The Chronicle of Higher Education: Colloquy

TIAA-CREF has long dominated the pension market in higher education, but in recent years it has faced challenges from other financial-services companies eager for colleges' retirement business. TIAA has responded by opening many new offices, broadening its customer service, and expanding its product line to include life insurance, mutual funds, and IRA's. The latest venture has been the most aggressive marketing blitz the staid company has ever mounted, at a cost of tens of millions of dollars. Does TIAA's financial performance for its investors justify the hoopla? Are you happy with how TIAA has managed your retirement dollars? Do you feel that TIAA's ad campaign is a good use of its money? Read more...

I can understand the push for new customers, because the old customers have watched their accounts tank in recent years and no longer fully trust TIAA/ CREF's ability to grow portfolios. Consistently over the past four years I have seen every penny that I put into my account enter into the "minus" column, so that my account barely keeps up with the amount the company contributes. Where is the growth that will lead to my ability to retire? I hope those considering joining TIAA/ CREF will think twice. For now, I am stuck with it!

Over the last ten years I have established a rather large portfolio where my employer has contributed twice what I have. The returns from TIAA-CREF have averaged three times the inflation rate.

My money has been well served by being a member of TIAA-CREf.

Just the opposite can be said for the money I have wasted over the years (let me repeat that. wasted over the years) in the leftist AAUP. They just negotiated a contract with my university where we don't get any raise for the next two years. Oh, but they did resolve that contentious issue of parking for adjunct faculty. (Whew. I was staying up nights over that one.)

Bottom line. If I didn't have TIAA-CREF I wouldn't be saving for my retirement. The AAUP doesn't do squat with respect to salary negotiations. The AAUP is the quickest way to financial ruin.

I have always received good services from TIAA-CREF and I have been a member since 1992. It is easy to move one's money between accounts. I follow the economy carefully amd was able to move out of Equities and into TIPS, Real Estate and Guaranteed Income in March of 2000 which saved me a large portion of my portfolio. About a year and a half ago I redistributed the money from these funds into a more balanced approach. It was easy and there was no one preaching to me about how to handle my investments no "dollar cost averaging" line or anything like that. Dollar cost averaging might be a good way to think of saving but as far as the math goes it is about the same as 2+2=4.

Just looking at Vanguard investments, the company offers the best deals in terms of expenses and a lot of choices. If they became affiliated with our University retirement plans there would be a lot of choices and a lot of confusion.

If TIAA-CREF expenses increase to support the bureaucrats I would probably roll over into Vanguard when I retire in about 12 years. That would cut my average expenses nearly in half and projection wise it would save me about 2000 dollars per year. Hiring more administrators has never provided solutions to any educational or corporate problems just more money diverted upwardly.

Tim Henrich, Ph.D.
Professor of Kinesiology

I've only been with TIAA-CREF for a year and have seen my money go down a lot in just one year. What bothers me most is that I moved my pension funds from my old school pension program to T-C. But, my sister, who understand these financial matters better than I do, says that all stocks are going down as a result of the economy, the war, governmental policies, etc and so for now, I should just leave my funds where they are. I'm not sure.

I am a fee-only financial planner and investment advisor whose clients have authorized to view/trade their TIAA-CREF accounts. TIAA-CREF really is a company that deserves to wear a white hat in the financial products industry since its founding due to its not for profit, research based, low expense approach. However, my take on the company is that they will continue to lose market share among their primary target market for two reasons. One, as an asset allocator I can't really get the diversification I need with their retirement annuity offerings (e.g., no pure international or small cap offerings). I try to build around the limitations of the investment choices in an employer's retirement plan for all of my clients. But, alas, for many college personnel, they have no other substantial savings other than TIAA-CREF. Secondly, the Fidelity's and AIGVALICS of the world have armies of salespeople in one guise or another. TIAA-CREF's direct marketing and "retirement counselors" who visit campuses are no match. If TIAA-CREF wants to compete more effectively and provide better services to their shareholders, it needs to broaden the investment options in the retirement annuities and enlist a cadre of fee only advisors who can objectively evaluate participants true needs and recommend comprehensive solutions.

