Roger Ferguson had been chief executive of retirement services provider TIAA-CREF less than six months last fall when the financial system imploded.
He spent long days reassuring anxious clients that the private company, started in 1918, was stable and would be a survivor. The payoff: This year brought 245,000 new individual investors. And more than 50 universities became clients or broadened their business with TIAA-CREF. Ferguson expects to end the year with the second-highest level of investments on the books in at least a decade.
"This crisis actually is allowing us to differentiate ourselves as a very, very safe company," he said during an interview last month at the company's Charlotte campus. "Even in the course of a crisis, people are really turning to us."
The New York company is best known for providing retirement plans to educators, researchers and nonprofits. But its mutual funds, insurance and trust services are available to all. TIAA-CREF also is a provider for the University of North Carolina's $1 billion retirement system, which recently consolidated its offerings.
Ferguson, 57 and a lawyer, joined the Fortune 100 firm after serving as a top executive with another financial services company, Swiss Re. Prior to that, he spent nine years with the Federal Reserve, where he was vice chairman of the Board of Governors and led the agency's immediate response to the Sept. 11, 2001, terrorist attacks. He also is a member of President Obama's Economic Recovery Advisory Board.
He talked with Charlotte Observer staff writers Stella M. Hopkins and Rick Rothacker. Questions and answers are edited for clarity and brevity.
Q: How did you and the company respond a year ago as the financial shockwaves hit the system?
In September and October [2008], we were very proactive in reaching out to all our institutions and to many, many of our participants. I personally was on the phone with many of our institutional clients to tell them our story. I've still been spending a lot of time with our clients, talking about our relative strength and also talking to some individual participants on campuses.
Q: What advice are you giving to clients as they work through this downturn?
Take a long-term perspective. People will be working 20, 30, 40 years. They'll be in retirement 20, 30 years. Do not look for the quick win. One of the things that worries me, is there will be people who say, 'Gee I've lost so much. I'm going to put it all back right away and catch this rally going up.' That would be nice, but be cautious; things can go up and down. I also worry about people saying, 'I'll never get any equity market exposure again.' You can't do that, either. Keep diversity in your portfolio. The third thing I tell people is seek trusted advice.
Q: What's it like being a CEO in an industry where many top executives are under fire?
I say I'm the only CEO in the financial services world who doesn't have to sort of duck and hide when I see one of my clients coming along because we've done well by them. Retirement is going to move very much to the forefront of the national agenda. The way we do things is a great model. We're right at the cusp where everyone is thinking: What's next for retirement?
Q: How will the financial crisis and stock plunge reshape retirement planning?
It's really important to use this to educate people about financial literacy, the importance of retirement for the 21st century and how retirement is likely to change. People really have to plan to be retired for 20, 30 years or longer. Part of what we've been saying is that retirement systems have to have as a backbone guaranteed income for life -- income you can not outlive -- in the form of a fairly priced annuity.
Q: An annuity that guarantees a periodic payment means you receive more the longer you live. How do you get around the drawback that you might die sooner?
For most people, the risk is that you outlive your income. To be quite clear, you don't annuitize everything. You should annuitize a significant portion of your nest egg to guarantee the income stream you're going to need for at least your basics. What you don't want to do is under-annuitize and discover your mortgage is not taken care of. You keep some [investments] in a more variable form for discretionary spending.
Q: Are stocks and real estate still smart investments?
The biggest challenges when you have a very, very long lifespan are investment performance and also inflation risk. You really do need to be getting some of the inflation protection that's built into things like equities, real estate. Being overly conservative and not getting some protection for upside surprises on expenses is a danger.
Q: What's the future for 401(k)s?
The 401(k) as we knew it has come under such a cloud because it has not performed as many people thought it would. There's going to be a need to rethink the role of the 401(k). They were meant to be a supplemental and tax-advantaged savings vehicle, but not a full retirement plan. I think there will be more auto enrollment in 401(k)s, to guarantee everyone has some form of self-funded retirements in addition to others. We might see serious debate, and I hope it goes through, on [automatic contribution increases with raises], the amount one is expected to save.
Q: How does the debate on health-care reform factor in?
Regardless of what happens on reform proposals, it's prudent for every individual to save for health-care expenses in retirement. These reform proposals come and go. What happens this year may not stay in place for the next 30 or 40 years.
Q: What's it like, working with President Obama as part of his economic recovery group and how often does your team meet with him?
We meet with the president about once a quarter for the whole advisory group. Every once in awhile, I get a phone call from his staff with a specific question. It's exciting to help such an insightful, thoughtful, intelligent president. This president in particular is a very uplifting person to work with.
