CREF and College Professors

[GBurns]

Back in the 1980's, possibly early 1990s, there was a lawsuit by college professors against CREF over the restrictions that were placed on invested funds. Does any one remember the case and can any give me a cite etc?

[Guest redwoods]

Please don't get upset with me because I am using another name. You see I am out of town and using another computer. GB: A group of professors at the Georgetown University Law School were involved in that issue. You may want to get a call into them.

Joel L. Frank

[joel]

The following comes from the September 6, 1989 issue of The Chronicle on Higher Education.

Peace and Hope,

Joel L. Frank

===================================================

Ruling Clears Way for Major Changes in College Pensions

SEC approves settlement of fight between TIAA-CREF and critics

By Carolyn J. Mooney

Washington, D.C. -- The Securities and Exchange Commission has given final approval to a settlement between higher education's largest pension companies and a group of critics that had been pressing them to give policyholders more control over their retirement accumulations.

The SEC action cleared the way for major changes that would give the companies' policyholders far more flexibility in the handling of their money, make the college pension environment more competitive than ever before, and force institutions to think more carefully about the goals of their pension plans.

The action also meant that the $76-billion companies, the Teachers Insurance and Annuity Association and the College Retirement Equities Fund, could avoid a long and bitter hearing process that almost certainly would have taken place had there been no settlement.

After the SEC approved the agreement last month, TIAA-CREF announced it would offer policyholders two new investment funds in the first quarter of 1990. In 1987, a special TIAA-CREF panel recommended that the companies offer more options.

At present, policyholders may invest in TIAA, a fixed-income fund, or CREF, which has a stock fund and a money-market fund. The agreement approved by the SEC applies only to CREF. It is expected to take effect in six months.

The companies and their critics also signed a separate agreement that will apply to retirement holdings in TIAA. The changes called for in that agreement, which does not require SEC approval, are expected to take effect in about two years.

Clifton R. Wharton, Jr., TIAA-CREF's chairman and chief executive officer, said the SEC action signaled major advances for the companies, which had been awaiting the decision before introducing new funds.

Matthew P. Fink, senior vice-president and general counsel of the Investment Company Institute, called the SEC's order "a welcome final step in the effort by the academic community to achieve full freedom of investment choice."

The institute, an industry group whose members include some of TIAA-CREF's most aggressive financial competitors, was among the critics involved in the settlement proceedings.

Just what effect the latest developments will have is not yet clear.

Higher-education officials do not know whether a significant number of TIAA-CREF's 1.2-million policyholders will transfer their accumulations outside the companies once they are given the chance. Many have predicted that a majority of policyholders in academe will not want to take the time or responsibility to manage their investments and hence will leave their holdings with TIAA-CREF.

Competing investment companies seeking a bigger share of TIAA-CREF's market hope to persuade them to do otherwise, and are expected to intensify their marketing as a result of the SEC's action.

In the meantime, campuses that offer only TIAA-CREF must decide whether they want to expand the retirement options they offer employees. A small but growing number of institutions already offer employees a choice of investment options into which they can direct new -- but not existing -- retirement contributions. Campuses also must decide whether to allow employees to receive cash withdrawals from their retirement accounts -- another feature of the agreement.

Some higher-education officials have suggested that as a result of the latest events, colleges and universities will have to make a bigger effort to insure that the retirement options they offer are prudent. Sheldon E. Steinbach, general counsel for the American Council on Education, recommended that institutions establish a formal mechanism to review their retirement plans. While campuses that offer only TIAA-CREF may decide that a single company can satisfy their needs, they should make such a conclusion only after a careful review, he said.

The agreement approved by the SEC and the separate TIAA agreement include the following changes:

* Policyholders will be able to transfer existing TIAA-CREF accumulations ("old money") outside those companies to alternative funds offered by competitors -- if their institution's retirement plan offers options. However, policyholders wishing to transfer any amount of money out of TIAA will have to do so over a 10-year period, because, company officials have argued, TIAA's assets are illiquid.

At present, TIAA-CREF prohibits outside transfers, a limitation that caused some policyholders to complain that their money was locked up.

* Policyholders will be able to transfer existing TIAA-CREF accumulations more freely between TIAA, CREF, and new funds that the companies plan to introduce. At present, they may transfer from CREF to TIAA, but not in the other direction.

* Policyholders will be able to receive their CREF retirement accumulations in a single lump sum after they retire or leave an institution -- if the institution allows it. Many institutions prohibit cash withdrawals on grounds that they are contrary to the basic philosophy of pension plans -- providing lifetime income.

Policyholders will also be able to make cash withdrawals from TIAA, but, as with transfers, any such movement of money must take place over a 10-year period.

At present, policyholders can receive only 10 per cent of their retirement accumulations in cash when they retire; they receive the rest in a series of annuity payments. TIAA-CREF officials caution that policyholders must pay careful attention to the tax implications of cash withdrawals and transfers.

* Policyholders will have more control over the pension companies' governance: They will be able to elect directly the 20 trustees who sit on CREF's corporate board, and TIAA also plans to allow policyholders to elect trustees directly. New trustees will be chosen on a staggered basis after the current trustees finish their terms.

At present, policyholders select only 4 of the 20 trustees who make up each board.

The SEC decision brought an end to months of often-tense proceedings involving TIAA-CREF and a group of higher-education organizations and competing investment companies that had challenged its restrictive policies (The Chronicle, May 10). Stanford University was TIAA-CREF's most aggressive critic in higher education, spending hundreds of thousands of dollars in legal fees to intervene in a case that had begun with a routine SEC application filed by TIAA-CREF. Eventually the case provided the critics with an official forum in which to challenge the companies' policies.

Although TIAA-CREF officials say they were prepared to introduce on their own many of the changes requested by their critics, many of those who intervened in the SEC case say the companies had to be pushed every step of the way. The critics insist that the changes would not have been nearly as extensive without the leverage provided by the proceedings.

For years TIAA-CREF has served as the dominant investment vehicle for campus retirement plans. It has been popular with many academics.

In recent years, though, Stanford and other critics accused the giant companies of becoming unresponsive and monopolistic. As they saw it, TIAA-CREF did not have the right to prevent policyholders from transferring money in their basic retirement accounts. They argued that campuses -- not TIAA-CREF -- should make that decision. (Policyholders could, however, transfer money and make cash withdrawals from supplemental accounts.)

TIAA-CREF's critics also complained that the companies offered too few investment options.

The SEC debate was triggered by the conditions under which CREF would offer a long-awaited money-market fund. Many institutions and individuals wanted such a fund so policyholders could protect their investments from sharp stock-market fluctuations.

In 1985, CREF registered under the Investment Company Act of 1940, which governs investment companies. Although it was exempt from the act, it registered to clarify its status as it prepared to introduce new investment options. CREF asked, however, that its stock fund and planned money-market fund be exempted from provisions of the act that would allow policyholders to make cash withdrawals from their retirement accounts and directly select TIAA-CREF's trustees.

The SEC was prepared to grant CREF's request and scheduled a hearing process only after it received numerous hearing requests from those who opposed such exemptions. Critics complained that the exemptions would in effect allow TIAA-CREF to continue restricting transfers.

Several months later, and shortly before the hearing process was to start, TIAA-CREF announced a transferability plan of its own. But critics complained that it still contained too many restrictions. In confidential settlement talks over the next eight months, the companies and the intervenors met regularly to work on a revised plan.

The result was a much more extensive version of the transferability plan, submitted to the SEC for approval in January. The settlement agreement was seen by most sides as a compromise: Nobody thought it was perfect, but everybody could live with it.

Among those who signed off on the plan were Stanford; the Investment Company Institute; the American Council on Education; the American Association of University Professors; the National Education Association; the United University Professions, a New York faculty union; and four mutual funds -- Fidelity Investments Institutional Services Company, Scudder Fund Distributors, T. Rowe Price Associates, and the Vanguard Group.

The SEC's order retained the key provisions of the settlement. It also directed the commission's administrative-law judges to resolve any disputes connected with the order. -

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Copyright © 1989 by The Chronicle of Higher Education

[GBurns]

Saying thank you does not sufficiently convey my appreciation for this info.

Please read my apology on the other Thread.

[joel]

From The Chronical on Higher Education, issue dated February 28, 1990

Colleges Should Offer Pension-Plan Options That Give Employees Maximum Flexibility

By Louis Morrell

The Teachers Insurance and Annuity Association and the College Retirement Equities Fund have announced several new pension options that are expected to be made available to institutions around March 1, subject to regulatory approval. They include new investment options for CREF and enhanced opportunities to transfer funds to alternatives outside of TIAA-CREF.

