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Retirement Readiness

Managed Accounts Lack of Performance Benchmarking is a Red Flag You Shouldn’t Overlook

Last Updated: August 02, 2023

One of the greatest benefits of an employer-sponsored retirement plan is the ability to earn money on your money. After all, investments are one of the three key drivers that matter the most toward a participant’s retirement readiness. However, with that perk comes many choices for the participants to make about their investment options and the impact on their long-term financial security. If your employees are new to the world of investing, choosing where they should invest their hard-earned money can feel incredibly intimidating. Do they go with a target-date fund or build their own portfolio from your lineup? Or should you offer participant managed accounts?


As a fiduciary, you play a crucial role in providing a plan that successfully prepares participants to retire. You are responsible for the services offered to participants in the plan and have a duty to do what is in their best interests. You should be well informed about what you offer.


Over the last several years, there has been a growing trend of plan advisers and recordkeepers aggressively selling Participant Managed Accounts in employer-sponsored retirement plans. 401(k) participant managed accounts are an investment service offered through the plan with the approval of the fiduciary committee.

Here’s how Managed Accounts generally work:

As the managed account practice matures among plan advisers and recordkeepers, there are three glaring red flag concerns you and your fellow fiduciary committee members should be aware of when considering installing them into the plan and making them available to your participants.


Let’s take a look at the first concern we have – Participant Managed Accounts lack objective performance benchmarking.

Top 3 Red Flags We See with 401(k) Participant Managed Accounts

There are several criticisms of participant managed accounts that fiduciary committees should not overlook. 

Participant Managed Accounts Lack Objective Performance Benchmarking

The most pressing concern we have with Participant Managed Accounts is the lack of objective performance benchmarking.


There is currently no universally accepted way to objectively evaluate the value for participants in a consistent way across the plan’s population. Managed accounts are constructed to use multiple data points to create a custom portfolio that reaches the expressed retirement goal of each participant. Due to the degree of personalization, obtaining the information necessary to perform such oversight is difficult industry-wide. We believe the inability to benchmark their performance is a feature, not a bug. Without performance benchmarks, managed account providers escape performance scrutiny.

If there isn’t a benchmark to compare against, how can fiduciary committees hold managed accounts accountable for the value they are providing participants for the extra fee?

Prudently monitoring funds is already a difficult challenge. It takes a considerable amount of time, research, and scrutiny to find active investment managers that can be expected to outperform the industry-accepted corresponding index. In the rare occurrences when a manager can achieve this, it provides significant value in the returns participants receive and their overall retirement readiness. Managed account providers do not share the same incentive to outperform and therefore cannot be chosen, nor monitored, based on performance.


Investment performance is one of the key drivers of retirement readiness. Investment returns compounded over a working career play a vital role in determining the amount accumulated for a participant’s retirement. So, poor relative performance significantly impacts participants. 


The chart below illustrates how giving up just half a percentage point of performance per year spells big deficits in how much is accumulated.

The hypothetical chart below assumes the participant age of 30 who works for 35 more years, with an annual salary of $50k, with an annual 2% increase in salary, contributed 10% of salary, the employer will match 50% on up to 6% of salary. Source: Allen, Brian. Rewarding Retirement: How Fiduciary Committees Can Elevate Workers, Companies, and Communities. Pg. 106. Advantage, 2020.

While the expense of the service is constant, the value is unknown. As there is no incentive to outperform, managed accounts operate without competitive pressure. We believe there’s a substantial risk of complacency and underperformance.


For plan fiduciary committees, evaluating Managed Account services are critically important. Sellers are financially incentivized to sell the service and are likely to downplay their flaws. It’s critical that you have the information you need to properly evaluate the value provided to your participants. They are counting on your judgment. 


Lack of Performance Benchmarking isn’t the only concern we have with 401(k) Participant Managed Accounts – learn about our Top 3 Red Flags Here.

Top 3 Red Flags We See with 401(k) Participant Managed Accounts

Discover the top things to keep in mind when considering Managed Accounts.

Download the full report here.


The information provided in this presentation is not intended to be legal advice. Neither Pension Consultants, Inc. nor any of its employees engage in the practice of law. If assistance is needed in making legal determinations, counsel in the appropriate jurisdiction should be retained, and Pension Consultants, Inc. may continue to provide consulting services, if needed. Consult a competent professional person for appropriate legal, financial or investment advice.



Pension Consultants, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser, located at 300 S. Campbell Ave., Springfield MO, 65806. For questions or more information contact us at 417.889.4918.


Pension Consultants, Inc.



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