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November 15, 2000
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2000-15A
PTE 84-24
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Stephen M. Saxon, Esquire
Groom Law Group
1701 Pennsylvania Avenue, NW
Washington, DC 20006-5893
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Re: Teachers Insurance and Annuity Association of
America (TIAA) and the College Retirement Equities Fund (CREF)(together,
TIAA-CREF)
Identification Number: C-09178
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Dear Mr. Saxon:
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This is in response to your letter requesting an
advisory opinion concerning the application of Prohibited Transaction
Exemption 84-24 (49 FR 13208, April 3, 1984)(PTE 84-24) to transactions
involving certain individual retirement annuities (IRAs) offered by
TIAA-CREF.
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You represent that TIAA is a nonprofit stock insurance company organized in
1918 as a corporation under the laws of the State of New York which offers
group and individual fixed annuities, with a guarantee of principal and
specified rates of interest. In addition, you state that TIAA offers group
and individual variable annuities funded by a real estate separate account.
TIAA also offers life insurance, long-term disability insurance, and
long-term care insurance.
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You describe CREF, which is the companion organization to TIAA, as a
nonprofit corporation established under the laws of the State of New York in
1952. You represent that CREF is registered with the Securities and Exchange
Commission as an investment company under the Investment Company Act of
1940, is subject to periodic inspection of the New York State Insurance
Department and is licensed as an insurance company under the laws of other
states. You further represent that CREF offers group and individual variable
annuity contracts through which participants may invest in a number of
securities issued by CREF, including a stock fund, a money market fund, bond
fund, inflation-linked bond fund, social choice fund, global equities fund,
equity index fund, and a growth fund.
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You represent that, together, TIAA and CREF provide the
principal retirement annuity funding system for educational and research
organizations in the United States. You explain that typically, TIAA-CREF
issues individual annuity contracts to participants to provide funding for
pension plans sponsored by educational and research organizations. These
plans are usually participant-directed defined contribution plans
described in sections 401(a), 403(a), 403(b), and 457 of the Internal
Revenue Code of 1986 (the Code). You note that TIAA-CREF also offers
individual annuity contracts constituting IRAs described in sections 408
and 408A of the Code that may be established by employees of these
educational and research organizations. TIAA-CREF offers its own employees
the opportunity to establish TIAA-CREF IRAs. These TIAA-CREF IRA contracts
are issued on the same terms as contracts issued to non-TIAA-CREF
employees. In addition, TIAA-CREF does not sponsor, maintain, or
contribute to these TIAA-CREF IRAs. All fees charged in connection with
the IRA are identical irrespective of whether the IRA is established by a
TIAA-CREF employee or a non-TIAA-CREF employee. You have asked us to
assume that the IRA’s established by TIAA-CREF employees do not
constitute employee pension benefit plans within the meaning of section
3(2) of ERISA.(1)
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You ask whether PTE 84-24 provides exemptive relief for the transactions
described in section III of the exemption if the transaction involves
TIAA-CREF and a TIAA-CREF IRA which is held by a non-TIAA-CREF employee.(2)
If such relief is available under PTE 84-24 for IRAs, you also ask if
the the the exemption would cover transactions involving TIAA-CREF and a
TIAA-CREF IRA where the holder of the IRA is an employee of TIAA-CREF.
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PTE 84-24 provides a conditional exemption from sections
406(a)(1)(A) through (D) and 406(b) of ERISA and the taxes imposed by 4975
of the Code for transactions relating to the purchase with plan assets of
certain insurance products or investment company securities and the receipt
of sales commissions in connection with such purchases by insurance agents
or brokers, pension consultants, and investment company principal
underwriters.
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PTE 77-9, the predecessor to PTE 84-24, was originally issued jointly by the
Department of Labor and the Internal Revenue Service.(3)
Neither PTE 77-9 nor PTE 84-24 defined the scope of the term
"plan" as used in the exemptions. We note that generally an IRA is
not considered an "employee pension benefit plan" within the
meaning of section 3(2) of ERISA. However, section 4975(e)(1) of the Code
specifically defines the term "plan" to include IRAs. Since PTE
77-9 was jointly issued by the Department and the Service, we are of the
view that the term "plan" as used in PTEs 77-9 and 84-24 includes
a plan described in section 4975(e)(1) of the Code. Therefore, an IRA
described in section 4975(e)(1) of the Code would be covered by the relief
provided in PTE 84-24, if all of the relevant conditions therein are met.
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With respect to the TIAA-CREF IRAs that have been adopted by TIAA-CREF
employees, you express concern that TIAA-CREF may be precluded from using
PTE 84-24 as a result of the application of section V(a)(4) of the
exemption. Section V(a)(4) provides that the insurance agent or broker,
pension consultant, insurance company, or investment company principal
underwriter is not "an employer any of whose employees are covered by
the plan." In this regard, you represent that the IRAs made available
by TIAA-CREF to its employees are offered on the same terms as to employees
of educational and research institutions and do not constitute
"employee pension benefit plans" within the meaning of section
3(2) of ERISA and the regulations promulgated thereunder. In addition, with
respect to TIAA-CREF IRA contracts and program materials, TIAA represents
that only one set of IRA contracts and program materials are available and,
as a result, the contract, fees, and services applying to TIAA employees are
identical to the contract, fees, and services applying to any TIAA eligible
IRA holder.
