Managed Account Value

Managed accounts are often criticized for being more expensive than target-date funds (TDFs), without adding value for the participant. However, the PLANSPONSOR 2104 Defined Contribution (DC) Survey finds a correlation between plans that provide access to managed accounts and higher deferral rates and account balances.

Participants in retirement plans that offer managed accounts, particularly plans at which the managed account is the qualified default investment alternative (QDIA), have higher average deferral rates and balances than do participants in plans without managed accounts or with a target-date fund as the QDIA.

This correlation appears across all plan sizes, except micro plans—i.e., those having less than $5 million in plan assets. For micros, the average deferral rate is higher, but the account balances are smaller in plans with managed accounts vs. target-dates as the default.

Plans with a managed account as the QDIA report an average deferral rate of 7.5% and an average account balance of $102,033. For plans with more than $1 billion in assets and a managed account as the QDIA, the average deferral rate jumps to 9.2%, and the average balance rises to $163,663. The numbers are also impressive for plans in the $200 million to $1 billion range that use managed accounts as the QDIA: an average deferral rate of 8.6% and an average balance of $106,812.

In contrast, plans with a TDF as the QDIA have an average deferral rate of 6.5% and an average balance of $81,973. To continue the comparison, plans that hold more than $1 billion in assets and a TDF as the QDIA have an average deferral rate of 7.7% and an average balance of $115,457, and plans in the $200 million to $1 billion range with a target-date as the QDIA have an average deferral rate of 7.1% and an average account balance of $96,748.

Participation rates for plans with a managed account vs. a target-date fund as the default investment are not much different, perhaps showing that the presence of managed accounts does not necessarily encourage participants to join the plan but might encourage better behavior once participants are invested in it.