JPMAM launches Target Date Evaluation Tool:
Target Date Navigator

AS FALLING STOCK prices, rising mortgage costs, and soaring energy prices lead more Americans to dip into their 401(k) plans to fund higher costs of living, target date funds are rapidly surging in popularity.

In fact, since the Department of Labor (DOL) authorized these funds as a type of qualified default investment alternative (QDIA), both sponsors and investors are expressing greater interest in these asset allocation strategies, which seek to offer broad diversification against risk and volatility—particularly as Americans move closer to retirement.

As plan fiduciaries, sponsors must decide which of the growing list of offerings best meet the needs of their plan participants.  Target date funds differ widely according to time horizons, level of diversification, and other factors, and each one can affect outcomes and whether the plan can meet participants’ retirement savings goals.  

If sponsors are to truly “hit the mark,” and achieve their goal of getting the greatest number of participants across the retirement “finish line,” we believe they will need to consider the plan’s objectives and factor in participants’ real-life behaviors and tolerance for risk—before making their selection.

That’s the philosophy behind JPMorgan Asset Management’s Target Date Navigator and Compass(sm)—the industry’s first-of-its-kind standardized evaluation framework for target date funds.  The outcome of many conversations with advisers and plan sponsors—as well as JPMorgan’s extensive research into participant behavior patterns and their implications for target date design--the tool is designed to help sponsor-clients objectively evaluate target date funds to ensure that their selection is aligned to their plans’ objectives and participant behaviors and demographics.

Standardizing the process for target date fund evaluation

The Target Date Navigator guides sponsors through a series of thought-provoking questions that allow them to assess their plans’ desired level of equity exposure for participants at retirement and asset class diversification—based on the plans’ objectives, views, and the behaviors of the participants.  These are all factors that the DOL has stated fiduciaries should take into account when designing the investment menu for a DC plan.

Based on how they respond to the questions, plan sponsors are guided to one of four Target Date Type quadrants on a Target Date Compass.  Advisers then identify the appropriate funds for further analysis, based on their own analytics, or they can request a customized report from JPMorgan that includes funds that have been chosen by the adviser, based on publicly available data sources.

Further, upon request, advisers can request a comprehensive side-by-side comparison and analysis of the funds they have selected, including returns, glide paths, asset allocation, and so forth—again, all produced from publicly available sources.

A process to support investment decisions

This tool allows advisors to help plan sponsors meet fiduciary obligations of target date fund selection under the rules.  The Navigator documents the step-by-step process by which target date funds were selected and how they align with plan goals and participant behaviors—a clear demonstration of a prudent evaluation process.   This documentation also provides the basis for a robust Investment Policy Statement, including critical elements such as investment selection, glide paths, time horizon, desired outcomes, and how those elements relate to plan goals and objectives.

Working with sponsors on target date selection can help advisors validate their roles as true consultants to the target date selection process. For example, advisors can use the tool to help benchmark plan sponsors’ chosen strategies against a peer group of strategies that are of the same target date type to ensure that their current choice–or one that they made years ago--is consistent with plan needs and objectives. 

Ultimately, the goal of the Navigator is to help advisors ensure sponsors undergo a prudent evaluation process, and to encourage a highly productive new dialogue between advisors and sponsors about retirement planning—one that can lead to improved outcomes for sponsors and plan participants.

The Navigator is a paper-based tool.  JPMC plans to offer a Web-based version of the tool to select advisors in early 2009.

For more information on the Target Date Navigator, contact Glenn Dial 407-612-6140.

FOR FINANCIAL PROFESSIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

The Target Date Navigator is an adviser tool. As such it is meant to help advisers in their due deligence process when working with their plan sponsor clients. The tool is not meant to replace the fiduciary responsibilitites that are inherent with all plan sponsors or the advice that advisers provide. If the tool is used, it should be used as part of a comprehensive due deligence process. Exclusive reliance on this tool to make investment decisions is not recommended.

The ultimate choice of investment options is that of the the plan sponsor with help from the adviser.  The tool is not to be used as sales literature and can only be received as per a request from the adviser. All data in the tool is objective and based on publicly available information which has been obtained from sources deemed to be reliable. This data is subject to unintentional errors, omissions and changes prior to presentation without notice.  The tool may not be reproduced in whole or in part in any manner.  It is the responsibility of the adviser to independently confirm its accuracy and completeness. Information should not be construed as investment advise.  Past performance is no guarantee of future results.

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.  

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