Defined Contribution investment options changing
Lower management fees accompany switch to BlackRock proprietary funds
By Michael Pramik, Ohio Public Employees Retirement System
Feb. 17, 2022 – OPERS is transitioning the bulk of investment options in its Defined Contribution program to a portfolio of proprietary funds managed by global investment company BlackRock.
OPERS’ Defined Contribution portfolio, available to participants in our Member-Directed and Combined plans, includes 10 target date funds and six standalone (formerly core) funds. BlackRock currently oversees all but one of the funds, and the asset allocations within the target date funds were created by OPERS Board of Trustees consultant NEPC. Beginning March 14, the target date funds will be converted to a set of BlackRock LifePath target date funds, while five of the six standalone funds will be invested in the same BlackRock funds as they are currently, but in a different share class.
The other standalone fund, the OPERS Stable Value Fund, will continue to be managed by Invesco and will be rebranded.
OPERS determined we could lower investment fund management fees and increase the flexibility of our investments by making these changes.
All participants will be impacted as the funds they hold will be transitioned to the new funds when the change occurs over the weekend of March 12-13. The OPERS website contains profiles of the funds that will be changing.
Participants in the OPERS Member-Directed and Combined plans direct at least a portion of their investments by choosing from a number of the Defined Contribution investment options.
Target-date funds are a one-stop investment that consider a specific retirement date for the individual investor. As the target date of your retirement approaches, the investments become more conservative. This approach helps to reduce the impact regular market fluctuations have on individual accounts.
OPERS also offers six standalone investment funds ranging from lower-risk, income-oriented options to higher-risk, growth-oriented choices. The five standalone index funds, managed by BlackRock, will be the same options as currently offered. They’ll have new names, reflecting a different BlackRock share class with lower management fees.
Another investment option is the Self-Directed Brokerage Account, available to Member-Directed and Combined plan participants who have a minimum $5,000 balance. It allows them to invest a portion of their portfolio in thousands of mutual funds available through Charles Schwab. As a result of a recent internal program review, we are increasing the amount members can invest in the self-directed account from the current 50 percent of the individual account balance to 90 percent.
Again, these program enhancements will result in the change of all investment options available on the OPERS Defined Contribution platform. Fund balances will be transferred to the corresponding new investment options automatically, so members will not have to take any action.
All members can visit the OPERS website for additional information, including a video about target date funds.
| Current fund name | Future fund name |
|---|---|
| OPERS Stock Index Fund | BlackRock Russell 3000 Index Fund J |
| OPERS Large Cap Index Fund | BlackRock Russell 1000 Index Fund J |
| OPERS Small Cap Index Fund | BlackRock Russell 2000 Index Fund J |
| OPERS Non-U.S. Stock Index Fund | BlackRock MSCI ACWI ex-US Index Fund J |
| OPERS Bond Index Fund | BlackRock U.S. Debt Index Fund M |
| OPERS Stable Value Fund | Invesco Stable Value Trust, Class B1 |
| OPERS Target Payout Fund | BlackRock LifePath Index Retirement Fund N |
| OPERS Target 2025 Fund | BlackRock LifePath Index 2025 Fund N |
| OPERS Target 2030 Fund | BlackRock LifePath Index 2030 Fund N |
| OPERS Target 2035 Fund | BlackRock LifePath Index 2035 Fund N |
| OPERS Target 2040 Fund | BlackRock LifePath Index 2040 Fund N |
| OPERS Target 2045 Fund | BlackRock LifePath Index 2045 Fund N |
| OPERS Target 2050 Fund | BlackRock LifePath Index 2050 Fund N |
| OPERS Target 2055 Fund | BlackRock LifePath Index 2055 Fund N |
| OPERS Target 2060 Fund | BlackRock LifePath Index 2060 Fund N |
| OPERS Target 2065 Fund | BlackRock LifePath Index 2065 Fund N |
Michael Pramik
Michael Pramik is communication strategist for the Ohio Public Employees Retirement System and editor of the PERSpective blog. As an experienced business journalist, he clarifies complex pension policies and helps members make smart choices to secure their retirement.
