Bogleheads

[nisiprius]

I was planning on electing the "lifetime payment" option on my TIAA Traditional accounts, because I'm planning to annuitize a chunk of my retirement assets and it seemed handy to do part of it with TIAA since some of the money is already there (and can't be taken out quickly).

I just called TIAA to find out their status with regard to NOLHGA and the state guaranty associations, and what the representative told me is that TIAA Traditional annuities are not, repeat not backed by any state guaranty association or any other agency.

With a TIAA annuity you are, apparently, really truly relying entirely on TIAA's solvency, without any backup insurance of any kind from any other organization.

I have absolutely no idea at this point what to make of this, and whether it should lead to me rethinking my plans about how much to annuitize with whom. At the moment my reaction is to shrug fatalistically and go ahead, hoping that TIAA's actuaries know their stuff and that TIAA Traditional assets are invested prudently. I have a lot of faith in TIAA's safety.

But it's something to think about.

(Is there any possibility at all that TIAA-CREF actually does belong to a guaranty association, but feel that to adhere to the letter of the agreement that says insurance companies aren't allowed to mention guarantees in their marketing--they have to deny it?)

[MarcMyWord]

nisiprius, it's been a week since your original post, and (so far) there have been no responses, but I hope you'll see the post title again and notice mine.

Though the guarantee of TIAA Traditional has, for as long as I can remember, carried the qualifying phrase "subject to TIAA's claims paying ability," until I read your post I, too, had been unaware of--and was surprised by--the notion that the TIAA Traditional annuity account was not covered by any state insurance program.

I used the "Contact Us" feature of the TIAA-CREF home page, furnished a link to your Diehards post, and asked whether the information in the post was correct, or whether TIAA Traditional was actually covered by individual state guaranty programs according to their differing rules. Here is the verbatim reply from a TIAA staff member whose title is "Individual Consultant/Individual Client Services" and "Registered Representative of TIAA-CREF Individual and Institutional Services."

"Thank you for your e-mail. The lifetime payouts are not insured by any state guaranty associations. TIAA-CREF Life Insurance Company is a subsidiary of TIAA. TIAA is the parent company. You are correct that the TIAA Traditional Annuity is backed solely by the claim paying abilty of TIAA. That's why the ratings are so important. What is interesting isn't the fact we have the financial strength and claim paying ability to get the AAA ratings, what is impressive is we have the ability to reach that threshold level plus three times over what it takes to get the AAA ratings. Factor that in and review other companies ratings across the rating services (A++ (superior) by A.M. Best Company, AAA (superior) by Standard & Poor's, and Aaa (superior) by Moody's Investors Service) and you'll only find one other company in the US even has the highest ratings available that match our report card, then that will help you better understand the financial strength TIAA is bringing to the table."

So the situation is pretty much what we knew it to be: TIAA Traditional is about as safe as it's currently possible for an insurance product to get, but in the end it all remains "subject to TIAA's claims-paying ability"--and is not even partially cross-insured by any other public or private entity.

Hope this is helpful.

Marc

[HanRui]

For what it's worth, I also plan to annuitize several plans that include a large proportion of TIAA traditional -- using the graded method. I understand that the only guarantee of a lifetime income stream is related to the reputation and resources of the company. I can only hope that the institutions where I worked got it right in making TIAA-CREF available!

[nisiprius]

[Valuethinker]

[brainstem]

Sorry if this is a duplicate -- my laptop seems to have eaten my first reply

I wanted to find out if my TIAA $$ were exposed to subprime or mortgage backed securities that could threaten the corpus of the income stream.

I called the 800 number when I could not find information in a perspectus.

I learned that TIAA is private, does not have to report its investments, does not intend to report its investments, and will not disclose its investments to shareholders.

So - if there is a future problem, you will not learn of it until TIAA cannnot pay out its obligations.

[nisiprius]

[nisiprius]

[brainstem]

Yes, you can get the CREF holdings

You cannot get the holdings of the TIAA annuity

[nisiprius]

[bob u.]

I find these last posts misleading. First, TIAA has directly and repeatedly addressed the subprime issue (they don't have any exposure). Just go to the homepage and their recent discussions will stare you in the face. http://www.tiaa-cref.org/index.html Scroll through the recent "market monitor" essays and also follow the items under "news," including their commentary on TIAA Real Estate and subprime (no exposure again).

With respect to the Traditional account's investments, I asked for the detailed listing a year or two ago and received this massive package in the mail. I subsequently threw it away because it took up so much file space. What was I going to do with it?

