Investing February 8, 2021

Real Estate Investments Can Make a Difference in Retirement Savings Accumulation

J.P. Morgan Asset Management says participants with a 10% exposure to real estate can expect a 10% greater ending balance at retirement.

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Over the next 10 to 15 years, J.P. Morgan Asset Management forecasts that public equities will return 4% to 5% and U.S. aggregate will return approximately 2%, Pulkit Sharma, head of alternatives portfolio strategy and solutions at the firm, tells PLANSPONSOR.

“For a portfolio with a 60/40 allocation [60% to global equities and 40% to U.S. fixed income], the highest valuation projected returns are 4.2% a year,” Sharma says. “In this construct, real estate fits in nicely in the portfolio. U.S. core real estate is projected to return 5.9% over the next 10 to 15 years. That’s an approximate 2 percentage point premium over U.S. equities, a 4 percentage point premium over the U.S. aggregate and 1 percentage point premium over high yield. Also, real estate can actually grow with inflation. All of these reasons make it a powerful addition to a multi-asset portfolio.”

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In fact, J.P. Morgan recommends that retirement portfolios have a 10% exposure to real estate and says this exposure will increase a retirement portfolio’s ending balance by 10%.


Jani Venter, director of defined contribution (DC) fund management team at J.P. Morgan Asset Management, adds: “Real estate is also a cyclical asset class, and we are currently in a trough. We expect it will rebound and continue to grow over the next 10 to 15 years.”

Venter also points out that just as defined benefit (DB) plans have embraced real estate, it makes sense for DC plan sponsors to include real estate in multi-asset, professionally managed funds, such as target-date or white label funds. In fact, Venter says, “one trend we have seen in the past two to three years is investors increasing their exposure to real estate. They are also including real estate in pre- and post-retirement income solutions.

“In the search for retirement income, especially with yields being so low and government bond returns even being negative, many investors are turning to real estate to deliver that income,” Sharma continues. “Real estate can play a role in both the early stages of a target-date fund [TDF]’s glide path and the late stages of its glide path as a fixed income substitute.”

In “Long-Term Capital Market Assumptions,” J.P. Morgan says, “The long-term outlook for real assets is attractive, particularly when considered on a risk-adjusted basis, relative to most traditional assets and financial alternatives. We expect core real assets to continue to gain traction in portfolios, give the stable and diversifying nature of their return streams, driven by income generated from long-term contractual cash flows backed by strong counterparties.”

Compliance February 8, 2021

Plan Administrators Don’t Have to Scramble to Report Qualified Plan Loan Offset Amounts

The IRS has issued final regulations regarding qualified plan loan offset amounts, which are the same as proposed regulations except for a change in the applicability date.

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The IRS has issued final regulations for qualified plan loan offset (QPLO) amounts to implement Section 13613 of the Tax Cuts and Jobs Act (TCJA), which provides an extended rollover period for a QPLO, which is a type of plan loan offset.

A distribution of a plan loan offset amount is a distribution that occurs when, under the plan terms governing the loan, the employee’s accrued benefit is reduced, or offset, in order to repay the loan. Prior to passage of the TCJA, a participant had 60 days to roll over a plan loan offset amount from a 401(k) or 403(b) plan account to an eligible retirement plan that accepts the rollover. The act extended this time period until the due date (with extensions) for filing the participant’s federal income tax return for plan loan offset amounts resulting solely from the participant’s termination of employment or the employer’s termination of the plan, i.e., a QPLO.

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The final regulations are the same as the proposed regulations included in a Notice of Proposed Rulemaking (NPRM) the IRS issued in August, except for a change in the applicability date. The IRS had originally said the final rules would be applicable to plan loan offset amounts treated as distributed on or after the date the final regulations were published in the Federal Register. However, a commenter expressed concern that recordkeepers wouldn’t have time to update their systems to be able to meet the 1099-R filing deadlines.

The IRS agreed. The final regulations say, “Under the revised applicability date, the final regulations will apply to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after January 1, 2021. Thus, for example, the rules in Section 1.402(c)-3 will first apply to 2021 Form 1099-Rs required to be filed and furnished in 2022 (more than one year after the date of publication of the final regulations). This delayed applicability date will give plan administrators and recordkeepers additional time to program systems and otherwise establish procedures for obtaining the exact date of severance from employment of a plan participant and tracking the one-year anniversary of that date.”

The IRS said the applicability date is also revised to provide that taxpayers (including a filer of a Form 1099-R) may apply these regulations with respect to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after August 20—the date of publication of the proposed regulations.

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