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Nine Proposals for a More Competitive TIAA-CREF

a
John J. Harrigan
a
Hamline University , St. Paul, Minnesota, USA
Published online: 09 Jul 2010.

To cite this article: John J. Harrigan (1994) Nine Proposals for a More Competitive TIAA-CREF, Change: The Magazine of
Higher Learning, 26:6, 45-49, DOI: 10.1080/00091383.1994.9938513

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B Y J O H N J. H A R R I G A N
Downloaded by [University of Oklahoma Libraries] at 14:01 05 February 2015
W
ith 1.7 million
participants,
TIAA-CREF is
the leading pen-
sion system
among more
than 5,000 of the nation's colleges, uni-
versities, and other nonprofit education-
al and research institutions. TIAA is the
Teachers Insurance Annuity Associa-
tion, a traditional annuity that guaran-
tees the principal of one's retirement
savings by providing a guaranteed mini-
mum interest rate, as well as the oppor-
tunity for additional income through
dividends. Its companion association,
CREF, is the College Retirement Equi-
ties Fund, a variable annuity that offers
seven separate funds to its participants:
the Stock, Money Market, Social
Choice, Bond Market, Global Equities,
Growth, and Equity Index Accounts.
Until recently, TIAA-CREF was the
sole pension plan at many of these insti-
tutions. However, revolutionary changes
in the pension world have created com-
petition for higher education retirement
dollars as mutual funds and independent
investment advisers turn up on carnpus-
es with bad things to say about TIAA-
CREF in contrast to their own invest-
ment products.
Those 5,000 colleges and institutions
have a responsibility to give their em-
ployees the best pension arrangements
John J. Harrigan is professor of political
science at Hamline University in St. Paul,
Minnesota. He is author of the forthcoming
book Getting More Out of TIAA-CREE
from which this article is adapted.
CHANGE 1994
NOVEMBE~DECEMBER
.
for a
E
sophisticated and
venturesome of its
participants become
increasingly aware
of other options. It
would not be in the
interest of participat-
ing institutions or
their employees to
see the assets of
TIAA-CREF
drained down if it
were unable to
match the benefits
available under com-
peting plans.
What follows is a
list of suggested
changes that would
enable TIAA-CREF
to serve its partici-
pants much better
they can find. Because TIAA-CREF is and decrease their incentive to seek
the backbone plan at most of those insti- wider opportunities elsewhere. In fair-
tutions, however. they also have a re- ness to TIAA-CREF, the last two of
sponsibility to encourage TIAA-CREF these proposals are currently in the
to become as attractive as possible in planning stages, and some variation of
comparison to other retirement man- them might be available soon. Since
agers. TIAA-CREF indeed has some they were not available as of this writ-
significant advantages in this competi- ing, however, and since it is impossible
tion. It has very low expense ratios, has to know how closely the plans will re-
avoided scandals that have rocked some semble the recommendations made
mutual fund families in recent years, here, it seems appropriate to include
and has compiled a credible record as a them in the proposals that follow.
competent money manager.
Despite these advantages, unfortu- 1.Create an alternativefmed income
nately, there are some key ways in plan within TIAA.
which TIAA-CREF is not nearly as Although many CREF participants
competitive as it could be. Because of might occasionally like to take some of
this, it faces the risk of significant mem- their equity or bond profits off the
bership attrition as the financially more table, the Retirement Annuity (RA) ac-
4s
 count offers only one place to park
them temporarily-the Money Market
Account. This will not be a very attrac-
tive option during low interest rate pe-
riods such as those that prevailed in
1993. Participants could reach for a
higher rate of return by transferring
their CREF funds to TIAA. However,
once their RA funds are put into TIAA,
they cannot be easily switched back to
CREF if market conditions change. It
takes 10 years to complete a transfer of
funds from TlAA to CREF.
According to TIAA-CREF Chair-
man John Biggs, only a few participants
complain about this limitation on with-
drawal, but among that small number of
people. the “limitation generates more
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heat and frustration . . . than any other
aspect of TIAA-CREF” (“Choosing Be-
tween TIAA and the CREF Bond Mar-
ket Account,” The Participant. April
1994, page 12).
If indeed this is a significant
grievance among some participants,
why does TIAA not address that
grievance’? TIAA argues that the inflex-
ible transfer rule is needed to protect the
long-term nature of its investment port-
folio. It holds many of its bonds until
maturity, and its portfolio also includes
many long-term mortgages and real es-
tate investments. Premature liquidation
of these investments to meet withdrawal
needs could result in investment losses.
