401(K) Plans: Improvements Can Be Made to Better Protect Participants in Managed Accounts
Published: 2014-06-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 401(k) plan sponsors have increasingly offered participants managed accounts— services under which providers manage participants' 401(k) savings over time by making investment and portfolio decisions for them. These services differ from investment options offered within 401(k) plans. Because little is known about whether managed accounts are advantageous for participants and whether sponsors understand their own role and potential risks, GAO was asked to review these services.
GAO examined (1) how providers structure managed accounts, (2) their advantages and disadvantages for participants, and (3) challenges sponsors face in selecting and overseeing providers. In conducting this work, GAO reviewed relevant federal laws and regulations and surveyed plan sponsors. GAO interviewed government officials, industry representatives, other service providers, and 12 plan sponsors of varying sizes and other characteristics. GAO also conducted case studies of eight managed account providers with varying characteristics by, in part, reviewing required government filings.
section_title: What GAO Found
paragraphs: GAO's review of eight managed account providers who, in 2013, represented an estimated 95 percent of the industry involved in defined contribution plans, showed that they varied in how they structured managed accounts, including the services they offered and their reported fiduciary roles. Providers used varying strategies to manage participants' accounts and incorporated varying types and amounts of participant information. In addition, GAO found some variation in how providers reported their fiduciary roles. One of the eight providers GAO reviewed had a different fiduciary role than the other seven providers, which could ultimately provide less liability protection for sponsors for the consequences of the provider's choices. The Department of Labor (DOL) requires managed account providers who offer services to defaulted participants to generally have the type of fiduciary role that provides certain levels of fiduciary protection for sponsors and assurances to participants of the provider's qualifications. DOL does not have a similar explicit requirement for providers who offer services to participants on an opt-in basis. Absent explicit requirements from DOL, some providers may actively choose to structure their services to limit the fiduciary liability protection they offer.
According to providers and sponsors, participants in managed accounts receive improved diversification and experience higher savings rates compared to those not enrolled in the service; however, these advantages can be offset by paying additional fees over time. Providers charge additional fees for managed accounts that range from $8 to $100 on every $10,000 in a participant's account. As a result, some participants pay a low fee each year while others pay a comparatively large fee on their account balance. Using the limited fee and performance data available, GAO found that the potential long-term effect of managed accounts could vary significantly, sometimes resulting in managed account participants paying substantial additional fees and experiencing lower account balances over time compared to other managed account participants. Further, participants generally do not receive performance and benchmarking information for their managed accounts. Without this information, participants cannot accurately evaluate the service and make effective decisions about their retirement investments. Even though DOL has required disclosure of similar information for 401(k) plan investments, it generally does not require sponsors to provide this type of information for managed accounts.
Sponsors are challenged by insufficient guidance and inconsistent performance information when selecting and overseeing managed account providers. DOL has not issued guidance specific to managed accounts on how sponsors should select and oversee providers, as it has done for other funds. GAO found that the absence of guidance for managed accounts has led to inconsistency in sponsors' procedures for selecting and overseeing providers. Without better guidance, plan sponsors may be unable to select a provider who offers an effective service for a reasonable fee. In addition, DOL generally does not require providers to furnish sponsors with performance and benchmarking information for managed accounts, as it does for investments available in a plan, although some providers do furnish similar information. Without this information, sponsors cannot effectively compare providers when making a selection or determine whether managed accounts are positively affecting participants' retirement savings.
section_title: What GAO Recommends
paragraphs: Among other things, GAO recommends that DOL consider provider fiduciary roles, require disclosure of performance and benchmarking information to plan sponsors and participants, and provide guidance to help sponsors better select and oversee managed account providers. In response, DOL agreed with GAO's recommendations and will consider changes to regulations and guidance to address any issues.

section_title: Letter
paragraphs: Many 401(k) plan participants lack the knowledge, interest, or time to  manage their retirement accounts. In response, plan sponsors have  increasingly offered managed account services to their participants. In  managed accounts, service providers make investment and portfolio  decisions for participants in employer-sponsored 401(k) plans. Managed  accounts typically provide customized investment management of  participants’ 401(k) accounts as they accumulate, and sometimes as they  spend down, their retirement savings. Similar investment arrangements  have been offered to retail investors since the 1970s, but managed  accounts have gained popularity in 401(k) plans in part due to regulations  issued by the Department of Labor (DOL) in 2007 providing that certain  managed accounts could be used as “qualified default investment  alternatives” in 401(k) plans. We estimate that the total amount of defined  contribution plan assets in managed accounts exceeded $100 billion at  the end of 2012. Demand for managed accounts may continue to grow,  as these services may be attractive to the many 401(k) plan participants  who may lack the knowledge or initiative to make prudent choices about  how much to contribute and how to direct their assets among investment  options in their plan. However, the increasing trend to offer managed  accounts in 401(k) plans has raised some concerns about whether such  services are advantageous for participants in terms of service and cost  and whether sponsors understand their role in overseeing the use of  managed accounts. In light of these concerns, you asked us to examine  managed accounts in 401(k) plans.
In conducting this work, we answered the following questions:  1)  How do service providers structure managed accounts?  2)  What are the advantages and disadvantages of managed  accounts for 401(k) plan participants?  3)  What challenges, if any, do plan sponsors face in selecting and  overseeing managed account providers?
To answer these questions, we reviewed relevant research and federal  laws, regulations, and guidance on managed accounts in 401(k) plans.  To examine the key issues related to managed accounts in 401(k) plans  and gather data about their prevalence and performance, we conducted  in-depth case studies of eight selected managed account providers that,  according to our estimates, represented over 95 percent of the managed  account industry in defined contribution plans, as measured by assets  under management in 2013. We selected providers based on their size,  location, and legal and fee structures. We also interviewed industry  representatives—including academics, industry research firms, and  participant advocacy groups—and government officials, including officials  from DOL’s Employee Benefits Security Administration (EBSA). To gain  additional information on the structure of managed accounts in 401(k)  plans and the role of service providers, we reviewed Securities and  Exchange Commission (SEC) filings for the eight managed account  providers in our case studies and 22 other providers we identified during  the course of our work. As part of our case studies, we reviewed available  documentation on the structure of managed accounts. To further  understand the different methodologies and structures of managed  accounts, we developed and submitted participant scenarios to the eight  providers and asked them to provide hypothetical asset allocations for  those participants, which seven of them completed and returned to us. To  identify the advantages and disadvantages of managed accounts for  401(k) plan participants and any challenges sponsors face in selecting  and overseeing managed account providers, we reviewed relevant  documentation such as quarterly managed account reports to plan  sponsors and conducted semi-structured interviews with 12 plan  sponsors. To identify sponsors for interviews, we conducted a non- generalizable survey facilitated through PLANSPONSOR. Based on their  responses to the survey, we selected sponsors with a variety of  characteristics, such as plan size and managed account provider.  Further, we used publicly available data to develop illustrations of how  various factors may affect the outcomes of participants in managed  accounts. To assess the reliability of these data, we considered the  reliability and familiarity of the source of the data or information and, when  necessary, interviewed representatives of those sources about their  methods, internal controls, and results. We found these data sufficiently  reliable for our purposes. For more information on the data and other  methodologies we used see appendix I.
We conducted this performance audit from October 2012 to June 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Managed Accounts in Other Workplace  Defined Contribution Plans and Individual  Retirement Accounts (IRAs)  As managed accounts have gained popularity  in 401(k) plans, there are indications that they  may also be gaining popularity in government  and non-profit workplace retirement savings  plans, commonly referred to as 457 or 403(b)  plans. Many of the providers we spoke to that  offer managed accounts to 401(k) plans also  offer services to other plans like these. In  addition, some providers are starting to offer  managed accounts in IRAs, and in particular  rollover IRAs—when participants separate  from their employer they may decide to roll  their funds into an IRA. One of these  providers noted that it is easier to engage  participants who use managed accounts  through products such as IRAs, and there is  more flexibility with investment options, even  though the provider’s marketing costs may be  higher.
Under Title I of the Employee Retirement Income Security Act of 1974  (ERISA), as amended, employers are permitted to sponsor defined  contribution plans in which an employee’s retirement savings are based  on contributions and the performance of the investments in individual  accounts. Typically, 401(k) plans—the predominant type of defined  contribution plan in the United States—allow employees who participate  in the plan to specify the size of their contributions and direct their assets  to one or more investments among the options offered within the plan.  Investment options generally include mutual funds, stable value funds,  company stock, and money market funds. To help participants make  optimal investment choices, an increasing number of plans are offering  professionally managed allocations—including managed accounts—in  their 401(k) plan lineups.
Managed accounts are investment services under which providers make  investment decisions for specific participants to allocate their retirement  savings among a mix of assets they have determined to be appropriate  for the participant based on their personal information. As shown in   figure 1, managed accounts were first offered to 401(k) plans around  1990, but most providers did not start offering them until after 2000.
Managed accounts differ from other professionally managed allocations,  such as target date funds and balanced funds, in several key ways.  Target date funds (also known as life cycle funds) are products that  determine an asset allocation that would be appropriate for a participant  of a certain age or retirement date and adjust that allocation so it  becomes more conservative as the fund approaches its intended target  date. Target date funds do not place participants into an asset  allocation; instead, participants generally self-select into a target date  fund they feel is appropriate for them based on the fund’s predetermined  glide path that governs asset allocation. Balanced funds are products that  generally invest in a fixed mix of assets (e.g., 60 percent equity and 40  percent fixed income assets). While target date funds manage the fund to  reach a target date, managed accounts may consider other, more  personalized factors such as a participant’s stated risk tolerance, even  though they are not required to do so. As shown in figure 2, managed  accounts may offer higher levels of personalization than other types of  professionally managed allocations.
