Retirement and Investment Solutions Newsletter


July 2009 Issue

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

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Letter From the Editor

Welcome to the July issue of Retirement Insights.  In this issue we talk about some of the plan design issues sponsors face, along with a Legislative Update from Bob Holcomb, and a participant communications case study. And, we are capping off our fiduciary series with a 10-question quiz!

As target date strategies have been in the news lately, we have three articles focusing on various points of interest, including:

  • What Is a Completion Strategy and Why Might This Approach Benefit My Target Date Strategy?
  • Are Target Date Funds “Broken?” focusing on the 2010 space.
  • And Anne Lester’s recent testimony before the U.S. Department of Labor and the Securities and Exchange Commission’s Hearing on Target Date Funds and Similar Investment Options.

From all of your friends at J.P. Morgan, we wish you a safe and festive Independence Day!

Kirk Isenhour

Vice President, Head of Retirement Plan Services Marketing

P.S. Take a look at some interesting July 4th - Inspired Trivia.

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On Thursday, June 18, 2009, the U.S. Department of Labor and the Securities and Exchange Commission held a hearing on Target Date Funds and Similar Investment Options.  At this hearing, J.P. Morgan Asset Management and other managers testified.  We thought it might be valuable for you to hear a replay of the message J.P. Morgan shared.

Testimony before the U.S. Department of Labor and the Securities and Exchange Commission’s Hearing on Target Date Funds and Similar Investment Options

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The Landscape: the Challenges, the Silver Lining and the Opportunity

Market volatility, increased corporate focus on expense management, employee anxiety, consumer anxiety and lack of consumer confidence…these are some of the challenges we’ve been facing for the last 12 to 18 months. Is there a silver lining?

As long-term security concerns remain, investor confidence has dropped to 13% in 20091 – the lowest percent in the last 10 years. Additionally, confidence in Social Security1 remains low and wage replacement ratios are smaller.2

No wonder plan sponsors are focused on understanding the competitiveness of their retirement benefits offering, fulfilling their fiduciary obligations and helping their participants reach their retirement goals.

While we continue to hear and read about the negative impacts of the recent economic downturn, there is a silver lining. Americans are saving significantly more than they were a year ago; the Bureau of Economic Analysis reports that the personal savings rates have risen from 0.4% in April 2008 to 5.7% in April 2009. Historically, Americans increase their personal savings during times of economic recession.

July Retirement Insights Savings Chart

We believe the opportunity lies with the ways you can enhance your plan’s design or communications program to help your participants help themselves when it comes to assessing and planning for a secure retirement.

In this complex and ever-changing environment, your J.P. Morgan representatives are ready to consult with you on your specific needs. Using our strategic consulting framework to provide options and solutions, we work to understand your unique needs and priorities. Our experienced staff brings you relevant updates and insight on the legislative horizon as well as data on industry benchmarks and best practices supported by a suite of tools and services. Please contact your J.P. Morgan representative to learn the various ways we can help you enhance your plan.

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What Is a Completion Strategy and Why Might This Approach Benefit My Target Date Strategy?

A completion fund or completion strategy can be defined as any investment that increases the diversification of an otherwise concentrated or non-diversified investment portfolio. Plan sponsors using target date funds in their defined contribution plans may consider including completion strategies. Target date funds provide an array of investment options within a lineup – with those investments seeking to provide an optimal way to achieve the risk and return objectives of the investor over time.

Completion funds include exposure to common diversifying investment strategies often missing from the plan’s core investment lineup, such as high yield fixed income, emerging market debt and equity, direct real estate, U.S. and international REITS, and absolute return strategies. These completion funds offer a one-stop-shop for customized target date solutions and provide diversification within the core lineup.

Target date funds differ in terms of their design. Some are more diversified than others – utilizing upwards of 20 separate and distinct investment strategies. Less diversified target date funds utilize as few as eight different asset classes, so clearly not all target date funds are created equally. Mixing asset classes with strategies to achieve broader diversification in target date funds that have fewer underlying investment strategies by adding a completion strategy can help to ”smooth” investment results in a volatile market and potentially produce more stable returns.

One evolving trend in defined contribution plans is to construct customized target date funds from the core investment line-up offered to all plan participants. This approach is combined with an off-the-shelf or custom glide path with pre-determined periodic rebalancing to reduce the fund’s risk level as the retirement date approaches. While a custom approach has its benefits, it can present several challenges for plan sponsors. The core investment menu may lack sufficient asset class diversification to create an optimal glide path. In addition, the use of certain asset classes or strategies may be prevented due to illiquidity, a necessary feature in the defined contribution daily transaction environment.

