J.P. Morgan Asset Management is simplifying its 401(k) plan menu. The company announced it is replacing its traditional menu of investment choices it offers to defined contribution plans and replacing it with a simplified menu of three investment portfolios: one consisting of diversified stock strategies, one with diversified bond strategies and one with diversified cash alternatives.

The new approach, called Core Menu Innovation, “represents our most advanced thinking on how to help Americans achieve a more financially sound retirement," said Michael Falcon, head of retirement for J.P. Morgan Asset Management. "The 401k 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 in some form of professionally managed solution, are, on average, falling short of their retirement savings goals. We have to help them close that gap, and we believe CMI is one way to do so."

Plan sponsors are searching for ways to increase participant engagement and consolidate their investment line-ups. The Core Menu solution provides fewer, but more sophisticated, investment options and leverages the diversification benefits offered by target-date funds and other professionally managed asset-allocation solutions.

Target-date funds are become more widely available within defined contribution plans, but participation in them is lagging at the participant level, according to J.P. Morgan. The majority of the company’s defined contribution assets remain invested in the plan’s core menu. The average 401(k) plan’s core investment lineup includes at least 18 different fund choices and sometimes more.

J.P. Morgan decided to change its menu because “a growing body of research shows that when participants are presented with complex or too many choices, they are most likely to make no choice at all or an uneducated choice—either of which leaves them inadequately diversified and overexposed to individual investment strategies.”

Core Menu Innovation was designed by J.P. Morgan’s Global Multi Asset Group, which is responsible for the firm’s suite of SmartRetirement Target Date Fund solutions. Each of the three portfolios is built with sophisticated asset allocation incorporating diversification across traditional and extended asset classes.

"CMI draws upon the Global Multi-Asset Group's unified investment approach that influences the group's target-date strategies, which seek to capture attractive returns with lower volatility, increasing the overall probability that participants reach their retirement-income goals," said Anne Lester, portfolio manager for the Global Multi-Asset Group at J.P. Morgan Asset Management. "We continue to believe that target-date funds are a good solution for the vast majority of participants. 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."

J.P. Morgan believes that limiting the range of investment choices in plans will help plan sponsors better meet their fiduciary responsibilities, while contributing to a plan’s overall success in helping participants achieve better retirement incomes.

J.P. Morgan Asset Management is an investment management company that supervises $1.9 trillion in assets and manages $1.3 trillion in assets, as of Sept. 30, 2011.

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J.P. Morgan simplifies 401(k) menu

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