J.P. Morgan Asset Management Explores Impact of Pension Protection Act on DC Plans as 10-year Anniversary Approaches, Finds Many Participants Not Allocating Assets Appropriately

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Apr 27, 2016, 10:37 ET

NEW YORK, April 27, 2016 /PRNewswire/ -- J.P. Morgan Asset Management today released a new piece, "Retirement Reset: How re-enrollment can help strengthen U.S. retirement security." The paper explores the state of the U.S. retirement system 10 years after the passage of the Pension Protection Act (PPA), finding that although progress has been made for defined contribution (DC) participants, many Americans remain woefully unprepared for a retirement that may last upwards of 30 years.

"The Pension Protection Act sets a strong foundation and made great strides, creating new opportunities for stronger DC plans and greater potential for increased retirement security. But, the reality is the U.S. retirement system is still falling short," said John Galateria, Head of North America Institutional, J.P. Morgan Asset Management. "Although some progress has been made on the savings front, advances have been far more limited in getting participant assets allocated appropriately to help get them across the retirement finish line."

The paper assesses key accomplishments of the PPA, including establishing a legal framework for the use of automatic enrollment, introducing automatic contribution escalation, and creating the Qualified Default Investment Alternatives (QDIA), which gives plan sponsors the greatest opportunity to ensure that employees who do not chose to make an investment election can still be invested appropriately for their age and risk profile. After the PPA was enacted and the Department of Labor finalized its QDIA rules, asset managers, financial advisors, consultants and plan sponsors began to think about how to use the QDIA to tackle the critical issue of poor asset allocation for employees who were already enrolled in a DC plan. The strategy they developed was the investing reset known as re-enrollment.

Re-enrollment quickly improves asset allocation for many participants, especially when the plan's QDIA is a target date fund (TDF). Because participants are defaulted into a TDF based on their age, the asset allocation reflects their investment time horizon, while the fund's "glide path," which changes with a participant's age, helps ensure participants maintain an appropriate allocation over time. For plan sponsors, a re-enrollment can bolster confidence that participants are on a sensible investing path and have a decent chance of staying on that path.

"It's important not to underestimate the damage that can be caused by inappropriate asset allocation by DC plan participants. Re-enrollment is one action plan sponsors can take that can quickly help move the needle toward better retirement outcomes for plan participants," said Anne Lester, Head of Retirement Solutions, J.P. Morgan Asset Management. "We are optimistic and have every confidence that as the adoption of re-enrollment continues to increase it will go a long way toward strengthening retirement security for millions of American workers. As we approach the 10-year anniversary of the PPA, we're calling on the entire industry of plan sponsors, financial advisors, consultants and record keepers to carefully evaluate the benefits of this strategy."

To learn more about J.P. Morgan Asset Management's leading DC investment strategies, product innovations and resources for advisors and plan sponsors, please click here, or to view the full paper "Retirement Reset: How re-enrollment can help strengthen U.S. retirement security" please click here.

About J.P. Morgan Asset Management
J.P. Morgan Asset Management, with assets under management of $1.7 trillion, is a global leader in investment management. J.P. Morgan Asset Management's clients include institutions, retail investors and high net worth individuals in every major market throughout the world. J.P. Morgan Asset Management offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity. JPMorgan Chase & Co. (NYSE: JPM), the parent company of J.P. Morgan Asset Management, is a leading global asset management firm with assets of approximately $2.4 trillion and operations in more than 60 countries. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. and its affiliates worldwide.

SOURCE J.P. Morgan Asset Management