What is sorely needed is a plan that
would address the grievances of partici-
pants without forcing TIAA to abandon
its long-term investment philosophy.
This could easily be accomplished by
creating a TIAA Plan B for RA ac-
counts. Such a plan would allow new
TlAA contributions to be placed either
in the traditional TIAA plan with its 10-
year transfer rule or in a Plan B that
would be subject to the same terms for
TIAA contributions as currently operate
for the Supplemental Retirement Annu-
ity (SRA), which is designed to provide
retirement income in addition to that
generated through an employer’s retire-
ment plan. Participants with SRA ac-
counts can transfer funds at will be-
tween TIAA and CREF.
Plan B would be available only for
new monies put into TIAA. Existing
TIAA accumulations in RA accounts or
contributions to the traditional TIAA
would not be covered by Plan B. Since
this would leave the bulk of TIAA assets
46
ONEOF THE MOST
DIFFICULT ISSUES
FACING PARTICIPANTS
IS DECIDING UPON A FORMULA
FOR ALLOCATING THEIR
RETIREMENT ASSETS....
not at risk of sudden withdrawal, TlAA
would have adequate protection from its
fear of being forced to liquidate holdings
at an untimely moment. Furthermore, if,
as Chairman John Biggs asserts, only a
small number of participants object to
the current transfer limitations, there
seems to be little danger that massive
amounts of new money would flow into
the Plan B accounts. By offering partici-
pants a clear choice between the long-
term traditional TIAA or the immediate
transferability of Plan B, TIAA would
eliminate a major irritant for an impor-
tant minority of its participants. If justi-
fied by the presumed increased risk of
Plan B funds, TIAA could pay a lower
interest rate for funds in Plan B than for
funds in the traditional TIAA account.
2. Within annuitized accounts, permit
an annual rebalancing of portfolios.
One of TIAA-CREF’s most popular
features is the option to annuitize one’s
accumulations upon retirement. More
than 90 percent of retirees sign up for
one of the annuity options. By annuitiz-
ing, one is guaranteed a monthly in-
come for as long as one lives. If you set
up your own non-annuitized plan for
spending down your retirement savings,
you could easily spend too much of
those savings, invest them too poorly,
or simply outlive them. But you are
guaranteed that you cannot outlive your
TIAA-CREF account once you have ac-
cepted an annuity contract.
This guarantee, however, carries a
huge price. Whatever allocation be-
tween TIAA and the CREF accounts
that you choose upon retirement is the
allocation you are stuck with forever.
TIAA-CREF’s annuities are based on a
life expectancy that the average 65-year-
old will live to age 87. But the 87-year-
old does not have the same ideal asset
allocation as does the 65-year-old. Un-
less retirees are permitted to rebalance
their portfolios, they are stuck forever
with the allocation formula they settled
on at the moment of annuitizing. Some
other insurance companies offer vari-
able annuities that permit transfers be-
tween different portfolios within the an-
nuity. TIAA-CREF should do the same.
3.Permit the use of the CREF Bond
Market Account in annuitized accounts.
When you retire, you cannot use the
CREF Bond Market Account in your an-
nuitized account. Although the CREF
Bond Market Account has a higher risk
level than TIAA, TIAA is not an ade-
quate substitute for a bond fund. TIAA’s
holdings are not marked to the market,
meaning that the value of these holdings
does not fluctuate up or down according
to market conditions. In contrast, the
CREF bond fund’s holdings do fluctuate
with the market; and though it can go
down in value as well as up, the Bond
Market Account has historically done a
much better of job of outpacing inflation
than has TIAA. Comparisons of TIAA
to CREF‘s hypothetical reconstruction
of its Bond Market Account from 1976
through 1993 show that the bond fund
outperformed TIAA in every 15-year
period, every 10-year period, and nine
of the 14 five-year periods. Since the
Bond Market Account’s actual inception
in 1990, it has outperformed TlAA in
three years ( 1990, 1991, and 1993),
lagged behind it in 1992, and has lagged
behind it so far in 1994 (Charting TIM
and the CREF Accounts: Winter 1993-
94, New York: TIAA-CREF, 1994,
pages 32,42). Most investment advisers
suggest that some bonds be included in a
retirement portfolio, and TIAA-CREF
should permit the use of its bond fund in
annuitized accounts.
Coffer a broader array of CREFfunds.
