In examining the eight largest providers of managed accounts – none were named in the report – the GAO found that some may be leaving plan sponsors open to fiduciary liability.

The GAO's investigators also found a wide variance in fees charged by providers — between $8 and $100 on every $10,000 invested – and said that the higher fees can wipe out the higher returns seen in managed accounts.

Also, limited fee disclosures as well as a lack of adequate benchmarking leaves managed account holders in the dark about what they pay for the service and whether the results are worth it, the GAO report said.

Given that Financial Engines is the largest independent provider of managed accounts (bigger than the next nine combined, according to Weiskopf), it's pretty safe to assume the company was one of the eight unnamed subjects of the GAO report.

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As an independent provider, Financial Engines stresses it has nothing do with selecting the investment vehicles that sponsors offer their participants.

"That's not our value-add. Once the sponsors build out their lineup, then we come in and work with individuals to design the best portfolio for their specific needs," Weiskopf said. 

On average, Financial Engines account holders pay about 40 basis points in fees, less than half of the most expensive accounts the GAO looked at. That, of course, doesn't take into consideration the fees participants pay on the funds they buy. 

And that begs the question: when it's all said and done, are managed accounts worth the money? The GAO wasn't at all sure that they are.

Financial Engines, naturally, feels otherwise. 

"For non-conflicted, institutional-quality advisory services? From our perspective, people need help. We feel we offer high a level of guidance for enrollees, at what amounts to a very fair price," said Weiskopf. 

Unlike the target-date funds that Weiskopf says are sometimes deployed by Financial Engine's advisors, managed accounts are not a "commoditized" product. 

"Not every 45-year-old has the same needs," says Weiskopf, referring to the age-adjusted glide-paths of TDFs. "There are family needs to consider, specific health care needs. There's long-term care for aging parents. Just because assets are automatically reallocated relative to age doesn't mean people aren't carrying too much risk, or not enough." 

Financial Engines' own data says that average managed accounts beat out non-managed 401(k)s by more than 3 percent, after fees. 

The GAO's evidence was less supportive. Citing data from Vanguard, it concluded that the returns on managed accounts were "generally less than or equal to the returns of" other 401(k) investments, including TDFs. 

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But the report is also more ambivalent at times. In several instances, the GAO pointed out the value in managed accounts, noting that some providers offer "potentially useful additional services to participants in or near retirement and do not typically charge additional fees for doing so." 

On the other hand, the GAO also raised the question of how providers structure their services. Some rebalance accounts annually, some rebalance accounts quarterly. Some offer accounts service based on highly personalized information, while others basically take the vitals they get from sponsors — an enrollee's age, total savings, and contribution rates — and set allocations to a glide-path, much as would be done in a presumably cheaper default TDF. 

Questioning the interpretation 

Doug Spencer is a certified financial planner with Financial Finesse, a company that provides retirement saving educational tools that are marketed to group plans and their participants. 

Spencer has no stake in the GAO's findings, nor does his employer. But he does have a stake in educating participants on the options at their disposal, and which are best suited for whom. 

"In spirit, I understand where the GAO is coming from," said Spencer. "What concerns me is how the report may be interpreted." 

Spencer said reading the report's summary, and then actually reading the report, elicited two different reactions in him. "The summary is pretty harsh. And then you read the report, and it's much more balanced. And you take away that managed accounts have a place in defined contribution plans."

That said, Spencer also said he thinks of the report as a kind of "call to action," especially its areas that focused on greater fee disclosure, something the mutual fund industry knows well. 

"With mutual funds, we saw a call for transparency that ultimately led to it, and that drove prices down. That gave investors greater access, and that has led to greater participation. Everybody won. Investors pay less in fees, and fund companies won more business," he said. 

That didn't happen overnight with mutual funds. And it won't happen overnight with managed accounts, said Spencer.  

He cautioned against impractical expectations, particularly with the GAO's recommendation to the DOL that it require providers to supply sponsors and participants with benchmarking to measure performance. 

"I'm not sure the authors understand how difficult it would be to benchmark managed accounts. Some are heavy on alternatives. Some rely on TDFs. Some offer personalized services that, when they are actually utilized by participants, are simply hard to quantify," explained Spencer. 

He worries, too, that if the DOL were to rush into a "one size fits all" solution that managed accounts could then become too burdensome to offer.

"No one benefits if that happens — not the sponsors trying to do the most for their employees, not the consumers trying to save enough to retire, and not the regulators trying to protect them," he said.

Reform as a priority? 

The DOL over the past couple of years has had its hands full with the question of whether broker-dealers should be subject to the fiduciary standard and other big issues. 

That leaves observers to wonder whether the DOL is ready to tackle managed account reform, and whether it has the wherewithal to fend off what is sure to be an intensive lobbing initiative from the financial services industry. 

And what happens if a Republican wins the White House? Will his or her DOL make managed account reform a priority? 

At certain points, the GAO's report almost reads like more of a critique of this DOL than of the managed account industry. 

The GAO points out that the overall disclosure requirements that Labor enforces on 401(k) plans are not required of managed accounts. With all of the regulatory attention on fees since the financial crisis — to say nothing of the litigation — many wonder why that is. 

Spencer, for one, has a theory. "Managed accounts are growing quickly, but it's still early in their evolution. Often regulation has to catch up with product development."

The GAO did note that the Labor Department "agreed with our recommendations and will consider each of them as it moves forward with a number of projects."

Until then, there's no shortage of evidence that participant inertia takes a huge toll on neglected retirement accounts, giving managed account providers plenty to work with.