Virginia Retirement System

The Virginia Retirement System (VRS) has been among public sponsors taking the lead on simplifying investment decisions for public employees in defined contribution (DC) plans.

For example, the retirement system, headquartered in Richmond, added a three-path investment menu structure back in 2012, allowing participants to choose, based on their comfort level with investing, a “do-it-for-me” path, “help-me-do-it” path or “do-it-myself” path. “The path structure enables VRS to clearly and consistently communicate the options to participants,” VRS Director Patricia Bishop says. “VRS was an early adopter to implement a ‘path’ structure, and we notice more path-type structures are now found in the public and private sectors, as well.” VRS administers eight defined contribution (DC) plans, and more than 800 public employers have participants in them.

VRS has, additionally, long allowed for its DC plan participants to invest in the professionally managed investment portfolio of the state’s defined benefit (DB) plan, via the VRS Investment Portfolio (VRSIP). That became available to DC participants in 2008, Chief Investment Officer (CIO) Ronald Schmitz says.

“VRS was among the first statewide public plans to offer this type of investment,” Schmitz says. The system did it “to give DC plan participants the ability to have access to investment opportunities typically unavailable within DC plan investment menus and to give participants access to our best thoughts regarding active management,” he adds. Participants invested in the VRSIP get the same allocation as the DB plan and can simultaneously be invested in other options on the investment menu, if they wish.

DC participants can move in and/or out of a VRSIP investment on a quarterly basis. The Bank of New York Mellon, custodian for the investment portfolio, calculates a unit value for the VRSIP at the close of each month, because the DB plan is officially valued on a monthly basis, Schmitz says. “However, DC participants are allowed in and out of the VRSIP based on quarterly unit values, due to the investment portfolio’s illiquid holdings,” he adds.

In 2012, when VRS launched the new investment structure, it wanted to enhance participants’ understanding of investment options and provide VRS a relatable way to communicate investment concepts, Bishop says. “Participants may opt for a single path or utilize any combination of paths that meets their investment objectives,” she adds.

The first tier, the do-it-for-me, centers on the plan’s default investment, which is a target-date portfolio. These are white-label funds that invest in BlackRock’s LifePath Index Funds. The help-me-do-it path encompasses 10 investment options, for participants who prefer to take a more active role in their investing; those options include the VRSIP. The do-it-myself-path tier offers a self-directed brokerage account (SDBA), for participants who believe they are skilled and knowledgeable about investing. Investments in the SDBA include mutual funds, exchange-traded funds (ETFs) and individual securities.

The majority of DC participants’ money currently is in the second path. “Approximately two-thirds of assets across all plans fall into the help-me-do-it path, and approximately one-third of assets fall into the do-it-for-me path,” Bishop says. “Approximately 1% of assets are found in the do-it-myself path. Because participants often utilize multiple paths, the percentage of participants in each overlaps.”

—Judy Ward