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Transcript of SPRING / SUMMER 2010 Journey - J.P. Morgan SPRING / SUMMER 2010 PLUS > Executive Perspective J.P....

  • Journey Retirement Insights and Solutions from J.P. Morgan

    ISSUE 4 SPRING / SUMMER

    2010

    PLUS > Executive Perspective

    J.P. Morgan Funds’ George Gatch

    > Speaking Investments Going global and BRICs

    > Building Blocks Direct real estate in DC Plans

    > Ask Bob The answer from

    our man in Washington

    > Stable Value New thinking on a

    traditional strategy

    11 Plan Sponsor Roundtable Three professionals tackle DC fund selection

    24 DC: The Next Chapter David Musto on trends and opportunities

    15 DC Fund Line-ups in Focus Day in the Life of an Investment Strategist

    19 Dr. David Kelly: Retirement Insights

  • EDITOR-IN-CHIEF Daniel R. Darst

    MANAGING EDITORS Chester C. Dawson Mark L. Sobolak Kirk L. Isenhour

    SENIOR EDITOR Maria Cassisi

    ART DIRECTOR

    Rachel Liu

    GRAPHIC DESIGNERS

    Courtney A. Ayers Victoria Khalatyan

    Naomi L. Rosenberg

    CONTRIBUTORS

    Jason I. Brown I Margaret E. Cox Connie Fish I Barbara M. Heubel

    Diane M. Gallagher I Bob A. Holcomb

    This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors. References to asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. In- dices do not include fees or operating expenses and are not available for actual investment. The information contained herein may employ proprietary projections of expected returns as well as estimates of their future volatility. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Discussions presented should not be construed as legal opinions or advice. You should consult your own attorney, accountant, financial or tax advisor or other planner or consultant with regard to your own situ- ation or that of any entity which you represent or advise. Past performance is no guarantee of future results.

    J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co., and its affiliates world wide.

    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, market- ing or recommendation by anyone unaffiliated with JPMor- gan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

    © 2010 JPMorgan Chase & Co. All rights reserved.

    rchitects say that “God is in the details.”* And anyone who has indulged in discount Swedish design at IKEA or a Lego kit knows the value of detailed instructions and the importance of adhering to them without exception.

    Fund line-ups, too, require a careful precision. Style drift, securities overlap, underperformance, manager changes and objectives resetting, plus a handful of additional criteria, can gang up on a plan sponsor to render the investment offering much less than an Investment Policy Statement would propose.

    For many employers, the challenge of maintaining a laser-like focus on the fund offering is a matter of time. The popular term of ‘not enough bandwidth’ reminds us of the need to prioritize. “Investments are integral to the plan,” explains CEO of J.P. Morgan Retirement Plan Services, Pam Popp, in the following pages. We underscore the importance of this sentiment; indeed, the investment line-up is the plan, certainly its heart and soul. Making sure that participants have a range of appropriate choices in terms of asset classes, styles and capitalizations is how a diversified and long-term DC portfolio is birthed.

    In this issue of Journey, we focus on investments and fund line-ups in particular. First and foremost, we talked with clients. Their insights and experiences in the investment space come across in a roundtable discussion featured on page 11. Complementing the client discussion is our center spread, “Day in the Life,” in which we shadowed a J.P. Morgan investment strategist as she worked with clients to review fund line-ups and consider adjustments and met with fund managers offering their investment services.

    We sat with Dr. David Kelly, Chief Market Strategist at J.P. Morgan Funds and frequent CNBC guest, to discuss prospects for the U.S. economy and America’s shifting demographics and retirement savings plans. To develop the conversation around investments, we examined global investing and profiled the BRICs. We are pleased to share the executive perspective of George Gatch, CEO of J.P. Morgan Funds, and as with previous issues, we include statistics, letters from the field, and our legislative anchor, Bob Holcomb.

    While there is no detailed instruction manual, we hope the topics and insights in this magazine help guide you toward a better solution.

    Daniel Darst Editor-In-Chief daniel.r.darst@jpmorgan.com

    * Ludwig Mies van der Rohe, German-born architect and designer

  • J.P. Morgan JOURNEY 1

    8 Executive Perspective A conversation with George Gatch, CEO of J.P. Morgan Funds, on the defined contribution and retirement landscape from a mutual fund perspective

    10 Ask Bob Bob Holcomb answers your questions about legislative issues

    11 Plan Sponsor Roundtable Sit table-side as several plan sponsors discuss investment line-ups and the critical issues in building a plan that help create successful outcomes for their employees

    15 Day in the Life Journey follows investment strategist Diane Minardi-Stone as she works with plan sponsors and fund companies to identify, build and monitor optimal fund choices and line-ups

    19 Guide to Retirement Dr. David Kelly shares his insights and outlook on the state of the economy and the financial implications for retirement

    22 Building Blocks A longer look at the ways in which DC plans can offer commercial real estate—directly—in the fund line-up

    24 DC: The Next Chapter David Musto, head of Defined Contribution Investment Solutions at J.P. Morgan, discusses key business issues in the investment only arena

    25 Outside the (Stable Value) Box An in-depth discussion of new thinking for Stable Value investing, fresh from J.P. Morgan Asset Management

    IN THIS ISSUE

    the Content I S S U E 4 S P R I N G / S U M M E R 2 0 1 0

  • 2 JOURNEY Spring / Summer 2010

    ...they’re part of the plan. And the plan, well, that is the cul- mination of a coordinated and integrated approach to cre- ating positive outcomes for the participant. At least, that is how it should be.

    Investment strategies don’t exist in a vacuum...

    Too often, I’ve found myself dis- cussing investment strategies with the client’s corporate treasurer or CFO and then discussing plan design benefits and communications with a separate group in HR. Everyone has the best of intentions. Each side has insights into their particu- lar area of experience and knowledge, but the sum of the two parts is not greater than the whole. In fact, it often can be less.

    I would suggest that it’s the over-arch- ing synthesis of plan benefits, commu- nications and investments, supported by administration that are the critical dimensions of the plan, and if they’re not aligned, balanced and coordinated, the plan is under-optimized. Investments are an integral part of the plan, not a distinct appendage. A carefully researched and evaluated fund line-up designed with the best intentions according to a well reasoned

    a Word

    28 Corporate Pension Plans A look at DB funding ratios and their critical drivers

    VALUE-ADD & COLUMNS

    4 Stat Life Auto-enrollment, auto-escalation...a look at the numbers

    5 Speaking Investments More plans are widening their lens to capture global opportunities—plus a primer on BRICs

    9 Legislative Corner A look ahead at DB and DC legislation from our man in DC (Washington, that is)

    27 Dear Journey Everything you always wanted to know about retirement (but were afraid to ask)

    32 Fast Forward An editorial perspective on the dilemma of building a balanced reward/risk investment program in an atmosphere of short-term gratification

    33 Did You Know A round-up of data points from our recent Ready! Fire! Aim? 2009 and defaulted participant research

  • J.P. Morgan JOURNEY 3

    Investment Policy Statement may fall short of the mark if the plan is constructed in a manner that limits participant action. Individual funds, while attractive on the merits of their risk-adjusted returns, may not complement other offerings in the line-up due to correlated beta risk. A well-reasoned approach to a balanced fund or a target date fund may be constrained by a Spartan communications program. Helping the participant make the right decisions is paramount to delivering the value of the plan. If the participant