How Good is TIAA-CREF? (2)

September 10, 2015

By James W. Russell

Huffington Post, September 10, 2015

HOW GOOD IS TIAA-CREF?

A year ago I posed that question in a blog entry for Beacon Press, the publisher of my Social Insecurity: 401(k)s and the Retirement Crisis.  I wrote that “TIAA-CREF, the retirement plan of many university professors and administrators as well as others, has escaped much of the increasing criticism of 401(k)-type plans. A number of academics with TIAA-CREF are even unaware that it is a 401(k)-type plan, thinking that the growing criticisms of 401(k)s don’t apply to their situation.

“TIAA-CREF has enjoyed relative immunity from criticism for two reasons. It is a nonprofit company that is presumed to operate exclusively in the best interests of its participants because it does not have shareholders. And precisely because it is the plan of so many highly-educated professors, it is presumed to be good because surely they must know what they are doing.

“Yet TIAA-CREF participants fare no better in retirement income than 401(k)-type plan participants with other financial services industry companies such as INGVanguard, and Valic. That in turn means that they fare much worse than employees with traditional defined benefit pension plans.”

The blog entry struck a chord.  It has been shared by nearly ten thousand readers so far.  You can read it here.

Continue reading “How Good is TIAA-CREF?”


Blaming the Victims of the 401(k) Crisis

April 20, 2015

By James W. Russell

Huffington Post, April 20,2015

As an author and speaker about 401(k)s and the retirement crisis, I often receive letters from readers who are relieved to find out that it wasn’t their fault that they came up short with these plans.

One reader wrote:    “I read your book some months ago, and I felt so validated.  Up until then, I didn’t really know what went wrong with my retirement plans and assumed that it was somehow my fault although I have always been a saver and had put in an extra $100/month to my 403(b) as long as I was a full-time employee. [403(b)s supplement 401(k), sharing the same stock market investing approach to retirement savings.]

“It meant a lot to me to know that my predicament was not just the result of poor planning on my part.  When I run into former colleagues who also retired, I find that they are in the same boat. One has gone back to work full-time and another, a good bit older than me, is working two jobs.”

Another 401(k) retiree wrote of having felt guilty about having to get support from her adult children.  She and her children had assumed that the blame was hers for coming up short and needing help.

The financial services industry, which profits handsomely from managing 401(k) and similar accounts, encourages victim self-blaming. What better way to deflect criticism from itself for running a rigged game?

Continue reading “Blaming the Victims of the 401(k) Crisis”


Nonprofit Annuities: A Fix for the 401(k)

April 7, 2015

By James W. Russell

Huffington Post, April 7, 2015

With 401(k)-type plans, participants are supposed to build up savings through stock market investing during their working years that will then support them during their retirement years. Most people, as is well known by now, for multiple reasons including excessive financial service industry fees, have been unable to accumulate enough savings to support adequate retirements. But even those who are able to build up sizable retirement savings are faced with an additional problem: there are currently no good options for spending down those savings to support them in retirement.

The original idea was that the plans would mimic the defined benefit pensions they replaced.  Participants upon retirement would use their accumulated savings to purchase annuities that would support them for the rest of their lives as pensions do.

Life insurance companies and other sellers of annuities use actuarial studies to determine average ages of death. They use these averages to calculate how long they are likely to have to make payments. They calculate the sizes of the promised payments accordingly to make sure that the company on average pays out less than it receives.

An annuity company is a cross between a bank and a casino.  The house wins when annuity purchasers live shorter than average; it loses when they live longer.

Annuities, however, have turned out to not be a very good deal for retirees.  They are expensive in part because of commissions charged for their purchase, administrative fees, and other forms of costs and profit taking from their corporate issuers.

Annuities are also expensive because of the problem of adverse selection. People are more likely to purchase annuities if they think they are going to live for a long time. Not surprisingly, people who think they are going to live long lives do in fact live longer on average than people who don’t.  Because of the increased longevity of annuity purchasers, life insurance companies have to set purchase prices higher.

According to a Congressional Budget Office study, about half of the excess cost of commercial annuities comes from the profit needs of the companies that issue them with the other half coming from the adverse selection problem.

By implication, purchasers of annuities could receive significantly more retirement income if they did not have to support the profit needs of companies that sell them.  By my calculations, they could receive as much as 20 to 30% more.

Continue reading “Nonprofit Annuities: A Fix for the 401(k)”


Obamacare and Retirement Reform

March 20, 2015

By James W. Russell

Huffington Post, March 20, 2015

If you thought that the Affordable Care Act, aka Obamacare, completely solved the health insurance problem of the United States, then you will probably be happy with some of the types of reforms that are being crafted to address the retirement crisis.

But if you find disturbing the Congressional Budget Office’s estimate that in 2019, when the ACA is fully implemented, 22 million Americans will still be without health insurance and that there will be a deep inequality of plans for those who have it, you might be wary of what likely retirement reform will look like if it follows a parallel course.