How will the switch to these funds help the unfunded mandates? Is the Board still trying to freeze colas for 2023 and 2024?
Steven,
The switch to the proprietary BlackRock funds affects only those members in the Member-Directed Plan and Combined Plan.
Would like to hear the answer to Mr. Lee’s question; don’t think your answer was complete. Usually, as with health care, when you guys start messing with our benefits it is bad news for the retirees and future retirees. So what is up?
D.,
He asked about the “unfunded mandates,” which would translate to unfunded liabilities. Those belong solely to the Traditional Pension Plan. This blog was about changes to the defined contribution plans, and the changes are clearly explained. The question about COLAs is irrelevant to participants in the Member Directed and Combined plans, who are the target of this blog entry.
Can you tell us the annual cost for these funds as they exist today and the expected costs?
Phil,
The old target-date fund fees were about 7 basis points, and the new suite of target date fund fees are 6 basis points across the board. We’re also saving about $150,000 in fees we used to pay to third-party external vendors, which we no longer require.
Fees for standalone funds include management fees and administrative fees. The table below describes the old and new fees. But please note that the administrative fee component will likely decline as BlackRock introduces the funds to more clients, and as more assets are added.
Fund name // Past annual operating expense // New annual operating expense
Russell 1000 Index Fund J // 0.02% // 0.20%
Russell 2000 Index Fund J // 0.05% // 0.03%
Russell 3000 Index Fund J // 0.02% // 0.02%
U.S. Debt Index Fund M // 0.04% // 0.03%
BlackRock MSCI ACWI ex-U.S. Index Fund J // 0.06% // 0.06%
At the Feb 10th ORSC meeting, a memo from GRS was presented regarding the mitigating rate. In this memo, GRS stated that “Our conclusion is that the ARP mitigating rate for the 5-year period beginning July 1, 2022 will be 2.24% of ARP Payroll unless the Board selects a different interpretation of the statute.” Please explain the rationale for why the mitigating rate will “…remain at 3.5 percent” per the OPERS Board Report email I received today.
Mike,
The mitigating rate for the Member-Directed and Combined plans was increased to 3.5 percent by legislative action in 2020. It’s more accurate to call it a “total mitigating rate.” By law, the base rate does not have to match up 1-1 with the ARP mitigating rate.
However, it does so in the following way for the Member-Directed Plan: The plan’s actual mitigating rate is 2.24 percent. Added to that is an additional mitigating rate taken from the Retiree Medical Account in the amount of 0.73 percent. Then we add to that a rate of forfeitures from the Member-Directed Plan in the amount of 0.53 percent. Combine those three percentages, and you get a “total mitigating rate” of 3.5 percent.
I mentioned the 0.73 percent contributed from the RMA. Members do not lose out on this amount. We make them whole by contributing 0.73 percent to their accounts from RMA forfeitures, so 4.0 percent still goes into their RMAs.
Thank you Michael. One follow-up question: will the actual mitigating rate of 2.24% be changing on July 1st, 2022?
Mike,
The actual mitigating rate for members of the Member-Directed Plan is decreasing, from 2.44 percent to 2.24 percent. However, as earlier explained, the total mitigating rate for those members will remain the same, at 3.5 percent.
How do you know which plan you are in? I haven’t worked a d I’m 73 years young will this affect me? There is so much information I’m confused. Do I need to contribute $6 a month to some fund?
I’m on disability.
Thank you
Barbara,
If you receive a monthly pension check, you’re not in the defined contribution plan. If you’d like, you can call us at 800-222-7377 for further information, or refer to your annual statement in your online account.
I’m confused on all the information being provided. How do I know what plan I’m in, I’m on disability. Do I need to contribute $6 a month for some kind of protection? I have not been employed and am 73 years young.
Thank you
Barbara,
Refer to your online account, or give us a call at 800-222-7377.