Gen. 35] 35

COMPTROLLER

RETIREMENT SYSTEMS ) COLLEGES AND UNIVERSITIES )

ADMINISTRATION OF OPTIONAL RETIREMENT PROGRAM

May 26, 1995

Mr. Edwin G. Greenberg

Director, Central Payroll Bureau

You have requested our opinion on several questions related to

the Optional Retirement Program (“ORP”). Your specific questions

are as follows:

“1. Who is the legally responsible sponsor of the optional

retirement program, both employer and employee deductions? What

is the precise duty of the sponsor in monitoring the program on an

ongoing basis (particularly compliance with IRS requirements)?

“2. Must the Comptroller implement the expansion of [the]

Optional Retirement Program at a specific time if there is no agency

currently responsible for the expanded program under IRS 403(b)

monitoring requirements?

“3. Is Central Payroll entitled under a statute, regulation or

executive order to reimbursement of expenses incurred for support

of the optional retirement program?

“4. To what extent are Central Payroll, the Retirement

Agency or the employing colleges authorized to release employee

information to optional retirement vendors such as social security

number, home address and phone, and the amount of other 403(b)

voluntary deductions?

“5. Which employees of the college and university system are

eligible for election of voluntary deductions to the new optional

retirement vendors? Does an eligible employee have to formally

elect to participate in optional retirement?
36 [80 Op. Att’y

“6. If the answers to the above questions cannot be

completely definitive, what State legislation is required to insure that

the IRS regulations for 403(b) plans are meticulously followed,

monitored, and enforced?”

For the reasons stated below, we conclude as follows:

1. The answer to your first question begins with an

identification of the limited role of the Central Payroll Bureau:

Central Payroll is not in any sense the “sponsor” of the ORP or the

deductions under it. Indeed, given Central Payroll’s limited role, we

do not think it necessary for purposes of this opinion to try to

identify any single “sponsor” on which ultimate compliance

responsibility reposes; in fact, responsibility for administration of the

ORP is divided among State entities and the designated vendors.

For Central Payroll’s purposes, however, it may look to the

employing institution as the “sponsor” of deductions from

employees at that institution. Thus, if Central Payroll has a concern

about an individual’s deductions ) for example, that the amount of

the deductions appears to be so high as to exceed limits imposed

under the Internal Revenue Code (“I.R.C.”) ) Central Payroll should

inquire of the employing institution. The institution, in turn, may

pass along the inquiry to an ORP vendor that receives deductions

from the employee. If need be, the State Retirement Agency may

take necessary action to require a vendor to carry out its contractual

obligation to properly solicit and process funds under the program

and to monitor compliance with I.R.C. requirements.

2. Because responsibilities for administering a lawful

program are sufficiently laid out in statute, there is no basis for any

delay in the implementation of the expanded ORP called for under

Title 30 of the State Personnel and Pensions (“SPP”) Article,

Maryland Code.

3. The Central Payroll Bureau is entitled to reimbursement

of its costs, as provided in the State budget.

4. With the consent of any employee, Central Payroll, the

Retirement Agency, or the employing institution may release the

employee’s social security number, home address and phone

number, and the amount of other voluntary deductions under I.R.C.

§403(b). For example, a participating employee necessarily

consents to the disclosure of this information to the designated

vendor (or vendors) selected by the employee. Without employee
Gen. 35] 37

1

 A “defined benefit” plan promises a specific annuity benefit

calculated by a formula. A defined contribution plan or program generally

links benefits to the investment performance of periodic contributions by

an individual to one or more investment options. The employer bears the

risk of investment gain or loss in a defined benefit plan; the employee

bears the risk in a defined contribution program.

consent, however, the agencies may release only the business

address of an employee. 

5. An employee is eligible to elect to make voluntary

deductions to the new ORP vendors if the employee meets the

eligibility criteria in SPP §30-301 and has elected to participate in

the State contribution portion of the program. An eligible employee

must formally elect to participate in the ORP by filling out the

required enrollment forms. 

6. No gap in current State law prevents the administration of

an ORP that complies with all of the requirements of the I.R.C. If

a more detailed description of monitoring responsibilities were

thought desirable, the Board of Trustees of the Retirement Systems

may adopt additional requirements by regulation. 

I

Background

The ORP is an elective retirement program established by SPP

Title 30. The program allows eligible employees of the State’s

public colleges to waive participation in the regular retirement or

pension system, which are defined benefit plans, in exchange for

participation in the ORP, which is a defined contribution program.1

Under SPP §30-205, the State contributes 7.25% of the salary

of a participating employee to an annuity contract or shares in a

regulated investment company (mutual fund), as determined by the

employee. See SPP §§30-101(b) and 30-205(c). Both types of

investment qualify for tax benefits if the program or arrangement

satisfies the conditions of I.R.C. §403(b). The ORP unquestionably

is intended to be a §403(b) program, commonly referred to as a “taxsheltered” or “tax-deferred” annuity. See SPP §30-205(d). 
38 [80 Op. Att’y

2

 Until Chapter 428 opened up the ORP to competition, annuities

were availablefrom only a single vendor, the Teachers’ Insurance Annuity

Association/College Retirement Equities Fund, TIAA-CREF. See Joint

Committee on Pensions, Report of the 1992 Interim 11 (December 1992).

