401(k) managed accounts have come into their own

Edelman Financial Engines, a leading independent wealth planning and workplace investment advisory firm managing more than $221 billion in assets for 1.2 million program members, has published new research highlighting the benefits of 401(k) managed accounts in supporting workers’ retirement readiness.

Drawing on 20 years of 401(k) managed account data, the report titled “Igniting Growth Through Innovation” offers insights into the evolution and impact of managed accounts on employees' retirement savings.

“Once known simply as a 401(k)-asset allocator to improve retirement readiness, the managed account has evolved into a robust financial planning platform that has changed how millions of individuals receive professional financial help,” Kelly O'Donnell, president of employer solutions at Edelman Financial Engines said in a statement.

The report reveals that the percentage of 401(k) plan members sharing personal data and goals has doubled in the last decade, allowing for a more tailored experience that better meets individual needs.

EFE’s analysis found managed account members contribute an average of 9.1 percent of their income to their retirement accounts, compared to 7.8 percent for non-members and 7.4 percent for individuals invested primarily in target date funds.

A large 47 percent plurality of managed account members are 50 years or older, compared to 29 percent of primary TDF users, underscoring the need for a customized approach to retirement planning as employees approach retirement age.

Within its own group retirement enterprise, EFE introduced tools that allow members to add spousal information, estimated retirement expenses, and other sources of retirement income. These enhancements have led to a significant increase in personalization, with 74 percent of members now providing personal data and preferences, up from 33 percent in 2014.

The report also highlighted several behavioral insights and findings on outcomes for managed account members. Encouragingly, 74 percent of program users increased their savings rate within a year of enrollment, including 41 percent who saved over 10 percent of their income.

Additionally, 97 percent of managed account members are appropriately invested based on their personal goals and risks, a stark contrast to just 25 percent of non-users. Nearly all managed account members also hold less than 20 percent of their assets in company stock, whereas 40 percent of non-members hold more than 20 percent of their assets in company stock, posing a risk to proper diversification.

The report also emphasizes the value of advisor access, with 85 percent of members saying conversations with advisors during market volatility prevented them from making rash decisions. Retirement planning and retirement income remain the top topics discussed with advisors, particularly as employees transition into retirement.

“The steady growth of managed account services and the continued demand we’ve seen from employers and employees over the past two decades reinforces the importance of high-touch financial advice and planning solutions within the workplace,” O’Donnell said.