If you have a Plan 3 or DCP account with the Washington State Department of Retirement Systems, here’s an uncomfortable question: do you actually know where your money is invested right now? Not roughly. Not “somewhere in stocks.” Exactly.
Most people don’t, because Plan 3 and DCP were built to work even if you never log in and never make a single choice. That’s convenient, but it also means a lot of people have been sitting in a default fund for years without knowing how much risk it’s actually taking with their money. Some of those default funds carry more risk than people realize, especially the closer you get to retirement.
This post walks through what’s really inside the TAP fund and the target date funds that most Plan 3 and DCP members end up in by default, why that risk level might not match your situation, and how to check your own account so you’re not guessing.
What Plan 3 and DCP Actually Are
If you’re in PERS 3 or TRS 3, your retirement has two parts. One part is a pension, which DRS manages for you and pays out a set amount for life. The other part is a defined contribution account, meaning you and your employer put money into it and you choose how it’s invested. DCP works the same way, except it’s a standalone supplemental savings plan rather than half of a pension.
Here’s the part that trips people up. With the pension half of Plan 3, DRS does the investing and takes the guesswork off your plate. With the defined contribution half, and with all of DCP, the investing decisions are yours. If you never make a choice, the system doesn’t leave your money in cash. It automatically places it into a default option for you.
That default option is exactly where things get interesting, because it isn’t as conservative as most people assume.
The TAP Fund: Your Default If You Were Hired Before 2011
If you were hired before 2011 and never actively chose your investments, there’s a good chance your Plan 3 or DCP money has been sitting in the WSIB Total Allocation Portfolio, usually called the TAP fund, this whole time.
Think of the TAP fund like a big mixed bucket. It holds public stocks, but it also holds private equity and real estate, the kind of investments that don’t trade on a public exchange and that you can’t easily look up a daily price for. That mix makes the TAP fund harder to evaluate than a normal stock fund, and historically it has underperformed a simple S&P 500 index fund over long stretches of time.
Picture two neighbors each put $10,000 into a retirement account 20 years ago. One neighbor bought a simple S&P 500 fund and left it alone. The other got defaulted into the TAP fund and also left it alone. Both took on real market risk the whole time, including private equity and real estate risk that’s hard to see or measure. But historically, the neighbor in the plain S&P 500 fund ended up ahead, not because they did more work, but because the TAP fund’s mix of complex holdings dragged on returns.
If you’re in your 50s or older and you’ve never checked your Plan 3 or DCP investments, this is worth ten minutes of your time. Being in an aggressive fund by accident, this close to retirement, is a very different situation than choosing an aggressive fund on purpose.
Target Date Funds Aren’t as Safe as the Name Sounds
If you were hired in 2011 or later, your default likely isn’t the TAP fund. It’s a target date fund, sometimes called a target retirement fund, with a year in the name close to when you plan to retire. The idea sounds simple and reassuring: pick the fund with your retirement year on it, and it automatically gets more conservative as that year approaches.
That’s the pitch, and it’s mostly true in the early years. But these funds have come under real scrutiny lately, because they’ve been leaning more aggressive than their own glide path would suggest. Why? Because after years of underperforming other investment options, some target date fund managers responded by dialing up the risk to try to catch up on returns.
Look at a 2065 target date fund and a 2045 target date fund side by side. You’d expect the 2065 fund, meant for someone 20 years further from retirement, to carry noticeably more risk than the 2045 fund. In practice, the two have shown almost the same level of risk. That’s a 20-year gap in time horizon with barely any gap in risk exposure, which raises a fair question: is that appropriate for the person who’s supposedly the more cautious saver of the two?
The table below shows roughly how much of a target date fund is typically still invested in stocks (equities) at different points on the retirement countdown. Numbers vary by exact fund lineup, but the pattern holds across most target date fund families.
| Target Retirement Year | Years Until That Date | Typical % Still in Stocks |
|---|---|---|
| 2065 Fund | ~39 years out | Around 90% |
| 2045 Fund | ~19 years out | Around 90% |
| 2030 Fund | ~4 years out | Around 80% |
| 2020 Fund (already past target date) | Already retired | Around 65% |
Look at that last row again. A fund built for someone who has already reached their retirement date can still be roughly two-thirds invested in the stock market. If the market drops 25% the year after you retire and two-thirds of your account is exposed to that drop, that’s not a small detail. It’s a real number that changes how much income your account can safely support.
