In another sign that the 529 College Savings plan market is not what many plan administrators expected it to be, TIAA-CREF is asking shareholders to allow it to raise fees its funds pay to its investment advisor. The fee request was revealed in a proxy statement
filed with the SEC.
The fee hikes would hit TIAA-CREF's actively managed institutional mutual funds that are used primarily in its 529 programs and with some institutional clients. Those funds hold just $6 billion of the $343 billion managed by the New York City-based asset manager and plan administrator.
When the 529 plan market was created, many in the fund industry expected quick growth mirroring that in the 401(k) industry. However, that growth has not materialized and many program administrators are finding themselves squeezed by states that seek revenues from the program at the expense of the administrator.
That appears to be what happened to TIAA-Creve’s' program.
The trustees of the funds write in the filing that Teachers Advisors, the funds' investment advisor, has been losing money under the existing fee structure since the funds were created in 1999.
"With the benefit of hindsight, however, it has become clear that the extremely low fees currently charged by the advisor are insufficient to cover the costs of providing services to the Funds while continuing to provide high-quality services to shareholders. The advisor has informed us that it has consistently incurred losses and cannot continue as an effective investment manager for the Funds under the current fee structure," they wrote.
Fund shareholders will vote on the proposed fee hike at an August 31 meeting. The increases both raise the asset-based fee paid to Teachers Advisors and create an maintenance charge for retail shareholders with account balances below $2,50 The proposal also calls for the merger of the TIAA-CREF Institutional Mutual Funds and TIAA-CREF Mutual Funds.
The funds would also add a 12b-1 charge of 25 basis points to cover distribution costs.
While the fees for the funds would substantially increase if the plan were approved, they would remain below those of many competitors. No fund would charge more than 50 basis points before the 12b-1 fee (see table below).
|TIAA-CREFs New Fees|
|Fund||Current Fee||Max Proposed Fee|
|Growth Equity Fund||8 bps||45 bps|
|Growth & Income Fund||8 bps||45 bps|
|International Equity Fund||9 bps||50 bps|
|Large Cap Value Fund||8 bps||45 bps|
|Mid-Cap Growth Fund||8 bps||48 bps|
|Mid-Cap Value Fund||8 bps||48 bps|
|Small-Cap Equity Fund||8 bps||48 bps|
|Social Choice Equity Fund||4 bps||15 bps|
|Real Estate Securities Fund||9 bps||50 bps|
|Bond Fund||8 bps||30 bps|
|Inflation-Linked Bond Fund||9 bps||30 bps|
|Proxy statement filing with SEC|
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