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Administrative Fee Leveling to Impact Penn State Retirement Program Participants

Monday, May 21, 2018

In the coming days, participants in the Penn State Alternate Retirement Plan, the 403(b) tax deferred annuity, and the 457(b) tax deferred annuity, all administered by TIAA, will receive important information in the mail regarding changes in how administrative fees will be charged to participants’ accounts effective July 1, 2018. Administrative fees are nothing new to individuals participating in the Penn State retirement plans administered by TIAA; however, up to this point, administrative fees have been charged disproportionately among plan participants. These administrative fees cover resources and services, including, but not limited to:

  • On-site investment counseling
  • Website and call center
  • Account statements
  • Plan audit support
  • Fiduciary and legal advisory services

Beginning July 1, 2018, Penn State will adopt a “fee leveling” approach, an industry best practice, to create a more fair and equitable way to account for administrative expenses. Fee leveling ensures that all participants pay the same percentage of their account balances for recordkeeping and administrative fees, regardless of the funds in which they invest. Penn State does not benefit from the collection of administrative fees.  Recent advancements in the recordkeeping system used by TIAA are enabling Penn State to take this step in creating fee fairness for all plan participants.

“Fee leveling is the most transparent method of disclosing the administrative costs of the plan to participants; without such transparency, many participants mistakenly believe that such services are provided free of charge,” said Greg Stoner, senior director for compensation and benefits with Penn State Human Resources.

“By charging all participants an equal percentage of their accounts for plan services, as has been the case at other institutions, participants will better understand the services these fees support and utilize them in a manner that will improve their retirement readiness.”

In 2018, the annual administrative fee is 0.052% ($0.52 per $1,000 invested). Employees will see either a “TIAA Plan Servicing Fee” or “TIAA Plan Servicing Credit” on their quarterly statement, effective September 30, 2018.

Currently, certain investments in the plans have what is known as revenue sharing.  “Revenue sharing is a retirement plan equivalent of a rebate” said Mike Webb of Cammack Retirement Group, Penn State’s retirement plan consultant. “Some funds have them and some don’t. Where revenue sharing exists, it is returned to the participant, just like a rebate.” This means that any revenue sharing within an investment option greater than the administrative fee of 0.052% will be credited back to the participant’s account. Any investment option with revenue sharing less than the administrative fee of 0.052% will be assessed a fee. The table below provides some examples of how revenue sharing and plan fees/credits combine to cover the full administrative costs of the plans.  Please note that these are examples only and not reflective of actual funds in the plans.

2018 Administrative Costs - Example
Employee Revenue Sharing Plan Fees/(Credits) Total Administrative Costs
Robert 0.00% 0.052% 0.052%
Suzanne 0.10% (0.048)% 0.052%
John 0.24% (0.188)% 0.052%

Administrative fees under the fee-leveling structure will be reported starting with the September 30, 2018 statement.

For information on fees, fund expenses, and rates of return, please visit TIAA.org/psu, TIAA.org/performance, or see a list of frequently asked questions.