Mr. Frank M. Jackson

Executive Secretary Teacher Retirement System of Texas Austin, Texas OpinionNo; W~1211

Re: Whether any of the agencies included inthe Teacher Retirement System have the power to contract for purchase of annuities for their employees under the provisions of Section 403 (b) of the InternalRevenue Code Dear Mr. Jackson: and related questions.

You have requested an opinion from.thls office
on the following questions:

"Doany of the agencies included in the TeacherRetirement System have the power to contract for the purchase of annuities for their employees under the provisions of Section 403 (b) of the Internal Revenue Code?

"In the event thatyour answer to this question Is in the affirmative, would the 6% contribution to the TeacherRetirement System be based on the salary including or excluding the deductionmade for the purchase of such annuity?

"In the event that your answer to the first question Is In the affirmative,would the retirementbenefits paid by the TeacherRetirement System be based on the salary including or excluding the deductionsmade for the purchase of such annuity?"

In regard to the questions posed,you mentioned that the TeacherRetirement System includes the public sChoo1s and institutionsof higher education maintainedHonorable Frank M. Jackson,page 2 (WW-,121l)

by the State of Texas and its political subdivisions,the Texas Education Agency, the Commission on Higher Education,
some of the employees of some of the eleemosynary institutions,and the administrativeoffice of the Teacher Retirement System itself. Your initialquestion deals with whether these various governmentalbodies or agencies can contract for the purchase of annuities for their employees under the provlslons of Section 403 (b) of the InternalRevenue Code, (U.S.C.A.,Title 26, par. 403 (b).

Under such an arrangement the particularbody
or agency, as the employer,would divert or deduct a portion of the employee's salary to be used for the purpose of purchasing or making premiumpayments upon the employee'sannuity. If the particular employer

9ualifledas an exempt organizationunder Section 501 c) (3) of the InternalRevenue Code (U.S.A.C.,Title 26, par. 501 (c) (3), the employeewould be able to avail himself of thebenefits of a so-called "taxshelteredannuity", and could deduct the premium payments upon the annuity from his taxable income. Participation in such a program on the part of the employee would be voluntary.

Section 1 (a) of Article 3.51 of the Insurance Code,Vernon's Civil Statutes,provides that:

"The State of Texas and each of Its political, governmentaland administrative subdivisions,departments, agencies, association of public employees,and the governing boards and authorities of each state university, college, common and independent school dlstri~cts or of any other agency or subdivision of the public school system of the State of Texas ame authorized to procure contracts insuring their respective employees .undera policy or policies of iroup health, accident, accidental death and dismemberment,and hospital surgical,and/or medical expense insurance.

. . .Theemployees contributions to the premiums for such insurance

. . .maybe deductedby the employer from the employees salaries when authorized in writing by theHonorableFrank M. Jackson, page 3 (WW-,1211)

respective employees SO to do.

. . ." ‘(Emphasis

added)
Section 1 of Article 3.50 of the Insurance Code,Vernon's Civil Statutes,provides that:

"NOpolicy of group life insurance shallbe delivered in this State unless it conforms to one of the following descriptions:
II

. . . "(3) A policy issued to an incorporated city, town, or village, an independent Scholl district, State colleges
or universities, any association of State employees,any association of State, County and City, town or village employees, and any association of any combination of State, County or City, town or village employees, and any Department of the State Government which employer or association shallbe deemed the policy holder to Insure the employees , . . for the benefit of persons other than the policy holder subject to the following requirements: 8,

. . . "(b) The premium for the policy shallbe paid by the policy holder wholly from funds contributedby the Insured employees

. . .and provided further, that the employer may deduct from the employees' salaries the required contributions for the premiums when authorized In writing

. . ." (Emphasis added)
While Article 3.50 and Article 3.51 of the InsuranceCode would allow the agencies Includedwithin the TeacherRetirement System to contract for group health, accident, accidental death and dismemberment, and hospital, surgical,and/or medical expense insuranceand group life insurance for their employees, there is a complete lack of statutoryauthority for these governmentalbodies or agencies to contract for the purchase of annuities for their employees.Honorable Frank M. Jackson,page 4 (WtJ-1211)

