1989 Settlement

This material is adapted from a Morningstar newsgroup post which was originally written by me.

William C. Greenough's history (1) of TIAA-CREF has a chapter titled, "Mostly Loyal Opposition." He mentions some important articles in CHE and NACUBO's Business Officer in the early 80's. One of the authors, a law professor at Georgetown, called for more flexibility in "locked-in retirement accounts". This topic is called "Old Money" when discussing the ancient history of TIAA-CREF.

More recent arrivals to TIAA-CREF may find it hard to believe that there was a (long...) time that you could not take money out of TIAA Traditional, even if you agreed to wait 10 years for all of it. I found a 1989 announcement in The Chronicle of Highter Education, not from TIAA-CREF, that touted a new retirement plan that "With a single 800 number, they'll be able to transfer funds on a next-day basis!"

Because of the passage of time, the revolutionary nature of CREF's creation (which raised the number of investment options from one to two) has faded from memory. But from the fifties to the eighties, there were only two investment options for TIAA-CREF participants. For new participants, that's hard to imagine. TIAA-CREF began work on a money-market fund option in 1982. That was a reaction to high interest rate levels in 1981, and an inverted yield curve lasting 18 months. But it took until 1988 to get it going, and the regulatory issues were to have significant, enduring effects on the company.

The creation of the CREF Money Market Fund required registering with the SEC, which took place in 1985. As part of approving the fund, the SEC allowed interested parties to comment. This brought both concerned academics and rabid competitors out of the woodwork. Faced with a full hearing at the SEC, TIAA-CREF was forced to negotiate a settlement. I suspect that one large reason for this was to avoid extensive discussion of the tax exemption and other special treatments that served our interest, but could be made to look bad by competitors. It's pretty easy to find columns or blogs that describe the Investment Company Institute (one of the parties to the Settlement) as representing commercial mutual fund interests while sometimes, disingenuously, cloaking itself as the protector of small investors like you and me.

You can read much of the Settlement in two public documents I bought from Lexis-Nexis (2),(3). I understand lots of schools have a library subscription that might get these for you for free. The principal terms of the settlement cover cashability of accounts, transferrability to other carriers, election of trustees, and other governance terms.

Here are a few quotes:

"Signatories to this Settlement Agreement, in addition to CREF and TIAA ("Applicants"), are the American Council on Education, the American Association of University Professors, the Investment Company Institute, four mutual fund complexes identified for purposes of this proceeding as the Mutual Fund Group, the National Education Association, Stanford University, and United University Professions. ...

"Although CREF is not an insurance company, it is a corporation formed pursuant to a special act of the New York legislature and is subject to regulation by New York's Superintendent of Insurance. The Superintendent passes on the fairness of all provisions in CREF's variable annuity contracts and certificates including their assumed earnings rates and the variety and appropriateness of payment options. Both CREF and TIAA are generally regulated as insurance companies, and the contracts they issue are subject to the same regulatory approval required of variable annuity contracts issued by other insurance companies in each jurisdiction in which the contracts are sold ...

"CREF will not impose any restrictions on the frequency of External Transfers that are greater than the restrictions on Internal Transfers.

"Except as provided in paragraph C hereunder, CREF will withdraw its request for relief from the provisions of the 1940 Act relative to the election of trustees, and will follow the voting procedures required by the 1940 Act."

My favorite footnote in Greenough's book so far, contains these thoughts:

"I took major exception to the recommendation [in The Future Agenda, a 1987 T-C plan] that the decision as to whether to allow lump-sum distributions ... should be returned to each institution. ... It is fun to beat TIAA-CREF over the head for their 'paternalism'. ... Once the genie of cash and transferability of old and new funds ... is out of the bottle, ... it will be the colleges that are 'paternalistic'." (1, page 364.)

Note that the event chronology in this report has been inferred from newspaper reports. It should be viewed with both normal "history" and internet skepticism. I repeat that this is old material, some of it obsolete. For example, the IRS has made recent rulings that may prevent some 403(b) balance transfers (90-24 transfers) to new carriers that don't have contracts with the customer's employer.

References

(1) Greenough, William C. "It's My Retirement Money, Take Good Care Of It, The TIAA-CREF Story", Homewood, IL, IRWIN, for Pension Research Council, Wharton School, University of Pennsylvania, 1990. ISBN 0-256-08657-5

(2) [1989 SEC LEXIS 1606] (Although it was initially unfamiliar to me, this is a complete citation that will be familiar to any professional librarian you might show it to.)

(3) [1989 SEC LEXIS 1605]

(4) Crenshaw, Albert B. "The Fight for College Pensions; SEC Decision May Touch Off Fierce Competition to Manage Retirement Funds." The Washington Post, June 25, 1989.

(5) Anders, George "Managed Investing: Pension Plan For Teachers Eases Controls." Wall Street Journal, December 22, 1988.

(6) Mangan, Katherine S. "Despite Reforms, Some Critics of TIAA-CREF Plan to Push for Further Changes in Companies' Rules." The Chronicle of Higher Education, May 18, 1988, A15.

(7) Mooney, Carolyn J. "Judge Extends Deadline for Settlement on TIAA-CREF's Money-Market Fund." The Chronicle of Higher Education, July 6, 1988, A9.

(8) Mooney, Carolyn J. "Pension Companies Given a Deadline for Pact with Critics." The Chronicle of Higher Education, May 25, 1988, A19.

(9) Mooney, Carolyn J. "TIAA-CREF Gets More Time to Settle." The Chronicle of Higher Education, September 28, 1988, A18.

(10) Mooney, Carolyn J. "TIAA-CREF Is Given More Time to Work Out a Settlement with Critics." The Chronicle of Higher Education, August 10, 1988, A16.

(11) "Tentative Pact Is Reached On Pension Fund's Savings." Wall Street Journal, October 25, 1988.