TIAA-CREF (Teachers Insurance and Annuity Association–College Retirement Equities Fund), one of the nations largest private retirement systems, has had ongoing issues with internal systems that have caused delayed access to pensioner funds.
While the company has pointed to infrastructure upgrades as the culprit, internal TIAA-CREF e-mails obtained by eWEEK from an anonymous source indicate that the pensioner issues are directly related to a major implementation of the companys Open Plan Solutions platform.
According to the e-mails, from Oct 1 through Dec 1, 5,529 participants—schools and universities—that migrated to the new platform experienced payment delays.
That includes lump-sum annuity disbursements, systematic payments, transfer payout annuities, interest payment retirement options and individual retirement accounts.
TIAA-CREF consultants were authorized to pay bank charges for participant overdrafts.
In November, problems were also identified with TIAA-CREFs Single Sum Settlement System that created issues primarily with systematic withdrawals, but with other lines of business as well.
Herb Allison, TIAA-CREFs CEO, gave a nod to the system failures in a Dec 2005 letter to customers posted on the companys Web site. With reference to infrastructure upgrades, Allison said, “overall, we are progressing well, but in occasional instances we have inadvertently inconvenienced customers. In November we introduced new functions that delayed payments to some participants and caused us to be late in getting forms to others.”
While TIAA-CREF has said only a small percentage of users were affected by the migration snafus, pensioners and former employees have put the number closer to 15,000.
Allison said in his letter the company is continuing to address the causes of the problems.
Pensioners who still do not have access to funds want to know whats being done to solve the issues—not internally, since theyre getting few concrete answers from TIAA-CREF—but externally from regulatory authorities.
“I dont understand how they can do this,” said one pensioner, whos been waiting for rollover funds since late October, in an e-mail to eWEEK sent Dec. 31.
“Why arent they sending me e-mails and updates? Why isnt there any information about the situation on their Web site? Cant they be penalized for failing to perform?”
TIAA-CREF operates as both an insurance and mutual fund company and as such is under the regulatory authority of the Securities and Exchange Commission and the New York State Insurance Department (TIAA-CREF is incorporated in New York).
TIAA-CREF informed the New York State Insurance Department in December that there were some issues. But given the lack of consumer complaints and an understanding that the issues are not widespread, the Department hasnt gone any further with investigations, according to Wayne Cotter, research director at the Insurance Department.
“We would expect any of our licensees to contact us regarding issues and they did,” said Cotter, in Manhattan. “From our point of view we saw [the pensioner issues] as an internal problem and didnt see it affecting a large number of consumers.”
Should the Insurance Department determine there is some substantial consumer frustration—with any organization—it would then launch a Market Conduct Examination to determine if theres proper conduct, according to Cotter.
“We may look at whether consumers are being given the proper information, the proper payments if its an annuity. We can do those on a regular basis, or a targeted basis,” said Cotter.
“But were not talking about this [with TIAA-CREF]. That would be a last resort.”
Was the System Upgrade
Playing the watchdog for pension or insurance issues is outside the SECs purview, according to an SEC spokesman.
TIAA-CREF is betting its future on Open Plan Solutions, or TOPS as its known internally, and other system upgrades to modernize legacy applications and add more services for pensioners.
To accomplish its goals TIAA-CREF implemented a number of IT programs in 2005, including TOPS, a commercial platform that integrates the companys legacy annuity, mutual fund and other service offerings into a single system.
The company also consolidated its data network, implemented a single data security firewall, put in a new trading and settlement system, new desktop systems for customer service agents and upgraded its financial systems.
At the same time, TIAA-CREF developed the infrastructure to support TOPS and reorganized IT across the company, according to its 2005 Annual Report.
“We were replacing older software and systems that run our payments processing and online functions,” said TIAA-CREF spokesman Glen Weiner, at the companys New York headquarters.
“The sheer complexity of upgrading our service infrastructure, including the roll out of our new platform, led to the recent customer service problems.
Two former TIAA-CREF employees who requested anonymity detailed some of the issues with TOPS as they relate to pensioner problems.
“TIAA-CREF has been involved for the last two or three years in a major upgrade to their record keeping system called TOPS,” said one former IT manager.
“Its all the systems that say what products a participant owns. They bought the system from SunGard [Data Systems Inc.], so theyre trying to convert legacy systems developed in-house to a new platform. Theyve spent hundreds of millions of dollars on it and its turned out to be a fiasco internally.”
Another former IT manager concurs.
“The bottom line is this project, and the company, is a mess,” said the former employee. “The code we put into production [we should not] have put into QA, and yet its been put into production.
“Thats the way its been running. It was thrown into production [and any issues] have been manually dealt with. Peoples bonuses are tied to how many schools they convert to TOPS and people cant keep up [with manual workarounds].”
In 2005, three organizations converted to TOPS: TIAA-CREF itself, Purdue University and the University of Richmond. By the end of this year, TIAA-CREF hopes to have all 15,000 of its institutional clients converted, according to Weiner.
TOPS is at heart a master record keeping system that also enables the company to add additional options on top, like partner funds from other companies, and a life cycle or age-based, regularly rebalanced mutual fund. But the platforms success depends on the number of schools that upgrade to it.
“The first school to convert was Purdue—that first weekend we converted was just one school,” said the former IT manager. “At that point there were a multitude of problems, but we were able to deal with manual workarounds. Then in 05, with a very aggressive turnaround timetable for schools,” issues compounded and TIAA-CREF couldnt keep up.
A big part of the issues: data conversion and a lack of functionality.
“Not that the new system was defective,” said the manager. “It wasnt designed to do what we expected, or what participants had come to expect. But no one really owned up to that. Thats part of the problem.”
One TIAA-CREF participant, Nick Chase isnt taking any chances. After having a funds disbursement issue solved last month—his November check never made it into his checking account—an IRA funds transfer issue popped up right after, and Chase is now moving what money he can to a Fidelity Investment account.
The author of The Contrarians View newsletter, Chase wrote about his issues with TIAA-CREF in a recent issue.
“Anything that involves peoples money—those systems are supposed to be very, very carefully tested before theyre switched over,” said Chase, a retired systems manager based in Worcester, Mass.
“This smacks of testing pressure. My feeling is they were in too much of a hurry and didnt test accurately. If something like this happens, theyre going to lose business. Theyre already losing my business.”