Thanks for those who are raising this issue.

There is a place for TIAA/CREF to support cultural affairs, such as local public radio (and other things that indirectly benefit participants, but don't immediately come to mind).

But the current campaign strikes me as a misappropriation of my assets.

What are they trying to SELL?

If the goal of marketing is "To cause the public to dislike you for the right reasons", then it misses the mark. But we participants have reason for our dislikes!

My observations support and expand upon the earlier comments by Michael B. Horwitz.

I am an early retiree. About a year ago I moved 60% of my CREF portfolio to Vanguard, for three reasons:
1) Vanguard offers a greater diversity of funds (e.g., short term bond funds, pure international stock funds)
2) Vanguard's expenses are about half those of CREF
3) Vanguard's funds generally track their targets better than do CREF's funds (especially its index funds and its inflation linked bond fund).

I left 40% of the CREF portfolio intact for two reasons:
1) CREF is less restrictive than Vanguard in its policies regarding transfers between its funds, making it easier to rebalance the portfolio
2) If I should decide to convert my funds to a payout annuity, and if TIAA-CREF's terms are better than its competitors, I will already have an account with the organization.

With the news of the recent changes by TIAA-CREF, I'm considering an additional transfer to Vanguard. I am unconvinced by the argument that TIAA-CREF needs to expand to remain competitive. A pension fund doesn't need an asset base as large as TIAA-CREF's $300+ billion to manage its accounts well and to provide quality service to its clients. A growing asset base could be used, however, to justify--or even to increase--the multi-million dollar salary package enjoyed by the TIAA-CREF's chief executive.

Looks like a few people are weighing in on the issue of the TIAA-CREF bureaucratic expansion. Anyone else concerned?

FOR IMMEDIATE PUBLICATION

International Coalition for Human and Workers rights meets Investment Giant

A commission from the international coalition for human and workers rights made up of The US Campaign for Burma * Infact * International Tibet Independence Movement * Press for Change * Social Choice for Social Change * Students for a Free Tibet * U.S. Tibet Committee * World Bank Bonds Boycott* and Frente Civico met with representatives of the TIAA-CREF investment fund that manages nearly 320 billion dollars at its Manhattan Headquarters.

It was agreed that there would be further discussions as a result of the exchange.

Among the issues raised were the following:

If TIAA-CREF is to maintain high moral standing, it must be vigilant of the behavior of ALL of its participating companies that it invests in.

It was requested that TIAA-CREF ask all participating companies to contact governments of countries where they are active in order to assure that LABOR conditions are protected.

HUMAN RIGHTS of all generations must be a priority for investment firms. Within this framework, it has been requested that it press for the closing of a Costco warehouse in Mexico, after the company destroyed a 3200 year old archeological site and historical icon - Casino de la Selva(www.laneta.apc.org/procasino).

For further information please contact Jeff Ballinger at (905)5259140 ext. 5849

The representatives from the coalition were Dennis Brutus, Scott Wilson from Christian Brothers Investments, Jeff Ballinger and Jaime Lagunez.

--------------------------------------------------------------------------------

Could you elaborate on your statement that Vanguard is lower-expense than TIAA-CREF? For twenty or more years, the CREF Stock Fund had expenses of 0.32%. After a spike higher, they are now around 0.40%. In fact, I've attended the last two CREF Annual Meetings to complain about increased expenses. So don't mistake me for someone blindly defending TIAA-CREF.

The cheapest Vanguard *variable annuity* product (which is an index fund) has total expenses (including an expense insurance which CREF doesn't offer) of 0.50%. If you're comparing one 403(b) product to another, CREF still wins, but barely. And one could argue that the expense insurance is a valuable feature. But the fund objectives are not precisely the same.

You may (perhaps) also be comparing CREF funds that are benchmarked to an index with Vanguards famously inexpensive *retail index* funds. Since the CREF Stock Fund aims to modestly beat their benchmark, this comparison is not entirely fair. And it is true that it costs more to administer a variable annuity than a regular mutual fund. You also have to compare costs at retirement income time.

