Mike Miller, Head of Retirement Distribution, US Funds Management at J.P. Morgan Asset Management
PA: What are some of the challenges that plan sponsors face in helping get participants ready for retirement?
Mike Miller: We’ve done a lot of research on defined contribution plan sponsors. We recently launched the second edition of our Defined Contribution Plan Sponsor Survey Findings which show that a majority of plan sponsors truly want to help provide a dignified retirement for their employees. However, there is a disconnect—only 15% of individual sponsors actually establish a plan to achieve that goal.
PA: Mike, what can plan advisers do to help plan sponsors close the retirement income gap for participants?
Miller: I would encourage advisors to be proactive with their clients and deliver thought leadership and innovative best practices around plan design to help plan sponsors better align plan goals with objectives.
PA: What are the most commonly used strategies to help improve outcomes for participants?
Miller: We’ve seen an uptick in the “auto” suite, specifically automatic enrollment and automatic escalation. We think there is also an opportunity for further discussions around re-enrollment, which offers the potential for improved asset-allocation for participants by automatically placing them into their age appropriate target-date fund (TDF). Think of a re-enrollment as a reaffirmation of your investment election in which participants are given the option to make their own investment selection and if they choose not to make a selection their assets are automatically moved into their age appropriate target-date fund.
Target-date funds also offer a benefit to the plan sponsor by providing fiduciary protection for assets that are mapped to the target-date fund. And secondly, participants benefit as they are now in a more diversified and age appropriate solution than they might have been previously.
PA: Clearly you believe re-enrollment can move the needle. Why are plan sponsors so reluctant to use this feature?
Miller: A lot of plan sponsors are not that informed about the benefits of re-enrollment. For example, our research shows that 12% of plan sponsors thought that by implementing a re-enrollment they would actually take on additional risks. In actuality, they have the potential to receive safe harbor protection around the assets they re-enroll into the qualified default investment alternative (QDIA).
PA: How can J.P. Morgan help educate plan sponsors about the benefits of re-enrollment?
Miller: Our goal is to deliver industry-leading insights and thought leadership, such as our 2015 Defined Contribution Plan Sponsor Survey Findings, to our clients so that they can make more informed decisions. In regards to re-enrollment, we have several items that can support an adviser working with a plan sponsor to conduct a re-enrollment.
First, we encourage advisors to start with communication, not only to the plan sponsor but down to the participant level. There are some required notifications plan sponsors must deliver to receive safe harbor protection from a re-enollment.