Retirement and Investment Solutions Newsletter


August/September 2010 Issue

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


"Special Issue" Video Introduction

Voice of the Client – A “Best Practice” Practice

In our first 20 years as a retirement plan services provider, changing a service or enhancing a product for our clients could be accomplished with relative ease. This may have been because the business needs of our clients were not as diverse, legislative and regulatory guidance came less frequently and the primary means of communicating with sponsors and participants was through the mail.

By the turn of the century, however, that approach had to change. With the growth here at J.P. Morgan Retirement Plan Services, the Internet boom and legislative focus on the emergence of 401(k)s as the primary means to save for retirement, clients’ diverse business needs and participants’ expectations meant that any change to a product or service while beneficial for some sponsors and participants didn’t always meet others’ expectations.

“We’d finish a small upgrade to one of the Web pages,” recalls Sean Connelly, vice president of Corporate and Product Strategy, “with real satisfaction and pride in having helped a client and their participants. Then we’d learn a few hours later that the retirement service center was reporting hearing from participants who didn’t care for the change. We had to find a better way.”

The genesis of Voice of the Client
Enter the Voice of the Client (VOC) practice, which started as focus groups called Partner Groups in Kansas City. These events included 10 to 12 clients and focused on upcoming product or service changes. Experts from our product and service teams would showcase their ideas and ask clients for feedback. The feedback was analyzed and, in the weeks afterward, either added to the upcoming changes or put aside. Clients received a report with summary findings as a follow-up to the event.

The idea of soliciting client input so widely was met with uncertainty by some. “There were concerns that this approach would delay deliveries and drive up costs,” says Connelly. “But we were able to quickly demonstrate the opposite was true.”

How we benefit from VOC
Capturing the VOC feedback results in faster deliveries, because offerings can be widely adopted as soon as they are built rather than offered to only a few clients at the outset and slowly tailored over time to meet other clients' needs. Internally, our technology and product teams manage costs by incorporating client input. “You get client input eventually,” explains Connelly. “You desire it sooner, though, so your design is comprehensive and relevant for clients.”

We experience unintended benefits of our VOC practice as well client goodwill chief among them. Almost every client (98%) who participated in a VOC event rated the interaction as “very valuable.” Many clients who attended also mention the value in seeing how their peers perceive upcoming changes and solve industry or benefits concerns. Clients often begin valuable relationships with each other as a result of interactions during the event.

A variety of media
Today, when we deliver changes to services or enhancements to products, there’s always some level of client input included  whether it was captured in a VOC event or some less formal means like a regional client meeting, online survey, pilot program or Webcast. And, while the practice will evolve and improve with the business, it’s a proven mainstay of delivering on our vision to be the best provider of retirement services for every client and each individual.

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Voice of the Client – How Clients Benefit

We value our clients’ time and busy schedules and ask for their time judiciously. We appreciate the many clients who find a way to make time when we invite them to a Voice of the Client (VOC) event. The key in getting participation for an event begins with finding clients who have interest and opinions in the product or service to be discussed.

Striking the balance
Importantly, client opinions aren’t always positive. Having balanced participation in a VOC event gives us a chance to capture constructive criticism and contemplate new directions, even while some clients may be enthusiastic supporters.

Gauging the landscape
Clients often participate because of the impact an upcoming service change or product enhancement will have on their daily responsibilities. In other instances, clients participate out of sheer curiosity about the event wanting to know, “What’s coming next? What regulatory guidance informs it? What are my peers in the industry thinking and doing about it? What results have others seen by using this product or service?” Clients sometimes ask surprising questions and, in exchange, return home with new knowledge they told us proved beneficial in guiding benefits strategy and future planning at their firms.

Culture fit
Clients occasionally participate because VOC fits with their firms’ culture of being early adopters of new products and services. Over the past year, we hosted multiple events on retirement income. Many early adopting sponsors, eager to learn about the existing solutions and influence what our eventual offering will be, volunteer their time and ideas to help us shape our research and refine our strategy. They did this despite the fact that retirement income as a product and service is still emerging onto the landscape and industry adoption remains low (and participant uptake is even lower).

Other benefits for participating
Clients who tend to adopt products and services once they’ve been mainstreamed will attend a VOC event to influence the kinds of marketing, communication or educational services that accompany a more mature service or product. The fact they’ve not had a pronounced voice in the design isn’t as important to them, but expressing their opinion on how, when and why a product or service is marketed and communicated to their participants is critical to them.

