In Practice June 10, 2025
Could Managed Accounts Replace TDFs as Plan QDIAs?
Despite target-date funds’ ubiquity, there are selected use cases for managed accounts as qualified default investment alternatives.
Reported by Mallika Mitra
One of the most important decisions retirement plan sponsors and advisers have to make is which qualified default investment alternative makes sense for a plan’s participants. Authorized by the Pension Protection Act of 2006, with final regulations issued by the Department of Labor in 2007, QDIAs provide fiduciaries a safe harbor when defaulting participants into approved investments.
Target-date funds are the most commonly-used QDIAs: Just 3% of plans use something other than a TDF, and only another 3% are considering other options, meaning 94% of plans are content with the TDF default, according to a 2024 report from the Plan Sponsor Council of America. But the one-size-fits-all approach of TDFs has industry experts wondering whether there are better options to be a plan’s QDIA, such as managed accounts.
“More advisers are getting more comfortable with managed accounts,” says Nathan Voris, Morningstar Retirement’s head of go-to-market, adding that conversations discussing the potential of managed accounts are starting to pick up. “Having the thought of ‘What is the optimal QDIA for this plan?’ instead of ‘Which target-date fund should I select?’ is now much more in the conversation than it ever has been.”
But as the numbers indicate and as experts confirm, any potential shift is still in the very early stages.
Another way managed accounts can offer a clear advantage is with personalization of engagement, such as ongoing outreach and digital experiences to keep individuals on track.
“If you think about it through the lens of personalized engagement strategy and personalized investment strategy, that’s the sweet spot for a managed account customer,” Pannozzo says.
With personalization widely used in other areas of financial planning, Voris says there is a certain logic in extending it to retirement saving as well.
“Personalization is the standard when you’re talking about dollars outside the 401(k) space,” Voris says. “Large advisory practices that have both a wealth footprint and a retirement plan footprint are very comfortable with this concept of personalization, with doing that at scale and all the things that really add a ton of value on the wealth side. You’re seeing more advisers who have a diversified practice thinking about how they can scale that personalization in the plan as well.”
Another advantage managed accounts could have in comparison with TDFs as a choice for QDIA is that managed accounts allow participants to leverage the core investment menu and potentially invest outside of the investment menu, allowing for both active and passive management, explains Mikaylee O’Connor, a principal in and head of defined contribution solutions at investment consulting firm NEPC.
“You have a diversified mix of investment managers, so you’re not just solely invested in the single target-date-fund manager,” O’Connor says.
So why are managed accounts as QDIAs not a more common occurrence? Very simply: Managed accounts cost more money, and plan sponsors have the fiduciary duty (and associated liability) to show that the benefit is worth that cost, according to Pannozzo.
O’Connor says she would be a proponent of managed accounts as the default with the right provider—in part because there is so much data in the recordkeeping system that could be used to personalize plans—if the fees came down.
Morningstar provides advisers with a full suite of analytics to compare their options. Before implementation, this includes an analysis of a given plan and what percent of participants would benefit from a managed account—as in, the change in balance compared with the median TDF balance—across demographics. After implementation, it includes quarterly reports and year-end-review reports that assess factors such as engagement, adoption, asset allocation and the level of personalization, Voris said.
“Because it’s a personalized solution, it’s much more about evaluating managed accounts and its impact on the plan or a group of plans than it is an apples-to-apples comparison with a balanced fund or with a target-date fund,” he adds.
Benchmarking goes far beyond performance, Pannozzo says. It requires looking at how the managed account is being used, including how many people are providing information that the managed account can use to create a personalized investment strategy, as well as engagement and outcomes, such as saving rates and retirement readiness.
“A lot of factors are needed to truly assess the effectiveness of a managed account,” she adds.
“Some of the analytics that we provide help show the value across the age spectrum, and so some of those tools and resources can help a plan sponsor determine whether a full QDIA solution or that hybrid QDIA makes sense,” he says.
When plans on Fidelity’s platform use managed accounts as QDIAs, this hybrid model is typically the method they use, Pannozzo says. O’Connor says she has not seen this as much and believes it is typically more popular among smaller plans.
Yet as is so typically the bottom line, O’Connor maintains she would be a proponent of the hybrid QDIA approach—if the fees for managed accounts decreased.
More on this topic:
Target-date funds are the most commonly-used QDIAs: Just 3% of plans use something other than a TDF, and only another 3% are considering other options, meaning 94% of plans are content with the TDF default, according to a 2024 report from the Plan Sponsor Council of America. But the one-size-fits-all approach of TDFs has industry experts wondering whether there are better options to be a plan’s QDIA, such as managed accounts.
