Julia Bates

Head of Individual and Business Retirement for J.P. Morgan Asset Management

PA: What are the unique challenges faced by plan sponsors today?

Bates: Plan sponsors face challenges in understanding and managing their fiduciary responsibilities, as well as in ensuring they have the best plan design available for employees and that they are in the appropriate asset allocations.

PA: Regarding automatic plan features, are you finding plan sponsors are quickly moving to adopt such plan designs or is there still a lot of work that needs to be done?

Bates: It’s moving, but there is still work to be done, and advisers play a critical role there. Plan sponsors want to do all the right things to help their participants get into a better state of retirement readiness or to reach better outcomes in retirement. But sometimes, the wheels of change can be a bit slow, especially when it comes to adopting these “auto” features. Auto features are critical because participants are very eager for someone to show them not just how they should be investing, but even the amounts that they should be investing. They’re looking to get into the plan automatically and then be able to have some kind of escalation over time so that their savings rates can really make a difference for them in retirement. Our participant research shows that 62% of participants are very open to having these kinds of auto features. They really look for the plan to be able to put these things in place to help them.

PA: What do you think is the next trend for retirement plan sponsors in adopting auto features?

Bates: I think it will be in the area of re-enrollment. Even in the past two years, more than half of the new plans coming to us have opted to do a re-enrollment at the point of conversion. So, we’ve had a lot of operational experience making this happen smoothly for clients and their advisers.

When it comes to re-enrollment, there are many successful case studies that I could share, but one example that I think is particularly interesting is with a company that we’ve worked with for some time. With their adviser, the plan sponsor thought that their participants’ diversification wasn’t quite what it should be. They had adopted target date funds (TDFs) a number of years before, but still only 33% of the participants were actually in a target date fund. So, they were evaluating that and were thinking about re-enrollment as a way to increase that participation level and add fiduciary protection. After embarking on this process, participant adoption of target date funds went from 33% to 83%. That is a good number, absolutely, with a very low opt-out rate. But what was interesting is that 50% of their assets were in the target date funds after the re-enrollment.

This shows that those participants who really wanted to invest their own accounts did so, and they opted out and took those steps. Then, the other participants who really needed that professional management and didn’t have the comfort or the confidence to be able to do it themselves wound up in the professionally managed solution through the qualified default investment alternative (QDIA). So, in my view, this is a way to really solve the needs of both constituents and come out in a better place after the re-enrollment. The adviser and plan sponsor were very happy that they had adopted this process.

Auto features are critical because participants are very eager for someone to show them not just how they should be investing, but even the amounts that they should
be investing.

PA: Julia, you touched on a lot of challenges taking place in the industry today and the business seems more complex than ever. How are you helping the plan adviser be successful in this environment?

Bates: We recognize that advisers are dealing with increased complexity and more demands from their plan sponsors, so we seek to always partner with advisers and support them with our tools, insights and investments. We think that it’s the best thing for the plan.

Another way that we work with plan sponsors is by being the recordkeeping administrator for small and mid-sized plans through our Retirement LinkSM offering. And the way we distinguish ourselves is through our high-touch service model, knowing that advisers need help because they’re spread very thin. We have very tenured relationship managers who have low account loadings, so they have the time to be very proactive with the plan and provide leverage for the adviser. Our clients really like this approach; they feel we have top-notch personnel and that we really work to understand their needs, as well as support them as a fiduciary in this capacity.