Best of Manhattan's Financial World

In these endlessly astonishingly complexly troubled money times? When heretofore normal commercial practice is suddenly revealed as questionable if not outright unethical or illegal practice? When Uncle Kenny Boy and Aunt Doily Martha are plausible candidates for abstemious federal hospitality? While the bad apples theory of what has gone wrong appears occasionally to refer to the population of a bountiful orchard? When at every turn a new amplified fiddle assaults our nerves?

Nevertheless, there are of course legions of firm, crisp and healthy apples still on the market. One of the best and most unusual?and a role model (to use that dreadful phrase)?is the TIAA-CREF insurance and pension company located in Manhattan.

This was initially endowed by Andrew Carnegie in 1905, when he noticed that college teachers, researchers, librarians and others of that ilk tended to move about from job to job and could therefore not be certain of building pension equity in any one place. Not only that, they earned very little. And so he established an institution to which both their employers and they could contribute into accounts that they, not their employers, owned. So they could take their accounts with them wherever they went.

This is a simple idea with immense implications. It gives employees freedom of movement, it exempts them from dire reliance on the durability and probity of employers such as Enron and it permits companies to pay pensions as they go, without facing the kind of crushing long-term pension obligations 20 years after they hire someone, as the steel and car industries (among many others) now face.

TIAA-CREF is one of the largest pension funds in America, and provides what many people rate as a superlative service to its clients, with costs among the lowest in the financial industry. It communicates frequently and candidly with those whose money it manages, and is an increasingly active protagonist for sensible and ethical corporate governance. And among those who have invested money with them over their careers, it is possible and in fact common for people to retire at age 65 and receive more from their pensions than they earned while they worked.

One reason for that is now, as of last July, 50 years old. This was when the managers of the company created the first pension system that invested in common stocks. This has permitted the growth of portfolios of between 7 and 14 percent per year?a return that has prevailed for several decades. The past two years have obviously been unkind. But they have been neither disastrous nor dangerous, especially in the context of the sharp rise of the 90s. This innovation meant that the prof in your math class could invest his funds in stocks that both paid dividends and perhaps enjoyed gains in the value of his securities.

At first the limit in the stock (CREF) account was 50 percent; the rest went into fixed income or real estate assets. Later on, once its record had been established, up to 100 percent could go into several different flavors of stock fund very conservatively but transparently managed by a career group of analysts. These folks were evidently paid enough to serve their clients effectively, but nothing like the ludicrous and larcenous stipends and options other organizations doing similar work gave themselves. The case of TIAA-CREF affirms that there is no necessary linkage between dramatic salaries and capable performance. The unusually low costs of TIAA-CREF services is an index of the willingness of skilled people to work unusually effectively in an organization that has a genuine commitment to serving clients?that's its profit. It has apparently been led by a succession of senior managers able to motivate their staffs with moderate but not galvanizing salaries.

And it's not only a huge organization, but a nimble one. For example, it objected strenuously to the federal government's proposed legislation to equalize pension payments to men and women. While this seemed completely reasonable and fair, it is based on an actuarial travesty. Men die about five years earlier than women. The whole point of insurance is that people pay money into a fund and get out of it an amount equivalent to their contribution. Sensible insurance means that men and women should get out as much as they put in, according to the rules. In turn this means that men will get more money per month than women, but of course for 60 fewer months. When they exit, both men and women will receive an equal return. The federal government wanted men and women to get the same amount each month, depending on what they contributed, as if they were both going to live the same number of months. TIAA-CREF objected. The sentimental argument used largely by feminist lawyers in favor of the legislation was that men died earlier because they worked and women didn't, and when women worked they too would be able to die early. TIAA-CREF studied two groups of women: its clients who worked, and the nonworking wives of its clients. Guess which group died first? The one that didn't work. Did that cause the government to rescind its legislation? Of course not. Now men get to die earlier, but they get less money for their pension contributions than their female colleagues next door. Women live longer and get more money. It is one of the largest insurance frauds in the country. At least TIAA-CREF tried to prevent it.

It has also actively disputed the ugly self-dealing in stock options that has so blighted the stock markets and created such ample rippling cesspools across the financial community. It actually should have done this earlier; I wrote to the chairman of the company making this point, and received a long and well-considered letter indicating that in fact an initiative was under way. (For 15 years or so I have always voted NO whenever I get proxy statements from companies in which I have a few shares asking me to provide options?which of course dilute the value of my shares?to executives whose salaries seem to be doing more than all right to me. You should vote no too, on principle. Help Save Your Country's Economy, and also irritate Michael Eisner.)

And once I wrote to complain that a proposed effort by CREF to lobby to diversify the five-white-man board of Nucor, one of the few successful steel companies in operation, was preposterous and sanctimonious. A few days later I had a phone call from the senior VP of the organization, who heard me out to argue that making steel is complicated, the Nucor board was composed of people who knew how to do it and this kneejerk initiative was foolish.

The fact is that it is possible to operate a first-rate financial institution that serves its clients and its community by operating with clear and impeccable standards of accountancy and management. I know some people with super-adequate bucks who for once envy humble academics because they enjoy the services of an organization superior to others on the open market. And when governments consider revising existing public pension schemes, they might take a recipe from Andrew Carnegie's ledger, and seek counsel from TIAA-CREF. It's a real organization, with real success, and it's just down the street.