In turn, the Instantarrangement for the purchase of or premium paymentsupon such annuities contemplatesa deductionbeing made from the employee's salaryby the employer. While payroll deductions may be made for various classes of employees of the State of Texas and its political, governmentaland administrative subdivis:ons,departments and agencies, for certain specifiedpurposes (i.e.group life insurance,Article 3.50 of the Insurance Code,Vernon's Civil Statutes; grouphealth, acc-ident, accidentaldeath or dlsmemberment, and hospital, surgical,and/or medical expense insurance,Article 3.51 of the InsuranceCode,Vernon's Civil Statutes;purchase of United States Savings Bonds, Article 6252-3, Vernon's Civil Statutes; teacher retirement benefits, Article 2922-1,Vernon's Civil Statutes; and state employees retirementbenefits,Article 6228a, Vernon's Civil Statutes), there is a complete lack of statutoryauthority for the agencies includedwithin the Teacher Retirement System to make payrolldeductions for the purpose of purchasing or making premium payments upon annuities for the employees of such agencies under the plan,proposed in the instant case.

The Legislature of the State of Texas has uniformly specified underwhat circumstancesand conditions the various state agencies and political subdivisionsmay enter Into contractswhereby its employees may avail themselves of the benefits of certain insurance and retirement~programs. In turn, the Legislature of the State of Texas has uniformly specifiedunderwhat circumstancesand conditions the various state agencies and political subdivisionsmay make payroll deductions from their employees' salaries. It necessarily follows that the authority of a state agency or political subdivision to contract for annuitybenefits for its employees,as in the instant case, or to make payroll deductions from the salaries of its employeespartlcipating in such program must be based upon express statutoryauthority.

This position Is furtherborne out by the langurve of the Supreme Court of Texas in Fort Worth Cavlary Club v. Sheppard, 125 Tex. 339, 83 S.W.2d bb0 (19351,where it was held that:

"Allpublic offices and officers are creatures of law. The powers and duties of public officers are defined and limitedby law. Ey being defined and limitedbp law,HonorableFrank M: Jackson,page 5 (ww-1211)

officer .mustbe we mean the act of a public expressly authorizedby law, or implied therefrom

. . .It follows from the above that public officers may make only such contracts for the government they represent
as they are authorizedby law to make."

See also State v. Ragland Clinic-Hospital, 138 Tex. 393, 159 S.W.2d 105 (1942).

Also this office, In Attorney General's Opinion No. WW-1107 (1961),held that evenwhen an employee of Dallas County requests and authorizes a payroll deduction to be paid to the Dallas County Employees Credit Union
a deduction cannot legallybe made unless specifically autihorized

by statute.

As such statutoryauthority Is lacking in respect to the program set forth herein, we are of the opinion that, in the absence of statutoryauthority, the agencies included within the Teacher Retirement System can not contract for the nurchase of annuities for their employees under the arrangement set forth herein. We are,of the further opinion that, in the absence of statutoryauthority, the agencies includedwithin the Teacher Reflrement System can not make payroll deductions from the employees' salaries for the purpose of purchasing or making premium payments upon such annuities under the proposed plan.

Your Initial question being answered in the negative precludes the necessity of commenting upon the second and third questions posed.

SUMMARY

The agencies includedwithin the Teacher Retirement System cannot, in the absence of statutoryauthority, .contractfor the purchase of annuities for their employeespursuant to the provisions of Section 403 (b) of the Internal Revenue Code.

Yours very truly,

WILL WILSON Attornev General of Texas

P.H:kh By Pat Bailey AssistantHonorable Frank M. Jackson,page 6 (WW-1211)

APPROVED:

OPINION.COMMITTEE W. V. Geppert, Chairman
Henry Braswell Martin DeStefano Coleman Gay IolaWilcox

REVIEWED FOR THE ATTORNEY GENERAL BY: Houghton Bronwlee, Jr.