Honorable Gordon H. Lloyd Opinion No. WW-548
Executive Secretary
Employees Retirement System Re: Whether retirement funds
of Texas of the Employees Retire-
Capitol Station ment System may be in-
Austin 11, Texas vested in corporation
stocks and bonds other
than those in which the
Permanent University Fund
of The University of Texas
Dear Mr. Lloyd: is invested,
Your request for an opinion is, in part, as follows:
I
~ . is the investment
. , of Employees
Retirement Funds in corporate bonds, pre-
ferred stocks and common stocks subject to
the discretion of the Board of Trustees of
the Employees Retirement System, within
those limits set out in Section lla of
Article VII of the Constitution for gui-
dance of the Board of Regents of the Uni-
versity, or may the Board of Trustees of
the Employees Retirement System make such
investments within its discretion, but only
in the specific stocks and bonds which have
been deemed proper investments for the Per-
manent Un,iversity Fund by the Board of Re-
gents of the University of Texas?"
When the amendment of Section 62(a) of Article XVI of the Con-
stitution of Texas was adopted in November, 1957, the amendment
of Article 6228a, V.C.S., by Acts of the 55th Legislature,
Regular Session, 1957, Chapter 402, page 1208, became effective
and this statute, as thereby amended, became operative on Sep-
tember 1, 1958.
Honorable Gordon H. Lloyd, page 2 (WW-548)
The pertinent portion of the constitutional amendment is as
follows:
"All funds provided from the compensation
of such person or by the State of Texas
for such Retirement, Disability and Death
Compensation Fund, as are received by the
Treasury of the State of Texas. shall be
invested in bonds of the United States, or
in bonds issued by any agency of the United
States Government, the payment of the prin-
cipal of and interest on which is guaranteed
by the United States: or in such other se-
curities as are now or hereafter may be per-
mitted by law as investments for the Perma-
nent University Fund or for the Permanent
School Fund of this State, under the same
limitations and restrictions imposed by the
Constitution for investment of those funds
and subject to such regulations as the Leq-
islature may provide.* (Emphasis added)
The applicable provisions of the statute, as amended, appear
in Section 7A thereof, as followsr
"The State Board of Trustees shall be the
Trustees of the several funds as herein
created by this Act andlshalk ,haue.full
power to invest and reinvest such funds
subject to the following limitations and
restrictions:
'All retirement funds as are received by the
Treasury of the State of Texas as deposits
from contributions of employees or employer
as herein provided, may be invested only in
. . . ; and in securities in which the State
Permanent School Fund or the Permanent Uni-
versity Fund of the University of Texas mSy
be invested under present or hereafter en-
acted laws.' (Emphasis added)
Honorable Gordon H, Lloyd, page 3 (WW-548)
We find no authority for the investment of the State Permanent
School Fund in corporation bonds and stocks, but such invest-
ment of the Permanent University Fund of the University of Texas
is permitted by Section lla of Article VII of the Constitution
of Texas, which follows:
"In addition to the bonds now enumerated
in Section 11 of'Article VII of the Con-
stitution of the State of Texas, the Per-
manent University Fund may be invested in
first lien real estate mortgage securities
guaranteed in anv manner in whole by the
United~ States Government or any agency
thereof and in such corporation bonds, pre-
ferred stocks and common stocks as the Board
of Regents of The University of Texas may
deem to be proper investments for said fund;
and the interest and dividends accruing from
the securities listed in Section 11 and Sec-
tion lLa, except the portion thereof which
is appropriated by the operation of Section
18 of Article VII for the payment of princi-
pal and interest on bonds or notes issued
thereunder, shall be subject to appropria-
tion by the Legislature to accomplish the
purposed declared in Section 10 of Article
VII of this Constitution. In making each
and all of such investments said Board of
Regents shall exercise the judgment and care
under the circumstances then prevailing ~which
men of ordinary prudence, discretion, and in-
telligence exercise in the management of their
own affairs not in regard to speculation but
in regard to the permanent disposition of their
funds, considering the probable income there-
from as well as the probable safety of their
capital: provided, however, that not more than
