LOANS. TIAA-CREF Retirement Plan Loans

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1 LOANS TIAA-CREF Retirement Plan Loans

2 TIAA-CREF Retirement and Group Retirement Annuities are tax-deferred annuities mainly used to fund retirement plans established by an employer. Depending on your employer s plan, these annuities may include contributions from both you and your employer. CONTENTS Getting Your Loan 4 Repaying Your Loan 8 Some Additional Information 10 The Next Step 11 2

3 This booklet is designed to answer many of the questions you may have about loans from your employer s retirement plan. It will also provide you with the information you ll need to consider before applying for a loan. Not all retirement plans permit loans. So the first step you need to take is to find out if your plan has a loan provision. Just call our Telephone Counseling Center at Monday to Friday from 8 a.m. to 10 p.m. ET and Saturday from 9 a.m. to 6 p.m. ET. If your employer s retirement plan does allow loans, you can use your TIAA-CREF retirement accumulations in Retirement Annuities or Group Retirement Annuities as collateral for a loan. Even if your current employer s plan does not have a loan provision, you may still be able to get a loan if you have an accumulation under a previous employer s retirement plan and that plan allows for loans. Following are questions and answers about retirement plan loans. For easy access, the information is divided into three sections: Getting Your Loan Repaying Your Loan Some Additional Information After going through these sections, if you need more information or have any questions, please call our Telephone Counseling Center. 3

4 GETTING YOUR LOAN Are there any charges? No. There are no application fees or processing charges. How much can I borrow? Loans are available from a minimum of $1,000 to a maximum of $50,000 from each employer. How much you can borrow depends on the amount currently in your TIAA-CREF Retirement Annuity or Group Retirement Annuity that s available for loans. Your maximum loan amount is the least of the following:* a. $50,000; or b. 45% of your combined TIAA and CREF Retirement or Group Retirement Annuity accumulations under the retirement plan of an employer that allows loans; or c. 90% of your TIAA-CREF Retirement or Group Retirement Annuity variable account accumulations available for loans under the retirement plan of an employer that allows loans.** In addition to the maximum loan available, you also have to take into account the amount that you ll need to set aside as collateral. You have to set aside an amount equal to 110% of your loan as collateral in a new TIAA * If you ve had an outstanding retirement plan loan from any plan of the same employer within the past 12 months (including TIAA Group Supplemental Retirement Annuity loans), your maximum loan may be less. Also, if you ve defaulted on a loan that has not been foreclosed, you may be prohibited from taking additional loans under any plan of your employer. For more information, please call our Telephone Counseling Center at Monday to Friday from 8 a.m. to 10 p.m. ET and Saturday from 9 a.m. to 6 p.m. ET. Consultants can also help you calculate the maximum loan available to you. **Your employer s retirement plan may restrict accumulations available for loans. 4

5 Retirement Loan annuity. For example, to borrow $36,000, you need to keep 110% of this amount, or $39,600, as collateral in your TIAA Retirement Loan annuity. Can I get a loan if I have one outstanding?* Yes. You can have more than one loan at any one time from your employer s retirement plan, if within the Internal Revenue Code limits. You can take out a loan for the additional funds you need and keep multiple loans outstanding. Note: If you have an outstanding loan, the amount you re eligible to borrow is subject to TIAA-CREF and federal law maximum loan guidelines. To find out more about these limits, please call our Telephone Counseling Center at Monday to Friday from 8 a.m. to 10 p.m. ET and Saturday from 9 a.m. to 6 p.m. ET. How do I secure my loan? The collateral to secure your loan must be transferred from your TIAA-CREF variable accumulation in your Retirement Annuity or Group Retirement Annuity to a new TIAA Retirement Loan certificate that s separate and distinct from your retirement funds. Your initial collateral will be 110% of your requested loan amount. Since you will have to transfer funds, keep in mind that if you have an accumulation in the TIAA Real Estate Account, only one transfer in a calendar quarter is allowed. Consequently, if you request a loan and already made a transfer from the TIAA Real Estate Account in the same calendar quarter, an accumulation from the Real Estate Account cannot be transferred to the TIAA Retirement Loan annuity and used as collateral until the next calendar quarter. * If the retirement loan contract was issued to your employer after December 31, 2003, and you ve defaulted on a loan that has not been foreclosed, Internal Revenue Service regulations may prohibit you from taking additional loans under any plan of your employer. 5

6 Will TIAA-CREF calculate the collateral amount and transfer my accumulation for me? Yes. We will calculate the amount of collateral needed for your loan and transfer it to the TIAA Retirement Loan annuity, or you can do it yourself. If you elect to have TIAA-CREF automatically transfer your funds, the accumulation required to collateralize your loan will be calculated and transferred on a pro rata basis from all your eligible TIAA-CREF variable accounts in your Retirement Annuity or Group Retirement Annuity. Does my collateral amount continue to earn interest while the loan is outstanding? Yes. The amount held as collateral for your loan will earn TIAA contractual interest, and additional amounts as declared by TIAA s Board of Trustees, but is not available for transfer to the TIAA-CREF variable accounts, withdrawals, or annuity income. Please note that this is not the interest rate to pay back your loan; it is the rate TIAA-CREF will credit your loan collateral. As you repay your loan, excess collateral will be transferred from your Retirement Loan certificate to the CREF Money Market Account under your originating Retirement Annuity or Group Retirement Annuity Money Market Account. For the rates currently being credited to loan collateral amounts, call our Telephone Counseling Center at Monday to Friday from 8 a.m. to 10 p.m. ET and Saturday from 9 a.m. to 6 p.m. ET. 6

