Case
Supplementary Resources
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
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
Exhibit 3.2 TIAA–CREF Assets to Total Headcount
Source: Company records.
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).
“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 |
|
|
|
|
|
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
Exhibit 6.2 Matrix Organizational Structure
Exhibit 6.3 Customer Group Organizational Structure
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