lhmotableJames E. (Pete)Laney OpinionNo. JM-691
Chai?lUaU
.StateAffairsCommittee Re: Designationof agent,broker
Texas Rouse of Representatives or company for Optional Rrtire-
P. 0. Box 2910 ment investmentsor annuities
Austin, Texas 70769
Dear Representative
Laney:
You ask if participantsin an Optional RetirementProgram (ORP)
authorieedby chapter 36 of Title llOB, V.T.C.S.,may designatethe
agent, broker, or company throughwhich investmentsor annuitiesmay
be arranged. You suggestthat they may do so and that their choice is
limitedonly by the provisionsof sections401(g) and 403(b) of the
federal Internal Revenue Code of 1954, as it existed on January 1,
1981.
The 1981 date is fixed by section36.002 of Title 1lOB:
(a) The optionalretirementprogramestablished
as provided by this subtitle shall provide for
contributionsto any type of investmentauthorized
in Section 403(b) of the federal InternalRevenue
Code of 1954, 42 U.S. Code, as it ‘existed on
January 1, 1981. and for the purchase of fixed
or variable retirement annuities that meet the
requirementsof that sectionand Section 401(g) of
the federalInternalRevenue Code of 1954, 42 U.S.
Code, as amended.
(b) Participationin the optional retirement
program is an alternativeto active membershipin
the retirementsystem.
As amended by Acts 1981. 67th Leg., 1st C. S., ch. 18. 135. at 195.
207.
It has been argued thet section 36.004 of Title llOB, set out
below, allows the governing board of an institution of higher
education to provide for contributionsto any federally authorised
type of investmentand to arrange the purchase of annuity contracts
from “any insurance or annuity,company that is qualified to do
business in this state,” without restriction. It is said that the
language of section 36.004 “indicatesthat a participantshould be
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HonorableJames E. (Pete)Laney - Page 2 (JM-691)
allowedfreedomof choice in selectingthe vendor from which he or she
wishesto purchasean authorizedinvestment[or] annuity."
Section 36.004, amended in 1981 by the same act that amended
section36.002,reads in its entirety:
(a) A governing board may provide for con-
tributionsto any type of investmentauthorizedin
Section 403(b) of the federal Internal Revenue
Code of 1954, 42 U.S. Code, as it existed on
January 1, 1981, and may arrange the purchase of
annuity contracts from any insurance or annuity
company that is qualifiedto do business in this
state.
(b) If a governing board has more than one
component institution,agency, or unit under its
jurisdiction,the governingboard may provide a
separate optional retirement program for each
component or may place two or more components
under a singleprogram.
V.T.C.S.Title llOB,PublicRetirementSystems,136.004.
ye do not read this languageas indicatingthat a participanthas
any right to choose OptionalRetirementProgramvendors. The statute
conferscertainauthorityou "a governingboard." The most that might
be argued from this language, in our opinion, is that it does not
preventa governingboard from consideringthe wishes of a participant
in selectingOptionalRetirementProgramvendors.
It is also suggestedthat 1985 amendmentsto articles6228a-5and
6252-3b,V.T.C.S..demonstratea legislativeintent that participants
in an Optional Retirement Program have such a right because the
categoriesof employeas affected overlap. Article 6228a-5 reads in
pertinentpart:
Section 1. Local Boards of Education of the
Public Schoolsof this State, the GoverningBoards
of the state-supportedinstitutions of higher
education,the CoordinatingBoard, Texas College
and University System, the Central Education
Agency, the Texas Departmentof Hental Reslth and
Mental Retardation'and the state schools, state
hospitals,and other facilitiesand institutions
under its jurisdiction,the Texas Youth Commission
and facilitiesand institutionsunder its juris-
diction, and the governingboards of Centers for
CoPmDunityMental Health and Mental Retardation
Services, county hospitals, city hospitals,
city-county hospitals, hospital authorities,
hospital districts, affiliated state agencies.
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HonorableJames E. (Pete)Laney - Page 3 (JM-691)
and political subdivisionsof each of them, mma
enter into agreementswith their employees for
the purchase of annuities or for contributions
to any type of investment for their employees
as authorizedin Section 403(b) of the Internal
Revenue Code of 1954, as it existedon January 1.
