Untitled Texas Attorney General Opinion

Honorable Frank PI. Jackson lRtccutive Secretary Teacher Retirement System ., .:’::.iof..Texaa Aust,in, Texa8 Opinion No. WW-1260 Re: Whether the six per cent contributions to the Teacher Retirement System should be based on the salary Including or excluding the deductions made for the purchase of a “tax sheltered” annuity under the provisions of Section 403(b) of the Internal Revenue Code and related Gear Mr., Jbckaont . quertionr, You have requested an opinion from thlc office upon the question of: “1. Should the 6% contributions to the Teacher Retirement System be based on the salary including or excluding the deductions made for the purchase of a ‘tax sheltered’ annuity under the provisions of Section 403(b) of the Internal Revenue Code?” This office haa heretofore commented upon ccrtaln aspects of “tax sheltered” annuity plans, provided for under the proviclons of Section 403(b) of the Internal Revenue ,Code, (U.S.C.A., Title 26, par. 403(b), as applicable to agcncicr included within the Teacher Retirement System. Set ~-1211 (1961) . Under euoh an arrangement the particular ,educa*tlonal body or agency, a6 the employer, would divert a portion of the employee18 salary to be ueed for the purpose of purchasing or making premium payments upon the cmployce7e annuity. If the particular employer qualiflcd ab an exempt organization under Section 501(c) 3 of the Internal Revenue Code (U.S.C.A., Title 26, par. 501 11 c (3), the employee would be able to avail hlmcclf of the bcncfite of a so-called .~“tax sheltered annuity”, and could deduct the premium pay- mcntr upon the clnwity from hie taxable Income, Psrtioipat ion Honorable Frank I% Jaclmon, WV 2 (m-1260) In such a program on the part of the employee would be voluntary, This then raises the question of whethen the six (6gd) per cent constibutlons of annual compensation required of members of the Teacher Retirement System,, pursuant to the provisions of Article 2922-1, Vernon’s Civil Statutes, and specifically Section 9 and Section 10 thereof, would be based upon the salary of the particular teacher before or after the diverting or deducting of a portion of the teacher’s salary to be used for the pur- poet of purchasing or making premium payments upon the ttaoher’a annulty. Section 9(l) of Article 2922-1, provides In part that: “In addition to the deposits here- tofore required of and made by members on aooount of service rendered prior to September 1, 1955, each member of the Retirement System shall be required to deaosit -ANT ~~~ with the Retirement Svstem five per cent (5%) of his annual cbmpensation, or One Hundred Eighty Dollars ($188 . 00) > whichever is the lesser, for service rendered bttwetn September 1, 1955, and September 1, 1957, and six per cent (6%) of his annual corn ensation for aervlct rendered o-sub- -Optember 1, 1957; . , .‘I (Emphasis added ) Election 1 (16) ot Artialr+!&;L, provlaQs that : D ‘Annual Compensation 1 shall mean the fu’ll rate of 6% compensation that is paid by or that wotijld be payable by his emolovers ta a teacher or auxiliary employee if he worked the full normal _ working time, In caata##whcra the compen- aation includes naintenancs, the State Board of Trustees rihall fix ths value of that part of the compensation n-t paid in mmey, , q ** (Emphasis added) We are of the opinion that when a teacher voluntarily elbots 20 paft&c:tpsts’Zn this aa-oal3ed Wuc rhbl2e$w annuity pywjFafb he, or ahe ~wouJ.4in .‘~ ,.‘; I : ‘: . . Honorable Frank 34. J8okoo0, pa@0 3 (W-1260) effect be -rely agreeing t0 a modlf’loatlon of his or her oontract of employBent 60 that a portion of the annual coapenaatton ia divertsd to pay for or make premium Qay- mentr upon an annuity whfch acoures to the benefit of then teaoher. Actually, the teacher would meraly be waiving- hi8 or.her right to receive peyment of a part of his or her annual compensation In caFih, and ‘in lI.eu thereof ir receiving the benefit of the *tax sheltered~ annuity. Although partlolQ8tlon In such a program by a teacher Would reduce hia or her -take home pay’, it would not decrease the actual annuaL compensation received during the school year, Consrquently, we are 0T the opinion that the 81x per C4nt contributloti required of member8 of the Teacher Retirement System pursuant to the pro- virlona of Article 2922-l should be based upon the annual compensation cf the teacher lnoludln$ the deductione made for the purchase of a “tax sheltered annuity. You also requested 8n opinion upon the quertion of: “2. Should the retirement benefits paid by the Teacher Retirement Syetem be baaed on the salary including or ex- cluding the deduotions made for the pur- chase of euoh annuity?” Retirement benefit8 under the Teacher Retire- ment Syatem are baaed upon the “Average Former Service Compensation” of the Qart5.oular.teacher.. Artlole 2922-1, Section l( 17), provide8 that: “1Averaae Former Servlos Comoensatlon~ shall mean tiie average annuil oombeneatlon for such person aa a tOaOher or an auxiliary employee, . . .I (Emphasis added) For the 8ame reasons set forth in anewer to your initial question, as well as the provisions contained’ in Section l(17) of Article 2922-1, we are of the opin%&,,: that the retirement benefits paid by the Teacher Retire@@i$;L,E,i, System should be baaed upon the particular teacher’s an~4@$~~: compenratlon Including any deductions made for the purpa&ej,::.>, A of purchasing or paying the premiums upon a “tax shelt,$$$@3lc$ annuity, SUMMARY The six per cent contribiitlona to the Teaoher Retirement System should be baaed upon the Honorable Frank M. Jaokson, page 4 (~~-1260) annual compensation of the particular teacher Including any deductions made for the QUroha8e of or premium payments upon a "tax eheltered" annuity under the provisions of Section 403 (b) of the Internal Revenue Code. The retirement benefits paid by the Teacher Retirement System should be based upon the annual compensation of the particular teacher including the deductions made for the purchase of or premium payments upon a "tax sheltered" annuity, Very truly YOUi’B, WILL WILSON Attorney General of Texas i. PB:lg:mkh By Pat Bailey Assistant -APPROVED: OPINION COMWITTEE W, V, Geppert, Chairmen .Arthur Sandlin Morgan Nesbitt Grundy Williams Coleman Gay REVIEWEDFOR THE ATTORNEYGENERAL BY:, Houghton Brownlee, Jr.