrictions on participants who want investment flexibility

Interested in learning more about re-enrollment? The white paper and other resources, including a short video with Fred Reish, are available on jpmorganfunds.com/reenrollment.

¹Hewitt, Trends and Experience in 401(k) Plans 2011
²J.P. Morgan, May 2011
Source: J.P. Morgan’s Gaining Target Date Traction: Overcoming Participant Usage Barriers Through Effective Implementation, June 29, 2011

Back to the DOL drawing board for fiduciary definition

On Monday, Sept. 19, 2011, the Department of Labor (DOL) issued a press release announcing its intention to re-propose regulations changing the definition of who would be considered an ERISA fiduciary by reason of providing investment advice. The original proposed regulations, published in Oct. 2010, represented an expansion of what activity would give rise to fiduciary liability. The DOL was also considering extending the new rules to the retail IRA market currently serviced by broker/dealers and advisors.

Concerns were raised by plan sponsors and their vendors that the changes could potentially reduce services currently offered to plans, limit choices available to plan participants and increase administrative expenses. J.P. Morgan shared these concerns. We submitted public comments on the proposed regulations, testified at the DOL’s public hearings on this topic, worked with industry groups and met with policy makers.

In its press release, the DOL indicates it hopes to re-propose the regulation in early 2012 and will be considering the comments it received, as well as the testimony from public hearings held earlier this year. The DOL specifically called out certain areas, including:

clarifying that fiduciary advice is limited to advice individualized to the recipient
responding to concerns regarding the valuation of plan assets
addressing concerns about the impact on the current fee practices of brokers and advisers and what exemptions might apply

We applaud the DOL’s decision to further review the proposed changes and look forward to the opportunity to provide further comment.

The Way Forward — keeping plan participants informed in turbulent times

As the debt debate got hotter in Washington, so did our phone lines, as participants called in to express their concerns about the resulting market volatility and the impact on their retirement accounts. The Way Forward team worked quickly and closely with the Retirement Service Center to address those concerns. The Retirement account strategies in turbulent times article reminded everyone to stay cool during extreme market activity because retirement investing is for the long term. Participants most frequently asked questions were answered in FAQs about market volatility. The Way Forward site is also the place to find J.P. Morgan’s perspectives on the market and economy. In uncertain times, participants will stay informed with The Way Forward.

Oct. 6 Webcast for participants: 401(k) boot camp
Participants can discover ways to get their finances under control, so that their retirement savings can become a priority.

Join the Thursday, Oct. 6 Webcast to find out how:

technology can help retirement savings stay on track
a 401(k) can help condition you for the retirement of your dreams

Webcast time is noon ET, 11 a.m. CT, 10 a.m. MT, 9 a.m. PT.

Click link 15 minutes before the meeting. Space is limited.

Call 800-857-4508 and enter 9605863. If you encounter any problems with the link, visit https://www.livemeeting.com/cc/emeetingplace/join and enter Meeting ID TWForward and entry code 307182. Select https://www.livemeeting.com/cc/emeetingplace for the location.

Test your retirement plan knowledge

Question: In order for a qualified employer’s plan to accept a rollover from another employer’s plan, does the plan from which the rollover originates need to have an IRS determination letter as to the plan’s qualified status? Answer below.

Make every day 401(k) Day

Earlier this year, we worked with the Profit Sharing/401k Council of America to create a communications campaign to provide plan sponsors and their employees with “food for thought” about an important company benefit. A goal of the campaign was to shift the focus from a single day to celebrate 401(k)s, traditionally the first Friday in September, to a year-long emphasis.

The participant materials, which are free and can be downloaded at 401kday.org/401k-communications, use brightly colored presentations of food-themed analogies to encourage participants to take action with their retirement savings. Sponsors can customize the material with their company logo and contact information.

The campaign is divided into three “courses” to be used any time throughout the year:

an 11"x17" poster with the key messages tied to each theme
a flyer that matches the poster and provides more specific details
a 6"x 9" postcard with a place for the logo and contact information

For more information or to download the campaign files, visit 401kday.org.

Test your retirement plan knowledge

Answer: No. While it may be a requirement that the receiving plan has adopted as part of its administrative practice, it is technically not required. This is made clear in Treasury Regulation 1.401(a)(31)-1 Q&A-14. In part, the regulation says: “While evidence that the distributing plan is the subject of a determination letter from the Commissioner indicating that the distributing plan is qualified would be useful to the receiving plan administrator in reasonably concluding that the contribution is a valid rollover contribution, it is not necessary for the distributing plan to have such a determination letter in order for the receiving plan administrator to reach that conclusion.”

The key is that the plan administrator of the receiving plan must reasonably conclude that the rollover is a valid rollover contribution, and there are various ways of doing that.

Contact us at: Retirement_Insights@JPMorgan.com

For questions about your personal retirement plan, contact J.P. Morgan Retirement Plan Services at 800-345-2345 or call your retirement plan provider.

Availability of products and services featured in Insights vary by plan. For details, contact your J.P. Morgan representative.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice.

All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on market conditions at time of the analysis and are subject to change. Results shown are not meant to be representative of actual investment results. Past performance is not a guarantee of and may not be indicative of future results.

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