In comparison to a large mutual fund
family, CREF does not offer a full array
of funds. CREF offers seven funds
(Stock, Money Market, Bond Market,
Social Choice, Global Equity, Growth,
and Equity Index). Fund families such
as Fidelity and Vanguard, which have
comparable levels of assets, offer
dozens of funds. It is quite possible that
most participants do not want to face the
decisions that would come from having
more funds to choose from. Financially
CHANGENOVEMBE~DECEMBER
I 994
 sophisticatedparticipants, however, will
be increasingly tempted to desert TIAA-
CREF for mutual fund families where
the offerings are broader.
CREF should create several new
funds that would make sense within the
context of generally accepted principles
of pension portfolio allocation. These
funds should include a small company
growth fund, a small company value
fund, a large company growth fund, a
large company value fund, a maximum
capital appreciation fund, an equity in-
come fund, a pure international equity
fund, and a pure international bond fund.
As a retirement plan, CREF certainly
should not join the mutual fund game of
creating new portfolios for every new
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fad that hits Wall Street. But the types
of funds suggested here are clearly con-
sistent with CREF’s fiduciary responsi-
bility of offering funds designed for
long-term investment strategies.
5.Create a new asset allocation fund
with Jive portfolios.
One of the most difficult issues fac-
ing participants is deciding upon a for-
mula for allocating their retirement as-
sets among TIAA and the various CREF
funds. For those who want help with this
issue, CREF should create a new asset
allocation fund that would have five
separate portfolios correspondingto five
stages of life: early career, mid-career,
late career, early retirement, and late re-
tirement. Each asset allocation portfolio
would be a fund of funds that allocated
its assets among the individual CREF
funds suggested above. The early career
stage portfolio, for example, would be
heavily invested in the small company
funds and international funds. This
would reflect younger participants’ abil-
ity to assume a more volatile investment
portfolio. The late retirement portfolio,
by contrast, would have less exposure to
equities and would be more heavily
weighted in TIAA and the bond funds.
This would reflect the older persons’
need to reduce the risk of capital loss.
While age is not the sole factor in deter-
mining one’s tolerance level for risk, it
is a central factor for most people.
The beauty of this arrangement is that
it would give TIAA-CREF participants
an investment vehicle that was tailor-
made for their age and risk levels. Fur-
thermore, since these portfolios would
follow the fund-of-funds principle, they
CHANGE
N O V E M B E ~ E C E M B1994
ER
would not require active management
and thus would impose minimal adminis-
trative costs on TTAA-CREF. Taking this
step would also enable TIAA-CREF to
become a trailblazer in retirement plan-
ning, since no mutual fund family cur-
rently provides such an extensive service.
6.Broaden the range of advice offered
by TIAA-CREF counselors.
Some no-load mutual fund families
provide an individual planner for share-
holders whose accounts exceed
$250,000. As TIAA-CREFparticipants
see their assets grow beyond that figure,
they could also benefit from the assis-
tance of an individual planner. Current
TIAA-CREFcounselors are helpful
when it comes to deciphering the various
annuity options, but most participants ei-
ther have or will have planning needs that
go far beyond this issue. Furthermore, it
is doubtful that most of TIAA-CREF’s
in-house counselors have the training and
experience that could be found in a com-
petent certified financial planner.
TIAA-CREF should contract with
teams of certified financial planners who
would be available to participants who
request their services. They would func-
tion as fee-based financial planners, but
they would receive their fees directly
from TIAA-CREF. The costs would be
divided equally between TIAA-CREF
and the individual participant, with the
individual’s share being deducted from
his or her account. Each of these contract
planners could develop a financial pro-
file of the individual, offer asset alloca-
tion advice, help that person assess annu-
itization versus non-annuitization
options, answer questions on Social Se-
curity, health care coverage, and the tax
consequences of different withdrawal
programs, give guidance on estate plan-
ning, and perfom the same services that
individual participants currently seek
from independent financial planners.
This move on the part of TIAA-
CREF would not only provide a valu-
able service for TIAA-CREF partici-
pants, it would put TIAA-CREF in the
forefront of the drive to educate in-
vestors about retirement planning. It
would also give a much-needed shot in
the arm to the movement for fee-based
financial planning. Because TIAA-
CREF would pay part of the fee, partici-
pants would have a huge incentive to
stay in the TIAA-CREF system. The
fees would not, however, contribute sig-
nificantly to TIAA-CREF’s administra-
tive expenses, because half of the fee
would be paid for by the participants.
