The state of Virgina enjoys a reputation for conservatism in fiscal affairs, an attribute that has helped it weather a tough recession.

So when the state employee retirement system began investing in potentially volatile futures contracts, state Sen. Robert E. Russell Sr. scratched his head.

"It seems we're on the cutting edge as far as public employee retirement funds are concerned," Russell said in a recent interview. "That's a little out of character for Virginia to be on the cutting edge in things like that."

Russell introduced legislation in the last session of the General Assembly that would have prohibited the state from trading in futures. Instead of an outright ban, lawmakers decided to conduct a top-to-bottom review of retirement system investments, ranging from the appointment of trustees to the type of investments that should be allowed.

The Joint Legislative Audit and Review Commission, on which Russell sits, will try to complete the study by November.

Under Virginia law, investments generally are governed by the so-called prudent investor rule. State law also specifically outlines the types of investments that the state retirement system can make, such as certificates of deposit and state and local bonds.

"The question comes up, 'Gee, if the legislature felt compelled to draw up a list with such specificity, then is it okay to invest in futures?'" Russell said.

He said he expects "there will be some legislation that will come out of this [study] that will clarify some of the questions and probably change some of the procedures."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.