If you can't get it from TIAA because they are not obliged to file a report with the SEC (I don't know whether this is or isn't the case), why not contact the New York Insurance Department? TIAA has to file with them. Bob U.

[brainstem]

Interesting --

When I called TIAA - the phone rep was very clear to me that he had no obligation to tell me about the investments and did not offer any clarity about the circumstances (now I called in early August - perhaps they got a bunch of similar calls and put something on the web afterwards...?)

[brainstem]

[peter71]

hi all,

the 8/27 "market monitor" publication in particular deals with TIAA traditional's exposure to all the stuff folks are currently concerned about (my quick take is that it /is/ heavily exposed to all of it).

http://www.tiaa-cref.org/about....nitor.html

i agree that, despite its recent .org ad campaign, TIAA-CREF may be undergoing a sort of cultural change (though i'm not sure they've raised fees on funds other than TIAA RE).

all best,
pete

[House Blend]

[JRA]

The Bond Market Annuity tries to track the Lehman Brs. Bond Market Index, which does contain a fairly significant amount of mortgage backed securities. If I am not mistaken, the Bond Market Annuity underperforms the benchmark close to the amount of its ER. If sub-prime securities were in this fund, they would have shown up in the latest market weakness. Apparently, some Fidelity funds had invested in some sub-prime notes in an attempt to boost their yields (even in their TIPS fund!), but it backfired on them. I see no reason to suspect any funny business in the Cref Bond Market Annuity. It's a plain, vanilla wrapper bond fund whose holdings probably do not differ significantly from those of Vanguard's Total Bond Market Fund.

[alec]

For financial statements for TIAA, go to NAIC, click on Get PDF Statement Data, and create a login. You get something like 5 free downloads, for which you can use to get TIAA's 12/31/06, 3/31/07, 6/30/07, financial statements. I believe there's a schedule of investmens which lists all of TIAA's investments.

- Alec

[peter71]

i agree that vanguard's lack of advertising is a big plus, though i'd be interested in what specifically bogle has said about its decline? i clicked on this june's chairman's letter about "are you saving too much for retirement?" ready to truly fall in love with vanguard -- i.e., with the expectation that it would acknowledge that the serious academic study concluding that fund companies have an interest in making you do precisely this needed to be taken seriously -- but, alas, it quickly dismissed the study without much evidence, so i've decided not to hope for warm fuzzies from these places at all . . .

as for TIAA, i do think they're in a unique situation of dealing with a lot of liberal if not socialist academics and non-profit employees who want to put all of their money in TIAA traditional (i remember this is what i wanted to do as a grad student in 1997 and the rep pretty much went into conniptions about how she got ten calls a day from people like me and we needed to get a clue) so while i don't know if that justifies what i think is their de-emphasis of/unhelpfulness about the Traditional Account it might help to explain it.

all best,
pete

[bob u.]

1. Vanguard's lack of advertising! Oh, yeah! Listen: I love many of their products, but they carpet bomb the web and mags with advertising.

2. TIAA liberals/socialists. Oh, boy! My colleagues, like my neighbors, represent the political spectrum. On one thing, though, they agree: they love to make money.

3. What the TIAA Traditional account and ideology have to do with one another totally escapes me. I guess it's a higher form of logic. Bob U.

[House Blend]

[House Blend]

[nisiprius]

[clay]

[peter71]

well, my idle speculations about the tiaa traditional-hating phone rep i dealt with are just that, but as for the sentiments of academics, most of the folks i know (myself included) alternate between AAUP-fueled outrage at their relative deprivation vis a vis administrators and football coaches and conceding that even $50k/year is pretty rich by global standards.

http://www.globalrichlist.com/

all best,
pete

[peter71]

also back OT. i too am happy they're doing the SRI stuff and have no concerns whatsoever about their solvency. i do, however, worry that the lack of transparency coupled with the holdings of TIAA traditional means that TIAA traditional is less likely to revert to the long term 6% plus average vintages, payouts etc. for that particular fund than they otherwise would be.

all best,
pete

[nisiprius]

[bob90245]

[nisiprius]

[nisiprius]

[nisiprius]

[bob90245]

[nisiprius]

[Vig Oren]

Reading bob90245's above post about NOLHGH it seems that ALL insurers in the state suppose to belong to it. Otherwise, if only the weak belong to it, who will pay the heavy dues?

But the lesson from all the above is:

Divide your need for annuities into batches and buy over time when you need them and BUY FROM SEPERATE INSURERS.


Remember this quiz?

*********************************************

Question: how many life and health insurers went belly up since 1995?