Completion strategies give plan sponsors the option to utilize the core menu that their participants are familiar with and still gain access to diversifying asset classes. To learn more about completion strategies and our approach, please contact your J.P. Morgan representative.

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Are Target Date Funds “Broken?”

That seems to be the belief of many investors, legislators and industry groups, particularly since last year’s market meltdown, when target date funds were heavily criticized for failing to protect many of those invested in 2010 funds from the “storm.”

This controversy has not only emphasized the need for more rigorous disclosure standards, but has also focused attention on the purpose of the funds as well as the defined contribution plan itself. Sponsors who lack the criteria to assess the differences among target date funds, particularly the funds’ level of equities near retirement, may be exposing participants to inappropriate levels of risk and volatility that can eventually affect outcomes.

As the target date universe continues to grow dramatically, how can plan sponsors adequately assess target date funds to ensure that default investment options are aligned with plan goals and participant expectations and ultimately helping, rather than hindering, participants’ ability to meet their retirement goals?

Align Plan Goals with Participant Needs and Expectations

It is now fairly common to hear debate about the percentage of equity in the glide path at the point of retirement, or when the target date is reached. The variation among the universe of funds available today ranges from approximately 20% to 70%. How can sponsors determine the appropriate level of equity exposure?

The answer depends on the plans’ goals and objectives for participants. Plan sponsors are tasked with choosing the default investment strategy that most closely aligns with the goal or outcome they are trying to achieve for participants in the plan as a whole, because it is impossible to predict the needs of each individual participant and his or her individual retirement date. This is why determining the investment time horizon is such a key criteria in target date fund selection.

Regardless of the plan sponsors’ goals for participants, it is crucial to align target date fund selection with the needs and expectations of participants. The considerable philosophical debate about the merits of “to” versus “through” retirement glide path strategies can be addressed simply by looking at participant behavior, particularly at retirement date. Indeed, as many as 80% of participants begin partial or lump sum withdrawals from retirement plans at retirement. Given this behavior, wouldn’t it be prudent to ensure that plans’ target date funds’ glide paths end at the point of retirement?

With its  target date strategies, J.P. Morgan Asset Management’s approach is to develop diversified portfolios designed to maximize the number of plan participants who reach a minimum level of income replacement at retirement. To achieve that goal, J.P. Morgan Asset Management focuses on enhanced diversification to carefully manage volatility throughout the glide path, and to reduce risk exposure within the crucial five years leading up to retirement.

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Fiduciary Quiz

Since the inception of our Retirement Insights newsletter, we have been running a monthly series on the basics of fiduciary responsibility. We will continue to offer fiduciary articles in future editions of Retirement Insights, but wanted to conclude this series by testing your basic fiduciary knowledge. Answers can be found in previous articles.

To view this content, please download Adobe Flash Player

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Legislative Regulatory Impact Analysis

We have seen several pieces of pension reform legislation introduced recently. Most of this activity has been in the House of Representatives, and this month we will be focusing on two key issues: fee disclosure and investment advice. Below describes key components of the various proposals:

Fee Disclosure – On April 21, George Miller (D – CA), the chairman of the House Education and Labor Committee introduced the 401(k) Fair Disclosure for Retirement Security Act of 2009. The bill is similar to fee disclosure legislation introduced by Mr. Miller last year with the notable exception of the index fund mandate (see analysis in the next section). Provisions of the legislation include:

  • Sponsor disclosure is broken down into categories of administration, investment management, transaction-based fees and “other.”
  • Sponsor disclosure of administration and investment management fees must be in a dollar amount (a reasonable estimate is permissible). Transaction based fees may be expressed as either a dollar amount or as a percentage of assets.
  • Participant disclosure should be in the form of an annual notice of the investment options available and should include each option's investment objectives, risk level, management style (active or passive), comparison to nationally recognized market-based index, historical rate of return and fees.
  • A fee comparison chart is required for all plan investments.
  • Quarterly benefit statements would also include fee information.

Fees: Index Fund Mandate – In Mr. Miller’s 2008 bill, in order for plan sponsors to take advantage of the fiduciary relief for participant direction of investments under section 404(c), the plan had to include “at least one investment option which is an appropriate broad-based securities market index fund and which offers a combination of historical returns, risk and fees that is likely to meet retirement income needs at adequate levels of contribution.’’ In the 2009 version, the index fund must meet the following requirements:

  • Is an unmanaged or passively managed mutual fund with a portfolio of securities designed to substantially match the performance of the entire United States equity market, bond market or combination of the two; and
  • Is described in the terms of the plan as offered without any endorsement of the government or the plan sponsor.