Why the “Next Nine Years” Group Is Worth a Second Look
People planning to retire within the next nine years or so, meaning they’re sitting in something like a 2030 or 2035 target date fund, are often still around 80% invested in stocks. That’s not automatically wrong. But it’s a lot more risk than most people in that group picture when they hear the phrase “target date fund is supposed to protect me as I get closer.”
Why This Matters More the Closer You Get to Retirement
There’s a concept in retirement planning called sequence of returns risk. It sounds technical, but the idea is simple: the order your investment returns happen in matters just as much as the average return over time, especially in the years right before and right after you retire.
Say you have $400,000 in your Plan 3 or DCP account the year you retire, and the market drops 20% that first year. Your account is now worth $320,000. If you’re also pulling income out of that account at the same time, you’re selling shares while they’re down, which locks in the loss instead of giving it time to recover. Compare that to someone who hits that same 20% drop ten years before retirement. They have time to ride it out, and the drop barely shows up in their final number.
That’s exactly why the amount of stock market risk in your account matters so much more in your final working years and early retirement years than it did at age 30. A fund that’s still 65% to 90% in stocks right around your retirement date isn’t automatically a mistake, but it should be a choice you made on purpose, not something that happened because a default setting never got changed.
How to Match Your Plan 3 or DCP Account to Your Own Risk Tolerance
The good news is that Plan 3 and DCP both let you choose your own investment mix instead of staying in the default. Here’s a simple process to work through.
- Log into your DRS account and find your current fund lineup, including what percentage of your balance sits in each fund.
- Check whether you’re in the TAP fund, a target date fund, or a mix you built yourself.
- Ask yourself honestly how you’d feel, and what you’d actually do, if your account dropped 20% in the year before or the year after you retire.
- Compare your current allocation to your actual timeline and comfort level, not to whatever the default happened to assign you.
- Revisit your allocation at least once a year, since your risk tolerance and time horizon both shift as retirement gets closer.
That last step is the one most people skip. Plan 3 and DCP don’t send you a reminder to check in, so unless you build the habit yourself, years can pass with no changes at all, even as your life circumstances change quite a bit.
This is also exactly the kind of decision that benefits from a second set of eyes, since it depends on your full financial picture, not just the fund names on a statement. If you’d like to walk through your own Plan 3 or DCP allocation with someone who does this for a living, you can schedule a personal conversation here and get a plan that’s actually built around your situation.
Frequently Asked Questions
What’s the difference between Plan 3 and DCP?
Plan 3 is a hybrid pension for PERS, TRS, and SERS members, made up of a DRS-managed pension piece and a self-directed investment piece. DCP, the Deferred Compensation Program, is a separate voluntary savings plan you can contribute to on top of your pension, and it’s entirely self-directed.
Am I automatically in the TAP fund?
Only if you were hired before 2011 and never actively selected your own investments. Members hired in 2011 or later are typically defaulted into an age-based target date fund instead. Either way, the only way to know for sure is to log into your DRS account and check.
Are target date funds a bad choice?
Not necessarily. They’re a reasonable option for a lot of people, especially earlier in a career. The issue isn’t that target date funds are bad, it’s that many of them carry more stock market risk near retirement than their name implies, so they’re worth checking rather than assuming.
How do I check my own allocation?
Log into your DRS online account and look at your Plan 3 or DCP investment summary. It will show which fund or funds you’re in and what percentage of your balance sits in each one. If you’re not sure what you’re looking at, that’s a good sign it’s worth a second opinion.
Do I have to manage this myself?
No. You can absolutely get help matching your account to your own risk tolerance and timeline, whether that’s through ongoing professional guidance or a one-time review. Getting help doesn’t mean something is wrong with you for not knowing this already. Most people were never taught it in the first place.
P.S. If you’ve read this far and you’re not sure whether your Plan 3 or DCP account is invested the way you think it is, that’s worth fixing today, not next year. The fund names and percentages above are common patterns, but your own account, your own timeline, and your own comfort with risk are what actually matter.