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Voice of the Client – How Your Voice Informs Innovation

We want to acknowledge the work our clients have done as part of the Voice of the Client (VOC) practice. We’re grateful in many ways because we know how hard the work can be. In addition to bringing perspective from the many roles they fill each day (benefits professional, client contact, plan participant), we ask attendees to also take on a product development role when we conduct a VOC activity. Doing so requires critical thought, clear communication, candid dialogue and the ability to answer one of the hardest questions there is in product development: “What’s missing?”

VOC’s many uses
Once an event is completed, client feedback is relayed to the product teams working on new technology, the service teams designing processes and the marketing and communication teams who broadcast information to clients and participants. In the end, VOC is used to change or update products and services, improve or create new marketing and communications and identify training and educational needs for our products and services.

Real-world examples
We begin with an idea of what the VOC will tell us, yet often marvel at what it tells us once we understand it. For example, when seeking to upgrade quarterly account statements by replacing them with a single, annual wealth statement, we expected clients to value certain Audience of OneSM experiences we had planned specifically, new personalized messaging, a four-color layout and hobby-based content to include articles about cooking, golf or gardening. What we learned from clients was that the hobby-based content and four-color approach made the statement too busy. You helped us understand that the personalized messaging which provided the most important calls to action in the wealth statement were all but invisible in the midst of the colorful, content-rich prototype. As a result, the team developing the wealth statement stopped and re-directed their efforts toward a simpler version of the existing statement.

Discussions bring clarity
Another example comes from the origins of our participant Web view service on the Plan Sponsor Portal. A number of clients had been asking for “participant-level transaction capability” via the Portal. Initially, the need was understood in such a way that teams set out to design a new Web-based application, complete with its own security and access to our document imaging and workflow systems. The project was estimated to last almost a full year, and the cost to deliver the new tool far exceeded the team’s available budget. Through a series of conference calls and site visits that drew upon the disciplines of our VOC practice, we learned that the transaction capability you needed was not as elaborate as we had first understood. Rather than wanting to process participant transactions as we had thought, you simply wanted to see accounts on the Web site in order to answer participant questions. In short order, the requirements were recalibrated and eight weeks later, the read-only version of the participant Web site on the Portal was deployed.

More recently, you are helping us refine our approach to solving the retirement income question. Beginning in 2008 and continuing through current day, you helped us understand that while you expect us to remain a leader in many critical areas of retirement plan services, retirement income is not one of them. But that does not mean the topic isn’t important. You told us the legislative and regulatory attention that retirement income received, coupled with real questions the 2008 market decline posed for those nearing retirement today, required you as good fiduciaries to stay actively involved in the dialogue. In response, we continued applying the VOC discipline to our discussions with you about retirement income over the past year, most recently in events hosted throughout the Midwest.

Retirement income outcome
The outcome so far? There isn’t “one” solution that will fit all. Instead, the key to solving the retirement income issue is more likely going to rest with offering a variety of products and services, each purposed toward helping participants retire comfortably based on their own portability needs, cost concerns, risk tolerance and more.

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Voice of the Client – Where We’re Headed

From the outset, the Voice of the Client (VOC) practice has benefited by recognizing the value of experimentation. The future surely holds more new ways we will capture client feedback and put it to use in our business. Following are several initiatives we’re considering:

Online client communities
As envisioned, an online client community would allow a J.P. Morgan Retirement Plan Services client to anonymously (or openly) interact with other clients by posting comments, opinions, questions and answers or ideas. The community would be hosted by us in a secure online environment.

Webcasts by region, by industry, by plan size
As envisioned, we would host a series of Webcasts designed to introduce similar clients to each other based on geographical, industry or plan-size characteristics. The purpose of the Webcast series would be to enable sponsors from similar plans to learn about their peers’ issues, opportunities and solutions specific to their retirement plan benefits.

Text of the Client?
While JPMorgan Chase & Co. is actively involved in social media outlets (such as Facebook through philanthropic activities), we’ve yet to establish an online community. We are, however, discussing how we could do this – in part, to solicit and capture client feedback. Such approaches have even been envisioned to include polling clients by mobile phone text to capture opinions.

VOC will continue
Regardless of when or how these ideas are used by us, we will conduct them with the same purpose and similar intent as in years past. We’ll do this to ensure our business is continuously aware of client needs and expectations, as we strive to consult with you to build your best retirement program and deliver an Audience of OneSM experience to your participants.

Tell us what you think and how you’d like to engage with us in future Voice of the Client initiatives by responding to this brief survey.

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Active or Passive Management – Examine the Differences

Active management. Passive management. What are the differences?

Gabe Dorman, from J.P Morgan Investment Services, authored a recent paper that defines active and passive management, illustrates the pros and cons of each and challenges some of the myths that frequently surround each style. Gabe suggests that both management styles be examined before determining which style of investing is appropriate for a retirement program.

Download the “Active vs. Passive” paper.

