Managed accounts linked to higher retirement contribution rates

Morningstar Investment Management released a study on Aug. 25 that compared contribution behavior across millions of participants in thousands of employer-sponsored defined contribution plans. The report was authored by Spencer Look and Jack VanDerhei.

The analysis found that participants who use managed accounts, which provide personalized investment advice and automated management similar to robo-advisors, generally had higher average deferral rates and a greater probability of contributing enough to receive the full employer match.

Morningstar reported age-specific averages. Participants aged 40 to 44 who used managed accounts contributed an average of 9.1% of pay, compared with 7.2% for those without managed accounts. Participants aged 50 to 54 contributed 10.6% with managed accounts versus 8.3% without.

The authors wrote that if managed accounts encourage higher deferral rates or fuller use of employer matches, their value should not be judged only by asset allocation or investment returns.

The study does not claim causation. Morningstar noted participant engagement and selection may account for some observed differences, and that more motivated savers might be likelier to opt into managed accounts.

Spencer Look, associate director of retirement studies at Morningstar Investment Management, said, “Getting that communication and extra support could be what helps tip the edge to save a bit more.” He added the research shows a positive relationship between managed-account use and contribution rates while stopping short of calling it causal.

Daniele Griffith, director of tax operations at April Tax Solutions, noted that higher contributions increase tax savings for participants and that employer-provided access to advisors through seminars or outreach can reduce concerns about being sold products.

Alicia Kong of Voya Financial Advisors wrote that the findings emphasize how financial advice can influence decisions about how much employees save and whether they take full advantage of employer matches.

Morningstar said the analysis focuses on aggregate patterns across a large sample and that further research would be needed to determine whether offering managed accounts directly causes higher contribution behavior or whether other factors explain the link.