Note: To save space, this is an OCR scan of the original letter, so it does not have the same visual appearance as the original letter sent to all participants. Scholars who want to see the original should contact me.
Click here to return to "The 1997 Loss of Tax Exemption".
August 18, 1997
Dear Participant:
As you may know, the Taxpayer Relief Act of 1997 -- recently enacted by Congress and signed by the President -- contains a provision revoking the tax exemption of TIAA-CREF’s pension business.
While we regret this unfortunate action taken by Congress and the Administration, we fought the good fight and received splendid support from across the country. I want to express my thanks to all of you who joined in our efforts to retain the exemption.
As I stressed in my letter to you of July 2, the revocation of our tax exemption will not reduce your accumulations, nor will it affect the tax-deferred status of your retirement funds or your continuing contributions to TIAA-CREF. It will also have no effect on the tax-favored treatment of your institution's retirement plan. We believe, furthermore, that the new law will have virtually no impact on CREF participants.
As for TIAA, we expect to remain extremely competitive, with dividend rates that continue to be much higher than those of the average insurer. TIAA's long record of success has always stemmed primarily from its excellent investment returns and low costs, not from the federal tax exemption. So even if the impact of the federal tax results in our crediting ¼ to ½ percent less in dividends than we might have if we'd retained the exemption -- and we will make every effort to minimize the amount of tax payable -- TIAA's rates should remain among the highest in the industry. (We are currently crediting rates of 7¼ percent on premiums applied to Retirement Annuities and 6 ¾ percent on Supplemental Retirement Annuities.)
More fundamentally, although our tax status will change, our purpose and priorities will stay the same. We are not going to become a for-profit company. All of our earnings will continue to be committed to providing benefits to our participants and institutions in accordance with our charter purpose. Our allegiance to America's education and research community will remain unaltered, as will our dedication to outstanding service, excellent investment performance, and low costs.
We're now in a position, moreover, to explore opportunities the exemption formerly impeded or precluded. In this month's Participant, for instance, we're introducing our Expanded Rollover IRA, which will enable you and your spouse to consolidate your retirement savings with TIAA-CREF. You'll be hearing from us in the coming weeks and months about more of the exciting new products and flexibilities we're developing for you and additional members of your family. These new offerings, together with our continuing traditions of service and performance, should make participation in TIAA-CREF even more valuable in the years ahead.
Sincerely,
John H. Biggs
[Chairman and Chief Executive Officer]