Managed accounts are gaining popularity with 401(k) plan providers fighting for a place in the market, as well as with plan participants.
Providers such as including the Vanguard Group, Malvern, Pa., and T. Rowe Price Retirement Plan Services, Baltimore, have joined those offering some form of managed accounts.
In the managed account service, an investment manager has in-depth discussions with each defined contribution plan participant and puts together investment portfolios that best meet the participant's goals. The portfolios are generally adjusted quarterly, after being reviewed with the participant.
So far, managed accounts have been most popular with smaller plan sponsors, those with less than $100 million in defined contribution assets.
That might be changing. Two test programs with large 401(k) plan sponsors — J.C. Penney Corp., Plano, Texas, and Motorola Inc., Schaumburg, Ill. — have shown some success in attracting participants.
Financial Engines Inc., Palo Alto, Calif., started test programs with Penney in July 2003 and Motorola in March 2003. Each offered the managed accounts to a cross-section of 1,000 participants. (Penney's $3.2 billion 401(k) plan has about 140,000 participants, and Motorola's $5 billion 401(k) plan, about 50,000.)
Jeff Maggioncalda, chief executive officer of Financial Engines, said the participants were broken into groups, with some receiving only an e-mail telling them the program was available and some receiving personalized evaluations of their portfolios. The groups that just received e-mails had less than 5% enrollment in the program, while the other groups had 15% to 20% enrollment.
John Walton, retirement plan delivery manager at Penney, said the firm is evaluating the test program. "The results are encouraging to us," he said, adding that Penney is considering rolling out the program to all of its 401(k) plan participants.
He acknowledged that the range of participation in the test program varied widely, "depending on the range of communications you gave the groups."
In terms of Penney's entire 401(k) plan, Mr. Walton said about 50% to 60% of participants "do nothing or very little with their investments. We hope we can reach some of those people with managed accounts."