More providers enter field as managed accounts grow

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."

Randy Boldt, director of global rewards for Motorola, said the firm is happy with the results of the test program and is considering rolling it out to all its plan participants.

Motorola found that about 18% of the participants from the group that got the most personalized communications joined the managed accounts program.

Nabors Industries Inc., Houston — which has a $130 million 401(k) plan with about 8,000 active participants — started offering managed accounts to its plan participants through Merrill Lynch & Co. Inc., New York, on Jan. 1. Norma Gilpatrick, chief benefits officer, said that through mid-March, about 19% of plan participants had entered the managed account program.

"We're very happy with it," said Ms. Gilpatrick. "Our projected goal for the first year was a 20% enrollment, and we'll make it." She said the firm is doing a series of live presentations at 12 locations nationwide in an effort to reach as many participants as possible.

Rob Kron, director of participant solutions in the retirement group at Merrill Lynch, said 12 plans have enrolled in the managed accounts program so far, with Nabors being the largest. He said that several larger plans — those with more than $500 million in assets — will come into the program during the summer, although he declined to identify them.

"This (the managed account) represents a substantial change to the benefits you're offering to employees," said Mr. Kron. "It takes a substantial lead time to put the program together" for large plans, he added.

Walt Bettinger, president of Charles Schwab Corporate Services, said, "As we were designing the advice offering, it took on all of the characteristics of the managed accounts. We were not able to find anything done under managed accounts that is not done under our advice offering."

Mr. Bettinger said Schwab offers the program, introduced last September, as part of the package of services received by all of the 401(k) plans for which it is the provider.

He said 25% of Schwab's existing client base has already signed up for the advice program, although he would not identify any specific clients except for HealthSouth and LifeWay Christian Resources, Nashville, Tenn., which has an $85 million 401(k) plan for which Schwab has been the provider for several years.

Miles Shackleford, director of investment services at LifeWay, said the firm began offering the advice product Jan. 1. The plan has 1,300 active participants, of which 120 have tested the model offered by Schwab. Of that group, 20% have implemented the service.