On July 29, the Government Accountability Office (GAO) published findings from a recent study undertaken at the request of retiring U.S. Rep. George Miller (D-Calif.). The report, “401(k) Plans: Improvements Can Be Made to Better Protect Participants in Managed Accounts,” made the following observations:
- Managed-account providers are varied in how they structured managed accounts, including the services they offer and their reported fiduciary roles.
- Providers use varying strategies to manage participants' accounts and incorporate varying types and amounts of participant information.
- Absent explicit requirements from the Department of Labor (DOL), some providers may actively choose to structure their services to limit the fiduciary liability protection they offer.
- Participants in managed accounts receive improved diversification and experience higher savings rates compared to those not enrolled in the service (however, these advantages can be offset by paying additional fees over time).
- The fees that providers charge participants for the managed account services range between $8 and $100 on every $10,000 in a participant's account.
- The absence of guidance for managed accounts has led to inconsistency in sponsors' procedures for selecting and overseeing providers (the DOL has not issued guidance specific to managed accounts on how sponsors should select and oversee providers, as it has done for other funds).
Of particular interest to NAPA members, the GAO recommended that the DOL consider fiduciary roles for managed account providers, require disclosure of performance and benchmarking information to plan sponsors and participants, and provide guidance to help sponsors better select and oversee managed account providers. As part of its response to the report, the DOL said it plans to consider changes to regulations and guidance to address any issues.
Perhaps more significantly, after completing the managed accounts study, in response to lingering questions by GAO staff about the relationship managed accounts have with other investment options offered as QDIAs in 401(k) plans, they have undertaken a second study, which has been expanded to include an analysis of all QDIA options, specifically target date funds, and even stable value funds that may serve as an interim initial default investment.
Ronald J. Triche, Esq., APM, is NAPA's General Counsel and Director of Government Affairs.
