Trying to decide between TIAA-Cref and Prudential Retirement

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Retired1809
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Trying to decide between TIAA-Cref and Prudential Retirement

Post by Retired1809 »

My government employer offers deferred comp plans from both TIAA-Cref and Prudential Retirement. I'm trying to decide which one to choose.

Both offer a good selection of no-load funds, including index funds (although not with expense ratios as low as Vanguard).

Both offer a fairly good selection of bond funds although neither offers one with low duration (i.e., 18 months or less).

Prudential has a Stable Value Fund option currently paying about 2%; TIAA-Cref has a Traditional Account that currently pays 3.75% but withdrawals are spread over nine (9) years.

One choice would be to open accounts at both (TIAA-Cref for the 403b, and Prudential Retirement for the 457b) and this is where I'm leaning - to get the greatest variety.

What are your thoughts, please? Thanks in advance.
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wjo
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by wjo »

Hi - welcome to the Board.

We would need more information about specific funds to give you advice.

However, TIAA-CREF generally operates as a non-profit - I would put my money there in most cases. (In fact, I do use TIAA cref with my employer.)

The TIAA Traditional fund that pays 3.75% right now is a very good fund. It can pay more because of the liquidity restrictions. Nonetheless, many Bogleheads would be very pleased to have access to that fund.

As a default, I would recommend you put money into a TIAA-CREF cash or bond account and take your time to figure out the right allocation. If you are getting started, you won't lose much in gains if the market goes up, but you will be saving. If by some reason the Prudential account has better options, you can always switch and the TIAA-CREF account will have good enough options for the long-term for any money you have there.

It does seem you need to learn about investments - they are not that complicated. People here agonize over small details but the basics cover most things well enough. You might start with the wiki here.
Valuethinker
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by Valuethinker »

Although TIAA CREF has become more commercial, and therefore less client oriented, over the recent decades it is still an organization that has provided a good and useful investment service to many people here (also see TIAA forum on Morningstar).

I think that's worth something, over the attractions of one fund v. another.

I cannot however predict whether things will change adversely. I would hope that given its fairly conservative customer base, who are nonetheless highly educated and articulate, that they would not.
Levett
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by Levett »

Hi Hiker,

Here's a recent assessment of TIAA by Fitch which may be of use:

Fitch Affirms TIAA's IFS at 'AAA'; Outlook Stable
Fitch Ratings
January 16, 2014 1:20 PM

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed the 'AAA' Insurer Financial Strength (IFS) ratings of Teachers Insurance and Annuity Association of America (TIAA) and its wholly owned subsidiary, TIAA-CREF Life Insurance Company (TIAA-CREF Life). At the same time, Fitch has affirmed TIAA's 'AA+' Issuer Default Rating (IDR) and 'AA' surplus note rating. A complete list of ratings follows at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

TIAA's ratings are based on its extremely strong balance sheet fundamentals in line with 'AAA' rating expectations, strong and predictable operating earnings, and very strong competitive position in the U.S. pension market. Key rating concerns include the impact of ongoing low interest rates, uncertain monetary policy, and ongoing discord by federal government officials, which pose risks to the economy, the U.S. life insurance industry, and TIAA. Fitch believes that TIAA is well-positioned to deal with these challenges given its extremely strong credit profile.

TIAA's extremely strong balance sheet fundamentals reflect the company's low leverage, extremely strong risk-adjusted capitalization and very stable liability structure, which mitigates disintermediation risk.

Financial leverage (surplus notes in relation to total adjusted capital [TAC]) remains low at 6% as of Sept. 30, 2013, and operating leverage is very low at 6x. The total financing and commitments (TFC) ratio is among the lowest in the Fitch rated universe. TIAA estimates its risk-based capital (RBC) ratio at 590% as of Sept. 30, 2013 in line with full-year 2012. The RBC is expected to remain at or above current levels for full-year 2013. TIAA's liability structure is made up predominantly of long-duration pension liabilities. Roughly 75% of inforce liabilities are non-cashable.

Fitch views TIAA's financial performance as strong and predictable. Statutory earnings declined modestly in 2013 relative to prior year due to the combined impact of low reinvestment rates and management's decision to modestly increase the crediting rate in the company's core pension segment. TIAA's return on total adjusted capital (TAC) was about 7% at 3Q'13, down from 9% in the prior year period. Looking forward, Fitch views the impact of sustained low interest rates as a manageable earnings headwind and believes TIAA continues to have significant flexibility to adjust crediting rates if necessary to strengthen earnings.

