Administration November 5, 2001

Slow Down – TIAA-CREF Puts the Brakes on Frequent Traders

May 23, 2000 (PLANSPONSOR.com) - The world's largest pension fund, TIAA-CREF, is tightening its rules against participants who are excessively transferring fund investments. The company says that although the targeted group is miniscule, the habit would increase fees and lower returns for the majority of participants.
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The rules apply to excessive electronic transfers in 403(b) funds, said TIAA-CREF spokesman Jim Tolve.

Curbs failed

A policy implemented last November failed to curb frequent transfers by “about 1,500 participants,” Tolve estimated. While this is only 0.05 percent of TIAA-CREF?s 2 million participants, they could increase fees and decrease returns for the majority.

Under the policy instituted last autumn:

  • Eight or more transfers over two months resulted in a written warning to the participant to curb activity
  • Another four transfers the month after the warning resulted in a six month suspension of electronic trading privileges (via telephone, fax or computer)

The new policy, effective June 1, 2000 states:

  • Four or more transfers within one month will result in a written warning to curb activity
  • Another four transfers within the next month garners a six month suspension of electronic trading privileges

Those whose electronic privileges have been suspended still retain unlimited written transfer privileges. Neither the old nor the new rules apply to money market accounts.

Adversely affect performance

“We hope excessive trading will be practiced by fewer participants under the new policy,” said Tolve. A piece currently on TIAA-CREF?s website ( www.tiaa-cref.org ) explains that high transfer activity adversely affects overall financial performance by:

  • increasing costs
  • forcing account managers to keep more funds in lower-yielding cash and short-term investments
  • having less money invested strategically
  • limiting account manager flexibility to respond to market conditions

TIAA-CREF plans to continue monitoring transfer activity, and will further tighten rules “if circumstances warrant.”

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