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John Waggoner: Some American Funds Offer Up To 18 Share Classes Overkill? David Snowball Comments
The column contains several quotes from our esteemed Professor Snowball, for whom I have a question: What do you think about TIAA-CREF's splitting the CREF funds into three share classes (R1, R2, R3)?
(TIAA was still called TIAA-CREF when it split the funds.)
My own take (along with apparently the vast majority of posters on M*'s TIAA forum) is negative. The partitioning appears designed solely as a marketing tool (just as David described for American funds).
But by charging the highest ER on IRAs (regardless of the amount of assets), TIAA is discouraging investments from outside and harming asset retention as well. (Rollovers from its 403(b) plans are more likely to go elsewhere.) What were they thinking?
FWIW, I find that American Funds has done a pretty good job of clarifying the role of each share class, despite their high number. In contrast, I find it more difficult to understand the difference between several of Fidelity Advisor share classes.
I've been sort of grouchy with TIAA(-CREF) for a decade. I had a spat with their head P.R. guy about their justification for steadily rising e.r.'s and was not pleased when when of their board members explained some of their maneuvering as "an attempt to find alternate sources of profits" (a curious stand for a non-profit to take, I thought).
When I helped redesign Augustana's retirement plan, I discovered the multiple R-class issue. Each R-class was linked to a specific level of assets in the retirement plan; at base, the more money you gave TIAA(-CREF), the lower your e.r.'s. TIAA famously offers more hand-holding than most providers, so I could easily imagine significant expenses beyond the investment-management part but I don't know enough about their expense structure to say whether there's a neat correspondence between the breakpoints between the various share classes and the actual cost of operation.
I have often wonder why state, city workers and non-profit workers aren't offered the government's simple but successful Thrift Savings Plan (TSP) as their sole option, much like Federal workers. Instead, TIAA-CREF and more vulturous investment choices are the norm.
In retirement these "government" and "non-profit" retirees will have their pension and Social Security income offset by government regulations WEP and GPO (ssa.gov/planners/retire/wep). So, as a saver, why are they not eligible for these government investment choices during their working career?
If Federal law is gonna decide what I am eligible to keep in retirement shouldn't I have access to the Federal investment options while working?
I've a relative in a large system (R3 shares) with RAs, SRAs, GSRAs. 403(b)s and 401(a)s. Some frozen, some without exchange options. No way I've been able to make sense of all of this, and I've sat in on a lengthy 1-on-1 meeting the person had with a TIAA(-CREF) rep.
So from my limited perspective, it seems that the bigger systems have an even harder hand-holding task, not an easier (cheaper) one.
@bee: I think such a federal retirement system for all who toil in the public sector would only be possible in a highly-centralized economy. I'm thinking of European countries in which the state is the employer of train drivers, school teachers, and functionaries. In France, for example, the public sector accounts for about 25% of the economy. Over here, we can't even get agreement on a national identity card let alone a single-payer health system. FWIIW, I'm a retiree from a public university with my retirement plans in TIAA-CREF.
Comments
(TIAA was still called TIAA-CREF when it split the funds.)
My own take (along with apparently the vast majority of posters on M*'s TIAA forum) is negative. The partitioning appears designed solely as a marketing tool (just as David described for American funds).
But by charging the highest ER on IRAs (regardless of the amount of assets), TIAA is discouraging investments from outside and harming asset retention as well. (Rollovers from its 403(b) plans are more likely to go elsewhere.) What were they thinking?
FWIW, I find that American Funds has done a pretty good job of clarifying the role of each share class, despite their high number. In contrast, I find it more difficult to understand the difference between several of Fidelity Advisor share classes.
I've been sort of grouchy with TIAA(-CREF) for a decade. I had a spat with their head P.R. guy about their justification for steadily rising e.r.'s and was not pleased when when of their board members explained some of their maneuvering as "an attempt to find alternate sources of profits" (a curious stand for a non-profit to take, I thought).
When I helped redesign Augustana's retirement plan, I discovered the multiple R-class issue. Each R-class was linked to a specific level of assets in the retirement plan; at base, the more money you gave TIAA(-CREF), the lower your e.r.'s. TIAA famously offers more hand-holding than most providers, so I could easily imagine significant expenses beyond the investment-management part but I don't know enough about their expense structure to say whether there's a neat correspondence between the breakpoints between the various share classes and the actual cost of operation.
Sorry that I couldn't be more definitive,
David
I have often wonder why state, city workers and non-profit workers aren't offered the government's simple but successful Thrift Savings Plan (TSP) as their sole option, much like Federal workers. Instead, TIAA-CREF and more vulturous investment choices are the norm.
In retirement these "government" and "non-profit" retirees will have their pension and Social Security income offset by government regulations WEP and GPO (ssa.gov/planners/retire/wep). So, as a saver, why are they not eligible for these government investment choices during their working career?
If Federal law is gonna decide what I am eligible to keep in retirement shouldn't I have access to the Federal investment options while working?
I've a relative in a large system (R3 shares) with RAs, SRAs, GSRAs. 403(b)s and 401(a)s. Some frozen, some without exchange options. No way I've been able to make sense of all of this, and I've sat in on a lengthy 1-on-1 meeting the person had with a TIAA(-CREF) rep.
So from my limited perspective, it seems that the bigger systems have an even harder hand-holding task, not an easier (cheaper) one.