February 18, 1975 

The Honorable A. G. McNeese, Jr. 

Chairman, Board of Regents 

University of Texas System 

P. 0. Box 2629 

Houston, Texas 77001 

Opinion No. H- 532 

Re: Construction of optional 

retirement program under 

Chapter 51, Education Code. 

Dear Mr. McNeese: 

You have requested our opinion concerning certain aspects of the 

Optional Retirement Program (ORP) established in subchapter G of 

chapter 51, Texas Education Code. Since its origin in 1967, the ORP 

has provided faculty members of public institutions of higher education 

an alternative to the Teacher Retirement System. Attorney General 

Opinion H-371 (1974); Educ. Code, sec. 3.02. See Educ. Code, sec. 

51.356. In light of the 1973 amendments to subchapter G, you have 

asked several questions which may be stated as follows: 

(1) Are ORP contracts prohibited from containing 

provisions for cash surrenders and contract loans 

while the faculty participant remains an employee 

of a public institution of higher education? 

(2) If so, is the prohibition limited to state contributed monies and the values attributable thereto? 

(3) How would this prohibition affect the transfer 

of a participant from one subject institution to 

another or from one ORP to another? 

(4) Is this prohibition consistent with the Federal 

Investment Company Act of 1940? 

(5) Is this prohibition violative of the federal or 

Texas Constitutions? 

p. 2397 
The Honorable A. G. McNeese page 2 (H-532) 

In 1973, section 51. 352(6) of the Education Code, which originally 

defined the ORP as ” . . . the program under this subchapter to provide 

fixed or variable retirement annuities, including retirement unit annuity 

certificates of participation for faculty members:’ was amended to provide: 

‘Optional Retirement Program’ means the program 

under this Subchapter to provide fixed or variable 

retirement annuities which meet the requirement of 

Section 403(b), and 401(g) of the Internal Revenue 

Code of 1954, as amended, and the benefits of such 

annuities are to be available only upon termination 

of employment in the Texas public institutions of 

higher education, retirement, death or total disability of the participating faculty member. 

(Emphasis added) 

In addition, section 51.358 was added, Acts 1973, 63rd Leg., ch. 521, 

p. 1368, which provides in pertinent part: 

Participation in the Optional Retirement Program 

shall terminate and the benefits of such annuities will 

be available only if the participant 

(1) Dies; 

(2) Terminates his employment due to total 

disability: 

(3) Accepts retirement; 

(4) Terminates employment in the Texas public 

institutions of higher education. . . . Transfers between 

such institutions mentioned in this section and changes 

in carriers shall not constitute termination of employment. An institution of higher education shall accept 

the transfer of any participant’s Optional Retirement 

Program. 

Nothing herein shall be construed to preclude the 

election by a participant to withdraw from the retirement system his accumul,ated contributions under the 

provisions of Section 51. 356 of this code. 

p. 2398 
The Honorable A. G. McNeese page 3 (H- 532) 

This Act constitutes an express limitation on the availability of the benefits 

of ORP annuities; they are unavailable so long as the faculty participant 

remains an employee in a public institution of higher education. The last 

portion of the Act applies only to contributions in the “retirement system, ” 

which is defined in section 51. 352(2) as the Teachers Retirement System of 

Texas. It does not modify the prohibition applied to an ORP. The Act 

makes no exception for participant contributions, rather, it is applicable 

to all “benefits” under an ORP regardless of their source. In addition, 

the Act provides for “transfers between . . . institutions, ” specifying 

that the benefits remain unavailable in the event of such a transfer, while 

requiring that the institution to which he transfers “shall accept the transfer of any participants’ Option Retirement Program. ” In the alternative, 

since benefits under an ORP.vest,in one year, [Educ. Code,sec. 51. 353(a), 

Attorney General Opinion M-196(1968)], a participant may transfer programs 

and receive benefits from both when they become available under the Act, 

A,ccordingly, it is our opinion that (1) section 51. 358, as of its effective 

date, June 14, 1973, prohibited cash surrenders and contract loans prior 

to termination of employment in the public institutions of higher education, 

(2) ,section 51.358 is applicable to benefits accruing from all contributions 

regardless of their source; and (3) a faculty participant may not receive 

the benefits of ‘an ORP upon his transfer to another subject institution. 

It is also our opinion that section 51.358 merely clarified through 

express provisions the existing law concerning the Optional Retirement 

System (ORS). Section 51.351 establishes the purpose of the ORS as 

providing: 

. . . full and complete retirement benefits to 

teachers and administrators who have given 

faithful service to state-supported institutions 

of higher education. (Emphasis added) 

See also, Woods v. Reilly, 218 S. W. 2d 437 (Tex. Sup. 1949). Benefits 

under the Teacher Retirement System are not available until termination 

of service, [Educ. Code, sec. 3.31 et seq. ], and in creating the ORS the 

Legislature expressed no intention to provide differently for an ORP. 