Managed accounts are generally considered to be an investment  service—not one of the plan’s investment options—while target date  funds are considered to be investment options. In the latter, participants  can invest all or a portion of their 401(k) plan contributions in a target date  fund, but generally cannot directly invest in a managed account. Instead,  the role of the participant is to enroll in the managed account service, or  be defaulted into it, generally relinquishing their ability to make investment  decisions unless they disenroll from, or opt out of, the managed account.  As shown in figure 3, managed account providers decide how to invest  contributions, generally among the investment options available in a  401(k) plan, and then manage these investments over time to help  participants reach their retirement savings goals. By comparison,  participants not enrolled in a managed account have to make their own  decisions about how to invest their 401(k) plan contributions.
subsections: section_title: DOL Oversight
paragraphs: DOL’s Employee Benefits Security Administration (EBSA) is the primary  agency through which Title I of ERISA is enforced to protect private  pension plan participants and beneficiaries from the misuse or theft of  their pension assets. To carry out its responsibilities, EBSA issues  regulations and guidance; investigates plan sponsors, fiduciaries, and  service providers; seeks appropriate remedies to correct violations of the  law; and pursues litigation when it deems necessary. As part of its  mission, DOL is also responsible for assisting and educating plan  sponsors to help ensure the retirement security of workers and their  families.
subsections: section_title: Managed Accounts as Qualified Default Investment Alternatives and Opt-in Services
paragraphs: In 2007, DOL designated certain managed accounts as one type of  investment that may be eligible as a qualified default investment  alternative (QDIA) into which 401(k) plan fiduciaries may default  participants who do not provide investment directions with respect to their  plan contributions. DOL designated three categories of investments that  may be eligible as QDIAs if all requirements of the QDIA regulation have  been satisfied—these categories generally include: (1) an investment  product or model portfolio that is designed to become more conservative  as the participant’s age increases (e.g., a target date or lifecycle fund); (2)  an investment product or model portfolio that is designed with a mix of  equity and fixed income exposures appropriate for the participants of the  plan as a whole (e.g., a balanced fund); and (3) an investment  management service that uses investment alternatives available in the  plan and is designed to become more conservative as the participant’s  age increases (e.g., a managed account). DOL regulations indicate that  plan fiduciaries who comply with the QDIA regulation will not be liable for  any loss to participants that occurs as a result of the investment of their  assets in a QDIA, including investments made through managed account  arrangements that satisfy the conditions of the QDIA regulation.  However, plan fiduciaries remain responsible for the prudent selection  and monitoring of any QDIA offered by the plan. To obtain relief, plan  fiduciaries must provide participants with advance notice of the  circumstances under which plan contributions or other assets will be  invested on their behalf in a QDIA; a description of the QDIA’s investment  objectives, risk and return characteristics, and fees and expenses; and  the right of participants to opt out of the QDIA, among other things. A  2012 survey of defined contribution plan sponsors by PLANSPONSOR  indicated that managed accounts were used as a QDIA less than 5  percent of the time.
Managed accounts are also offered as opt-in services by over 30 percent  of defined contribution plan sponsors. Managed accounts can be offered  as both QDIA and opt-in services, allowing the plan sponsor to choose  which services to offer their participants. Plan fiduciaries who offer  managed account services only to participants who affirmatively elect to  use the service (i.e., on an opt-in basis), rather than by default, are not  required to comply with the QDIA regulation, although such fiduciaries still  are subject to the general fiduciary obligations under ERISA with respect  to the selection and monitoring of a managed account service for their  plan.
section_title: Disclosure Regulations
paragraphs: Plan sponsors, including those who offer managed account services in  their 401(k) plans, are required to issue a variety of informational  disclosures and notices to plan participants and beneficiaries at  enrollment, on a quarterly and annual basis, and when certain triggering  events occur. These disclosures—often referred to as participant-level  disclosures—when made in accordance with regulatory requirements,  help ensure that plan participants have access to the information they  need to make informed decisions about their retirement investments. In  addition, when a plan sponsor chooses to default participants into  managed accounts as a QDIA, the sponsor must inform participants of  this decision annually through a number of specific disclosures, based on  the plan’s design. The QDIA disclosures, when made in accordance with  regulatory requirements, provide relief from certain fiduciary  responsibilities for sponsors of 401(k) plans.
Service providers that provide managed account services to a plan may  be required to provide certain disclosures about the compensation they  will receive to plan sponsors offering a managed account service under  different DOL disclosure requirements. These disclosures—often referred  to as service provider disclosures—are intended to provide information  sufficient for sponsors to make informed decisions when selecting and  monitoring service providers for their plans. DOL’s final rule on these  disclosures requires service providers to furnish sponsors with  information to help them assess the reasonableness of total  compensation paid to providers, to identify potential conflicts of interest,  and to satisfy other reporting and disclosure requirements under Title I of  ERISA, including the regulation governing sponsor’s disclosure to  participants.
section_title: Roles and Fiduciary Obligations Under ERISA
paragraphs: Managed account provider roles may differ from those of other plan  service providers. As shown in figure 4, when a plan sponsor decides to  offer participants a managed account service, other entities may  contribute to its implementation and operation.
Some record keepers and intermediary service providers refer to  themselves as “managed account providers” because they make this  service available to participants, but they do not ultimately decide how to  invest participant contributions. Similarly, even though target date fund  managers or collective investment trust managers may select an overall  asset allocation strategy and investments to fit that strategy for the funds  they offer to 401(k) plan participants, these managers also do not  ultimately decide how to invest participant accounts.
Plan sponsors are typically the named fiduciaries of the plan. Managed  account providers and record keepers may also be fiduciaries, depending  on their roles and the services they provide. Fiduciaries are required to  carry out their responsibilities prudently and solely in the interest of the  plan’s participants and beneficiaries. Plan service providers that have  investment discretion or provide investment advice about how to invest  participant accounts generally may be “3(38) Investment Manager”  fiduciaries or “3(21) Investment Adviser” fiduciaries. A 3(38) Investment  Manager fiduciary can only be a bank, an insurance company, or a  Registered Investment Adviser (RIA). Under ERISA, 3(38) Investment  Manager fiduciaries have the power to manage, acquire, or dispose of  plan assets, and they acknowledge, in writing, that they are a fiduciary  with respect to the plan. In contrast, a 3(21) Investment Adviser fiduciary  usually does not have authority to manage, acquire, or dispose of plan  assets, but is still a fiduciary because its investment recommendations  may exercise some level of influence and control over the investments  made by the plan. When managed account services are offered as  QDIAs, the managed account provider is generally required to be a 3(38)  Investment Manager fiduciary. There is no similar explicit requirement for  managed account providers whose services are offered within a plan on  an opt-in basis.
section_title: Providers Structure Managed Accounts Differently, which Can Harm Participants
subsections: section_title: Managed Account Providers Vary Their Services
paragraphs: Managed account providers vary how they provide services, even though  they generally offer the same basic service—initial and ongoing  investment management of a 401(k) plan participant’s account based on  generally accepted industry methods. The eight providers in our case  studies use different investment options, employ varying strategies to  develop and adjust asset allocations for participants, incorporate varying  types and amounts of participant information, and rebalance participant  accounts at different intervals. As a result, participants with similar  characteristics in different plans may have differing experiences.
subsections: section_title: Investment Options
paragraphs: To develop participant asset allocations, most of the eight providers in our  case studies use the investment options chosen by the plan sponsor. By  contrast, other providers require plan sponsors that want to offer their  managed account to accept a preselected list of investment options from  which the provider will determine participant asset allocations, including  exchange traded funds or asset classes not typically found in 401(k)  plan lineups, such as commodities. Because they are atypical investment  options, participants who do not sign up for managed accounts may not  be able to access them. Compared to typical 401(k) plan investment  options, these atypical investment options may provide broader exposure  to certain markets and opportunities to diversify participant retirement  assets.
section_title: Asset Allocation Strategies
paragraphs: The eight managed account providers in our case studies generally  reported making asset allocation decisions based on modern portfolio  theory, which sets a goal of taking enough risk so that participants’ 401(k)  account balances may earn large enough returns over time to meet their  retirement savings goals, but not so much that their balances could earn  lower or even negative returns. Managed account providers generally  help participants by constructing portfolios that attempt to provide  maximum expected returns with a given level of risk, but their strategies  can range from formal to informal. The formal way of determining this  type of portfolio is called “mean-variance optimization” (MVO), under  which providers plot risk and return characteristics of all combinations of  investment options in the plan and choose the portfolio that maximizes  expected return for a given level of risk. There are a number of specific  techniques that managed account providers can apply to improve the  quality and sophistication of asset allocations, including Monte Carlo  simulation. However, some providers incorporated less formal ways of  achieving a diversified portfolio, such as active management and  experience-based methods. The eight providers in our case studies use  varying strategies and participant goals to develop and adjust asset  allocations for participants, as shown in table 1. As a result, participants  with similar characteristics may end up with different asset allocations.
Providers’ use of different asset allocation strategies leads to variation in  the asset allocations participants actually experience. As shown in figure  5, four of the eight providers in our case studies vary in their  recommendations of specific investment options for a 30-year old  participant.
