How Good is TIAA-CREF?

A year ago I posed that question in a blog entry for Beacon Press, the publisher of my Social Insecurity: 401(k)s and the Retirement Crisis. I wrote that "TIAA-CREF, the retirement plan of many university professors and administrators as well as others, has escaped much of the increasing criticism of 401(k)-type plans. A number of academics with TIAA-CREF are even unaware that it is a 401(k)-type plan, thinking that the growing criticisms of 401(k)s don't apply to their situation.

"TIAA-CREF has enjoyed relative immunity from criticism for two reasons. It is a nonprofit company that is presumed to operate exclusively in the best interests of its participants because it does not have shareholders. And precisely because it is the plan of so many highly-educated professors, it is presumed to be good because surely they must know what they are doing.

"Yet TIAA-CREF participants fare no better in retirement income than 401(k)-type plan participants with other financial services industry companies such as ING, Vanguard, and Valic. That in turn means that they fare much worse than employees with traditional defined benefit pension plans."

The blog entry struck a chord. It has been shared by nearly ten thousand readers so far. You can read it here.

I think one of the reasons it caught attention is that it is difficult to find anything else like it on the Internet that is critical of TIAA-CREF. A Google search for "TIAA-CREF" turned up 743,000 results, the first number of pages with nary a hint of a critical article. Wikipedia's entry on the company contains nothing critical.

It is also testament to the success of TIAA-CREF's massive advertising budget. In the Beacon Press blog entry, I wrote, "As a competitive company, TIAA-CREF advertises heavily to convince participants to contribute more, maintain its hold over existing accounts, and secure new business. The costs of the advertising come out of the accounts of participants which diminish more their eventual retirement incomes.

"Among the places where it prominently advertises is in the publications of the American Association of University Professors, the organization that represents a large percentage of its participants. AAUP, not surprisingly, does not take a critical stance toward TIAA-CREF, seeming to treat is as a fixture of university life as normal as the English Department."

Yet, TIAA-CREF follows the same practices as other financial services companies that have compromised greatly the ability of 401(k)-type plans to deliver adequate retirement income, thus contributing to the growing retirement crisis in the United States.