TIAA-CREF’s CEO Calls for New Thinking on Retirement Security

New York, October 11, 2010

In a speech today to the National Council on Teacher Retirement, TIAA-CREF chief executive Roger W. Ferguson, Jr. said its time “to rethink, repair, and restart America’s retirement system” to provide more opportunities for workers to achieve lifetime financial security.

Addressing the council’s annual convention in San Antonio, Mr. Ferguson said such a system should “combine the best practices of defined benefit plans and defined contribution plans, be affordable for employers, and give employees access to guaranteed income that will last a lifetime.”

In his prepared remarks, Mr. Ferguson traced a decades-long shift of retirement funding risks from employers to individuals that has removed an element of security from the retirement equation of most private-sector workers. He noted that financial challenges facing state and local governments are pushing the public sector in a similar direction.

Mr. Ferguson called for a system that can “give people the tools to help them achieve the future they envision for themselves,” and that recognizes the shared responsibility of employers and employees. The system would:

  • Ensure workers have access to retirement savings opportunities. Mr. Ferguson noted that by enrolling workers automatically, private-sector workplace plans can approach the public sector, where nearly all full-time workers have access to a retirement plan.
  • Help workers amass sufficient savings, via 15-20 investment options, as well as objective advice and guidance to help workers understand them.
  • Provide opportunities to save for long-term retirement health care expenses, which can be anywhere from $200,000 to $800,000 for a 65-year-old couple who retire today.
  • Offer all workers a guaranteed lifetime income option. Mr. Ferguson noted that the average monthly Social Security payment for retired workers is about $1,600, while average monthly spending for individuals over age 65 exceeds $3,000.

Mr. Ferguson observed that the defined contribution model commonly used in higher education includes, to one degree or another, the above features. Eighty percent of higher education employees describe themselves as “somewhat confident” or “very confident” that they will have enough money to live comfortably in retirement, compared with just 54 percent of all U.S. workers, according to the TIAA-CREF Institute.1

Public Sector Plans Must Emphasize Retirement Security

Mr. Ferguson noted that new approaches to public sector retirement plans also must have retirement security at their center. He cited TIAA-CREF’s agreement with the government of Orange County, California to provide an optional defined contribution retirement account that would supplement a new tier in the county’s defined benefit program.

The plan offers new county employees the option of taking a reduced defined benefit, and the county will match a percentage of savings directed to an employer-provided individual account. It includes fixed annuity options that can be used to supplement defined benefit income guarantees, which Mr. Ferguson noted “effectively puts guardrails around the investment risk and longevity risk associated with traditional DC plans,” and advice, to help workers make decisions about their long-term plan.

Mr. Ferguson called the Orange County plan a political achievement, in which elected officials and union representatives worked together to produce a plan that benefits both the county and employees. He also cited TIAA-CREF’s work with K-12 school districts in Arizona and North Carolina that helps to provide genuine security for workers while keeping costs under control. “We are partnering in finding innovative, cost-effective ways to provide retirement security,” he added.

About TIAA-CREF
TIAA-CREF (www.tiaa-cref.org) is a national financial services organization with $410 billion in combined assets under management (as of 6/30/10) and provides retirement services to the nonprofit and government fields.

Contact:
Chad Peterson, Director, Corporate Media Relations
cpeterson@tiaa-cref.org, 704 988-6811; Cell: 917 715-9083

1 Source: 2010 Higher Education Retirement Confidence Survey is available via the TIAA-CREF Institute website.

Guaranteed lifetime income is based on the claims-paying ability of the issuer.

TIAA-CREF products may be subject to market and other risk factors. See the applicable product literature, or visit www.tiaa-cref.org for details.

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.

Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY.

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