TIAA's realized investment losses continued to decline and were well below expectations through 3Q'13. That is expected to continue for full-year 2013.

TIAA's primary business is providing individually owned retirement annuities to fund defined contribution pension plans at participating institutions. Its core market is the 403(b) market, particularly institutions of higher education, where it is the dominant player. TIAA is also a leading record keeper of defined contribution plans.

Fitch rates the local currency sovereign obligations of the United States of America at 'AAA'; Rating Watch Negative, and the Country Ceiling is similarly 'AAA'. In the event that Fitch downgrades the credit rating of the United States of America one notch, certain highly rated insurers such as TIAA may be rated above the sovereign rating. Fitch's opinion is that these companies are structurally shielded from foreign exchange transfer and convertibility risks and their financial condition is sufficient to withstand a sovereign crisis. A greater than one-notch downgrade of the sovereign rating of the U.S. would cause a reevaluation of TIAA's ratings.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include:

--Reported RBC below 425% on a sustained basis;
--Investment losses significantly higher than expected;
--A significant drop in operating earnings resulting in an after-tax operating return on TAC below 5% for 18 months or longer;
--A regulatory change that would have a negative impact on TIAA's core pension market;
--A change in TIAA's ownership structure.

Sovereign Downgrade: A downgrade of more than one notch in the U.S. sovereign rating would cause a re-evaluation of TIAA's ratings.

Fitch affirms the following ratings with a Stable Outlook:

Teachers Insurance and Annuity Association of America
--IFS at 'AAA';
--IDR at 'AA+';
--Surplus note at 'AA'.

TIAA-CREF Life Insurance Company
--IFS at 'AAA'.


Disclosure: I do have a significant amount of money tied to the TIAA General Account (for nearly 50 years).

Since I am a splitter, I do like your idea of sending some money to TIAA (403B) and some to Prudential (457B).

Lev
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nisiprius
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by nisiprius »

Strictly a knee-jerk response, but I'd pick TIAA-CREF over Prudential without even thinking about it, based on past history and origins. I've been a TIAA participant for four decades. For various reasons in 2007 I moved about of my holdings out, and converted the rest to a lifetime annuity. TIAA is a non-profit organization founded for the specific purpose of helping teachers retire, and it has the highest possible financial strength ratings from all four ratings agencies: Best A++, Fitch AAA, Moody's Aaa, S&P AA+. Prudential is a run-of-the-mill giant profit-making insurance company with perfectly OK financial strength ratings: The Prudential Insurance Company of America: Best A+, Fitch AA-, Moody's A1, S&P A+.

Prudential gets in trouble with the SEC from time to time, heh heh, boys will be boys... Prudential to Pay $600 Million in Global Settlement of Fraud Charges in Connection With Deceptive Market Timing of Mutual Funds. Anyone know of any comparable TIAA-CREF scandals?
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jjustice
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by jjustice »

I agree with those who have expressed a preference for TIAA-CREF. However, I would recommend that you focus on their distinctive annuity accounts. You can get mutual funds elsewhere that are as good as, or better than, those at TIAA-CREF. What you can't get elsewhere are high quality annuity accounts of various types. You do not have to annuitize all or any of the money in these accounts when you retire, but by then you'll probably find that you feel lucky to be able to construct a reliable, permanent income with them.

Many are not aware of the difference between the two types of offerings at TIAA-CREF (mutual funds and annuity accounts). There are two TIAA annuity accounts: Traditional, which you mentioned, and Real Estate. There are eight CREF annuity accounts, of which I would especially recommend CREF Stock. It is 70/30 combination of widely diversified domestic/foreign stocks. It is a buy-it-and-forget-about-it sort of fund.

I see no need to buy any of their mutual funds.

John
newtonc
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by newtonc »

I have Prudential as a 401k provider and have access to a 403b with TIAA-Cref which I recently took advantage of and found that they have better fees that Prudential. Prudential's lowest is 0.20 for a index fund of large caps equivalent to the S & P. TiAA-Cref's is 0.07 for a S&P 500 index fund. This is just one example, they are about the same on a lot of funds but you have a bigger choice with TiAA-Cref.
Since I work for one of the University's I can take advantage of TiAA-Cref and Fidelity in my 403b.

