## QBffice of the TZWmepQikneral Mate of QLexae DAN MORALES ATTORSEY GENERAL November 8,1993

Mr. Ray Farabee oene-ral coImsel The University ofTexas System O&x of General Counsel 201 West Seventh Street Austin, Texas 78701-2981 Opinion No. DM-271

Re: Whether The University of Texas System is authorized to limit the number of vendors offering products to its faculty members under an optional retirement program governed by chapter 830 of the Oovemment Code (RQ-612)

On behalf of Tbe University of Texas System (the “system”), you ash whether the ~isauthorizedtolimitth~numberofvendorsoffesingproductstoitsfaculty members under an optional retuQnent program governed by chapter 830 of the Oovemment Code. Tbe optional retirement program is offbred to faculty members employed by institutions of higher education (“institutions”) as an alternative to the Teacher Retirement System of Texas. See Gov’t Code 3 830.002(b); see also id. §$i830.003 (detining the term “institution of higher education”), 830.101 (discussing eligibility to participate). Under tbe optional retirement program, participants and their employers contribute to investments and purchases of retirement annuities tbat meet catain requirements ofthe Internal Revenue Code. See id. 5 830.002(a).

You have provided us with a copy of a document entitled 0verview of rhe optionor Retireme& Program prepared by the state auditor in 1991. See ICE OFTHE STATEAu~nvx, OVERVIEW OFTHEc&‘lTONAL

RETIREMENT

PROORAM

(1991). Tbe
exammauon is critical of the optional retirement program for a number of reasons. The exam&ion found, among other things, (i) that while most states with similar programs limit the number ofvendors available to participants, in Texas there are a total of over 100 vendors offering products at over 100 separate institutions, (ii) that the evaluation and certitication ofvendors varies from institution to institution, and (iii) that some institutions do not evahtate vendors at all. Id. at 1. The exambtion suggests that setting limits on the number ofvendors would allow institutions to obtain leverage, giving them the ability to negotiate for favorable fee schedules and rates of return. It also suggests that institutions should review a potential vendor’s tlnancial condition and analyze the performance ofits products aspart oftheir selection process to control vendor quality.r

D. 1413Mr.RayFarabee - Page 2 (DM-271)

You state that in light of this examination the system would like to limit the number ofvendors offering products to its optional retirement program participants and to select optional retirement program vendors through competitive bids. You state that

“[t]he current statutory provisions governing the [optional retirement program] do not address the number of vendors an employer may offer,” and that “[t]he Texas Higher Education Coordinating Board, which is responsible for developing policies and practices in accordance with the [optional retirement program] statutes, has not issued any rules, regulations, memoranda, or procedures with respect to tbis issue.” Chapter 830 ofthe Government Code does not address the number of vendors an employer may offer. Section 830.004 states that a governing board may provide for contributions to any type of investment authorized under section 403(b) of the Internal Revenue Code, as it existed on January 1, 1981, and may arrange the purchase of annuity contracts from any insurance or annuity company that is qualified to do business in the state. Gov’tCode 5830.004(a). It also provides that ifa governing board has more than
one component institution under its jurisdiction, it may provide a separate optional retirement program for each component or may place two or more components under a single program. Id. 5830.004(b). Section 830.004 clearly delegates to the governing bodies of pattiadar institutions the authority to structure an optional retirement program for its faculty members. There is no reason why this authority would not include the autbotity to limitthe number ofvendors andto smutin& the quality oftheir products.*
Article 6228a-5, V.T.C.S., provides that certain state agencies, including in&utions of higher education, may enter into agreements with their employees for the purchase of annuities or for contributions to investments authorized by section 403(b) of the Interttal Revenue Code, as it existed on January 1, 1981. Section 2(c) of article 6228a-5 provides that “[t]he employee is entitled to designate any agent, broker, or company through which the annuity or investment is to be purchased.” V.T.C.S. art. 6228a-5, 32(c). You express concern that article 6228a-5, particularly section 2(c), could be construed to prohibit the system from limiting the number ofvendors offering products to participants of an optional retirement program. We believe that this concern is tmfotmded.

~wcak,controlmcchanirmsbavekendmlopcdatavarietyofhigher edocation io.5titutions. These mechaoisms

. do not facilitate participsats gcttiIgthebcstproductsandtllelowestfees....
OFFICE OF THE STATE Aumroa,OVERVIEW

OF THE OPTIONAL

RmREMENT

PRffiRAMat

l(l991)
*Section830.002(c)reqoim theTexasHigherEducation Bwd todeveloppoliciesto provide miformity in the administration of the retirement

annuityirmmnce programavailableto optional timrent program

participants.Totheextentsuchpoliciesexist,webelievethatthesystemis tqukd tosdheletothem.

p. 1414h4rRayFarabee - Page 3 (DM-271)

In Attorney General Opiion N-691 (1987), this 05ce concluded that article 6228a-5 does not give participants in an optional retirement program the right to select vendors oftheir choice on the basis that article 6228a-5 is inapplicable to such programs. We see no reason to revisit that opinion and we rely upon it here for the proposition that article 6228a-5 does not apply to an optional retirement program established pursuant to chapter 830 of the Government Code.’ Therefore, we conclude that article 6228a-5 does not prohibit the system from limiting the number of vendors offering products to its faculty members under an optional retirement program.
SUMMARY
Section 830.004 of the Government Code delegates to the governing bodies of institutions of higher education the authority to structure an optional retirement program for its facuhy members, including the authority to limit the number of vendors and to scruthk the quality of their products. Article 6228a-5, V.T.C.S., does not prohibit an institution of higher learning from limiting tbe number of vendors offering products to its faculty members under an optional retirement program.

DAN MORALES Attorney General ofTexas
WILL PRYOR Fii Assistant Attorney General

MARYKELLER Deputy Attorney General for Litigation
RENEAI-IlcRs State Solicitor
MADELEINE B. JOHNSON Chair, opinion Committee Prepared by Mary R. Grouter Assistant Attorney General
3AttomyGemra10piionlM~91 addmsedtherelationship behveenV.T.C.S.article6228a-5 andthepredecssorsIaMetochaptcr83Oofthe Oovemnmt Code,chapter 36 ofTitle llOB, V.T.C.S. @‘m&md, renumbered andrevised

byActs1989,71stL.-q.,

ch. 179,s 1,at589).

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