October 14, 2021 the Department of Retirement Systems (DRS) is changed how money is invested inside its retirement strategy funds, sometimes called target date funds. If you have money in your DCP or Plan 3 account sitting in one of these funds, this change affects you automatically, even if you never log in or touch a thing. In this post, we’ll break down what’s changing, why your fees are about to go up, and how these funds stack up against similar options from Fidelity and Vanguard.
What Is Actually Changing?
Think of a target date fund like a pre-mixed smoothie. Instead of picking your own investments one at a time, you pick a fund with a year close to when you plan to retire, and the state mixes the ingredients for you. As you get closer to that date, the mix automatically shifts to be less risky.
On October 14th 2021, DRS is changed the recipe. They’re adding a new ingredient called the WSIB fund, also known as the TAP fund, into every one of their target date funds. This fund has actually been around for a long time. It’s the same one that’s been the default investment option in Plan 3 for years. What’s new is that it’s now being blended directly into the target date funds too.
What’s Inside the WSIB Fund?
The WSIB fund is considered an aggressive investment. Here’s roughly how it’s split up:
- 23% private equity (ownership stakes in companies that aren’t publicly traded)
- 33% public equity (regular stocks)
- 18% real estate
- 7% tangibles, like farmland and other physical assets
- 20% bonds
Private equity sits at the riskier end of the spectrum because it isn’t traded on the open market and normally requires being an accredited investor to access on your own. About 55% of the WSIB fund is invested in this higher-risk category, which is why it’s classified as aggressive.
Why Are Your Fees Going Up?
Of all the fund options inside the DCP and Plan 3 lineup, the WSIB fund is the most expensive one to hold. Since DRS is now blending a chunk of this pricier fund into every target date fund, the overall cost of those funds is going up too.
In raw numbers, the increase is small. Fees are only going up by about 0.08 percentage points. That might sound tiny, and dollar for dollar it is. But looked at as a percentage of what you were already paying, it works out to roughly a 61% increase in fees. If you were paying $13 a year for every $10,000 invested, you’d now be paying closer to $21. It’s not a number that will wreck your retirement, but it’s worth knowing about, especially since nobody had to opt in for it to happen.
Fees are worth paying attention to, but they aren’t automatically bad. A slightly higher fee that comes with real diversification, professional oversight, or better long-term planning support can be worth every penny. The key is knowing what you’re actually paying for and whether you’re getting good value in return, not just reacting to any number that goes up.
What Does This Look Like in Dollars Over Time?
Fee differences are easier to picture with real numbers attached to them. Let’s say you have $50,000 sitting in a DRS target date fund. Here’s roughly how the old fee versus the new fee plays out over ten years, assuming the balance stays flat just to isolate the effect of the fee itself.
| Fee Rate | Annual Cost | 10-Year Cost |
|---|---|---|
| Old Fee | About $65 | About $650 |
| New Fee | About $105 | About $1,050 |
That’s roughly $400 more over ten years on a $50,000 balance, just from this one change, and that’s before accounting for growth, which would make the real dollar difference larger over time since fees are usually charged as a percentage of your growing balance. Again, this isn’t a number that should cause panic. It’s a number worth knowing, especially since it changed without you doing anything.
How Much More Risk Are You Taking On?
To make room for the new WSIB allocation, DRS is pulling money out of a few other places. They’re trimming large cap stocks a bit, taking a bigger bite out of global stock exposure, and cutting the inflation-protected securities (a safer, bond-like holding) nearly in half.
Let’s look at the 2030 fund as an example, since DRS published a detailed breakdown of it.
| Asset Category | Old Allocation | New Allocation |
|---|---|---|
| WSIB / TAP Fund | 0% | 22% |
| Real Estate | 4.6% | 8.1% |
| Inflation-Protected Securities | 10% | 2% |
| Total Equity | 73% | 73% |
Notice that the total equity percentage doesn’t actually change. It’s still 73% in both versions of the fund. But here’s the catch: not all equity carries the same amount of risk. A share of a large, stable company is a lot steadier than a stake in a private business that doesn’t trade on the open market. Since a portion of that 73% is now coming from the WSIB fund’s riskier private equity holdings, the overall risk level of the fund goes up even though the equity number on paper looks the same.
At the same time, the safer, bond-like cushion (the inflation-protected securities) is getting cut nearly in half. Less cushion plus riskier stock exposure adds up to a fund that can swing harder in both directions, up and down, than the one you were in last month.
How Do DRS Funds Compare to Fidelity and Vanguard?
