Retirement and Investment Solutions Newsletter


February 2010 Issue

Thank you for allowing us to continue to share our insights. This issue includes:

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Hello and welcome to our one-year anniversary issue of Insights. As editor of Insights, I want to take a moment and thank each of you for your valuable time and feedback on our newsletter during the last 12 months.

We delivered our inaugural issue of Insights in February 2009, and it’s astounding to reflect on how much has changed since then:

  • The economy –  Markets reached lows in the first quarter with the Dow Jones Industrial Average closing at 6,443.27 on March 6, 2009, and the S&P 500 closing at 677 on March 9, 2009. Markets, overall, have been moving in a positive direction since that time.
  • Discussion about the death of the 401(k) – The House of Representatives Committee on Education and Labor (HEL) held public hearings in October 2008, that inspired press in late 2008 and early 2009 about the possible demise of the 401(k). While retirement readiness was a focus for congressional discussion in early 2009, healthcare reform took precedence in 2009. We anticipate pension reform will get attention in 2010.
  • The retirement plan reality – Our retirement plan sponsors and participants felt the impact of the economic environment. Approximately 20% of sponsors made changes to their matching contributions during 2009. Thirty-five percent of those sponsors are currently considering match reinstatement. Although participant account balances were impacted by the markets, participants generally stayed the course with steady deferral rates and investment allocation.

As Insights enters its second year, we look forward to providing even more relevant and timely content for you. We invite you to provide feedback on our newsletter. And should you want to review any previous issue, visit the archive

Enjoy our February issue!

Kirk L. Isenhour

Head of J.P. Morgan Retirement Plan Services Marketing

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Balanced vs. Lifestyle

Analyzing offering both a balanced and target date fund in the same investment menu

Prior to the creation of target date and managed account solutionsbalanced funds filled the role of the asset allocation solution within the investment menu. With the evolution of asset allocation solutions, plan sponsors began adding target date products to investment menus and in many cases, the balanced fund remained either due to high participant usage, familiarity or strong historical performance.

Erin Burns from our Investment Services Group has written a paper that analyzes the use of both a balanced fund as well as a suite of target date funds in the same investment menu, to offer a new perspective on how participants use these options and the role the funds play in a plan’s investment lineup.

Download a copy of the paper now.

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Fiduciary Update

During the first year of this publication, we have tried to provide pertinent information to help retirement plan fiduciaries gain a better understanding of their responsibilities to help them be better fiduciaries. This month, we would like to recap a few of the major fiduciary hot topics that surfaced during the last decade and continue to be issues worthy of attention.

Employer stock in retirement plans

Enron, WorldCom and numerous other companies brought to light risks of including company stock as a retirement plan investment. While this practice can be beneficial to the company and attractive to participants when the stock is performing well, company stock has some unique challenges and risks. As an investment option, participants may often feel good about holding company stock in their accounts. Whether this is due to a sense of loyalty to the company for which they work or having a sense of ownership in that company, participants may often act without understanding the additional risks involved. They might expect that plan fiduciaries will look out for them. After all, that is the fiduciary’s job - to act in participants’ best interests.

As lawsuits against companies started coming, the Pension Protection Act of 2006 (PPA) sought to add protections for participants who had access to company stock as an investment. These protections came in the form of additional required disclosures on participant statements about the risks of investing too much in a single security or industry, and in the form of stock diversification requirements. Participants must now be allowed to transfer out of company stock immediately for employee contributions and after three years of service for company contributions. These rules do not apply to stand-alone employee stock ownership plans (ESOPs).

As a result of these developments (and continuing lawsuits against companies for not limiting or removing stock from their plans), fiduciaries have learned some important lessons about the importance of properly monitoring this investment. Some companies have even appointed an independent fiduciary to assess the appropriateness or amount of company stock in their plans.


After the wave of lawsuits involving company stock, the next big fiduciary issue to impact defined contribution plans involved the fees that participants were being charged on their investments and the lack of adequate disclosure of fees (including some that participants were unaware of). While Congress held hearings and introduced legislation that would require more stringent disclosure of fees by service providers to plan sponsors, and by plan sponsors to participants, nothing has yet been enacted into law. At the Department of Labor, regulations dealing with fee disclosure were nearly complete under the Bush administration but were put on hold after the presidential election until the new administration could conduct a proper review of the rules.  Those regulations are now being rewritten.

