A three-year dispute between the state and TIAA-CREF over control of roughly $1 billion in state pension assets may finally be headed to court.
Attorney General Richard Blumenthal’s office posted a request for proposal last week to retain a private lawyer to represent the state in potential legal actions related to the disposition of assets in its Alternative Retirement Plan for senior educators and its 403(b) plan for state education and health care workers.
Officials in Blumenthal’s office declined to comment, and Steve Jensen, a spokesman for the state comptroller said a “gag order” had been imposed on the subject following the issuance of the RFP, which sets a Sept. 15 deadline for proposals from candidates.
Thomas Woodruff, director of the Retirement and Benefit Services Division for the comptroller, also said his office is not allowed to comment during the RFP period.
Both retirement plans had relied heavily on TIAA-CREF investments from 1976 through 2005, when the state hired ING U.S. Financial Services to manage all its pension plans.
But when the changeover date arrived, TIAA-CREF declined to agree to a wholesale transfer of plan assets — mostly TIAA-CREF annuities — to ING, citing the wording in the investment contracts. It argued that the new plan manager could not transfer assets from the TIAA-CREF investments without the express permission of each individual investor.
State of Connecticut officials disagreed, saying there should have been a seamless electronic transfer of assets.
Today — nearly three years after ING began offering a wide range of investment options for Connecticut pension plan participants — nearly $1 billion in assets in the two state pension plans remain in TIAA-CREF investments — $800 million of ARP assets and $150 million of 403(b) plan assets, Jensen said.
TIAA-CREF spokeswoman Jennifer Compton provided similar numbers. “TIAA-CREF stands by our participants in the state of Connecticut and they have responded by maintaining more than $1 billion of investments with our organization,” she said.
The dispute over the latitude ING has to switch plan participants into other more diversified investments intensified after Woodruff reported that an academic study in 2007 found that TIAA-CREF annuities didn’t perform as well as more diversified investments. The report concluded that a “highly risk tolerant” investor could expect to achieve 10-year returns three times higher than an investor who stuck with TIAA-CREF annuities.
TIAA-CREF disputed the conclusions of the report and issued its own detailed response, which drew a counter response from Connecticut officials.
State officials have threatened legal action against TIAA-CREF in the past. Near the end of 2006, Woodruff said the state was considering legal action against TIAA-CREF, but he said in January 2007 it would delay any such plans. State officials declined to say whether they planned to change course and head to court.
Asked if TIAA-CREF had heard that Connecticut might be preparing to take legal action in the case, Compton said, “Nothing that I’ve heard of.”
Chris Hoffman, a Blumenthal spokesman, said he could not elaborate further on the RFP, other to say that Connecticut is looking for a lawyer to “provide certain legal services,” as the RFP states. The RFP does not specifically mention TIAA-CREF, but only refers to a “former administrator of the State’s Alternate Retirement Plan.”
In his RFP, Blumenthal said the private lawyer hired to represent the state of Connecticut, the State Employees Retirement Commission and the state comptroller would be asked to evaluate the validity of former administrator’s position that transfers require the approval of individual investors.
