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TIAA-CREF Classes of Funds
Old 06-20-2011, 09:10 AM   #1
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TIAA-CREF Classes of Funds

One of my sons is on the faculty of a large Texas university. He recently received a letter from the university advising him that the university had persuaded TIAA-CREF to move all the university participants funds from the "Retirement" class of TIAA-CREF funds to their "Premier" class of funds. The principal benefit would be that the expense ratios of Premier funds are lower than those of Retirement funds.

Since I was never employed in the public sector, I never had a chance to use TIAA-CREF, and thus don't know much about the firm or their investment options. My impression was that TIAA-CREF was a good low-cost provider.

However, in looking at information on the internet, it looks like Premier expense ratios for Index funds are higher than similar Vanguard funds.

Wouldn't participants in this university's retirement plans be better served with Vanguard funds as an option? Does TIAA-CREF have some in with public sector employers that keeps Vanguard out?
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Old 06-20-2011, 10:47 AM   #2
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Originally Posted by SteveL View Post
One of my sons is on the faculty of a large Texas university. He recently received a letter from the university advising him that the university had persuaded TIAA-CREF to move all the university participants funds from the "Retirement" class of TIAA-CREF funds to their "Premier" class of funds. The principal benefit would be that the expense ratios of Premier funds are lower than those of Retirement funds.

Since I was never employed in the public sector, I never had a chance to use TIAA-CREF, and thus don't know much about the firm or their investment options. My impression was that TIAA-CREF was a good low-cost provider.

However, in looking at information on the internet, it looks like Premier expense ratios for Index funds are higher than similar Vanguard funds.

Wouldn't participants in this university's retirement plans be better served with Vanguard funds as an option? Does TIAA-CREF have some in with public sector employers that keeps Vanguard out?
TIAA is a good low cost provider for retirement accounts. These accounts tend to have higher expense ratios than their after tax equivalents. I assume there are extra administration fees that push up the expenses

I have both TIAA and Fidelity as options at my university. The TIAA ER for most of the funds is around 0.4% be it the CREF annuity, retirement or institutional classes. They can also be inexpensively changed into lifetime annuities which might be a positive for some people.

The Fidelity ERs are on average higher although they do offer a couple of inexpensive (0.1 and 0.2% ERs) index funds. It would be interesting to see what a vanguard administered plan would have for ERs. I imagine they would be higher than the retail funds.
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Old 06-20-2011, 02:18 PM   #3
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TIAA-CREF is a good outfit and used to have lower expense ratios. I think it was started in the early 1950's before 401(k)s existed and before most mutual funds existed. Certain laws of the day allowed 403(b)s to exist, but only insurance companies and their ilk to provide them. This is why TIAA-CREF came into existence.

Times have changed. TIAA-CREF has become a for-profit company, hired a guy from Merrill Lynch and raised fees. The laws have changed so that insurance companies can run a 403(b). That said, I have read where Vanguard sometimes will not participate in a 403(b) because they will not agree to some twist in the law.

Another thing going on is inertia. It is very hard to get a large institution with many current and former employees who rely on TIAA-CREF to switch to another provider. My former institution switched from TIAA-CREF to Fidelity. The main thought of the employees was, "How are they trying to screw us now?" So clearly, staying with TIAA-CREF is a "If it ain't broker, don't fix it" thing.

So, yes, Vanguard would be better. but TIAA-CREF is almost as good.
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Old 06-20-2011, 02:28 PM   #4
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[QUOTE=LOL!;1081760]TIAA-CREF is a good outfit and used to have lower expense ratios. I think it was started in the early 1950's before 401(k)s existed and before most mutual funds existed. Certain laws of the day allowed 403(b)s to exist, but only insurance companies and their ilk to provide them. This is why TIAA-CREF came into existence.

Times have changed. TIAA-CREF has become a for-profit company, hired a guy from Merrill Lynch and raised fees. The laws have changed so that insurance companies can run a 403(b). That said, I have read where Vanguard sometimes will not participate in a 403(b) because they will not agree to some twist in the law.

QUOTE]


Uh, a few inaccuracies. TIAA actually traces its heritage to a predecessor founded by Andrew Carnegie to provide for university professors' retirement, as they were low paid at that time. TIAA today is a unique structure that is effectuively a mutual comapny, although the legal structure is a bit complicated (the board actually owns the company as I understand it).

TIAA is not the cheapest in the 403B market, but they are far better than virtually everyone except (perhaps) Vanguard and maybe Fido. Even if TIAA is a big more expensive than those two, it typically offers plan participants access to a life annuity that is very competitive and backed by one of the only Aaa balance sheets in the world.
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Old 06-21-2011, 03:18 PM   #5
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Thanks for the feedback. I'll reassure my son a bit. I've drilled the low cost thing in pretty well......
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Old 06-21-2011, 05:07 PM   #6
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One of my sons is on the faculty of a large Texas university.
I'm also at a large state university in Texas - DW and I both - and we've both had Fido and TIAA CREF but are consolidating everything into Fido. Yes, Fido has lower fees on their broad based index funds as was mentioned and I don't think TIAA CREF is "bad" in anyway but they use institutional funds. I can't go look them up on Yahoo Finance to see how they are doing as compared to other funds in that class. I just feel like there's not enough transparency in what I'm putting out money in. If you look at the history of the funds, no problem, I just want more insight into what I'm buying. Also, Fido's phone number is answered pretty promptly 24/7. Not all the info you get at 2:00 in the morning is perfect but at least I can get through. I've waited for long periods of time to get through to a live person at TIAA CREF. The local "advisor" at TIAA CREF didn't do much advising... he just followed their asset allocation formula so I've done my own and recently hired a fee only advisor one time.
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