Ten years after passage of the Pension Protection Act, JPMorganAsset Management argues that many defined-contribution planparticipants are no better off than before the act. In a paperreleased last month, JPMorgan made the case for plan sponsors toimplement re-enrollment initiatives to address improperly allocatedaccounts.

“It's important not to underestimate the damage that can becaused by inappropriate asset allocation by DC plan participants,”Anne Lester, head of retirement solutions for J.P. Morgan AssetManagement, said in a statement. “Re-enrollment is one action plansponsors can take that can quickly help move the needle towardbetter retirement outcomes for plan participants.”

That change is largely effected by reallocating participantsinto target-date funds.

Automatic enrollment predates the PPA, according to Lester andJohn Galateria, co-authors of the paper. Prior to the act'spassage, default investments were typically stable value or moneymarket funds.

A report from EBRI and ICI shows that investors have more 401(k)assets invested in equities than before the financial crisis.

“As a result, many participants ended up in these funds — andstayed there for years, leaving them with inappropriate, andsometimes extremely inappropriate, asset allocation for their ageand risk profile,” the authors wrote.

JPMorgan encourages the use of target-date funds as a 401(k)'squalified default because they take “much of the emotion out ofinvesting for DC plan participants,” in addition to their deriskingglide path.

“Once participants are invested in a TDF, they tend to stay thecourse and are less inclined than other fund investors to movetheir assets at inopportune times,” the authors wrote, noting aMorningstar report that found over the 10 years between 2004 and2014, asset-weighted returns for TDF investors were 1.1 percentagepoints higher than the fund's total return.

In 2005, less than 3% of retirement plan assets were allocatedto target-date funds. An analysis by EBRI/ICI in April found 18% ofassets were allocated to TDFs for almost half of participants.

“In many ways, re-enrollment is the logical next step on ajourney that began with the passage of the PPA,” the authors wrote.“After the PPA led to improvements in DC participant assetallocation through the use of the QDIA, re-enrollment allowed theprocess to happen — with relative speed and with the potential forstrong fiduciary protection for plan sponsors.”

PPA established safe harbors for plan sponsors who selectprudent defaults and give participants the option to select adifferent investment. A re-enrollment strategy may help them meetthose safe harbors if they select an appropriate QDIA.

Another key benefit of re-enrollment, though, is that it givesplan sponsors another chance to engage with participants on therisks they can control.

“As we see it, the industry has invested far too much time andtoo many resources trying to educate employees to becomeinvestors,” according to the paper, forcing them “to deal withsomething — the market — that is fundamentally beyond theircontrol.”

Participants are “much better served” when plan sponsors focustheir education efforts on savings and asset allocation “and leaveit to the professionals to manage market risk.”

JPMorgan, which has its own line of target date funds, foundjust 7% of plans have used a re-enrollment strategy. A 2015 surveyof DC plan sponsors by JPMorgan attributed that to over half ofsponsors who weren't aware of possible fiduciary protection if theydefaulted workers into a QDIA, and 44% who said they were worriedabout participant pushback to such a scheme.

Lester added in the statement that JPMorgan is “optimistic and[has] every confidence that as the adoption of re-enrollmentcontinues to increase, it will go a long way toward strengtheningretirement security for millions of American workers.”