“More advisers are getting more comfortable with managed accounts,” says Nathan Voris, Morningstar Retirement’s head of go-to-market, adding that conversations discussing the potential of managed accounts are starting to pick up. “Having the thought of ‘What is the optimal QDIA for this plan?’ instead of ‘Which target-date fund should I select?’ is now much more in the conversation than it ever has been.”
But as the numbers indicate and as experts confirm, any potential shift is still in the very early stages.
Managed Accounts vs. TDFs
Fewer than 1% of plan sponsors on Fidelity Investments’ platform are currently using managed accounts as the QDIA, says Lorianne Pannozzo, Fidelity’s head of workplace personalized planning and advice. Still, managed accounts provide a clear benefit when an individual has enough specific needs and complexities—such as a risk tolerance that does not quite match that of same-aged counterparts—that a personalized investment strategy would make sense. The accounts have the ability to incorporate a wide array of details, including accumulated savings, demographics, saving rate, employer matches, equity or defined benefit plans, health savings account balances, marital status and region of the country.Another way managed accounts can offer a clear advantage is with personalization of engagement, such as ongoing outreach and digital experiences to keep individuals on track.
“If you think about it through the lens of personalized engagement strategy and personalized investment strategy, that’s the sweet spot for a managed account customer,” Pannozzo says.
With personalization widely used in other areas of financial planning, Voris says there is a certain logic in extending it to retirement saving as well.
“Personalization is the standard when you’re talking about dollars outside the 401(k) space,” Voris says. “Large advisory practices that have both a wealth footprint and a retirement plan footprint are very comfortable with this concept of personalization, with doing that at scale and all the things that really add a ton of value on the wealth side. You’re seeing more advisers who have a diversified practice thinking about how they can scale that personalization in the plan as well.”
Another advantage managed accounts could have in comparison with TDFs as a choice for QDIA is that managed accounts allow participants to leverage the core investment menu and potentially invest outside of the investment menu, allowing for both active and passive management, explains Mikaylee O’Connor, a principal in and head of defined contribution solutions at investment consulting firm NEPC.
“You have a diversified mix of investment managers, so you’re not just solely invested in the single target-date-fund manager,” O’Connor says.
So why are managed accounts as QDIAs not a more common occurrence? Very simply: Managed accounts cost more money, and plan sponsors have the fiduciary duty (and associated liability) to show that the benefit is worth that cost, according to Pannozzo.
O’Connor says she would be a proponent of managed accounts as the default with the right provider—in part because there is so much data in the recordkeeping system that could be used to personalize plans—if the fees came down.
Benchmarking Managed Accounts
Because managed accounts are a personalized solution, it is challenging to compare them to their TDF and balanced fund counterparts.Morningstar provides advisers with a full suite of analytics to compare their options. Before implementation, this includes an analysis of a given plan and what percent of participants would benefit from a managed account—as in, the change in balance compared with the median TDF balance—across demographics. After implementation, it includes quarterly reports and year-end-review reports that assess factors such as engagement, adoption, asset allocation and the level of personalization, Voris said.
“Because it’s a personalized solution, it’s much more about evaluating managed accounts and its impact on the plan or a group of plans than it is an apples-to-apples comparison with a balanced fund or with a target-date fund,” he adds.
Benchmarking goes far beyond performance, Pannozzo says. It requires looking at how the managed account is being used, including how many people are providing information that the managed account can use to create a personalized investment strategy, as well as engagement and outcomes, such as saving rates and retirement readiness.
“A lot of factors are needed to truly assess the effectiveness of a managed account,” she adds.
Hybrid QDIAs
Hybrid QDIAs, in which participants are initially defaulted into target-date funds and then migrated to a managed account later—usually at some specified age or account balance—are garnering increased interest, Voris says.“Some of the analytics that we provide help show the value across the age spectrum, and so some of those tools and resources can help a plan sponsor determine whether a full QDIA solution or that hybrid QDIA makes sense,” he says.
When plans on Fidelity’s platform use managed accounts as QDIAs, this hybrid model is typically the method they use, Pannozzo says. O’Connor says she has not seen this as much and believes it is typically more popular among smaller plans.
Yet as is so typically the bottom line, O’Connor maintains she would be a proponent of the hybrid QDIA approach—if the fees for managed accounts decreased.
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