The language regarding meeting retirement income needs at adequate contribution levels was in the bill introduced on April 21, 2009, but was removed in a June 17 markup.

Because the majority of participant directed plans seek 404(c) protection, tying the inclusion of an index fund to that protection effectively makes this a mandate. On June 9, 2009, Richard Neal (D – MA) introduced the Defined Contribution Plan Fee Transparency Act of 2009. While Mr. Neal’s bill is similar in several respects to Mr. Miller’s bill on disclosure elements, it does not include the index fund mandate.

Advice – The Pension Protection Act (PPA) created a prohibited transaction exemption (PTE) for the provision of investment advice by an entity or an affiliate of an entity that also provided investment options to a plan. On April 22, Rob Andrews (D-NJ) introduced the Conflicted Investment Advice Act of 2009. The bill would prohibit a plan fiduciary from offering investment advice to the plan or to a plan participant unless the investment advisor is an “independent investment advisor,” a newly defined term. In order to be deemed an independent investment advisor, the advisor must either:

  • Use a computer model that is subject to statutory rules that are almost the same as the PPA computer model rules, including certification and audits.
  • Receive the same fees regardless of the investment option chosen. Fees paid to affiliates are taken into account and neither the advisor nor any affiliate may provide or manage any investments that are offered under the plan.

Originally, it was uncertain whether the bill would supersede an earlier Department of Labor (DOL) Advisory Opinion 2001-09A (SunAmerica) that provided a model for advice offerings that is commonly used throughout the industry. In a markup of the bill on June 17, an exemption for advice offerings under SunAmerica was specifically carved out, although the amendment would direct the DOL to establish reporting guidelines for plans using this model.

In a surprise move, the SunAmerica exemption language was removed from the version of the combined bill that went before the Education and Labor committee for markup on 6/24.  While the bill still contains language directing the DoL to review prior advisory opinions, the bill itself would seem to prohibit an advice arrangement that did not meet its definition of investment advisor and appear to effectively overturn SunAmerica.

As first mentioned, most of the recent activity has occurred in the House. The Senate has shown less interest in pension reform. With Congress focused on health care reform, it would appear likely that defined contribution reform will slide into 2010, although it is possible that one or more of these measures could be combined with a defined benefit funding relief bill and be enacted later this year. As always, we will be closely monitoring the situation and will keep you updated.

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Changing Participant Behavior, One Nudge At a Time

This article is one in a series of case studies that will appear in Retirement Insights, which features successful communications programs we developed for plan sponsors.

A comfortable retirement takes money. Even those not taking advantage of their employer-sponsored retirement plan would be hard pressed to say that saving for retirement isn’t important. It’s just that, for a myriad of reasons, it may not seem important right now.

So how does a plan sponsor motivate employees to get in the game and contribute to the company’s 401(k) plan? Sometimes, it just takes a bit of nudging.

Automatic enrollment, a high employer match and employee savvy have led to above average participation in a large reinsurance company’s retirement savings plan, yet some employees are deliberately not contributing. In an effort to connect with this group and encourage their participation, this leading global financial services employer and J.P. Morgan decided to try a bit of a nudge.

Much has been written about choice architecture and the art of “nudging.” Nudging is a catch phrase for capturing someone’s attention and subsequently altering his or her behavior. Nudging can be particularly effective when used to prompt people to make decisions that they already know are good for them – such as putting money away for retirement.

Nudging also capitalizes upon social norms. As social beings, we can be powerfully influenced by the behavior of people around us. Simply put, when we believe that others are doing something we are not, human nature makes us want to get in on it too.

The reinsurer’s nudge centered on a plan highlights newsletter that had been included in fourth-quarter 2008 participant statements. The newsletter was repurposed and sent to those employees not making contributions. To capture each recipient’s attention, a “sticky note” in a hand-written typeface was placed on the front page of the newsletter that read, “Thought you might be interested in this.” This unusual approach implied that the highlights were created for other people that were part of the plan, and that someone thought the recipient wouldn’t want to be left out. Then on the back page, another sticky note provided a call to action by urging, “Don’t miss out – join today!” and included J.P. Morgan’s telephone number and Web site.

The results were tremendous. Traditionally, a 2 to 3% response rate means that a direct mail campaign was successful. Yet following this “sticky note” campaign, 16% of non-contributing recipients set up deferral elections and began making contributions into the plan. Of those, 92% made deferral elections of 6% or greater, with an average deferral rate of 7%. The nudge worked!

If you are interested in nudging your employees to improve their retirement savings behaviors, contact your J.P. Morgan representative.

