Mr. Frank M. Jackson 

Executive Secretary 

Teacher Retirement System of Texas 

Austin, Texas 

Opinion No; 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 

Internal Revenue Code 

Dear Mr. Jackson: and related questions. 

You have requested an opinion from.thls office 

on the following questions: 

"Do any of the agencies included 

in the Teacher Retirement 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 that your answer 

to this question Is in the affirmative, 

would the 6% contribution to the 

Teacher Retirement System be based on 

the salary including or excluding the 

deduction made for the purchase of 

such annuity? 

"In the event that your answer to 

the first question Is In the affirmative, would the retirement benefits 

paid by the Teacher Retirement System 

be based on the salary including or 

excluding the deductions made for the 

purchase of such annuity?" 

In regard to the questions posed, you mentioned 

that the Teacher Retirement System includes the public 

sChoo1s and institutions of higher education maintained 
Honorable 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 administrative office of the Teacher 

Retirement System itself. Your initial question deals 

with whether these various governmental bodies or 

agencies can contract for the purchase of annuities 

for their employees under the provlslons of Section 403 

(b) of the Internal Revenue Code, (U.S.C.A., Title 26, 

par. 403 (b). 

Under such an arrangement the particular body 

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 premium payments upon 

the employee's annuity. If the particular employer 

9 

ualifled as an exempt organization under Section 501 

c) (3) of the Internal Revenue Code (U.S.A.C., Title 

26, par. 501 (c) (3), the employee would be able to 

avail himself of the benefits of a so-called "taxsheltered annuity", 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, governmental and 

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 

.under a policy or policies of 

iroup health, accident, accidental 

death and dismemberment, and hospital 

surgical, and/or medical expense 

insurance. . . .The employees contributions to the premiums for such 

insurance . . .may be deducted by the 

employer from the employees salaries 

when authorized in writing by the 
Honorable Frank 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: 

"NO policy of group life insurance 

shall be 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 shall be 

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 

shall be paid by the policy holder wholly 

from funds contributed by 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 

Insurance Code would allow the agencies Included within 

the Teacher Retirement System to contract for group 

health, accident, accidental death and dismemberment, 

and hospital, surgical, and/or medical expense 

insurance and group life insurance for their employees, 

there is a complete lack of statutory authority for these 

governmental bodies or agencies to contract for the purchase of annuities for their employees. 
Honorable Frank M. Jackson, page 4 (WtJ-1211) 

In turn, the Instant arrangement for the 

purchase of or premium payments upon such annuities 

contemplates a deduction being made from the employee's 

salary by the employer. While payroll deductions may 

be made for various classes of employees of the State of 

Texas and its political, governmental and administrative 

subdivis:ons, departments and agencies, for certain 

specified purposes (i.e. group life insurance, Article 

3.50 of the Insurance Code, Vernon's Civil Statutes; 

group health, acc-ident, accidental death or dlsmemberment, and hospital, surgical, and/or medical expense 

insurance, Article 3.51 of the Insurance Code, 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 retirement benefits, Article 6228a, 

Vernon's Civil Statutes), there is a complete lack of 

statutory authority for the agencies included within 

the Teacher Retirement System to make payroll deductions 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 under what circumstances and conditions the various state agencies and political subdivisions may enter Into contracts whereby 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 specified under what 

circumstances and conditions the various state agencies 

and political subdivisions may make payroll deductions 

from their employees' salaries. It necessarily follows 

that the authority of a state agency or political subdivision to contract for annuity benefits for its 

employees, as in the instant case, or to make payroll 

deductions from the salaries of its employees partlcipating in such program must be based upon express 

statutory authority. 

This position Is further borne 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: 

"All public offices and officers are 

creatures of law. The powers and duties of 

public officers are defined and limited by 

law. Ey being defined and limited bp law, 
Honorable Frank M: Jackson, page 5 (ww-1211) 

we mean the act of a public officer .must be 

expressly authorized by 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 authorized by 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 even when an employee of 

Dallas County requests and authorizes a payroll deduction 

to be paid to the Dallas County Employees Credit Union 

a deduction cannot legally be made unless specifically 

autihorized by statute. 

As such statutory authority Is lacking in respect 

to the program set forth herein, we are of the opinion that, 

in the absence of statutory authority, 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 statutory authority, the agencies 

included within 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 included within the Teacher 

Retirement System cannot, in the absence of 

statutory authority, .contract for the purchase 

of annuities for their employees pursuant 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 

Assistant 
Honorable Frank M. Jackson, page 6 (WW-1211) 

APPROVED: 

OPINION.COMMITTEE 

W. V. Geppert, Chairman 

Henry Braswell 

Martin DeStefano 

Coleman Gay 

Iola Wilcox 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: Houghton Bronwlee, Jr.