Managed accounts substitute for auto-escalation

Ask plan sponsors how to get participants to save more and the same answers keep coming back: automatic enrollment, automatic escalation, encouragement. New Morningstar research adds another one already sitting in many plans — the managed account.

In voluntary enrollment plans, participants who use managed accounts contributed 1.2 to 2.3 percentage points more than non-users across every age group, and they were 3 to 8 percentage points more likely to contribute enough to earn the full employer match, according to the report, first reported by PLANADVISER. For sponsors, that match number may be the more actionable one: match money left on the table is a direct, measurable leak from plan design.

The research, "Decoding Deferral Behavior in Managed Accounts," comes from Morningstar's Spencer Look, associate director of retirement studies, and Jack VanDerhei, director of retirement studies, and extends their earlier work showing managed accounts can encourage saving much the way automatic escalation does. The natural follow-up — whether the contribution lift persists regardless of the plan design around it — gets a qualified yes: the lift holds, but it is smaller where automatic features already do the heavy lifting.

In plans that already pair automatic enrollment with automatic escalation, the contribution gap narrowed, suggesting managed accounts are doing the work those design features would otherwise do; among participants ages 45 through 49 in automatic enrollment plans without auto-escalation, managed-account users had a predicted contribution rate of 10.7%, versus 8% for those without. That is the pattern RCD identified when the research first surfaced: managed accounts matter most where plan design leaves the work.

Look told PLANADVISER that managed-account users are saving at a higher rate when controlling for the factors the researchers can measure, and that one-to-two-point contribution lifts compound into meaningfully larger wealth levels over time; managed accounts, he said, are "clearly something to explore or consider" if improving retirement readiness is the goal. The authors plan additional research to track whether the studied savers sustain the behavior.

For sponsors, the data puts the managed account into the plan design conversation: in voluntary plans and plans without auto-escalation, it is a low-cost contribution-rate lever already on the menu, with no enrollment redesign and no opt-out fight. The catch is causality — Look's caveat that the researchers control only for the factors they can measure leaves room for the possibility that managed-account users are simply different savers. Even so, a sponsor looking to raise contribution rates in a voluntary plan now has a data-backed reason to look at the managed account before reaching for a new enrollment design. The finding also gives advisers a concrete hook for the managed account conversation: plan design as much as portfolio construction.