Tuesday, October 26, 2010

TIAA Issues New IRA Contracts With Lower Guarantee

That free lunch that TIAA was offering...gone, for the most part. Up until October 10th you could open an IRA with TIAA-CREF and if you qualified you could get a 3% minimum crediting rate and guarantee - with full liquidity. Those days are gone (thank you Ben Bernanke). The new minimum rate is somewhere between 1 and 3% - my experience is that it is now 1.25%. It still has full liquidity, so its still a reasonable option, its just not an amazing option (like it was before).

You can bet this move is based upon TIAA belief that interests rates will likely remain low for an extended period of time. I don't like the move, but I understand it. For those of you who have TIAA products with a 3% guarantee, you should be careful when moving money so as not to mess that up.

Below is the press release (which I missed):

The effective date of this change has been updated from October 13 to October 11, 2010.

Beginning October 11, new Investment Solutions IRA contracts which contain TIAA Traditional Annuity will have an adjustable guaranteed crediting rate of 1% to 3%.

The TIAA Traditional Annuity in IRAs pays a guaranteed crediting rate while offering the opportunity for additional interest amounts, as declared by the TIAA Board of Trustees. Additional amounts, when declared, remain in effect for the “declaration year” which begins each March 1.

This change does not affect the minimum crediting rate for other TIAA Traditional retirement products, including Retirement Annuities (RAs), Supplemental Retirement Annuities (SRAs), Group Retirement Annuities (GRAs), or Group Supplemental Retirement Annuities (GSRAs).

This change only affects the TIAA Traditional Annuity in Investment Solutions IRA accounts opened after October 11, 2010. TIAA-CREF IRAs that do not offer the TIAA Traditional Annuity product are unaffected by this change.

The prospective change to the Investment Solutions IRA TIAA Traditional Annuity crediting rate reflects the prevailing low interest rate environment and conforms with state insurance laws, which allow insurers to adapt more quickly to the interest rate environment than in years past. TIAA holds the highest insurer financial strength ratings from all leading independent rating agencies.

Questions & Answers

Will my Investment Solutions IRA contracts be subject to a change in the guaranteed minimum crediting rate?
This change only affects Investment Solutions IRA accounts opened after October 11, 2010. TIAA-CREF IRAs that do not include the TIAA Traditional Annuity are unaffected by this change.

Who is eligible to open a TIAA-CREF Investment Solutions IRA?
The TIAA-CREF Investment Solutions IRA is available to participants and their spouses or partners who work for institutions that are eligible to use TIAA-CREF products for their retirement plans. Please note that TIAA-CREF offers other types of IRAs to the investing public.

How is the minimum crediting rate on the TIAA Traditional Annuity account in the TIAA-CREF Investment Solutions IRA changing?
The minimum crediting rate for the TIAA Traditional Annuity in the TIAA Investment Solutions IRA contracts issued on or after October 11, 2010 will change to a minimum guarantee of between 1 percent and 3 percent, compared with a guarantee of 3 percent for Investment Solutions IRAs opened before that date. These changes, which are in conformance with state insurance laws, reflect the current low interest rate environment. Minimum crediting rates for the TIAA Traditional Annuity in existing IRAs and the TIAA Traditional in other TIAA contracts such as the RA, SRA, GSRA and GRAs are unaffected by this change.

Where can I get more information on IRA products?
TIAA-CREF offers several IRA solutions to meet investors’ needs. For more information, please visit www.tiaa-cref.org/ira or speak with an advisor at 800 842-2776.

What is TIAA’s insurance financial strength rating? What does this mean?
TIAA holds the highest insurer financial strength ratings from:

A.M. Best Company as of 12/2009 — A++
Moody’s as of 7/2010 — Aaa
Fitch Ratings as of 4/2010 — AAA
Standard & Poor (S&P) as of 5/2010 — AAA
These ratings are for TIAA as an insurance company and do not apply to variable annuities, mutual funds or any other product or service not fully backed by the claims-paying ability of TIAA. Ratings are subject to change. There is no guarantee that current ratings will be maintained.

The insurance financial strength ratings are one means of assessing the financial strength of an insurance organization, including the ability of the insurer to meet its obligations. TIAA’s capital and contingency reserves – which determine its claims-paying ability – are among the highest in the company’s history, ending the first quarter of 2010 at $24.1 billion, an increase of $1.3 billion over year-end 2009.

This message is informational only and not intended to solicit any TIAA-CREF product or promote any contract transaction.

Guarantees are based on the claims-paying ability of TIAA.

Annuity products are issued by TIAA (Teachers Insurance and Annuity Association), New York, NY. Brokerage Services are provided by TIAA-CREF Brokerage Services, a division of TIAA-CREF Individual & Institutional Services, LLC, members FINRA and SIPC.

Friday, October 22, 2010

Government DC Plan Disparity

In my last piece I talked about the problems in Government DC plans - see Thrown To The Wolves. This is just a quick update.

