Help, Please: TIAA-CREF Share Classes in 401/403 Plan

[cinghiale]

I want to poll those in the forum who are, or have been, invested with TIAA-CREF in a 401 or 403 plan. At the university where I work, the expense ratios for TIAA-CREF seem quite high. I cannot tell you what share class is in the plan; rather, I can tell you that the funds offered are not the Retail, Retirement, or Institutional shares. Each of those options has a lower ER than what we are offered. For example, here are the expense ratios for the CREF Equity Index fund:

Institutional: .07%
Retail: .19%
Retirement .33%
State System: .49%

The math is simple: we are paying 7 times the ER of the institutional shares. The differences vary with other offerings. There is close to a 200% jump for the TIAA Real Estate (.56% vs. 1.01%) and a 50% difference for the CREF Bond Market (.32% vs. .50%).

Is this typical? Is it standard? Does anyone work for a state system where you are offered the institutional shares? Has anyone witnessed a state system moving from one share class to another as part of a restructuring or reform? In short, I am trying to figure out whether change is possible and whether this is worth pursuing up the administrative ladder. It would be helpful to know if other people in other state systems have institutional shares offered.

I did call the national office and ask about this. The representative I spoke with was not very helpful, and concluded/guessed that different states handled it different ways.

Thoughts? Insights? Are there questions I am not asking but should? Any guidance would be greatly appreciated.

[raywax]

I want to poll those in the forum who are, or have been, invested with TIAA-CREF in a 401 or 403 plan. At the university where I work, the expense ratios for TIAA-CREF seem quite high. I cannot tell you what share class is in the plan; rather, I can tell you that the funds offered are not the Retail, Retirement, or Institutional shares. Each of those options has a lower ER than what we are offered. For example, here are the expense ratios for the CREF Equity Index fund:

Institutional: .07%
Retail: .19%
Retirement .33%
State System: .49%

The math is simple: we are paying 7 times the ER of the institutional shares. The differences vary with other offerings. There is close to a 200% jump for the TIAA Real Estate (.56% vs. 1.01%) and a 50% difference for the CREF Bond Market (.32% vs. .50%).

Is this typical? Is it standard? Does anyone work for a state system where you are offered the institutional shares? Has anyone witnessed a state system moving from one share class to another as part of a restructuring or reform? In short, I am trying to figure out whether change is possible and whether this is worth pursuing up the administrative ladder. It would be helpful to know if other people in other state systems have institutional shares offered.

I did call the national office and ask about this. The representative I spoke with was not very helpful, and concluded/guessed that different states handled it different ways.

Thoughts? Insights? Are there questions I am not asking but should? Any guidance would be greatly appreciated.

The Institutional and Retirement Class ERs look about right. I know nothing of the retail class. Your state system ERs have to be the product of the state system adding some additional ER to the T-C ER. I would say it is virtually certain that the mutual funds you have (note mutual funds are not variable annuities and vice versa) are the Retirement Class. Why you state system has a higher ER than the Retirement Class I cannot say. That is a question you should ask them, not T-C.

I have been with T-C for 40 years and have been on the M* T-C forum for about a decade and I never have come across or heard of a state system with ERs higher than those T-C has for the specified class which almost always is the Retirement Class.

Some large institutions have Access class funds but for the most part their ERs are (with a few exceptions) so close to the ER of the same Retirement Class mutual fund that the difference is meaningless; this is certainly true for me.

Ray

[greenspam]

those are the same ERs we have here in NJ.

and, it seems the ERs are the same regardless of the state in which you live/work, as they are on their 'national' website as such.

compared to the other 403b vendors from which we can choose, tiaa-cref has lowest ERs, so, i never thought of investigating or complaining.

good luck in your endeavors.

[greg24]

This question is timely, at least for me.

At the University of Iowa, we're also paying .49 for the Equity Index. Most offerings charge 40+ basis points.

But we just received a paper mail from TIAA-CREF announcing that all of our share classes are changing to ones with lower expense ratios. The insert in the mailing maps the old and new funds. It calls all the TIAA funds (we're lucky enough to have a few Vanguard offerings) Retirement share classes. But the expense ratio we are paying doesn't match up.

I have always assumed that we were paying higher expense ratios as a price to pay for our 403b. I asked a number of questions when I started working here, and it was hard getting anyone to give me a good answer, so I stopped asking questions.

