Retirement and Investment Solutions Newsletter


March 2010 Issue

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Welcome to the March issue of Insights.  As we move into spring and finalize 2010 business planning discussions with you, we want to give you a sense for the topics that sponsors are discussing this year. Our theme for this issue is smart plan design.

Auto-enrollment continues to be a hot topic in plan design. See “Are participants opting out of auto-enrollment?” for the most recent view into J.P. Morgan Retirement Plan Services’ experience.

Be sure to read “The Power of Persistence” for compelling results from a comprehensive participant education program. 

Finally, we have perspective about investment line-ups that house a balanced fund alongside target date funds. See “A Best-practice Perspective on Balanced Funds vs. Target Date Funds” for more information.

Enjoy this issue of Insights and, should you have any comments or questions, please let us know.

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Smart Plan Design


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A Best-practice Perspective on Balanced Funds vs. Target Date Funds

In the last issue of Insights, we highlighted the differences between balanced funds and target date funds and their respective roles in 401(k) line-ups. Balanced funds have historically been the plan sponsor’s investment option for participants who lack the time, investment expertise or inclination to manage their own asset allocation. However, this ‘”one-size-fits-all” solution may be inappropriate for some participants. For those whose retirement is many years in the future, the asset allocation may be too conservative and for those nearing retirement, too aggressive.

The industry’s response to this dilemma has been the inclusion of target date funds which automatically adjust the asset allocation as the investor ages and include additional asset classes that historically have not been accessible in a traditional balanced fund structure (mid- and small-cap equity, international equity, high-yield, TIPS, emerging markets, etc.). This emphasis on broader diversification can have a dampening effect on volatility which is critical, especially in the years leading up to retirement.

The question facing plan sponsors is what to do with the balanced option once target date funds are introduced in the line-up. It can be a thorny issue given that the balanced funds have been in existence for as long as 401(k) plans have, they have become familiar to plan participants and they often hold a significant amount of plan assets. Some have delivered strong performance, which makes the decision to eliminate them a controversial one for investment committees.

We believe it may make sense for plans that use both a balanced fund and a suite of target date funds to revisit the structure of the fund line-up, examine participant behavior and evaluate answers to these questions:

  • Are participants invested appropriately given each individual’s time horizon? (i.e., The mix could be too conservative for some investors with very long time horizons, or it may be too aggressive for those investors in the years leading up to retirement during which managing volatility becomes even more important.)
  • What is the strategic asset allocation of the balanced fund, and what kind of tactical shifts can it make? (i.e., Is it typically 60/40 but can go to 75/25?)
  • Is the balanced fund an appropriate default option for participants of all ages?
  • Can the balanced fund be considered a Qualified Default Investment Alternative (QDIA)?

With respect to the last question, new rules issued by the DOL in 2008 state that plan sponsors must consider the demographics of a plan if they are choosing a balanced fund as a default option. Unless participants are grouped within a certain age range, then one balanced fund with a fixed-asset allocation may not be suitable. Rather than making this somewhat subjective determination, plan sponsors have, by and large, chosen a suite of target date funds as the default option as evidenced by The Profit Sharing Council of America’s 52nd Annual 401k Plan Survey, 2009:

  • Stable Value Fund                                2.3%
  • Money Market Fund                              1.3%
  • Balanced Fund                                     13.0%
  • Lifestyle Fund                                       17.9%
  • Managed Accounts                                2.9%
  • Target Retirement Date                          59.7%
  • Other                                                   2.9%

We believe a best practice for plan sponsors is to review the demographics of the plan and the ages of the participants in the balanced fund to determine whether it makes sense to use it as a default option or even to retain it in the investment line-up. Our experience is that after reviewing plan demographic data, plan sponsors generally conclude that participants would be best served by the elimination of the balanced option and a mapping of the assets to target date funds. The data that bears closest scrutiny is participant age and fund asset allocation. Some sponsors may be surprised to learn that they are defaulting participants into funds that could be invested as much as 75% in equities. In some cases, there will be participants in aggressive balanced funds who are 50, 60 or even 70 years of age. Monies that had been defaulted years before remain in the fund, because of participant inertia and the fact plan participants don’t realize how aggressively they are invested. There is often a mismatch between participants and the asset allocation of the balanced funds. In a market rally, this kind of mix could lead participants to exceptional outcomes and, at certain times over the last decade, would most certainly have provided a few fortunate participants with additional assets with which to retire. On the other hand, participants retiring in other years, 2008 for example, might have a very different experience.