Each institution must decide whether to elect all of the impending changes, adopt some of them, or leave its current plan unchanged. Obviously, the opinions and desires of individual employees will have a major influence on institutions' choices.

TIAA-CREF is urging institutions and their employees to use the new options with caution, but based on investment and pension realities, I would argue against such caution.

The current trend in retirement planning is toward greater flexibility, giving individuals more responsibility for managing their retirement assets. Yet people usually resist assuming such responsibility out of fear of potential consequences. TIAA-CREF encourages this tendency several times in its announcement of the new options, which says, in part: "Some of you may be interested in these new flexibilities. If you use them, please do so with the awareness that it is your retirement finances that are at stake."

The crucial point is that employees, not institutions, own their retirement assets. TIAA-CREF is what is known as a "defined-contribution retirement program," meaning that the employer makes a contribution to an individual's retirement account. The financial responsibility of the college or university ends at that point, and employees are given no guarantee about the level of benefits they ultimately will receive. Employees are exposed to the usual risks and rewards of financial investment. If the securities market turns down or funds are invested unwisely, retirement payments can fall far short of peoples' needs and expectations.

Because many institutions traditionally have exercised considerable oversight over the retirement funds of their employees, many employees believe the college or university is responsible for their retirement benefits. Academic administrators deciding on TIAA-CREF options confront a dilemma: On the one hand, they must recognize that title to retirement assets rests with the employees. On the other, they must acknowledge that after years of not having much direct involvement in the management or control of their assets, employees may be ill equipped to start making sophisticated investment decisions.

This is especially true given the uncertainty of retirement income. Because the 1980's were a great period for investors (even with the stock market crash in October 1987, Standard and Poor's 500-Stock Index showed price gains and dividends averaging 17.4 per cent per year), some employees now believe they can achieve comparable results in the future, guaranteeing them a financially secure retirement. But the financial world is constantly changing; further, a variety of other factors may affect the adequacy of retirement income.

Health-care costs are skyrocketing. People are living longer, so retirement-fund accumulations must be able to support people's needs for income over longer periods. Federal taxation of Social Security benefits could be extended to a larger portion of those benefits, and the tax rate itself could rise as federal policy makers search for ways to reduce the federal budget deficit.

Given these uncertainties and the fact that investment risks belong solely to employees, a strong case can be made for institutions' adoption of both the new TIAA-CREF options and non-TIAA alternatives. It is critical that such flexibility be made available so employees can cope with the constantly changing economic environment and plan more carefully for their retirement needs.

But in allowing employees greater control, educational institutions also have a responsibility to alert employees to the importance of their choices of retirement funds and to help them become better informed so they can make intelligent decisions. Information can be made available through both written material and training seminars offered by knowledgeable staff members and outside experts. Attaining such a working knowledge is much easier than many people believe.

Once institutions have elected TIAA-CREF's more flexible options, the key question is: How can employees manage their retirement assets to insure the highest possible income?

The crucial consideration in making such decisions is risk. Most of us see risk as the likelihood that we will do something wrong, so naturally we tend to avoid it. This outlook, however, often leads to inaction, which, in the world of asset management, can be as risky as taking the wrong action. In the end, the true risk is the possibility that one's retirement income will not be high enough to maintain one's desired standard of living. Careful planning is the antidote.

According to the November issue of The Participant, a TIAA publication, the most popular allotment of funds by participants is 50 per cent to the CREF stock fund with its variable return and 50 per cent to TIAA, which provides guaranteed annual fixed payments. The companies report that the overwhelming majority of policyholders are satisfied with the retirement income earned from a half-and-half allocation.

Unfortunately, many participants have designated this allocation simply out of the need to make a selection rather than as a result of sound retirement planning. Splitting the TIAA-CREF distribution evenly runs contrary to two basic principles of retirement-fund management.

The first principle is that, over time, stocks outperform bonds by about two to one and outperform money-market funds by about three to one. (An investment of $100 in the stock market at the end of 1925 would now be worth more than $52,000, compared with $1,650 for a long-term government bond and $942 for a Treasury bill.) In other words, the risk in stocks disappears over extended periods. Over a one-year period there is a 30-per-cent probability that one will lose money by buying stocks, but this probability disappears over a 10-year period.