Anyways, on December 15th, all our funds will be converted. I haven't been able to find the new expense ratios, but they're all listed as institutional share classes, so it will definitely be an improvement.

[stlrick]

You are enrolled in the CREF Variable Annuity versions of the offerings. I have contracts at two universities. Both offer Equity Index only as the Variable Annuity, but provide a number of other options that are Retirement Class mutual funds. I don't know why, and I've never understood when it comes time to retire and either annuitize or transfer my accumulation what difference it would make for money to be in a Variable Annuity account versus a Retirement Class mutual fund.

[House Blend]

cinghiale,

The most likely explanation for your situation is that in fact you don't have access to any of TIAA-CREF's mutual funds.

What you have are their variable annuities.

"CREF Equity Index" is not a mutual fund, and it has no ticker symbol. It does have an ER of 0.49, which is the same for all participants (as far as I know).

Further evidence in favor of my theory is that the 1.01% ER for the TIAA Real Estate Variable Annuity you quote is the rate that all of us peasants have to pay. I haven't heard previously of "institutional shares" of REA being available, nor any T-C participant having access to same.

What I do observe is that the Institutional class shares of T-C's REIT mutual fund, symbol TIREX, has an ER of 0.56. But this really has nothing to do with the Real Estate Variable Annuity.

BTW: having access limited only to the variable annuities is a very common situation for T-C participants.

Apologies in advance in case I'm way off base.

Footnote:
To add further confusion to the mix, I was perusing the 9/30/09 Annual Report on T-C Mutual Funds, and noticed that they mention in passing that they created Yet Another share class of mutual funds, the "Premier Class" on the very last day (9/30/09) of the fiscal year. The funds just have token amounts -- $250K -- as of day 1. No word of ER's, and a Google search of the T-C website reveals very few mentions.

[Boglenaut]

I want to poll those in the forum who are, or have been, invested with TIAA-CREF in a 401 or 403 plan. At the university where I work, the expense ratios for TIAA-CREF seem quite high. I cannot tell you what share class is in the plan; rather, I can tell you that the funds offered are not the Retail, Retirement, or Institutional shares. Each of those options has a lower ER than what we are offered. For example, here are the expense ratios for the CREF Equity Index fund:

Institutional: .07%
Retail: .19%
Retirement .33%
State System: .49%

The math is simple: we are paying 7 times the ER of the institutional shares. The differences vary with other offerings. There is close to a 200% jump for the TIAA Real Estate (.56% vs. 1.01%) and a 50% difference for the CREF Bond Market (.32% vs. .50%).

Is this typical? Is it standard? Does anyone work for a state system where you are offered the institutional shares? Has anyone witnessed a state system moving from one share class to another as part of a restructuring or reform? In short, I am trying to figure out whether change is possible and whether this is worth pursuing up the administrative ladder. It would be helpful to know if other people in other state systems have institutional shares offered.

I did call the national office and ask about this. The representative I spoke with was not very helpful, and concluded/guessed that different states handled it different ways.

Thoughts? Insights? Are there questions I am not asking but should? Any guidance would be greatly appreciated.

I hear you! I have been trapped in a TIAA-CREF plan since 1995. I cannot roll it into another company's plan. So, I pay .50% for TIPS while my current employer offers a better TIPS fund for .06%!!

They can triple the fees from here, and there is nothing I can do.

[the intruder]

I want to poll those in the forum who are, or have been, invested with TIAA-CREF in a 401 or 403 plan. At the university where I work, the expense ratios for TIAA-CREF seem quite high. I cannot tell you what share class is in the plan; rather, I can tell you that the funds offered are not the Retail, Retirement, or Institutional shares. Each of those options has a lower ER than what we are offered. For example, here are the expense ratios for the CREF Equity Index fund:

Institutional: .07%
Retail: .19%
Retirement .33%
State System: .49%

The math is simple: we are paying 7 times the ER of the institutional shares. The differences vary with other offerings. There is close to a 200% jump for the TIAA Real Estate (.56% vs. 1.01%) and a 50% difference for the CREF Bond Market (.32% vs. .50%).

Is this typical? Is it standard? Does anyone work for a state system where you are offered the institutional shares? Has anyone witnessed a state system moving from one share class to another as part of a restructuring or reform? In short, I am trying to figure out whether change is possible and whether this is worth pursuing up the administrative ladder. It would be helpful to know if other people in other state systems have institutional shares offered.

