The Illinois State Board of Investment, which oversees several state pension funds, voted on Thursday to axe all active managers in the portfolio of the state-administered 401(k) plan.
About 52,000 residents are enrolled in the defined contribution system, which can be chosen by workers instead of a traditional defined benefit.
The shift came down to two things: performance and fees.
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The Illinois State Board of Investment, in a 7-to-1 vote on Thursday, jettisoned mutual funds sold by T. Rowe Price Group Inc., Fidelity Investments, Invesco Inc. and four others.
The pullback means roughly $2.8 billion of Illinois state-employee retirement assets—representing roughly two-thirds of the $4 billion fund—would now be in the hands of Vanguard Group and Northern Trust.
The shift would dramatically reduce outside management fees paid plan-wide, dropping from more than $10 million annually to $1 million, Marc Levine, the board’s chairman, said in an interview. On a per-participant basis, it equates to fees being shaved to about one-fourth of the previously paid total.
The shift means Illinois state workers, legislators and judges—those participating in the 401(k)-style fund—would choose from between seven categories of investments rather than 16. All the holdovers will be so-called “passive” funds that strive to imitate, not outsmart, the markets.
“We’re taking all that complexity out,” Mr. Levine said.