Inspection of a 904 torqueflite
Looking at this pic some more, it looks like a Teflon seal ring.
You may have to pack the ring groove with assembly grease to get the ring to stay contracted in the groove. I have heard that Teflon rings can be difficult to assemble with Teflon rings. You may need to pack them with grease and squeeze the ring down into the groove with your fingers to make sure it is not protruding anywhere. Then it should slip into the bore easier.
