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Balanced budget bill hits TIAA-CREF participants
August 29, 1997
The new federal bill agreed upon by the Congress and signed by President Clinton on August 6 offered good and bad news for University employees.
The good news is that the tax-exempt status of tuition waivers given to graduate students who work as teaching assistants or research assistants has been retained. Consequently, graduate students who hold these positions will continue to be exempt from having to pay taxes on their tuition and salary, both typically provided by the University.
A proposal in earlier drafts of the bill would have eliminated the exemption and treated the University's graduate tuition waiver and the $13,000 salary paid to teaching and research assistants as taxable income.
The 1,313 University employees who are enrolled in TIAA-CREF (Teachers Insurance and Annuity Association-College Retirement Equity Fund) alternate deferred retirement plans were not so lucky. The bill eliminated TIAA-CREF's tax-exempt status for its contingency reserve funds. These reserves are a portion of TIAA-CREF's earnings that are set aside by law to provide a cash reserve.
Exactly how this law will affect TIAA-CREF is not yet clear.
According to TIAA-CREF spokesperson Claire Sheahan, the change is not so much a loss but a reduction in the amount of dividend paid. TIAA-CREF has revised earlier, more gloomy predictions and now says the reduction in dividend payments will be 1/4 percent to 1/2 percent per year.
"TIAA-CREF members can be assured that we will do everything we can legally do to ensure they get the highest possible dividends," Sheahan said.
TIAA-CREF members do not have many options, however. "You can certainly move your funds from TIAA to CREF," said Dennis Dion, manager of employee benefits in the department of human resources. "But once a person is in the alternate deferred retirement plan, that is TIAA-CREF, they can not move their funds to another plan. So I guess the tax is something TIAA-CREF members will have to deal with unless the law is changed again."