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Decoding Target Date Fund Design – Portfolio Construction

This article is the fifth in a series. Last month's article was: Decoding Target Date Fund Design – Glide Path Strategies.

What is the best way for your portfolio to access each asset class?

Many professionally managed multi-asset class portfolios, such as target date funds, execute their asset allocation strategies by investing in underlying mutual funds or separate account strategies to gain exposure to individual asset classes. While a portfolio’s asset allocation strategy generally plays the largest role in determining investor outcomes, the types of underlying investments the manager selects to construct that strategy also shape returns. Understanding how portfolio construction can affect performance can help determine the approach most closely aligned with your investment goals.  

Questions to consider:

How does the manager approach portfolio construction?
Some differences are relatively easy to identify, such as whether a manager uses passively or actively managed underlying strategies. This decision may affect asset class diversification and the possibility of adding incremental returns. Other differences are more subtle, such as assessing a manager’s given opportunity set and the potential correlation diversification of underlying strategies.

How does the manager select underlying investment strategies?
It is important to understand a manager’s due diligence criteria for evaluating underlying strategies. Analyzing this process can help assess the manager’s skill in identifying and monitoring investments.

TARGET DATE FUNDS. Target date funds are funds with the target date being the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each fund will change on an annual basis with the asset allocation becoming more conservative as the fund nears the target retirement date. The principal value of the fund(s) is not guaranteed at any time, including at the target date.

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Product Lab

Product Lab – A Different Medium for Clients to Have a Voice

We consider our clients’ feedback to be the most important voices we listen to. In an ongoing effort to continually improve the dialogue and expand the communication channels with clients, the Product Lab was created in 2008.

The Product Lab, available at, is a valuable tool used to garner the experience and thoughts of the industry at the earliest stages of product development. Plan sponsors experience targeted solutions in advance of a product launch and provide crucial feedback to be considered during the design phase.

The Lab primarily showcases new products and services during the development stage. Sponsors are invited to provide feedback after they’ve had an opportunity to experience the new products. Select existing products may also be periodically highlighted and demonstrated to encourage sponsors to consider these features.

“When it comes to product development, we want to work as closely as possible with our clients. We want their thoughts and input,” said Donn Hess, head of Product Strategy. “The Product Lab helps to drive a strong dialogue with our clients, as we continue to provide industry-leading products that help meet sponsor and participant needs. It makes sense to collaborate with our clients in the earliest stages of product launches to get their valuable insights and practical comments and ultimately produce cutting-edge solutions for the marketplace.”

The product categories featured in the Lab are:

  • Bright Idea – experimental products; client feedback is considered in the decision of whether this product becomes part of our offering.
  • In Development – products with this icon are under construction, and sponsor feedback will be considered during this stage.
  • In the Spotlight – products are currently available to sponsors, but you may not be aware of them.

Some of the recent products posted in the Lab are:

  • Secure Message Center on the participant Web site
  • Retirement Dream Machine 2.0
  • Plan Sponsor Portal Indicative Data Update Tool

Take a few minutes and provide input on product development via the Product Lab. Your comments will be welcomed and appreciated.

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Financial Reform Implications for Retirement Plans

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which we reported on in the June Insights, was signed by the President July 21. [The bill was formerly known as the Restoring American Financial Stability Act (H.R. 4173)]. The legislation imposes new rules on derivatives (such as swaps) and on "swap dealers." The final legislation is more favorable to qualified retirement plans than earlier versions of the bill in two important respects.

Defined benefit plan sponsors are still allowed to use derivatives to manage market and interest rate risk to control volatility within a plan's investment portfolio. Under the Act, swap dealers must comply with standards set by the Commodity Futures Trading Commission (CTFC) or the Securities and Exchange Commission (SEC). When entering into a swap or a securities-based swap with a “Special Entity” such as a retirement plan, the swap dealer must be reasonably certain that the plan has a representative independent of the swap dealer evaluating the transaction. If not, a prohibited transaction could occur.

In addition, there was concern that the use of stable value funds in defined contribution plans would be prohibited by the legislation if the insurance wrappers used to protect the book values of the bonds comprising the stable value contracts were considered swaps. The legislation provides that stable value contracts are not considered swaps if they existed before regulations implementing the swap requirements became effective. In addition, the CTFC and the SEC are authorized to conduct a study in conjunction with the Department of Labor, the Treasury Department and State insurance regulators to determine whether stable value wrappers should be treated like swaps subsequent to the publication of regulations. The agencies have 18 months to begin the study. Even if the agencies determine that stable value wrappers are to be treated like swaps, regulatory action could set standards that would allow them in retirement plans.

