I’m grateful to have this opportunity to discuss the progress we’ve made at TIAA-CREF over the past year on behalf of you, our participants.
We have worked hard to deliver on our mission – which is to help you and all of our participants achieve lifelong financial security. That’s why we were established 93 years ago, and it is what guides us each and every day.
This afternoon, I’m going to give you some of the highlights of our progress.
Then, I’ll discuss what you can expect from us in the coming months.
Next, I’ll outline our activities in the areas of corporate governance and socially responsible investing, which are so fundamental to who we are as an organization.
Finally, I’ll describe our efforts to promote a better retirement system for all Americans – one that would be much more in line with what is available to TIAA-CREF participants.
I’ll begin with an overview of our financial performance. And as I typically do, I will reference both TIAA and CREF, since many, if not most, of you have accounts with both companies.
The past year was one of our best ever. And that’s good news for you, because thanks to our nonprofit operating philosophy and heritage, our growth ultimately benefits participants.
Unlike publicly owned companies that seek returns for shareholders, our guiding goal is to create value for our participants, in the form of lower fees, more services, guaranteed income for life and additional amounts on the TIAA Traditional Annuity.
Let me share three important examples of why the past year was so strong.
We consider ourselves to be your partner in achieving financial security, and these examples underscore that you have a strong partner. We are gratified by our success – but never satisfied or complacent.
Instead, we are committed to a path of continuous improvement to better serve you.
One area in which we’ve already achieved a great deal of continuous improvement is in reducing our expenses. Three years ago, the CREF expense ratio iii was more than 58 basis points. We committed to reducing our costs – and we’ve done just that.
We got the expense ratio down to just over 47 basis points by the end of 2009 – and as of June 30 of this year, our total CREF expense ratio was down to 44.7 basis points.
Our success in this area benefits you, since reducing fees by even a few basis points helps to boost overall performance and has the potential to translate into additional retirement savings for you.
I can assure you that our commitment to keeping expenses down will not waver, even as we continue to invest strategically to ensure that we’re growing and evolving to meet your needs.
It should go without saying that we are also committed to enhancing performance.
As one of the world’s largest money managers, with a focus on helping millions of people achieve lifelong financial security, performance is our bread and butter.
So I’m happy to report that our market performance has been strong this past year. Chief Investment Officer Ed Grzybowski will discuss that in greater detail with you in just a few moments. But let me share one statistic of which we are particularly proud.
As of June 30 of last year, we reached an important milestone, when fully 100% of our funds and variable annuity accounts were rated as 3, 4 or 5 stars overall by Morningstar across all asset classes, based on risk-adjusted returns. We maintain that 100% rating today. iv
We are quite proud of this recognition.
We are proud too of the investment philosophy that underlies our success, and I want to take a moment to remind you of the principles that guide us as we manage the funds entrusted to us.
The bottom line is that we take a long-term perspective, and we do that because it’s in the best interest of the people we serve.
We have retirees who depend on us now for the income they live on, and we also serve 25-year-olds who may well be relying on us four or five decades from now to translate those investments into a steady stream of lifetime income.
By virtue of our mission, we’re in it for the long haul.
Given our long-term outlook, we believe in staying fully invested, no matter what twists and turns the market may be taking. We never try to time markets.
We also remain well-diversified, because we know this strategy helps to provide protection in down times while delivering growth and value over the long term.
By staying fully invested and offering a diverse array of funds across various asset classes, we in turn give you the opportunity to appropriately diversify your savings as well. v
We also continually reevaluate our holdings, to ensure that our overall portfolio maintains a long-term focus.
And we always keep a careful eye on risk.
The volatility of recent years has underscored why it’s so important to recognize and appropriately manage risk.
To the fullest extent possible, we identify emerging risks to our business and in the broader economy, and then we take steps to manage and mitigate those risks.
This is a priority set right at the top. I chair our Risk Management Committee, which comprises our most senior executives. The committee ensures that we’re taking action when needed to respond to any elevated risk. And I report regularly to our boards about our ongoing risk-management efforts.