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PTE 84-24 does not define the term "employer"
as used in the exemption. ERISA section 3(5), however, which defines the
term "employer" for plans within the jurisdiction of Title I, is
helpful in interpreting this provision. Section 3(5) of ERISA provides, in
part, that an employer is any person acting directly as an employer in
relation to an employee benefit plan. Your determination that TIAA-CREF
IRAs are not employee benefit plans under section 3(2) of ERISA
presupposes that TIAA-CREF has no involvement with the IRAs in its
capacity as an employer of TIAA-CREF employees. Accordingly, the
Department believes that the limitation in section V(a)(4) of PTE 84-24
does not apply to transactions involving TIAA-CREF IRAs that have been
adopted by TIAA-CREF employees, if all the relevant conditions therein are
met.
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This opinion relates solely to the specific issues
raised by your request. Thus, the opinion should not be viewed as an
endorsement of the overall arrangement for the provision of services and
products to IRAs by TIAA-CREF and its affiliates. For example, the
Department is expressing no opinion with respect to the provision of
services and the receipt of fees by the Trust Company.(4)
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This letter constitutes an advisory opinion under ERISA Procedure 76-1 (41
Fed. Reg. 36281, August 27, 1976). Accordingly, this letter is issued
subject to the provisions of the procedure, including section 10, thereof
relating to the effect of advisory opinions.
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Sincerely,
Ivan Strasfeld
Director Office of Exemption Determinations
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Regulation 29 CFR Section
2510.3-2(d) provides that for purposes of Title I of the Act, the
terms "employee pension benefit plan" and "pension
plan" shall not include an individual retirement account
described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Internal Revenue Code of
1954 (hereinafter "the Code") and an individual retirement
bond described in section 409 of the Code, provided that:
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no contributions are made by the
employer or employee association;
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participation is completely
voluntary for employees or members;
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the sole involvement of the
employer or employee organization is without endorsement to permit
the sponsor to publicize the program to employees or members, to
collect contributions through payroll deductions or does checkoffs
and to remit them to the sponsor; and
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the employer or employee
organization receives no consideration in the form of cash or
otherwise, other than reasonable compensation for services
actually rendered in connection with payroll deductions or dues
checkoffs.
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Section III of PTE 84-24 exempts the
following transactions, if the conditions of the exemption are met:
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The receipt, directly or
indirectly, by an insurance agent or broker or a pension
consultant of a sales commission from an insurance company in
connection with the purchase, with plan assets of an insurance or
annuity contract.
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The receipt of a sales
commission by a principal underwriter for an investment company
registered under the Investment Company Act of 1940 (hereinafter
referred to as an investment company) in connection with the
purchase, with plan assets, of securities issued by an investment
company.
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The effecting by an insurance
agent or broker, pension consultant or investment company
principal underwriter of a transaction for the purchase, with plan
assets, of an insurance or annuity contract or securities issued
by an investment company.
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The purchase, with plan assets,
of an insurance or annuity contract from an insurance company.
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The purchase, with plan assets,
of an insurance or annuity contract from an insurance company
which is a fiduciary or a service provider (or both) with respect
to the plan solely by reason of the sponsorship of a master or
prototype plan.
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The purchase, with plan assets,
of securities issued by an investment company from, or the sale of
such securities to, an investment company or an investment company
principal underwriter, when such investment company, principal
underwriter, or the investment company investment adviser is a
fiduciary or a service provider (or both) with respect to the plan
solely by reason of: (1) The sponsorship of a master or prototype
plan; or (2) the provision of nondiscretionary trust services to
the plan; or (3) both (1) and (2).
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42 FR 32395 (June 24, 1977)
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We note that your letter discusses
investment advice services that may be provided to the TIAA-CREF IRAs
by TIAA-CREF and its affiliates. In this regard, you have not asked
whether PTE 84-24 is applicable to a formal advice program under which
specific recommendation concerning asset allocations are made
available to plan participants for a separate fee following the
completion of questionnaires.
PTE 84-24 provides relief for the receipt of sales commission by a
principal underwriter for the effecting by the principal underwriter
of a purchase with plan assets of investment company securities. The
Department notes, however, that at the time PTE 77-9 (PTE 84-24
amended PTE 77-9) was granted, relief was provided because of concerns
that the recommendations provided by mutual fund principal
underwriters could constitute the provision of "investment
advice" under ERISA. If the mutual fund principal underwriter was
a fiduciary as a result of the provision of investment advice, the
receipt of commissions in connection with the purchase of recommended
securities would violate section 406(b) of ERISA. It is the Department’s
view that PTE 84-24 would not provide relief for any prohibited
transaction that may arise in connection with the receipt of any fees
or other compensation separate and apart from the commission paid to a
principal underwriter upon a plan’s purchase of recommended
securities. Thus, PTE 84-24 does not exempt any prohibited transaction
arising out of transactions involving fees paid to a fiduciary service
provider with respect to an advice program which provides
specific/individualized asset allocation recommendations to
participants based on their responses to questionnaires. See, e.g. PTE
97-60, 62 FR 59744 (Nov. 4, 1997) (TCW Group, Inc. et al.); PTE 97-12,
62 FR 7275 (Feb. 18, 1997) (Wells Fargo Bank, N.A.); PTE 96-59, 61 FR
40000 (July 31, 1996) (PaineWebber Incorporated); and PTE 93-59, 58 FR
47290 (Sept. 8, 1993) (Prudential Mutual Fund Management, Inc.).
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