1981.
Sec. 2. (a). . . .
(b) The comptrolleror the governingboard, as
the case may be. may reduce the salaryof partici-
pants when authorizedin writing and shall apply
the amount of the reduction to the purchase of
annuity contractsor to contributionsto any type
of investmentauthorizedin Section 403(b) of the
Internal Revenue Code of 1954, as it existed on
January 1, 1981, the exclusive control of which
will vest in the participants.
(4 The employee is entitled to designate
any agent, broker, or company through which
the annuity or investment is to be purchased.
(Emphasisadded).
The pertinentprovisionsof article6252-3bare:
Sec. 1. The state or any county,city, town, or
other politicalsubdivisionmay, by contract,agree
with any employeeto defer, in whole or in part, anT
portion of that employee‘s compensationand may
subsequently,with the consent of the employee,
contractfor, purchase,or otherwiseprocure a life
insurance,annuity,mutual fund, or other investment
contract for the purpose of funding a deferred
compensationprogramfor the employee,from any life
underwriterduly licensedby this state who repre-
sents an insurance company licensed to contract
business in this state, any state or nationalbank
domiciledin this state whose deposits are insured
by the Federal Deposit Insurance Corporation,any
savings and loan associationdoing business in this
state whose accounts are insured by the Federal
Savings and Loan Insurance Corporation, or any
credit union doing business in this state whose
accounts are insured by the National Credit Union
Administrationor the Texas Share Guaranty Credit
Union or a mutual fund licensed to do business
in this state. The amounts which participating
employeesagree to defer are the only funds a seller
of investment products may receive under this
program.
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BonorableJames E. (Pete)Laney - Page 4 (JM-692)
. . . .
Sec. 3B. (a) For investments in a deferred
compensationproduct offered through a vlan created
under Section 457 of the InternalRevenue Code. the
comptrollermay not require a seller of investment
products to solicit business, place contracts,or
otherwise procure deferred compensationagreements
with or through particular agents, brokers, or
companies. Each state amployeeshall have the right
to designatethe agent, broker, or company through
which the investmentproduct is purchased.Provided,
however, that nothing in this section shall prevent
the comptrollerfrom restrictingthe participation
of any agent, broker, or company in the deferred
compensationprogram for good causa.
(b) The comptroller,when solicitingbids for
the deferred compensation plan authorized under
Section 401(k) of the Internal Revenue Code, shall
consider bids from companiesrequiring the use of
their own agents to sell their products as well as
companies selling their products through a third
party administratoror otherwise.
Sec. 4. For the purposesof this Act, 'employee'
means any person whether appointed, elected. or
under contract, providing services for the state,
county, city, town, or other politicalsubdivision,
for which compensationis paid.
. . . .
Sec. 6. The deferred compensation program
establishedby this Act shall exist and serve in
additionto retirement,pension, or benefit systems
establishedby the state, county, city, towu. or
other political subdivision, and no deferral of
incomeunder the deferredcompensationprogramshall
affect a reductionof any retirement,pension, or
other benefit provided by law. However, any sum
deferred under the deferred compensationprogram
shall not be subject to taxationuntil distribution
is actuallymade to the employee. (Emphasisadded).
It is true that the categoriesof employeesaffectedby articles
6228a-5 and 6252-3b overlap with those entitled to participate in
the Optioual RetirementProgram. Eligibilityto participatein the
OptionalRetirementProgram,subject to rules adoptedby the governing
board, is open to all faculty members in a component institution.
V.T.C.S.Title llOB, 1536.101.~31.001(8).Cf. Carpenterv. StephenF.
Austin State University,706 F.2d 608 (Sthir. 1983) (exclusions).
p. 3203
HonorableJames E. (Pete)Laney - Page 5 (JM-692)
Each of those persons is also now an "employee of a governmental
budy covered" vithin the meaning of article 622Sa-5. and a person
II
appointed,elected, or under contract,providingservices. . . for
which compensationis paid" within section4 of article 6252-3b. Cfi
Attorney General OpinionM-313 (1968) (coordinatingboard employees).
