Nicholas Zaiko, CIMA
Senior Consultant
Bridgebay Financial, Inc.
The decision to use an advice provider or managed account provider
involves fiduciary responsibility in the prudent selection, monitoring,
conflict‐free or level‐fee pricing of the managed account provider. Existing
DOL guidance provides a detailed summary of plan sponsors’ fiduciary
responsibility to evaluate and monitor their managed account provider in
addition to the plan’s investment fund offerings.
Manage Accounts Defined
Managed accounts are a professionally managed account within a defined
contribution plan enables a duly‐appointed investment manager, acting as an
ERISA plan fiduciary, to manage a plan participant’s account on a discretionary
basis. Managed accounts can create broadly diversified portfolios using the
existing investment choices within the plan consistent with the participant’s
risk preference and retirement horizon.
A managed account is an investment management service that has the
ability to manage a participant’s entire plan account taking into consideration
the participant’s unique personal circumstances, including current account
holdings, savings rates and investment holdings outside of the plan account. A
managed account can make use of the existing investment line‐up within the
retirement plan, including company stock, if applicable.
404 (c) Status
The plan sponsor preserves its 404(c) status when hiring a managed
account manager if the Participant exercises control over the plan account consistent with
ERISA section 404(c), with the power to hire and fire the investment manager.
This conclusion is expressly supported in the Department of Labor’s 404(c)
regulations, namely paragraphs (d) (2)(ii) and (iii), entitled “Limitation on
liability of plan fiduciaries.”
A participant who enrolls in a managed account program maintains control
over the account consistent with ERISA section 404(c), with the power to hire
and fire the investment manager.
Plan Sponsor Duty to Monitor
The duty of the plan sponsor with respect to the investment manager per
404(c) regulations is to monitor the investment manager’s performance, all‐in
fees of the program to participants, evaluate the manager on an ongoing basis,
and periodically conduct a review or evaluation as to continue to keep the
investment manager.
Typically, fiduciaries appointing an investment manager should follow a
process that takes into consideration the following:
- Qualifications of the investment manager
- Caliber and quality of the participant services
- Reasonableness of the fees
- Investment manager should acknowledge in writing that it is a plan fiduciary under ERISA and must act in the best interests of plan participants.
Plan sponsors are not directly responsible for the acts and omissions
of the investment manager operating the managed accounts program. However, the
plan sponsor still retains fiduciary responsibility for monitoring the managed
accounts investment manager.
Plan trustees or named fiduciaries who appoint an investment manager
under ERISA section 402(c)(3) are relieved from liability for the acts or
omissions of the investment manager under ERISA sections 405(c) and 405(d)(1).
However, the plan sponsor still retains fiduciary responsibility for monitoring
the managed accounts investment manager. An annual review of the investment
manager and performance results is best practices.
Managed Account Fees
Managed accounts are typically charged an asset‐based fee with price
point reductions at participant asset and/or plan enrollment tiers. Fees are
typically deducted monthly or quarterly, in arrears, from the account of the
plan participant enrolled in a managed accounts program.
