TIAA
| Teachers Insurance and Annuity Association of America | |
|---|---|
| Type | Non-profit organisation with taxable subsidiaries |
| Industry | Financial services Insurance Asset management |
| Founded | 1918 |
| Founder | Andrew Carnegie and the Carnegie Foundation for the Advancement of Teaching |
| Headquarters | 730 Third Avenue, New York City, United States |
| Key people | Thasunda Brown Duckett (President and chief executive officer) |
| Products | Retirement annuities, life insurance, mutual funds, brokerage, investment management |
| Website | tiaa.org |
The Teachers Insurance and Annuity Association of America, known as TIAA and formerly as TIAA-CREF, is an American financial services organisation that provides retirement products principally to people working in education, research, medicine, culture and government.
It serves more than five million current and retired employees at more than 15,000 institutions and manages assets measured in the region of a trillion dollars, with holdings in more than fifty countries.
TIAA was created in 1918 by Andrew Carnegie through the Carnegie Foundation for the Advancement of Teaching, under its president Henry S. Pritchett, to provide funded pensions for university professors, who at the time frequently had none and who retired into poverty or did not retire at all.
Its structure is unusual. It was organised as a tax-exempt non-profit until a 1997 tax bill removed the exemption, and it is now a non-profit governed by a board of governors with taxable subsidiaries, with all profits returned to policyholders. It has no shareholders, which means that the surplus its investments generate is distributed to the people whose money produced it rather than to owners.
It is among the largest institutional investors in the world. As of recent reporting it has been the largest global investor in agricultural land, the second largest grower of wine grapes in the United States by acreage, and the third largest commercial real estate manager in the world.
History
Carnegie and the professors' pension
Andrew Carnegie had established the Carnegie Foundation for the Advancement of Teaching in 1905 with an endowment of US$10 million, principally to provide free pensions to college professors.
The problem it addressed was concrete. American academic salaries were low, institutions provided no retirement arrangements, and professors commonly taught into extreme old age because they could not afford to stop, which was bad for them and bad for their students. Carnegie, who had funded several thousand libraries and who regarded the education of teachers as foundational, considered the absence of academic pensions a scandal.
The free pension scheme failed for the reason such schemes usually fail: it was not funded. The foundation paid pensions from income, the number of eligible professors grew as more institutions joined, and by 1915 it was clear that the commitment exceeded the endowment.
The solution, designed under Pritchett and drawing on actuarial advice, was a properly funded contributory system, and the Teachers Insurance and Annuity Association of America was chartered in 1918 with US$1 million from the Carnegie Corporation.
Its design principles have survived. Contributions are made by both the institution and the individual. The money is held in the individual's name from the first day, so that a professor moving between institutions takes the accumulated benefit rather than forfeiting it, which was not true of employer pensions generally and which suited a profession in which people move. And the accumulated fund is converted at retirement into an annuity paying for life.
Policyholders voted in 1921 to place their own representatives on the board, so that the organisation would be governed in part by the people whose money it held.
TIAA Traditional
The organisation's foundational product is the TIAA Traditional Annuity, which remains its largest.
It offers a contractually guaranteed minimum return on principal, together with additional interest declared periodically at the board's discretion out of the surplus the general account generates.
The general account is invested in long-dated, relatively illiquid assets, principally commercial mortgages, private placements, direct real estate and infrastructure, which produce higher yields than public bonds in exchange for the illiquidity that a pension fund can afford and that a daily-traded fund cannot.
TIAA has declared additional interest above the guaranteed minimum every year since 1948, an unbroken record across every financial crisis of the period, and the product is generally regarded by retirement specialists as among the better guaranteed accumulation vehicles available in the United States.
The corresponding restriction is liquidity. Money in the accumulating Traditional annuity in most contracts can be withdrawn only in instalments over a period of years, typically nine, which is what permits the illiquid investment and which surprises participants who have not read the contract.
CREF and diversification
The College Retirement Equities Fund was created in 1952 as the world's first variable annuity, allowing participants to invest retirement contributions in common stocks with the benefit of the resulting value rather than a fixed sum.
The idea, developed by TIAA's chairman William Greenough, addressed the problem that a fixed annuity loses purchasing power to inflation over a retirement measured in decades. It required legislative change in New York, was contested, and became the model for a very large part of the subsequent defined contribution industry.
CREF's funds now include stock, global equities, growth, bond market, inflation-linked bond, social choice and money market accounts.
The TIAA Real Estate Account, introduced in 1995, is a variable annuity invested directly in commercial property, offering returns less volatile than equities and greater liquidity than direct ownership. It is unusual in the retirement market, since very few daily-valued vehicles hold property directly.
Modern period
TIAA bought its Manhattan headquarters at 730 Third Avenue in 1955 and has major offices in Denver, Charlotte, Chicago and Frisco, Texas, together with approximately seventy local offices.
On 15 June 2007 it became among the first American companies to adopt, and the first to implement, an advisory vote by policyholders on executive compensation policy, several years before such votes became common for public companies.
The organisation rebranded from TIAA-CREF to TIAA on 22 February 2016, the chief marketing officer Connie Weaver explaining that the longer name was perceived as complicated.
It acquired Nuveen Investments in 2014 for approximately US$6.25 billion, which became its asset management arm and which manages money for external clients as well as for TIAA, and acquired EverBank in 2016, subsequently selling the banking business in 2023.