That said, I resent CREF's defense that the increased costs are due to stock market declines. As I said in my speech in Charlotte, "...Net Assets for the Stock Account were about 99 Billion dollars in December 2003. At that time, the expense ratio was 52 basis points, the highest ever. However, the Net Assets were also $99 Billion in December 2001 and in December 1997. In those years, expenses were 41 and 31 basis points. "

I'm preparing a longer post for this group, but in the meantime you might care to visit my site on this topic,
http://crefwatch.home.att.net/ . I need to update the charts with the third quarter 2004 data, but my arguments are still valid.

Participant since 1976, Amherst College, Lincoln Center, City Center Theater

>One, as an asset allocator I can't really get
> the diversification I need with their retirement annuity
> offerings (e.g., no pure international or small cap
> offerings).

I respect the fact that many investors feel more comfortable with a paid planner to help them. In the old days, TIAA-CREF provided so much more advice than the other companies, faculty and staff felt comfortable in their warm embrace!

Forgive me if it sounds aggressive, but don't you mean (in the quote above) that you can't exercise (and display) the judgement your clients are paying for? The CREF Stock Fund has over 10% international exposure, which might be quite appropriate for many investors. But it's not a fundamental policy, nor is it "rebalanced" in the way it can be when you select a pure international fund for your clients.

I admit, I'm 53, and I remember when there were only two TIAA-CREF choices. But it's fair to say that many clients might still be well-served (and "for free") by a 50% TIAA Traditional - 50% CREF Stock Fund allocation. But it leaves one little to talk about at cocktail parties. (I'm talking about a 30 to 40-year horizon, of course.)

Dear Make TIAA CREF Ethical,
As long as TIAA CREF is not doing anything illegal, I'm comfortable with their investments. They have a special iinvestment option (I think it's called Social Choice, but I'm not positive) for those such as you who are especially concerned about what you may deem to be ethical issues. I want them to be competitive investors so I can grow my money. There is no bright line when it comes to ethical and social issues, and what's slop to one might be soup to another.

Make TIAA CREF Ethical wrote:

> FOR IMMEDIATE PUBLICATION
>
>
> International Coalition for Human and Workers rights meets
> Investment Giant
>
> A commission from the international coalition for human and
> workers rights made up of The US Campaign for Burma * Infact *
> International Tibet Independence Movement * Press for Change *
> Social Choice for Social Change * Students for a Free Tibet *
> U.S. Tibet Committee * World Bank Bonds Boycott* and Frente
> Civico met with representatives of the TIAA-CREF investment
> fund that manages nearly 320 billion dollars at its Manhattan
> Headquarters.
>
> It was agreed that there would be further discussions as a
> result of the exchange.
>
> Among the issues raised were the following:
>
> If TIAA-CREF is to maintain high moral standing, it must be
> vigilant of the behavior of ALL of its participating companies
> that it invests in.
>
> It was requested that TIAA-CREF ask all participating
> companies to contact governments of countries where they are
> active in order to assure that LABOR conditions are protected.
>
>
> HUMAN RIGHTS of all generations must be a priority for
> investment firms. Within this framework, it has been requested
> that it press for the closing of a Costco warehouse in Mexico,
> after the company destroyed a 3200 year old archeological site
> and historical icon - Casino de la
> Selva(www.laneta.apc.org/procasino).
>
> For further information please contact Jeff Ballinger at
> (905)5259140 ext. 5849
>
> The representatives from the coalition were Dennis Brutus,
> Scott Wilson from Christian Brothers Investments, Jeff
> Ballinger and Jaime Lagunez.
>
>
>
>
> --------------------------------------------------------------------------------
>

Affirmative action and civil rights complete. Now it's time for minority welfare

As a half jig and half jew I can say that any free money is a good thing, just so long as I can keep evading tax.

Shalom out!

