Defined contribution plan participants who use managed accounts or
target-date funds enjoy better investment returns net of fees than participants
who invest on their own, said a survey by record keeper Alight Solutions.
Over a 10-year period through Dec. 31, 2016, Alight found that the
average annualized return for participants consistently using managed accounts
was 3.66%; the average annualized return for "consistent full"
target-date fund was 3.65%; and the average for consistent non-users was 3.39%,
according to a survey report.
Alight defined a consistent user of managed accounts as someone enrolled
continuously for the three-, five- and 10-year periods that were part of
Alight's analysis of data. A consistent target-date fund participant was
someone who continuously enrolled in this option for the three periods. A
consistent non-user was someone who never enrolled in a target-date fund or
The results show "professionals pretty much everywhere will
probably outperform amateurs," said Robert Austin, head of research, in an
The survey examined record-keeping data of 47 Alight clients with 2.1
million participants that offer both managed accounts and target-date funds.
Among those plans, 42% of participants used target-date funds, 12% used
managed accounts and 46% used neither.
Although the survey didn't explore participants' motivation, Mr. Austin
speculated that the use of managed accounts is still hampered by participant
skepticism or about participants' reluctance to trying something that is
relatively new to some plans.
The survey also found that participants tended to stick with managed
accounts over time compared to target-date funds. Among workers who were
enrolled in a managed account in 2007, Alight found that 26% withdrew prior to
2017. During this period, 67% of participants who had been fully invested in
target-date funds were no longer fully invested by 2017. Alight defines a
"fully invested" participant as someone who had 95% of retirement
assets invested in one or more target-date funds at the end of a year.
Mr. Austin hypothesized that as participants grow older, build larger
balances and are affected by more complex financial issues, they may find that
target-date funds no longer fit their needs.
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