Thus, based on historic market-performance, investors can increase their retirement-fund accumulations significantly by investing more heavily in stocks -- that is, allocating more than half of their contributions to CREF. As one approaches retirement, one can shift the mix from stocks to bonds to achieve a more reliable -- but smaller -- investment return.

The second, more significant, principle of retirement-fund management that the 50-50 allocation ignores is that such an allotment does not reposition assets to reduce risk and enhance returns. In particular, as one moves closer to retirement, it is wise to reduce stock and increase the fixed-income component. A well-designed allocation might look like the following plan:

Price changes, which take place daily in the securities market, constantly alter the mix of assets in one's retirement fund. Studies have shown that performance suffers when the asset mix is allowed to drift. This can be easily corrected by periodically respositioning assets from one class to another, even if done only once a year. For example, if one has a target allocation (based on age) of 65 per cent equities, 20 per cent bonds, and 15 per cent money market funds, and the stock market has risen so sharply that the stocks actually account for 75 per cent of the portfolio, one could sell stocks and use the proceeds to purchase additional bonds or money-market funds to return to the target allocation.

TIAA-CREF refers to its "classic" options as basic retirement-planning tools and to the new options as strategies for meeting specific needs, to be used carefully and selectively. Yet the "classic" funds have not allowed participants to reposition assets, which is such an important feature of retirement-fund management. In fact, TIAA-CREF seems to be urging caution about a proven technique of retirement planning.

The financial world is constantly changing, and employees should be given the opportunity to meet the challenges that lie ahead.

The system of an equal contribution to stock and bond funds, with no asset repositioning, is no longer appropriate for enhancing investment returns and reducing risks. Responsible institutions should offer new opportunities for their employees and take whatever steps are necessary to insure they become better educated consumers of retirement-plan options.

Louis Morrell is financial vice-president and treasurer of Radcliffe College.

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Copyright © 1990 by The Chronicle of Higher Education

[joel]

Posted on Oct 25 2004, 11:14 PM

Back in the 1980's, possibly early 1990s, there was a lawsuit by college professors against CREF over the restrictions that were placed on invested funds. Does any one remember the case and can any give me a cite etc?

==================================================

George: The issue went in front of the SEC and was finally settled. Is this the "lawsuit" you are referring to in your question? Please clarify.

Peace,

Joel

[GBurns]

Yes. This the "issue or lawsuit" to which I was referring. Although I remember an actual filing in court. My archives which should have some old coverage is not very readily available to me, and it could be that I had discarded it since I left the 403(b) type businees years ago.

Thank you for the help. Anything further would also be appreciated.

An old issue that is related to how TIAA-CREF actually handled this with certain participants has surfaced. In the cases that I saw, mainly in Florida, there deserves to be litigation. The Plan Sponsors were either in collusion or incompetently allowed themselves to be misled because the notices etc to participants were either deceptive or just plainly misleading. What was done was questionably legal but definitely not ethical nor within the spirit of the settlement.

[joel]

The Chronicle on Higher Education

From the issue dated March 7, 1990

Shifts at TIAA-CREF Usher in an Era of Competition for Pension Companies and of Choice for Academics

New options permit many to transfer funds more easily, take cash at retirement, and invest broadly

By Carolyn J. Mooney

A series of long-awaited policy changes at higher education's largest pension companies took effect last week, ushering in a new era of competitiveness and choice in the college retirement-fund market.

Starting March 1, the $84-billion companies, the Teachers Insurance and Annuity Association and the College Retirement Equities Fund, began giving their 1.2 million policyholders the option of transferring their TIAA-CREF accumulations to funds offered by competing companies.

Transfers may be made only if an institution decides to permit them, and only if its retirement plan offers a choice of funds to which money can be transferred. Although the number of institutions offering alternatives to TIAA-CREF is small -- around 275 -- many observers predict it will grow steadily because of the new transfer policy.

In the past, the companies prohibited transfers of existing accumulations -- so-called "old money" -- outside of TIAA-CREF. That restriction led an increasing number of critics to complain in recent years that their accumulations were "locked up" permanently.

Also on March 1, the companies started giving policyholders the option of making lump-sum cash withdrawals from their CREF accounts upon retirement, but only if their institutions allow it. Most do not, but some are expected to reconsider the issue.

Meanwhile, the companies introduced two new CREF options for policyholders seeking more choices within TIAA-CREF. They include a social-choice fund that will invest in companies considered sensitive to social and environmental concerns, and a bond-market fund.

