Information on TIAA Traditional Interest Rates

In light of the current economic turmoil and market volatility, many individuals are seeking stability and are expressing interest in the guarantees that the TIAA Traditional Annuity offers.  Some participants have questions about TIAA's "crediting rate," and annuity income.  This article describes the TIAA Traditional Annuity and discusses crediting rates.  A related Questions and Answers document address questions that TIAA-CREF has received about annuity income.

The TIAA Traditional Annuity

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 Traditional Annuity is complemented by an array of equity, fixed-income, money market and real estate investment offerings from TIAA-CREF.

The TIAA Traditional Annuity guarantees principal and pays a guaranteed minimum interest rate during the accumulation phase - generally 3% for most participants. This guaranteed rate can be increased by additional amounts at the discretion of the TIAA Board of Trustees. Such additional amounts, when declared, remain in effect for the "declaration year" which begins each March 1. Together, the guaranteed minimum plus additional amounts make up the "crediting rate" for those in the accumulation phase.¹
 
TIAA has paid additional amounts in addition to the minimum guarantee each year since 1948. Additional amounts of interest 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 yields that TIAA obtains on bonds and other fixed-income investments.  Because prevailing yields tend to change over time, TIAA groups the premium dollars it receives over defined time periods into vintages - typically composed of one or more contiguous calendar months - for the purpose of determining the crediting rate.

Crediting Rates

While the interest rates continue to remain above the contractually guaranteed minimum, in recent months the interest rates credited on TIAA accumulating annuities have declined. These reductions reflect the general decline in prevailing interest rates in the marketplace and the reduced returns that are currently expected from existing investments.  Current interest rates can be found here.

It is important to note that despite the recent economic turbulence, TIAA continues to hold the highest insurance financial strength ratings from all four independent insurance ratings agencies and has a strong capital base to help ensure its claims-paying ability. TIAA has limited exposure to collateralized debt obligations and highly leveraged securities which have produced large losses for some financial services companies.  Still, as a major institutional investor TIAA is not immune to the continuing economic downturn and current and future portfolio holdings remain subject to risk.

TIAA-CREF's broad range of products, including the TIAA Traditional Annuity, is designed to help participants weather periods of economic instability and meet their long-term financial needs.  The continued safety and stability of the TIAA Traditional Annuity is made possible by TIAA's financial strength and its ability to pay its claims and deliver on guarantees. TIAA-CREF is committed to meeting your needs during this current economic crisis and to be being your trusted partner to and through retirement.

For more on TIAA Traditional, please see this white paper (PDF) and this list of Questions and Answers.