Remember your crew-cut high school gym teacher? Even he might have caught the market-timing bug.

On June 1,

TIAA-CREF

, manager of more than $290 billion in retirement funds for 2.1 million teachers and researchers, will stiffen measures to prevent frequent trading in retirement accounts.

The move highlights what the firm says is the downside of Main Street investors' growing interest in the markets: Frequent trading inflates the cost of running retirement funds and can whittle their returns.

Most observers say frequent trading in retirement plans hasn't yet risen to problem levels. TIAA-CREF admits that its problem is with only about 1,000 plan participants. But with more of the nation's 15 million public employees potentially moving their $2 trillion of pension assets into defined-contribution plans -- where they call the shots -- it's an issue that probably won't go away.

Under TIAA-CREF's new policy, teachers and other participants who make more than three transfers between stock and bond funds in one month (money-market and regular monthly transfers aren't included) will be warned that their trading activity is too high. Their Internet and phone-transfer privileges will be suspended if they continue to trade at that pace, forcing them to request trades via snail mail.

Since November, TIAA-CREF, which stands for

Teachers Insurance and Annuity Association-College Retirement Equities Fund

, has warned participants after eight transfers in a two-month period, and suspended Internet and phone transfers if those participants made four transfers in a month.

"We have seen an increase in this kind of trading activity and we wanted to take steps to retard it," says TIAA-CREF spokesman Tom Pinto.

"Internet capabilities have many positives, but also can bring out market-timing" instincts among investors, he says.

The type of plan this rule affects, 403(b) plans, are essentially 401(k) plans for employees of nonprofit businesses. Both plan types are named for the lines of tax code that created them. Like other defined-contribution plans, they allow employees to contribute pretax dollars to a tax-deferred retirement account where they allocate their assets and choose from a menu of investments, primarily mutual funds. Most public employees, including teachers, police officers and elected officials, have 403(b) or similar plans in addition to more rigid defined-benefit pension plans, in which they make contributions in return for monthly income in retirement, but have no say in how their contributions are invested.

Many defined-contribution plans are only required to offer participants quarterly transfers by law, but many allow them daily. Pinto says the transfer limits are becoming more common, but other industry-watchers and insiders say transfer activity hasn't picked up much in the past few years.

"We have not seen any noticeably different transfer activity in times of market stress or over the past five years. Most people have heeded education efforts and treat their retirement account as a long-term investment," says Mike McCarthy of

Hewitt Associates

, a Lincolnshire, Ill., consultant that tracks retirement-plan transfer activity.

In this case, TIAA-CREF's transfer limitation is probably a formality to cool off a few gunslingers.

"What CREF is doing is putting in safeguards to protect against high trading. I haven't seen many vendors putting similar limits in place because few people are trading heavily in their account," says Charles Ruffle, chief executive of

PlanSponsor.com

, an informational Web site for corporate and public retirement-plan sponsors.

In fact, instead of cramping participants' style, most retirement plans are becoming more flexible by adding a broader array investment options, including more niche products, such as funds that focus on one industry or sector.

"We've seen an increase in transaction activity, but not a market-timing trend. Usually it's due to a new investment option or two where investors are broadening their portfolio into new areas like international funds," says George Manning, national retirement-plan sales director at Boston-based

John Hancock Funds

.

But before you write off TIAA-CREF's new limit as a footnote, keep in mind that the issue might come into play as defined-contribution plans get more flexible and more public employees move money into them.

This month, Florida's legislature passed a bill giving 600,000 current and new state employees the chance to put their $101 billion in pension money into a defined-contribution plan. Florida's pension plan is the nation's fourth largest. Gov. Jeb Bush is expected to sign the bill.

And just last month the

Internal Revenue Service

gave Idaho permission to give participants in its $7.25 billion

Public Employee Retirement System of Idaho

pension fund access to the state's 401(k) plan.

"Without question, more public employees will get into

defined-contribution plans," says PlanSponsor.com's Ruffle.

If education efforts and plan sponsors' "time, not timing" mantra don't foster a long-term investment approach, expect to see more measures like TIAA-CREF's to curb trading.