7 What s the interest rate on loans? The initial interest rate you pay will be the same as the Moody s* Corporate Bond Yield Average for the calendar month ending two months before your loan is issued. Your loan interest rate can increase or decrease once a year on the first day of the month in which your loan was originally issued.** The rate will change only if the new Moody s Corporate Bond Yield Average for the month ending two months before your rate is subject to change differs from your current interest rate by at least 1/2%. If Moody s Corporate Bond Yield Average differs by less, your rate will remain the same for next year. Note, however, that your loan interest rate cannot currently be lower than 4%. Here s an example: Assume you take out a loan in January 2003 at an initial rate of 7.5%. On January 1, 2004, the interest rate will change only if the new Moody s Corporate Bond Yield Average for October 2003 (two months prior to the date your rate is subject to change) is 8% or higher, or 7% or less. About ten days before it s scheduled to change, we ll tell you what your loan rate will be for the upcoming 12 months (regardless of whether your rate changes or not). Is the interest on retirement loans tax deductible? No. Interest paid on tax-deferred annuity loans is not tax deductible. * Moody s Investors Service is one of the top bond rating agencies. ** If your loan is issued under the retirement plan of an institution in Arkansas or Hawaii or certain other institutions, including New Jersey institutions of higher education, the loan interest rate you pay will be a fixed rate of 8% that will stay the same for the entire term of the loan. 7

8 How long will it take to get a loan? Once we receive your completed application, your loan check will be mailed to you within a few business days, provided you have the required collateral transferred to the TIAA Retirement Loan annuity to secure the requested loan amount. REPAYING YOUR LOAN How long can I take to repay my loan? You have from one to five years to repay your loan, or up to ten years if you use the loan solely to purchase your primary residence.* When are my payments due?** Your first payment will be due the first day of the third month after your loan is issued. After the initial repayment, you can choose to make repayments every month or every quarter. How do I repay my loan? To make repaying your loan as easy as possible, we offer a free Automatic Repayment service. (You may want to check with your bank to see if it charges for this type of service.) With Automatic Repayment, your bank will debit your checking/savings account and send your payment to TIAA-CREF on the date it s due. This way you won t have to worry about writing checks or incurring late charges. If you choose to make repayments every month, you must use Automatic Repayment (described above), and you may not subsequently change to quarterly payments. * This period could be less in certain states, depending on state laws. ** If you are performing military service, you may be eligible to suspend your loan repayments during the period of the service. 8

9 If you want to make repayments quarterly, you can use Automatic Repayment or send us your payments yourself. You can subsequently change to making repayments monthly. Whether you use Automatic Repayment or pay by check, we ll send you a loan statement at least ten days before each payment is due. This statement will show: 1) the amount of your payment, 2) how the payment will be applied to interest and/or principal, 3) all payments we ve received since the last statement, and 4) your current interest rate. Can I prepay my loan? Yes. You can fully prepay your loan anytime even within the first year with no penalties. You can also make partial prepayments. Any prepayments will reduce the dollar amount of your future payments, but not the number of payments due. What about late payments? To avoid late charges, we must receive your loan payments by the first day of the month they are due. There s no grace period for late payments. How are defaults treated? For loans issued on or after January 1, 2002, if we don t receive a loan repayment by the last day of the month it s due, the outstanding loan balance will be in default. Generally, if the total overdue amount is not paid by the end of the calendar quarter following the calendar quarter in which the repayment was due, the outstanding loan balance (including accrued interest) will be deemed a distribution and reported to the IRS as current taxable income. 9

10 For loans issued prior to January 1, 2002, if we don t receive your payment by the last day of the month it s due, that payment will be in default. The total amount in default will be the missed payment plus accrued interest. At the end of the year, to the extent permitted by law, we ll deduct any default from the collateral held in TIAA and apply it toward repaying the loan. The default amount will be reported to the IRS as income you actually received. If the Internal Revenue Code does not permit foreclosure, interest will continue to accrue (and be reported to you as income) until foreclosure is permitted under federal tax law. It s important to remember that defaults are taxable as ordinary income in the year they occur. If you re under age 59 1 /2, your default may also be subject to an additional 10% federal tax penalty for an early distribution. SOME ADDITIONAL INFORMATION If I get a loan, can I keep contributing to my Retirement or Group Retirement Annuity? Yes. You can continue contributing to your Retirement or Group Retirement Annuity, provided your employer s plan allows you to do so. However, contributions cannot be applied as loan payments. 10

11 Can I receive income before my loan is repaid? Yes, subject to plan and Internal Revenue Code limits on in-service distributions. However, the portion of your accumulation reserved as collateral for your outstanding loan balance will not be available for retirement income. If I die, will my beneficiary(ies) have to continue payments? No. The outstanding loan balance will be repaid from the collateral held in the TIAA Retirement Loan contract. The amount used to repay the loan would be treated as a taxable distribution made to you. Accumulation that remains after your loan has been repaid is available for the beneficiary(ies) named under your originating TIAA-CREF certificates at the time you signed your loan application. You can change your beneficiary(ies) at any time by calling our Telephone Counseling Center. THE NEXT STEP Please call our Telephone Counseling Center at Monday to Friday from 8 a.m. to 10 p.m. ET and Saturday from 9 a.m. to 6 p.m. ET to... have us calculate the maximum loan available to you request forms or ask questions about completing the forms determine the loan interest rate get more information TIAA-CREF Individual and Institutional Services, Inc. distributes securities products. 11

12 2003 Teachers Insurance and Annuity Association College Retirement Equities Fund (TIAA-CREF), New York, NY A10298 (11/03)