The truth is that as politicians vie for their posts through peoples votes (either the trust is valued on the majority of the electorate) the presidential appointees has to retain some evidence of trust on the electorate.Hence, the ballot box is not involved this time rather the peoples opinion is expressed through their elected representatives.
The process is the problem but the appearing before the senate committee should not be adjudged as a delay(as such questioning is very necessary) In the case where official custom issue is being used as a tactice or a draw- back process lacks substance.
As the government ,senate know that their actions is reflected on the level of responses the academics conducts in relation with their calls, and a fith of the total calls turns down the request there is every need for reconsideration to take place not necessarily to discontinue the process but to remove questions that does not make provisions for direct implications like in Mr Helms and Dam tussle in the senate.
In all one should think that any device taken should always ensure that the trust of the electorate representatives are maintianed if not the trust of the electorate on the president slides to the list informing the consideration for a change.
Benjamin.Nweke
(lagos-nigeria)

Thanks for the Vanguard information. That's an impressive expense ratio, but Vanguard is famous for their low-cost fixed-income funds. And Target Retirement 2015 (is that the name you meant?) is 52% bonds right now.

So it would be fairer to compare your suggestion with 50% CREF Stock and 50% TIAA Traditional. But ... and this is a crucial distinction in what can be expected (forward-looking statement !) to be a rising interest-rate environment: TIAA Traditional is not a bond fund, it's a Guaranteed Investment Contract. It's designed to preserve principal. That's a good reason for it to cost more and deliver less than some bond funds.

Furthermore, the stock content of that Vanguard fund is 100% indexed. CREF stock funds are more actively managed, which costs more. Yes, they *can* miss their goal of modestly outperforming their benchmark. But an index fund has no hope of declining less than its' benchmark in a down year!

Look at it this way (as should Mr. Dent, who's using a one-year record to evaluate an entire fund family). Amherst College and I put $4,963 in my account from 1976 to 1979. (My starting salary was $11,000 in 1974.) New statistics from TIAA-CREF's web site (that means I haven't evaluated their new "Basis" reporting) suggests that my annual return has been around 12%, yielding $88,420 today.

To repeat, I'm suspicious of "the new" TIAA-CREF. But they've done well for me so far. That's why I have four other accounts there.

Of course no one can assure that *any* investment will do that well in the future. And no one can promise that CREF (or Vanguard) will not change their costs in the future. But you can't make a lifetime decision on one year's data.

I regret referring to Modernista (TIAA-CREF's new advertising agency) as "edgy" in my speech at the 2003 CREF meeting. I was quoting a Slate article (1), but the ads they've produced are anything but edgy. And I hate the use of Bernstein's song, "Somewhere". I can see some 20-something "Creative" at the presentation easel, humming the first line. But he's too young to have ever seen the show. He doesn't know it's a tragedy, and Tony is dying in Maria's arms as she sings the reprise.

The TV ads (with expensive placements and lots of airplay) are as stodgy as anything we had before. I rather like a stodgy image, but if we're fighting for our corporate lives, how can you pay for a new campaign that doesn't compete with Fidelity appeals to glamor and greed? The messages on this board indicate that T-C does "look" behind the times.

Every time I read about the bicycle team, I think of "Enron Field", or "HealthSouth Stadium". And I also think of the lucrative for-profit spin-offs at Minnesota Public Radio. But the question really is, should a non-profit be funding other non-profits beyond its' specific mission?

The announcement of the new agency came as part of a tumultuous Fall, 2003 for TIAA-CREF. The first NY Times headline was "TIAA-CREF Lays Off 8% of Workers in Overhaul"(2). This was followed by the advertising review (3), and the selection of Modernista (4). A few days later, Long-Term Care policyholders learned that their product was being sold to Met Life (5). I had recently told my mother to get her LTC-insurance from TIAA-CREF over AARP, because I trusted them more!

All of this was part of Herbert Allison's overhaul, described in a CREF Annual Meeting handout titled "Decisions 2003". There were also press releases on that topic. Because it's all part of the same package, here are some significant quotes from the handout:

"For at least the next 3 years, our core market will comprise the institutions... employees and families, within: Higher Education, Private K-12, Research and other education-related not-for-profits, Hospitals. We aspire to be the unquestioned market leader in our core market." ... [to be achieved by ...] ...

"Identifying and delivering the highest-value products and services, whatever their source (with 'value' defined as the relationship between the extent to which our products and services satisfy expectations for a given risk and return profile, and the price our customers pay).

