Defined contribution (DC) retirement plan sponsors are placing increasing emphasis on providing more personalized investment solutions to their participants. Out of the various options available, managed accounts are gaining attention for their potential to deliver highly tailored advice and improve retirement outcomes. Despite the value recognized in personalization, widespread implementation of managed accounts has been stymied by cost considerations and other barriers. The pivot towards personalized plans indicates a shift in how plan sponsors envision the future of retirement planning.
The Value of Personalization
Opinions on the necessity of personalized advice in retirement planning are not just favorable; they are overwhelmingly positive. According to the PGIM DC Solutions’ 2025 DC Plan Sponsor Landscape Survey, a whopping 88% of plan sponsors agree that personalized guidance can pave the path to better retirement outcomes. This overwhelming consensus underscores the critical role that personalization plays in shaping successful retirement strategies. However, there is a significant gap between this belief in the importance of personalized advice and the active implementation of managed accounts as a mainstream tool.
Notably, this gap is more pronounced in smaller plans. For example, while managed accounts are provided by 60% of plan sponsors with assets exceeding $100 million, the figure significantly drops to 35% for plans with assets ranging from $10 million to $99 million. This disparity raises equity issues in retirement planning, with smaller plan participants failing to benefit from the advantages offered by managed accounts. Large-scale plans may be able to absorb the costs or negotiate better terms, but smaller plans often struggle with higher per-participant costs, which hinder implementation.
Cost Barriers to Adoption
One of the most daunting obstacles hindering the widespread adoption of managed accounts lies in the high fees typically associated with these services. Managed account fees can often exceed 25 basis points, a cost that many plan sponsors find prohibitively expensive. This high cost structure deters many from offering managed accounts to their participants, thereby limiting access to personalized retirement planning options. However, there is a notable shift in interest when these fees are brought down to more manageable levels. When fees are reduced to 10 basis points or less, a significant 70% of plan sponsors express willingness to offer managed accounts.
David Blanchett, managing director at PGIM DC Solutions, anticipates changes in the managed account landscape that will potentially lower these costs. Blanchett suggests that the next wave of managed account providers will be asset managers capable of reducing fees, driven by increased competition in the market. As more providers enter the space, the resulting competition is expected to lessen the cost burden, making managed accounts more accessible and viable as a default offering in DC retirement plans.
Managed Accounts vs. Target-Date Funds
Blanchett also emphasizes the need to position managed accounts as competitive alternatives to target-date funds (TDFs). Unlike TDFs, which largely base investment decisions on the participant’s age, managed accounts offer a more nuanced and holistic approach. Managed accounts can consider a myriad of factors, such as income, savings rate, and even gender, to create a more comprehensive investment strategy. This broader perspective can potentially yield better retirement outcomes by catering to a variety of individual characteristics that age-based strategies might overlook.
Despite a growing awareness of the myriad benefits associated with managed accounts, their adoption remains sluggish. Blanchett remains hopeful that decreasing costs and improved access will play crucial roles in accelerating the uptake of managed accounts. The comparative flexibility and personalization of managed accounts feature prominently in discussions about their future, especially as retirement planning becomes more tailored to individual needs beyond just the age factor predominant in TDFs.
Increasing Provider Options
One area that necessitates improvement is the limited number of managed account providers, which significantly restricts the choices available to plan sponsors. Unlike TDFs, which offer a broad range of series and options, the managed account market is relatively narrow. This lack of diversity limits plan sponsors’ ability to select the most suitable solutions for their participants. Expanding the number of providers in the managed account market could lead to optimized offerings, making them more attractive and usable within 401(k) plans.
The survey data reveals that 87% of plan sponsors are open to the idea of implementing managed accounts as the default investment option either as standalone offerings or part of a hybrid approach. Yet, only 6% stated they were very likely to adopt this strategy. Concerns about potential litigation under the Employee Retirement Income Security Act (ERISA) relating to fees are a significant deterrent. For managed accounts to become a preferred default investment, there is a pressing need for low-cost options that offer personalization without additional costs, thereby mitigating the risk of litigation.
Addressing Diverse Participant Needs
Defined contribution (DC) retirement plan sponsors are increasingly focusing on offering more personalized investment solutions to their participants. Among various available options, managed accounts are garnering significant attention due to their ability to provide highly customized advice and potentially enhance retirement outcomes for individuals. The growing interest in personalizing retirement plans highlights a notable shift in the way plan sponsors are reimagining the future of retirement planning. However, despite the recognized benefits of such personalized approaches, widespread adoption of managed accounts has faced obstacles, primarily due to cost and other logistical barriers. Plan sponsors’ move towards individualized plans underscores a commitment to evolving and improving retirement planning strategies, aiming to better meet the diverse needs of their participants. This trend suggests a broader industry transformation where the focus is increasingly on tailored solutions designed to maximize retirement readiness and financial security.
