Managed accounts' payoff is a plan design story

Managed account vendors have made this pitch for years, and Morningstar has now put a number on it. Research released today from the firm's Center for Retirement & Policy Studies shows that managed account users contribute more to their defined contribution plans and are more likely to earn the full employer match than otherwise similar nonusers; the size of that gap, however, turns on how the plan itself is designed. That is the finding sponsors should study before deciding what the feature is worth.

In voluntary enrollment plans, where participants carry the responsibility for setting and adjusting their own rates, the differences are largest: managed account users contribute 1.2 to 2.3 percentage points more than nonusers and are 3 to 8 percentage points more likely to receive the full match across all age groups, according to the report's executive summary. The pattern holds across nearly every plan design environment and subgroup examined, and it is especially pronounced among mid- to late-career and longer-tenured participants; in automatic enrollment plans without escalation, the gap narrows but remains — the predicted contribution rate for managed account users ages 45 to 49 is 10.7%, compared with 8.0% for nonusers.

The report, “Decoding Deferral Behavior in Managed Accounts,” does not pretend the product causes the behavior. Its executive summary offers four readings: managed account users show stronger contribution behavior after controlling for observed participant and plan characteristics; the association depends on plan design and is limited where automatic features already promote saving; the effect appears after the initial employment period and grows with tenure, particularly in plans without escalation; and outstanding plan loans do not uniformly weaken the association, with estimated differences as large or larger among borrowers in several age groups.

The usual caveat applies: participants who choose managed accounts may be more financially engaged to begin with, and controlling for observed characteristics narrows the gap between correlation and causation without closing it. The report itself frames the pattern as “consistent with the view” that managed accounts have the largest behavioral association where plan design leaves more room for participant-level guidance — a careful read, not a claim of proof.

For plan sponsors, the practical implication is not that managed accounts are universally valuable or universally unnecessary; the measurable benefit concentrates where the plan already asks participants to do the heavy lifting — voluntary enrollment, no escalation, mid-career workers, longer tenure — exactly the environments where personalized guidance has room to move the numbers. A plan with automatic enrollment and automatic escalation is already doing much of that work, and the research suggests the managed account effect is smaller there.

That should push managed account distribution toward segmentation and plan sponsors toward a closer look at what they are buying. The strongest case for a per-participant fee is a voluntary enrollment plan with aging participants and no escalation; the weakest is a plan where auto-features have already turned deferral into default behavior. The loan findings add nuance: participants with outstanding loans are not a lost cause; in several age groups the association is as large or larger among borrowers, suggesting the guidance may keep contributions on track even when a loan is dragging on the account.

The cost side is where this connects to the broader fee litigation wave that has begun to reach managed accounts. Morningstar's data support the claim that managed accounts can pay for themselves in the right plan, but they do not support charging the same fee to every participant in every plan. A sponsor with a voluntary enrollment design can point to a measured uplift, while a sponsor with full auto-features has a weaker rationale, and the fee will look harder to defend the more this association gets studied.

The trap is to treat managed accounts as a substitute for fixing the plan, but the numbers point the other way: the feature shows its largest lift precisely where the plan's own features are absent, and it shrinks where the plan has taken over the saving decision. That is the difference between buying a tool and buying a crutch, and the research just made the two easier to tell apart.