(b)lines Ask the Experts – Can a 403(b) Offer Managed Accounts?

“Can a 403(b) plan offer managed accounts?”

Michael A. Webb, vice president, Cammack Retirement Group, answers:

Yes, with some caveats. But the Experts should probably first explain to readers what are managed accounts.

A managed account can be described as a target-date fund on steroids. Instead of devising an asset allocation merely based on retirement date, a managed account will take all of participant demographic and risk tolerance information into account to develop an investment allocation that is unique to the participant. Similar to a target-date fund, that asset allocation will change as the participant ages, but, a managed account allocation will also change as other factors unique to the participant change as well. Like target-date funds, managed accounts may be utilized as the plan’s qualified default investment alternative (QDIA).                  

Managed accounts come in many flavors, but the important thing to remember for 403(b) plans is that the underlying investments in managed accounts for a 403(b) plan may only consist to 403(b)(1) fixed/variable annuities or 403(b)(7) custodial accounts (mutual funds). Thus, if managed accounts invest in individual securities directly, for example, and not via a mutual fund, they would not be eligible for inclusion in a 403(b) plan.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.