The End of "Transferability"?

You probably know, from when you signed up with TIAA-CREF, that your institution's enrollment rules determine which TIAA-CREF funds you can invest in. They can also restrict your rights to transfer your accumulations to another 403(b) provider, or to take a lump-sum distribution when you actually retire. (Other paternalistic rules have fallen by the wayside over the years, like restrictions on how much of your account can be invested in stock funds!) For years, HR offices and advisors have referred to "90-24 transfers" as a means of moving your 403(b) assets between providers.

In 2004, the IRS announced plans to, among other actions, repeal Revenue Ruling 90-24. They held a public hearing in early 2005, following which several articles about the plan appeared. These included:

• The easiest-to-read one I've found was on Motley Fool. (They might prompt you to register, but it's likely you can read this old page without signing up.)
• Almost as readable is this announcement on 403bwise.com, an excellent resource.
• A slightly more detailed report appeared in the Wall Street Journal. Investing Flexibility That Teachers Enjoy May Get 'F' From IRS,  Karen Damato. Wall Street Journal. (Eastern edition). New York, N.Y.: Mar 11, 2005. pg. C.1  (You can't see this online for free, but try your institution's library's newspaper database.)
• The National Tax Sheltered Accounts Association provided a .PDF form letter for petitioning legislators, which includes a concise explanation of the changes. Alas, it seems too late to petition Congress.
• TIAA-CREF did post something about this, but it's hidden away on the "Administrator Web Center", and it's cryptic. Search down in this document for the "TRANSFERS AND EXCHANGES" subheading, or download their .pdf of the notice.

This is a very complex matter, and I'm neither a lawyer nor an accountant. But it seems clear that some rights we currently have to move our TIAA-CREF money to other fund companies (even if we leave our employment at the place where we contributed to TIAA-CREF) are going to disappear on December 31, 2005. Note that the various terms have very specific definitions, like "Internal Transfers", "External Transfers", and "Lump-Sum Distributions".

I hope that readers who have well-staffed, supportive human resources offices will make inquires, and tell me what they learn, or at least tell your colleagues! I plan to bring this up at the 2005 CREF Annual Meeting if I can find the opportunity.

Here are some additional references on the web:

• The Investment Company Institute petitioned the IRS not to repeal Ruling 90-24. Presumably, that's because their members (a variety of mutual funds) see more upside than downside for themselves. After all, TIAA-CREF used to have over 90% of this business, and still has more than 70% of it. So they'd love to poach business from the "gorilla". This is a .PDF file of their letter to the IRS.
• Georgetown University Law Center Continuing Legal Education offers this encyclopedic .PDF report on all aspects of new regulations. It's on the Morgan Lewis law firm web site.
• McKay Hochman Co., Inc. offers advice on such issues. But this long document provides a lot of information for free.
• Legal Education Associates is giving lectures on the topic. And (surprise!) some of the speakers have TIAA-CREF credits!

Note that in the September, 1988 issue of "The Participant", the CEO at the time, Clifton R. Wharton Jr., wrote:

…I am very pleased that we can now fulfill a commitment I made more than a year ago to resolve transferability and other key issues that will bolster the value and performance of TIAA-CREF … .

Also note that the 1989 Settlement included an agreement that CREF would:

...Fairly and accurately communicate the policies and procedures concerning Transferability and Lump-Sum Distributions to employers and Participants, including, but not limited to, disclosure in the prospectuses included in the registration statements for RA and SRA Certificates, and GRA-II, filed by CREF under the Securities Act of 1933.

As of today, a lot of literature and web sites are already inaccurate, and will simply be false by the end of 2005. We need warnings and explanations from our investment provider!

(Please don't think that I'm currently advocating moving money to other financial service providers. Since I joined TIAA-CREF in 1976, through the date of this document, I've never taken any money out of TIAA-CREF. On the contrary; I moved a large 403(b) from Mutual of America to TIAA-CREF, then I rolled over my Vanguard Keough to an IRA at TIAA-CREF, and I also rolled over a small union retirement account. This is about everyone's options.)