Author: Paul A. Carl, CHSA, CPFA^™Vice President, Retirement Plan Consulting, Registered Representative

In Retirement Meditation #16, we defined managed models and we concluded with the question – “Does my plan offer managed models?”

This week’s Retirement Meditation asks whether a fiduciary should offer managed models in their participant-directed plan. 

Spoiler alert – It already may offer managed models, whether you realize it or not.

A year ago, we were approached by a retirement plan committee to review their plan and propose our advisory services. The plan had never had an advisor, the committee preferring a bundled-recordkeeper-direct-approach.

Why the change of heart from the committee?

An employee had questioned why she was 100% invested in the plan’s cash equivalent option. The committee investigation revealed that the participant had been using the recordkeeper’s investment management services. The managed model algorithm had effectively placed her into full stability of balance mode because of several important factors including her age, her incredible retirement savings history, and her state of financial retirement preparedness. 

Many recordkeepers offer managed models, or the potential to provide managed models. While this can be a great thing, fiduciaries should be actively aware of the details in and around the managed model program.

Some of the starter questions:

• Is the managed model the QDIA? 
• Is the managed model a backup QDIA, especially for participants who are entering the twilight of their career (translation: those aged 50 and older)? 
• Do participants actively choose a managed account program for themselves?
• Is the managed model portfolio advised by an affiliate of the recordkeeper, by an outside third-party, or by the plan’s advisor?  
• Are there glidepaths associated with the managed model portfolios? If yes, are they the correct glidepaths within DOL guidelines?
• At the individual participant level, who decides which managed model portfolio is best and how is that decision arrived at?
• What is the fee for the managed model and who is paying that fee?

Managed model portfolios are often a welcome addition to a participant-directed retirement plan. Just know that the retirement plan fiduciary should be as keenly aware of the nuances as with all other matters involving the plan.

Which plan participants are using the managed model portfolios your plan is offering?

[I was saddened to learn of the sudden and unexpected passing of Retirement Learning Center’s President and Founder, John Carl, on April 23. While we shared a last name, we could find no commonality except for our passion for retirement savings and education. Rest-in-Peace, John Carl.]
 

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