Understanding 401(k) Managed Accounts
A 401(k) managed account is a personalized investment strategy that is tailored to the individual needs of the plan participant. Unlike traditional 401(k) plan investment lineups, which typically offer a limited selection of mutual funds, managed accounts consider factors such as the participant's age, risk tolerance, and retirement goals in recommending a portfolio. This level of customization is a key factor driving the usage of managed accounts. In fact, 93% of workers report that they would be interested in a more personalized 401(k) option tailored to their unique financial situations.2
Moreover, managed accounts offer professional investment management, which can be helpful for periodically assessing whether the participants are on track to meet the goals set forth in their managed accounts and adjusting as needed in volatile markets. Certain studies report that managed accounts can demonstrate an ability to improve participant outcomes, including 27% higher savings rate and 17% stronger projected retirement income compared to target date fund (TDF) users.3
The Strategic Opportunity
For plan sponsors, offering managed accounts can be an attractive tool for attracting and retaining employees. In a competitive job market, a robust retirement plan can be a significant differentiator. Moreover, by offering a more personalized retirement planning solution, plan sponsors can demonstrate their commitment to their employees' financial wellbeing, especially those who lack financial knowledge and confidence. Those participants who are reluctant to select their own investment allocations in their 401(k) accounts may feel more confident in maintaining contributions and staying invested for the long term with a managed account option whereby the investment manager of the 401(k) plan allocates funds and automatically re-balances or reselects funds to reflect the participant’s stated goals and time horizons. In this regard, plan sponsors can feel more confident about offering a solution like managed accounts to support participant outcomes and higher confidence in reaching retirement goals.
Conclusion
Of course, offering 401(k) managed accounts may require plan sponsors to readjust their existing 401(k) plan platform and infrastructure, as well as a commitment to ongoing education for plan participants to encourage their enrollment and engagement. In NPEC’s survey, they found that 46% of DC plans offer managed accounts, but only 9% of participants are utilizing them.4 Plan sponsors will need to communicate about these programs in a way that connects and translates retirement industry jargon into terms that everyday investors can understand and relate to. Once employees understand the potential benefits of these programs, 38% of participants demonstrate higher engagement in their managed account programs compare to TDF users.3
While the path to offering managed accounts may be challenging, the potential company and employee opportunity to improve financial health make it a journey worth exploring for plan sponsors.
To learn more about how 401(k) managed accounts can potentially enhance your 401(k) retirement plan strategy, we invite you to contact a Morgan Stanley Financial Advisor. Our team can provide insights and guidance on managed account offerings, the evolving financial landscape, and help employees make the most of your organization’s financial benefits.
