NEW YORK, Jan. 28, 2016
/PRNewswire/ -- J.P. Morgan Asset Management today released
the latest installment of its Ready! Fire! Aim?
research series, an ongoing study that was the first in the
industry to examine how the relationship between target date fund
glide paths and participant behavior might shape long-term defined
contribution (DC) portfolio outcomes. Ready! Fire!
Aim? now provides more than 10 years of data examining how
participant behavior, such as the size and timing of portfolio cash
flows, interacts with the size and timing of market returns.
"Our original research found that participant behavior was much
more varied and volatile than many target date fund providers had
assumed in their asset allocation models. That led us to
consider potentially significant ramifications for whether
participants were likely to meet their retirement funding needs,"
said Dan Oldroyd, Portfolio Manager and Head of Target Date
Strategies who oversees $69.7B in
assets under management. "Subsequent studies continue to confirm
that target date fund designs offering effective diversification
and dynamic risk management appear to position the greatest number
of participants for retirement income success."
Evaluating Participant Behavior Patterns
Ready! Fire! Aim? once again finds persistent and
wide variations in saving and investing behavior, which often
compromise the likelihood of long-term participant success. Key
behavioral trends among participants in the latest analysis
include:
- Salary raise frequency seems to have stabilized, but average
increases remain below pre-crisis levels. Salary is a crucial
behavioral input because income levels influence contribution
amounts, as well as the standard of living that needs to be
replaced in retirement. The most recent study showed that average
raise frequency declined to pre-crisis levels because, J.P. Morgan
Asset Management believes, earlier increases were mainly caused by
an apparent salary catch-up from the post-crisis slowdown. Average
raise size declined somewhat, but still remained slightly above
inflation, though this is a relatively low bar given persistently
low inflation.
- Average starting contribution rates continue to fall, with
subsequent average increases rising much more slowly. The only
way participants can be certain to achieve adequate income in
retirement is to save enough during their working years.
Disappointingly, average starting contributions remain at the
lowest point since we began our research, and rise much more slowly
than in the earlier studies.
- A large number of participants continue to take sizable
account loans. The percentage of participants tapping into
retirement accounts pre-retirement has risen to the highest level
since Ready! Fire! Aim? began tracking behavior,
while the average percentage borrowed has modestly fallen, likely
due to generally higher account balances after years of rising
markets. This indicates that a sizable portion of participant
assets are not actually invested in any given year. Many
participants also stop making contributions while repaying
loans.
- Pre-retirement leakage remains unpredictable. The good
news is that there appear to be fewer hardship withdrawals as the
economy continues to stabilize, but there are also more loans and
pre-retirement withdrawals, which could jeopardize long-term
savings. Indeed, the percentage of working participants over age
59½ taking a portion of their account balance and the average
percentage withdrawn have both risen to the highest levels in the
past 14 years.
- Most participants withdraw their entire account balances
once they stop working, usually in a single withdrawal. J.P.
Morgan Asset Management continues to see the majority of
participants, nearly 70%, leaving their plans soon after
retirement. However, in this latest study, the team observed that
the percentage of participants staying in their plans almost
doubled, from 17% post-2008 to 32% in recent
years.1
"While most of the new data remained consistent with previous
years, the steady increase of participants staying in plan upon
leaving the workforce is quite significant," continued Mr. Oldroyd.
"We will continue to monitor this data to determine if this is a
cyclical or structural change in participant engagement, and any
material and persistent changes will be incorporated into our glide
path as appropriate."
Comparing Target Date Fund Design
As in past studies,
J.P. Morgan Asset Management analyzes the behavioral findings in
conjunction with four glide path models – broadly diversified,
aggressive, concentrated and conservative – to project potential
retirement outcomes utilizing a full range of potential behavioral
and investment climates. These latest projections once again
confirm that a broadly diversified glide path with a focus on
dynamic risk management, such as the JPMorgan SmartRetirement glide
path, continue to secure the greatest number of projected
participant retirement funding successes.
"Overall, we still believe a well-designed target date fund
program offers the greatest chance of retirement security for the
vast majority of participants," concludes Mr. Oldroyd. "When
it comes to getting as many participants over the retirement finish
line as safely as possible, a proactive plan design can be equally
as important as investing and asset
allocation. Ready! Fire! Aim? is designed
to help plan sponsors and their advisors select the most prudent
target date fund to meet a plan's specific objectives."
1To learn more about J.P. Morgan Asset Management's
leading DC investment strategies, product innovations and resources
for advisors and plan sponsors, please click here, or to view the
full Ready! Fire! Aim? white paper, and full research
methodology, please click here.
About J.P. Morgan Asset Management
J.P. Morgan Asset
Management, with assets under management of $1.7 trillion, is a global leader in investment
management. J.P. Morgan Asset Management's clients include
institutions, retail investors and high net worth individuals in
every major market throughout the world. J.P. Morgan Asset
Management offers global investment management in equities, fixed
income, real estate, hedge funds, private equity and liquidity.
JPMorgan Chase & Co. (NYSE: JPM), the parent company of J.P.
Morgan Asset Management, is a leading global asset management firm
with assets of approximately $2.4
trillion and operations in more than 60 countries.
Information about JPMorgan Chase & Co. is available at
www.jpmorganchase.com.
J.P. Morgan Asset Management is the marketing name for the asset
management businesses of JPMorgan Chase & Co. and its
affiliates worldwide.
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SOURCE J.P. Morgan Asset Management