The Florida Retirement System's Investment Plan

[joel]

As many of you know the Florida Retirement System is offering to its 600,000 members a new participant directed Defined Contribution plan under Section 401(a). The following link provides a summary of the available investment options:

http://www.myfrs.com/pdf/Invest_Fund_Summary.pdf

How do these investment funds compare to other large participant directed DC plans?

[Jon Chambers]

The number of funds offered is greater than is normally offered through most similarly sized plan. Given the size of the population, I'm surprised that there wasn't greater focus on cost control, as the funds are primarily retail mutual funds. It appears that numerous entities (e.g. Prudential, VALIC, Nationwide) are acting as marketers, and may be demanding significant revenue share in order to support enrollment functions, etc. While it should be possible to construct an effective portfolio from the choices offered through the plan, the State of Florida should have been able to do a better job on the list.

The marketing piece seems well done. It's a little light on disclosure. I'm intrigued by how fund fees are presented--it's a unique approach, that illustrates costs. I'd suggest that the projected accumulations over 10 years, including downside result, average result and upside result, are likely to be misunderstood. I'm sure they are based on Monte Carlo simulation, mean-variance optimization, or some other sophisticated technique (I didn't review closely enough to see what they did), but I can virtually guarantee that one of the funds will perform worse than the "downside result" over the next ten years, and someone will have some explaining to do. I wouldn't use that explanatory approach.

Just my 2 cents. Anyone else have thoughts?