This arrangement would also address
the major problem retirees now face in
finding a neutral and disinterested source
of advice on the critical issue of whether
to annuitize within the TIAA-CREF sys-
tem or shift funds outside the system and
forgo annuitization.TIAA-CREF’sad-
vice is not totally disinterested, because it
wants to protect its asset base. Most fi-
nancial planners’ advice is not disinter-
ested, since they stand to collect signifi-
cant revenues if they can manage large
sums of money and levy a percentage rate
for managing it. By using TIAA-CREF’s
resources to contract with planners at an
hourly rate, the self-interestof the finan-
cial planner is somewhat neutralized.
Furthermore, this arrangement
would also bring some much-needed
accountability and oversight to the gen-
eral practice of financial planning. Cur-
rently, anyone can call himself or her-
self a financial planner and start a
financial planning business, and the in-
dividual investor faces a difficult task
of distinguishing between the good
ones, the poor ones, and the outright
dishonest ones. By acting as an over-
sight body to check credentials, investi-
gate complaints, and monitor perfor-
mance records, TIAA-CREF would be
providing an invaluable service.
7.Make monthly rather than annual
payments from the Transfer Payout
Annuity to CREF.
Currently it takes I0 years to com-
plete a transfer from TIAA to CREF in
an RA account. The funds are trans-
ferred from T I M into a Transfer Pay-
out Annuity (TPA). On each anniver-
sary date of establishing the TPA,
one-tenth of the original TPA amount,
plus interest, is then transferred to
CREF. If these transfers were made
monthly rather than annually, they
would constitute a dollar-cost-averag-
ing plan. (Dollar-cost averaging is a
system of investing a fixed amount of
money at regular intervals. Most TIAA-
CREF participants use this method
when they have a fixed dollar amount
withheld from their paychecks and in-
vested in one of their CREF equity ac-
counts. A primary advantage of dollar-
cost averaging is that it avoids the
47
 TIAA-CREF appreciates
John Harrigan’s recognition of
our organization as the “back-
bone” pension plan at the more
than 5,000 colleges, universities,
and other nonprofit educational
and research institutions that we
serve. And, we appreciate his
statement that TIAA-CREF “has
some significant advantages”
when compared to competing
pension plan providers. Indeed,
we believe our more than 75-
year history of exclusively serv-
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and research communities.
Overall, we found Harrigan’s
article to be well thought out and
to contain a number of astute
suggestions, most of which we
are in the process of implement-
ing or are seriously considering
for the future. Several of his
suggestions, however, do not
seem appropriate or desirable, as
explained below.
But before addressing each
of Harrigan’s nine suggestions,
we think it’s important to briefly
ment strategy, which involves
holding investments with long
maturities until they become due
for payment. It is precisely be-
cause of this ability to invest for
the long term that TIAA has
been able to achieve superior in-
vestment returns for its partici-
pants. Having to meet lump-sum
withdrawal requests would put
TIAA in danger of having to liq-
uidate investments at an inop-
portune time and consequently
suffer financial losses that
these funds in the CREF Money
Market Account, which pro-
vides a high degree of liquidity
and safety, and has consistently
provided returns that are among
the highest money market rates
in the industry, according to
Donoghue’s Money Fund Aver-
ages. Those seeking higher re-
turns can transfer some or all of
their funds to the CREF Bond
Market Account. While Bond
Market returns are subject to the
risk of market declines-espe-

ing these groups, compared to
the mass marketing efforts of
other pension plan providers,
most of whom have focused on
the education and research com-
munities for only the last five
years, gives us a decided advan-
tage in terms of being attuned to
the unique retirement planning
needs of educators. Of course,
our extremely low expenses and
strong investment performance,
as Harrigan notes, have also
been keys to our success.
We also believe that Harrig-
an is correct in stating that
TIAA-CREF can and should be-
come an even more attractive
pension system. We are always
looking for ways to better serve
our participants through product
enhancements, new products,
and new and enhanced services.
Our success in these areas is an-
other major reason we have
achieved and maintained our po-
sition as the premier retirement
system among the educational
point out that we disagree with
his assertion that TIAA-CREF
has not been aggressive enough
in our efforts to satisfy the needs
of the “financially more sophis-
ticated and venturesome” among
our 1.7 million participants. The
fact is, we have rapidly expand-
ed the scope and variety of our
products and services in recent
years. These actions are reflect-
ed in the strong and consistent
growth in the number of institu-
tions and individuals joining the
TIAA-CREF system.