Note: A derivative is a financial instrument, the price of which is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties, the value of which is determined by fluctuations in the underlying asset. Swaps are a type of derivative.

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Plan Sponsor Fee Disclosure

Deciding not to wait for legislative action, the Department of Labor’s Employee Benefits Security Administration (EBSA) issued interim final regulations under ERISA §408(b)(2) July 16. The regulations outline requirements for service providers to disclose fees to plan sponsors. Service provider fees must be considered reasonable by a plan’s fiduciary to avoid prohibited transaction penalties. 

Disclosures must be provided in written form, but need not be in a formal contract. They must be furnished prior to entering into a contract and within 60 days of any change in information previously provided. For existing contracts or arrangements, disclosures must be provided by July 16, 2011, which is the effective date of the regulations. Comments on the regulations can be submitted until August 30, 2010. EBSA could make certain modifications to the final rules based on comments received.

Covered plans
The regulations apply to employer-sponsored defined contribution and defined benefit plans, but not to SEP or SIMPLE IRA plans. Disclosures for health and welfare plans will be issued at a later date.

Services and compensation
The regulations apply the disclosure requirements to the party directly responsible for providing services to the plan, even if some of the services are provided by affiliates or subcontractors.

Following rules applicable to Schedule C of Form 5500, both direct and indirect compensation must be disclosed. The regulations exclude a covered service provider who is expected to receive less than $1,000 in fees during the course of the contract from complying with the regulations.

Recordkeepers and providers of brokerage services must provide a description of both direct and indirect compensation expected to be received by such entity or any affiliate or subcontractor. When compensation for recordkeeping services are offset in whole or in part by compensation received by the service provider from other sources (e.g., investment funds’ shareholder servicing payments), a reasonable, good-faith estimate of the recordkeeping costs must be provided. Such estimate must disclose the methodology and assumptions used to prepare the estimate and an explanation of the services to be provided.

Fees may be provided in the form of a dollar amount, formula, percentage of assets, per participant charge or other reasonable method. Descriptions and estimates must provide adequate information for plan fiduciaries to determine the reasonableness of fees charged. For a more detailed explanation of the disclosure rules, view our “Instant Insights” e-mail from July 16.

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In the News

Find news and information about JPMorgan Chase & Co. on our corporate Web site.

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Contact us at:

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

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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.

Certain underlying Funds of the Target Date Funds may have unique risks associated with investments in foreign/emerging market securities, and/or fixed income instruments.  International investing involves increased risk and volatility due to currency exchange rate changes, political, social or economic instability, and accounting or other financial standards differences.  Fixed income securities generally decline in price when interest rates rise.  Real estate funds may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector, including but not limited to, declines in the value of real estate, risk related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by the borrower.  The fund may invest in futures contracts and other derivatives.  This may make the Fund more volatile.  The gross expense ratio of the fund includes the estimated fees and expenses of the underlying funds.  A fund of funds is normally best suited for long-term investors.

J.P. Morgan Institutional Investments Inc. (JPMII) has hired Financial Engines Advisors L.L.C. (“FEA”) to provide sub-advisory services. JPMII is a federally registered investment advisor. FEA, a federally registered investment advisor and wholly owned subsidiary of Financial Engines Inc., is an independent company that is not affiliated with J.P. Morgan Retirement Plan Services LLC or JPMII. Neither JPMII, FEA, nor its affiliates guarantee future results. Financial Engines® is a registered trademark of Financial Engines, Inc. All other marks are the exclusive property of their respective owners. ©2005-2010 Financial Engines, Inc. All rights reserved. Used with permission. J. P. Morgan Retirement Plan Services provides plan recordkeeping and administrative services.

J.P. Morgan Asset Management is the marketing name for the investment management businesses of JPMorgan Chase & Co. and its affiliates worldwide. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., JPMorgan Investment Advisors, Inc., Security Capital Research and Management Incorporated and J.P. Morgan Alternative Asset management, Inc.

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.

Publications referenced in this material are presented for general educational purposes only. JPMorgan and its affiliates did not receive any compensation or consideration  for referencing these titles. The opinions and information presented in these titles do not necessarily reflect the opinions of JPMorgan Chase & Co. and its affiliates.

Diversification does not assure a profit nor does it protect against loss of principal. Diversification among investment options and asset classes may help to reduce overall volatility.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

The tax information contained in this material is based on federal laws existing on the date of its publication. Such laws are subject to legislative change and to judicial and administrative interpretation. Anyone considering the application of this information to his or her own situation should consult with his or her professional tax advisor.

Neither JPMorgan Chase & Co. nor its subsidiaries or affiliates provide tax, legal, accounting and/or investment advice. Please consult your tax advisor or attorney for such guidance.

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