Tax Woes Threaten TIAA-CREF Customers

By Renee Boucher Ferguson  |  Posted 2006-01-23

Tax Woes Threaten TIAA-CREF Customers

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.

Click 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.


-CREF Tries to Keep Customers Informed">

Updating Customers

TIAA-CREF is making a forthright attempt to keep customers up to date on its Web site—a tactic taken on in recent weeks after media reports brought system issues to light.

Under the heading "Service Update for TIAA-CREF Participants and Clients," updated daily, the company said it has a total of 460 late payments outstanding, that include "457 IRA payments and 3 pension payments of various types."

It also has a total of 1,474 delayed transfers and premium contributions, "which include lags in processing client-initiated transfers of retirement funds between accounts and applying premium contributions received," according to the Web site.

The company also continues to encounter "some delays" in fulfilling forms requests—retirement income, transfer, and mutual fund forms, for example.

"We are temporarily processing forms requests manually until later this month, when we expect to install a further update to our automated system," read the Services Update.

Read more here about TIAA-CREF customers actions regarding the recent pension problems.

A. Peet Hickman, a physics professor at Lehigh University, said he believes TIAA-CREF is still processing his trading transactions by hand as well.

"Theyve almost got me finished, its almost right," said Hickman, who recently filed a complaint with both the Securities & Exchange Commission and the New York State Insurance Department over funds issues with TIAA-CREF.

Hickman, in Bethlehem, Pa., said TIAA-CREF sold about 83 shares from his 403b account for $200 each, and the transaction came up two shares short—about a $400 loss.

"The shares are sold one day and repurchased a day or two later, and theyre supposed to be backdated so its repurchased at the same price it was sold," Hickman said. "I know about when it was sold, and when the new shares were bought, and I couldnt find any combination that would explain exactly the number of shares that I wound up with. I believe they are doing a lot manually and someone messed up."

Hickman said the snafu will not affect his 2005 tax statement since all trading is pre-taxed—nor will it change his plans to move some money out of TIAA-CREF, but to keep some funds active as well.

"I think theres value in diversification against computer problems like this," Hickman said. "I dont want to move everything out of TIAA and have it end up with another company that goes through the same round of problems. I work with computers. I know things can happen. Im more disgusted that they tried to stonewall everything."

TIAA-CREF is one of the nations largest private retirement systems, with more than 3 million members from the academic community, and about 15,000 institutional investors.

Check out eWEEK.coms for the latest news, views and analysis of technologys impact on government and politics.

Rocket Fuel