Could 401(k) plan participants gain from guided personalization?

While American workers are able to take important steps toward bright retirements by investing in retirement plans, they may improve their prospects even further by participating in a managed account service.

That's what Morningstar has consistently found in its 11 years of looking into managed accounts' impact on investment decisions and savings among defined contribution plan participants.

The research, which Morningstar began in 2014 and has since updated every three to four years, profiles a subpopulation of plan participants participating in its managed accounts service across a number of varables, including their age, investing styles – whether they're self-directed investors or allocation-fund users – and whether they're on track for retirement. 

In its latest 2025 update released this month, Morningstar analyzed 84,875 users of its retirement managed account service.

"Prior to enrolling in managed accounts, 73% were considered not on track for retirement, as their projected retirement income was less than 70% of their salary," the 2025 report read. "58% of participants analyzed are considered self-directors, meaning that less than 90% of their portfolio is in an “allocation” fund, such as a target-date fund."

"This report reinforces the findings determined in previous editions that have shown that managed accounts can improve retirement outcomes across all test groups – with not-on track self-directors poised to reap the greatest benefit."

Healthier saving habits

In an interview with InvestmentNews, Tao Guo, one of the report's authors,  that Morningstar's managed account service works differently from the typical design of separately managed accounts and universal managed accounts.

"If we think about the investment vehicles for [401(k)] participants, mostly they are investing in mutual funds, or ETFs, or target-date funds," said Guo, director of Retirement Research at Morningstar. "Separately managed accounts are a more customized solution, [where] the money manager is able to offer customized stock holdings or recommendations, or tax optimization treatments for a specific investor."

Morningstar's retirement managed accounts are closer to a robo-advisor, where participating plan members get investment advice as well as financial-planning led guidance.

Plan participants who subscribe to the service get access to a dedicated portal, where they're asked to provide information on their outside investment accounts, how much they plan to spend in retirement, whether they have substantial stock holdings, and other details. The software then makes recommendations for users to increase their savings rate as needed; if the participant accepts, the recordkeeper is notified, and their account information is updated accordingly.

In their 2025 research, Guo and his colleagues found 65% of participants who were not on track to hit their retirement goals saved more after enrolling in managed accounts. On-track participants were less motivated, with just 42% increasing their savings rates. 

The study also saw a significant rise in the deferral rate for both groups, with a 33% increase in the median deferral rate for not-on-track participants and a more modest 12.5% increase for those who were on-track. A non-trivial minority of both groups – 10% of the off-track group and 5% of on-track participants – also ramped up their deferral rates to maximize the matching contributions offered by their employerrs.

Building more prudent portfolios

On the investment side, Guo says the manage accounts service also offers up more personalized portfolio recommendations, making suggestions based on the investment options available within the particular plan's menu.

"We want to make that change so that your overall financial situation is invested in a more prudent way," Guo said.

While some participants who invested in target-date funds may have been placed in risk-appropriate portfolio allocations before entering the managed account service, Guo stressed that those previous allocations were just based on the number of years they have until their planned retirement. By building a more detailed financial picture, he says Morningstar is able to provide its managed account members more appropriate recommendations.

"Before they joined this service from us, their portfolios tended to have a larger variation in risk – either they were in a very risky portfolio, or they were very conservative and all in funds," Guo says. "We're able to pick a fund to have a more diverse portfolio, provide more alpha, or maybe pick lower-expense ration funds or higher-rating funds."

Assuming they paid 40 basis points for advice provided within the managed account, Morningstar found not-on-track self-directors – defined as those with less than 90% of their portfolio in an allocation fund – saw a 43% jump in their projected wealth on retirement, compared to 30% of their counterparts in allocation funds. The impact on projected retirement income was also most pronounced among younger users, with a 26% increase in retirement income seen for the average 30-year old participant.

While Morningstar provides its managed account services within the DC plan space – including 401(k)s, 403(b)s, and 457 plans – Guo says it has also begun working with large RIAs, enrolling participants into so-called advisor managed accounts. In comparison to the high balances typically expected by financial advisors or planners, he says such AMAs may offer a lower barrier to entry for those without much to invest.

"Even though somebody might have $100 or less, they are able to go into this AMA platform, and get guidance on whether they're on track for retirement or not. ... We also offer quarterly rebalancing," he says. "That's something we've seen as having a lot of potential in the past few years when working with RIA firms and providers."