Answer: here is an excerpt from a Wall Street Journal issue (MAR 2006):


".....................given the long-term nature of these offerings [of selling investments that behave a lot like a pension] -- you're paying a company now for the promise that it will pay you back decades in the future -- investors need to feel comfortable that the company will still be around in 30 or 50 years. "That can be a big 'if,' " says Joseph Belth, professor emeritus for insurance at Indiana University.

Since the start of 1995, 76 life and health insurance companies have gone out of business, according to Weiss Ratings Inc., which tracks and rates insurance companies. While most failures have been at smaller companies, larger firms also sometimes go under. And when an insurer fails, state-run insurance pools step in to fulfill certain obligations, but investors can have accounts frozen and face other significant hassles."
******************************************

[nisiprius]

[bob90245]

[nisiprius]

[bob u.]

by my TIAA WMA that TIAA (the $170 billion general account--not the Life Insurance subsidiary) is not part of the state guaranty associations.

I think it's pretty definitive, but I'll regard the status as entirely definitive (at least with respect to the state of Michigan) when I hear from my estate-planning lawyer. Bob U.

[bob90245]

[Vig Oren]

Can't see TIAA-CREF doing business in NC if not under NOLHGA:

http://www.nolhga.com/policyho....ystemworks

Notice: mandatory State pooling plan

Associations & the Receivership Process

Insurance companies are regulated by the states—companies must be licensed in each state in which they do business, and state insurance departments monitor their financial stability. The states also oversee the guaranty association safety net—each state, along with the District of Columbia and Puerto Rico, has a life and health insurance guaranty association to protect its residents if an insurance company fails. All companies licensed to do business in the state are required to be members of the guaranty association (in other words, a company that does business in 25 states would be a member of 25 guaranty associations).

If an insurance company is found to be financially unstable, the insurance department in its home state (also known as its domiciliary state) can step in and take control of the company. This begins what is known as the “receivership process,” and in this first stage, the company is considered to be in “rehabilitation” (some states use a different term) as the insurance department attempts to improve the company’s financial status. The state insurance commissioner becomes the “receiver” for the troubled company, although commissioners often appoint special deputy receivers to oversee the company’s operations.

If the attempt to rehabilitate the company is successful, the receivership process for the company ends. If the company’s financial difficulties are too great to overcome, however, the commissioner declares the company insolvent, and the receivership process moves into the next stage—liquidation. In this stage, the receiver or deputy receiver attempts to maximize the company’s assets to pay off as many creditors as possible—including policyholders.

When a company is liquidated, state life and health insurance guaranty associations are triggered to provide continuing coverage and benefits to policyholders of the company living in their state. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the company’s domiciliary state.

If the company does not have enough funds to meet its obligations to policyholders (a common occurrence with insolvent insurance companies), each state guaranty association assesses the member insurers in its state a share of the amount required to meet the claims of resident policyholders. The amount assessed is based on the amount of premiums each company collects in that state on the kind of business for which benefits are required.



"Impaired Insurer"

§58-62-16(. A member insurer which is not an insolvent insurer, and (i) is deemed by the commissioner to be potentially unable to fulfill its contractual obligations or (ii) is placed under an order of rehabilitation or conservation by a court of competent jurisdiction.

"Insolvent Insurer"

§58-62-16(9). A member insurer which is placed under an order of liquidation with a finding of insolvency by a court of competent jurisdication.

"Member Insurer"

§58-62-16(11). "Member insurer" means any insurer and any hospital or medical service corporation that is governed by Article 65 of this Chapter and that is licensed or that holds a license to transact in North Carolina any kind of insurance for which coverage is provided under G.S. 58-62-21; and includes any insurer whose license in this State may have been suspended, revoked, not renewed or voluntarily withdrawn, but does not include an entity governed by Article 67 of this Chapter; fraternal order or fraternal benefit society; mandatory State pooling plan; mutual assessment company or any entity that operates on an assessment basis; insurance exchange; or any entity similar to any of the foregoing.

Account Structure

§58-62-26(a). Two accounts: (1) life insurance and annuity includes sub accounts: (a) life insurance, (b) annuity; and (2) health insurance account.

[nisiprius]

A summary of what's been discussed:

1) So far, everyone who's read NOLHGA's material or the laws of his own state has gotten an impression that state law seems to require TIAA to be a member of the state guaranty association.

2) Alec has been told by Maryland's Life & Health Insurance Guaranty Corporation that TIAA is not a member of that state's association (having "lobbied" to get out).

