University Times

Congress giveth and Congress taketh away. While members of the House of Representatives and the Senate were patting themselves on the back for the tax cuts contained in the budget bill signed by President Clinton on Aug. 5, they also quietly were adding to the tax burden of over two million faculty and staff at 6,000 institutions around the country.

According to John H. Biggs, chairperson and CEO of TIAA-CREF, Congress upped the tax bill for 280,000 retired employees of institutions of higher learning and reduced the pensions of nearly 1.9 million future retirees by revoking the tax exempt status of TIAA-CREF's pension plan. Under the new budget TIAA-CREF could be faced with a tax bill of $250 million to $450 million a year, an amount that would be passed on to faculty and staff enrolled in the plan in the form of a 2-3 percent reduction in annual annuity income.

In a prepared statement, Biggs called the loss of TIAA-CREF's tax exemption an "unfortunate action" and thanked participants for their efforts in lobbying Congress to keep the exemption. "We fought the good fight and received splendid support from across the country," Biggs said.

Biggs noted that the revocation of TIAA-CREF's tax exemption will not reduce accumulations by participants or affect the tax-deferred status of contributions to the plan. Nor is the new law expected to have an impact on CREF participants, according to Biggs.

The TIAA pension plan involves insurance annuities that guarantee an investor's principal and a specified rate of interest, as well as dividends. The CREF plan is a mutual fund plan that invests in stocks, bonds and money market accounts and has long been taxable on withdrawal.

"As for TIAA," Biggs said, "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." Although TIAA-CREF's tax status has changed, Biggs emphasized that the company's purpose will remain the same.

"We are not going to become a for-profit company," he said. "All of our earnings will continue to be committed to providing benefits to our participants and institutions in accordance with our charter purpose." However, Biggs added, the change in TIAA-CREF's tax status will allow the company to explore investment opportunities that its tax exempt status forbade. One such opportunity will be an expanded rollover individual retirement account that will enable participants and their spouses to consolidate retirement savings with TIAA-CREF.

–Mike Sajna