QBffice of the TZWmep Qikneral 

Mate of QLexae 

DAN MORALES 

ATTORSEY GENERAL November 8,1993 

Mr. Ray Farabee 

oene-ral coImsel 

The University of Texas 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. 

§$i 830.003 (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 of the 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 OF THE 

STATE Au~nvx, OVERVIEW OF THE c&‘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 of vendors 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 of vendors 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 of vendors 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 of its products as part of their selection process to control vendor quality.r 

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Mr.RayFarabee - Page 2 (DM-27 1) 

You state that in light of this examination the system would like to limit the 

number of vendors 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 of the 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’t Code 5 830.004(a). It also provides that if a 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. 5 830.004(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 limit the number of vendors and to smutin& the quality of their 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, 3 2(c). You express concern that article 6228a-5, particularly section 2(c), could 

be construed to prohibit the system from limiting the number of vendors 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) 

*Section 830.002(c) reqoim the Texas Higher Education Bwd to develop policies to provide 

miformity in the administration of the retirement annuity irmmnce program available to optional 

timrent program participants. To the extent such policies exist, we believe that the system is tqukd 

tosdheletothem. 

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h4rRayFarabee - Page 3 (DM-27 1) 

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 of their 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 of Texas 

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 addmsed the relationship behveen V.T.C.S. article 6228a-5 

andthepredecssorsIaMetochaptcr83Oofthe Oovemnmt Code, chapter 36 of Title llOB, V.T.C.S. 

@‘m&md, renumbered and revised by Acts 1989,71st L.-q., ch. 179,s 1, at 589). 

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