Target-date funds (TDFs) have pro- vided participants in defined con- tribution (DC)plans withan appealing and practical solution for building up
their retirement savings: Most people are
not very good at, or interested in, the challenges of investment, and, as people move
along in their careers, target-date funds do
the work of adjusting portfolio risk to age-appropriate levels. As workers edge toward
retirement, however, and enter what football fans call the “red zone”—the last 20
yards before the goal line—the financial
situations of individuals begin to diverge.
In those last few years, experts say, many
plan participants might do well to give up
the one-size-fits-all strategies of TDFs and
switch to a personalized managed account.
Managed account services come in
many forms and provide varying levels of
analysis and management, but in general
they give participants greater insight into
their individual situation. Sponsors first
offered the accounts around 2000, and
so far the uptake has been slow. For the
millions of U.S. workers battling their
way through the red zone, however,
managed accounts could be valuable to
help them answer the complex question
of how to draw down their savings and,
for each individual, what may be possible
in his retirement.
Through a managed account, a participant receives ongoing guidance on
investing his plan savings according to his
age, contribution rate, assets available outside the plan, and other personal details.
The account provider makes a quantitative portfolio assessment and presents
its recommendations via the normal participant communications channels or, in
some cases, through a human adviser.
“Offering managed accounts is
largely a philosophical choice,” observes
Ed O’Meara, a senior investment consul-
tant in the New York City office of Willis
Towers Watson. “Sponsors believe that
some participants need help, and this is
a way to offer it to the masses at better
pricing than what individuals could get
from walking in to their local financial
Managed account services of
various sorts are available to many plan
participants. The 2016 PLANSPONSOR
Defined Contribution (DC) Survey indi-
cates that, over all plan sizes, 33.4%
offer professionally managed accounts.
Sponsors seem to think the accounts
have value: In the DC plan surveys of
consulting firm Callan Associates, 95%
of employers said they are satisfied with
their managed account choice.
But that value has limits, apparently.
Less than 1% of the plans in Vanguard’s
survey base designate a managed account
as their qualified default investment
“Given the environment of litiga-
tion in the 401(k) world, sponsors are not
encouraged to be creative or look different
from their peers,” says Jessica Sclafani,
head of the retirement practice at research
firm Cerulli Associates in Boston.
“Having a managed account as the plan’s
QDIA makes it an outlier.”
Moreover, due to a lack of time,
interest or understanding, participants
have not engaged on their own. Vanguard
says just 4% of workers seek the guidance
of a managed account.
In a 2014 report, the U.S. Government Accountability Office (GAO) had a
mixed review for these accounts. It cited
greater savings rates and better diversification, but faulted the accounts for high fees,
and many of their providers for failing to
Innovation in managed accounts