Litigation Update: Targeting Managed Account Services

An ERISA lawsuit has been filed against Bechtel, a large engineering company, naming Bechtel’s board and retirement committee as defendants. The suit alleges that participants were harmed when Bechtel defaulted participants into a managed account service, which resulted in increased costs and the inability to deliver any benefit.

Managed accounts are becoming more popular as an option for retirement plan participants. These accounts seek to utilize data points such as current savings, risk tolerance, and expected retirement date to develop a more personalized investment strategy. There is typically an additional cost for participants utilizing the service. Many plans provide access to managed accounts, and participants may choose to utilize the service. In this case, plaintiffs allege that Bechtel used managed accounts as the default investment alternative, meaning defaulted participants did not elect to use the service or pay the additional fee.

The plaintiffs will argue that defaulters are less engaged participants in their investments and will not provide additional data points needed to customize their portfolio. Without the additional data points, a managed account is essentially a target date fund, utilizing years to retirement to develop the asset allocation recommendation. As a result, the investment returns from the higher-cost managed account are no different from low-cost target date funds and, therefore, inappropriate to be used as the default option.

Plan sponsors and committees need to carefully review managed accounts before adding them to their plan. To learn more about the pros and cons of adopting managed accounts and practice pointers for adopting and monitoring these services, please see our fiduciary training piece on this topic.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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