Active management's DC case now runs through the shelf

For the better part of a decade, the active-versus-passive argument inside 401(k) plans has been settled on price, with the burden of proof on anyone who wanted a plan to pay more for a stock picker. Jeri Savage, lead retirement strategist at MFS Investment Management, wants that argument moved onto market structure. In an executive Q&A published Sept. 21 by 401(k) Specialist as part of its Q3 deep dive on active management in uncertain markets, her read of 2026 is that the year has on balance strengthened the case for active management even as she allows that near-term results have been challenging.

The evidence she marshals is concentration: a small number of companies accounts for a disproportionate share of index weight and index return, and that narrow leadership makes capitalization-weighted benchmarks difficult to beat in the short run, particularly for managers who hold valuation discipline and keep broader diversification. Her twist is that the same fact argues against complacency about the passive default: what gets described as owning the market now amounts to owning a concentrated position in the consensus, a thinner form of diversification than most participants assume.

When a benchmark's return is carried by a handful of names, a manager who does not own them at benchmark weight trails, and the trailing can have little to do with the quality of the research underneath—a genuine problem for active equity that eases only if leadership broadens, which is the hinge the whole argument swings on.

For the advisers who staff those committees, the diagnostic value sits in the same place: if an index's return is concentrated, the plan's passive holdings carry equity risk the sponsor did not explicitly choose, and a documented discussion of that exposure is easier to place in a file than a debate about manager skill.

The backdrop Savage sketches differs from the one that flattered passive: low rates, low inflation and a handful of mega-capitalization growth names did most of the work through the last decade, while she points instead to higher and more volatile rates and inflation, greater geopolitical instability, supply chain shifts, energy transition costs and disruption from artificial intelligence. If market leadership broadens as dispersion rises, her argument goes, managers able to separate durable fundamentals from optimism-dependent valuations should have more room to distinguish themselves, though the published portion of the Q&A does not carry her answer on which parts of a lineup active most usefully complements—the part a fiduciary would need in order to act.

That the case arrives from an active manager is worth naming without treating it as a scandal: MFS manages active strategies, and a strategist employed by one will find concentration arguments congenial; the same memo from a passive-only shop would be the surprise. What matters to a plan sponsor is which decision point the argument can actually reach.

Collective investment trusts now hold 55% of the $5.3 trillion target-date market, and the shelf decisions recordkeepers make—what appears on the menu, what sits inside the default—move more money than any manager's brand. A dispersion argument is aimed at an investment committee, but the committee rarely chooses a glidepath from scratch; it ratifies a shortlist, and Savage's case, however well built, has to clear that shortlist and a due-diligence file before it changes a single participant's exposure.

The active managers who take share in DC over the next few years will be the ones already inside the default. Concentration gives an active manager a better story to tell than it did in 2015, and a better story does not put a sleeve on a menu; the fight over in-plan income features and glidepath construction is being argued at the shelf, where the franchise that owns the default sets the terms and the recordkeeper holding the default determines which active sleeve a participant never has to think about.

For fiduciaries, the operative question is narrower than the one the Q&A poses. Nobody needs another decade of evidence that active can trail a hot index; what a committee needs is a defensible answer on where in the lineup active exposure changes outcomes enough to justify the fee, and how the plan would know if it stopped working. There is a version of Savage's argument that holds up on that ground: in the standalone options participants choose deliberately, and in stretches of the market where an index is a weak proxy for the opportunity set, an active sleeve has a case that does not depend on a macro forecast.

MFS arrives at this argument with $514.1 billion in registered assets as of Sept. 19, scale enough to keep the firm on the shortlists such an argument is aimed at. Her thesis turns on one thing—leadership broadening—and if it does, the managers who collect will be the ones already inside the defaults, because that is where $5.3 trillion gets allocated.