As the needs of plan participants shift and expand, more and more plan sponsors have recognized that many stand to benefit from more personalized services, including managed account programs. Usage of this solution by employers is growing: the Plan Sponsor Council of America reported that 48.8% of plans offered managed accounts in 2022, compared with 36.3% in 2019. 

Of course, adding a managed account solution will depend on the goals of your plan and the needs of your employees. New research from Cerulli Associates and Edelman Financial Engines can help you and your plan advisor think through the merits and weigh them against any potential drawbacks. 

Key Upsides of Managed Accounts 

The report presents some key ways plan sponsors and participants might potentially benefit from in-plan managed accounts: 

• Service cost. In-plan programs are considerably less expensive than advice solutions participants could access outside of their DC plans. 

• Due Diligence. Managed account providers are obligated to conform to ERISA standards and rules and are typically subjected to a rigorous due diligence process from the plan sponsor and their plan advisor. 

• Fund expenses. Participants will generally have access to less expensive underlying funds within their DC plan.

When it comes to the personalization aspect, the report proposes that managed accounts fill in the gaps left by other one-size-fits all solutions, such as target-date funds. While target funds focus primarily on an investor’s age (retirement timeline), managed solutions take into account additional investor characteristics, including income level, personal tolerance for risk, timeline, other retirement savings accounts and even other savings accounts held by a spouse or partner. In addition, some participants, particularly those who are more affluent or nearing the decumulation phase, may prefer the more personalized investing experience that managed accounts can provide. 

Potential Downsides of Managed Accounts 

When compared with other defined contribution investment structures, the report calls out some potential drawbacks to managed accounts that plan sponsors may want to consider: 

Potential for additional fees. Some managed account managers charge a fee on top of the typical investment fees of the individual fund options in a retirement plan.  

Increase in fiduciary oversight. The survey notes that given the risk of class-action litigation in the ERISA-covered DC plan sector, many plan sponsors are concerned about fees as they consider any in-plan investments. As fiduciaries, plan sponsors are responsible for evaluating if the fees that participants pay from plan assets are both reasonable for their value, as well as compliant with ERISA. Plan sponsors and advisors need to understand how fees are structured in managed accounts and decide how favorable or unfavorable a fee structure is based on the demographics of their participants.

Participant inertia. While managed account programs can extract several participant data points directly from recordkeeper platforms, they still require participants to provide additional information (such as assets held outside the plan or the assets of a spouse or partner) to further tailor their asset allocation and advice. Additional participant engagement is necessary to make managed accounts truly personalized.

Sources/ Notes

Cerulli. (2023, October). The Benefits of Personalization in Defined Contribution Plans. https://www.cerulli.com/resource/the-benefits-of-personalization-in-defined-contribution-plans

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Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).