All in all, last week's changes mean that TIAA-CREF policyholders will have more choices and more flexibility with their money -- regardless of whether they decide to transfer it or to leave it in TIAA-CREF.

The decision to allow transfers was part of a settlement reached by the companies and a group of critics that had challenged TIAA-CREF's policies. Among the critics were Stanford University, several higher-education organizations, and competing investment companies. The settlement was approved by the Securities and Exchange Commission last August.

In the past, policyholders could transfer money from CREF, a stock fund, to TIAA, a fixed-income fund, but not in the other direction. Under a separate settlement agreement that will take effect next year, policyholders also will be able to make transfers and cash withdrawals from TIAA, but only over a 10-year period. That is because TIAA's assets are highly illiquid.

The two new CREF funds, meanwhile, are part of a continuing effort by the companies to give policyholders more flexibility.

TIAA-CREF offers options for basic retirement plans at approximately 1,650 higher-education institutions. Each must now decide whether it wants to offer transferability, cash withdrawals, and either or both of the new funds.

What some observers are calling a pension-market version of glasnost, however, is expected to come at a much slower pace. Many of the changes require institutions and their employees to weigh carefully the purpose of their pension plans, since along with more options comes more responsibility on the part of both participants and institutions.

Although some campuses have already decided to offer the new CREF funds and a few have decided to allow transfers immediately, many were still debating the issues.

At many undecided campuses, committees formed to examine pension issues are asking questions like these:

* What is the purpose of a retirement plan?

* Should employees be given a choice of retirement options and, if so, which ones?

* Should they be able to put their retirement money in any kind of fund -- including, say, a high-risk fund that invests in precious metals -- or only in more stable funds?

* Should cash withdrawals be allowed, or does such a policy contradict the fundamental purpose of a pension plan?

* Will the plan offer older professors enough income to retire comfortably, or will some stay on longer than planned?

* Who should decide how much risk employees bear?

Roy A. Schotland, a Georgetown University law professor who has been one of TIAA-CREF's harshest critics, said he hoped institutions would formulate new policies only after carefully considering such questions. If, for example, employees are allowed to put basic retirement money into a gold fund, he said, "their employers should be shot."

Stanford, which already offers options to TIAA-CREF, has decided to allow transfers, but is still considering whether to allow cash withdrawals and to admit the new funds.

Paul E. Fearer, the university's deputy director of human resources, said he was concerned that financial-management companies seeking new clients and commissions might pressure employees to transfer their money out of TIAA-CREF by promising large investment returns. "The sharks are out there," he said.

The University of Nebraska system and DePaul University, which offer only TIAA-CREF, were among those planning to make the new CREF options available. Both were still deciding whether to add non-TIAA-CREF options and allow future transfers. Said Joyce A. Fecske, vice-president for human resources at DePaul: "We'll be analyzing the adequacy of the pension program we have."

The Johns Hopkins University is among the few institutions allowing employees to take advantage of all the changes immediately -- including the controversial provision for cash withdrawals. Since 1983, employees there have been able to invest pension money in TIAA-CREF or in three other funds. About three-fourths of new employees have chosen to direct part of their retirement money to the alternative funds, but many veteran TIAA-CREF policyholders have continued putting money in TIAA-CREF, said Robert M. Wilson, vice-president for personnel.

A long-time observer of TIAA-CREF, Mr. Wilson said he did not expect a huge number of transfers out of those funds. "My experience shows that inertia is a mighty powerful force," he said, adding that TIAA-CREF's competitors will have a tough selling job.

Competing companies say they are willing to give it time.

"We're not expecting a landslide of changes in investment decisions in the immediate time frame," said Joe C. Osborne, senior vice-president for marketing at the Variable Annuity Life Insurance Company (VALIC), which offers annuities for academic pension plans. "We have a long-term commitment. We're emphasizing choice."

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Copyright © 1990 by The Chronicle of Higher Education

[joel]

The Chronicle on Higher Education

From the issue dated November 7, 1990

College Pension Market Enters an Era of Tough Competition and Close Scrutiny

By Carolyn J. Mooney

The college pension market is entering a new era of unprecedented competition.

Higher education's largest pension companies and many others seeking a piece of the retirement-fund market can expect to face close scrutiny and sharp questions about their investment policies and long-term performance -- especially as the economy worsens.

