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.