Lower Managed Account Fees Would Likely Increase Plan Sponsor Adoption

While defined contribution retirement plan sponsors have increasingly showed interest in offering more personalized retirement investments to their participants, widespread access to managed accounts has yet to be achieved.

According to Part 1 of PGIM DC Solutions’ 2025 DC Plan Sponsor Landscape Survey, 88% of plan sponsors agreed that personalized advice and guidance would improve retirement outcomes.

Despite this strong belief in the value of personalization and the importance of participants having access to appropriate investment portfolios, solutions like managed accounts are not widely available. For example, while 60% of plan sponsors with plan assets greater than $100 million offer managed accounts, only 35% of plans with plan assets ranging from $10 million to $99 million reported offering them or even being aware of their availability.

As Always, Cost Concerns

This lack of availability is largely due to cost, as managed accounts typically come with high fees. Interest in managed accounts at current pricing levels, which typically equal or exceed 25 basis points, is relatively low, according to PGIM.

However, 70% of plan sponsors said they would be interested in offering their participants a managed account as an opt-in if the fee were 10 basis points or less, and 63% said they would be interested in managed accounts as their plan’s default investment at that price point.

David Blanchett, managing director, portfolio manager and head of retirement research at PGIM DC Solutions, says he expects the next generation of managed account providers to include asset managers that could offer solutions with lower fees.

“I think where we’re going to see future solutions [are] going to be among asset managers or other entities that can potentially derive revenue elsewhere,” Blanchett says.

Blanchett says providers should offer managed accounts as a competing solution to their target-date funds to show that participants can be provided asset allocations based upon more factors than just age.

“I’m going to use income and savings rate and balance and … gender and all these other things we have about someone to figure out what that portfolio should be,” Blanchett says.

He also argues that consultants and large plan sponsors are “very aware” of managed accounts and that the overall availability of managed accounts has been increasing significantly.

“I think we’re nearing a point where we could see radical increases [in access to managed accounts] because the costs are coming down,” Blanchett says.

Is Cost the Only Issue?

However, a recent NEPC paper found that high fees tend to erode the value of managed accounts, as a fee of 30 basis points typically requires a participant to increase their equity exposure by 20% to 30%, or by two to three TDF vintages, to achieve a similar net-of-fee return. In addition, for participants paying a lower fee of 15 basis points, for example, NEPC argued that they could anticipate returns comparable to a typical TDF investor. Even with the advice component of managed accounts, NEPC found that the added value of that feature declined over time.

PGIM’s Blanchett says the issue goes beyond fees. The study found plan sponsors and consultants are concerned about the lack of choice when it comes to managed accounts.

“If you think about any kind of investment or other solution, there’s usually 50+ target-date series, there’s thousands of investments … [but] there might only be one or two managed account providers,” Blanchett says. “I think the more that that you increase the competition [and] the more that you decrease the price, the more it’ll become a standard offering in 401(k) plans.”

In terms of managed accounts being offered as a default investment in a 401(k) plan, 87% of plan sponsors in PGIM’s survey said they were at least willing to consider using managed accounts as the plan’s default investment—either as a stand-alone option or as part of a hybrid default investment—but only 6% said they were “very likely” to use them.

Blanchett noted that some plan sponsors are concerned about offering a managed account as a default investment because of the focus on fees in litigation being brought against plan sponsors under the Employee Retirement Income Security Act .

“To me, it’s an absolute no-brainer if there was no additional cost,” Blanchett says of offering the managed account as a default. “There hasn’t been a lot of movement, in my opinion, among existing providers in terms of price, because they’re offering fully baked solutions with access to advisers, and that can be great. But what if I just want something that can be used as a default, that someone can personalize?”

He says there is a need for providers to create low-cost solutions and offer personalization, even if there is no engagement from the participant.

In general, Blanchett says the biggest demand for more personalized options comes from older workers. One possible solution that may be more palatable for plan sponsors, he says, is offering a hybrid qualified default investment alternative in which participants younger than 50 years old are defaulted into a TDF, and those who are at least 51 could be defaulted into managed accounts.

PGIM’s data were based on surveying of 302 retirement plan decisionmakers in September and October 2024.