Thasunda Brown Duckett, formerly of JPMorgan Chase, became president and chief executive in 2021, becoming at the time one of two Black women leading a Fortune 500 organisation.
TIAA ranked 84th on the Fortune 500 in 2018.
Investments
TIAA's general account is among the largest pools of long-term capital in the world and is invested in a way that few other institutions can match, because its liabilities are measured in decades and its participants cannot readily withdraw.
Commercial real estate is a very large allocation, making TIAA through Nuveen the third largest commercial property manager in the world, with office, retail, industrial, residential and healthcare holdings across the United States, Europe and Asia. Purchases have included Festival Place, a shopping centre in Basingstoke, England, acquired in 2012 for £280 million, and a very large number of comparable assets.
Agricultural land is TIAA's most distinctive holding. It is the largest global institutional investor in farmland, with properties in the United States, Brazil, Australia, Chile, Poland, Romania and elsewhere, held through Nuveen Natural Capital, formerly Westchester Group.
The rationale is that farmland produces an income correlated with food prices and therefore with inflation, that the asset is finite, and that it is uncorrelated with equities, which suits a pension fund.
Timberland, infrastructure including toll roads, renewable generation and utilities, private credit and private equity complete the alternative allocations.
The public portfolio includes very large fixed income and equity holdings managed through Nuveen.
Criticism
Fossil fuels
TIAA is among the largest institutional investors in fossil fuels, with holdings reported at approximately US$78 billion in coal, oil and gas, and has been identified as the fifth largest holder of coal bonds worldwide with approximately US$6.7 billion invested in companies that mine, transport and burn coal.
The criticism is sharpened by its customer base: TIAA's participants are principally academics, including a very large number of climate scientists, and the organisation is a non-profit governed in part by them.
TIAA announced a net zero by 2050 commitment for its general account in May 2021 and stated in its 2022 climate report that it regards climate risk as investment risk. A November 2022 report from the Institute for Energy Economics and Financial Analysis argued that its failure to divest was strategically unsound as well as environmentally objectionable.
On 19 October 2022 approximately 300 TIAA clients filed a complaint with the United Nations-supported Principles for Responsible Investment initiative asking that TIAA be removed from its list of sustainable investors. The initiative reviewed and dismissed the complaint.
Campaigns by participants, principally through the group TIAA-Divest, have continued, and in March 2024 clients and student activists published a response to TIAA's sponsorship of the Big Ten athletic conference, arguing that its farmland acquisitions, its agricultural chemical use and its fossil fuel holdings were inconsistent with the sponsorship's presentation.
Farmland
TIAA's agricultural investments have been criticised on several grounds.
Land acquisition in Brazil has been examined by the organisations Grain and Rede Social de Justiça e Direitos Humanos, which have alleged that land acquired in the Cerrado and the Matopiba region was obtained through intermediaries in transactions involving disputed title, that Brazilian law restricting foreign ownership of farmland was circumvented through domestic holding structures, and that acquisitions contributed to deforestation and to conflict with local communities.
TIAA has responded that it applies principles for responsible farmland investment which it helped write, that it conducts due diligence on title, and that it has divested from properties where problems were identified.
Consolidation. The wider criticism is that institutional ownership of farmland raises land prices beyond what working farmers can pay, converting owner-operated agriculture into tenancy, and that this is a structural change with consequences for rural communities that the investment case does not address.
Sales practices and fees
The New York Attorney General and the Securities and Exchange Commission examined TIAA's retail advisory practices, and in 2021 the organisation agreed to pay US$97 million to settle allegations that it had used its position of trust to steer participants from low-cost employer plan options into higher-cost managed accounts without adequate disclosure of the financial interest involved.
The settlement was notable because TIAA's entire commercial identity rests on being a non-profit acting in participants' interests, and the conduct described was that of a conventional retail financial firm.
Liquidity
The restrictions on withdrawing from the TIAA Traditional annuity, typically requiring instalments over nine years in the accumulating version, are disclosed and are regularly encountered by participants who did not expect them. The organisation's explanation, that the illiquidity is what permits the investments that produce the returns, is accurate and does not entirely answer the complaint.
Assessment
TIAA is among the more successful institutional designs in American finance and is, for that reason, held to a standard its competitors are not.
The design was correct. A funded, portable, individually owned, contributory retirement arrangement, converting at retirement into a lifetime income, is what pension economists now generally recommend, and TIAA was operating one in 1918, several decades before the concept became general and eighty years before the defined contribution plan became the American norm.
The investment approach has also been correct. A fund whose participants cannot withdraw for decades should hold illiquid assets that pay a premium for that characteristic, and TIAA's real estate, farmland, infrastructure and private credit holdings are the reason it has been able to declare additional interest every year since 1948.
The criticisms follow from the same facts. An organisation that must invest a trillion dollars in real assets will own farmland, and owning farmland at that scale has consequences for land prices, for tenancy and, in Brazil, for title disputes and for deforestation. An organisation with liabilities extending fifty years will hold long-dated bonds, and a great many of those are issued by energy companies. And an organisation whose participants are academics will be held accountable by people who are professionally equipped to analyse its holdings and who do.
The 2021 settlement over advisory practices is the most damaging item in the record, because it concerns not the unavoidable consequences of scale but the deliberate steering of trusting customers into more expensive products, which is precisely what the organisation exists not to do.