TIAA–CREF (A): A Pension Giant Takes a Hard Look at Serving the Customer

Abstract

When Herb Allison took the helm at TIAA–CREF (Teachers Insurance and Annuity Association of America–College Retirement Equities Fund) in November 2002, the former President and COO of Merrill Lynch encountered an organization focused on its primary product, the largest private pension fund in the United States. Founded as TIAA in 1918 to help academics avoid poverty after retirement, TIAA–CREF had grown to a Fortune 100 company, managing over $260 billion in assets for 3.2 million participants. However, for a company with so many assets and so many individual customers, TIAA–CREF was not well known. It had limited direct contact with its customers. Allison observed, “It was like a big factory with a tiny store in front.”

TIAA-CREF's “storefront” had become increasingly important with the sweeping changes in financial services and pension markets in the preceding decades. TIAA–CREF reacted slowly to the trend toward greater customer choice and service. By 2003, customer-oriented financial service firms had made significant inroads into TIAA–CREF's base. Where once TIAA–CREF had a near monopoly on campuses, now 83 percent of its largest institutional customers also offered competing vendors like Vanguard and Fidelity.

TIAA–CREF's Boards of Trustees had given Allison a charge to transform the organization to make it more customer-focused. Upon taking over, Allison organized six employee teams to take a hard look at every aspect of the company and to make recommendations. In a feverish six months, the teams amassed a mountain of data and presented a series of bold and controversial options. Now Allison and senior management had to make recommendations to present at the July 2003 strategic retreat of the joint boards. He had to decide which options would maximize TIAA–CREF's competitiveness, as well as evaluate how much change this “sleepy” organization could absorb.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: Total U.S. Retirement Market

Exhibit 1.1 Major Developments in Individual Investment Options

Figure
Exhibit 1.2 Total U.S. Retirement Market

Billions of dollars, year-end

Defined Benefit Plans 1

Defined

Contribution Plans 1

IRAs

Gov't Pension

Plans 2

Annuities 3

Total 4

1985

$813

$508

$241

$577

$181

$2,320

1990

922

889

637

1,079

391

3,918

1995

1,496

1,715

1,288

1,885

582

6,966

2000

2,009

2,967

2,629

3,132

951

11,688

2001

1,845

2,658

2,619

3,114

1,041

11,276

2002

1,490

2,487

2,533

2,874

1,021

10,404

1 Defined contribution plans include private employer-sponsored defined contribution plans (including 401(k) plans), 403(b) plans, and 457 plan assets.

2 Government pension plans include local, state and federal plans.

3 Annuities include all fixed and variable annuity reserves at life insurance companies less annuities held by IRAs, 403(b) plans, 457 plans, and private pension funds.

4 Components may not add to the total because of rounding.

Sources: Investment Company Institute, Federal Reserve Board, National Association of Government Defined Contribution Administrators, American Council of Life Insurers, and Internal Revenue Service Statistics of Income Division.

Exhibit 2: TIAA and Combined TIAA–CREF Financial Statements

Exhibit 2.1 Annual Statement for TIAA

(year ended December 31, millions of dollars)

2002

2001

2000

1999

Total Revenue (premiums and investment income)

$21,940

$19,180

$18,456

$16,943

Total Benefit Payments and Expenses

$15,946

$13,409

$12,678

$11,737

Net Gain from Operations before dividends, federal income taxes

$ 5,994

$ 5,771

$ 5,779

$ 5,206

Dividends to policyholders

5,120

4,955

4,476

4,159

Federal Income Taxes

(21)

27

24

(25)

Net realized capital gain (loss) less capital gains taxes transferred to IMR

(1,031)

(204)

(57)

(48)

Net Income

$ (137)

$ 585

$ 1,222

$ 1,024

CAPITAL AND SURPLUS ACCOUNT

Capital and surplus, December 31, prior year

$ 8,651

$ 8,097

$ 7,025

$ 6,323

Net change in capital and surplus

$1,021

$554

$1,072

$702

Capital and surplus, December 31, current year

$ 9,672

$ 8,651

$ 8,097

$ 7,025

Asset Valuation Reserve

2,263

2,619

2,871

2,638

Capital and surplus and Asset Valuation Reserve, December 31, current year

$ 11,935

$ 11,271

$ 10,968

$ 9,663

Exhibit 2.2 TIAA–CREF Combined Company Assets

(millions of dollars)

