Retirement Rollover Ads Spark Controversy

Fidelity defends its marketing strategy to the Senate.

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If you read the newspaper, watch television, or have picked up a recent copy of U.S.News & World Report, chances are you've seen an advertisement encouraging you to roll over you retirement dollars into a IRA. TIAA-CREF and Fidelity both recently ran advertising campaigns encouraging federal employees and retirees to move their retirement savings out of the ultralow-cost Federal Thrift Savings Program and into higher-fee accounts.

U.S. Senate Special Committee on Aging Chairman Herb Kohl, a Wisconsin Democrat, sent letters on July 15 to Fidelity and TIAA-CREF pointing out that "consumers can suffer unnecessary harm when they choose plans that have higher fees than their original 401(k) plans" and requesting that each company re-examine its marketing practices.

Most federal retirement savers would do better in the government plan, according to Gregory Long, executive director of the Federal Retirement Thrift Investment Board. "People who leave the federal service are welcome to leave their retirement funds with us, and we actually encourage them to do so because the TSP has one very big advantage over virtually all private-sector plans, [and] that is a tremendously attractive fee structure," he said at a July 16 hearing.

TIAA-CREF responded on July 16 and agreed to not run the ad in the future. "TIAA-CREF regrets any misunderstanding that may have been caused by a recent advertisement directed toward Thrift Savings Plan (TSP) participants," wrote Ed Van Dolsen, the executive vice president of institutional client services.

But Fidelity defended its ad in a July 26 letter. "Fidelity's rollover IRA offers investors extensive investment flexibility with no additional account fee, the extra convenience of aggregating retirement assets, and financial guidance services," wrote Scott David, president of retirement services. "Because each investor has unique needs, Fidelity offers one-on-one consultation to help better identify options for employees who have left their jobs, as well as to help them understand the potential impact of each choice they may be considering." The letter indicated that Fidelity plans to continue its ad campaign.

"I applaud TIAA-CREF's decision to pull the ads, and am disappointed that Fidelity has not chosen to follow suit," said Kohl in a statement responding to the two letters. "The TSP has the lowest administrative costs of any retirement program in the country and I think these misleading ads are a disservice to hard-working public servants."

Here are some helpful hints to decide whether you should roll over your TSP or 401(k) into an IRA. And please tell us what you think of the ads below.