While this issue will likely see some action in 2010 on the legislative or regulatory front (or both), participant lawsuits are not waiting. There has been a rash of 401(k) class action fee lawsuits against plan sponsors and service providers, primarily from one or two law firms. There are some common allegations in these suits: plans using funds that are more expensive than what is available in the marketplace, failure to use lower-priced index funds where available, and failure to disclose to participants paid by fund companies to service providers. In some of the cases resolved thus far, plan sponsors have faired well - especially where fiduciaries had a prudent process in place to select and monitor investments (including the fee structure). Some cases, however, continue to proceed to trial or be settled out of court.

Impact of the recession

After riding a bull market for years, many participants may have thought it impossible to lose money in their retirement accounts. That view obviously changed by the end of the decade. While investment advice and managed account programs have become more readily available to participants, utilization has been slow to increase. Perhaps these programs will be more attractive to participants in the future. Another lesson learned from the recession was the fact that not all lifecycle or target-date funds are created equally. Now the debate is whether these investment options should be designed to get participants to retirement or through retirement. If nothing else, participants and fiduciaries should now have a better understanding of how these funds work – allowing for better selection and evaluation.


Fiduciary risk with a retirement plan is always present. That is why we believe so strongly in all plans being built around a solid fiduciary foundation. As we head into the second year of this publication, we will continue to deliver information to assist you with your fiduciary duties.

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Communications Case Study on Personal URLs (PURLs)

The following article is one in a series of case studies that will appear in Insights, which features some of our most successful communications programs developed for plan sponsors.

When J.P. Morgan delivered a communication campaign for a plan sponsor’s Financial Health Week last summer, it promoted the event by sending out more than 5,000 PURLs.

Personal URLs, (PURLs) that is, are a new technology designed to engage audiences more effectively by creating customized Web sites unique to each individual.

“On average, we receive thousands of messages a day through e-mail, voice-mail, television, radio and magazine advertising,” said Diane Gallagher, head of Participant Communications at J.P. Morgan. “With PURLs, we can offer a unique blend of customization and personalization that cuts through the noise and helps drive behavior.”


J.P. Morgan created a PURL tied to the Financial Health Week campaign theme for each of the company’s active employees. J.P. Morgan sent the PURL as a link within an e-mail inviting employees to participate in the program’s events, provide feedback through a short survey and make pledges about saving for their futures.

The survey asked “What do you want to do in retirement?” And, to achieve that goal, “What are you going to do to make that vision a reality?” Those questions were followed by a menu of actions that made it easy to select a response or write in ideas. Action items included an option to “Increase my savings rate in my 401(k) plan” as well as “Make a budget,” “Bring my lunch to work” and “Cut back on lattes.”

Each employee also was invited to attend Webcasts or face-to-face presentations focused on diversification, and 401(k) plan features including target date retirement funds, J.P. Morgan’s Personal Asset Manager and Personal Online Advisor services.

Approximately 45% of the more than 5,000 recipients visited their personalized Web sites, with an additional 34% making pledges to improve their savings behaviors. Not bad when you consider that the average direct mail response rate ranges from 3% to 5%. Meeting attendance was up as well, especially in a number of the company’s various geographical locations.

According to Diane, an integrated marketing approach using PURLs can offer plan sponsors several advantages compared to traditional communication campaigns, including increased knowledge of audience members, reduced campaign design-to-execution timelines, quantifiable results in real time, and improved efficiency and effectiveness of company benefits programs.

Most important, however, is a potentially deeper understanding and stronger relationship with each individual audience member, Diane said.

“PURLs help to establish a dialogue with each individual audience member, which is the essence of our Audience of OneSM philosophy,” she said. “Our messages work to resonate with participants more. As a result, they can have more impact and help people make more informed decisions about their futures.”

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Legislative and Regulatory Update

The decade of 2000 to2009 saw some of the most significant retirement legislation since the passage of the Employee Retirement Income Security Act of 1974 (ERISA).  In particular, we saw two major laws enacted during the last decade that influenced qualified plans – the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Pension Protection Act of 2006 (PPA).


