Ask TIAA-CREF: Vintages
I contribute money to the TIAA Traditional account through my retirement plan. I noticed on the tiaa-cref.org web site that money contributed in different time periods earns different interest rates. Why does money in the same account accrue interest at different rates?
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The TIAA Traditional Annuity was established with the founding of Teachers Insurance and Annuity Association (TIAA) in 1918, and remains a centerpiece of many participants' retirement portfolios.
The TIAA Traditional Annuity guarantees principal and pays a guaranteed minimum interest rate during the accumulation phase – generally 3% for most participants.1 All guarantees are based upon TIAA's claims paying ability. This guaranteed rate can be increased by additional amounts at the discretion of the TIAA Board of Trustees. Together, the guaranteed minimum plus additional amounts make up the "crediting rate" for those in the accumulation phase.2
Earning Interest: TIAA's Vintage System
New contributions or transfers applied to TIAA Traditional will earn interest based, in part, on the prevailing interest rate at that time. TIAA uses a "vintage" system, which we believe is the most equitable way to credit interest. With the vintage system, different rates apply to different pools of money, depending on when you contributed funds to the TIAA Traditional Annuity.
Through the vintage system, contributions and transfers to TIAA Traditional receive different interest rates depending, in part, on the interest rate environment during the period of time in which they are made. This approach is designed to reflect the fluctuation in interest rates over time, and the fact that the TIAA General Account, the pool of investments that supports the contributions and transfers made to the TIAA Traditional Annuity at different times, may earn a variety of returns. Using vintages enables us to credit a range of rates that reflect, in part, what different "pools" of money may be earning at different times.
In addition, interest rate changes are sometimes made to the various vintages, which affect the earnings rate of prior contributions. Note that TIAA Traditional Annuity crediting rates are determined based on a number of factors, including investment performance, expenses, and the need to maintain adequate contingency reserves. While the investment returns of TIAA's general account do not flow directly to participants via the declared crediting rates, such additional amounts of interest do, in part, reflect the prevailing interest rates and the returns that are currently expected from existing investments.
You can view all payout rates by vintage and contract type. For example, someone who contributed money to TIAA Traditional through a Retirement Annuity (RA) account anytime between January 2000 and the end of 2001 would currently be earning 4.25% on those accumulations. If that money was contributed in October 2010 those accumulations would be earning 3.35%.
Understanding TIAA Traditional Rate Changes
TIAA's Trustees can establish new rates at any time, but:
- Changes are usually not more frequent than once a month.
- The frequency depends on a number of factors, including the interest-rate environment at the time and the performance of the TIAA General Account's assets that support the TIAA Traditional returns.
- Rates could change every month for several months, or hold steady for several months at a time.
- Once declared, rates remain in effect until the end of the "declaration year," which is the last day in February.
The crediting rates for older vintages can sometimes be lowered in future years. To the extent that TIAA is investing for the long-term and strives to provide stability in rates, it is the older funds that are more likely to turn over and be reinvested at the lower prevailing interest rates currently available in the marketplace. This turnover results in lower expected earnings rates associated with older vintages, and corresponding lower credited rates.
TIAA continues to maintain a strong capital base to ensure that it will continue to uphold its contractual obligations to participants. Adjustments to the crediting rate help to preserve that strength and stability. More information is available in this document (PDF).
Annuity products are issued by TIAA (Teachers Insurance and Annuity Association), New York, NY.
1 For the Retirement Choice and Retirement Choice Plus products the minimum guaranteed rate for TIAA Traditional is between 1% and 3%. For IRAs issued prior to 10/11/2010, the minimum guaranteed rate for TIAA Traditional is 3%. For IRAs issued on or after 10/11/2010, the minimum guaranteed rate for TIAA Traditional is between 1% and 3%.
2 Additional amounts are not guaranteed and, when declared, remain in effect through the "declaration year," which begins each March 1. TIAA Traditional does not have an expense ratio but offers a guaranteed rate that is net of expenses borne by TIAA. Liquidity restrictions apply to the Retirement Annuity (RA), Group Retirement Annuity (GRA) and Retirement Choice (RC) annuity contracts as well. TIAA Traditional is a guaranteed insurance contract and not an investment for Federal Securities Law purposes.