PLANADVISER - July/August 2017 - 45

and cheaper to use target-date funds, " he says. " But if sponsors'
goal is the best outcome for their employees, taking the
underlying investments in a plan and doing a customized
allocation for participants will interest them. "
Analyzing the Need
If a sponsor wants to re-evaluate what type of investment
to use as its plan's QDIA, that process starts with fully
understanding the value proposition of managed accounts,
balanced funds and target-date funds, says Shawn Sanderson,
senior product manager at Manning & Napier Advisors
LLC in Rochester, New York. " With managed accounts,
their prime benefit is the ability to consider a number of
factors, beyond a participant's age, to do the asset allocation, "
he says. A sponsor should analyze whether its participant
base needs the more customized offering.
That means sponsors need a good understanding of their
participant demographics. Asked about the most relevant
data to consider, Sanderson points to those relating to new
hires, as automatic enrollment generally focuses on that
group. If most of a company's new hires are young, earlycareer
employees, " [they] come in with lower balances, and
the conventional wisdom is that they all just need to focus
on growth, " he says. So, target-date funds can work well. " But
if you have a lot of dispersion in the new-hire demographics,
managed accounts could be a viable solution, " he says. Older
workers often have more varied finances, he notes.
Harbour recommends taking a closer look at the average
retirement-readiness gap of an employer's staff. " Are the
employees ahead of schedule saving for retirement or behind
schedule? " he asks. " If an employer has significant concerns
about its employees not saving enough, managed accounts
would give them an extra level of [customized] glide path,
to help them accumulate more. We have two main ways to
help participants better prepare for retirement: encourage
them to increase their contribution, and offer them a glide
path that is more customized to their individual situation. "
Option vs. Default
Target-date funds are the most common retirement plan
default investment and the most popular offering overall.
While just over one-third of plans offer a managed account
to their participants, only a handful use them as the default.
n Managed accounts
n Target-date funds
33.4%
7.0%
Offer
as option
Utilize
as default
Source: 2016 PLANSPONSOR Defined Contribution Survey
Plans offering investments from one
of the three most utilized providers
Source: Towers Watson Investment Services Inc. aggregate client
base, defined contribution data, as of September 2016
76.7%
65.7%
Managed accounts can work well for older employees,
says Joe Connell, a partner at Sikich Retirement Plan
Services in Maple Grove, Minnesota. " But, for young people
just starting out, how much financial data does a 25-yearold
have to give to a managed account provider to customize
the managed account solution? " he says. If an employer has
mostly younger workers, that may make it harder to justify
managed accounts as the default, he says.
" But if we had an employer that said, 'We only tend to hire
people who are age 50 or older and have complex finances,'
managed accounts could make sense as the default investment, "
he continues. " Or, if a sponsor does re-enrollment,
you could think about a managed account solution as the
QDIA. If re-enrollment picks up everybody in the default
investment, that could lower the managed account fee for
all participants, so everybody benefits. And, obviously, you
would still give re-enrolled participants the ability to opt
out of the managed account. "
Gauging the Desire
Besides ascertaining whether a plan's participants need
the increased customization that managed accounts offer,
sponsors should get a sense of whether those people want
it enough to get engaged. " It is really about trying to determine
whether most participants will give the managed
account provider the information necessary for it to have a
fuller picture of their financial situation, " Sanderson says.
Key data points needed include a participant's individual
risk tolerance and assets outside the retirement plan.
Realistically, most average participants do not
get
involved enough to provide personal data or utilize additional
services such as individualized help with retirementphase
budgeting, says Steven Glasgow, senior vice president
at advisory firm Avondale Partners LLC in Nashville,
Tennessee. Automatic enrollment and default investments
are, by their nature, designed for employees who fail to
engage with retirement saving.
A Highly Concentrated Market
More sponsors of managed accounts work with the top three
providers in that market than do sponsors of target-date
funds work with that market's top three.
n Managed accounts
n Target-date funds
88%
67%
planadviser.com july-august 2017 | 45
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PLANADVISER - July/August 2017

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