information about TIAA "revenue sharing" policies

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dodecahedron
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information about TIAA "revenue sharing" policies

Post by dodecahedron » Fri Jan 19, 2018 3:13 pm

A number of colleges and universities are moving to a more transparent and equitable system of financing the administrative costs ("recordkeeping") associated with their retirement plans.

Harvard released information about their new policy a couple months ago.

Apparently a small number of menu choices (their R3 variable annuities and Trad and TREA) were kicking back revenue sharing that was covering the administrative costs for everyone.

Going forward, all plan participants will be assessed a 3.8 basis point administrative fee. Revenue sharing from the R3 annuiities and Trad will be credited against the 3.8 bp fee and participants will holdings in those funds will get the benefit of the revenue sharing in the future.

Participants holding menu options (TIAA mutual funds) that have not contributed to covering administrative costs in the past will now be required to cover their fair share of the administrative costs. Harvard is not alone in doing this. Other institutions are moving in this direction.

This is a score for equity and transparency/disclosure.

Edited to add: it appears that revenue sharing is 24 basis points on TREA, 15 basis points on Trad, and 10 basis points on the CREF R-3 annuities. At a different (smaller) institution with CREF R-2 annuities, revenue sharing is 20 basis points.

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House Blend
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Re: information about TIAA "revenue sharing" policies

Post by House Blend » Fri Jan 19, 2018 9:12 pm

No announcements from my employer on this score.

Employer has always paid all recordkeeping fees on our behalf (no details or accounting provided), and since 2012 we employees have been getting free money (Plan Servicing Credits) every year on top of the 0 administrative costs. (This is completely unrelated to employer contributions to our accounts.)

The credits have been small and vary quite a bit from year to year, and from account to account. Typical order of magnitude (when nonzero) is ~ 2 basis points.

For example, in 2017 I received an extra 2.7 bp for my holdings in TIAA Real Estate. In another TIAA account, I received an extra 0.02 basis points for my holdings of a Vanguard index fund. Most funds I held at TIAA produced no credits.

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dodecahedron
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Re: information about TIAA "revenue sharing" policies

Post by dodecahedron » Fri Jan 19, 2018 11:40 pm

House Blend wrote:
Fri Jan 19, 2018 9:12 pm
No announcements from my employer on this score.

Employer has always paid all recordkeeping fees on our behalf (no details or accounting provided), and since 2012 we employees have been getting free money (Plan Servicing Credits) every year on top of the 0 administrative costs. (This is completely unrelated to employer contributions to our accounts.)

The credits have been small and vary quite a bit from year to year, and from account to account. Typical order of magnitude (when nonzero) is ~ 2 basis points.

For example, in 2017 I received an extra 2.7 bp for my holdings in TIAA Real Estate. In another TIAA account, I received an extra 0.02 basis points for my holdings of a Vanguard index fund. Most funds I held at TIAA produced no credits.
Interesting that you got 2.7 bp for your holdings in TREA because it appears that TIAA has a standard policy of giving the employer 24 bp in revenue sharing out of the TREA 87 bp expense ratio. That revenue sharing is almost ten times what you were credited back. So it is not really "your employer" who has been paying the administrative costs, it is you (via the revenue sharing that came out of the ER applied to your holdings.)

Edited to add: apparently TIAA offers employers a choice of ways that those "plan servicing credits" rebates can be computed.

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Re: information about TIAA "revenue sharing" policies

Post by JohnDoh » Sat Jan 20, 2018 6:57 am

The University of Chicago is making a similar shift. However, the new, transparent, record-keeping servicing fees are fixed amounts, rather than basis points. The amounts vary according to plan type but for an "ordinary" case would be something like $48 per year. With revenue sharing rebates from TRAD and TREA investments, it's possible that participants with sufficient balances will have negative servicing fees (i.e. credits).

Beyond fees, the transition is also eliminating Vanguard as a plan provider (forcing the consolidation of balances at TIAA) and drastically down-sizing the number of fund options available, but replacing them with a small lineup of excellent Vanguard funds (institutional class) at TIAA. Plus a brokerage window option (for mutual funds only) at an additional charge.