Colleges "will be under great pressure to point out the performance of funds," said Louis R. Morrell, Radcliffe College's financial vice-president and treasurer. "The more information people have, the better."

The new climate has been dramatized in recent weeks by an angry debate between a reporter for a financial weekly and the two largest pension companies -- the Teachers Insurance and Annuity Association and the College Retirement Equities Fund.

The $84-billion companies found themselves on the defensive after Barron's, a weekly financial paper, published an article highly critical of them. Called "Still in an Ivory Tower," it questioned whether TIAA-CREF's investment strategies -- which reaped strong results in the bull market of the past decade -- would be as effective now that the economy is taking a downturn and the college pension market is opening up to competitors.

The author, Maggie Mahar, also sharply criticized TIAA-CREF officials for refusing to speak to her because she had written a critical article about the companies in 1987.

Only days after it was published, the latest article prompted a heated exchange between Ms. Mahar and a TIAA-CREF official at a Boston conference on pension issues. At the conference, sponsored by the New England Board of Higher Education, Ms. Mahar, a speaker, repeated the concerns she had cited in her article. Thomas W. Jones, TIAA-CREF's chief financial officer, rose from the audience to deliver an unexpected -- and, some observers said, angry -- rebuttal.

In a letter to Barron's, TIAA-CREF later accused the reporter of writing with an "inexplicable bias" and a "pervasive antagonistic and sneering tone." Mr. Jones said in an interview that Barron's had acted irresponsibly by raising doubts about the financial integrity of TIAA, when in fact outside evaluators had given the company extremely high ratings as recently as last week.

News of the flap spread quickly among the campus benefits officers and representatives of financial companies who regularly attend retirement seminars on the college pension circuit.

Some administrators of campus pension plans said they felt TIAA-CREF had made a mistake in its dealings with Barron's. They said company officials should have been more willing to discuss their investment policies, particularly at a time when academics are trying to learn as much as possible about pension options. Barron's, they said, raised good questions.

Robert M. Wilson, vice-president for personnel programs at the Johns Hopkins University, said he wasn't concerned about TIAA-CREF's track record, which he said had been strong over the long term. But he said he was disappointed that the companies, which in recent years have tried to address critics' complaints that they were unresponsive and paternalistic, acted so defensively.

"It was really a public-relations disaster," said Mr. Wilson, who attended the conference. "The world heard TIAA-CREF saying, `It's none of your business,' and I don't think they can afford to do that. That was the attitude of the old TIAA-CREF."

Whatever their opinion, many at the conference agreed that the college pension market was at a major crossroads. Because of recent developments that mean more companies can offer retirement options, professors and institutions alike must think more carefully about the goals of their retirement plans. Professors who in the past automatically directed savings into TIAA-CREF's two major funds will have to educate themselves better about all their options, and campuses and financial companies will have to help them, say many campus plan administrators.

TIAA-CREF is the world's largest pension system.

In recent years, a growing number of academics and other critics complained that it had, in effect, acted like a monopoly, since it had refused to allow transfers of accumulations outside its own system. Policy holders could transfer money from CREF, a stock fund, to TIAA, a fixed-income fund that invests mainly in bonds, mortgages, and real estate. But they couldn't transfer in the other direction, a restriction that led to complaints that the TIAA money was "locked in."

Sweeping changes, brought about by a settlement between TIAA-CREF and its critics, took effect March 1. Under the changes, policy holders now can -- if their institutions give them a choice -- transfer money from CREF to other funds. They can also make cash withdrawals from their retirement accounts if their institutions permit, although most do not on principle. Money from TIAA may only be transferred over a 10-year period, however -- a sore point among those who wanted more flexibility.

Policy holders also may invest in several new TIAA-CREF funds.

Many campuses that offer TIAA-CREF options are now reviewing their retirement plans to decide whether to offer additional options -- from TIAA-CREF, from competitors, or from both.

The Barron's article suggested that TIAA-CREF was complacent about its investment strategies in a new era of competitiveness and a tough economic environment, just as it had been complacent about adopting changes that policy holders had sought for years. "Just as TIAA-CREF does not encourage questions within, it is not quick to recognize change without," it said.

