Managed Accounts in 401(k) Plans: Can the GIPS® Standards help support a plan sponsor’s due diligence process?

In June 2014, the U.S. Government Accountability Office (GAO) issued a letter to the House of Representatives’ Committee on Education and the Workforce regarding the use of managed accounts in 401(k) plans. The letter was based on extensive research conducted to determine how service providers structure managed accounts, the advantages and disadvantages of managed accounts for 401(k) plan participants, and the challenges plan sponsors face in selecting and overseeing managed account providers. A number of issues were noted, including limited fiduciary liability for managers of this service compared to other product offerings, inconsistencies in the fees and service offerings from managed account providers, and a lack of adequate performance and benchmark reporting from managed account providers to plan sponsors.

While regulations regarding fiduciary duty may be beyond the control of plan sponsors, steps should be taken by plan sponsors to conduct due diligence on their managed account providers by comparing their provider’s investment processes, historical performance, and fees charged to other available providers, to ensure their plan’s participants are getting the best service available for the fees charged. Given the issues noted in GAO’s report and the lack of guidance yet to be issued by the DOL, industry best practices for standardizing the reporting of returns-based performance information, such as the Global Investment Performance Standards (GIPS®), should be utilized to help ensure a meaningful comparison between firms is made during the due diligence process.

Please watch our recorded webinar on this important topic to learn more.

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