The type and amount of information providers use can also affect the way  participant account balances are allocated. For example, two of the eight  providers in our case studies only offer a customized service—allocating  a participant’s account based solely on age or other factors that can be  easily obtained from the plan’s record keeper, such as gender, income,  current account balance, and current savings rate. The other six providers  also offer a personalized service that takes into account additional  personal information to inform asset allocations, such as risk tolerance or  spousal assets. Providers that offer a personalized service reported that  personalization could lead to better asset allocation for participants, but  they also reported that generally fewer than one-third, and sometimes  fewer than 15 percent, of participants furnish this personalized  information. As a result, some industry representatives felt that  participants may not be getting the full value of the service for which they  are paying. For example, participants who are defaulted into managed  accounts that offer a highly personalized service run the risk of paying for  services they are not using if they are disengaged from their retirement  investments. As shown in table 2, we found that among five of the seven  providers that furnished asset allocations for our hypothetical scenarios,  there was little relationship between the level of personalization and the  fee they charged to participants for the managed account service.
Some managed account providers’ services may become more beneficial  as participants age or as their situations become more complex because  personalization seeks to create a tailored asset allocation for each  participant. Such an individualized approach could even mean that older  participants who are close to retirement and very young participants just  starting their careers could be placed in equally risky allocations based on  their personalized circumstances. However, industry representatives told  us that participants who never supply additional, personalized information  to managed account providers may be allocated similarly over time to  those participants in target date funds.
section_title: Rebalancing Approaches and Time Frames
paragraphs: Providers differ in their approaches and time frames for rebalancing  participant managed accounts—adjusting participant accounts to reflect  any changes to their asset allocation strategies based on changing  market conditions and participant information. Seven of the eight  providers in our case studies use a “glide path” approach to  systematically reduce participant risk over time but one does not set  predetermined glide paths for participants. Similarly, two of the eight  providers in our case studies rebalance participant accounts annually,  while the other providers generally review and rebalance participant  accounts at least quarterly. Despite these differences in approaches and  timeframes, our analysis of provider hypothetical asset allocations  indicated that providers generally allocated less to equity assets and  more to fixed income or cash-like assets for the older hypothetical  participants than for the younger hypothetical participant.
section_title: Providers Vary Their Fiduciary Roles and Some May Offer Less Liability Protection for Sponsors
paragraphs: Some managed account providers in our case studies offer their services  under “direct” arrangements in which the plan sponsor directly contracts  with a provider to offer these services, as shown in figure 6. According  to the providers we spoke with, managed account providers in this type of  arrangement are generally fiduciaries, but record keepers may not be  fiduciaries with respect to the managed account service, as their role  consists primarily of providing information to the managed account  provider and implementing asset allocation changes to participant  accounts.
By contrast, some managed account providers use “subadvised”  arrangements to offer their services. According to the providers we spoke  to, in these arrangements, the plan sponsor does not directly contract  with the managed account provider, and the plan’s record keeper, or an  affiliate, may take on some fiduciary responsibility with respect to the  managed account, as shown in figure 7. The record keeper may fulfill  some of the responsibilities the managed account provider would have in  a direct arrangement. These responsibilities may include providing  periodic rebalancing based on the provider’s strategy, marketing  managed account services, or offering other ongoing support for  participants.
All of the eight managed account providers in our case studies told us  that they take on some level of fiduciary responsibility—regardless of  whether their services are offered as QDIAs or on an opt-in basis—so  they each offer some protections to sponsors and participants in  managed accounts. Seven of the providers in our case studies told us  that they willingly accept 3(38) Investment Manager fiduciary status for  discretionary management over participant accounts, but one of the  eight providers in our case studies noted that it never accepts 3(38)  Investment Manager fiduciary status because it only has discretion over  participants’ accounts once a year. This provider told us that it is only a  3(21) Investment Adviser fiduciary even though its managed account  service is similar to that of the other providers in our case studies. Under  ERISA, 3(21) Investment Adviser fiduciaries usually do not have authority  over plan assets, but they may influence the operation of the plan by  providing advice to sponsors and participants for a fee. As such, they  are generally liable for the consequences when their advice is imprudent  or disloyal. In contrast, a 3(38) Investment Manager fiduciary has  authority to manage plan assets at their discretion and with prudent  judgment, and is also liable for the consequences of imprudent or disloyal  decisions. Because 3(38) Investment Manager fiduciaries have explicit  discretionary authority and must have the qualifications of a bank,  insurance company, or RIA, sponsors who use 3(38) Investment  Manager fiduciaries may receive a broader level of liability protection from  those providers as opposed to providers who offer managed account  services as 3(21) Investment Adviser fiduciaries. In addition, when a  3(38) Investment Manager fiduciary is used, participants may have a  broader level of assurance that they are receiving services from a  qualified manager in light of the requirements related to qualifications of  such fiduciaries.
As noted previously, when managed account services are offered as  QDIAs, DOL requires the managed account provider to generally be a  3(38) Investment Manager fiduciary, but DOL has no similar explicit  requirement for managed account providers whose services are offered  on an opt-in basis. Absent explicit requirements or additional guidance  from DOL, some managed account providers may choose to structure the  services they provide to limit their fiduciary liability, which could ultimately  provide less liability protection for sponsors for the consequences of  provider investment management choices. Given the current lack of  direction or guidance about appropriate fiduciary roles for providers that  offer managed accounts on an opt-in basis, sponsors may not be aware  of this potential concern. Industry representatives we spoke with  expressed concern about managed account providers who do not accept  full responsibility with respect to managed account services by  acknowledging their role as a 3(38) Investment Manager fiduciary. Other  representatives also noted that it was important for sponsors to  understand providers’ fiduciary responsibilities given the important  differences between 3(21) Investment Adviser and 3(38) Investment  Manager fiduciaries with respect to the nature of liability protection they  may provide for sponsors and the services they may provide for both  sponsors and participants.
section_title: Some Providers Offer Additional Services That Could Lead to Conflicts of Interest, which DOL Has Not Addressed
paragraphs: Managed account providers may offer potentially valuable additional  services to participants in or near retirement regarding how to spend  down their accumulated retirement savings, but these services could lead  to potential conflicts of interest. Most of the providers in our case studies  allow participants to continue receiving account management services  when they retire as long as they leave all or a portion of their retirement  savings in the 401(k) plan. Some of those providers also provide  potentially useful additional services to participants in or near retirement  and do not typically charge additional fees for doing so. These services  may include helping participants review the tax consequences of  withdrawals from their 401(k) account and advising them about when and  how to claim Social Security retirement benefits. However, these  providers may have a financial disincentive to recommend an out-of-plan  option, such as an annuity or rollover to other plans or IRAs, because it is  advantageous for them to have participants’ continued enrollment in their  managed account service offered through a 401(k) plan.
Providers have developed ways to mitigate some of this potential conflict  of interest by, for example, offering advice on alternate sources of income  in retirement such as TIPS. Regardless, representatives from a  participant advocacy group noted that managed account providers should  have little involvement in a participant’s decision about whether to stay in  the managed account. As part of its responsibilities to protect plan  participants under ERISA, DOL has not specifically addressed whether  conflicts of interest may exist with respect to managed accounts offering  additional services to participants in or near retirement. As a result,  participants can be easily persuaded to stay in the managed account  given the additional services offered to them by managed account  providers. Additionally, the ease that these services offer could  discourage managed account participants from fully considering other  options, which can ultimately put them at risk of making suboptimal  spend-down decisions.
section_title: Managed Accounts Offer Advantages for Some Participants, But Fees and Lack of Standardized Reporting Requirements from DOL Can Offset These Advantages
subsections: section_title: Various Industry Representatives Report that Managed Accounts Can Provide a Number of Advantages for Participants
subsections: section_title: Increase Diversification
paragraphs: Some managed account providers and plan sponsors have said that  increased diversification of retirement portfolios is the main advantage of  the managed account service for 401(k) plan participants. Increased  diversification for participants enrolled in a managed account can result in  better risk management and increased retirement income compared to  those who self-direct their 401(k) investments. For example, one  provider’s study of managed account performance found that the  portfolios of all managed account participants were believed to have been  appropriately allocated, but that 43 percent of those who self-directed  their 401(k) investments had equity allocations that were believed to be  inappropriate for their age, and nearly half of these participants’ portfolios  were improperly diversified. The advantages of a diversified portfolio  include reducing a participant’s risk of loss, reducing volatility within the  participant’s account, and generating long-term positive retirement  outcomes.
