Ron Pressman is TIAA CEO for Institutional Financial Services, and he’s also a bit of an amateur historian.
During a recent conversation with PLANSPONSOR, Pressman reflected on his organization’s upcoming 100th anniversary. As he noted, the company was originally founded in early 1918 by the well-known steel magnate Andrew Carnegie, who died just a year or so later, to address a very specific social problem. At the time, increasing numbers of university professors and higher education faculty were either retiring in poverty or left unable to retire at all. Carnegie viewed the situation as intolerable and put his considerable wealth to work establishing a non-profit organization that would focus on boosting the financial and retirement wellbeing of America’s teachers. Eventually the focus widened to include non-profits generally, among other client groups.
Pressman mentions all of this to highlight “both the obligation and the opportunity” that historic firms like TIAA face in today’s challenging retirement planning environment.
“We have to take a very long-term perspective because many of our clients will be investing and then drawing down their retirement dollars with us for many decades,” he explains. “Today over 31,000 of our annuitants are over 90 years old, and many of them have saved with us for 40, 50, or 60 years. We even have some clients with a 70-year history with the firm.”
Pressman says the real lesson in this history is to observe how TIAA’s founders had the vision to create a mass-scale private market annuity system prior to the creation of Social Security or even the creation of the concept of the defined contribution (DC) plan. In other words, they had the vision to get ahead of market forces and to turn a big challenge into an even bigger opportunity.
“We can think of ourselves as being in a similar position today to our early founders, who were facing a real retirement crisis with no easy answers,” Pressman continues. “Today, just as in 1918, we have to be thinking deeply about the role of the private market and private providers for supporting the financial wellbeing of all workers.”
Undoubtedly, non-profits like TIAA, as well as many of the for-profit institutions in this space, are going to be stewarding the retirement planning of the majority of Americans in the decades ahead. They will be tasked with with picking up a lot of slack that is left in the retirement system by the decline of traditional pensions. Pressman is optimistic about this fact, and providers’ chances to keep doing good work well into the next 100 years. Not really surprising, he is particularly emphatic about the role his own firm hopes to play in solving the next phase of America’s retirement planning challenge.
“There are a lot of companies out there helping people accumulate assets, but there are far fewer companies that have the history of being able to talk to clients about what to do with their assets beyond the retirement date,” Pressman states. “At TIAA, we know how important it is to focus attention on the strategy for the rest of the financial lifetime beyond the working career—being able to layer the equities exposure you need with fixed annuities, variable annuities and other solutions an individual may need. We pay out close to $5 billion a year to our clients, which puts us up there with the Social Security System as one of the largest annual retirement benefits payers in the country.”
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On Pressman’s analysis, a given individual saving for retirement today will only get roughly 40% income replacement out of Social Security. “This is a good base,” he feels, “but it is far from enough to ensure folks will be able to maintain their standard of living in retirement. In terms of private savings, we see only 55% of Baby Boomers have any substantial retirement savings. The Gen X cohort has median savings of just $60,000—and that’s just for those who are proactively saving. Millennials have time on their side but they are saddled with more debt than the previous generations.”
Facing these core challenges, Pressman says there are five best practices that retirement plans can implement to help turn the picture around. These include encouraging strong savings rates; embedding lifetime income programming into the retirement programming itself; ensuring the money being saved can be put into strong, long term investment vehicles that can take advantage of the illiquidity premium; not allowing money to come out of plans prematurely; and government incentives that have helped spark good savings behaviors.
“We often encourage people to review the Australian’s national superannuitization program as a prime example of a program that considers all these issues,” he adds.
Pressman further explains TIAA “has an increasingly large number of plan sponsor clients in our base, especially in higher education, who closely resemble what is offered at the national level in places like Australia or New Zealand. Those programs prove that if you prod employees regularly to save and you give them incentives to do so, the uptake will be dramatic. Those kinds of programs are really inspiring to see. In this sense we also like to argue that many 401(k) programs could benefit by thinking a little more like a 403(b) program, at least when it comes to the generosity of matching contributions and the offering of lifetime income planning solutions that are also tied to long-term equity investment options.”
Pressman concludes with a message for plan sponsor readers who might be hesitant to start offering in-plan lifetime income options: “Most of our plan sponsors have adopted annuity options over time and, if they felt challenged at first, they are now very excited about what annuities can do for people and their lifetime financial outlook. When investors move into these products they are getting a very long-duration profile that can take advantage of as much as a 15% exposure to alternatives. Participants can get a much stronger yield over time compared with what a fixed-income investment might achieve.”
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