TAKING STOCK

Teachers' fund far from the head of the class

by Malcolm Berko

Dear Mr. Berko:
I work for a private school that does not contribute to a 403(b). The TIAA-CREF people have spoken with us about investing in their mutual funds and variable annuities. My broker told me in no uncertain terms that I would be making a huge mistake because their products are not competitive with other providers and that the company has serious service problems. One of his accounts has been trying to get his money out of an annuity for six months and they won't give it to him. So he's complained to the Securities and Exchange Commission and the state of New York. Instead he wants me to invest my money in an AIG annuity, which he says is the best around.
S.N.
Syracuse, N.Y.

Dear S.N.:
Your broker is right as sylvan meadows of green grass, blue skies and sunshine that TIAA-CREF (Teachers Insurance and Annuity Association-College Retirement Equity Fund), an over-large private pension fund, might not be the best place for your retirement money. In the past few years, thousands of TIAA-CREF investors would have preferred a root canal, if they had a choice, rather than investing their money in a 403(b) account with TIAA-CREF.

But your broker is as wrong as Corrigan recommending AIG's Income LOCK Variable Annuity for two reasons:
1. Its guaranteed minimum income benefit is an embarrassingly low 5 percent.

2. AIG's huge losses in the collateralized debt obligation/derivative markets require the firm to raise at least $12 billion in new capital, giving investors grave concerns about AIG's ability to fully guarantee its annuities and other insurance claims.

TIAA-CREF is a privately run, for-profit selling organization that makes oodles of money offering average and below-average products to teachers and health care professionals. Their advertising is beautifully choreographed, their pamphlets are attractive and convincing, their Web site is a class act and their investment advisers could be the most disarming, artful and wily salespeople in the business.

The CREF division peddles mutual funds and, according to their Web site, none of their 18 funds posts a track record longer than five years and the last five years have been pretty good ones for most mutual funds. The returns on these funds have been fair to middling, while only five of CREF's mutual funds have double-digit returns, which occurred in an exploding market between 2002 and 2006.

The TIAA division sells variable, fixed and immediate annuities as well as life insurance. I'd be uncomfortable purchasing life insurance from TIAA because their annual premiums (costs) are much too high. Most life insurance agents who have been in the business for more than a few months can dance circles and squares around TIAA and provide you with identical coverage at much lower cost.

TIAA also sells variable, fixed and immediate annuities. These annuity products/performance are underwhelming and inferior to annuities offered by Met Life, AXA/Equitable and Ohio National (Wall Street considers these to be the best in the industry).
According to a study by Raymond James, Met, AXA and Ohio have the best guaranteed minimum investment benefits, the best bells and whistles in the industry and rank heads agove TIAA or anything AIG has to offer.

Meanwhile, thousands of retiring TIAA annuity owners are having serious problems accessing their accounts, long delays transferring their annuities to Individual Retirement Accounts and even longer delays accessing their money so they can put it in certificates of deposit. TIAA account-holders have complained loudly to the SEC and state regulatory organizations about this scandalously poor service. Compounding the problem, when an account holder wishes to withdraw his/her money a TIAA representative calls the account and aggressively attempts to change his or her mind. What's with these shameless folks?

If you feel you are only entitled to average advice, I'm certain that TIAA-CREF will give you some of the best average advice you can pay for. However, if you want more than just average advice, if you seek above-average future performance to enjoy an above-average retirement income, then it behooves you to look elsewhere.

Ohio National, Met Life and AXA/Equitable could be the best variable annuities for your investment future. And if you are going to select growth or income funds for your retirement, then Fidelity, Vanguard and T. Rowe Price have some of the best mutual funds with 15- and 20-year performance records that would give the CREF people heartache.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.
© Copley News Service