In the past few months the Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) has been busy. They have done some excellent work in updating fee disclosures, transparency and fiduciary obligations, specifically they have released the following regulations or proposed rules:

408(b)2 Interim Final Regulations
404(a) Participant Fee Rules
Definition of Fiduciary Proposed Rule

There are substantial changes including increased disclosures, greater transparency and more participant protections and yet, none of these rules apply to Government Defined Contributions plans such as 403(b) and 457(b). Sure, many government employers will adopt some or all of these rules/regs but the majority will not. Why is that one set of employees in America is treated so differently than another set just because their income comes from the Government. Is it ironic that these government plans are not subject to government rules/regulations?

Its time that Government employees receive the same rights and protections that private-sector employees receive in relation to their Defined Contributions plans.

Scott Dauenhauer CFP, MSFP, AIF

Tuesday, October 12, 2010

Labor Dept. eyes reports of advisers exploiting retirees

If only the Department of Labor had state jurisdiction - you'd see a different Government DC marketplace.

This article details some of the abuses taking place in 401(k) - you can bet if they are taking place in 401(k), its much worse in 403(b) and 457(b).

Scott Dauenhauer CFP, MSFP, AIF

Friday, October 08, 2010

Government Employees: Thrown To The Wolves

Why California Is Wrong To Believe That Our Pension Problems Will Be Solved By A Move To Defined Contribution Plans

If you listen closely to the politics of the day you might hear that many of our budget problems would be solved by a simple switch from Defined Benefit (DB) plans to Defined Contribution (DC) plans. Not true.

The problem isn't with our pension plans, it is with our politicians promising what cannot be delivered. But aside from that it would be irresponsible to move our public employees (even "just" future employees) to DC only plans. Why? Because we would be throwing them to the wolves.

You see, in California and many states around the country public employees do not enjoy the same protections that private employees receive when it comes to Defined Contribution plans (403(b) and 457(b)). Government defined contribution plans are not governed by the same laws, namely ERISA that private plans are. There is no Department of Labor that protects our public employees from the wolves in sheep's clothing that stalk our public employees. EBSA might as well mean Employees Being Sold Adrift (EBSA is a division of the Department of Labor and really stands for Employee Benefit Security Administration).

Yes, there are some fiduciary laws on the books in California and other states across the U.S., but they are rarely enforced. The term Fiduciary is bantered about and there are some revolutionaries who take up its banner, but by and large our public employees are bait when it comes to their DC plan.

The new 408(b)2 rules are great rules; except they don't apply to Government DC plans.

It is so bad that in some places criminal behavior has become the norm. What would ordinarily be punished in the private sector as criminal is rewarded in the public sector, even encouraged. Transparency is the exception, rather than the rule (at least the public sector has one thing in common with the private sector!).

The term Fiduciary is truly the "F" word when it comes to public schools - not because employers don't care, but because it isn't a priority - and why should it be? I'd much rather have my local school district spend their time focusing on education - not figuring out the Alpha, Beta and Sharpe of a certain mutual fund. The issue is not that people don't care, its that it isn't even on the radar. In addition, even if it was on the radar there is no enforcement.

Politicians across the U.S. are campaigning on the issue of over-abundant pensions. Maybe they are right, maybe they are not (full disclosure: my wife if one of those people who works her....uh, well she works really hard every day as a school teacher and thus is a beneficiary of a government pension, so I may be a bit biased)...its up to the voters to decide. What is wrong with the pitch that is being made is that these politicians have absolutely no clue that they are throwing these public employees to the wolves. What is worse is that these public employees have been the prey of the wolves for decades and nobody has done anything about it (save a few good souls at CalSTRS...full disclosure: I have done and hope to continue to do consulting work for them).

Two Americas

For some reason we have divided DC plans into Two Americas - those in the public sector and those in the private sector. Those in the private sector enjoy the protections of ERISA (but please don't get me started on 404(c)); those in the public sector are subject to whatever the state legislature MIGHT have put into place for the state's DB plans (with few exception). Why should public employees not be entitled to the same disclosure rules under 408(b)2 (essentially full transparency of service providers) that the private sector will be entitled to come July of 2011?

Why do we have two systems of regulation for DC plans in the US (forgive me, one system of regulation, another system that is essentially unregulated).

Good people are getting hurt and suffering because of this. Moreover, when corruption occurs (and trust me, it occurs) it is not punished - in fact it is rewarded. It is an injustice that has no protector. When a government employee is sold an investment because the individual selling that investment earns a trip to some exotic locale - that employee should at a minimum be disclosed such facts and in reality the person selling the investment should be punished (It shouldn't be allowed in the first place).

Government employees DESERVE to have their DC plans run by competent Fiduciaries, not people who put their own interest ahead of participants.


I've seen too much to sit back and let the prisoners run the asylum, its time that all Government DC plans were held to a higher standard - a Fiduciary standard. Its time that those who seek to undermine public employees Income Security (hmm..perhaps we should create PERISA - the Public Employees Retirement Income Security Act) are held accountable for their actions and are duly punished, not rewarded. It is time that the Duty of Loyalty that should be owed to our public employees DC plans actually means something.

Many public employers currently do the right thing (I know because I work with them on a daily basis), but too many public employees are in plans that are not in their best interest.

I challenge all that believe in a Fiduciary Standard to join me as I work to create a Fiduciary Standard for all government employees that is actually enforced....in other words, Stay Tuned.

Scott Dauenhauer, CFP, MSFP, AIF