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Top Five Reasons for Participant Calls

Our participant call volume was up approximately 20% when you compare May 2008 to May 2009. The increased call volume continues from last fall. It seems that participants are taking more interest in their 401(k) accounts than in the past, which may also explain the increase in Password-related calls. Hardship withdrawal calls were up approximately 40% over 2008, with a number of requests related to foreclosures and evictions.

 May 2008 (Total Calls - 91,779)


















 May 2009 (Total Calls - 115,319)


















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Save the Date

  • Mid-year Client Update Webcast is on July 9, 2009 at 3:00 p.m. Eastern time. More details to come.

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A New Way of Communicating With Participants: The Way Forward

The Way Forward is an ongoing informational series for participants that was launched in April 2009. The program highlights what participants can do to stay on track for retirement, given today’s challenging market environment. It includes timely articles, podcasts, Webcasts and more, updated each month with a new topic. Participants can access the content by logging on to, clicking on the Education Center and then selecting The Way Forward or by going directly to The Way Forward home page.

Day-to-day plan sponsor contacts receive a monthly e-message announcing upcoming topics and timing of new content. This information can be forwarded to participants, letting them know all of the resources available to help them better prepare for retirement.

Upcoming topics will focus on helping investors determine their appropriate risk level, highlighting:

  • diversification strategies
  • difference between asset allocation and diversification
  • helping participant’s assess their asset allocation
  • strategies to help participants get back on track

Read our most recent articles featured on The Way Forward, such as; Boomer - It's not hopeless or Gen X and Gen Y, listen up.

If you would like more information on The Way Forward communication program, please contact your J.P. Morgan communication strategist or visit The Way Forward site.

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Market Pulse by Stu Schweitzer

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 with “Subscribe to MacroMinute” in the message subject line, and include your name, firm name and phone number.

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In the News

JPMorgan Chase & Co. Repays $25 Billion in TARP Funds in Full

New York, June 17, 2009 -- JPMorgan Chase & Co. (NYSE: JPM) announced today that it repaid in full the $25 billion preferred stock investment it accepted through the Troubled Asset Relief Program (TARP). In addition to this principal amount, JPMorgan Chase has paid the U. S. Treasury an aggregate of $795,138,889 in dividends on the preferred stock, including dividends that had accrued through the redemption date. The company will also notify the U.S. Treasury today of its intent to repurchase the 10-year warrant issued to the Treasury in connection with the preferred investment.

JPMorgan Chase is a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and government clients under its J.P. Morgan, Chase, and WaMu brands. Information about JPMorgan Chase & Co. is available at

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July 4th - Inspired Trivia

J.P. Morgan Wishes You a Safe and Festive Fourth of July!

With the spirit of the holiday in mind, here’s some geographic trivia you may enjoy.

On July 4, 1776, the Declaration of Independence was approved by the Continental Congress, starting the 13 colonies on the road to freedom as a sovereign nation. The signers of the declaration represented the following new states:

  • Delaware
  • Pennsylvania
  • New Jersey
  • Georgia
  • Connecticut
  • Massachusetts
  • Maryland
  • South Carolina
  • New Hampshire
  • Virginia
  • New York
  • North Carolina
  • Rhode Island

Since that historical day in 1776, 30 places nationwide have taken on names using the word "liberty." The most populous one is Liberty, Missouri (26,232). Iowa has more of these places than any other state: four (Libertyville, New Liberty, North Liberty and West Liberty).

Eleven places have "independence" in their name. The most populous of these is Independence, Missouri, with 113,288 residents.

Five places adopted the name "freedom." Freedom, California, with 6,000 residents, has the largest population among these.

There is one place named "patriot" — Patriot, Indiana, with a population of 202.

And what could be more fitting than spending the day in a place called "America?" There are five such places in the country, with the most populous being American Fork, Utah, with 21,941 residents.

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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.

1Retiree Confidence EBRI 2009

2Replacement Ratio Study, AON 2008

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.

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.

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.

Certain underlying Funds of the JPMorgan SmartRetirement 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.

The goals and objectives of target date funds vary from one target date fund provider to another. This does not necessarily mean that any one is more appropriate than another. It does, however, emphasize the importance of ensuring that default investment options chosen by sponsors are appropriately aligned with the plans’ goals and participants’ needs, expectations and behaviors.

Target date retirement funds are made up of multiple asset classes.  They are professionally managed and offer a diversified investment in a single fund.  These funds are meant to align with an expected retirement date.  The investment allocation will change over time.  The funds will become increasingly more conservative as the target retirement date approaches.  Participants may choose to invest in any of the other target retirement funds or any other investments in the lineup.  As with all investments, the principal value of the fund(s) is not guaranteed at any time, including at the target date.

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.

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.

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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