Another reported advantage of managed accounts is that they help to  moderate volatility in 401(k) account performance, compared to accounts  of those who self-direct their 401(k) investments. For example, in two  recent reports on managed account performance, one record keeper  concluded that the expanded use of professionally managed allocations,  including managed accounts, is contributing to a reduction in extreme risk  and return outcomes for participants, and is also gradually mitigating  concerns about the quality of portfolio decision-making within defined  contribution plans. Managed account providers in our eight case studies  also claim that the increased personalization and more frequent  rebalancing of managed accounts create an appropriately diversified  portfolio that better meets a participant’s retirement goals than target date  funds or balanced funds. According to these providers, periodic  rebalancing combats participant inertia, one of the main problems with a  self-directed 401(k) account, and the failure to update investment  strategies when financial circumstances change over time.
section_title: Encourage Larger Contributions
paragraphs: Several managed account providers told us that another advantage of  managed accounts is the tendency for participants to save more for  retirement compared to those who are not enrolled in the service. For  example, in a study of managed accounts, a provider reported that  participants in plans for which this provider offers the service contributed  $2,070 more on average in 2012 than participants who self-directed  investments in their 401(k) accounts (1.9 percent of salary more in  contributions on average than participants who self-direct 401(k)  investments). This provider noted that managed account participants  are better at taking advantage of their plan’s matching contribution than  participants who self-direct their 401(k) investments. For example, they  found that 69 percent of managed account participants contributed at  least to the level of the maximum employer matching contribution, while  only 62 percent of participants who self-directed investments contributed  to this level. This provider said that communication with managed account  participants can lead to increased savings rates when they are  encouraged to increase savings rates by at least 2 percentage points and  to save at least to the point where they receive the full employer match, if  such a match exists. Another service provider told us that it offers an  online calculator that managed account participants can use to  understand their retirement readiness. The provider also said that  participants who use the calculator can see how increased savings can  lead to improved retirement outcomes and will often increase their  savings rate into their managed account.
section_title: Improve Access to Retirement Planning Information
paragraphs: Retirement readiness statements received by participants who are  enrolled in a managed account are another reported advantage of the  service. Participants generally receive retirement readiness statements  that can help them assess whether they are on track to reach their  retirement goals, and the statements generally contain information about  their retirement investments, savings rate, asset allocations, and  projected retirement income. These statements help participants  understand the likelihood of reaching their retirement goals given their  current investment strategy and whether they should consider increasing  their savings rates or changing risk tolerances for their investments. In  some cases, these statements may provide participants with their first  look in one document at the overall progress they are making toward their  retirement goals. As shown in table 3, our review of three providers’  statements shows that they use different metrics on participant readiness  statements to evaluate participants’ retirement prospects. For example,  each statement provided participants with information on their retirement  goals and risk tolerance, and a projection of their future retirement income  to demonstrate the value of the service.
Similar advantages, however, can be achieved through other retirement  investment vehicles outside of a managed account and without paying the  additional managed account fee. For example, in one recent study, a  record keeper that offers managed accounts through its platform showed  that there are other ways to diversify using professionally managed  allocations, such as target date funds, which can be less costly.  Although managed account providers may encourage participants to save  more and review their progress towards achieving a secure retirement,  participants still have to pay attention to these features of the managed  account for it to provide value. Even if 401(k) plan participants are not in  managed accounts, we found that in some instances they can still receive  advice and education from a provider in the form of retirement readiness  statements.
section_title: Fees for Managed Accounts Can Be a Disadvantage for Participants
paragraphs: The additional fee a participant generally pays for a managed account  was the primary disadvantage mentioned by many industry  representatives, plan sponsors, and participant advocates. Because of  these additional fees, 401(k) plan participants who do not receive higher  investment returns from the managed account services risk losing money  over time. Some managed account providers and record keepers have  reported that managed account participants earn higher returns than  participants who self-direct their 401(k) plan investments, which may help  participants offset the additional fee charged. For example, one provider  told us that participants enrolled in managed accounts saw about 1.82  percentage points better performance per year, net of fees, compared to  participants without managed accounts. Given these higher returns, this  provider projects that a 25-year-old enrolled in its managed account could  potentially see up to 35 percent more income at retirement than a  participant not enrolled in the service, according to this provider’s  calculations. Another provider reported that the portfolios of participants  who were defaulted into managed accounts were projected to receive  returns of nearly 1 percentage point more annually, net of fees, after the  provider made allocation changes to the participants’ portfolios.
However, the higher rates of return projected by managed account  providers may not always be achievable. For instance, we found limited  data from one record keeper that published returns for managed account  participants that were generally less than or equal to the returns of other  professionally managed allocations (a single target date fund or balanced  fund) as shown in figure 8.
We used these and other returns data published by this record keeper to  illustrate the potential effect over 20 years of different rates of return on  participant account balances. On the lower end, this record keeper  reported that, over a recent 5-year period, 25 percent of its participants  earned annualized returns of -0.1 percent or less, not even making up the  cost of the additional fee for the service. On the higher end, the record  keeper reported that, over a slightly different 5-year period, 25 percent of  its participants earned annualized returns of 2.4 percent or higher for the  service. These actual returns illustrate the substantial degree to which  returns can vary. If such a 2.5 percentage point difference (between these  higher and lower reported managed account rates of return of 2.4 percent  and -0.1 percent, respectively) were to persist over 20 years, a participant  earning the higher managed account rate of return could have nearly 26  percent more in their ending account balance at the end of 20 years than  a participant earning the lower rate of return in their managed account.  As shown in Figure 9, using these actual rates of return experienced by  participants in managed accounts, such a variation in rates of return can  substantially affect participant account balances over 20 years.
Further, this record keeper’s published data on managed account rates of  return were net of fees—rates of return would be higher if participants did  not pay the additional fee for the service. For example, using this record  keeper’s average fee rate in our analysis, we estimate that a  hypothetical managed account participant who earned a higher rate of  return of 2.4 percent will pay $8,400 more in additional fees over 20 years  than a participant who self-directs investments in their 401(k) account and  does not pay the additional fee. To illustrate the potential effect that fees  could have on a hypothetical participant’s account balance over 20 years,  we used a higher fee of 1 percent reported to us by one provider to  estimate that a participant would pay $14,000 in additional fees compared  to a participant who self-directs investments in their 401(k) account over  the same period. However, based on the reported performance data we  found, there is no guarantee that participants will earn a higher rate of  return with a managed account compared to the returns for other  professionally managed allocations or self-directed 401(k) accounts. The  limited performance data we reviewed show that in most cases, managed  accounts underperformed these other professionally managed allocations  and self-directed 401(k) accounts over a 5-year period. However,  managed account participants with lower rates of return still pay  substantial additional fees for the service. To further illustrate the effect of  fees on account balances, a hypothetical participant who earns a lower  managed account rate of return of -0.1 percent would pay $6,900 in  additional fees using this record keeper’s average fee over 20 years  compared to a participant who self-directed investments in their 401(k)  account, and the additional fees would increase to $11,500 at the 1  percent fee level using the lower rate of return.
The additional managed account fees, which are charged to participants  over and above investment management and administrative fees, can  vary substantially, and as a result, some participants pay no fees, others  pay a flat fee each year, and still others pay a comparatively large  percentage of their account balance for generally similar services from  managed account providers. In our case studies, we reviewed the  additional fees charged to participants for the service. One managed  account provider charges a flat rate and fees for the other seven  providers ranged from 0.08 to 1 percent of the participant’s account  balance annually, or $8 to $100 on every $10,000 in a participant’s  account. Therefore, participants with similar balances but different  providers can pay different fees. As shown in table 4, participants with an  account balance of $10,000 whose provider charges the highest fee may  pay 12.5 times as much as participants whose provider charges the  lowest fee ($100 and $8, respectively). However, participants with an  account balance of $500,000 may pay up to 250 times as much as other  participants but one is subject to a provider who charges the highest fees  while the other is at the lowest fee provider ($5,000 and $20,  respectively).
Participants with large account balances whose managed account  provider caps fees at a certain level benefit more than similar participants  whose fees are not capped. Of the providers we reviewed who charge  variable fees, one provider caps the fee at a certain amount per year. For  example, this provider charges 0.25 percent or $25 for every $10,000 in a  participant’s account, with a maximum of $250 per year, so participants  who use this provider only pay fees on the first $100,000 in their  accounts. As a result, the difference in fees paid by participants using this  provider, or providers who charge flat rates, widens as participant account  balances increase.
Plan characteristics can affect fees participants pay to managed account  providers. For example, at one managed account provider included in our  review, a participant in a small plan may pay more for a managed account  than a similar participant in a large plan. Similarly, a participant in a plan  with high enrollment or that uses managed accounts as the default may  pay less for a managed account than a participant with the same balance  in a plan with low enrollment or that offers managed accounts as an opt-in  service. We also found through our case studies that fees can vary based  on factors beyond the plan’s characteristics, such as the types of  providers involved in offering the managed account, the size of participant  account balances, and the amount of revenue sharing received by the  managed account provider. Fees calculated through revenue sharing can  vary in accordance with the investment options the plan sponsor chooses  to include in the plan and the amount of revenue the provider actually  receives from these options. In these cases, initial fee estimates for the  managed account may differ from actual fees they pay. In addition, some  plan sponsors also pay fees to offer managed account services, but since  these fees may be paid out of plan assets, participants in these plans  may pay more than participants in plans that do not pay fees.
As shown above, paying higher additional fees to a provider for a  managed account service offers no guarantee of higher rates of return  compared to other providers or compared to the reported rates of return  earned by participants who invest in other professionally managed  allocations or who self-direct investments in their 401(k) accounts.  Because the additional fee is charged to participants on a recurring basis,  such as every quarter or year, the costs incurred over time by participants  who use managed accounts can accumulate. We used fee data reported  by managed account providers to illustrate the effect that different fees  could have on a participant’s managed account balance over time. As  shown in figure 10, a hypothetical participant in our illustration who is  charged an additional annual fee of 1 percent of their account balance for  their managed account may pay nearly $13,000 more over 20 years than  they would have paid in any other investment without the managed  account fee. This compares to about $1,100 in additional fees paid over  20 years by a participant who is charged an annual fee of 0.08 percent for  a managed account, the lowest variable non-capped fee we found.
section_title: Lack of a Requirement for Performance and Benchmarking Information Inhibits Participant Evaluation of Managed Accounts
paragraphs: The limited availability of returns-based performance data and lack of  standard metrics can also offset the reported advantages of managed  accounts. In its final rule on participant-level disclosures, DOL requires  that sponsors disclose performance data to help participants make  informed decisions about the management of their individual accounts  and the investment of their retirement savings, and that sponsors provide  appropriate benchmarks to help participants assess the various  investment options available under their plan. By requiring sponsors to  provide participants with performance data and benchmarking information  for 401(k) investments, DOL intends to reduce the time required for  participants to collect and organize fee and performance information and  increase participants’ efficiency in choosing investment options that will  provide the highest value.