Indeed, contractual retirement system annuities are to be regarded as 

p. 2399 
The Honorable A. G. McNeese page 4 (H-532) 

“pay withheld to induce continued faithful service. ” Teacher Retirement 

System v. Duckworth, 260 S. W. 2d 632 (Tex. Civ. App. --Ft. Worth 

1953), opinion adopted, 264 S. W. 2d 98 (Tex. Sup. 1954). 

In addition, cash surrender or loan provisions adversely affect 

the purchase price of annuities, have federal tax consequences incompatible 

with sound retirement programs, [Commissioner of Internal Revenue v. 

Edwards, 135 F. 2d 574 (7th Cir. 1943); I. R. S. Rev. Rul. 67-258 (1967)], 

and are inconsistent with the purpose underlying retirement systems, 

which is to provide security upon retirement. Woods v. Reilly, sz. 

Consequently, it is our opinion that the prohibitions of section 

51.358 were impliedly in effect upon the establishment of the ORS. Notwithstanding any practice which may have developed or language which may 

be contained in existing contracts, a participant in the ORS has never had 

the right to surrender his annuity contract for cash or to receive a loan 

of all or any part of the accumulated contributions during the time he 

remained an employee of a public institution of higher education, for 

statutory provisions are a part of each contract executed in contemplation thereof, and the entire contract is to be construed in reference thereto. 

13 Tex. Sur. Zd, Contracts, $165, p. 352. Nor has an institution of higher 

education ever been authorized to approve or establish such a program, 

for public officers may make only such contracts for the government as 

are authorized by law. Fort Worth Cavalry Club v. Sheppard, 83 S. W. 2d 

660 (Tex. sup. 1935). While participants’ rights under an ORP vest in one 

year, these rights are to receive future benefits upon termination of 

employment by a public institution of higher education. There is no right 

to those future benefits prior to termination. See 12 Tex. Jur. 2d, 

Constitutional Law, $116, p. 463; 45 Tex. Jur.2d, Pensions, 5 5, p. 24. 

Your fourth question concerns the interaction of the prohibition 

with the federal Investment Company Act of 1940, 15 U.S. C. $80a-1, et 

seq., which requires that “periodic payment plan certificates” issued by 

investment companies registered thereunder be redeemable and provide 

the holders thereof a right to surrender them for account value within a 

certain time. +, 15 U.S. C. A. sec. 80a-27(c)(d). Variable annuity 

contracts have been held subject to that provision. S. E. C. v. Variable 

Annuity Life Insurance Co., 359 U.S. 65 (1959). They are considered 

p. 2400 
The Honorable A. G. McNeese page 5 (H-532) 

by the Securities Exchange Commission to be periodic payment plan 

certificates. Adoption of Variable Annuity Rules, [1969-1970 Transfer Binder] 

CCH Sec. L. Rep., para. 77, 727 (SEC 1969). See Annot., 18 LEd. 2d 1557 

(1968). 

There is no conflict between the Investment Company Act and the 

Texas ORS statutes. The Texas statutes do not purport to regulate 

variable annuity contracts, but merely limit the types of contracts which 

are eligible for use in an ORP. If registered investment companies are 

unable to secure an exemption from the Securities Exchange Commission 

for contracts to be used in an ORP, 15 U.S. C. 80a-6, then these companies’ 

variable annuity contracts are not eligible for use in an ORP. 

Your finalquestion concerns the constitutionality of section 51; 358 

and its subject prohibition. In our opinion, the prohibition violates neither 

the federal nor the state constitutions. Rights under a retirement system 

are “subordinate to the right of the Legislature to entirely abolish a 

pension system or diminish or change the accrued benefits thereunder. ” 

Woods v. Reilly, supra. In addition, there is no violation of article 1, 

section 10 of the United States Constitution or of article 1, section 16 of 

the Texas Constitution, which prohibit the impairment of contractual 

obligations, for there can be no impairment of invalid agreements. 

Sequestration Cases, 30 Tex. 689 (1868); Taylor v. Thomas, 22 L. Ed. 

789 (U.S. 1875). The prohibited terms were never a valid part of any 

contract under the ORS, and therefore there are no contractual obligations involved. 

SUMMARY 

Section 51.358 of the Education Code prohibits 

cash surrender, contract loans, or any other provisions of an Optional Retirement Program contract which provide for the availability of benefits 

prior to a participant’s termination as an employee 

in the public institutions of higher learning of Texas. 

This prohibition applies to all accrued benefits 

regardless of their source. These benefits do not 

p. 2401 
The Honorable A. G. McNeese page 6 (H-532) 

become available upon a participant’s transfer 

from one subject institution to another. 

Section 51.358 merely made express that law 

which was previously implied within the Optional 

Retirement System statutes. Section 51.358 does 

not conflict with the federal Investment Company 

Act of 1940. 

Section 51.358 and its prohibition are constitutional. 

Very truly yours, 

OHN L. 

u P 

f& 

H;LL 

Attorney General of Texas 

PPROVED: 

DAVID M. KENDALL, First Assistant 

C. ROBERT HEATH, Chairman 

Opinion Committee 

lg 

p. 2402