Retirement, like healthcare, is an exceptionally profitable industry in the United States.

The sine qua non of corporate-supported retirement reform, like that of health care reform, is that it must not reduce the profits of the existing system. To get real backing from those who pay the lobbyists, it must increase those profits. The ACA thus gave health insurers more business through the subsidized exchanges.

Continue reading “Obamacare and Retirement Reform.”


The Great Illusion of Retirement Savings

March 18, 2015

Nancy J. Altman and James W. Russell

Huffington Post, March 16, 2015

The nation is facing a looming retirement income crisis.  Average retirees today are not well off.  Tomorrow’s average senior is likely to be in worse shape.

Instead of addressing this looming crisis, too many of the nation’s policymakers and elites propose to make it worse.  They tell the American people that Social Security’s earned benefits must be cut, despite their modest size.  They tell public-sector workers that their pensions are unaffordable, despite the fact that workers have already earned those benefits, indeed foregoing current compensation in the process.

Rather than proposing the expansion of Social Security and fighting for public pensions, these elites complain that Americans are not saving enough.  Americans, they say, need to be more frugal in their habits if they wish to avoid going off their own personal fiscal cliffs when they retire. Spare the lattes; pump up the retirement savings accounts instead, the elites lecture us.

Continue reading “The Great Illusion of Retirement Savings.”


How Good Is TIAA-CREF?

June 14, 2014

TIAA-CREF, the retirement plan of many university professors and administrators as well as others, has escaped much of the increasing criticism of 401(k)-type plans. A number of academics with TIAA-CREF are even unaware that it is a 401(k)-type plan, thinking that the growing criticisms of 401(k)s don’t apply to their situation.

TIAA-CREF has enjoyed relative immunity from criticism for two reasons. It is a nonprofit company that is presumed to operate exclusively in the best interests of its participants because it does not have shareholders. And precisely because it is the plan of so many highly-educated professors, it is presumed to be good because surely they must know what they are doing.

Yet TIAA-CREF participants fare no better in retirement income than 401(k)-type plan participants with other financial services industry companies such as ING, Vanguard, and Valic. That in turn means that they fare much worse than employees with traditional defined benefit pension plans.

To read more, click here.

 


401(k)s are Retirement Robbery: How the Koch Brothers, Wall Street and politicians conspire to drain Social Security

May 20, 2014

By James W. Russell

Salon.com, May 10, 2014

On the eve of the Reagan presidency in 1980, Milton and Rose Friedman published “Free to Choose,” a proposal for gradually phasing out Social Security. The entitlements of retirees would be honored as would the accumulated credits of contributors who had not yet retired. But no new payroll taxes would be collected. The final elimination of Social Security would allow “individuals to provide for their own retirement as they wish.” Among the advantages would be that “it would add to personal saving and so lead to a higher rate of capital formation [and] stimulate the development and expansion of private pension plans.” While the Friedmans argued for such a plan, they acknowledged that immediate privatization of retirement was unrealistic in the current political climate, but they would accept incremental reforms with the hope that one day total privatization would become politically feasible.

To read more, click here.


The Harkin Plan and the Retirement Crisis

May 20, 2014

Two days after President Barack Obama announced the establishment of MyRA accounts to help Americans without workplace retirement plans other than Social Security save for retirement, Senator Tom Harkin (D-Iowa) introduced Senate Bill 1979, to establish more ambitious USA Retirement Accounts for the same purpose.

Harkin’s USA Retirement Accounts received endorsement from several liberal retirement reform and labor groups. It faces an uncertain legislative fate.

The problem it seeks to address is real: the Bureau of Labor Statistics reports that 46 percent of Americans are not covered by workplace retirement plans other than Social Security, which was never intended to provide full retirement income.

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Obama’s MyRA: A New Plan That Will Benefit the Financial Services Industry More Than Retirees

May 20, 2014

In his 2014 State of the Union address President Obama announced that that he will direct the Department of Treasury to create a new retirement savings plan for workers who do not have 401(k)s. Called My Retirement Account or MyRA, it will allow them to purchase savings bonds with guaranteed rates of interest through automatic payroll deductions. He introduced the program by enjoining, “let’s do more to help Americans save for retirement.”

Creation of the MyRAs is recognition of the growing retirement crisis facing Americans. But rather than delivering substantive relief, it is at best a token response and in doing so perpetuates the very myths and fallacies that caused the crisis.

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National Save for Retirement Week

May 18, 2014

You may be excused if you failed to notice National Save for Retirement Week, October 22-28. Promoted by the financial services industry, which profits handsomely from each extra dollar placed in 401(k) and similar retirement savings accounts, the week does not exactly compete with Halloween and Thanksgiving for public attention.

The financial services industry would like for us to believe a number of things.

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