Since the applicability date of the participant-level disclosure regulation,  for most plans in 2012, DOL has required plan sponsors to provide  participants who invest in a “designated investment alternative” in their  401(k) account with an annual disclosure describing the fees, expenses,  and performance of each of the investment funds available to them in the  plan. DOL defines a designated investment alternative as “any  investment alternative designated by the plan into which participants and  beneficiaries may direct the investment of assets held in, or contributed  to, their individual accounts.” For designated investment alternatives,  plan sponsors are required to disclose to participants specific information  identifying the funds available to them in the plan, results-based  performance information over varying time periods, and performance  benchmarks in a way that invites comparison with established  benchmarks and market indexes, as shown in table 5.
Despite DOL’s requirements for designated investment alternatives, with  respect to managed accounts offered either as an opt-in or default  service, plan sponsors are generally only required to disclose to 401(k)  participants the identity of the managed account provider or investment  manager and any fees and expenses associated with its management.  Neither plan sponsors nor managed account providers are required to  isolate within the participant-level disclosure investment-related  information on the individual funds that comprise the participant’s  managed account or present aggregate performance of the account for a  given period. DOL generally does not consider most managed accounts  to be “designated investment alternatives.” Instead, according to DOL,  managed account providers are generally considered to be “designated  investment managers” as they provide a service to participants rather  than an investment option, such as a mutual fund. As a result, the  investment–related information required in DOL’s participant-level  disclosure regulation does not apply to investment services, such as  many managed accounts.
Because DOL does not require plan sponsors to provide participants  information on the performance of their managed accounts or to compare  performance against a set of standard benchmarks, it is potentially  difficult for participants to evaluate whether the additional fees for  managed accounts are worth paying, considering the effect of fees on  returns and retirement account balances. As a result, participants may be  unable to effectively assess the overall value of the service and to  compare performance against a set of standard benchmarks. Not all of  the retirement readiness statements we reviewed included returns-based  performance data or information on the amount of additional fees the  participant had paid for the service. Some managed account providers  did include projections of a participant’s future retirement income on these  statements. Even though the projections may be based on sound  methodologies, if standard returns-based performance data are absent  from these statements, participants will have to rely primarily on these  projections to gauge the overall value of the service. Without performance  and benchmarking information presented in a format designed to help  participants compare and evaluate their managed account, participants  cannot make informed decisions about the managed account service.
Likewise, with respect to QDIAs, DOL only requires plan sponsors to  disclose to participants a description of each investment’s objectives, risk  and return characteristics (if applicable), fees and expenses paid to  providers, and the right of the participant to elect not to have such  contributions made on their behalf, among other things. In 2010, DOL  proposed amendments to its QDIA disclosure requirements that would,  with respect to target date funds or similar investments, require sponsors  to provide participants historical returns-based performance data (e.g., 1-,  5-, and 10-year returns). According to DOL officials, the proposed QDIA  rule change may apply to managed accounts offered as a QDIA to  participants. However, the proposed requirements as written may be  difficult for plan sponsors to implement because they are not tailored  specifically for managed accounts. One participant advocacy group  noted that, without similar information, participants may not be able to  effectively assess managed account performance over time and compare  that performance to other professionally managed investment options  available under the plan or across different managed account providers.
As mentioned above, DOL affirms in the participant-level disclosure  regulation that performance data are required to help participants in  401(k) plans to make informed decisions about managing investments in  their retirement accounts, and that appropriate benchmarks are helpful  tools participants can use to assess the various investment options  available under their plan. The benefits outlined in the participant-level  disclosure regulation would also apply to the proposed changes to the  QDIA regulation. Specifically, DOL expects that the enhanced disclosures  required by the proposed regulation would benefit participants by  providing them with critical information they need to evaluate the quality  of investments offered as QDIAs, leading to improved investment results  and retirement planning decisions by participants. DOL believes that the  disclosures under the proposed regulation, combined with performance  reporting requirement in the participant-level disclosure regulation, would  allow participants to determine whether efficiencies gained through these  investments are worth the price differential participants generally would  pay for such funds. However, absent DOL requirements that plan  sponsors use standard metrics to report on the performance of managed  accounts for participants who are defaulted into the service as a QDIA, it  would be potentially difficult for these participants to evaluate the effect  that additional fees could have on the performance of their managed  accounts, including how the additional fees could affect returns and  retirement account balances, possibly eroding the value of the service  over time for those participants.
Improved performance reporting could help participants understand the  risks associated with the additional fees and possible effects on their  retirement account balances if the managed accounts underperform,  which is critical information that participants could use to take action to  mitigate those risks. Discussions with managed account providers  suggest that returns-based performance reports and custom  benchmarking can be provided to managed account participants. For  example, as shown in figure 11, one managed account provider we spoke  to already furnishes participants access to online reports that include  returns-based performance data and custom benchmarks, which can  allow them to compare performance for a given period with an  established equity index and bond index. Some providers told us that it  would be difficult to provide participants in managed accounts with  performance information and benchmarks because their retirement  portfolios contain highly personalized asset allocations. While it may be  more challenging for providers to furnish performance information on  personalized managed accounts compared to model portfolios, we  identified one participant statement that included performance information  from a provider who personalizes asset allocations for their participants’  retirement portfolios.
The provider told us that the blended custom benchmark described in  figure 11 allows participants to more accurately evaluate and compare the  aggregate performance of the different individual funds held in their  managed account because the benchmark is linked to the participant’s  risk tolerance. The online report also describes any positive or negative  excess returns for the portfolio relative to the return of the custom  benchmark, net of fees. The provider said that the excess return statistic  is representative of the value that the provider or portfolio manager has  added or subtracted from the participant’s portfolio return for a given  period. Another managed account provider furnishes retirement  readiness statements that include returns-based information for each of  the funds in participants’ accounts. However, the statement did not  include standard or custom benchmarks that would allow participants to  compare the performance of their managed account with other market  indexes.
section_title: Absent Guidance, Sponsors Face Challenges in Selecting and Overseeing Managed Account Providers
subsections: section_title: DOL Has Not Addressed Sponsor Access to Managed Account Provider Options
paragraphs: Some sponsors report that their choice of a managed account provider  may be limited to those options—sometimes only one—offered by the  plan’s record keeper. Although DOL’s general guidance on fiduciary  responsibilities encourages sponsors to consider several potential  providers before hiring one, six of the 10 sponsors we interviewed said  that they selected a managed account provider offered by their record  keeper without considering other options and two other sponsors said that  their record keeper’s capabilities partially restricted their choice of a  provider. Some record keepers voluntarily offered sponsors more  managed account provider options when sponsors asked for them. In  the absence of DOL requiring sponsors to request multiple provider  options, sponsors said they were reluctant to pursue options not offered  by their record keeper for a variety of reasons. These reasons included:  (1) concern that their record keeper’s systems might be unable to support  additional options; (2) familiarity with the current provider offered by their  record keeper; and (3) belief that there was no need to consider other  options—one sponsor said that its record keeper has consistently  provided excellent service and support for a reasonable fee and, as a  result, the sponsor felt comfortable accepting the record keeper’s  recommendation of the provider offered on its recordkeeping system.
Without the ability to choose among multiple providers, sponsors have  limited choices, which can result in selecting a provider who charges  participants higher additional fees than other providers who use  comparable strategies to manage participant investments, which are  ultimately deducted from participant account balances. In addition, limited  choices can result in sponsors selecting a provider whose strategy does  not align with their preferred approach for investing participant  contributions. For example, a sponsor who endorses a conservative  investment philosophy for their plan could select a provider who uses a  more aggressive method for managing participant investments.
Several managed account providers and record keepers said that a  limited number of providers are offered because, among other things, it is  costly to integrate 401(k) recordkeeping systems with managed account  provider systems. In addition, record keepers may offer a limited number  of providers to avoid losing revenue and because they evaluate a  provider before deciding to offer its managed account service. Such steps  include reviewing the provider’s investment strategy and assessing how  the provider interacts with participants. One managed account provider  estimated that sponsors might have to spend $400,000 and wait more  than a year before offering the provider’s managed account to plan  participants if it is not already available on their record keeper’s system.  Additionally, record keepers may lose target date fund revenue or forgo  higher revenue opportunities by offering certain managed account  providers and may believe that offering multiple options is unnecessary  once they have identified a provider that is effective.