We prioritize risk management at TIAA-CREF because we believe it’s an essential part of fulfilling our responsibility to be wise stewards of your savings.
I want to turn my attention now to you and your day-to-day experience with TIAA-CREF.
We are working to make that experience as rewarding – and as easy – as possible.
Let me highlight a few examples of what you can expect from us on this front in the coming months.
One of our top priorities this year is to transform our IT capabilities. Our goal in this endeavor mirrors our mission. We are committed to driving the best outcomes for you – and by that I mean the results you achieve in getting to retirement in a financially secure position, and then through a retirement that could extend for several decades or more.
We know how to do that better than anyone else out there, and we want our IT capabilities to more effectively support our efforts.
To that end, we are making a significant investment in our IT area, part of which will go toward enhancing your online experience with us.
Already, we have launched a new home page for our website, and we have created a new website about our asset management operations. It’s geared to our institutional investors, but you can also visit the new site, at tcasset.org. There, you’ll be able to “meet,” at least in a virtual way, the impressive and dedicated people managing your money, and you can also learn more about our investment strategies.
Stay tuned for a number of additional improvements, including online enrollment and advice, in the months to come.
But please know that in all that we’re doing to enhance our IT capabilities, our intention is to further strengthen and deepen our partnership with you by becoming more adept at meeting your 21st-century needs.
I’d like to turn now to how TIAA-CREF is engaging with issues in the larger investment universe. I’ll focus on two areas of great importance to us: corporate governance and socially responsible investing.
We have long been a leader – and a trailblazer, even – in both areas.
In terms of our corporate governance activities, we had another strong year.
As one of the world’s top investors, we continued to use our “seat at the table” to try to influence the companies in which we invest. In 2010, we engaged in dialogue with more than 400 companies on a range of issues that we believe could affect long-term sustainable shareholder value.
We do this for a simple reason: we want to influence those companies to adopt policies and practices that align with the best interests of shareholders.
Good governance and socially responsible practices certainly fall into that category. That’s because they may contribute to better financial performance and expose companies to lower risk. This in turn contributes to the strength of the return we seek for our participants and to the strength and stability of the markets.
It’s why we believe it’s critical for investors like TIAA-CREF to participate as active owners of their portfolio companies.
It’s also why we participate in groups like the United Nations’ Principles for Responsible Investment Initiative, a global association of over 800 asset managers, pension funds, and other institutional investors and service providers.
Members believe that good corporate governance and responsible business practices can enhance the long-term economic value of companies – and that environmental, social, and corporate governance issues all can affect the performance of investment portfolios.
We think the best way for us to have a positive impact is by doing what we’re doing – taking a systematic approach, working to influence companies on a range of issues that we believe may affect long-term sustainable shareholder value.
In doing so, we look at every company holistically – we weigh the company’s entire record, not just its record on a particular issue.
One issue we’ve been focused on is executive compensation.
This year, we began voting on executive compensation at every company in our portfolio subject to new federal rules. This followed the July 2010 passage of the Dodd-Frank bill, which included a “say-on-pay” provision requiring public companies to get support for their executive compensation packages through regular shareholder proxy votes.
By the way, TIAA-CREF has advocated “say-on-pay” for years, favoring compensation policies that create incentives for prudent risk-taking while rewarding the creation of long-term value.
And we have held ourselves to the same high standards that we expect of the companies in our portfolio, even though we are not required to do so.
We were the very first U.S. company to adopt an advisory vote for our own executive compensation policies and disclosures, beginning in 2007. Our participants have overwhelmingly supported our policies each year.
Let me now turn to our socially responsible investing activities.
Our socially screened investment accounts, including the CREF Social Choice Account and the TIAA-CREF Social Choice Equity Fund, have been very popular choices for participants who want their investments to reflect their values.
In fact, TIAA-CREF reached two highly meaningful milestones in the socially responsible investing area in 2010.