"Ensuring an economically vibrant TIAA-CREF, with unsurpassed staying power, that will be there to meet their need over the long term."

That's only a small part of the document, but it puts the advertising campaign in the context of major changes. Are they the right changes? That's a matter of opinion, and it helps to decide whether you're in favor of change, in favor of the status quo, or just plain suspicious, as I am.

There is some basis for the opinion that the past management of TIAA-CREF allowed the company to become complacent and bloated with staff. If you agree, the conclusion is inescapable that something drastic had to be done. Is our huge company in danger of ending up in a stagnant backwater of the financial services business? Is Fidelity going to eat our lunch, even though they have much higher costs than Vanguard? (Remember, to a great extent, we participants own TIAA-CREF.)

I used to work for two different non-profits that used a not-for-profit 403(b) company with the word Mutual in its' name. I rolled my money over to TIAA-CREF when I realized that the little annuity company was charging me well over 1.4% annually. (That number is over 12 years old, and I don't remember the exact value.) Although it's still active, that company could be said to have fallen into the shadows of the giants. And there's no doubt that increased size reduces costs. (Although, see (6) for an illuminating discussion of size and cost!) At that time, the CREF Stock Fund cost 0.32%, and less in some years.

I complained to CREF about opening expensive regional offices, which began with Princeton and New Haven. After all, TIAA-CREF used to be famous for its' telephone and brochure support. And Internet management of an account is even cheaper. Allison answered that when TIAA-CREF people go out to campuses, they're always asked, "Hey, Fidelity just opened an office out at the mall. When are you going to open one?". I had, I'm ashamed to say, a New York-centric view of the problem. I can't argue with those costs anymore. It's really true that a lot of investors want someone to hold their hand.

My concern about the advertising campaign is that it's vastly expensive by itself, and it's part of a plan to, in effect, bet the company on the "Decisions 2003". Note in the quotes above, "For at least the next 3 years", and "...whatever the source". To me, those phrases mean, respectively, 'if we can make it work', and 'we'll pay some big guys to sell their stuff to customers who think our offerings are wimpy'. That's my opinion, of course.

If you think we're in a position like Boeing vs. Airbus, or AT&T versus new technology, you may feel that desperate measures are called for.

But what happens if the campaign fails? I think it's possible that TIAA-CREF could ask the New York State Legislature for permission to convert to a stock corporation. That's what Blue Cross-Blue Shield has done in many states. And it's similar to the legion of mutual life insurance companies that have de-mutualized. The state legislatures are eager to convert wealthy not-for-profits (although the BC/BS scheme failed in North Carolina, for one) because it's a huge source of state cash, without taxes! In every case, competition and capital access are the reasons given, but I believe the real motivation is the proverbial "brass ring" for the corporate officers: Stock options and restricted stock awards. If you think this is far-fetched, recall that the Mutual of New York officers did well twice, once when they converted from policyholder ownership, and again when AXA bought the new stock company.

I know that sounds paranoid. But CREF has considered changing its' corporate form before. But the plan was beaten back (7), by our own interest groups. And if you think about it, Allison is just the guy to do this. He's a major Wall Street figure, and (because I've heard them speak about their hiring decision), the Board has absolute confidence in him (8). If this marketing scheme fails, he's not going to get fired. He's going to be given a mandate to "Merrilize"(9) the company.

Do not think that I find no redeeming features in Herbert Allison. There are worse guys to have in charge. Others have told me that he's much more personable and willing to debate an issue than the previous President. He's been a statesman: When Long-Term Capital collapsed, he was one of five executives called to the New York Fed's dining room to work out a solution (10). But he's also been the President of a full-service, full-cost brokerage/investment bank. In fairness, when Business Week asked him about going public, he said (11),

"Being a not-for-profit is an advantage here, and I felt that before. If you look at financial services in the U.S., I think the stars are aligning around a concept such as TIAA-CREF after many years. And I'm not changing the basic concept. It's a real advantage because of the trust it engenders in those we serve."

