Benefits Plans - Retirement Savings Plans: new investment funds
More Choices & Lower Fees
Enhancements to the Retirement Savings Plan, SRA, and 457(b) Fund Lineup
The U-M Benefits Office is pleased to announce that TIAA-CREF and Fidelity Investments will transition several mutual funds to share classes with the lowest management fees and expenses they offer for these funds during the week of September 7, 2010. In most cases the fund names will not change and the investment strategies and underlying portfolio holdings will be the same. The principal difference is that the new share classes will have lower management fees and expenses.
By reducing overall plan expenses, more of your money remains in your account, working toward your financial future, and your retirement account balances have more earning potential. In addition, several mutual funds from Vanguard will become available through TIAA-CREF and Fidelity Investments.
Summary of Enhancements
- TIAA-CREF is transitioning all mutual funds to the Institutional Class of funds, which charges 25 basis points less than the current share class of funds. In addition, the current family of Lifecycle Funds will be transitioned to the Institutional Class Lifecycle Index Funds.
- There will be no change to the CREF variable annuity funds; however in May 2010 TIAA-CREF announced reductions in the expense ratio of the variable annuity funds.
- Fidelity Investments is transitioning all 12 Freedom Funds to the Freedom Index W Funds, which have lower expense ratios than the current share class of Freedom Funds.
- TIAA-CREF will add 14 Vanguard funds to their fund lineup and Fidelity will add 13. The new funds will be available as investment options in the Retirement Savings, SRA and 457(b) plans in September.
Why Fees Matter
Investment carriers pay for fund management, record keeping, administration, quarterly statements, and customer service through fees assessed on each fund. Commonly referred to as a fund’s expense ratio, it is measured in basis points, with 100 points being equal to a fee of 1%.
The fee or expense ratio is subtracted from the earnings generated by each fund and the remaining earnings are then credited to the fund. The higher a fund’s expense ratio, the more it erodes investment earnings and your eventual accumulated retirement savings. Funds with lower management fees and expenses give your retirement account balances more earning potential.
What Is a Share Class?
A mutual fund may offer more than one "class" of its shares to investors. Each class represents an identical interest in the mutual fund's existing portfolio, with the same name, investment strategy and underlying investments. The principal difference between the classes is that the mutual fund will charge you different fees and expenses depending on the share class.
|For example, the TIAA-CREF 500 Index Fund is available in both the Institutional Class and the Retirement Class. The portfolio holdings and investment strategy of the fund under the two different share classes are identical, except the Institutional Class charges 25 basis points (¼ of a percent) less in management fees and expenses than the Retirement Class that is currently available through the U-M Plans.|
What Happens Next?
If you have accumulations in any of the funds that are to be transitioned to the lower cost share class with TIAA-CREF and/or Fidelity Investments, the accumulations will be transferred into the new share class automatically. Funds that are not being transitioned will not be affected.
- Accumulations in the Fidelity Freedom funds will be transferred to the Fidelity Freedom Index K Funds during the evening of September 8, 2010.
- Accumulations in TIAA-CREF mutual funds will be transferred from the Retirement Class to the Institutional Class during the evening of September 10, 2010.
Several Vanguard mutual funds will become available for you to select through TIAA-CREF and Fidelity on these dates.
Why Are These Changes Being Made?
The university frequently reviews the products and services offered by TIAA-CREF and Fidelity to continually improve the value of the Retirement Savings, SRA, and 457(b) plans. The new share class of funds will lower the cost of saving for retirement, and increases the earnings potential on these funds. Vanguard provides an additional opportunity to invest with low-cost mutual funds.
What Does This Mean for Me?
Like most investments, all mutual funds charge fees and expenses, which can vary widely. Because even small differences in expenses can make a big difference in your return over time, the lower expenses and fees mean that more of your money goes to purchasing investments and you keep a higher percentage of the potential returns generated by every fund in your portfolio, which can help you reach your retirement goals faster.
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.