In a recent week of meetings with 401(k) plan advisors and recordkeepers, Greg Porteous came upon something he previously hadn't seen in more than 25 years working in the defined contribution investment space.

“Managed accounts came up in every conversation I had,” said Porteous, managing director and head of defined contribution intermediary strategy at State Street Global Advisors.

According to Porteous, the heightened interest in managed accounts that he observed in advisors, recordkeepers, and other intermediaries is not incidental to a daunting reality service providers are facing: More money has been leaving workplace retirement plans than is coming in, a phenomenon that is expected to continue as wealthier baby boomers retire.

Recent analysis from Cerulli Associates shows plan outflows increased at an annual rate of 8.4 percent between 2012 and 2017, compared to a 6.4 percent growth rate of plan assets.

Managed accounts' value proposition to participants—access to a holistic, customized savings strategy that rebalances asset allocations and can account for financial inputs beyond what a saver may have in retirement plans—has been the primary selling point for the platforms since their inception in 2004.

Back then, flows to 401(k)s were on the uptake. Now, plan providers don't have the luxury of writing in the organic growth of plans.

But beyond the business consideration of departing 401(k) assets, more providers are looking to managed accounts to address workers' savings and spending needs in retirement.

“Managed account solutions allow you to build a draw down and retirement income strategy,” said Porteous. “The goal is you are able to keep money in the plan longer if you can offer advice tools on the decumulation side.”

Participants benefit not just from advice and a drawdown strategy, but also the affordability of staying invested in a 401(k) plan relative to the retail market. Savers also maintain ERISA's fiduciary protections, noted Porteous.

There was about $271 billion in managed accounts at the end of 2017, according to Cerulli.

Data from the Plan Sponsor Council of America's Annual Survey of Profit Sharing Plans shows managed accounts' upward trajectory among most plan size categories.

In 2017, nearly 39 percent of all plans offered a managed account alternative, with 54 percent of plans with more than 5,000 participants offering them. In 2014, 34 percent of plans offered managed accounts. Plans with 50 to 199 and 200 to 999 participants saw the greatest rates of adoption, from 23 percent to 32.5 percent and 24 percent to 38 percent, respectively.

Improvements in technology and more competitive pricing are driving the momentum. Plan advisors are also playing a key role, as more are using managed accounts to add value to retirement plans, said Porteous.

“Plan sponsors still don't know what they don't know,” added Porteous, who said his team does not interact directly with employers. “But more employers and plans have a fiduciary advisor to help navigate conversations, and more are relying on advisors to provide discretionary advice. Advisors are able to use managed accounts to reflect their beliefs and add value to plans.”

While decumulation, income, and drawdown strategies in 401(k) plans continue to garner attention in policy circles, the ability to design those strategies varies among recordkeepers and sponsors.

Theoretically, it's hard to argue against the value of providing savers with a way to strategically spend their savings in retirement. But practically, building those strategies into managed accounts can present challenges, said Porteous.

“Some plans are clunky,” he said. “Some only allow for annual distributions. And some recordkeepers charge for every distribution made. The question is, do people want to pay for that?”

But with what Porteous says is the unquestionable momentum behind managed accounts, sponsors and providers are being forced to rethink how they accommodate draw down capabilities.

“More recordkeepers are able to make monthly distributions,” said Porteous. “As an industry, we are getting better.”

Instant Insights /

More service providers looking to managed accounts to stem 401(k) outflows

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