In planning for the CREF Meeting in Charlotte NC, I ran across this item. I should have found it much sooner:
This astounding item proposes to facilitate merging CREF into TIAA. The official summary of the bill reads:
“Authorizes and empowers the College Retirement Equities Fund (CREF) to merge with the Teachers Insurance and Annuity Association (TIAA) with CREF ceasing to be a corporate entity and TIAA as the surviving entity.”
You can read the details for yourself. The CREF variable annuity accounts would become Separate Accounts of the [big insurance company, regulated by NY State] TIAA.
That’s not inherently worrying, because there a large numbers of Separate Account annuities for retirement savers, and they don’t participate in the financial success or failure of the parent insurance company. That’s what “separate account” means.
I'm not certain whether it will allow higher or lower costs to prevail for Participants. But I believe it will increase the opaque character of the corporate structure. And it could eliminate the “mandatory” (CREF already obtained relief from holding them every year!) public Annual Meetings held since the 1989 Settlement with the SEC. In that sense, it will reduce customer control of the company, and may reduce regulation. It is accurate to note that state insurance commissions (which is how TIAA the insurance company is currently regulated) consider vast realms of data to be proprietary, even when they have to be filed with the state.
It certainly justifies my Proxy Proposal topic for next week's meeting! (Ironica typeface)
The bill is currently being considered by the Assembly Insurance Committtee. The chairman of that committee is listed as the original Sponsor of the bill.
The bill was introduced at about the same time in the State Senate, where its sponsor is ... the chairman of the Senate's Insurance Committee. If you check the "Actions" box on the page linked below, you can see that it is moving faster in the Senate, apparently approved by the Insurance Committee and moving on to the Rules Committee.
https://assembly.state.ny.us/leg/?term=2021&bn=S08126
I am not an insurance expert, but I think there is little asset value risk to clients. TIAA Real Estate is already a Separate Account, so it probably makes a good sketch for what new CREF structures might be. Many, many FinServ companies have Separate Accounts, including (AFAIR) Mutual of America, a direct if feeble competitor with TIAA-CREF. The point of a Separate Account is to implement the status (i.e. just like CREF) that the entire asset and mortality risk fall on the unit owners and not on the state-regulated insurance company.
You might ask, what about TREA's Independent Fiduciary, who is very expensive. There are plenty of actively managed Separate Accounts, at dozens of companies. I would guess that the VAST predominance of Level 1 assets in those accounts (like publicly traded stocks .... ) makes it unnecessary to fear self-dealing by the proprietor. Even SEC regulation has not forced TIAA to tell us what proportion of some CREF accounts are "actively managed", a frequently asked question.
I certainly agree that it is bad for governance. New York State's revision of the Not For Profit law eased restrictions on CREF a bit, but I'm sure it will be a great relief to them to get rid of an NFP subsidiary. That's why I worry about future expenses, in the ER, but also in the variety of credits available to big institutions.
It's hard to say how much CREF cares about Participant Proposals and speeches from the floor. (Don't forget about the Home Depot founder's Annual Meeting debacle.) But I'm sure they hate having to hold even infrequent Annual Meetings. Roger Ferguson told me that they were very expensive, and of course "we" pay for them.
It has a lot to do with the pandemic, but when I went to Third Avenue to drop off my proposal, it was like a ghost town, with the wind whistling through the loading dock. They have tried to create rental-type income in vacant parts of the building.
A newsboard discussion with some other people’s opinions: