Average Deferrals Are Higher Among Managed Account Users

By John Manganaro | November 07, 2016
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“At the median plan level, defaulted managed accounts participants saved 1% of salary more than those defaulted in target-date funds, at 6% and 5%, respectively,” Morningstar clarifies. Much, but not all, of the difference can be explained by different attributes of participants in plans that utilize managed accounts as the default (vs. TDFs).

For example, plans with managed accounts as the default tend to have older participants with higher levels of plan tenure and higher salaries, and each of these attributes are associated with higher savings levels. However, after controlling for these variables and other important plan characteristics, individuals defaulted into managed accounts still tend to save more for retirement at the average and the median, “although the level differs by model (i.e., regression) ranging from 0.3% to 1.9%.”

Other data shows participant deferral rates are generally lower for plans with automatic enrollment, versus voluntary enrollment, unless the default deferral rate is at least 6%.

“A plan with a 3% default enrollment rate will have deferral rates that are approximately 1.6 percentage points lower than if the plan offered voluntary enrollment,” Morningstar observes.

The research concludes that managed accounts and TDFs alike are important parts of the investment product continuum, but “managed accounts participants exhibit a much wider dispersion of equity allocations, especially near retirement, showing the greater customization capability of managed accounts.”

The full analysis is available for download here