In the report, “401(k) Plans: Improvements Can Be Made to Better Protect Participants in Managed Accounts,” the U.S. Government Accountability Office (GAO) says because little is known about whether managed accounts are advantageous for 401(k) plan participants, and whether plan sponsors understand their own role and potential risks, it was asked to review and answer these questions.
The GAO examined how the relevant service providers structure managed accounts, the advantages and disadvantages of these accounts for participants, and the challenges plan sponsors face in selecting and overseeing such providers.
After reviewing eight managed account providers in 2013, who represented about 95% of the industry involved in defined contribution plans, the GAO found that these providers varied in how they structured managed accounts, including the services they offered and their reported fiduciary roles. The GAO found the issues with fiduciary roles could potentially provide less liability protection for plan sponsors for the consequences of the provider’s choices.
The report also notes that while participants in managed accounts received improved diversification and savings rates, this was offset by fees for such accounts varying widely over the long term and thus lowering accounts balances. The GAO also found participants generally do not receive performance and benchmarking information for their managed accounts.
Similarly, the GAO says plan sponsors are challenged by insufficient guidance and inconsistent performance information when selecting and overseeing managed account providers. Without better guidance, it notes, plan sponsors may be unable to select a provider that offers an effective service for a reasonable fee.
The report recommends that the Department of Labor (DOL) consider provider fiduciary roles, require disclosure of performance and benchmarking information to plan sponsors and participants, and provide guidance to help sponsors better select and oversee managed account providers. The DOL agreed with these recommendations and says it will consider changes to regulations and guidance to address any issues.