We encourage plan sponsors to revisit the goals of balanced funds within the plan. If the goal is to simplify participant decision-making, having both balanced and target date funds could cause confusion when participants are searching for an appropriate investment. If participants allocate to both products, they may believe they are receiving additional diversification when in reality they are not. We also encourage sponsors to understand their balanced option better and have a solid understanding of the fund’s strategic asset allocation and its ability to make the tactical portfolio shifts. For example, some funds have a stated objective of 60% equity and 40% fixed income, but can actually make a tactical change to go as high as 75% equity at times. The J.P. Morgan Investment Services Group can assist clients in gathering this data and evaluating the balanced fund option. If both solutions are to be maintained, plan sponsors might consider a carefully crafted communication campaign to help ensure participants are using each of the solutions properly and revisiting their asset allocations from time to time.

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The Power of Persistence

J.P. Morgan Retirement Plan Services developed the “Look What’s Cooking” campaign to educate participants about a change to their fund line-up. It was strategically timed and written to preface the annual Financial Engines enrollment campaign for the client and encourage their research into the use of this investment product.

In spring 2009, we approached one of our plan sponsors with an opportunity to increase employee participation in the J.P. Morgan Personal Asset Manager (PAM) and Personal Online Advisor (POA) programs. The sponsor had adopted the programs late in 2008 and, given the turbulence of the market, both parties felt it was an important resource to promote as much as possible.

At the time, the plan had an enrollment rate of 8% in both programs combined. Our goal was to increase enrollment from 8% to 15%.

We used an upcoming fund change to communicate to participants the importance of understanding the plan line-up and the benefits of diversification and asset allocation. We then asked them if they knew how to properly diversify their account and, if not, suggested that PAM and POA could be easy ways to make that happen.

We followed this communication with additional pieces incorporating choice architecture and Audience of OneSM philosophies into the mailings wherever we could. We used a theme and graphic look meant to resonate with the client, who manufactures and markets fine frozen foods. They were designed to include easy-to-understand pieces with visual appeal and carrying a strong, recognizable theme. We also used this as an opportunity to educate participants on diversification opportunities available through their plan. In each piece, we discussed both the opportunity for them to personally diversify their accounts or to have someone else “do the work” for them.

  • "Look What’s Cooking” newsletter #1 - Along with legal notice of the fund changes, this included information on why diversification was important, what it meant to be diversified and options on ways to get to a proper diversification level.
  • Payroll insert - This designed piece matched the look and feel of the newsletter and reminded participants to review the newsletter at home.
  • "Look What’s Cooking” newsletter #2 - This version spent more time going into detail about the ways to diversify a participant’s account and provided information for the give-away promotion. Personalized data was included in two places in the newsletter.
  • "Look What’s Cooking” PURL (personalized URL) – We registered this Web site and used it to create personalized pages and tracking for each individual participant in the plan. In the second newsletter, we gave participants a personal Web site address and passcode to access the site. Once at the site, participants were able to complete a brief survey that quizzed them on their knowledge of retirement planning, their plan in particular and their goals for retirement. It also asked them to select a way they could help themselves prepare better for retirement in the coming year. Once they completed the survey, participants could print a “pledge page” that listed their name, their goal and what they were going to do in the next year to help their retirement goals.
  • "Look What’s Cooking” give-aways - Participants also had the opportunity to enter to win one of three prizes – a juice extractor, a slow cooker or a toaster oven.
  • "Look What’s Cooking” PURL deadline reminder postcard.
  • "Look What’s Cooking” poster and table tent.
  • Financial Engines mailings – A pre-campaign postcard was included in the mailings to participants. In addition, cover letters for two of the standard mailings were segmented by specific audiences to create a more personalized experience.

To measure final results, we compared the enrollment rate in PAM and POA before the campaign began and after it ended. We increased enrollment in PAM and POA from 8% of eligible accounts to 15% of eligible accounts. 611 out of 9,598 participants with a balance enrolled in one of the programs. This increased their overall enrollment rate to 16%.

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Plan Design and Beneficiary Designations

For a retirement plan administrator, determining who should receive a death benefit when a participant dies seems like a fairly straight-forward task; and generally it is. At times, however, multiple individuals will claim a right to the benefit, so the administrator must act with diligence in determining who to pay and how much. After all, it is difficult to recover the benefit should it later be determined that the incorrect person received payment. This is where properly drafted beneficiary designations and also plan document language can be of great value to plan fiduciaries.

When problems arise in this area, they are often caused by unclear beneficiary designations or participants who divorce and fail to remove their former spouse as beneficiary. As a reminder, ERISA requires that a participant’s spouse be his/her beneficiary. In order for a married participant to name a non-spouse beneficiary, the spouse must consent to such designation. This consent must be witnessed by a plan representative or notary public.

