Teachers have a lot to learn about investing
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Last year I retired from teaching at the City College of New York and have a large sum of money in a 403(b) with Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF) the long-term performance of which has been about 4.6 percent, which is awful. I’ve been taking distributions, and the TIAA-CREF clerks are dumber than the Burger King people you write about. I’ve made more than 20 phone calls to them this year, and those clerks continue to deduct excessive withholdings from my checks, include service charges of which I know nothing, send checks that are short by hundreds of dollars, and it just goes on and on and on. How can I get out of this lousy 403(b) before I have a heart attack? The other concern is my wife, who also teaches and has a TIAA-CREF 403(b). She’s 12 years younger, and the performance of her plan is terrible compared to the plans of some of our friends who are in private industry. Is there any way to cancel her 403(b) with TIAA-CREF and move it to a better venue? And can you tell me and at least a dozen other professors who are similarly disgusted why TIAA-CREF has performed so poorly compared to other plans and why they are having so much difficulty issuing checks to others and me?
S.B., Syracuse, N.Y.
Dear S.B.:
TIAA-CREF (TC) does poorly because it has a captive and trusting clientele, so there’s no incentive to hire good people to manage your money. And because the TC administration has investors by the kidneys, there’s no incentive to pay for competent clerical personnel. Your complaints about TC’s clerical staff and accounting nightmares are common. I’ve received hundreds of letters from pensioners and investors who have been denied access to their accounts.
TC is a $500 billion pension fund (they also peddle Individual Retirement Accounts, high-commission low-yield annuities, costly Simplified Employee Pension IRAs, expensive life insurance and Roth IRAs, etc.) that has insinuated itself, like tapeworms, into 15,000 colleges, schools, research centers and nonprofit institutions.
TIAA-CREF has some of the poorest long-term investment results in the nation. TC has only eight mutual funds with 10-year records: Its growth fund has a 10-year performance record of 3.6 percent, its balanced fund has a 6.8 percent 10-year annual return, its bond fund’s 10-year average return is 5.6 percent, and its best-performing fund, a real estate fund, has a 9.8 percent 10-year return.
TC’s other four funds have 10-year annual returns of less than 7 percent. Well those 10-year returns don’t butter my bagel. And those returns are before annual 1 percent management fees paid by many TC 403(b) plans. But what does a teacher know about returns?
However, if you’re a teacher, you should know that TIAA-CREF’s retirement annuity has a sizzling 5.9 percent 10-year return. Well pass the hoecake, hominy stew and sassafras tea; my two dogs, Catfish and Cornbread, can do better than 5.9 percent wearing blindfolds and earplugs.
TC has taken on 15 or so new funds with limited two- and five-year performance records, which are insulting to knowledgeable investors. As you know, long-term past performance is critical in selecting mutual funds. Because I always examine a fund’s 10- to 20-year record, the performance of the funds recommended in this column make those TC funds smell like swamp mud.
However, TC believes its clients are dumber than a bag of bowling shoes, because they expect you folks to select funds with limited performance records to serve you for the rest of your financial life. That’s pure unbridled arrogance and unacceptably disrespectful.
TC had more than $2 billion in net income from you folks in 2006. Some cynics suggest that the organization makes sizable annual donations to the National Education Association, the American Federation of Teachers and the American Association of University Professors, who approve and support your 403(b) plans. Those contributions keep the doors closed to better competitors.
Certainly Dodge & Cox, Vanguard, T. Rowe Price and Fidelity have 10- and 20-year records and the performance of their funds outshines, by orders of magnitude, the trash offered to you by TC. And certainly the annual fees of Fidelity, etc., are a lot less than those enormous fees you pay to TC.
You can move your 403(b) to an IRA at any brokerage firm, which should solve your accounting fiasco, and the expanded choice of funds would give you better performance. It’s time to take the politics out of the pension plan business and give performance and profits to the participants. Two billion dollars a year is a lot of vigorish to be earned by a nonprofit organization that claims it’s dedicated to providing retirement security to those in the teaching profession. TIAA-CREF’s performance, its perverted back office, its $2 billion of annual income, the huge salaries and perks paid to its administrators, its poor choice of investment alternatives and high cost are officious and insulting to its captive participants.
I suggest that you and your dozen dissatisfied professors ring Fidelity, T. Rowe Price, Vanguard, Dodge & Cox, etc. and ask them how you can exit from the iron grip of the Teachers Insurance Annuity Association-College Retirement Equity Fund.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
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