Jump to content

TIAA-CREF and TErminated Participants


Recommended Posts

In TIAA-CREF's Auditor FAQ's (which appears to be drafted before Advisory Opinion 2010-01A) TIAA says that some plan administrators are taking the position that terminated participants can be excluded from the participant counts. This is in addition to the DOL's transitional relief regarding contracts as of 1/1/09.

Are others using this exclusion? It doesn't sound like the subject matter of 2010-01A is directly on point with this, but when I noticed that properties of TIAA's pdf document indicated that it was last edited in January 2010, I thought I should make sure.

It's the last question on page 9 of the attached.

tiaa_cref_faq__s.pdf

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

  • 1 year later...

We also have been following the guidance issued in the FAB but have recently been shown TIAA-CREF's position of excluding all terminated participants. Besides the TIAA-CREF audit guide, I find no support for this.

How are 5500 preparers handing the participant count issue for TIAA-CREF plans?

Thanks for any input.

Link to comment
Share on other sites

We also have been following the guidance issued in the FAB but have recently been shown TIAA-CREF's position of excluding all terminated participants. Besides the TIAA-CREF audit guide, I find no support for this.

How are 5500 preparers handing the participant count issue for TIAA-CREF plans?

Thanks for any input.

The TIAA-CREF position is derived from DOL reg 2510.3-3(d)(2)(ii):

An individual is not a participant or beneficiary covered under an employee pension plan if

A. the entire benefit rights of the individual

1.are fully guaranteed by an insurance company licensed to do business in a state and are legally enforceable by the sole choice of the individual against insurance company, and

2. a contract, policy or certificate describing the benefits to which the individual is entitled under the plan has been issued to the individual, or

B. the individual has received a lump sum distribution or series of distributions that represents that balance of his or her credit under the plan.

Every participant in a T/C plan recieves some description of the benefits to which they are entitled such as a certificate or insurance policy.

Edit: The above exclusion applies only if the employee can legally enforce the benefits by requesting payment from T/C. If the plan has to approve the participant's request before benefits can be paid by T/C the above exception does not apply.

mjb

Link to comment
Share on other sites

The DOL disagrees with TIAA-CREF's position in EBSA Advisiory Opinion 2010-01A (March 4, 2010). They are letting plan sponsors follow the TIAA-CREF guidance for 2008 years and prior, but not for 2009 and after.

There are 2 different questions being discussed here. In AO 2010-01A the DOL held that it was unable to conclude that benefits in a TIAA Traditional annuity (but not CREF) contracts are eligible for a limited exemption from certain reporting requirements as a fully allocated contract for 5500 reporting purposes. The exemptions are located in Reg. 2520-104-44(b)(2). Also the AO does not refer to benefits of terminated participants. Austin's Q pertains to whether a terminated participant whose benefits are held in a TIAA OR CREF contract is counted as a plan participant under unrelated reg. 2510-3-3(d). DOL reg 3-3(d), which has been around since ERISA was enacted, excludes former employees as plan participants if their benefits are fully guaranteed by an insurance company where the employee can enforce his/her benefit rights solely against the insurer and the contract, certificate or policy has been issued to the indvidual. This exclusion is mentioned in the 5500 instructions. Last time I looked a regulation trumps an AO issed under a different provision of ERISA.

If the benefits are provided under an guaranteed annuity contract then the insurer is solely liable for payment, not the plan or sponsor and the terminated participant has no interest to be paid from the plan. The 3-3(d) exemption does not apply if the participant also is entitiled to benefits under the plan held by a non insurer such as a mutual fund provider. In otherwords, whether or not a TIAA contract is a fully allocated contract for reporting purposes has no effect on whether a terminated plan participant whose benefits are held in a TIAA or CREF contract is excluded from being counted as a participant under the provisons of 2510-3-3(d)(2)(ii).

Obviously plan sponsors whose T/C plans are subject to ERISA need to consult counsel to determine whether a terminated participant is included as a participant for 5500 reporting.

mjb

Link to comment
Share on other sites

I think TIAA placed its argument in the document that I posted. I have since learned from TIAA that in order to be eligible for this reporting, the sole investments must be variable annuities, as opposed to CREF Mutual Fund. If you go to TIAA's web-site, the vairable annuities are in the section that includes The Stock Fund, and the Bond Fund.

The target retirement date funds, etc., are un the mutual find section. Investmetns in those funds are not eligible for the exclusion. I'm finding tha tmost of my plans are using the CREF Funds anyway.

Here is the web-page I was referring to that shows the TIAA-CREF Variable Annuities.

http://www.tiaa-cref.org/public/performanc...eId=tcpub-admin

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

TIAA-CREF stated that these were guaranteed contracts and therefore excludible. However, AO 2010-01A is stating that these are not "guaranteed" contracts.

For the purpose of reg 3-3(d) the benefits are fully guaranteed because TIAA is a legal reserve life insurance company which is required under state law to guarantee all payments under the contract. If the annuity benefit under the contract is $1000 a month then TIAA guarantees 1000 a month.

Just what part of guarantee dont you understand?

mjb

Link to comment
Share on other sites

According to the AO

"The Department has rejected expanding the definition to include insurance products whose premiums are not immediately applied to purchase annuities but that purport to generally "guarantee benefits," or that "guarantee a fixed rate of return," or where group annuity contracts held by defined contribution plans credit or allocate each participant's interest in the contract to the participant's individual account in the plan, but the value of each participant's interest in the contract is adjusted for market value fluctuation. 65 Fed. Reg. 5030.