I did call the national office and ask about this. The representative I spoke with was not very helpful, and concluded/guessed that different states handled it different ways.

Thoughts? Insights? Are there questions I am not asking but should? Any guidance would be greatly appreciated.

You are trying to compare apples, organges, limes and berries. The equity index fund you have at the state plan is a variable annuity, not a mutual fund. The 49bp charge includes a 38bp charge for administration expenses since t-c keeps records of your transfers and accounts for tax reporting and administrative purposes as well as provides participant services such as call center, retirement planning, periodic reports etc that are all part of a retirement plan. There is also a small mortality charge.

The retirement class that you refer is the mutual fund (symbol TIQRX) with no annuity component. I dont know if this class of fund is available in a retirement plan.

The institutional class with a 7bp ER is the cheapest because it does not provide the services of the VA class of fund to plan sponsors. Institutional class is sold only to accredited investors such as bank trust departments, insurance companies, tax exempt organizations, private foundations who use the funds for their general investment accounts and do not need the retirement services that are provided to plan sponsors in the VA class (call centers, recordkeeping, tax reporting, fund transfers, etc). Also the institutional class is not vetted for compliance with the securities laws and the necessary due dilligence must be performed by the investors (purchasers) lawyers and financial advisors at a cost to the investors.

A pension plan that chooses to use institutional class of funds must pay someone (TPA, consultants, lawyers, etc) to provide the services that are available under the VA class.

I dont know anything about the retail class of funds.

[cinghiale]

I sincerely appreciate the responses that have come in. House Blend and the intruder are correct in pointing out that I am referring to variable annuity products, and that may be where the inquiry begins and ends.

However... allow me to muddy the waters a bit. Last year I moved only my 403 plan funds to TIAA-CREF. I kept the 401 plan with VALIC (of recent AIG/VALIC fame). Reason? The plans offers the institutional shares of two Vanguard funds, Index 500 (VINIX) and Intermediate Term Investment Grade Bond (VFDIX). These funds have ERs that would make any Boglehead swoon: .05% and .14% respectively. Meanwhile, the state Deferred Compensation Program (the 457 plan) offers the institutional shares of Pimco Total Return (PTTRX) at a comparatively reasonable .46% ER. Somehow these other plans-- offered to the same employees in the same state-- deliver at least a few low-cost funds. I have to wonder if a state, given the proper motivation, could negotiate with TIAA-CREF to offer a less locked-in menu of funds.

So, is there any instance when an institution has offered different versions of TIAA-CREF products... perhaps a lower cost mutual fund and the variable annuity cousin of the same fund? Or am I tilting at expense ratio windmills here?

[stlrick]

So, is there any instance when an institution has offered different versions of TIAA-CREF products... perhaps a lower cost mutual fund and the variable annuity cousin of the same fund?

Based on my sample of two universities, one private and one public, they both offer a mix of CREF Annuity products and Retirement Class mutual funds, but never one investment (Equity Index, Inflation-Protected Securities, etc) in two forms. They do offer both the TIAA Real Estate and the CREF Real Estate Securities fund, but those are very different from each other.

[DickBenson]

The Equity Index Fund shows up in four different classes:

Annuity ....................... assets 8.9 billion ....... ER 0.49

Institutional (TIEIX) ..... assets 1.48 billion ..... ER 0.07

Retirement (TIQRX) ..... assets 1.48 billion ..... ER 0.33

Retail (TINRX) ...... ...... assets 1.48 billion ...... ER 0.44

The inception dates for these funds are 1994, 1999, 2006, and 2006.

As you might note from the asset numbers, the latter three are the same fund with different arrangements with institutions which impact the ER and thus returns.

For example, cinghiale got a different ER (0.19) for the Retail form of the Equity Index Fund due to the following:

"Certain funds have expense reimbursement arrangements that will continue through at least April 30, 2010 for the Equity Index Fund and January 31, 2010 for the other Funds, and can only be changed with approval of the Board of Trustees. Without these waivers and reimbursements, Fund expenses would be higher and their performance would have been lower."

And the low 0.07 ER for the Institutional form of the Equity Index fund can be explained by the following:

"The expense ratio and performance return of these funds reflect an agreement by the funds' advisor to voluntarily reimburse various other expenses of the funds. Without this reimbursement, the fund's expenses would have been higher, and its performance lower."

It may be of interest to note that a couple of years ago TIAA was on the verge of canceling some of these funds because institutions would not agree to an increase in the ERs. They had to force a second round of voting.