The article noted that CREF's performance had been strong between 1981 and 1990, outperforming the Standard & Poor's 500-stock index in 6 years out of 10. It also noted that TIAA's performance had consistently outpaced the life-insurance-industry average during the decade. But it questioned whether the companies' investment strategies would be as effective as stock, bond, and real-estate markets weaken, and noted that TIAA-CREF's performance had recently fallen. It sharply criticized TIAA-CREF for refusing to provide details about certain mortgages it holds, and estimated that junk bonds represented about 15 per cent of TIAA's $23-billion bond portfolio.

TIAA-CREF called that figure "reckless and inflammatory," coming at a time when the public is very nervous about the collapse of the junk-bond market. Mr. Jones, the chief financial officer, said the article classified as junk bonds a much broader array of TIAA holdings that do not have the high default rate of public junk bonds.

The article also questioned CREF's heavy reliance on indexing -- weighting its stock portfolio so its performance mirrors that of a broad-based index such as the S&P 500.

TIAA-CREF officials defended the practice, which they said resulted in diversification that would protect investments. They also reiterated their philosophy that pensions must be seen as a long-term investment rather than a way to make a quick killing in the stock market.

In recent months, pension money invested in CREF has fallen along with the stock market in general. For the 12 months ending September 30, the value of CREF's stock account declined by 11.9 per cent, while the S&P index fell by 9.3 per cent. Officials point out, though, that CREF has averaged an annual return of 14.4 per cent over the last five years.

TIAA annuity income is set once a year. For 1990 the value is between 8.5 and 11.5 per cent; in 1989 it ranged from 9.5 to 12 per cent.

If nothing else, the latest controversy may prompt more people to pay more attention to their investments. Acknowledged TIAA-CREF's Mr. Jones: "These are questions that knowledgeable participants should be asking -- not just of us, but of everybody."

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Copyright © 1990 by The Chronicle of Higher Education

[joel]

The Chronicle on Higher Education

From the issue dated March 20, 1991

TIAA-CREF Changes Begin to Affect Campus Plans

By Debra E. Blum

One year after higher education's largest pension companies adopted new policies that led to a more competitive college retirement market, campus pension plans are slowly changing shape.

The changes at the companies, the Teachers Insurance and Annuity Association and the College Retirement Equities Fund, took effect in March 1990. Since then, many institutions have offered their faculty members and administrators more investment options and given them more control over their savings. Others, meanwhile, are still deliberating proposed policy changes, and competing investment companies continue to vie for a share of TIAA-CREF's assets.

The $87-billion companies are the world's largest pension fund, and serve more higher-education institutions than any other. They have 1.4 million policy holders at more than 4,500 colleges and other non-profit institutions.

Last year's changes cleared the way for TIAA-CREF's competitors -- some of whom already had a foothold on campuses -- to make greater inroads in the market. But their progress has been slow, as institutions evaluated cautiously any changes in their pension plans.

"It's a marathon event, not a sprint, to begin to compete with TIAA-CREF, which has had a virtual monopoly on the market for more than 50 years," said Richard G. Malconian, president of Fidelity Investments Tax-Exempt Services Company. "To get the message out about choices, to educate institutions about alternatives, and to wait for the decision-making process to proceed takes time."

Until last year, TIAA-CREF prohibited its policy holders from transferring their accumulations to funds outside the companies, and it restricted transfers between its own fixed-income and stock funds. The changes meant that policy holders could more freely transfer assets between TIAA and CREF, as well as to funds offered by competing companies. They could also, with their institution's permission, cash in their CREF assets when they left their jobs or retired.

Beginning next month, policy holders will also be able to make cash withdrawals and transfers from TIAA accounts. Because of TIAA's illiquidity, those movements must be made in annual payments over 10 years. All changes are subject to campus approval.

By the end of 1990 -- 10 months after the new policies took effect -- 36 per cent of the 4,000 institutions that offer pension plans through TIAA-CREF had agreed to allow employees to make lump-sum cash withdrawals. Nineteen per cent had decided to allow employees who want to do so to transfer their accumulations to competing funds, although not all had decided which other funds to offer.

Since the changes took effect, CREF has seen a net outflow from people transferring money of almost $90-million -- about half of 1 per cent of CREF's assets, said John J. McCormack, TIAA-CREF's executive vice-president for pension and annuity services. "There's probably a lot of disappointment on the part of our competitors," he said. "The vast majority of people are quite satisfied, as they should be, with TIAA-CREF."