Prudential seems to have higher fee's than TiAA_Cref from what I can see. Hope this helps.
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Retired1809
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by Retired1809 »

Thank you. I agree with the general sentiment here that TIAA-Cref offers better value. My preference would be to be able to choose Vanguard of course. But I prefer the culture of the not-for-profit TIAA-Cref compared to Prudential.
newtonc
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by newtonc »

Agreed. The culture of TiAA-Cref does seem different than Prudential. I also have a Fidelity account in my 403 (b) and it has 261 funds and I can pick from a lot of Vanguard funds and I have a Vanguard 500 Index Fund Signal Class which I get for 0.05%. It has some interesting funds it it.
So I have reduced my Prudential and put the rest in TiAA and Fidelity.
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mephistophles
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by mephistophles »

My experience is that TIAA CREF is vastly superior to Prudential.
newtonc
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by newtonc »

Thanks I agree 100%.
ourbrooks
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by ourbrooks »

jjustice wrote:I agree with those who have expressed a preference for TIAA-CREF. However, I would recommend that you focus on their distinctive annuity accounts. You can get mutual funds elsewhere that are as good as, or better than, those at TIAA-CREF. What you can't get elsewhere are high quality annuity accounts of various types. You do not have to annuitize all or any of the money in these accounts when you retire, but by then you'll probably find that you feel lucky to be able to construct a reliable, permanent income with them.

Many are not aware of the difference between the two types of offerings at TIAA-CREF (mutual funds and annuity accounts). There are two TIAA annuity accounts: Traditional, which you mentioned, and Real Estate. There are eight CREF annuity accounts, of which I would especially recommend CREF Stock. It is 70/30 combination of widely diversified domestic/foreign stocks. It is a buy-it-and-forget-about-it sort of fund.

I see no need to buy any of their mutual funds.

John
+1 The TIAA annuities are annuities only in the sense that they can produce a periodic string of payments. The income for them comes from very long term investments made directly by TIAA. Like a stable value fund, and unlike a bond fund, your holdings never drop in value. Their long term record has been spectacular.
MN Finance
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by MN Finance »

So, this really just needs to be a decision based exclusively about which investment options are available and the cost of such. Beyond that, I would not place bets on the culture, rating, and philosophy of one firm or the other. Review the investment options and then decide. TIAA does have 1 or 2 options that are unique and generally favored by the board. TIAA Trad is the best safe investment in the market, regardless of any liquidity restrictions. If you plan to put a lot in this, then that sways the decision considerably.

It's cute that some think the culture of TIAA as a "not for profit" benefits you, the investor. That may have been true 40 years ago, but this is 2014 and that's no longer the case. My hospital is a not for profit, but that doesn't help my healthcare outcomes. In the same way, if TIAA pays an advisor or middle manager $400k, that certainly doesn't help you simply because the profit is passed to employees instead of shareholders. In fact you could argue it's worse.

I also place zero value on the future option built into the annuity subaccounts to annuitize the investments, which is a feature mentioned all the time. In fact, you pay for it (mildly) as the M&E costs are in the ER of the account. You can invest in low cost mutual funds for 30 years, then move into an annuity and annuitize if that's the right outcome.
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by The Wizard »

I did not read the whole thread.
Just go with TIAA-CREF.
I was with them for 40 years and did OK...
Attempted new signature...
ourbrooks
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by ourbrooks »

MN Finance wrote:So, this really just needs to be a decision based exclusively about which investment options are available and the cost of such. Beyond that, I would not place bets on the culture, rating, and philosophy of one firm or the other. Review the investment options and then decide. TIAA does have 1 or 2 options that are unique and generally favored by the board. TIAA Trad is the best safe investment in the market, regardless of any liquidity restrictions. If you plan to put a lot in this, then that sways the decision considerably.

It's cute that some think the culture of TIAA as a "not for profit" benefits you, the investor. That may have been true 40 years ago, but this is 2014 and that's no longer the case. My hospital is a not for profit, but that doesn't help my healthcare outcomes. In the same way, if TIAA pays an advisor or middle manager $400k, that certainly doesn't help you simply because the profit is passed to employees instead of shareholders. In fact you could argue it's worse.

I also place zero value on the future option built into the annuity subaccounts to annuitize the investments, which is a feature mentioned all the time. In fact, you pay for it (mildly) as the M&E costs are in the ER of the account. You can invest in low cost mutual funds for 30 years, then move into an annuity and annuitize if that's the right outcome.
Investing in mutual funds and then buying an annuity is likely to give you lower income than annuitizing a TIAA account. This is for several reasons: First, TIAA does very long term investments, including owning and directly operating real estate. Effectively, they are doing the equivalent of buying longer term bonds with higher interest rates but without the volatility. If you do the investing yourself, you'd have to manage volatility by accepting the lower returns from shorter bonds for part or all of your portfolio.