Dick

[CaveatEmptor]

For example, here are the expense ratios for the CREF Equity Index fund:
Institutional: .07%
Retail: .19%
Retirement .33%
State System: .49%

The retail is 0.44% not 0.19%:

http://www.tiaa-cref.org/performance/mu ... /0062.html

We have access to the retirement class of their funds, but their ERs are bad compared to those of Vanguard or Fidelity, so I have zero money with them (I am in a Vanguard index fund Signal shares with an ER of 0.09%, but I have a colleague down the hall who is in the TIAA-CREF equivalent that has an ER of 0.33% and cannot be talked out of it).

[CaveatEmptor]

Anyways, on December 15th, all our funds will be converted. I haven't been able to find the new expense ratios, but they're all listed as institutional share classes, so it will definitely be an improvement.

They've been forced to give institutional class to some universities, you are in one of the lucky ones. On the negative side, now that institutional is becoming more available at universities, TIAA-CREF has manufactured a new and better class (they call it Premier) that makes it more likely that the ERs of institutional will start moving up over time (and when universities eventually manage to get access to the newly created Premier class, TIAA-CREF will manufacture an even better class than Premier ...etc).

[painter]

I once tried buying TIAA-CREF Institutional Funds some years ago because of the very low Expense Ratio. What I found was that the minimum investment was $300,000 at that time. Currently, the minimum is $750,000. The catch is that you have to pay for management in addition to the ER. At the time, it brought the total cost (the equivalent ER) to about .80%. That's certainly not .07%, but they manage your funds (asset allocation, rebalancing, withdrawals, etc.) People who want their money in a Trust can benefit from this. Otherwise, If you feel more secure having your funds managed, then it's not that bad a deal.

[raywax]

So, is there any instance when an institution has offered different versions of TIAA-CREF products... perhaps a lower cost mutual fund and the variable annuity cousin of the same fund?

Based on my sample of two universities, one private and one public, they both offer a mix of CREF Annuity products and Retirement Class mutual funds, but never one investment (Equity Index, Inflation-Protected Securities, etc) in two forms. They do offer both the TIAA Real Estate and the CREF Real Estate Securities fund, but those are very different from each other.

I beg to differ. T-C most certainly DOES offer both variations of an investment option (your fund) in one person's retirement plans. I have them both. Now I have had as many as six different retirement accounts (NOT RAs) and there are different offerings (usually) in each account but I do have access to both.

Ray

[GG]

I sincerely appreciate the responses that have come in. House Blend and the intruder are correct in pointing out that I am referring to variable annuity products, and that may be where the inquiry begins and ends.

However... allow me to muddy the waters a bit. Last year I moved only my 403 plan funds to TIAA-CREF. I kept the 401 plan with VALIC (of recent AIG/VALIC fame). Reason? The plans offers the institutional shares of two Vanguard funds, Index 500 (VINIX) and Intermediate Term Investment Grade Bond (VFDIX). These funds have ERs that would make any Boglehead swoon: .05% and .14% respectively. Meanwhile, the state Deferred Compensation Program (the 457 plan) offers the institutional shares of Pimco Total Return (PTTRX) at a comparatively reasonable .46% ER. Somehow these other plans-- offered to the same employees in the same state-- deliver at least a few low-cost funds. I have to wonder if a state, given the proper motivation, could negotiate with TIAA-CREF to offer a less locked-in menu of funds.

So, is there any instance when an institution has offered different versions of TIAA-CREF products... perhaps a lower cost mutual fund and the variable annuity cousin of the same fund? Or am I tilting at expense ratio windmills here?

NO WAY do you pay those low fees via Valic. NO WAY. You may hold those funds, but you surely pay an m&e or other expense fee making it above 1%. Repeat: NO WAY

[raywax]

NO WAY do you pay those low fees via Valic. NO WAY. You may hold those funds, but you surely pay an m&e or other expense fee making it above 1%. Repeat: NO WAY[/quote]

I agree with the above. Valic was a choice in recent years in the university system I was employed but it had the reputation of having very high fees. I don't have any personal experience with them but I was surprised by the post referred to in the above.

Ray

[cinghiale]

GG wrote (rather emphatically):

NO WAY do you pay those low fees via Valic. NO WAY. You may hold those funds, but you surely pay an m&e or other expense fee making it above 1%. Repeat: NO WAY

and raywax added:

I agree with the above. Valic was a choice in recent years in the university system I was employed but it had the reputation of having very high fees.