Competitors of TIAA-CREF see a different picture. While they acknowledge that TIAA-CREF has performed well in recent years, they said they expected to chip away slowly at TIAA-CREF's market. On many of the campuses that plan to allow transfers from TIAA-CREF funds, alternate investment funds are not yet available. Other campuses that offer TIAA-CREF still haven't decided whether to allow transfers or cash withdrawals. Typically, faculty members, union leaders, administrators, and governing-board members are consulted before decisions are made.

Many competing companies are not waiting for new business to fall in their laps. Officials at VALIC and the Vanguard Fund say they have stepped up their marketing efforts. Campus benefits officers say they have been inundated by telephone calls, mailings, and visits from investment-company representatives pushing retirement products.

Mr. Malconian's company, a subsidiary of Fidelity Investments, was formed last month to compete directly with TIAA-CREF. Through seminars, videotapes, direct-mail advertisements, and a toll-free telephone hotline, it hopes to increase its $2-billion share of the campus pension market.

Behind the changes at TIAA-CREF was the companies' decision to give policy holders more flexibility and options at a time when a group of critics in higher education had been pressing for change. The critics, who claimed TIAA-CREF was restrictive and monopolistic, sought changes in TIAA-CREF's corporate governance, more financial options within TIAA-CREF, and opportunities to transfer money more freely within and outside the companies.

In addition to allowing transferability and cash withdrawals, CREF last year introduced two new investment options -- a bond-market account and a social-choice fund. A majority of TIAA-CREF's participating institutions have added both new accounts, which together had $130-million in assets at the end of 1990. The social-choice account invests in companies that meet certain criteria governing corporate behavior on social and environmental issues.

While many institutions quickly agreed to offer the new CREF accounts, decisions on whether to approve lump-sum withdrawals and the transfer of assets have taken longer. At the end of last year, 40 per cent of the 4,000 colleges that participate in TIAA-CREF had not returned the companies' questionnaire asking whether they planned to allow transferability, deny it, or decide later. An additional 15 per cent had informed TIAA-CREF that they were deferring the decision.

Even in the State University of New York System, where the faculty union had run an aggressive campaign to allow members to manage their own money, pension-plan changes were adopted by the system's governing board only last month. Additional investment options are not expected to be available before next fall.

Michigan State University, which last year agreed to allow lump-sum withdrawals at retirement as well as transfers, has added four new staff members to its benefits office to deal with the changes. They are investigating new financial options, preparing an investment-counseling program, designing a new computer system to handle pension information, and examining retirement programs at other institutions. The university's faculty-retirement plan now offers only TIAA-CREF options, but discussions on additional funds to be offered are set to begin in the fall.

"There are vendors knocking at our doors, but we have to make decisions slowly and carefully when so much money is at stake," said C. Keith Groty, Michigan State's assistant vice-president for human resources. In its last fiscal year, Michigan State and its employees contributed almost $40-million to TIAA-CREF funds.

"In higher education, we tend to have committees to analyze, to consult," he said. "Within one year you are not going to see a revolution on this."

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Copyright © 1991 by The Chronicle of Higher Education

[WDIK]

What a good rea...zzzzzzz

[GBurns]

But then again...there is a "Delete" and an "Of no Interest" option with all posts to any Forum.

[WDIK]

No offense was intended, as I realize that the information was of specfic interest to you. My post was merely an attempt to express in a humorous way my being overwhelmed by the three thousand four hundred and nine words in the three posts above.

[GBurns]

While it was of specific interest to me, Joel also thought that it might be of interest to others as well. He could have very easily have emailed it privately, but since he has been in the business of educators pension planning long enough to know that there are many people who have been hurt because of this issue, he decided to use the Forum so that any other interested party could also see, especially those who were not around when all this happened and have not yet found out why the retirement of many educators has not been as planned.

Would you have preferred a lengthy dissertation and numerous postings promoting a poster's superior "knowledge", "experience" and "being familiar with self-employed plans" and a criticism of other posters who "want to put in their 2-cents worth" as was done in a few recent threads in which you participated?

You have put up with a lot worse in Threads on other Forums, and so I am surprised at your response. If it had been me or 1 of the other cantankerous posters, spouting off, or worse, 1 of the rude ones, I could understand, but it was just an effort to help out a situation.

[WDIK]

As previously stated, no offense was intended. In particular, the post was not meant to be a reflection upon Joel's posting the information, merely my lack of focus to read through it in its entirety.

But if any good has come out of my comment, at least it has gotten you to defend someone who you so vigorously and recently berated.