Tax Woes Threaten TIAA-CREF Customers

With tax season coming up, TIAA-CREF customers straddling the 2005 to 2006 seasons are facing some potentially costly consequences.

With tax season gearing up to full throttle, TIAA-CREF customers straddling the 2005 to 2006 tax seasons are facing some potentially costly consequences due to information system snafus at the mutual fund giant.

Because of problems with Open Plan Solutions and other IT system issues at TIAA-CREF (Teachers Insurance and Annuity Association—College Retirement Equities Fund), reported previously by eWEEK, some pensioners who requested fund rollovers or disbursements in 2005 but did not actually receive payments until 2006—if theyve received them at all—are facing increased taxes, fees and penalties, sources said.

Internal Revenue Service regulations require TIAA-CREF to report payments in the year they are actually processed by the company. The problem is that while TIAA-CREFs systems may have reported payments in 2005, some participants did not actually receive funds—and therefore taxable income—until 2006.

At the same time, because the IRS stipulates that pensioners must receive a minimum distribution amount from their accounts each year, customers who did not receive that minimum are being penalized by the IRS, sources said.

Customers are being told that the Individual Retirement Account and pension processing cut-off dates were moved to Dec. 24, 2005; any forms received after that are being processed on a "best efforts" basis for this past year, according to sources.

Pensioners wont know until months end, when the 2005 tax forms are mailed out, exactly whats been reported for the year.

Separately, some tax withholding information on customers SWAT [Systematic Withdraws and Transfers], Lump Sum and MDO [Minimum Distribution Option] payments were calculated incorrectly by TIAA-CREF, and some rollover checks have not yet been applied to IRA accounts, sources said, increasing tax woes for pensioners.

/zimages/2/28571.gifClick here to read about how a platform upgrade is causing problems for TIAA-CREF.

TIAA-CREF call center consultants are instructed to inform customers that they should consult a tax advisor to determine if a change in the withholding statement is necessary; should they require TIAA-CREF to make a change in its documentation, however, the request will require "reprocessing the case," according to sources—a potentially lengthy process that compounds already frustrated efforts.

Meanwhile, those customers who receive interest-only payments are getting checks that are written for half the amount theyre expecting, since TIAA-CREF has split those payments between its old, legacy IT systems and the newer Open Plan Solutions platform, sources said.

TIAA-CREFs call center agents are being instructed to tell callers that the company will review issues on a case-by-case basis, and reimburse customers for "reasonable" accountant fees or penalties. The company will not, however, pay increased taxes on a distribution—though they will review the situation if a customer claims they have an increased tax bill for 2006, sources said.

To facilitate the process of year-end processing, TIAA-CREF added additional staff to its processing unit, and put customer call agents, burdened by a heavy call volume already, on mandatory overtime with reduced break times to deal with customer concerns, sources said.

Next Page: TIAA-CREF tries to keep customers informed.