I just got off the phone with VALIC and confirmed that the NO WAY, was, in fact, "WAY." In the 401a plan at my institution, there are no M&E fees and no added charges, and such has been the case for the past 12 or so years. This is not the case with the 403b plan, which does impose the 1% annuity fee. (This, by the way, was the reason I left VALIC's 403b for TIAA-CREF last year.) The 401a offerings are mutual funds, not annuity products. No extra fees or chages are levied.

So, this brings me back to my original set of questions. If VALIC, so notorious for fangs-to-the-neck fees and expenses, can offer Vanguard institutional shares with no added fees, why can't TIAA-CREF serve up a few of their index funds as mutual fund institutional shares??

I have a follow-up request: if someone has the TIAA-CREF institutional shares offered as mutual funds in their 403 plan, please chime in and be kind enough to tell which state you live and work in.

[greg24]

They've been forced to give institutional class to some universities, you are in one of the lucky ones. On the negative side, now that institutional is becoming more available at universities, TIAA-CREF has manufactured a new and better class (they call it Premier) that makes it more likely that the ERs of institutional will start moving up over time (and when universities eventually manage to get access to the newly created Premier class, TIAA-CREF will manufacture an even better class than Premier ...etc).

Why are they being forced to do it? And yes, I consider myself very lucky.

I was wrong when I said they were all being moved to institutional classes. About 2/3 are, but 1/3 are moving to the new Premier class. Luckily, I'll now have the Vanguard TBM and 500 funds in institutional classes, so that is most of what I need.

[CaveatEmptor]

Why are they being forced to do it?

Pressure from faculty is causing universities to either drive a harder bargain with TIAA-CREF for lower-fee funds, or to provide alternatives to TIAA-CREF (in which case competition works its magic -- people can now vote with their feet and save themselves around 0.4% a year in ERs).

[greg24]

Pressure from faculty is causing universities to either drive a harder bargain with TIAA-CREF for lower-fee funds, or to provide alternatives to TIAA-CREF (in which case competition works its magic -- people can now vote with their feet and save themselves around 0.4% a year in ERs).

Interesting. I had sent an email to HR about once a year asking that they add Vanguard funds, and always got a canned response. Early this year they added about 5 funds, including the 500 Index and TBM, so I was very happy.

When I started working here, I was a little disappointed that the ERs were all in the 40 to 50 bp range. But not too disappointed, a "poor" TIAA option is better than probably 80%+ of the retirement programs out there. The institutional classes are a very fortunate turn of events.

[the intruder]

Why are they being forced to do it?

Pressure from faculty is causing universities to either drive a harder bargain with TIAA-CREF for lower-fee funds, or to provide alternatives to TIAA-CREF (in which case competition works its magic -- people can now vote with their feet and save themselves around 0.4% a year in ERs).

that 40bp charge is not going away; its being paid by someone else because there are still recordkeeping and admin costs that must be paid for and are not included in the charge for institutional class funds.

[CaveatEmptor]

that 40bp charge is not going away; its being paid by someone else because there are still recordkeeping and admin costs that must be paid for and are not included in the charge for institutional class funds.

Well-run universities have negotiated a fixed dollar amount per year for recordkeeping and admin costs (around $70 a year per participant is common) -- that's all the record-keeper gets, and the funds are super-low cost Vanguard funds even though the record-keeper is typically not Vanguard.

[dbr]

Why are they being forced to do it?

Pressure from faculty is causing universities to either drive a harder bargain with TIAA-CREF for lower-fee funds, or to provide alternatives to TIAA-CREF (in which case competition works its magic -- people can now vote with their feet and save themselves around 0.4% a year in ERs).

that 40bp charge is not going away; its being paid by someone else because there are still recordkeeping and admin costs that must be paid for and are not included in the charge for institutional class funds.

Indeed, but people can legitimately challenge why the cost is that high in what we take for a fairly large organization.

[DickBenson]

that 40bp charge is not going away; its being paid by someone else because there are still recordkeeping and admin costs that must be paid for and are not included in the charge for institutional class funds.

Exactly. About ten years ago, before all these new funds were created, the ER of the CREF Stock Fund was about half of its present value. Suspect that it is "unofficially" absorbing some of these costs.

Haven't looked, but I suspect that its ER was even lower pre-1980s, when it was the only fund offered.

Dick