A recent whistleblower complaint against TIAA-CREF and subsequent investigation into its sales practices by the New York attorney general's office have raised concerns for some of the investment firm's institutional clients.
As a result, TIAA is conducting an internal investigation and talking to clients to assuage concerns of any possible wrongdoing. "We are conducting a thorough review," said Doug Chittenden, head of institutional retirement at TIAA, New York, which had $976 billion in assets under management as of Sept. 30.
TIAA spokesman Chad W. Peterson confirmed receipt of a whistleblower complaint filed with the U.S. Securities and Exchange Commission alleging some of its salespeople have engaged in questionable practices, such as pressuring individual customers to buy products they don't need that generate high fees.
Mr. Peterson also confirmed TIAA received a subpoena from New York Attorney General Eric Schneiderman seeking information on its sales practices.
The company is cooperating with regulators, Messrs. Chittenden and Peterson said, noting these allegations go against the company's values "We're committed to being as transparent as possible (and) doing business in a highly ethical way," Mr. Chittenden said.
A spokeswoman for the SEC declined to comment, as did a spokesman for Mr. Schneiderman's office.
News of the whistleblower complaint became public in October in a New York Times story. A month later, the paper reported Mr. Schneiderman's office was investigating the validity of the allegations made in the complaint.
In the ensuing weeks, TIAA executives have been speaking with their clients to address their concerns. Mr. Chittenden described the conversations as "constructive."
"Our clients know us well," he said. "They're asking appropriate questions."
Among these clients is the $8 billion Rhode Island Employees' Retirement System, Providence, for which TIAA serves as defined contribution provider. Evan England — spokesman for Rhode Island state Treasurer Seth Magaziner, who oversees the State Investment Commission, Providence — said that when officials heard about the complaint, they immediately contacted TIAA.
Although some of the issues raised in the complaint did not apply to TIAA's relationship with Rhode Island, Mr. England noted the investment commission still had some concerns regarding the firm's compensation structure and business practices. Senior-level TIAA executives came to Providence to answer questions from members of the investment commission.
"Since they partner with us to provide counseling services to members, we want to make sure those services are in our members' best interest," Mr. England said.
Rhode Island's SIC will continue to monitor the situation. "We're going to trust, but verify," the state treasurer's spokesman added.
Another TIAA client — the $5.7 billion South Carolina Public Employee Benefit Authority, Columbia — also is "aware of the reports concerning TIAA" and is "closely monitoring the situation," said spokeswoman Megan B. Lightle. TIAA is one of four record keepers for South Carolina's optional retirement program, a DC alternative to the state's defined benefit plan.
But not all plan sponsors are concerned by the investigation.
Debra Sass, spokeswoman for the Los Angeles-based Metropolitan Water District of Southern California, said in an email the investigation has no effect on their relationship with TIAA. TIAA serves as record keeper for the water district's $136 million 457(b) plan.
Courtney Law, spokeswoman for Denver City & County Deferred Compensation Plan, in an email said the plan committee works with its investment consultant, Innovest Portfolio Solutions, to choose investment options for its participants, "which does not contain any TIAA investment vehicles."
"In addition, TIAA representatives are not permitted to cross-sell TIAA products to Denver plan participants," Ms. Law added.
TIAA acts solely as the third-party administrator/record keeper for Denver's $600 million deferred compensation plan and provides education opportunities for plan participants.
A spokesman for TIAA's asset management arm, Nuveen, said the New York attorney general's examination "has had little impact on our business and has not resulted in any client mandate losses."
Although TIAA is no longer a non-profit organization, Mr. Peterson said the company still runs its operations like one.
TIAA President and CEO Roger W. Ferguson Jr., in an Oct. 21 letter on the company's website, expressed pride in the company's "mission-based approach," and explained TIAA's advisers "are paid a salary plus an annual bonus, which is not based on the profit or revenue to TIAA that any product may deliver, but on neutral factors such as the time required to educate our clients on the benefits of more complex products."