Following the election of a new president, it is not uncommon for there to be a major tax bill.  Such was the case after George W. Bush was elected the 43rd President of the United States.  The changes to qualified retirement plans enacted by EGTRRA were significant in many cases.  While most of the changes were effective in 2002, some provisions had delayed effective dates.  The following list recaps some of the major EGTRRA provisions:

  • employee deferral limits under 401(k), 403(b) and 457 plans should there be something else here like they increased?
  • Maximum contribution and benefit limits under IRC §415 were increased.
  • Additional deferrals (called catch-up contributions) were allowed to 401(k), 403(b) and 457 plans for participants at least 50 years of age.
  • Roth 401(k) and 403(b) contributions became available in 2006.
  • A savers credit was introduced to encourage low-income individuals to save for retirement.
  • Defined benefit plan sponsors were allowed to make greater contributions to over-funded plans due to a phased-in elimination of the current liability full funding limit.
  • Plan sponsors could avoid excise taxes related to contributions to defined benefit plans in excess of the maximum deductible limit but less than the full funding limit based on accrued liability.
  • The rollover rules between various types of retirement plans were liberalized to allow for greater portability.
  • To preserve retirement assets for terminated participants with low balances, automatic rollovers became mandatory for involuntary cash-outs between $1,000 and $5,000.
  • Faster vesting was required for company matching contributions.
  • ESOP dividends were deductible by plan sponsors as long as they were passed through to participants or reinvested in the plan due to a participant’s election.


On August 17, 2006, President Bush signed the Pension Protection Act into law.  This legislation overhauled the funding and disclosure rules for defined benefit plans and made several changes designed to recognize defined contribution plans as the primary source of retirement income for many American workers.  The following list recaps some of the major PPA provisions:

  • Stricter funding requirements for defined benefit plans
    • funding shortfall to be measured against 100% of liabilities (to be phased-in over four years)
    • yield curve introduced to measure present value of benefits for funding purposes
    • interest rate smoothing allowed over 24 months
    • asset value smoothing allowed over 24 months within a 90% to 110% corridor of market value
    • certain benefit restrictions and higher funding targets for at-risk plans (funding levels below 60% or 80%, with differing restrictions)
  • The pension and IRA provisions of EGTRRA, originally set to expire on December 31, 2010, were made permanent.
  • Incentives for automatically enrolling employees into 401(k) type plans were introduced, known as eligible automatic contribution arrangements (EACAs) and qualified automatic contribution arrangements (QACAs).
  • Fiduciary protection was made available for defaulting employees into qualified default investment alternatives (QDIAs) if no investment elections were made.
  • After Enron and similar cases where participants lost a sizeable portion of their retirement accounts due to investments in company stock, diversification requirements were imposed for non-ESOP plans.
  • Faster vesting was required for employer non-elective contributions (e.g. profit sharing contributions), similar to the requirement on matching contributions imposed by EGTRRA.
  • Further liberalization of the rollover rules allowed non-spouse beneficiaries to make rollovers and allowed non-Roth accounts to be rolled over directly to Roth IRAs.
  • Stricter employee benefit statement requirements were imposed.

This summary merely hits the highlights of these significant pieces of legislation.  Besides EGTRRA and PPA, another noteworthy piece of legislation was the American Jobs Creation Act of 2004, which in part added IRC §409A to impose strict requirements on the design and operation of nonqualified plans.  Although space does not allow a discussion of these rules, §409A was prompted by the Enron collapse and attempts to prevent executives from benefiting from participation in these plans to the detriment of other employees and creditors of companies facing financial difficulties.

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A Decade in Review

As the first decade of the 21st century comes to a close, we’ve examined how private sector DB and DC plans changed between 2000 and 2009. We also explored how participant statistics and assets were impacted during this decade.




Number of qualified DC plans



Number of 401(k) plans



Number of DB plans (all sizes)



Participants in DC plans (active and inactive)

61.7 million

86.8 million2

Participants in 401(k) plans (active and inactive)

48.4 million

77.5 million2

Participants in DB plans (active and inactive)

41.6 million

42.6 million3

Assets in DC plans

$2.217 trillion

$3.055 trillion2

Assets in 401(k) plans

$1.725 trillion

$2.665 trillion2

Assets in DB plans

$1.986 trillion

$2.104 trillion2

1Cerulli Quantitative Update, Retirement Markets 2009

2Cerulli Quantitative Update, Retirement Markets 2009, as of December 2009 (estimate)

3Cerulli Quantitative Update, Retirement Markets 2009, as of December 2008 (estimate)

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The Way Forward Gets Results

The Way Forward was created to help participants through the turbulent economic times. From its launch in March 2009, site visits steadily increased. In fact, from May to June and again from June to July, participant visits increased 35% during a time when visits typically go down.