But I've spent most of my career at not-for-profits. He hasn't. And if the advertising campaign fails, that quote does not rule out a conversion. So I'm working on a proxy proposal to require a super-majority for a change in the form of business.

Timothy Buchman
Participant at Amherst College, Lincoln Center, and NY City Center Theater.

(1) http://slate.msn.com/id/2091321/

(2) NY Times, "TIAA-CREF Lays Off 8% of Workers ...", September 23, 2003.

(3) NY Times, "...Cuts Review to 3 Finalists", October 9, 2003.

(4) NY Times, "Modernista Chosen ...", November 11, 2003.

(5) TIAA-CREF letter to policyholders, "Re: Sale of TIAA-CREF's Long-Term Care Insurance Business to MetLife. November 20, 2003.

(6) http://www.economicprincipals.com/issues/04.01.25.html .

(7) [1989 SEC LEXIS 1606] and [1989 SEC LEXIS 1605].

(8) http://www.aaup.org/statements/SpchState/tiaacref.htm .

(9) http://www.businessweek.com/magazine/content/03_41/b3853118_mz020.htm .

(10) NY Times, "A Legendary Trader Reaches Out", September 27, 1998.

(11) http://www.businessweek.com/print/magazine/content/03_41/b3853121_mz020.htm?chan=mz&

Additional references at:

http://home.att.net/~crefwatch/bibliog.htm
and
http://crefwatch.home.att.net/

You may have read that one member of the CREF board, and one member of the TIAA board resigned, effective last week. It turns out that, since August, 2003, they were doing business (throught an entity they formed) with a unit of our (TIAA-CREF's) "independent" auditor, Ernst and Young.

Each participant can form his own opinion on this unpleasant matter. I've listed some references below. I also refer you to page B-30 of CREF's "Statement of Additional Information." Appendix A quotes TIAA-CREF's Policy Statement on Corporate Governance. This ground-breaking document is also available at http://www.tiaa-cref.org/pubs/html/governance_policy/index.html .

Under "Board of Directors, A. Board Membership", it states,

"...the definition of independence should extend beyond that incorporated in amended listing standards of the exchanges. We believe independence means that a director and his or her immediate family have no present or former employment with the company, nor any substantial connection of a personal or financial nature (other than equity in the company or equivalent stake) to the company or its management that could in fact or in appearance compromise the director’s objectivity and loyalty to shareholders. To be independent, the director must not provide, or be affiliated with any organization that provides goods or services for the company if a reasonable, disinterested observer could consider the relationship substantial."

Whether or not you agree with the press release's statement that, "Professor Ross and Mr. Waltrip said that neither was aware that this business relationship raised an issue under the SEC’s auditor independence standards", you might ask yourself whether they should have considered our own company's standards.

First News Item:
Weil, Jonathan and Lublin, Joann S. "Venture Snares TIAA-CREF, Ernst", The Wall Street Journal, December 3, 2004

Other Articles:
(Time-limited free access to NY Times.com articles)
http://www.nytimes.com/aponline/business/AP-TIAA-CREF-Trustees.html

http://cbs.marketwatch.com/enf/rss.asp?guid=%7BE4295262-4DB4-46A5-8594-970A4203C5BE%7D&dist=rss&siteid=mktw

http://money.cnn.com/2004/12/03/funds/tiaa_cref.reut/

TIAA-CREF Press Release:
(not yet on the TIAA-CREF web site ... ...)
http://www.sec.gov/Archives/edgar/data/946155/000093041304005594/c34636_ex99-1.htm

For the sake of completeness, I want to post a reference to the second article on this topic in the Wall Street Journal. It is much longer and full of lurid details. It mentions both the Chief Accounting and the Enforcement divisions of the SEC.

Weil, Jonathan and Lublin, Joann, S., "TIAA-CREF Faces Question On Governance; Fund's Brass Failed to Inform Key Panel About Improper Deal With Ernst, Its Outside Auditor", Wall Street Journal, Dec 6, 2004, p. C1

This is ProQuest document ID: 754469241

The previous (Dec 3, 2004) article has ProQuest document ID: 751251001

A pension giant invests in an ad blitz