2002

2001

2000

1999

1998

TIAA General Account

$133,399

$122,805

$115,159

$107,746

$100,251

TIAA Stock Index Account

642

834

993

1,034

758

TIAA Real Estate Account

3,716

3,395

2,415

1,717

1,207

Total TIAA

137,757

127,033

118,567

110,497

102,216

CREF Stock Account

75,551

99,162

119,647

135,733

116,371

CREF Money Market Account

7,500

7,480

6,696

7,052

5,916

CREF Bond Account

5,786

4,578

3,243

2,905

3,056

CREF Social Choice Account

4,382

4,414

4,260

4,127

3,343

CREF Global Equities Account

5,498

6,714

8,364

8,973

6,051

CREF Growth Account

7,743

10,775

13,649

13,570

7,661

CREF Equity Index Account

4,752

5,322

4,982

4,985

3,452

CREF Inflation-Linked Bond Account

2,570

1,232

492

141

142

Total CREF

113,782

139,677

161,332

177,488

145,992

TIAA–CREF LIFE

2,575

1,162

667

336

256

Mutual Funds (consolidated)

7,001

4,776

3,683

2,402

1,054

TIAA–CREF Trust Company

1,688

1,260

897

450

72

Tuition Financing

3,139

1,818

928

374

91

TIAA Financial Services

1,081

Consolidating Adjustments

−3,052

−2,155

−1,409

−681

−663

Total Assets Under Management

263,972

273,571

284,665

290,866

249,019

Non-Managed (TIAA–CREF Trust Co)

1,862

407

273

84

6

TOTAL ASSETS

$265,834

$273,977

$284,938

$290,950

$249,025

Exhibit 3: TIAA–CREF Expense Ratios

Exhibit 3.1 TIAA–CREF Total Expense Estimates

Figure
Exhibit 3.2 TIAA–CREF Assets to Total Headcount

Source: Company records.

Figure

Exhibit 4: Market Data for TIAA–CREF's Institutional Customers

Exhibit 4.1 TIAA–CREF's Market Share among Employees of its 100 Largest Higher-Education Institutional Clients

In 100 Largest Institutions, % of Employees in Each Plan

Public Education Institutions

Private Education Institutions

TIAA–CREF

81%

74%

Fidelity

7%

11%

Vanguard

1%

6%

A|G/Valic

2%

3%

To read the chart: TIAA–CREF has 81 percent of eligible employees at the public education institutions that are included in TIAA–CREF's 100 largest institutional customers.

Exhibit 4.2 Institutional Customers Looking at Options beyond TIAA–CREF

Large

Midsized

Considering adding alternate providers

33%

10%

Use pension consultants

38%

20%

Considering joint management of retirement benefit funds and planned giving/endowments

10%

10%

Exhibit 4.3 Institutional Customers Rating TIAA–CREF as Better than Other Providers

Large

(around 250 institutions with

>$100 MM in

TIAA–CREF Assets)

Midsized Higher Ed. $10 MM to $100 MM in TIAA–CREF Assets

Overall

(around 11,000 to 12,000 institutions)

Overall rating

55

86

75

Overall service to plan administrator

75

84

77

Service to participants

70

86

82

Investment performance

29

44

33

Cost/fees

73

83

75

Trust-based relationship

60

78

75

Wide range of funds

21

21

21

Commitment to education

73

84

Long-term conservative investing

67

73

Ability to provide education and guidance to participants

67

77

Exhibit 4.4 Institutional Perspectives on TIAA–CREF Options: Survey Responses

Institution Level of Advice to Individual Customers

Currently offer advice to participants

4%

Believe offer would benefit participants

97%

Willingness to pay: prefer advice to be

Provided for free

40%

Paid for by participant

31%

Shared by institution and participant

29%

Paid entirely be institution

0%

Would TIAA-offering non-proprietary investment options increase TIAA–CREF share of assets at institution?

Mega higher-educational institutions

40%

Large higher-educational institutions

54%

Source: Company records.

Exhibit 5: Market Data for TIAA–CREF's Individual Customers

Exhibit 5.1 Number of TIAA–CREF Individual Participants by Holdings and Age (%) (Data Disguised)

Age

Wealth

Under 35

35–54

Over 55

not retired

Annuitants

Total Row

Under $50K

16.21%

36.90%

12.66%

3.62%

69.39%

$50–99K

0.29%

4.70%

3.55%

1.48%

10.02%

$100-250K

0.02%

4.67%

4.74%

1.56%

10.98%

$250K+

0.01%

1.36%

7.13%

1.11%

9.61%

Total Column

16.53%

47.63%

28.07%

7.77%

Exhibit 5.2 Total Wealth under TIAA–CREF Management by Individual Participants' Holdings and Age (%) (Data Disguised)

