The Investment Decisionmaking Process in Two Virginia Public Employee Retirement Plans

The Virginia Supplemental Retirement System originated in 1908 primarily as a benefit to teachers, but now has 214,000 active and retired members, and incorporates the State Police Officers Retirement System and the Judicial Retirement System in its management and investment activities. The Employees' Retirement System of the City of Roanoke, created by city ordinance in 1946, had, in fiscal year (FY) 1975, 2,503 active and retired members. Membership in the Virginia System is limited generally to full time, salaried employees of state and local government entities and school boards. Membership in the Roanoke System is open to all city employees not covered by a state plan. Funding for the Virginia System is obtained from employers and employees, but in the Roanoke System only the employers pay. Both Systems provide retirement income for life, and financial protection in the event of disability or death. Both Systems also have cost-of-living annuity increases.

The Virginia System is managed by a board of directors, which has an investment committee, and to which report the System director, the State treasurer, and the chief investment officer, who supervises the money managers. The Roanoke System is administered by the City Council which delegates authority through a board of trustees to the secretary/treasurer and an investment committee which negotiates with a custodian bank. Both Systems must obey the rules of investment set up by the State legislature, which direct that moneys must be diversely invested. The Virginia System's long range objective is to achieve both a satisfactory rate of investment income and a reasonable increase in principal value through market appreciation. The Standard and Poors Index is used as a guide for market fluctuation. Total returns of bonds should exceed that of the general bond market. Investment restrictions have been established to ensure diversification. Both systems have various management techniques to manage cash, monitor investment performance, identify potential conflicts of interest, and ensure investment portfolio diversification. The Virginia System is audited by a member of the board, as required by law, but the Roanoke System is audited by local accounting firms. The Virginia System's pension plan assets for FY 1976 were $1,127,409,000 with a 5.9-percent rate of return. The Roanoke System's pension plan assets for FY 1975 were $24,071,471 with a 1.7-percent rate of return.