INVESTMENTINSIGHTS

INVESTMENTINSIGHTS

Understanding Re-enrollmentBenefits for participants and plan sponsors

RETIREMENTINSIGHTS

Many plan sponsors have added target date funds (TDFs) to their defined contribution (DC) plans to help better position employees—especially those who don’t have the time, interest or knowledge to make investment decisions—for retirement success. But even when coupled with robust education efforts, participant inertia often leaves plan sponsors feeling disappointed with the low TDF adoption rates.

How TDFs are implemented, however, can have a significant impact on whether employees use the particular investment option. To combat participant inertia, more plan sponsors are considering re-enrollment. In fact, plan sponsors that conduct a re-enrollment typically see a 40% to 60% (and sometimes higher) adoption rate of TDFs. By contrast, plans that just add TDFs as a new option in their plan line-ups see an adoption rate of less than 5%, even a few years later.1

IN BRIEFA plan re-enrollment is a process by which participants are notified that their existing assets and future contributions will be invested in the plan’s qualified default investment alternative (QDIA), usually a target date fund (TDF), based on their date of birth. All plan participants are automatically moved into the QDIA on a certain date unless they make a new investment election during a specified time period.

Participant benefits

• Potential for improved asset allocation

• Helps new and existing participants

Plan sponsor benefits

• Potentially stronger protection from investing liability

• Better participant experience

1 J.P. Morgan Retirement Plan Services, 2011

2 | Understanding re-enrollment: Benefits for participants and plan sponsors

Understanding the benefits of re-enrollmentRETIREMENT INSIGHTS PORTFOLIO DISCUSSION: Title Copy HereRETIREMENT

INSIGHTS Understanding re-enrollment

Why conduct a re-enrollment?

Get participants on the appropriate path Many participants end up in investments that don’t reflect their actual preferences. As Exhibit 1 illustrates, nearly 69% of participants consider themselves “delegators”—individuals without the time, knowledge or confidence to make investment decisions—who could benefit from investing in professionally managed solutions, such as TDFs. Yet 80% of DC assets sit in “do-it-yourself” core menu options, potentially exposing the majority of participants to increased investment risks and the likelihood of inadequate retirement funding. Conducting a re-enrollment can help get participants on a path that most closely matches their preferences.

Source: J.P. Morgan Retirement Plan Services proprietary research, 2011. Representative sampling of participants within the Retirement Plan Services participant database.

EXHIBIT 2: DO-IT-YOURSELFERS EQUITY POSITIONS VS. JPMORGAN SMARTRETIREMENT GLIDE PATH

0

20

40

60

80

100

Perc

ent i

n eq

uity

20 25 30 35 40 45 50 55 6560 70Age

Do-it-yourselfers equity allocation 10% over J.P. Morgan glide path10% under J.P. Morgan glide path

Older workers holding too much equity are putting their retirement savings at risk because of increased market volatility.

Younger workers who are too conservatively invested may forego years when their money could be working for them.

Address diversification for existing participants While plan sponsors can put new hires on an appropriate retirement path by automatically enrolling and defaulting them into a TDF, what can they do about existing participants? In Exhibit 2, each gray dot represents the equity allocation of an actual participant while the blue and orange lines represent a 10% range over and under the J.P. Morgan target date glide path. Given the wide dispersion of gray dots, the illustration clearly depicts that participants’ equity exposure can vary widely. A re-enrollment uses participant inertia to benefit both groups by defaulting them into age-appropriate portfolios, while still allowing more sophisticated and active participants to make their own investment decisions.

Source: J.P. Morgan Retirement Plan Services, 2011

DC Investment Line-ups Participant type

How participants self-identify

Where participants’ assets reside

Asset Allocation Funds Delegators Prefer professional management

69% 18%

Core Menu

Do-it-yourselfers Value professional oversight but prefer a level of control

30% 80%

Brokerage Self-directed sophisticates Prefer significant flexibility/choice

1% 2%

EXHIBIT 1: THE DC PARTICIPANT DISCONNECT—PARTICIPANT PREFERENCES VS. DECISIONS

Mor

e

Less

Leve

l of e

ngag

emen

t

J.P. Morgan Asset Management | 3

10.1% 10.3% 11.1%

14.3% 16.3%

7.6% 6.6%

5.1%

-0.1% -4.3%

8.8% 8.4% 8.1% 7.0% 5.4%

-5

0

5

10

15

20

J.P. Morgan SmartRetirement

users

Others' TDF users

Managed accounts users

Do-it- yourselfers

Brokerage users

Rate

of

retu

rn (%

)

EXHIBIT 3: STANDARDIZED THREE-YEAR RETURNS—HIGHS, LOWS AND AVERAGES BY INVESTMENT STRATEGY

Source: J.P. Morgan Retirement Plan Services proprietary research. Analysis measure-ment period is December 31, 2009, through December 31, 2012. The above data repre-sents a sampling of participant data. It does not represent the returns of any individual product or portfolio. Exclusive reliance on the above is not advised. This information is not intended as a recommendation to invest in any particular manner. Rate of return for the measurement period is aggregated by investment strategy. Historical rate of return is not a guarantee of and may not be indicative of future results. See the “Important Disclosures for Personal Rate of Return Methodology,” for additional information.

