Talking TIAA for University Employees

Aug 14 2024 | Back to Blog List

For new faculty and staff at Iowa’s public universities and colleges—including the University of Iowa, Iowa State University, and the University of Northern Iowa—onboarding also means enrolling in one of two savings options for retirement: IPERS or TIAA, formerly known as TIAA-CREF.

It’s an irrevocable decision that can greatly impact your income in retirement, and you need to make sure you understand the benefits and implications of both paths, as you can’t change your selection later.

No pressure, right?

The good news is you don’t have to make this decision alone when you’re working with a fiduciary adviser who understands your life and goals.

Here at Cedar Point Capital Partners, we have a decade-plus of experience working with clients using both IPERS and TIAA, and can say both are fantastic vehicles for building a stable, sustainable retirement. But we also know that the planning and strategic opportunities built into TIAA plans make it an underappreciated option for public employees interested in asserting more control over their retirement plan.

That’s why we want to look specifically at the TIAA option in this Insights column, so you can discuss and make the most informed decision ahead of your next chapter in life.

What kind of retirement plan is TIAA?

As you start evaluating your options, it’s helpful to understand what the TIAA option is, and by extension, what it is not.

TIAA is primarily structured as a 403(b) plan, also known as a type of “defined contribution retirement plan,” offered by the Teachers Insurance and Annuity Association of America (TIAA). Under this model, the employee and the institution contribute a certain percentage of the employees’ salary each month into an individually owned and managed retirement account, which is structured as a variable annuity (more on this in a bit). Your future retirement benefits through TIAA are determined by your allocation of and return on investments within that annuity, much like a 401(k) in the private sector or an individual retirement account (IRA).

IPERS, the Iowa Public Employees’ Retirement System, is a 401(a) defined benefit plan that many would recognize as a traditional pension. Employees’ monthly contributions are placed in a general IPERS trust fund and invested across a variety of pre-determined investments to pay pension members across the system.

Under IPERS, your retirement benefit is determined through a formula influenced by your five highest years of earnings, your age, and your total number of years participating in the plan. This benefit is predictable and guaranteed by the State of Iowa, but participants also forgo the potential for higher market returns in exchange for that security.

How much can I save monthly with the TIAA 403(b) option?

Iowa law requires both IPERS and TIAA participants to contribute a set amount from each paycheck. For TIAA participants in their first five years of employment, the required contribution is 3.33% on the first $4,800 of income, and 5% on their remaining income.

The university or college will in turn contribute 6.66% on the first $4,800, and 10% on everything beyond that—a generous amount that outweighs IPERS or most other private-sector employer 401(k) contributions.

After five years of employment, all income becomes subject to a 5% contribution (with a cap of $345,000 in 2024), while the university or college continues to contribute 10%.

For high-income employees, TIAA offers additional value in the form of access to two additional savings vehicles:

• Voluntary Retirement Savings Plans: These supplemental 403(b) plans are offered by the state’s universities and colleges, and available to university employees. They allow participants to contribute a portion of their income, beyond their mandatory contributions, on a pre- or post-tax (Roth) basis to the plan account, which offers a range of investment options. The maximum annual contribution to a VRSP is $23,000 in 2024, with an additional $7,500 in catch-up contributions for those 50 and older.
• Deferred Compensation Plans: These section 457(b) plans allow participants to make even more additional pre- or post-tax contributions up to $23,000 in 2024, separate from annual 403(b) plan limits, but still subject to IRS maximum total annual contribution limits.

While universities or colleges will not contribute to either of these optional savings plans, they allow eligible employees to take advantage of salary deferrals up to $69,000 (or up to $76,500 with catch-up contributions) to your retirement fund each year—an incredible opportunity to supercharge your tax-deferred savings.

What flexibility do I have in investing my TIAA accounts?

Perhaps the biggest advantage for TIAA is the flexibility and customization it offers investors, especially compared with IPERS.

As we mentioned earlier, TIAA was formerly known as TIAA-CREF up until 2016. The “CREF” in TIAA-CREF stands for College Retirement Equities Fund, which is a variable annuity framework first introduced in 1952.

If you’re not familiar with the concept, a variable annuity is a type of insurance contract that allows you to invest in a range of options—typically mutual funds or subaccounts—within that annuity. While the value of your annuity can fluctuate with the market based on the investment mix you specify, it may then be converted into a guaranteed income stream at retirement, providing a mix of growth and stability that many people appreciate.

While 401(k) plans from private-sector employers may offer a dozen mutual funds to choose from, public university and college TIAA plans may offer three to five times as many investment options, ranging from equities to fixed income to real estate to mixed Target Date Funds that automatically adjust allocations based on your stated retirement date. And you don’t have to choose from just TIAA products—you’ll find offerings from trusted companies like Vanguard, American Funds, and T. Rowe Price, helping you diversify not just your investments but your provider base, as well.

Investors can blend investment approaches within this framework, combining aggressive equity investments and more conservative fixed income pieces to create truly tailored portfolios that match their risk tolerance and time horizon.

Can I work with an independent adviser to manage my TIAA accounts?

Yes, you can, thanks to the plan’s unique exemption from the federal Employee Retirement Income Security Act (ERISA).

This law provides certain tax benefits and contribution protections to most private-sector retirement plans, but it also restricts who can administer them. 403(b) plans operated by public institutions, like the University of Iowa, Iowa State University, and the University of Northern Iowa, are considered non-ERISA plans, giving participants more flexibility in how they are actually managed. That includes working with an independent financial adviser, like Cedar Point Capital Partners.

Why is this important? Some TIAA programs, such as the one at the UI, ISU, and UNI, offer participants a meeting with a TIAA advisor at least once a year, which is a great benefit for those without an established financial adviser. But keep in mind, TIAA-aligned advisors may have certain incentives implicit to their parent company which may also bring conflicts of interest that you do not have with an independent, unaffiliated firm. You deserve unbiased advice that’s solely focused on your future goals—why not take advantage of the flexibility to choose your own team.

We’re proud to serve public employees from all of Iowa’s public universities and colleges as full-time fiduciaries, and have extensive experience advising TIAA participants from planning to retirement to leaving a legacy. If you’re looking for a partner who can help guide you through all the possibilities that a TIAA plan presents, we’re here to help. Give us a call and let’s grow together.

---