Age

Wealth

Under 35

35–54

Over 55

not retired

Annuitants

Total Row

Under $50K

0.89%

5.27%

2.08%

0.81%

9.05%

$50–99K

0.11%

4.89%

3.02%

1.32%

9.33%

$100–250K

0.04%

8.54%

8.93%

2.98%

20.49%

$250K+

0.13%

5.95%

48.75%

6.31%

61.13%

Total Column

1.17%

24.65%

62.77%

11.41%

Exhibit 5.3 High Balance Individual Participants: Assets Outside TIAA–CREF (Billions of Dollars)

Employer retirement plans

80

After-tax retirement assets

29

Non-retirement savings/investments & protection

164

 Securities

49

 Cash

35

 Mutual funds

21

 Annuities

17

 Life Insurance

3

 Trusts

3

Exhibit 5.4 TIAA—CREF-Initiated Contact with Individual Participant in 2002 by TIAA–CREF Account Balance

$500K+

10%

$250–500K

6%

$50–250K

4%

<$50K

1%

Exhibit 5.5 Individual Participant Plans for Retirement

Assets

Already Retired

Plan to Retire

In 5 Years

Plan to Retire in 5–10 Years

Over $ million

39%

37 %

17%

$250K to $1 million

34%

30 %

19%

Under $250K

15%

14 %

18%

Exhibit 5.6 Individual Participant Answers to Retirement Questions
What do you plan to do with your retirement assets?

No change

47%

Consolidate with TIAA–CREF

20%

Move some assets to TIAA–CREF

4%

Move more assets to/consolidate with another provider 10%

10%

Don't know

16%

What would influence your decision to move your retirement assets from one provider to another?

Investment performance

70%

Desire for more investment options

35%

Desire for personalized service/advice

30%

Recommendation from financial advisor

29%

Desire to consolidate assets

27%

Better/fairer fees

25%

Reasons for multiple retirement plan providers
[Format: check all that apply]

Do not want “all my eggs in one basket”

52%

Left previous employer; not move assets

32%

Advisor recommended

11%

Want a wider range of investment options

11%

Wanted stronger investment performance

10%

Exhibit 5.7 Comparison of Traits seen as Desirable and Traits of TIAA–CREF, as Evaluated by Participants, Other Educational Prospects, and Like-Minded Individuals (percentage of each group that put trait in top box in a 10-point scale)

Traits Seen as Desirable by Participants

Note: Among surveys of potential prospects, TIAA–CREF's brand awareness was 4 percent unaided (major competitors were 8 to 22 percent) and 36 percent total awareness, (53 to 91 percent for major competitors).

Figure

“Participants” are individuals who have chosen TIAA–CREF as their pension provider.

“Other Educational” are individuals at institutions served by TIAA–CREF who have not chosen TIAA–CREF as their pension provider.

“Like Minded” are people who do not work at institutions served by TIAA–CREF, but score similarly to TIAA–CREF participants in surveys.

Exhibit 5.8 Individual Participant Key Descriptors of TIAA–CREF and Competitive Brands

TIAA–CREF

Merrill Lynch

Schwab

Fidelity

Vanguard

  • Concentrates on nonprofits
  • Well established
  • Long-term approach to investing
  • High honesty, integrity
  • Low fees and rates
  • Easy to do business with
  • Big/well-known
  • Old Line
  • Aggressive/bullish
  • Broad array of products
  • No personal touch
  • For rich people/ “high rollers”
  • Well established
  • Readily available
  • Cheap-expensive
  • Broad array of products
  • Personal-impersonal
  • Folks w/ big bucks
  • Big/huge
  • Local/Accessible/
  • Boston Oriented
  • Many options
  • Big $ $ $
  • Impersonal
  •  Large/Middle road
  • Reliable/dependable
  • Conservative/no frills
  • Wants to be in forefront
  • No different from others
Exhibit 5.9 Individual Participant View of TIAA–CREF as Provider of Financial Services

How participants see TIAA–CREF

How participants would like to see TIAA–CREF

Comprehensive financial services provider

22

51

Retirement plan provider that also offers some additional financial products and services

49

30

Retirement plan provider

28

19

Exhibit 5.10 Individual Participant Reasons for Selecting Primary Financial Institution

More trust

34%

Better fees

33%

More personalized service

31%

Strong investment performance

29%

Has offices near me

26%

Wide range of investment options

22%

High quality of advice

13%

Source: Company records.

Exhibit 6: TIAA–CREF Possible Organizational Structures

Exhibit 6.1 Product Line Organizational Structure

Figure
Exhibit 6.2 Matrix Organizational Structure

Figure
Exhibit 6.3 Customer Group Organizational Structure

Figure

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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