EXHIBIT 4: COMMUNICATIONS BEST PRACTICES FOR CREATING AN OPTIMAL PARTICIPANT EXPERIENCE

Assets will default into QDIA for participants who do not make an investment election by this time

Education meetings and final reminder

• Conduct education meetings to reinforce key messages

• Send final reminder informing participants the re-enrollment window is closing

7 DAYS PRIOR60 DAYS PRIOR

Announcement e-mail or flyer

• Informs participants of upcoming re-enrollment

• Provides information on what to expect and key dates

30 DAYS PRIOR

Re-enrollment newsletter

• Provides required notification language and blackout dates, if applicable

• Highlights available investment options

• Provides opt-out process for choosing investment elections

Re-enrollment window

FIDUCIARY CONSIDERATIONSPlan sponsors may gain safe harbor protection for defaulted assets assuming the requirements are met. The re-enrollment approach typically results in a higher percentage of plan assets that are considered defaulted.

Remember, as a fiduciary, you may be granted QDIA safe harbor protection by satisfying the following requirements:

• Initial opt-out notification: Participants must be given the opportunity to make a new investment election before they are defaulted into the plan’s QDIA. The initial notice must be provided at least 30 days before initial investments are defaulted into the QDIA. This requirement must be considered in the timing of the re-enrollment window. Reminder communications, although not required, are often sent before the re-enrollment window ends to ensure participant understanding.

• Annual notices: Annual notices must be provided every year to remind participants that they were defaulted into the QDIA and that they have the right to direct the investment of their accounts.

RESEARCH CORNER

56% of plan sponsors aren’t aware of the potential to receive fiduciary protection for participant assets that were defaulted into their plan’s QDIA during a re-enrollment.2

Keep participants on track Re-enrolling participants into investment options that provide professional management and increasingly conservative risk/return profiles as retirement approaches not only helps to improve asset allocation, but also maintains an appropriate allocation over time. These options help minimize extreme outcomes—providing participants with a more consistent investment experience than the portfolios individually constructed by most “do-it-yourselfers” (see Exhibit 3).

Wondering what actually happens when you conduct a re-enrollment? The illustration in Exhibit 4 represents a typical re-enrollment process timeline. Specifics, of course, vary by recordkeeper.

PORTFOLIO DISCUSSION: Title Copy HereRETIREMENTINSIGHTS Understanding re-enrollment

IMPORTANT DISCLOSURES FOR PERSONAL RATE OF RETURN METHODOLOGY. Rate of return is calculated for active participants by an investment strategy using the Modified Dietz method and is based upon volatility between the highest rate of return and the lowest rate of return associated with each investment strategy among such participants. Services associated with the identified investment strategies were available as of the last day of the measurement period, but may not have been available throughout the measurement period.Target date fund users are participants with at least 70% of their account balance invested in target date funds as of the first and last day of the measurement period. Do-it-yourselfers are participants with less than 70% of their account balance invested in target date funds as of the first and last day of the measurement period and also includes participants using online advice services, if applicable. Managed account users are participants with at least 70% of their account balance managed by a discretionary investment service as of the first and last day of the measurement period. Brokerage users are participants with at least $1 in a brokerage account as of the last day of the measurement period.TARGET DATE FUNDS. Target date funds are funds with the target date being the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each fund will change on an annual basis with the asset allocation becoming more conservative as the fund nears the target retirement date. The principal value of the fund(s) is not guaranteed at any time, including at the target date.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.

Contact JPMorgan Distribution Services at 1-800-338-4345 for a fund prospectus. You can also visit us at www.jpmorganfunds.com. Investors should carefully consider the investment objectives and risks as well as charges and expenses of the mutual fund before investing. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.JPMorgan Funds are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. Products and services are offered by JPMorgan Distribution Services, Inc., is a member FINRA/SIPC.J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, JPMorgan Chase Bank N.A., J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.© JPMorgan Chase & Co., March 2013 | DC-MKT-REENROLL 1212

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