Although sponsors may have access to a limited number of managed  account providers on their record keepers’ systems, some providers have  developed approaches that make it easier for record keepers to offer  more than one managed account option to sponsors. For instance, one  provider we interviewed, which acts as an intermediary and fiduciary,  contracts with several other providers and makes all of these providers  available to its record keepers, thus allowing the record keepers’  sponsors to choose among several managed account providers without  incurring additional costs to integrate the record keeper with any of the  providers. Another managed account provider has developed a process  to transfer information to record keepers that does not require integration  with the recordkeeping system, thus making it less difficult for any record  keeper to work with them.
section_title: Sponsors Lack Sufficient Guidance from DOL to Inform Their Selection and Oversight of Managed Account Providers
paragraphs: Available evidence we reviewed suggests that sponsors lack sufficient  guidance on how to select and oversee managed account providers.  Several of the sponsors we interviewed said that they were unaware of  any set list of standards for overseeing managed accounts, so they do not  follow any standards, and even managed account providers felt that  sponsors have insufficient knowledge and information to effectively select  a provider. Because sponsors may not have sufficient knowledge and  information, record keepers could play a larger role in the selection  process. In addition, providers indicated that it is difficult for sponsors to  compare providers and attributed this difficulty to the absence of any  widely accepted benchmarks or other comparison tools for sponsors.  Some industry representatives indicated that additional guidance could  help sponsors better select and oversee managed account providers and  highlighted specific areas in which guidance would be beneficial, such as: determining whether a managed account fee is reasonable; understanding managed accounts and how they function; and clarifying factors sponsors should consider when selecting a managed  account provider.
Although DOL is responsible for assisting and educating sponsors by  providing them with guidance, it has not issued guidance specific to  managed accounts, as it has done for target date funds, even though it  has issued general guidance on fiduciary responsibilities, including  regulations under ERISA 404(a) and 404(c), which explicitly state DOL’s  long-standing position that nothing in either regulation serves to relieve a  fiduciary from its duty to prudently select and monitor any service provider  to the plan. DOL guidance on target date funds outlines the factors  sponsors should consider when selecting and monitoring target date  funds, such as performance and fees, among other things. The absence  of similar guidance specific to managed accounts has led to inconsistency  in sponsors’ procedures for selecting and overseeing providers and may  inhibit their ability to select a provider who offers an effective service for a  reasonable fee. Specifically, without assistance regarding what they  should focus on, sponsors may not be considering factors that DOL  considers relevant for making fiduciary decisions, such as performance  information. For example, sponsors considered a range of factors when  selecting a managed account provider, including record keeper views on  the quality of the provider, the provider’s willingness to serve as a  fiduciary, and the managed account provider’s investment strategy. In  addition, as shown in table 6, while nearly all of the sponsors said that  they considered fees when selecting a managed account provider, only 1  of the 10 sponsors we interviewed said that they considered performance  information when selecting a managed account provider. In addition, only  half of the sponsors we interviewed reported that they take steps to  formally benchmark fees by, for example, comparing their participants’  fees to the amount of fees that participants in similarly-sized  organizations pay.
The extent to which sponsors oversee managed account providers also  varies. Nearly all of the 10 sponsors we interviewed said that they review  reports from their managed account provider or record keeper as part of  their oversight process, and the managed account providers we  interviewed highlighted the role that these reports play in the oversight  process. Several of these providers noted that the reports they provide  help sponsors fulfill their fiduciary responsibility for oversight. Most  sponsors said that they also take other steps to oversee managed  account providers, such as regularly meeting with them. However, only  one sponsor said that, as part of its oversight activities, it independently  evaluates benchmarks, such as stock market performance indexes. In  addition, even though participants generally pay an additional fee for  managed account services, not all of the sponsors we interviewed said  that they monitor fees.
section_title: Inconsistent Performance Information Allowed by DOL Hinders Sponsor Evaluation of Managed Accounts
paragraphs: Some industry representatives indicated that consistent performance  information could help sponsors more effectively compare prospective  managed account providers and ultimately improve selection and  oversight. Similar to the challenges participants face in evaluating  managed accounts because of a lack of performance information,  industry representatives said that sponsors need information as well,  including: useful, comparative performance information and a standard set of  metrics to select suitable providers; access to standard performance benchmarks to monitor them; and access to comparable managed account performance information to  evaluate performance.
Some providers highlighted challenges with providing performance  information on managed accounts and, as a result, furnish sponsors with  other types of information to demonstrate their value to participants. For  example, providers may not furnish returns-based performance  information to demonstrate how their offerings have affected participants  because the personalized nature of managed accounts makes it difficult  to measure performance. In lieu of providing returns-based performance  information, providers furnish sponsors with changes in portfolio risk  levels and diversification, changes in participant savings rates, and  retirement readiness. One managed account provider said that it does not  believe there is a way to measure the performance of managed accounts,  noting that it develops 20 to 50 investment portfolios for any given plan  based on the investment options available in the plan.
Nonetheless, a few providers voluntarily furnish sponsors with returns- based performance information. One provider that used broad-based  market indexes and customized benchmarks noted that it would be  difficult for a sponsor to select a managed account provider without being  able to judge how the provider has performed in the past. In addition, this  provider, unlike some other providers, noted that the personalized nature  of some managed accounts does not preclude managed account  providers from being able to generate returns-based performance  information. For example, even though plans may differ, providers can  collect information from record keepers for each of the plans that offer  managed accounts and create aggregate returns data, which could then  be disclosed to sponsors along with an explanation of how the data were  generated. As shown in figure 12, the report that this provider distributes  to sponsors contains an array of performance information for participant  portfolios, including rates of return earned by the portfolios for multiple  time periods and benchmarks. In addition, the report provides a  description of the benchmarks—broad-based market indexes as well as  customized benchmarks.
DOL regulations require that service providers furnish sponsors with  performance and benchmarking information for the investment options  available in the plan. DOL maintains that sponsors need this information  in order to make better decisions when selecting and monitoring providers  for their plans. However, DOL regulations generally do not require  managed account providers to furnish sponsors with performance and  benchmarking information for managed accounts because, as previously  noted, managed accounts are not considered to be designated  investment alternatives. Without this information, sponsors cannot  effectively compare different providers when making a selection or  adequately determine whether their managed account offerings are  having a positive effect on participant retirement savings, as they can  currently determine with the designated investment alternatives available  in the plan.
section_title: Conclusions
paragraphs: Managed accounts can be useful services and may offer some  advantages for 401(k) participants. They build diversified portfolios for  participants, help them make investment decisions, select appropriate  asset allocations, and estimate the amount they need to contribute to  achieve a secure retirement. Given these potential advantages, it is no  surprise that the number of managed account providers has grown and  that plan sponsors, seeking to provide the best options for plan  participants, have increasingly offered managed accounts. The extent to  which managed accounts benefit participants may depend on the  participant’s level of engagement and ability to increase their savings.  Despite the potential advantages, better protections are needed to ensure  that participants realize their retirement goals. These protections are  especially important as additional fees for this service can slow or erode  participants’ accumulated retirement savings over time.
Helping plan sponsors understand and make appropriate decisions about  managed accounts can better ensure that participants are able to reap  the full advantages of managed accounts. Since plan sponsors select a  managed account provider, participants who use these services are  subject to that managed account provider’s structure and strategies for  allocating participant assets, which can potentially affect participants’  ability to save for retirement, especially if they pay high fees. Some  participants cannot be assured that they are receiving impartial managed  account services or are able to rely on accountable investment  professionals taking on appropriate fiduciary responsibilities. Clarifying  fiduciary roles for providers who offer managed accounts to participants  on an opt-in basis or for providers who offer additional services to  participants in or near retirement could help ensure that sponsors have a  clear understanding of provider responsibilities so they can offer the best  services to their participants.
DOL can also help sponsors gain clarity and confidence in selecting and  monitoring managed account providers. This is particularly salient since  managed accounts can be complicated service arrangements and there  are considerable structural differences among the managed account  options offered by providers. By requiring sponsors to request multiple  provider options from their record keeper, DOL can help ensure that  sponsors thoroughly evaluate managed account providers before they are  offered to participants. In addition, providing sponsors with guidance that  clarifies standards and suggests actions for prudently selecting and  overseeing managed account providers, such as documenting their  processes and understanding the strategies used in the managed  account, positions sponsors to better navigate their fiduciary  responsibilities. Additional guidance also positions sponsors to consider  additional factors when choosing to default participants into managed  accounts. Supplementing this guidance by requiring providers to furnish  consistent performance information to sponsors so that they can more  effectively compare providers can assist sponsors in their efforts to  provide a beneficial service that could help preserve and potentially  enhance participants’ retirement security.
Finally, DOL can also help participants evaluate whether their managed  account service is beneficial. Without standardized performance and  benchmarking information, participants may not be able to effectively  assess the performance of their managed account and determine  whether the additional fee for the service is worth paying. For participants  who opt into managed accounts, this information could help them more  effectively assess the performance of their managed account and  compare that performance to other professionally managed alternatives  that may be less expensive, such as target date funds. Alternatively, for  participants who are defaulted into managed accounts, this information  could be valuable when they start to pay more attention to their retirement  savings.
section_title: Recommendations for Executive Action
paragraphs: To better protect plan sponsors and participants who use managed  account services, we recommend that the Secretary of Labor direct the  Assistant Secretary for the Employee Benefits Security Administration  (EBSA) to:  a)  Review provider practices related to additional managed account  services offered to participants in or near retirement, with the aim  of determining whether conflicts of interest exist and, if it  determines it is necessary, taking the appropriate action to  remedy the issue.  b)  Consider the fiduciary status of managed account providers when  they offer services on an opt-in basis and, if necessary, make  regulatory changes or provide guidance to address any issues.