fifty per cent (50%) of said fund s,hall be in-
veeted st any given time in corporate stocks
and bonds, nor shall more than one per cent
(1%) of said fund be invested in securities
issued by any one (1) corporation, nor shall
Honorable Gordon H. Lloyd, page 4 (WW-548)
more than five per cent (5%) of the voting
stock of any one (1) corporation be owned:
and provided, further, that stocks eligible
for purchase shall be restricted to stocks
of companies incorporated within the United
States which have paid dividends for ten
(10) consecutive years or longer immedi-
ately prior to the date of purchase and
which, except for bank stocks and insurance
stocks, are listed upon an exchange regis-
tered with the Securities and Exchange Com-
mission or its successors. This amendment
shall be self-enacting, and shall become
effective upon its adoption, provided, how-
ever, that the Legislature shall provide by
law for full disclosure of all details con-
cerning the investments in corporate stocks
and bonds and other investments authorized
herein." (Emphasis added)
Neither the underlined language in Section 62(a) of Article
XVI of the Constitution of Texas, supra, nor that in Article
6228a, supra, is sufficient within itself to serve as a com-
plete guide for the investment of the Employees Retirement
Funds in corporation stocks or corporation bonds for both
refer to and wholly depend upon what ". . . may be permitted
by law as investments for the Permanent University Fund. . .I
This, in turn, is clearly set out in Section lla of Article
VII, supra, as being only "such corporation bonds, preferred
stocks and common stocks as the Board of Regents of The Uni-
versity of Texas may deem to be proper investments for said
fund." There follows a delineation of certain further limits
and conditions governing such investments.
Certainly the Permanent University Fund may not be invested in
any or all corporation stocks and bonds which are to be found
in the market, but only in those which fall within such limits
and conditions as are set out in Section lla of Article VII,
supra, and which the said Board of Regents "may deem to be
proper investments for said fund." "Deem" does not signify an
arbitrary exercise of will, but a deliberate exercise of judg-
ment.
Honorable Gordon H. Lloyd, page 5 (WW-548)
"To deem" is to think, judge, hold as an opinion, decide or
believe on consideration, to adjudge. State v. Cohen, 63 A.
928, 930, 73 N.H. 543.
Since no investment of the Permanent University Fund in corpor-
ation stocksand bonds is permitted by law unless it is deemed
to be a proper investment by the Board of Regents, and since
Employees Retirement funds may be invested in such corporation
stocks and bonds only if they are "permitted by law" as invest-
ments for the Permanent University Fund, it follows that if the
Employees Retirement funds are invested in corporation stocks
and bonds, only those particular corporation stocks and bonds
are eligible which are deemed to be proper by the Board of Re-
gents of the University of Texas as investments for the Permanent
University Fund. The best evidence of what these may be is the
actual investment of the Permanent University Fund within the
limitations of Section lla of Article VII, supra, as shown by
public records both at the University and at the office of the
State Comptroller of Public Accounts.
This is not to 'say that when the Permanent University Fund is
invested in a particular security, such security must also be
purchased by the Employees Retirement funds. Purchase of that
security thereby becomes permissive in respect to the Employees
Retirement funds and whether or not it is actually purchased is
a ma,tter resting within the sound discretion of the State Board
of Trustees of the Employees Retirement System of Texas.
Since the word "invested" contemplates not only the original
purchase but the holding of a particular security as an invest-
ment, we ,th,inkthat if the Permanent University Fund is with-
drawn from investment in a particular security the Employees
Retirement funds must likewise be withdrawn within a reasonable
time.
Retirement funds of the Employees Retire-
ment System of 'Texas may not be invested
in corpcration stocks and bonds other than
those in which the Permanent Universi,ty Fund
of The University of Texas is invested.
Honorable Gordon H. Lloyd, page 6 (wW-548)
Very truly yours,
WILL WILSON
Attorney Cj&eral of Texas
BY Howard W. Mays
Hww s Assistant Attorniy General
APPROVED:
OPINION COMMITTEE
W. R. Hemphill, Chairman
Marietta Payne
Thomas Burrus
Robert T. Lewis
REVIEWED FOR THE ATTORNEY GENERAL
By: Morgan Nesbitt