It is the Department's view that the Traditional Annuity is not a fully allocated contract within the meaning of 20 C.F. R. 2520.104-44(b)(2). Upon recept of each contribution or "premium" TIAA does not unconditionally quarantee to provide a retirement benefit of a certain amount or a "specific dollar benefit" without adjustment for fluctuations in the market value of TIAA's underlying assets."

Link to comment
Share on other sites

That;s a completely unrelated topic. BEfore the AO, if a plan had ANY investment in the TIAA Traditional, they were NOT showing it as an asset of the Plan. This AO says that you are required to report it as an asset.

Handling the interests of terminated participants is a separate and unrelated issue.

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

A participant on the TIAA-CREF Participant Detail Summary has a terminated status. The ending balance is 100% vested. The entire balance is in TIAA Traditional. Are you saying that the balance should be included on the Schedule H, but that individual should not be included in the participant counts?

Link to comment
Share on other sites

  • 8 months later...
Guest JPotosky

Late to this conversation, but getting back to the original question raised regarding participant counts. The FAB requires the plan to include individual contract participants (who have terminated) if they received contributions after 2009 as well as pre 2009 people with unvested balances. Still trying to square this against TIAA-CREF position that terminated participants can be universally excluded from participant counts.

Link to comment
Share on other sites

Guest JPotosky

Late to this conversation, but getting back to the original question raised regarding participant counts. The FAB requires the plan to include individual contract participants (who have terminated) if they received contributions after 2009 as well as pre 2009 people with unvested balances. Still trying to square this against TIAA-CREF position that terminated participants can be universally excluded from participant counts.

Link to comment
Share on other sites

In order to exclude ALL terminated participants from the Plan, they must be invested 100% in TIAA investments - no CREF (i.e., mutual funds, in particular target retirement funds). Most of the TIAA contracts now include all of the CREF funds, but some of the older ones do not.

They are excluded based on the provision in the 5500 instructions that says you can exclude anyone whose benefit is promised to be paid by an insurance company (instructions for line 6c). Not sure if the DOL agrees with this position by the way...

You should REALLY read the relevant section of the FAQ I attached above.

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

Guest JPotosky

In order to exclude ALL terminated participants from the Plan, they must be invested 100% in TIAA investments - no CREF (i.e., mutual funds, in particular target retirement funds). Most of the TIAA contracts now include all of the CREF funds, but some of the older ones do not.

They are excluded based on the provision in the 5500 instructions that says you can exclude anyone whose benefit is promised to be paid by an insurance company (instructions for line 6c). Not sure if the DOL agrees with this position by the way...

You should REALLY read the relevant section of the FAQ I attached above.

[/quote

Thanks for the prompt follow up. Client has all of thier investments in the TiAA`CREF Variable Annuity accounts. 100 current participants. 20 people who had contributions post 2009 into those accounts that have since terminated. Most have some assets in the variable portion (and not in TIAA Traditional). It looks like all of them are issued under a TIAA GRA certificate. Assuming the post 2009 terminated employees are invested in these certificates, then they can be excluded?

Link to comment
Share on other sites

Guest JPotosky
In order to exclude ALL terminated participants from the Plan, they must be invested 100% in TIAA investments - no CREF (i.e., mutual funds, in particular target retirement funds). Most of the TIAA contracts now include all of the CREF funds, but some of the older ones do not.

They are excluded based on the provision in the 5500 instructions that says you can exclude anyone whose benefit is promised to be paid by an insurance company (instructions for line 6c). Not sure if the DOL agrees with this position by the way...

You should REALLY read the relevant section of the FAQ I attached above.

I did read the TIAA`CREF document and your point about no being sure the DOL agrees with this position is my problem. i agree with you...thus the problem for my client. If you apply TIAA's position, they fall below 120, but if you follow the strict language of FAB 2009`02 theymost definitiely fall above 120 and probably for some prior periods to the current plan year.

Link to comment
Share on other sites

I'll choose my words carefully: That is what TIAA is saying some plan sponsors have concluded.

No telling whether or not the DOL would buy it. I can tell you have that I have a financially strapped non-profit for whom we take this approach (an audit fee would be a very very big deal). We told them the DOL may not like it, but basically if TIAA was willing to publish and give it out to all of its clients, then it must have some merit, AND presumably was vetted with someone at the DOL (but we don;t know that).

So we advised of the risk, but at the end of the day it's not up to us.

Austin Powers, CPA, QPA, ERPA

Link to comment
Share on other sites

Guest JPotosky
I'll choose my words carefully: That is what TIAA is saying some plan sponsors have concluded.

No telling whether or not the DOL would buy it. I can tell you have that I have a financially strapped non-profit for whom we take this approach (an audit fee would be a very very big deal). We told them the DOL may not like it, but basically if TIAA was willing to publish and give it out to all of its clients, then it must have some merit, AND presumably was vetted with someone at the DOL (but we don;t know that).

So we advised of the risk, but at the end of the day it's not up to us.

I really appreciate your input and agreement.

Seems to me me like TIAA is imbedding a ticking time bomb for a lot of financially strapped non-profits all in the name of asset preservation or TIAA's own administrative convenience. You lump their aggressive approach to limiting transfers, plus the wholly illiquid fixed traditional account and the only solution for non-profits is to take an aggresive posture with participant counts or suck up the cost of an audit.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...