Whether by choice or necessity (where a spouse does not consent to a different beneficiary), the spouse is often the named beneficiary when a participant dies. After a divorce, some participants fail to change their beneficiary designation. This may be due to a deliberate choice or lack of recognition by the participant to make a change. Or, it could be that the divorce agreement or qualified domestic relations order (QDRO) states that the former spouse is not entitled to any benefits from the participant’s plan. In the latter case, the participant may assume there is no need to make a change, leaving it to the plan administrator and/or the courts to decide.

The situation involving the death of a divorced participant whose beneficiary continues to be his or her former spouse has been litigated on numerous occasions. The courts have often ruled that the plan administrator can rely on the participant’s latest beneficiary designation when paying the death benefit. A recent district court case out of Massachusetts(Staelens v. Staelens, D. Mass., No. 08-30159-KPN) observed that “…the source of greatest clarity of a participant’s intent is the beneficiary designation form filed with the plan.” This court relied heavily on a Supreme Court decision in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 129 S. Ct. 865 (2009), where the court concluded that ERISA mandates that plan administrators follow plan documents in distributing benefits.

While this issue can get more complex when a QDRO clearly stipulates what a former spouse is to receive after divorce, plan design can solve for a participant’s unintended failure to remove a former spouse as beneficiary. Some plans are now including language stating that if the participant has named his or her spouse as beneficiary under the plan and the participant and spouse legally divorce after the date of the beneficiary designation, then the designation of such spouse as beneficiary is null and void unless the participant reaffirms the designation after the divorce. For consistency and clarity, it may also be worth putting such language on the beneficiary form.

This is a design option worth considering. However, a plan’s legal counsel is in the best position to determine if such a provision is appropriate and how best to draft the language.

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Legislative and Regulatory Update

Retirement Savings Provisions Included in President’s Budget Proposal

A year ago, President Obama appointed the Middle Class Task Force, chaired by Vice President Joe Biden, to develop recommendations aimed at helping the middle class with a variety of issues. Two initiatives recently announced by the Task Force deal with retirement security. The lack of retirement readiness, accentuated by the erosion of retirement savings created by the recession, has gotten much attention recently.

The Task Force estimates that 75 million working Americans - roughly one-half of the workforce - lack employer-based retirement plans. Fewer than 60% of working heads of families, according to the Task Force, were eligible to participate in any type of job-related pension or retirement plan in 2007. This, coupled with the low savings rate in this country, is seen as a huge problem for Americans to be able to retire comfortably. To help remedy this, one provision of the President’s 2010 proposed budget seeks to lay the groundwork for the future establishment of a system of automatic workplace pensions to operate alongside Social Security.

Automatic IRAs

Building on the effectiveness of automatic contribution arrangements supported by The Pension Protection Act, the President’s proposal would require employers in business for at least two years that have more than 10 employees to offer a payroll deduction automatic IRA option to employees. Employers that sponsor a qualified plan, SEP or SIMPLE plan would be exempt from the requirement. However, if the employer’s plan excludes a group of employees (such as a division or business unit), the IRA option would have to be offered to those excluded employees.

Three percent would be withheld from each employee’s pay, unless the employee elects not to contribute or to contribute a different amount. The default IRA would be a Roth IRA (the least initial cost to the government since contributions are not tax-deductible), but the employee could choose a traditional IRA to receive contributions. Investment options, including an appropriate default investment, would be set by law or regulation – not the employer. The proposal allows the employer to select one IRA provider, or it may permit employees to select their own provider. (Similar to the 403(b) market for tax-exempt employers, allowing unlimited providers can be an administrative burden.)  The key to an employer selecting one provider will be how much fiduciary responsibility is assumed by this action.

Expansion of the Saver’s Credit

Established by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Saver’s Credit has been only mildly effective. This is a nonrefundable tax credit of up to $1,000 for single taxpayers and $2,000 for a married couple filing jointly. Those eligible for the credit are single taxpayers with incomes up to $27,750, heads of households with incomes up to $41,625 and married couples filing jointly with incomes up to $55,500. The credit is 10%, 20% or 50% of eligible retirement contributions, depending on income levels. Since the credit is currently non-refundable, it is of no benefit to individuals who do not have a tax liability.

The President’s 2010 budget proposal would make the tax credit refundable, simplify the current three-tier credit rate structure and increase the eligible income levels. In place of the current 10%/20%/50% credit for up to $2,000 of qualified retirement contributions per individual, the proposal would provide a 50% refundable credit on the first $500 contributed per individual. Thus, a single taxpayer could receive a credit of $250 and a married couple could receive a credit of $500. These amounts would be indexed for inflation in the future. Making the credit refundable would benefit those with no tax liability.

