Untitled Texas Attorney General Opinion

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