We present the following
responses to Harrigan’s sugges-
tions:
1. Create an alternative f i e d
income plan within TIAA (that
would permit full transfers).
Harrigan correctly states that
transfers from TIAA are permit-
ted only in annual installments
over a 10-year period, rather
than in full, to enable TIAA to
maintain its long-term invest-
would reduce the value of its
portfolio and its investment re-
turn to participants. Harrigan’s
call for a TIAA clone (“Plan B”
as he labels it), which would
permit lump-sum transfers at
any time, would be incompatible
with TIAA’s long-term invest-
ment strategy and would present
the same financial risks to TIAA
and its participants.
His contention that TIAA’s
Supplemental Retirement Annu-
ities (SRAs) permit such trans-
fers is not a fair comparison.
SRA accumulations represent a
small fraction of TIAA’s total
invested assets since the number
of individuals with SRAs is far
smaller than those with TIAA’s
regular Retirement Annuities
(RAs), and the amounts that can
be applied to SRAs are limited
by federal law.
Participants who wish to
temporarily withdraw their
CREF RA accumulations from
the stock market can “park”
cially if interest rates rise-they
have historically been much
higher than returns of money
market funds. However, past
performance is no guarantee of
future results.
In contrast, under the pro-
posed “Plan B,” aggressive par-
ticipants could obtain high
short-term interest rates at no
risk, since they could simply
withdraw their accumulations
from TIAA if interest rates rose.
But, the resulting losses would
have to be borne by all other
TIAA participants.
2. Within annuitized accounts,
permit an annual rebalancing
of portfolios.
This is an interesting idea
that we are actively exploring.
3. Permit the use of the CREF
Bond Market Account in annu-
itized accounts.
This is another interesting idea
that we are considering. Histori-

temptation to “play the market”-that
is, invest according to your guess at the
market’s behavior.) One principle of
dollar-cost averaging is that monthly in-
vestments produce higher returns than
annual investments. Since the transfers
are handled automatically by comput-
ers, TIAA-CREF could provide a valu-
able benefit to its participants at little
increased administrative cost to itself.
8.Create a systematic monthly with-
drawal plan.
T h e vast majority of mutual funds
enable a person to set up a systematic
monthly withdrawal plan under which
they can take out a specific amount each
month. Under TIAA-CREF this is pos-
sible only if you annuitize your assets,
take the minimum distribution option,
or take the interest payout retirement
option. If you want to establish a sys-
tematic monthly withdrawal that does
not fit within these limited choices, you
are out of luck with TIAA-CREF. This
is a serious inconvenience in compari-
son to what is available with the typical
mutual fund. (As mentioned earlier,
TIAA-CREF does report to b e working
on a withdrawal system of this kind-as
well as a transfer system of the kind
mentioned in the point below-for re-
lease in the near future.)
9.Create an automatic dollar-cost-
averaging plan for transfers from the
Money Market Account to other
CREF funds.
When the equity markets reach all-

48 CHANGE NOVEMBE~DECEMBER
I 994
 cally, we did not offer payout an-
nuities in the Bond Market Ac-
count because of a concern that
retirees would experience de-
clines in annuity income during
inflationary periods, sinceinfla-
tion tends to be accompanied by
rising interest rates that reduce the
market value of bonds. However,
if post-retirement transferability
were introduced (Proposal No. 2),
Bond Market payout annuities
could be considered, since the an-
nuitant would be. able to transfer
to another funding vehicle.
We would caution, however,
that Harrigan’s conclusions
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within parameters widely ac-
cepted as appropriate for pen-
sion plan investing. In addition,
we are continuing to explore
new investment ideas for our
participants and may add addi-
tional options in the future.
But, as Harrigan notes,
“CREF... should not join the
mutual fund game of creating
new portfolios for every fad that
hits Wall Street.” We’d add that
CREF should not be measured
against the number of funds pro-
vided by mutual fund companies
since they’re aiming to meet ev-
ery investment objective. In
allocate their retirement savings
in accordance with their indi-
vidual needs, goals, and com-
fort level.
6. Broaden the range of advice
offered by TIAA-CREF coun-
selors.
TIAA-CREF has long of-
fered one-on-one counseling
sessions to participants. Such
service is always offered
through our internal staff and
not through outside financial
planners or any other external
parties. This is largely responsi-
ble for our industry low expens-
retirement planning that Harrig-
an suggests be discussed by
planners have long been covered
by TIAA-CREF. In addition, we
offer a comprehensive set of
publications that provide a writ-
ten supplement to our counsel-
ing services.