3) Nisiprius has been told by the Massachusetts Life & Health Insurance Guaranty that TIAA is a member of that state's association.

4) About five of us have been told by TIAA, two in written emails, that "The lifetime payouts are not insured by any state guaranty associations.... You are correct that the TIAA Traditional Annuity is backed solely by the claim paying abilty of TIAA."

Everyone agree that the summary is correct? Everyone agree that it's puzzling?

[bob u.]

1. Why disbelieve what TIAA reps/WMAs have said as summarized in Nisiprius's #4? Frankly, I can't find a shred of evidence on the web to undercut what my WMA said.

2. Part of the reason I do NOT disbelieve (double negative!) my WMA is because he called attention to the fact that the lifetime payout of TIAA Traditional is a "private pension" (e.g., it's unavailable to the general public) supported exclusively by "the claims paying ability of TIAA."

3. I suspect (subject to contradiction) that the term "TIAA" may be being used in a couple of ways--that is, as meaning both the parent organization, as it were--namely, "Teachers Insurance and Annuity Assocation," as well as TIAA Life Insurance Company. There are even folks (not necessarily participants in this thread) who believe TIAA-CREF is one organization. It isn't.

4. Having read multiple links (found through Google by fiddling with key terms) that discuss NOLHGA and some of its past activities, I am sympathetic to TIAAs (the parent company) apparently successful "lobbying" to stay out of state guaranty organizations. Such organizations operate in very different--if not haphazard--ways. If there were a federal organization I might feel differently.

5. All in all, I'm quite comfortable with the claims paying ability of TIAA specified in my contract as an annuitant and I had rather not see a single dime of TIAAs huge reserve used to assist a workout of a failed insurance company. I'm content to take my chances as is.

Bob U. (the troglodyte )

[nisiprius]

[Vig Oren]

nisi,

On Monday contact the Mass. Insurance Commissioner office and ask if TIAA-CREF annuities are insured there and for what amounts.

[nisiprius]

[Vig Oren]

nisi,

IMO, a letter is better.

Also IMO, even if TIAA's annuities were NOT insured by its home state then your state of Mass would protect you by ( here I excerpt from my above post):

"If an insurance company is found to be financially unstable, the insurance department in its home state (also known as its domiciliary state) can step in and take control of the company. This begins what is known as the “receivership process,” and in this first stage, the company is considered to be in “rehabilitation” (some states use a different term) as the insurance department attempts to improve the company’s financial status. The state insurance commissioner becomes the “receiver” for the troubled company, although commissioners often appoint special deputy receivers to oversee the company’s operations.


When a company is liquidated, state life and health insurance guaranty associations are triggered to provide continuing coverage and benefits to policyholders of the company living in their state. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the company’s domiciliary state.

If the company does not have enough funds to meet its obligations to policyholders (a common occurrence with insolvent insurance companies), each state guaranty association assesses the member insurers in its state a share of the amount required to meet the claims of resident policyholders. The amount assessed is based on the amount of premiums each company collects in that state on the kind of business for which benefits are required.
---------------------------------------------------------

I have enlarged above the words of the rule relating to the next step if TIAA was or was NOT insured at its home state.

My slogan from above post still stands: Divide your purchases of SPIAs into batches, buy over time when you need them and BUY FROM SEPERATE INSURERS.

[nisiprius]

[Vig Oren]

nisi,

Frankly, I still don't understand it why a smart and an investment savvy person as you are, would go for VAs?


A reminder: Cons and Pros of VAs:

(Larry S wrote on VA s)

The Tax deferral is just about the only good thing you can say about this investment product. Virtually, everything else about them is not only bad, it is really bad.

The cons:

=>Hi costs of the insurance wrapper.
=> Hi operating investment account expenses including surrender charges.
=> Lack of passive, low cost investment choices inside the annuity wrapper.
=> Lack of liquidity.
=> Loss of potential step-up in basis for the investor’s estate.
=>They convert low-taxed capital gains into hi taxed ordinary income.
=> Being in the hands of an insurer that could go belly up.


So the tax- deferral comes at a very hi price.

The pros:

=> Some Creditors Protection.
=> Offer an option for holding highly tax inefficient assets such as REITs if there are no tax sheltered plans or they are maximized.


Also read this:

http://registeredrep.com/annui....annuities/


http://money.cnn.com/2004/09/0....sk_expert/
----------------------------------------------------------------------

BTW, please remind me what is your opinion on these Fidelity VAs, and do they answer the above Cons?

http://personal.fidelity.com/p....tsheet.pdf

http://personal.fidelity.com/p....antage.pdf