First, the CREF Social Choice Account celebrated its 20th anniversary.
We launched the account in 1990 to meet a growing demand from our participants. They told us they wanted an investment option that would help them achieve their long-term financial and retirement goals, while enabling them to invest in companies that reflected their core values. Since that time, our participants have eagerly embraced the CREF Social Account, which leads me to the second milestone:
In 2010, for the first time, the CREF Social Choice Account saw its assets under management top the ten billion dollar mark.
We are gratified by this success, and by the overall growth of socially responsible investing in the world’s marketplace.
By the beginning of 2010, more than three trillion dollars was invested in one or more socially responsible investing strategies in the United States, according to the Social Investment Forum, of which TIAA-CREF is a member. That’s nearly one-eighth of the total assets under professional management in the United States, according to Thomson Reuters.
TIAA-CREF’s commitment in this area remains as strong as ever. One issue we’ve been especially vocal about is climate change.
Our efforts on climate change were recently recognized as exceptional by CERES, a national coalition of investors, environmental groups, and other public interest organizations. CERES ranked us No. 1 among the 46 leading American mutual fund families in terms of support for shareholder resolutions on climate change in 2010.
In fact, we were one of just eight companies overall that voted in favor of climate-related shareholder resolutions more than half the time.
This achievement and others are highlighted in our 2011 Socially Responsible Investing Annual Report, which was released earlier today. We also recently revised our Policy Statement on Corporate Governance, which outlines our expectations on the corporate governance of our portfolio companies.
Both of these documents are available electronically via our website, and I urge you to take a look at them online.
We believe that making them available online makes more sense than printing up hundreds of paper copies – especially since these are documents that highlight the importance of our environmental stewardship and that detail our efforts to protect the environment and advance other social issues.
In all that we do as a socially responsible investor and as an advocate for good corporate governance, we have one overriding goal: promoting long-term investment value for all TIAA-CREF participants.
I would now like to briefly touch on an area about which we’ve been talking extensively over the past year or so: retirement security for all Americans.
The topic is quite timely. This is the year that the 80 million Baby Boomers began turning 65. Our country is aging rapidly. Americans 85 and above are already now the fastest-growing segment of the population.
This demographic shift is happening against the backdrop of our fragile recovery from the worst economic crisis we've seen since the Great Depression – and at a time when the landscape in retirement planning has changed dramatically.
If you consider the classic "three-legged stool" analogy, you find that all three of the traditional legs supporting retirement security – pensions, Social Security, and personal savings – are looking pretty wobbly these days.
Pensions have become a thing of the past for most Americans in the private sector, while in the public sector, states and municipalities are confronting a crisis of epic proportions in unfunded pension liabilities.
Social Security is in deep trouble. It will soon begin paying out more than it collects each year, and it's unclear when policymakers will develop an appetite for making the difficult choices needed to return the system to more stable footing. Policymakers face tough choices – either cutting benefits or raising taxes or both.
And finally, the U.S. personal savings rate has been woefully inadequate for many years now – even dropping to a negative number a few years back – although we've seen some positive changes recently.
Given this scenario, it should be no surprise to anyone that Americans are less confident than ever about their ability to afford a comfortable retirement.
In fact, this year confidence reached an all-time low, according to the Employee Benefits Research Institute.
EBRI has been surveying workers for more than two decades now. This year, when they asked workers to rate their confidence about having enough money for a comfortable retirement, 27 percent of workers – or more than one in four – said they are not at all confident.
That's almost triple what it was in 2007.
The number of people who expect to work past 65 has been rising steadily – from just 11 percent in 1991 to 36 percent this year.
A separate survey by the Associated Press and others found that one in four Baby Boomers who are still working say they will retire.
We at TIAA-CREF naturally spend a lot of time thinking about these issues. We believe we have much to add to the national conversation, thanks to our 93-year track record in serving the retirement needs of our participants. We are hardly newcomers to this discussion.
Over the past year or so, we've been talking a lot about retirement security – basically every chance we get – making the case that our nation needs a 21st -century retirement system that helps people achieve financial security during retirement.
In these talks, I typically highlight a model that is working well – and that’s the model commonly used in higher education and the non-profit world that we serve.
These plans often feature mandatory participation.
They give employees access to an appropriate mix of investment options that help them build savings.
They feature employer contributions as well as employee contributions.
They generally give employees access to either a defined benefit plan or an annuity that provides a level of guaranteed income in retirement.
Finally, participants in these plans have access to education and advice programs to support their decision-making
This model is, on the whole, serving the academic and non-profit community quite well.
Recent research from our own TIAA-CREF Institute found that 75% of higher education employees described themselves as “somewhat confident” or “very confident” that they will have enough money to live comfortably in retirement. vi Among all U.S. workers, just 49% report that level of confidence.
We believe that it’s time for the nation to think about ways to emulate that success in other sectors, and we will continue our efforts to promote a national conversation on this issue.
Let me recap what I’ve discussed this afternoon.
Over the past year, we have strengthened TIAA’s capital position, managed investment risks, and earned reaffirmation of our AAA rating from all four major ratings agencies.
Looking forward, we are redoubling our efforts to give you the best customer experience possible.
We continue to be a leader in socially responsible investing and in engaging with companies to influence their behavior so that it’s in line with the best interests of shareholders.
And we are speaking out around the nation about the need for a 21st century retirement system that would include many of the attributes that have helped our own participants prepare for a financially secure retirement.
In all we do, we are committed to you – as we have been committed to ensuring the best outcomes for our participants’ for the past 93 years now.
As I said at the beginning of my remarks, I appreciate having the chance to reaffirm that commitment – and to engage in dialogue with you today. I look forward to your questions and comments.
i A guaranteed annuity backed by TIAA's claims-paying ability, TIAA Traditional guarantees your principal and a minimum interest rate between 1% and 3%, plus it offers the opportunity for additional amounts in excess of the guaranteed rate. These additional amounts, when declared by the TIAA Board of Trustees, remain in effect for the “declaration year” that begins each March 1 for accumulating annuities and January 1 for payout annuities. Additional amounts are not guaranteed for the future years.
ii A.M. Best (A++ as of 2/11), Fitch (AAA as of 6/11), Moody's Investors Service (Aaa as of 6/11) and Standard & Poor's (AAA as of 6/11). These ratings are subject to change and do not apply to variable annuities, mutual funds or any other product or service not fully backed by TIAA's claims-paying ability.
iii The CREF expense ratio is calculated by dividing total CREF operating expenses by total average net assets on an annualized basis.
iv As of March 31, 2011, 79% have 3 stars, 19% have 4 stars, and 2% have 5 stars. (Based on Morningstar data for share classes that have completed one calendar year of performance. Current rankings may be higher or lower on a monthly basis. Morningstar is an independent service that rates mutual funds and variable annuities. The top 10% of accounts in an investment category receive five stars, the next 22.5% receive four stars, and the next 35% receive three stars. Morningstar proprietary ratings reflect historical risk-adjusted performance and can change every month. They are calculated from the account’s three-, five- and ten-year average annual returns in excess of 90-day Treasury bill returns with appropriate fee adjustments, and a risk factor that reflects subaccount performance below 90-day T-bill returns. The overall star ratings are Morningstar’s published ratings, which are weighted averages of its three-, five- and ten-year ratings for periods ended March 31, 2011.)
v Diversification is a technique to help reduce risk. There is no absolute guarantee that diversification will protect against a loss of income.
vi “Retirement Confidence on Campus: The 2010 Higher Education Retirement Confidence Survey,” TIAA-CREF Institute, June 2010.
TIAA-CREF investment products are subject to market risk and other risk factors. Please consult the applicable product literature for more information.
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877-518-9161, or go to www.tiaa-cref.org for a current prospectus that contains this and other information. Please read the prospectus carefully before investing.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.
©2010 Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, NY 10017