7. Make monthly rather than
annual payments from the
TransferPayout Annuity to
CREF.
We agree with Harrigan that
this could be a worthwhile im-
provement and will be studying
the feasibility of this change.

about the general superiority of
Bond Market returns relative to
TIAA may be unwarranted.
Most of the time frames he ex-
amines were periods in which
declining interest rates predomi-
nated. During periods of rising
interest rates, bond funds would
not be expected to fare as well.
4. Oger a broader array of
CREFfunds.
The July 1994 introduction of
the CREF Growth and Equity In-
dex Accounts, combined with
the relatively recent introduction
in 1992 of the CREF Global Eq-
uities Account, has clearly
moved CREF in the direction of
what Harrigan refers to as a full
array of funds.
TIAA-CREF currently offers
a broad spectrum of funds to
meet the various levels of finan-
cial risk with which our partici-
pants are comfortable, and most
importantly, which help them to
meet their retirement needs
contrast, TIAA-CREF, as a pen-
sion plan sponsor, has a fiducia-
ry responsibility to offer only
funds that are appropriate for a
pension plan in terms of relative
risk levels and long-term invest-
ment objectives.
5. Create a new asset allocation
fund withjive portfolios.
This is really an extension of
Harrigan’s previous suggestion
to offer a wider array of CREF
funds. As for the type of fund
suggested, he states that an as-
set allocation fund “would give
TIAA-CREF participants an in-
vestment vehicle that was tai-
lor-made for their age and risk
levels.” However, we feel this
type of asset allocation fund
would be inappropriate since it
would suggest that everyone in
a certain age group has the
same risk tolerance, objectives,
and financial resources. In con-
trast, we believe that partici-
pants should be encouraged to
es. In its June 1994 Ratings
Analysis on TIAA, Standard &
Poor’s (a leading independent
rating agency) describes TIAA’s
operating expenses as “excep-
tionally low,” while CREF is de-
scribed as “far and away the
cheapest variable annuity” by
Morningstar (a leading provider
of variable annuity information)
in its January 1994 Variable An-
nuity Report, which included
CREF for the first time.
TL4A-CREF counselors are
fully qualified to assist partici-
pants in weighmg such essential
factors in effective retirement
planning as age, risk tolerance,
and other sources of income in
retirement, including social se-
curity and personal savings. It is
not our goal to provide financial
planning assistance on non-re-
tirement-relatedmatters, so em-
ploying Certified Financial Plan-
ners and incurring the related
fees would not be appropriate.
Lastly, the subjects related to
8. Create a systematic monthly
withdrawal plan (wherebypar-
ticipants can take out specific
amounts of money each
month).
As Harrigan correctly re-
ports, TIAA-CREF is currently
working on such a withdrawal
system, which will enable par-
ticipants to have monthly with-
drawals automatically made
from their accounts. This system
is expected to be available soon.
9. Create an automatic dollar-
cost-averagingplan for trans-
fers from the Money Market
Account to other CREFfunds.
Again, as Harrigan notes,
“MA-CREF will soon be intro-
ducing a system allowing for
automatic monthly transfers
from any CREF fund to any
other one. c\r
-DAVID A. S ~ N K
TIM-CREF Vice President

time highs and overvaluations by tradi-
tional measures, many participants
might like to put some of their stock
earnings into the Money Market Ac-
count and systematically feed them
back into the equity funds on a monthly
basis. This would enable them to gain
the protection of dollar-cost averaging
in the event the markets endure a sharp
correction yet participate if the bull
market continues.
The only way to use dollar-cost av-
eraging among CREF accounts current-
ly is to make a monthly telephone
transfer from the Money Market Ac-
count (or from TIAA if in an SRA).
Human nature being as it is, one would
have to have an almost compulsive per-
sonality to d o this the same day each
month regardless of all the other pres-
sures in one’s life and the emotional
turbuIence that would result from hav-
ing to watch the ups and downs of the
market so religiously.
Participant needs would be better
served by a mechanism under which
one could set up an automatic transfer
of a fixed sum on, say, the 25th of each
month for a specified number of months
from the CREF Money Market Account
to selected CREF funds. Since this ar-
rangement would be handled automati-
cally by computers, it would be even
easier for TIAA-CREF to administer
than the current procedure of telephone
transfers. And it would give TIAA-
CREF participants an option not avail-
able from most mutual fund families or
independent advisers.

CHANGEN O V E M B E ~ E C E M1994
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