\n<\/p>\n
Jason Allaire, left, a captain with the Rhode Island Division of Sheriffs, and Robert Jalette, a sergeant with the department.<\/p>\n
Sophie Park for NBC News<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Over the last 13 years, Jason Allaire, a captain with the Rhode Island Division of Sheriffs, had saved thousands of dollars in a state retirement plan created for public employees.<\/p>\n
The account is a 401(a), a 401(k) equivalent for government workers, so he assumed it worked the same way: He could withdraw funds before he hit retirement age but would have to pay a penalty and taxes to do so.<\/p>\n
Earlier this summer, with Allaire seeking to pull out some money to help his daughter pay for college, he got a shock. The company handling the account told him he couldn\u2019t access the money until he stops working for the state.<\/p>\n
\u201cWe cannot touch it, borrow against it or move it,\u201d even in an emergency, he told NBC News. \u201cThis plan is pretty much holding us hostage.\u201d<\/p>\n
Allaire\u2019s experience reflects the sad reality facing many older Americans. Saving for a prosperous retirement has never been harder, financial experts say, citing risky products, hidden investing costs, complex rules and undisclosed conflicts of interest at financial firms.<\/p>\n
\u201cOur system depends on Americans\u2019 ability to invest well for their retirement,\u201d said\u00a0Barbara Roper<\/a>, an expert in investor protection who was senior adviser to Securities and Exchange Commission Chairman Gary Gensler from 2021 to 2025. \u201cBut the majority of Americans are not good at investing \u2014 they pay too much for substandard products recommended by conflicted representatives.\u201d<\/p>\n Making matters worse for Allaire and his colleagues, the Rhode Island 401(a) account automatically funnels many participants into a costly product that generates profits to TIAA, the huge New York financial firm designated by the state to handle the plan.<\/p>\n Participants must opt out of the product under a change the state made in 2023 to eliminate low-cost provider Vanguard from the plan. The change has resulted in millions of dollars\u2019 flowing to TIAA from participants unaware they are paying them because the costs are not disclosed. Rhode Island officials and TIAA defend the plan.<\/p>\n TIAA is being investigated by regulators in three states \u2014 Montana, Vermont and Washington \u2014 who are probing allegations that it steers retirement savers into two costly TIAA products, according to Ted Siedle, a lawyer for a former TIAA financial consultant who filed a whistleblower complaint with the SEC last year.<\/p>\n Last year,\u00a0NBC News reported<\/a>\u00a0on the former financial consultant\u2019s complaint, which contends that a key investment tool used by the firm pushes its clients into TIAA products, including one in the RI Plan, that yield the firm significant profits but generate lower returns to investors.<\/p>\n \u201cThis is a company that\u2019s been plagued by disturbing whistleblower allegations for over a decade now,\u201d Siedle said. \u201cThese state regulators are seriously concerned about the integrity of the advice that\u2019s being offered by TIAA and its sales and representative licensing practices.\u201d<\/p>\n Spokespeople for the Montana state auditor\u2019s office and the Washington Department of Financial Institutions confirmed they have open investigations into TIAA. Vermont declined to comment.<\/p>\n Michael Tetuan, a TIAA spokesman, said of the investigations: \u201cWe cooperate fully and transparently with all regulatory authorities.\u201d<\/p>\n As for the RI Plan, he said in a statement, \u201cTIAA participated in the state\u2019s competitive bidding process\u201d and is proud the state selected it to \u201cprovide a custom retirement default solution for its eligible employees.\u201d<\/p>\n \u201cRhode Island makes all legally required disclosures available to participants,\u201d the statement added. \u201cUltimately, it\u2019s up to participants to decide which specific investments best suit their financial goals.\u201d<\/p>\n Accusations of undisclosed conflicts have dogged TIAA in recent years, with a raft of insiders alleging it pushes clients into high-cost accounts and products, putting its profits ahead of its customers\u2019 best interests.<\/p>\n A recent lawsuit, filed by former employees and supported by the\u00a0AARP Foundation<\/a>, accuses TIAA of pressing its own workers into expensive investments that underperformed for years. TIAA says it will vigorously defend against the suit.<\/p>\n In 2021, New York state regulators and the SEC alleged the firm had quietly propelled clients into higher-cost accounts. TIAA paid $97 million to\u00a0settle the case<\/a>\u00a0without admitting or denying the allegations.<\/p>\n Carla Rojo, a spokeswoman for the Rhode Island Treasurer\u2019s Office, said TIAA was selected after a transparent process and a thorough evaluation.