Advisory Opinion |
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November 15, 2000 |
2000-15A |
Stephen M. Saxon, Esquire |
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Re: Teachers Insurance and Annuity Association of
America (TIAA) and the College Retirement Equities Fund (CREF)(together,
TIAA-CREF) |
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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, |
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