To help sponsors who offer managed account services or who are  considering doing so better protect their 401(k) plan participants, we  recommend that the Secretary of Labor direct the Assistant Secretary for  EBSA to:  c)  Provide guidance to plan sponsors for selecting and overseeing  managed account providers that addresses: (1) the importance of  considering multiple providers when choosing a managed account  provider, (2) factors to consider when offering managed accounts  as a QDIA or on an opt-in basis, and (3) approaches for  evaluating the services of managed account providers.  d)  Require plan sponsors to request from record keepers more than  one managed account provider option, and notify the Department  of Labor if record keepers fail to do so.
To help sponsors and participants more effectively assess the  performance of managed accounts, we recommend that the Secretary of  Labor direct the Assistant Secretary for EBSA to:  e)  Amend participant disclosure regulations to require that sponsors  furnish standardized performance and benchmarking information  to participants. To accomplish this, EBSA could promulgate  regulations that would require sponsors who offer managed  account services to provide their participants with standardized  performance and benchmarking information on managed  accounts. For example, sponsors could periodically furnish each  managed account participant with the aggregate performance of  participants’ managed account portfolios and returns for broad- based securities market indexes and applicable customized  benchmarks, based on those benchmarks provided for the plan’s  designated investment alternatives.  f)  Amend service provider disclosure regulations to require that  providers furnish standardized performance and benchmarking  information to sponsors. To accomplish this, EBSA could  promulgate regulations that would require service providers to  disclose to sponsors standardized performance and  benchmarking information on managed accounts. For example,  providers could, prior to selection and periodically thereafter, as  applicable, furnish sponsors with aggregated returns for  generalized conservative, moderate, and aggressive portfolios,  actual managed account portfolio returns for each of the sponsor’s  participants, and returns for broad-based securities market  indexes and applicable customized benchmarks, based on those  benchmarks provided for the plan’s designated investment  alternatives.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Labor, the  Department of the Treasury, the Securities and Exchange Commission,  and the Consumer Financial Protection Bureau for review and comment.  The Department of the Treasury and the Consumer Financial Protection  Bureau did not have any comments. DOL and SEC provided technical  comments, which we have incorporated where appropriate. DOL also  provided written comments, which are reproduced in appendix IV. As  stated in its letter, DOL agreed with our recommendations and will  consider each of them as it moves forward with a number of projects.
In response to our recommendation that DOL review provider practices  related to additional managed account services offered to participants in  or near retirement to determine whether conflicts of interest exist, DOL  agreed to include these practices in its current review of investment  advice conflicts of interest, noting that such conflicts continue to be a  concern. Regarding our second recommendation, to consider the  fiduciary status of managed account providers when they offer services  on an opt-in basis, DOL agreed to review existing guidance and consider  whether additional guidance is needed in light of the various business  models we described. By considering managed account service provider  practices and fiduciary roles in its current efforts and taking any  necessary action to address potential issues, we believe DOL will help  ensure that sponsors and participants receive unconflicted managed  account services from qualified managers.
DOL also agreed to consider our other recommendations in connection  with its current regulatory project on standards for brokerage windows in  participant-directed individual account plans. We believe that this project  may be a good starting point for requesting additional information and  considering adjustments to those managed account services participants  obtain from advisers through brokerage windows. As we noted in our  report, we did not include these types of managed accounts in our review  because the plan sponsor is not usually involved in the selection and  monitoring of these advisers. Since participants can obtain managed  account services without using a brokerage window, we encourage DOL  to also consider our third and fourth recommendations outside of the  context of brokerage windows. Providing guidance to sponsors for  selecting and overseeing managed account providers, as suggested by  our third recommendation, may help sponsors understand their fiduciary  responsibilities with respect to managed accounts. Similarly, requiring  plan sponsors to ask for more than one choice of managed account  provider, as suggested by our fourth recommendation, could encourage  record keepers to offer additional choices. By taking the steps outlined in  these recommendations, DOL can help ensure that participants are being  offered effective managed account services for reasonable fees.
With respect to our recommendation requiring plan sponsors to ask for  more than one choice of managed account provider, DOL noted that it  needs to review the extent of its legal authority to effectively require plans  to have more than one managed account service provider. We continue  to believe that the action we suggest in our recommendation—that DOL  simply require plan sponsors to ask for more than one choice of a  provider, which is slightly different than how DOL has characterized it— may be an effective method of broadening plan sponsors’ choices of  managed account providers. However, we agree that DOL should  examine the scope of its existing authority in considering how it might  implement this recommendation.
Finally, DOL agreed to consider our recommendations on the disclosure  of performance and benchmarking information on managed accounts to  participants and sponsors in connection with its open proposed  rulemaking project involving the qualified default investment alternative  and participant-level disclosure regulations. We believe that DOL’s  consideration of these recommendations in connection with this  rulemaking project will be helpful for participants and sponsors, and  encourage DOL to include managed accounts in this rulemaking.  Although managed accounts are different than target date funds in  multiple ways, as presented in our report, we believe that managed  account providers can and should provide some level of performance and  benchmarking information to sponsors—and sponsors to participants—to  describe how managed accounts perform over time and the risks  associated with the service. In addition, to the extent that managed  accounts offered on an opt-in basis are not covered by DOL’s project, we  encourage DOL to consider adopting similar changes to the participant- level disclosures for those managed accounts that are not governed by  QDIA regulations.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from the  date of this letter. At that time, we will send copies of this report to  appropriate congressional committees, the Secretary of Labor, the  Secretary of the Treasury, the Chair of the Securities and Exchange  Commission, the Director of the Consumer Financial Protection Bureau,  and other interested parties. In addition, the report will be available at no  charge on GAO’s website at www.gao.gov. If you or your staff members  have any questions about this report, please contact me at (202) 512- 7215 or jeszeckc@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives for this study were to determine (1) how service providers  structure managed accounts, (2) the advantages and disadvantages of  managed accounts for 401(k) participants, and (3) the challenges, if any,  that plan sponsors face in selecting and overseeing managed account  providers.
To answer our research objectives we undertook several different  approaches. We reviewed relevant research and federal laws,  regulations, and guidance on managed accounts in 401(k) plans. We  reviewed available documentation on the structure of managed accounts  in 401(k) plans and the role of service providers, including Securities and  Exchange Commission (SEC) filings of the Form ADV by 30 record  keepers, managed account providers, and other related service  providers. We interviewed industry representatives and service providers  involved with managed accounts—including record keepers, academics,  industry research firms, and participant advocacy groups—and  government officials from the Department of Labor’s Employee Benefits  Security Administration (EBSA), SEC, the Department of the Treasury,  and the Consumer Financial Protection Bureau.
subsections: section_title: Case Studies of Managed Account Providers
paragraphs: To examine key issues related to how managed accounts in 401(k) plans  are structured, we conducted in-depth case studies of eight selected  managed account providers. Since we were unable to identify a  comprehensive list of managed account providers that provide services to  401(k) plans, to select providers for case studies we first developed a list  of 14 managed account providers based on discussions with two industry  research firms and our own analysis of information from record keeper  websites and other publicly available documentation. To assess the  reliability of these data, we interviewed the two industry research firms  and compared their information with the results of our analysis for  corroboration and reasonableness. We determined that the data we used  were sufficiently reliable for selecting managed account providers for  case studies. From the list of 14 providers, we selected 10 providers  based on their size, location, and legal and fee structures, from which we  used eight as the basis for our case studies. According to our estimates,  the eight managed account providers we included in the case studies  represented over 95 percent of the managed account industry in defined  contribution plans, as measured by assets under management in 2013.
In conducting case studies of managed account providers, we interviewed  representatives of the managed account provider and chose five  providers for site visits based on their locations and size. We also  reviewed publicly available documentation describing the nature of the  managed account and sample reports furnished by providers, confirmed  the type of information these providers consider when managing a  participant’s account, and analyzed fee data furnished by managed  account providers. To assess the reliability of the fee data furnished by  managed account providers, we corroborated and assessed the  completeness of reported fee data based on information in provider SEC  filings and any other relevant documentary evidence, when possible. We  determined that the data were sufficiently reliable for depicting the range  and types of fees charged to sponsors and participants by providers. In  addition, to further understand the different strategies and structures of  managed accounts, we developed and submitted five hypothetical  participant scenarios in one hypothetical plan to the eight service  providers and asked them to provide example asset allocations, and  advice if practical, for those participants. Seven of the eight managed  account providers completed and returned asset allocations to us. See  appendix II for additional detail on the development of hypothetical  scenarios and results from this work.
section_title: Illustrations of Fee and Return Data Over Time
paragraphs: To illustrate potential performance outcomes for participants in managed  accounts, we used available data on actual managed account rates of  return and fees to show how managed accounts could affect 401(k)  account balances over 20 years. We developed two scenarios, isolating  the effects of variability in the following factors:  1.  Managed account rates of return – We used annual average  managed account rates of return ranging from -0.1 percent to 2.4  percent, based on published performance data. We compared the  change in account balances for those managed account rates of  return with the change in account balances for a 1.4 percent rate of  return experienced by participants who directed their own 401(k)  investments.  2.  Managed account fees – We used different fee levels obtained from  published reports and provider interviews ranging from a low  additional annual fee of 0.08 percent to a 1 percent annual fee. We  compared fee totals and ending account balances for varying fee  levels with those of participants who did not pay the additional fee  because they directed their own 401(k) investments.
