J.P. Morgan Asset Management is advocating a fundamentally different approach to defined contribution plans by stripping down offerings and complexities to a menu of just three choices: a diversified stock portfolio, a diversified bond portfolio and one offering diversified cash alternatives.
The approach, which J.P. Morgan is calling Core Menu Innovation (CMI), “represents our thinking on how to help Americans achieve a more financially sound retirement,” said Michael Falcon, head of retirement at J.P. Morgan Asset Management. “The 401(k) plan is the primary retirement savings vehicle for most Americans today, so it’s critical that we help participants make better investment decisions.”
J.P. Morgan research shows that participants who choose to invest on their own, rather than through a professionally managed solution, such as a target-date fund, are not earning as much. “We have to help them close that gap, and we believe CMI is one way to do so,” Falcon said.
J.P. Morgan also said that the average 401(k) plan has 18 investment choices, and often many more.
J.P. Morgan’s Multi Asset Group, which runs the firm’s SmartRetirement Target Date Funds, manages the three DC portfolios, using sophisticated asset allocation across traditional and extended asset classes, with an eye to lower volatility.
“We continue to believe that target-date funds are a good solution for the vast majority of participants,” said Anne Lester, portfolio manager for the Multi-Asset Group. “However, for those participants who elect not to enter target-date funds, we believe CMI provides a better framework than that of the traditional DC plan’s core lineup.”
-- This article first appeared on Money Management Executive.