Second, since they are investing your contributions continuously, the interest rate you get on your annuity will reflect the average of rates across your contribution period, not the rate at the time you purchase the annuity. This makes planning for retirement income much more predictable.

Finally, TIAA does not charge any kind of sale commission on the annuity. This is in part because TIAA is a mutual company but also because their overall costs are low. Even annuities offered through Vanguard still include a commission.
MN Finance
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by MN Finance »

You're still talking about 2 different things. You are talking about investing and then annuitization. Yes, TIAA money has grown at a good pace (as I said its the best safe investment in the market). And, yes, money that you put into TIAA years ago can be annuitized with some consideration for those old rates - ie, higher payouts. But that's only because that money accumulated a surplus in the days of high rates, which is now paid out. We have exactly the opposite right now, so wont happen again. Besides, the annuity payouts are based on 3 key factors: accumulation, vintage, and life expectancy. TIAA offsets their life expectancy portion t their benefit. So no matter what they say your old money is paying out, the effective payout is no better than other market options in most cases. Someone can invest in other funds, then purchase a SPIA with the same impact. I didn't say someone can get a better return than TIAA for safe money, so if there's safe money that will always be safe AND it will be annuitized, this is the best choice. But beyond that, theres no benefit to say, investing CREF, then annuitizing later vs investing in VTI, then annuitizing later. If we separate TIAA from the discussion, the fact that the 9 other choices are annuities is irrelevant to their worth to an investor.
mlipps
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by mlipps »

I know lots here use TIAA-Cref & like it, but I never could fully understand the annuity aspect of some of their funds. For what it's worth, my husband has some amazing fund choices (Vanguard core funds, without any additional fees) in his 401k at work, so I don't think it should be written off automatically.
newtonc
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by newtonc »

Prudential is my 401K/457 provider and it has about fourteen funds. Within the last week they have lowered their fee's on three index funds which I have with them. I like their new fee's, instead of 0.20% it's 0.03% on the S&P large cap index fund, the small cap fund is 0.05% and last month was 0.23% so I am glad they are finally getting competitive.
duplin county
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by duplin county »

The NC 401k/457 plans include several good index funds by Blackrock. Prudential Retirement is the administrator. The costs are .20 including administrative fees. The 403 plan includes several good Vanguard index funds. TIAA-Cref administers these funds. The NC state site says that the 403 plan is a work in progress. I think that both are good choices.
newtonc
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by newtonc »

Now Prudential has changed the fee's again to 0.18 for the large cap and 0.21 for the small cap. Oh well.
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Retired1809
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by Retired1809 »

Glad to see even small reductions in Annual expense ratios of a few of the NC457 plan's index funds but they're still nowhere near those of Vanguard's corresponding index funds (.05% for S&P 500 or Total Stock Market Index). Bottom line: the NC 457 plan's expenses are still around four times what they should be on these index funds. Too much Wall Street and not enough Main Street.
MN Finance
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by MN Finance »

Now that's just totally untrue. They're 4 times higher than they "should" be? That has to be one of the best plans in the marketplace. I appreciate low rates as much as anyone, but someone has to pay for the plan. It doesn't run itself. What's often missed in the fee discussion is the difference between mutual fund factories and retirement plan providers. Now some factories will run plans so large that the cheap widgets are enough to run the plan, but very few. Most plans have costs that far exceed the base widget prices. So the price needs to be higher.
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Retired1809
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by Retired1809 »

MN, my mistake. I was comparing them to Vanguard.

Vanguard represents all of what the rest of the industry "should be."
spencer99
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by spencer99 »

HikerNC wrote: One choice would be to open accounts at both (TIAA-Cref for the 403b, and Prudential Retirement for the 457b)
Another factor that may enter in (now or in the future) is your ability to contribute the maximum ($17.5 K in 2014) in both a 403 and 457.
MN Finance
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Re: Trying to decide between TIAA-Cref and Prudential Retire

Post by MN Finance »

HikerNC wrote:MN, my mistake. I was comparing them to Vanguard.

Vanguard represents all of what the rest of the industry "should be."
What makes you think Vanguard would be cheaper?
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