But we do not think the overlapaffectsthe constructionof chapter36
of Title 1lOB. Cf. Attorney GeneralOpinionMU-570 (1982) (overlapof
coveragebetweenyticles 6252-3band 622Sa-5).
Chapter 36 of Title 1lOB establishesthe Optional Retirement
Program as a retirementsystem for certain state employeesin which
such employees can choose to participateinstead of, participating
in the Teachers Retirement System of Texas. V.T.C.S. Title llOB,
5811.001(2).31.001, 36.001. 36.002(b). On the other hand, articles
6228a-5 and 6252-3b do not establish retirement systems; they
merely accord employeesan opportunityto take advantageof certain
federaltax reductionmeasures, if available. See Attorney General
OpinionC-83 (1963) (article 6228a-5 intent). The differencesare
not cosmetic. V.T.C.S.Title 1lOB. §11.001(2). See AttorneyGeneral
OpinionMU-548 (1982).
All such employeesmust make contributionsof a certain level to
a retirementsystem -- either the Teacher RetirementSystem or the
OptionalRetirementProgram. V.T.C.S. Title llOB, 1136I201.35.4C3.
32.002, 31.001(14). Such contributionsare mandatory. -- See In re
Ropar. 49 B.R. 4 (Bank=.N.D. Tex. 1984). The state is statutorily
required to make even greater contributionsfor the employer's
benefit.Id. 1136.201.35.404.But benefitsin the OptionalRetirement
ProgramvZ in a participantonly after a full year of participation.
Id. 136.204. Aud benefitsare availableto the participantonly upon
death. retirement,or terminationof the participant'semploymentin
all 'institutionsof higher education. ,Id.$36.105(c). See Attorney
GeneralOpinion MB-548 (1982) (availabilfty of investment%nefits as
well as annuitybenefitsrestricted).
By contrast, participationin a tax sheltered annuity or in-
vestment plan under article 622Sa-5, or in either of the deferred
compensationplans under article 6252-3b. is purely voluntary and
the state contributes no funds toward the realization of any of
them. They are not establishedfor the same reasons that retirement
systemsare established,&. to provide security for the employees
as well as to encouragequalifiedpersons to become and remain public
1. By electing to reduce their salaries,participantsmay. in
effect,also voluntarilycontribute(unmatched)additionalamounts to
See V.T.C.S.Title 11OB. 536.203.
the OptionalRetirementProgram. -
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HonorableJames E. (Pete)Laney - Page 6 (3-f-692)
employess. Tex. Const. art. XVI, 567. See Woods v. Reilly, 218
S.W.Zd 437 (Tex. 1949); Attorney General Opxon Nos. B-1060 (1977);
B-532 (1975).
There is no delayed vesting or statutorily-mandated delayed
realizationof benefitsunder the tax shelteror deferredcompensation
plans because the public interestis not the same. No public money,
in the ordinary sense, is invested or contributed;the security,
safety,and stabilityof those investmentprogramsare private - not
public - concerns.
We advise that the law does not accord participants in an
OptionalRetirementProgram any right to designatethe agent, broker,
or company through which investmentsor annuitiesmay be arranged
pursuantto chapter36 of Title llOB, V.T.C.S.,althoughthe governing
board of an institutionestablishingsuch a program may take into
account the wishes of participantsabout such matters if it may be
done in a manner consistentwith law and the protectionof the public
interest.
SUMMARY
Participantsin the OptionalRetirementProgram
have no statutory right to designate the agent,
broker, or company through which investments or
annuitiesmay be arrangedpursuantto chapter 36 of
Title 1lOB. V.T.C.S.
f-l-h
Very truly yours
.
JIM MATTOX
AttorneyGeneral of Texas
JACRBIGBTOWER
First AssistantAttorneyGeneral
MARY KELLER
ExecutiveAssistantAttorneyGeneral
JUDGE ZOLLIE STEARLBY
SpecialAssistantAttorneyGeneral
RICK GILPIN
Chairman,OpinionCommittee
Preparedby Bruce Youngblood
AssistantAttorneyGeneral
p. 3205
Untitled Texas Attorney General Opinion
Combined Opinion