Single Recordkeeper for the Retirement Plans

FAQs [pdf]

Transition Guide [pdf]

JohnDoh
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Re: information about TIAA "revenue sharing" policies

Post by JohnDoh » Sat Jan 20, 2018 7:05 am

This thread has been picked up at the M* TIAA forum, where additional information is available.

http://socialize.morningstar.com/NewSoc ... 80054.aspx

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dodecahedron
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Re: information about TIAA "revenue sharing" policies

Post by dodecahedron » Sat Jan 20, 2018 11:15 am

JohnDoh wrote:
Sat Jan 20, 2018 7:05 am
This thread has been picked up at the M* TIAA forum, where additional information is available.

http://socialize.morningstar.com/NewSoc ... 80054.aspx
Thanks for the pointer, JohnDoh. I am amused that the initiator of that Morningstar thread, Pinky3, wrote "You can read dodecahedron's take at BH. [Hint: he/she is very smart.]"

Having searched around further, there are a number of colleges that have instituted similar reforms in the current academic year, including the one where I currently work.

I gather from conversations with folks on benefits committees at various places that this is a reform they have been wanting to do for a while but TIAA's platform had to be rebuilt to make this work in its current transparently equitable manner. The previous "plan servicing credits" system seemed very ad hoc and opaque and did not seem to fully address the issue.

A clear pattern is emerging from my perusal of the publicly accessible documents from the various colleges around the country that have instituted reforms:

Revenue sharing is
  • TIAA Trad annuities 15 bp everywhere
  • TREA annuities 24 bp everywhere
  • CREF annuities 30 bp at R-1 institutions, 20 bp at R-2, 10 bp at R-3
  • TIAA-CREF mutual funds ZERO bp everywhere!
  • mutual funds from other providers made available on TIAA platform varies, often zero on low cost index funds, sometimes positive on expensive high cost choices
When I say "everywhere" I mean at all institutions that I have come across that have publicly posted new policies similar to Harvard's, which include R-1, R-2, and R-3 institutions.

So, effectively from what I have been able to gather, it appears that in the past those participants who chose to direct their contributions to TIAA's annuities have been unknowingly footing a disproportionate share of the plan administrative costs for everyone. Institutions are now able to reshape the assessment of costs in a more equitable and transparent way.

Reasonable people can differ as to whether the Chicago approach (assess everyone a specified dollar fee per participant per year) or the Harvard approach (assess everyone a specified percentage of assets per year) is more equitable.

One could also argue that folks who choose to invest in Trad, TREA, and the CREF variable annuities should be paying *somewhat* higher administrative fees, simply because those products have features that are more complicated to explain and TIAA staff may have to spend more time answering inquiries about them.

Edited to add: By the way, my very first TIAA-CREF contract was at Harvard, many decades ago. I have accumulated several others since then, including some from my late husband. I have rolled them all into the plan at my current part-time employer in order to consolidate and simplify my life. My current smaller employer is moving to a system similar to Harvard's but it will be assessing an admin fee of a few more bp than the 3.8 that the Harvard plan would have assessed on my balances if I had left my accumulated balance at Harvard there. This is completely understandable since my current institution is much smaller than Harvard and the difference seems quite reasonable. No regrets--simplification and consolidation is worth it to me! Having dealt with the complications of transferring my late husband's many accounts, I want to keep things as simple as possible for my heirs.

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Re: information about TIAA "revenue sharing" policies

Post by JohnDoh » Wed Jan 31, 2018 8:52 am

The revenue sharing for TREA is specifically called out on the SEC "tear sheet" (h/t to M* yogibearbull). See the "Descriptive Information" section in the top right column:

https://www.sec.gov/Archives/edgar/data ... 23117.htm

For those getting revenue sharing rebates, the effective ER is .85 - .24 = .61 (which feels more reasonable :happy ).

This also seems to partially explain the RC(P)TRAD higher interest rates of .25%. The revenue sharing amount is simply being paid out as interest.

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Re: information about TIAA "revenue sharing" policies

Post by radiowave » Wed Jan 31, 2018 9:59 am

We have a plan service fee of 7 bp at my large state university in the western US. TIAA is our record keeper. On a positive note, we do have Vanguard Target Retirement funds at 8bp (Trust II) so with the service fee, that puts the total cost at the retail level (7 + 8 bp). On the downside, older faculty and staff who have been at the university a long time pay more fees. We do have a faculty subcommittee that works directly with administration on recommendations on our retirement account so at least we are having a conversation.
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harmony
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Re: information about TIAA "revenue sharing" policies

Post by harmony » Thu Feb 01, 2018 10:13 am

Could this possibly explain why years after retirement, our State U. former employer keeps adding to the employee’s 403b, thus necessitating that we take steps to get it swept into the employee’s Minimimum Distribution Option contract so it can be included in the annual required minimum distribution (RMD)? When we have called TIAA to ask about this, they told us that it had to with some “reimbursed administrative expenses” or something similar. If we don't call in each year, we risk a 50% penalty on this amount.

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