To put this change in perspective, it helps to compare the state’s 2030 target date fund to similar 2030 funds offered by Fidelity and Vanguard, two of the largest fund companies in the country. Keep in mind this isn’t an option you can pick in your DCP or Plan 3 account. It’s just a useful reference point for how much risk the state’s fund is carrying compared to well-known alternatives.
| Fund | Equity / Fixed Split | 1-Year Return |
|---|---|---|
| DRS (State) | 73% / 27% | 33% |
| Fidelity | 66% / 33% | Just under 30% |
| Vanguard | 66% / 33% | About 26% |
Note: these one-year figures come from the June 30, 2021 reporting period, since that’s the most recent performance data DRS had published at the time of this comparison. The pattern still holds as a useful illustration.
The state’s fund has less money in fixed income (the safer, bond-heavy portion) than either Fidelity’s or Vanguard’s version of the same target year. Fidelity and Vanguard didn’t break out private real estate as a separate line item, so it may be tucked inside their other holdings, but based on what’s disclosed, the state’s fund is carrying more risk.
Higher risk can be worth it if the returns back it up. Looking just at the one-year number, the state’s fund did outperform both Fidelity and Vanguard. But when you stretch the timeline out to three and five years, a more honest picture for long-term investors, the state’s fund wasn’t meaningfully ahead of either one. That’s the part worth sitting with: more risk, without a clear long-term payoff to justify it.
Who This Affects: DCP and Plan 3 Participants
This change touches anyone with money sitting in a DRS retirement strategy (target date) fund through their DCP account or their Plan 3 account. That includes members across PERS 3, TRS 3, and SERS 3, since the target date fund lineup works the same way across each of these systems.
Target date funds are built for the average person retiring around age 65. Many Washington state employees, though, retire earlier than that, often around age 62 once they’ve hit 30 years of service. If that’s your plan, a fund built for a 65-year-old retirement date might not fit your actual timeline. In that case, it may make more sense to build a portfolio around when you’re really planning to retire, instead of relying on a one-size-fits-all fund.
What Should You Do About It?
You don’t need to panic over a 0.08% fee bump. But this is a good reminder that your target date fund isn’t a “set it and forget it” account, even though it’s marketed that way. The state can change what’s inside it, adjust your fee, and shift your risk level, all without asking your permission first. That’s exactly what just happened.
It’s worth setting aside even just ten minutes a year to check how your account is invested and whether the risk level still matches your comfort and your timeline. If you’re not sure how to evaluate that on your own, or you’d rather have someone build a portfolio around your specific retirement date instead of a generic target year, you can schedule a personal meeting to walk through your options together.
Frequently Asked Questions
When do the DRS target date fund changes take effect?
The new allocations go into effect on October 14. If you have money in one of the DRS retirement strategy funds through your DCP or Plan 3 account, the change happens automatically. You don’t need to do anything for it to apply to your account.
Do I have to do anything to keep my old allocation?
No. There isn’t an option to opt out and keep the old mix. If you’re not comfortable with the new risk level, your choice is to move your money into a different fund option or build a customized portfolio instead of staying in the target date fund.
What exactly is the WSIB or TAP fund?
WSIB stands for the Washington State Investment Board. Their fund, sometimes called the TAP fund, has been the default investment option in Plan 3 for years. It’s considered an aggressive fund because a large share of it, about 55%, sits in higher-risk categories like private equity and real estate.
Are target date funds a bad choice?
Not necessarily. They’re a reasonable, low-effort option for someone who wants a hands-off approach and plans to retire around the standard target age. The issue is that they’re built for an average retirement date, not your specific one, and the state can change what’s inside them without your input, which is exactly what’s happening here.
How much will my fees really go up?
The dollar amount is small, about 0.08 percentage points. But compared to what target date fund investors were paying before, that works out to roughly a 61% increase in fees. It’s a good moment to check your account and understand exactly what you’re being charged and why.
How can I check my current fund allocation?
Log into your DRS or DCP account online and look at your current investment elections. You’ll be able to see which fund or funds your balance is in and what percentage is allocated to each one. If you’re in a target date fund, the account details should also show you the updated breakdown once the October 14 changes take effect.
Should I move my money out of the target date fund?
That depends on your timeline, your comfort with risk, and what other options are available inside your specific plan. There isn’t a one-size-fits-all answer, which is exactly why it helps to look at your personal situation with someone who can walk through the tradeoffs with you rather than guess based on a general rule of thumb.
P.S. If all of this has you wondering whether your current investment mix actually matches your retirement date and your comfort with risk, you’re not alone, and it’s a fair question to ask. Our free community is a good place to start learning the basics before you decide what to do next.
