Fee Fears Push DC Plans to Drop Managed Accounts
Some 14% of defined contribution plans surveyed by NEPC in December have terminated their managed account programs since late 2023.
Managed account programs are losing favor among some retirement plan sponsors, a recent survey found.
Some 14% of defined contribution plans surveyed in December by investment consulting firm NEPC reported that they had eliminated their managed account programs since late 2023.
"These decisions reflect more formal fiduciary reviews as [defined contribution] governance has matured, along with heightened fee sensitivity and closer evaluation of participant engagement and personalization," NEPC wrote in a summary of its findings.
Some 48% of the plans surveyed offer their participants managed account programs. Only 10% of those plans' participants use managed accounts, however, NEPC found.
NEPC's survey included 148 plan sponsors with 276 defined contribution plans. Those plans had $448 billion in aggregate assets among 3.2 million participants. More than a dozen recordkeepers participated in the survey.
Nearly 20% of the 165 lawsuits filed between 2019 and late 2022 alleging Employee Retirement Income Security Act violations included a claim over managed account programs, Callan reported in 2022. Of the suits including such claims, 42% alleged that the managed account service fees were excessive, while 31% claimed the managed accounts underperformed compared to other plan options.
Empower was sued last year over its managed account offering. The plaintiffs claimed that Empower sales representatives falsely portrayed to participants nearing retirement that its managed accounts were superior to other investment options, or even the sole option, despite high fees.
Schlichter Bogard, known as a pioneer of lawsuits against plan sponsors over alleged mismanagement of their 401(k)s, represents the plaintiffs in the lawsuit against Empower.
Empower plans to file a motion to dismiss the lawsuit, the court docket shows. An Empower spokesperson said when the suit was filed that it was without merit and driven by the plaintiffs' law firm.
NEPC's finding regarding plan terminations of managed account programs is "stunning," wrote Chris Brown, principal at Sway Research, who flagged the figure on Wednesday in a LinkedIn post.
The implications of plan sponsors ditching managed accounts may be greatest for asset managers without target-date suites — or managers with target-date suites that have not gained traction among plans and their participants, Brown wrote in an email.
Most asset managers don't offer target-date products, Brown said, and these firms see managed accounts as a way to get access to plan assets outside of target-date products.
The largest target-date products are single-manager portfolios, "often featuring underlying funds associated with the recordkeeper," Brown said.
In addition, fewer plans are adding managed accounts, Mikaylee O'Connor, leader of NEPC's DC practice, stated in an email. Growth in adoption of managed accounts has "moderated as plan sponsors increasingly scrutinize utilization, fees and participant outcomes when evaluating whether to add or retain these services," O'Connor said.
"If managed accounts go away, it will be even more difficult for [target-date-fund]-lacking managers to gain assets in the DC space," Brown wrote.
This scenario would also result in only a few managers controlling "an enormous share of American workers' savings," Brown noted.
Vanguard, the largest target-date manager, held 37% of all assets in target-date mutual funds and collective investment trusts as of year-end 2025, Brown noted. The firm had $1.6 trillion in target-date strategies as of June.
Fidelity, T. Rowe Price, BlackRock and Capital Group collectively hold another roughly 40% of assets in such products, Morningstar data shows.
The trend toward eliminating managed accounts from investment menus could also hurt recordkeepers.
Fidelity, Empower and Transamerica are among the recordkeepers that offer their own managed account solutions, as well as outside solutions from Morningstar and Edelman Financial Engines, Brown said.
"They may apply any fees earned from their own products to offset administrative fees, thereby lowering overall costs to participants and making their recordkeeping offering more competitive," Brown wrote. "I suspect it depends on the specific plan."
The median managed account program fee as of year-end 2024 was 38 bps, according to NEPC's O'Connor.
Edelman Financial Engines, which claims to be the biggest managed account provider by assets, provides the services to about 1.2 million people through the workplace plans of nearly 700 companies and most of the largest recordkeepers, according to its website. It had $308 billion in client assets as of June 30, 2025, according to a regulatory filing.