As part of a cost-savings campaign, TIAA-CREF is offering a voluntary separation program for most of its global workforce but firm executives expect a low number of employees to participate in the buyout.
The buyout offer went to 75% of the company's 16,500 employees.
"While the voluntary separation program is open to most employees across our global enterprise, we expect only 5% to 7% of eligible employees to participate," said Jessica Greaney, a Nuveen spokeswoman, in an email. Nuveen is the money management arm of TIAA.
She stressed that essential investment personnel working for Nuveen, including portfolio managers and analysts, have signed long-term incentive plans which include non-compete provisions and noted "for these reasons, we don't anticipate that key investment personnel will participate in the VSP."
Defined contribution sources said the move appears to reflect the need of record keepers to reduce costs in a thin-margin business rather than a verdict on TIAA's overall financial health.
In a letter to clients obtained by Pensions & Investments, TIAA said, "We do not undertake expense-management programs lightly, but in the current environment, we believe taking proactive, prudent measures to protect our clients' long-term interests is the right thing to do."
TIAA spokesman Chad Peterson said in an interview that the company seeks to reduce costs to maintain its strong financial position and increase efficiency firmwide.
"Like many organizations, TIAA has instituted a hiring freeze, reduced vendor spending and as a natural outcome of the current environments, we have lower travel and expense cost," Mr. Peterson said.
TIAA laid out the details of the buyout program in the client letter, noting that employees of TIAA-CREF, TIAA Bank and Nuveen are eligible for the program. About three-quarters of U.S. employees and about two-thirds of employees based in other countries are eligible for the program.
About 25% of employees who support critical processes and technology required to run the company and some essential client support personnel were not included in the offer, TIAA said in a May 11 statement emailed to Pensions & Investments.
The voluntary separation program offers 45 to 91 weeks' salary, depending on length of service and salary, 100% of last year's bonus and six months of outplacement assistance.
TIAA acknowledged in its client letter that the terms of the offer are "generous" and were "specifically designed with our people and our corporate values in mind so associates can make decisions that are right for them." U.S. associates have until mid-July to accept the VSP and must remain at TIAA or Nuveen through early November this year. Information about the timing for the VSP election by non-U.S. employees was not available.
"Regardless of participation rates, we are committed to our mission of delivering investment excellence to all of our clients and will not undertake or consider any actions that would jeopardize our investment platform," Ms. Greaney said.
TIAA has discretion to decline the separation request of key investment personnel and retain employees, Ms. Greaney said.
Nuveen also has replacement personnel strategies in place for all investment strategies, which are not often used since turnover is low, Ms. Greaney said, adding that voluntary turnover in the investment unit year-to-date is below 2%.
As of March 31, Nuveen managed $1 trillion.
The voluntary buyout offers by TIAA-CREF to 75% of its employees appears to recognize that record keepers operate in a thin-margin business rather than be a verdict of TIAA-CREF's overall financial health.
Defined contribution sources are not sounding any alarms and think the announcement is part of a continuing trend in the record-keeping business.
"There's been no knee-jerk reaction on the part of our clients," said Michael Volo, the Wellesley, Mass.-based senior partner for Cammack Retirement Group Inc. "They understand TIAA is in a strong financial position. I think sponsors clearly understand the impact of the coronavirus on TIAA's market."
Cammack Group officials have had discussions with TIAA-CREF executives since the buyout decision was made public, and they will have more.
"It's a prudent approach to managing costs," Mr. Volo said. Although the headline for the buyout plan was eye-catching, "TIAA is not the first in the industry to have a voluntary separation."
Noting that TIAA-CREF expects 5% to 7% of employees to take the buyouts, Mr. Volo said: "My understanding is that this will be in line" with the revenue loss to TIAA-CREF caused by the coronavirus pandemic.
The DC record-keeping industry "has been heading toward some moment of reckoning" given its low margins, said a longtime DC industry veteran who did not want to be named. "How is the business going to be managed if they don't need all the people they have now?"
The TIAA announcement "gets your attention, but others have tried to shrink their numbers," he said.
The TIAA decision wasn't driven solely by the coronavirus, which has served to heighten record keepers' evaluations of their business models as they continue to deal with fee pressures from sponsors, he said.
"I don't think sponsors will be spooked" by the announcement, he said. "I think they would be more concerned about the impact of M&A" among record keepers.
One potential concern for sponsors — which has been an issues in mergers and acquisitions — is what happens to TIAA's relationship managers. "That's more important to sponsors than the total head count," he said.
Consultant Ryan Gardner said he doubted the announcement reflected fundamental financial problems.
"Maybe it's more looking ahead about how the business environment might change," said Mr. Gardner, managing partner at Fiduciary Investment Advisors, Windsor, Conn., a subsidiary of DiMeo Schneider & Associates LLC, Chicago.
"We don't have a lot of information about their goals and objectives affecting our common clients," Mr. Gardner said.
Executives from his firm spoke to TIAA representatives by phone earlier this week and another call is scheduled for May 18.
"TIAA is not in trouble," said another longtime DC consultant.
If the voluntary buyouts are a harbinger of broader industry activity, then TIAA should do well because "they made a hard decision before the others did," said the consultant who spoke anonymously.
But if TIAA's action is an outlier, "then I could see a spike in RFPs" from sponsors as competing record keepers try to capitalize on the decision.
"If 10 other record keepers do this, then it could be nothing," he added. "TIAA is a conservative organization. It's a scary thing to go first" in the defined contribution industry.
The consultant suggested that the voluntary buyouts are a precursor to a revised structure in part because TIAA "seems to have an older workforce given their insurance background" and heavy emphasis on annuities.
TIAA is the third-largest record keeper with $611.4 billion in assets under administration as of Sept. 30, according to Pensions & Investments data.
TIAA is the dominant leader among 403(b) plans with $433.7 billion, or nearly double the amount of second place Fidelity Investments' $231.6 billion.
The number of TIAA sponsor/clients was essentially flat for the past five years of the P&I survey, with 23,941 as of Sept. 30.
The total number of participants was 6.31 million as of Sept. 30, the second-largest number in five years, just behind the 6.32 million as of Sept. 30, 2018. About 96% of clients had fewer than 1,000 participants.