But more important than just visits, the site contributed to:

  • more than 90% of participants continuing to participate in their plan
  • 75% making no changes to their contribution rate
  • 65% of those who did make changes increased their contributions

Thanks to you

Your efforts factored into The Way Forward’s success too. Plan sponsors helped by:

  • forwarding the monthly content update e-mails to your participants
  • holding brown bags to watch and discuss the Webcasts
  • including articles about The Way Forward in your newsletters and on your intranets
  • scheduling and holding The Way Forward face-to-face meetings

Continuing in 2010

Even though the market turmoil appears calmer, The Way Forward continues in 2010 to help your participants stay on track to save enough to last through retirement. In the coming year, watch for four new Webcasts as well as the ongoing, timely monthly articles and podcasts.

Upcoming topics include:

  • Getting back to where you were
  • The role of age-based funds
  • Fees 101
  • Roth 401(k)

The Way Forward team looks forward to continuing our partnership with you in 2010!

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402(g) refund reminders 

It’s that time of year again.  As participants enter tax season, they can become aware of situations where they may have contributed in excess of the IRC Section 402(g) limit.  The limit is an individual limit so the role of the plan sponsor in the refund process is minimal.

Because payroll programs and service providers have controls in place to prevent contributions in excess of the 402(g) limit, participants generally encounter this excess when they have participated in more than one 401(k) plan during any calendar year. 

J.P. Morgan Retirement Plan Services has processes in place to assist any participant who has an excess deferral.

  • Should the participant uncover the excess, the process begins with a call to our Retirement Service Center.
  • Should you, the sponsor, uncover the excess, please notify your J.P. Morgan representative.

Our process includes an analysis of the situation and discussion of detailed requirements for timely processing.

Process notes:

  • discussion of the plans that have contributions for 2009 and the excess deferral amount
  • documentation of the excess via W-2 or final pay stub from previous employer
  • consideration – which plan should process the refund
  • assessment of notification and refund deadlines.  Plan documents commonly define March 1 as a notification date.  Review the plan document to determine the notification and refund deadlines. If the document is silent, refunds must occur by April 15.

J.P. Morgan Retirement Plan Services processes a number of these refunds each year and early notification is helpful.  Refer your affected participants to a Retirement Service Center representative as soon as you become aware of an excess deferral situation.

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Save the Date

Please join us for Another Lesson in 2009 on Investing for the Long Term


Wednesday, February 24, 2010

3 p.m. Eastern time 


Hal Bjornson, head of Investment Services Group

Shari Mancher, vice president, Investment Services Group


If ever there was a year in which plan sponsors benefited from maintaining a disciplined approach to monitoring their 401(k) plan investment line-up, we believe 2009 was one of them. It was also a year in which the asset managers in the plan were to be measured by their ability to stay true to their investment strategies. This Webcast will review asset class performance as a back drop for measuring your plan performance as well as discuss the basic tenets of understanding investment managers.  

Additional details coming soon.

If you want to learn more about various Defined Contribution investment topics, check out the Insights Archive Investment Update. 

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Market Pulse

Weekly Market Update, a weekly outlook on the markets and the global economy.

MacroMinute Weekly, a short two- to three-minute audio commentary summarizing insights and outlook on the global economy, financial markets and asset allocation. MacroMinute Weekly can be delivered to your voice mail box on Monday mornings before the start of the business day. To subscribe, e-mail and include your name, firm name and phone number.

Guide to the Markets is our quarterly publication featuring the latest economic, market and demographic information across a wide range of asset classes including Equity, Fixed Income, International, Real Estate, retirement, and alternatives. Guide to the Markets comes in a compact-sized booklet and includes more than 40 pages of charts and graphs.

Market Video Replays. Making sound investment decisions in today’s complex markets requires clear and informed insights. In this timely series of videos, Dr. David Kelly, J.P. Morgan Funds’ Chief Market Strategist, and our portfolio managers and market specialists present their views and analysis of key market and economic trends.

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In the News

Information about JPMorgan Chase & Co. in the news is available at

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Contact us at:

For questions regarding your personal 401(k) plan, contact your 401(k) 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.

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. ©2005-2009 Financial Engines, Inc. All rights reserved. Used with permission. J. P. Morgan Retirement Plan Services provides plan recordkeeping and administrative services.

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.

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.

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