<\/p>\n \u201cThe Rhode Island Treasurer\u2019s Office, along with the State Investment Commission, is a careful, conscientious steward of the retirement plan investments for more than sixty thousand current and retired state and other government employees,\u201d she said in a statement. \u201cTogether with the defined benefit pension system, the 401(a) Plan allows for secure and more portable retirement savings.\u201d<\/p>\n The 401(a) plan does not allow withdrawals \u201cto ensure financial security in retirement,\u201d Rojo said, adding that one-third of TIAA\u2019s 401(a) plans similarly bar withdrawals.<\/p>\n Allaire was not wrong in assuming he could withdraw money from his 401(a) plan before he retired, as 401(k) holders can.\u00a0The IRS<\/a>, whose rules govern those plans, says: \u201cRetirement plans established for the benefit of governmental employees generally function similar to those covering private employers.\u201d<\/p>\n<\/div>\n When Rhode Island state officials selected TIAA to administer the 401(a) plan for its public workers, the plan was meant to supplement those workers\u2019 severely underfunded public pensions. It was 2011, and RI Plan pensions were in crisis, with enough funding for\u00a0less than half the pensions\u2019 combined liabilities<\/a>.<\/p>\n State officials began requiring workers like Allaire to contribute to 401(a) retirement accounts while the state worked to shore up the beleaguered pensions. Most workers contributed 5% of their salaries to their 401(a) accounts each year, with the state kicking in 1%.<\/p>\n After a bidding process, the RI State Investment Commission unanimously selected TIAA to run the 401(a) plan in July 2012, according to a\u00a0news release<\/a>.<\/p>\n \u201cOur goal was to choose a provider whose priorities are low-cost and secure investment products, along with robust and dependable customer service,\u201d Gina Raimondo, then the state\u2019s general treasurer, said at the time. \u201cWe have accomplished that with the selection of TIAA-CREF,\u201d then the name of the company.<\/p>\n Experts question the assessment of TIAA as a company with low-cost priorities, especially when its signature product \u2014 an annuity \u2014 is in the mix. Annuities are contracts that promise to provide income for holders during their lives, but their often higher costs can be hidden from view.<\/p>\n TIAA\u2019s annuity is included in the RI Plan\u2019s \u201cdefault\u201d product, into which participants\u2019 money automatically goes if they do not opt out and make their own choices.<\/p>\n Raimondo, now a distinguished fellow at the Council on Foreign Relations, did not reply to an email seeking comment.<\/p>\n Chris Tobe, a retirement investment expert and former trustee of the Kentucky Retirement Systems public pension, estimates the annual cost of the TIAA annuity in the RI Plan\u2019s default investment product at 1.2% to 1.5%, making the product more expensive for participants than the previously offered target date fund from Vanguard, at a 0.06% cost.<\/p>\n RI Plan participants are not told of the annuity\u2019s costs. Instead,\u00a0state documents<\/a>\u00a0list the annuity\u2019s expense as \u201c0.00%,\u201d saying TIAA provides RI Plan participants \u201can inexpensive fee structure (estimated at 0.022%).\u201d<\/p>\n TIAA says its annuity, known as Traditional, has zero costs because it is \u201cnot an investment for purposes of securities laws\u201d and does not have an \u201cidentifiable expense ratio,\u201d or cost, like a mutual fund. The money TIAA makes on the annuity is generated by the difference between what the insurer earns on its investments and what it pays out to its annuity holders, known as the spread, or also as a markup.<\/p>\n The higher the spread, the lower the payouts annuity holders receive, so the spread represents a cost to those holders. While these costs do not have to be disclosed, they can be onerous.<\/p>\n Research from the Federal Reserve Board<\/a>\u00a0in 2021 described the spreads annuity marketers earn on the products as \u201cnotoriously high life annuity price markups.\u201d Annuities are not federally regulated as mutual funds are.<\/p>\n The TIAA spokesman declined to say what TIAA earns on the annuity. That is \u201ccompetitive and proprietary information,\u201d he said.<\/p>\n Tobe, who worked as an insurance company executive for several years, said that response was not surprising.<\/p>\n \u201cThese products are created so you don\u2019t have to show the fees,\u201d he said.<\/p>\n In addition to the annuity costs, the Rhode Island 401(a) plan participants pay TIAA administrative fees. For the fiscal year that ended June 30, 2024, those costs totaled almost $1.3 million, state records show.<\/p>\n Initially, RI Plan participants were able to keep their costs low by investing in Vanguard funds. And most of them did so: By 2023, almost 90% of the plan\u2019s assets, or $1.2 billion, were in Vanguard products, state records show.<\/p>\n That changed when the Rhode Island Investment Committee, chaired by James A. Diossa, the state treasurer, eliminated the Vanguard option. The decision came during an\u00a0executive session<\/a>\u00a0at a meeting in May 2023, with no details of the deliberations, state records show.<\/p>\nEliminating a low-cost provider<\/h2>\n