Case study | plan design and lifetime income
How one healthcare system lowered costs and upgraded its default
Health care | Mid-Atlantic | Anonymous
*As of 12/31/24
Background
An integrated healthcare system in a major metro area, a client of TIAA for more than 100 years, was looking for an upgrade.
The large healthcare system selected TIAA to be the single record-keeper for its 403(b) and 457(b) plans in 2013. Nearly a decade later, the system’s CFO and CIO met with their TIAA team to discuss ways to lower costs, improve outcomes and lower the risk profile of the plan’s default investment. The system’s CFO was a true believer in the power of in-plan fixed annuities because, in his personal experience, they could lower risk (when backed by a highly rated financial firm) without sacrificing returns.
As the TIAA team and healthcare system’s leaders discussed the plan’s menu, they sought solutions that could potentially reduce market volatility for participants and broaden access to guaranteed retirement income.
Challenge
For employees
With the plan’s existing default investment, target-date mutual funds, there was no embedded option for employees to choose retirement checks when they retired. Leaders of the health system were concerned that a small number of plan participants were contributing to
For the plan sponsor
Healthcare organizations know well the oath “do no harm.” The investment committee was averse to making changes that raised costs or did away with products that employees liked. The CFO personally used TIAA Traditional and understood its potential benefits. He wished to convey to the system’s investment committee that guaranteed asset classes such as fixed annuities can reduce risk for savers and provide income for life to retirees.
* TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA)
TIAA solutions
Adding the option for guaranteed retirement income to the default
Working closely for more than two years with its third-party consultant and using apples-to-apples comparisons, the CFO convinced the investment committee that TIAA Traditional has a historical track record of delivering strong risk-adjusted returns. Even so, some investment committee members were initially hesitant to change the retirement plan’s well-liked, widely understood default investment—a target-date fund suite offered by Vanguard. It was relatively low-cost, and the strategy was transparent—why fix what wasn’t broken?
The lightbulb moment occurred when the consultant provided proof to the investment committee showing TIAA’s custom model portfolio solution,
- Potentially improving the risk-return profile of employees’ investment portfolios and offering the option of lifetime income in retirement.
- Keeping employees happy by retaining the existing, well-liked index products in the default asset allocation.
- Lowering the investment fees for participants (since the new solution unlocked lower cost institutional share classes).
Enhanced education strategy
The healthcare system and TIAA together staged an extensive communications and education campaign to prepare and support employees through the plan changes.
TIAA dedicated six financial consultants at tables in four locations over two weeks. The financial consultants met with 1,525 employees, conducted 436 account reviews and drove nearly 300 enrollments, advice sessions or contribution increases.
Approximately 200 employees scheduled one-on-one consultations. Nearly 60,000 transition guides were mailed to plan participants, and TIAA’s national call center fielded nearly 1,000 calls from participants about the transition and the new investment options.
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Results
Adding portfolio resilience and lifetime income—at a lower cost to employees
With the CFO serving as an advocate for TIAA Traditional and a third-party consultant providing independent evidence to the investment committee, the system was able to cut costs and make plan changes designed to benefit its employees through retirement. They upgraded the default to include a solution their employees can rely on for decades.
Shifting to the TIAA RetirePlus® custom default solution reduced fees by opening access to lower-cost index mutual fund share classes. The investment expense paid by plan participants fell 21%, on average, to between 0.05-0.07%, down from 0.08% for the previous off-the-shelf target date funds.
Embedding TIAA Traditional into the new default solution quickly boosted the proportion of employees who were “on track” to protect their savings. According to a proprietary metric that tracks whether plan participants are meeting their recommended allocations to the guaranteed asset class, the percentage of participants ready to protect their savings rose from 37% before the implementation to 92% after.
proportion of active participants who took steps to personalize their model portfolios*
personalized one-on-on employee education meetings*
the lowest investment fee some participants paid, down from 8 basis points*
*As of 12/31/24
Solutions deep dive
TIAA Traditional
TIAA Traditional, a fixed annuity, has helped millions retire more securely.
TIAA Traditional can be embedded in TIAA’s target-date solution,
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1 All guarantees are based on TIAA’s claims-paying ability. TIAA Traditional is a guaranteed insurance contract and not an investment for federal securities law purposes. Past performance is no guarantee of future results.
2 TIAA may declare additional amounts of interest and income benefits above contractually guaranteed levels. Additional amounts are not guaranteed beyond the period for which they are declared.
TIAA Traditional is a fixed annuity product issued through these contracts by Teachers Insurance and Annuity Association of America (TIAA), 730 Third Avenue, New York, NY, 10017: form series 1000.24; G-1000.4 or G-1000.5/G1000.6 or G1000.7; 1200.8; G1250.1; IGRS-01-84-ACC and IGRS-02-ACC; IGRS-CERT2-84-ACC and IGRS-CERT3-ACC; IGRSP-01-84-ACC and IGRSP-02-ACC; IGRSP-CERT2-84-ACC and IGRSP-CERT3-ACC; 6008.8 and 6008.9-ACC; 1000.24-ATRA; 1280.2, 1280.4, or 1280.3 or 1280.5, or G1350. Not all contracts are available in all states or currently issued.
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TIAA RetirePlus Select is an asset allocation program that includes asset allocation models that a plan participant may choose to guide the investment of his or her account into underlying investment options selected by the plan sponsor (the “underlying investments”). The plan sponsor selects the specific underlying investments available under its plan to represent the various asset classes in the models. An independent third-party advisor engaged by Teachers Insurance and Annuity Association of America (“TIAA”) developed the target asset class ratios for the models and the TIAA RetirePlus Select is administered by TIAA as plan recordkeeper. In making TIAA RetirePlus Select available to plans, TIAA is not providing investment advice to the plans or plan participants.
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