For each scenario, we held all other factors constant by assuming that the  participant’s starting account balance was $17,000 and starting salary  was $40,000, the salary increased at a rate of 1.75 percent per year, and  the participant saved 9.7 percent of their salary each year. To the extent  possible, we developed scenarios using information provided to us during  interviews with industry representatives or found in published reports on  managed accounts or on other economic factors. To assess the reliability  of these data, we considered the reliability and familiarity of the source of  the data or information and, when necessary, interviewed representatives  of those sources about their methods, internal controls, and results.  Based on these interviews and our review of published data, we  determined that the data we used were sufficiently reliable for use in  these illustrations.
Because this work presents simplified illustrations of potential effects on  participants over time, we used nominal dollar amounts over 20 years and  did not take into account inflation or changes in interest rates. Similarly, to  minimize effects of percentage growth/loss sequencing on account  balances, we applied the same rates of return to each of the 20 years for  each scenario. The rates of returns we used in both scenarios already  incorporated different asset allocations for participants with a managed  account or a self-directed 401(k) account. This work does not attempt to  specify or adjust these specific asset allocations.
section_title: Semi-Structured Interviews with Plan Sponsors
paragraphs: To identify the advantages and disadvantages of managed accounts for  401(k) plan participants and any challenges sponsors face in selecting  and overseeing managed account providers, we conducted semi- structured interviews with 12 plan sponsors. Our process for interviewing  plan sponsors involved multiple steps, as outlined below.
subsections: section_title: Sponsor Selection
paragraphs: Since a comprehensive list of sponsors that managed accounts did not  exist at the time of our review, to select sponsors for semi-structured  interviews, we conducted a non-generalizable survey facilitated by  PLANSPONSOR, a member organization. The survey included  questions about sponsors’ 401(k) plans, such as the amount of assets  included in the 401(k) plan and the number of participants in the plan, and  the reasons why sponsors decided to offer, or not offer, managed  accounts to 401(k) plan participants. To minimize errors arising from  differences in how survey questions might be interpreted and to reduce  variability in responses that should be qualitatively the same, we  conducted pretests with industry representatives. Based on feedback  from these pretests, we revised the survey in order to improve question  clarity. PLANSPONSOR included a link to our survey in an e-mail that  was sent to approximately 60,000 of its subscribers. In addition,  PLANSPONSOR promoted the survey eight times over 4 weeks between  June 3 and June 28, 2013. A record keeper and one industry association  also agreed to forward a link to our survey to their clients and members,  respectively.
Fifty-seven sponsors completed our survey, and 25 of them provided  contact information, indicating they were willing to speak with us. Forty- eight sponsors indicated that they offer managed accounts to their 401(k)  plan participants, and 20 of these sponsors provided us with their contact  information. Nine sponsors indicated that they do not offer managed  accounts to their 401(k) plan participants, and five of these sponsors  provided us with their contact information.
We reviewed the survey responses of those sponsors willing to speak  with us and selected sponsors to interview based on the following  characteristics:
Plan size (assets in the plan, number of participants)
Managed account provider
Enrollment method (Qualified Default Investment Alternative, or QDIA,  vs. opt-in)
Length of time sponsors have been offering managed accounts  To obtain a variety of perspectives, we selected at least two sponsors  with any given characteristic to the extent possible. For instance, we  selected several (1) sponsors of varying sizes in terms of the amount of  assets included in their 401(k) plans and the number of plan participants;  (2) sponsors that use different managed account providers; and (3)  sponsors that have been offering managed accounts for more than 5  years. Also, we selected one sponsor that offered managed accounts as  a default option. In total, we selected 10 sponsors that offer managed  accounts and 2 sponsors that do not offer managed accounts, as shown  in table 7.
We developed semi-structured interview questions to capture information  on how sponsors learn about and select managed accounts, how they  oversee managed accounts, and the advantages and disadvantages of  managed accounts for participants. We developed separate questions for  sponsors offering managed accounts and those not offering managed  accounts. We shared the interview questions with three sponsors before  we began conducting the semi-structured interviews to ensure that the  questions were appropriate and understandable. We made no  substantive changes to the questions based on this effort. We interviewed  10 sponsors that offer managed accounts and 2 sponsors that do not  offer managed accounts. As part of our interview process, we also  requested and reviewed relevant documentation from plan sponsors such  as quarterly managed account reports from managed account providers  or record keepers.
section_title: Participant Survey
paragraphs: As part of our approach for determining the advantages and  disadvantages of managed accounts for 401(k) plan participants, we  developed a non-generalizable online survey to directly obtain participant  perspectives on managed accounts, such as the advantages and  disadvantages of managed accounts for 401(k) plan participants and  participants’ level of satisfaction with their managed account offering.  However, we did not receive any completed responses to our survey. The  survey was conducted on a rolling basis from August 1, 2013 to February  25, 2014—a link to the survey was distributed at various points in time.
We conducted this performance audit from October 2012 through June  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Methodology and Additional Results from Hypothetical Scenarios
subsections: section_title: Participant and Plan Scenarios
paragraphs: To understand the different strategies and structures of managed  accounts, we developed and submitted five hypothetical participant  scenarios in one hypothetical plan to the eight managed account  providers chosen for our case studies. Table 8 shows basic information  provided for the hypothetical participant scenarios 1, 2, and 3.
Table 9 shows the additional personalized information provided to  managed account providers for hypothetical participant scenarios 1 and  3.
Table 10 shows some of the hypothetical plan level information we  compiled for scenario development.
In addition, to generate hypothetical plan information, we selected 14  hypothetical plan investment options from various asset classes, as  shown in table 11. We selected these mutual funds to represent a range  of asset classes and based on available information from April 2013  about whether these funds could be found in 401(k) plans.
We developed the hypothetical scenarios based on data and information  from industry representatives—including research firms, other industry  groups, and providers—and a calculator and statistics provided by a  number of government agencies. To assess the reliability of these data,  we considered the reliability and familiarity of the source of the data or  information and, when necessary, interviewed representatives of those  sources about their methods, internal controls, and results. We  determined that the data we used were sufficiently reliable for developing  hypothetical participant- and plan-level scenarios.
section_title: Provider Responses
paragraphs: We asked all eight managed account providers chosen for our case  studies to provide example asset allocations and advice, if practical, for  all five hypothetical participant scenarios. Seven of the eight managed  account providers completed and returned asset allocations to us for the  hypothetical scenarios. Five of the seven providers who sent allocations  furnished two allocations for each scenario, but each gave different  reasons for doing so. One of the providers furnished two allocations for  each scenario because they actively manage participant allocations given  changes in market conditions and their allocations could generally range  within the two extremes. Another provider furnished two allocations for  each scenario assuming different initial holdings because, for that  provider’s strategy, a person’s initial holdings of plan investment options  influence the provider’s recommended allocations, even though both of  these allocations have the same overall risk and return characteristics. In  some of the figures presenting results of this work, we have included one  or both of these two providers’ second allocations. For the other three  providers we have chosen to only include one of their asset allocations in  the figures presenting the results of this work because they did not pertain  to managed account service by itself or they did not include the full  services offered by the managed account. We did, however, incorporate  the more general understanding we gained from these alternate asset  allocations in our report findings.
In addition, a number of providers’ systems required that they make  certain assumptions about participants outside of the hypothetical  scenario information we provided. In these cases, the assumptions they  made did differ, sometimes substantially, and this may have affected their  asset allocation results. For example, to generate a participant’s goal,  providers used varying assumptions of a participant’s annual salary  growth—from 1.5 to 3.5 percent. We did not attempt to categorize or  eliminate any inconsistencies in provider strategies, but instead report  their results to show the variation that a participant may experience.
section_title: Additional Results
paragraphs: As shown in figure 13, the median values of all providers’ allocations  show a downward trend in asset allocations to equity assets and an  upward trend in asset allocations to fixed income and or cash-like assets  as participants age.
For each hypothetical participant, we found that providers varied widely in  their recommendations of specific investment options, but participants  could be similarly allocated to asset classes, such as cash and cash  equivalents, equity, and fixed income. For the hypothetical 30-year-old  participant, select asset allocations were presented in the report at figure  5, and all allocations to specific investment options are shown in figure  14.
The results were similar for the 45 and 57-year-old hypothetical  participants. Starting from an initial asset allocation of 55 percent equity  and 45 percent fixed income, providers reported varying asset allocations  to investment options for the 45-year-old hypothetical participant, as  shown in figure 16, and allocations at the asset class level shown in figure  17.
Starting from initial asset allocation of 43 percent equity and 57 percent  fixed income, figure 18 shows variation in allocations to investment  options for the 57-year-old hypothetical participant and figure 19 shows  variation in allocations at the asset class level.
section_title: Appendix III: Additional Performance Information from One Record Keeper’s Report
section_title: Appendix IV: Comments from the Department of Labor
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Contact
paragraphs: Charles A. Jeszeck, Director, (202) 512-7215 or jeszeckc@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the individual above, Tamara Cross (Assistant Director),  Jessica Gray (Analyst-in-Charge), Ted Burik, Sherwin Chapman, and  Laura Hoffrey made significant contributions to this report. In addition,  Cody Goebel, Sharon Hermes, Stuart Kaufman, Kathy Leslie, Thomas  McCool, Sheila McCoy, Mimi Nguyen, Roger Thomas, Frank Todisco,  Walter Vance, and Kathleen Van Gelder also contributed to this report.