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Some Colleges Bail from TIAA, Objecting to Increase in Fund Fees

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Chad Peterson, a TIAA spokesman, said of the Wisconsin plan: “A multiemployer plan approach makes sense for some to gain administrative and plan efficiencies but not for others who prefer to create their own plan to best fit their specific campus needs.” 


 

The TIAA spokesman sounds a bit like the insurance industry (annuity sellers) saying that the teachers should have the widest possible choice of products to choose from! 

I don't have a subscription. Don't tell the WSJ! Very interesting idea: multiple small colleges and universities  joining together for economies of scale! And of expertise!  I wonder if K-14 school districts could do that?? Oh wait, didn't some districts in Missouri do that?

Some Colleges Bail from TIAA, Objecting to Increase in Fund Fees

By Gretchen Morgenson

April 6, 2018 5:30 a.m. ET

7 COMMENTS

More than a dozen small colleges have joined to yank the management of their employee retirement accounts from TIAA, the largest provider of retirement-plan services to nonprofit organizations, after it raised the fees on some of its most popular funds.

In Wisconsin, a group of colleges in January launched a new plan with the combined retirement account assets of three members, all of which had been with TIAA in recent years. The group expects to save 38% and 52% in fund expenses and record-keeping fees, respectively, as a result.

Fourteen small colleges in Virginia also joined a new multiemployer plan that began operating in November.

Small institutions around the country started looking for ways to bring down their retirement-account costs in 2015, when TIAA changed the annual-fee model on its popular CREF funds. From a previous flat fee of 0.24% of assets irrespective of clients’ size, the company started charging 0.35% of assets for institutions with less than $20 million under management—a nearly 50% increase. Plans above that size saw their costs decline.

TIAA has $1 trillion under management and five million customers, most of them workers at nonprofit organizations such as universities, research entities and governments. It said the 2015 fee increase on small institutions would “better reflect the actual administrative and distribution expenses across the range of clients we serve.”

Fee for All

Small institutions have had higher costs on employee-retirement accounts with TIAA since its CREF funds raised fees in 2015 on smallest plans.

FEES (% OF ASSETS):  Previous fees, Current fees, ACCOUNT SIZE

0.24%, 0.35%, Less than $20 million

0.24%, 0.20%, $20 million to $400 million

0.24%, 0.10%, $400 million and higher

Source: the company

Separately, two ongoing lawsuits against New York University and Duke University—both accused by plaintiffs of breaching their fiduciary duty to retirement-plan participants—also have brought retirement-plan costs to the forefront at many nonprofits.

Rolf Wegenke, president of the nonprofit Wisconsin Association of Independent Colleges and Universities—an organization of 24 private institutions in the state that created the new multiemployer plan—said rising retirement-plan costs had played a role in the decision to launch the new plan.

He said more colleges in the association are expected to join the plan, which currently is available to employees of WAICU, Lawrence University and Ripon College.

TIAA bid to be the record-keeper of the new group plan, but Transamerica won the assignment, Mr. Wegenke said.

Chad Peterson, a TIAA spokesman, said of the Wisconsin plan: “A multiemployer plan approach makes sense for some to gain administrative and plan efficiencies but not for others who prefer to create their own plan to best fit their specific campus needs.” Employees at Lawrence University in Appleton, Wis., with $100 million in retirement plan assets, are saving 50% under their new program, said Chris Lee, vice president for finance and administration.

The Virginia colleges that have signed up for their own multiemployer retirement plan have combined retirement account assets of around $500 million; they include Ferrum College, Hollins University and Sweet Briar College. Others are expected to participate.

TIAA was hired as the Virginia plan’s record-keeper, but few of its funds will be among the investment choices for participants, said Robert Lambeth, president of the Council of Independent Colleges of Virginia, a group of 28 small colleges that set up the plan. Neither will TIAA be providing investment advice to plan participants, he said.

TIAA performed both of these functions at most of the small Virginia colleges before the multiemployer plan came about.

“We have redefined TIAA’s role to strictly record-keeping,” Mr. Lambeth said, adding that the group hired other firms to select fund offerings and provide investment advice. He said his group had “negotiated fees with TIAA that are noticeably below what the colleges were paying.”

Retirement plan costs have become a focus at many nonprofit entities partly because of recent lawsuits highlighting outsize fees in some of these accounts.

The first of these cases to go to trial—a suit brought two years ago by participants in the New York University retirement plan—is scheduled to be heard by a judge in New York later this month. Plaintiffs contend New York University breached its fiduciary duty by having participants pay excessive record-keeping fees to TIAA and Vanguard Group.

“I hope there will be some monetary compensation for the faculty to make them whole in terms of what they have lost as a result of NYU not being active enough in managing this account,” said Marie Monaco, 69, who teaches endocrinology in the NYU School of Medicine and is a plaintiff in the case.

“Much of this case has been dismissed previously,” said NYU spokesman John Beckman. “We would have preferred it be dismissed in its entirety, because it is a baseless suit.”

Duke University has also been sued for breaching its fiduciary duty to retirement-plan participants by selecting four record-keepers, adding to costs. Duke has said the design and management of the retirement plan was proper. No trial date has been set yet.

In February, Duke announced that as of next year, Fidelity Investments will be the sole record-keeper of its $4 billion plan, eliminating three other firms that had been performing the role: TIAA, Vanguard and Valic. Vanguard funds will still be offered to Duke employees following the change, but TIAA’s funds will no longer be in the mix, except for its fixed annuity, known as TIAA Traditional.

Mr. Peterson, of TIAA, said the firm is pleased to continue offering the product to Duke participants. A Vanguard representative said the firm was confident that plan sponsors and their participants would continue to entrust Vanguard with their hard-earned retirement savings.

The New York Attorney General is investigating allegations made by former employees of aggressive sales practices at TIAA. The Securities and Exchange Commission and Commodity Futures Trading Commission also have interviewed former employees who filed whistleblower complaints, the former employees’ lawyer said.

“We are conducting a thorough review to ensure our actions and sales practices are aligned with our mission and values,” said the TIAA’s Mr. Peterson. “We cooperate fully with our regulators.”

Write to Gretchen Morgenson at gretchen.morgenson@wsj.com

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