In Advisory Opinion 2010-01A, the Department of Labor (the “DOL”) answered a question, posed by the Teachers Insurance and Annuity Association of America and College Retirement Equities Fund the “TIAA-CREF”). This question is whether the TIAA-CREF “Traditional Annuity” is a fully allocated contract for annual reporting purposes within the meaning of the ERISA regulations at 29 C.F.R. § 2520.104-44(b)(2) and the Form 5500 Instructions. The answer to this question determines whether the assets held in the Traditional Annuity must be reported as plan assets on the Form 5500 and applicable schedules and attachments.
TIA-CREFF offers the Traditional Annuity as an investment option for participants in funding vehicles it makes available for 403(b) plans and 401(k) plans. Prior to payout, for each contribution or “premium” received, the Traditional Annuity provides a guarantee of principal, a guaranteed minimum interest rate (generally 3 percent but in some recent contracts between 1 percent and 3 percent), and the potential for additional interest which may be declared by TIAA-CREF in its discretion.
Section 29 C.F.R. § 2520.104-44(b)(2) provides a limited exemption for a plan from certain reporting requirements, including the need to have an accountant examine the plan’s financial statements, when the plan’s benefits are, generally, paid exclusively through allocated insurance contracts issued by an insurance company which guarantees the benefit payments. The 2008 Form 5500 Instructions further provide that this plan need not report the value of the allocated contracts on Part I of the Schedule H or I (i.e., as being plan assets). Those Instructions reiterate the DOL’s longstanding view that “allocated” contracts include only those contracts under which an insurance company immediately assumes “fixed dollar obligations”, and that the reporting exemption is premised on the fact that under these contracts the plan has effectively transferred the risk for the payment of benefits accrued to that date to the insurer.
After examining the Traditional Annuity, the ERISA regulations and Form 5500 Instructions, the Advisory Opinion concluded that the Traditional Annuity is not a fully allocated contract within the meaning of 29 C.F.R. § 2520.104-44(b)(2). This obtains because upon payment of each contribution or “premium” to the Traditional Annuity, TIAA-CREF does not unconditionally guarantee to provide a retirement benefit of a certain amount, or a “specific dollar benefit”. Rather, the Traditional Annuity guarantees only a minimum rate of return, based on the contributions or premiums received and a minimum rate of interest. The value attributable to each contribution or premium payment can increase when additional interest is declared. Since the Traditional Annuity is not a fully allocated contract, any accumulations with respect to the contributions or premiums it receives must be reported as plan assets on Form 5500.