The income thresholds would be increased to $32,500 for single taxpayers, $48,750 for heads of households and $65,000 for married couples filing jointly. A phase-out of contributions eligible for the credit would be available for incomes that exceed these limits.

The credit would generally be in the form of a matching contribution to the retirement program to which the individual contributes eligible amounts. This will introduce administrative issues to collect, account for and properly credit amounts to employer-sponsored retirement plans and IRAs.

We will keep an eye on these proposals as the year progresses.

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Are participants opting out of automatic enrollment? 

More plan sponsors are considering offering automatic enrollment features to address concerns over participation rates, especially those that are younger, lower-tenured or lower-salaried. From a participant’s perspective, 43% of individuals that weren’t contributing to a retirement plan stated that being automatically enrolled in the plan would encourage them to participate.1

At the same time, many sponsors wonder how participants are reacting to being automatically enrolled in the plan. Are they opting out to zero deferrals, and if so, when?

Based on 132 of the retirement plans J.P. Morgan administer and the nearly 200,000 participants impacted by automatic enrollment,

  • Less than 12% of all participants opted out of automatic enrollment.2
  • The median plan experienced an opt-out rate of 4.1% during the company-established grace period.2
  • In the median plan, 3.9% of participants opted out of automatic enrollment after the grace period.2

These results indicate that plan sponsors can rest assured participants appreciate the ease of the feature, as reflected by low opt-out rates.

1Investing for Retirement DCM Research, J.P. Morgan August 2007.

2J.P.Morgan data as of 12/31/2009.

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Holiday Schedule for 2010

J.P. Morgan Retirement Plan Services observes several holidays throughout the calendar year. These holidays correspond with the closing of the New York Stock Exchange.

For 2010, the firm will be closed the following days:

  • New Year’s Day – Friday, January 1
  • Martin Luther King, Jr. Day – Monday, January 18
  • Presidents’ Day – Monday, February 15
  • Good Friday – Friday, April 2
  • Memorial Day – Monday, May 31
  • Independence Day – Monday, July 5 (observed)
  • Labor Day – Monday, September 6
  • Thanksgiving Day – Thursday, November 25
  • Christmas Day – Friday, December 24 (observed)

The markets will close early at 1 p.m. Eastern time on Friday, November 26. Because of this, our Retirement Service Center will also close early.

The automated information line and participant Web site will still be available to participants who want to access plan and account information when we are closed for the holidays. 

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Webcasts help point The Way Forward

By joining The Way Forward live Webcasts, your participants can explore a variety of financial topics to help them save and invest enough money to help them live comfortably through retirement. Each Webcast is presented by one of our financial education consultants with time allowed at the end for questions.

Encourage employees to attend

Thank you for your help to promote our first Webcast, “Tick tock, it’s tax time.” Well before the next Webcast on May 5, you’ll receive more information (posters, articles and sample e-mails) to help you encourage your employees to attend these 30-minute meetings. Some suggestions are to:

  • Send an invite to all employees.
  • Post information on your company intranet.
  • Include an article in your company newsletter.
  • Reserve a room for employees to watch as a group.
  • If possible, schedule a brown-bag breakfast or lunch to coincide with the Webcast.

Recording available

If joining a live Webcast isn’t convenient for your employees, they can watch the recording, which is usually posted within a week of the live presentation. For example, the recording of the first Webcast will be posted March 8 on The Way Forward.

For more information

The Webcasts are just one way The Way Forward helps your employees save enough money to live comfortably through retirement. Check out all the articles, podcasts, Webcasts and videos on the site; content is refreshed monthly.


Dial-in Information for The Way Forward Webcasts


12 p.m. ET (11 a.m. CT, 10 a.m. MT and 9 a.m. PT)


800-369-3376  Pass code: 6110894


Please sign on 15 minutes before the meeting. Space is limited.





My mother made me do it

Discover how emotions shape investing decisions, and check out ways to make more strategic choices. Gain an understanding of investing principles and practices and ways to apply them to your retirement account.


Think twice before borrowing

Learn the consequences of 401(k) loans. Investigate alternatives and how to position yourself financially to help avoid borrowing.


401(k) mechanics

What’s under the hood? Learn how retirement plan parts, such as fees, investment options, matches, etc., work together to help you drive toward retirement.


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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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Save the Dates - 2010 Webcast Calendar

2010 RPS Insights March Webcast Calendar

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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. ©2005-2010 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.

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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