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TIAA-CREF Fee Increases Drew California's Scrutiny


It seems mutual fund shareholders weren't the only ones TIAA-CREF was taking great pains to explain its proposed, but now-defeated, mutual fund advisory fee increases to. The firm had some serious explaining to do for the Investment Board of the Golden State ScholarShare College Savings Trust, the municipality that oversees California's 529 college savings plan.

TIAA-CREF, which administers the state's plan, had been asked on at least two occasions to provide more in-depth details behind its push to significantly raise the advisory fees on its actively managed institutional funds, which also offer a retail share class. Many of TIAA-CREF's funds, which the firm revealed this past June had been operating since 1999 at a loss, are offered within California's ScholarShare program.

On Aug. 31, investors in TIAA-CREF's actively managed institutional mutual funds soundly defeated the proposal to increase the advisory fees, leaving the trustees of the New York financial services group to now decide what to do with the funds. Investors did approve new investment management contracts for TIAA-CREF's index funds, but those new contracts contained no fee increases. Investors also voted in favor of the proposed slate of trustees, as well as for instituting a 12b-1 plan on the retail class of shares.

But TIAA-CREF had apparently spent a great deal of time explaining who would and would not be affected by the proposed fee hikes.

According to a late August Securities and Exchange Commission filing, TIAA-CREF officials had both spoken by telephone with the California program officials and had also addressed, in writing, several additional concerns raised by the state.

"ScholarShare shareholders pay a unitary fee for their ScholarShare investment, which will be unaffected by the Funds' repricing proposal," noted TIAA-CREF officials in their response to the Investment Board. That is because TIAA-CREF will continue to abide by its previous contractual obligations to the ScholarShare 529 program, they noted.

In addition, TIAA-CREF offered other written assurances. "[TIAA-CREF] can assure you that the repricing of the TIAA-CREF Institutional Mutual Funds will in no way reduce or otherwise affect the amount of resources dedicated to ScholarShare's non-investment functions, such as marketing or administration." It also reiterated that it intended to remain a 529 plan services provider. "TIAA-CREF has no plans to get out of the 529 business," officials wrote.

"We talked to the administrators and Treasurers for all of the state 529 plans we manage," confirmed TIAA-CREF spokeswoman Stephanie Cohen Glass. "California [officials] had asked things outside of what had been addressed in the proxy and we needed to address those issues with them," she added.

Officials at the California ScholarShare Investment Board had not returned a call for comment.

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