II

“Sponsorship”

The ORP was enacted in Chapter 556 of the Laws of Maryland

1975. The original ORP gave all administrative authority to the

applicable governing boards of the eligible institutions: 

A governing board adopting an optional

retirement program may provide for the

administration of the system and may

authorize the performance of whatever

functions as may be necessary for these

purposes.

Former Article 77, §217(h) of the Code. See generally Opinion No.

92-024 (August 13, 1992) (unpublished) (institutions have authority

to select investment options for program).

The structure of the program was changed by Chapter 428 of

the Laws of Maryland 1993. Chapter 428 gave overall authority to

the Board of Trustees of the Retirement Systems, to be carried out

by the State Retirement Agency. Under SPP §30-201(e)(1), “[t]he

Board of Trustees shall administer the program to the extent

provided in this title.” In addition, the Board of Trustees has broad

authority to adopt “regulations that are necessary to carry out this

title.” SPP §30-203. 

More specifically, the Board of Trustees is given the authority

to select additional offerors of annuity contracts and to approve the

“form and contents” of annuity contracts with both the old and new

vendors. SPP §30-202.2 One of the selection criteria to be applied

by the Board was “the ability of the company to provide for suitable

rights and benefits under the annuity contracts.” SPP §30-202(c)(4).

The statute specifically limits the administrative responsibility

of the Board of Trustees, however. Under SPP §30-204, the Board

of Trustees “is not responsible for”:
Gen. 35] 39

3

 The “employing institutions” are the following: 

(1) The University of Maryland System;

(2) Morgan State University;

(3) St. Mary’s College; and 

(4) The Maryland Higher Education

Commission with respect to eligible employees of

the Commission or any community college or

regional community college established under

Title 16 of the Education Article.

SPP §30-101(e).

(1) retirement counselling ...;

(2) preparing or disseminating information

with respect to an annuity contract ...;

(3) enrolling, terminating, or retiring a

participating employee.

The last of these items ) “enrolling, terminating, or retiring a

participating employee” ) is the responsibility of the employing

institution: “With respect to a particular employee who is employed

by an employing institution or an institution over which the

employing institution has administrative authority, the employing

institution shall administer the participating employee’s enrollment,

termination, or retirement.” SPP §30-210.3 Thus, when an eligible

employee enrolls in the ORP by completing the required forms, the

employing institution is responsible for instructing Central Payroll

on the proper tax reporting of the item in question. See SPP §§30-

303(b) and 30-304(b). The employing institution gives Central

Payroll instructions about the deduction as part of the institution’s

administration of “enrollment.” In that limited sense, the employing

institution is the “sponsor” of the deduction.

As a consequence, Central Payroll is entitled to deal with the

ORP deduction just as it does with other deductions that Central

Payroll makes because it was so instructed by the employer. If

Central Payroll becomes aware of any problems associated with the

deduction, be they disputes among “designated companies” as to

where the money should go or uncertainty as to the amount of any

deduction, Central Payroll should seek clarification from the

institution. 
40 [80 Op. Att’y

4

 “Employee contributions” are recognized by the statute, see SPP

§30-205(b)(1), but not otherwise discussed in it.

5 This opinion does not attempt to assess the tax considerations

affecting the ORP. We do note, however, that ORP contributions must

comply with I.R.C. §§403(b)(2) (maximum exclusion allowance for

§403(b) contracts); 415 (limitations on contributions to certain retirement

plans); and 402(g) (overall dollar limit on annual elective deferrals under

§403(b) and §401(k) arrangements).

We need not address in this opinion the extent to which the

employing institutions have a duty, in your phrase, “to monitor the

program on an ongoing basis.” The statute clearly contemplates that

much of the activity associated with the ORP will occur through

direct interaction between the vendor and the employee selecting

that designated company. This interaction will occur both for the

State contribution and for additional, voluntary contributions.4

Indeed, under SPP §30-211(b), “[e]ach designated company shall

provide and pay for all administrative, informational, and

counselling services with respect to the annuity contracts offered by

the designated company.” 

This section also contemplates that the employing institution

may need to call upon the vendor to resolve problems, because it

imposes on each designated company a duty to “cooperate with the

employing institution in connection with any concerns that relate to

enrollment, termination, or retirement of a participating employee.”

SPP §30-211(c). The statute thus directs the employing institution

and the vendor to work together to resolve particular problems.

For example, the designated companies will be performing a

variety of tax calculations with respect to the tax-deferred status of

employer or employee contributions to the program.5 Indeed, these

responsibilities are part of each company’s contractual obligation to

the Retirement Agency. In carrying out its authority to prescribe the

“form and contents” of the contract, the Board of Trustees requires

each contractor to “[a]gree to administer the tax sheltered annuities

in a manner consistent with the applicable requirements of the

Internal Revenue Service to the end that the Optional Retirement
Gen. 35] 41

6

 Another provision of the contract, §10.1(b), provides as follows:

(Contractor) agrees to perform the maximum

exclusion allowance calculation for each

participant each year in accordance with the

provisions of the Internal Revenue Code and in

the manner it specified in the Technical Proposal

it submitted in response to the RFP. The

Contractor agrees to make a good faith effort to

ensure that all contributions are reported to it for

purposes of the maximum exclusion allowance

calculation by notifying participants about the

necessity for making the calculation. Further, it

agrees to indemnify a participant to the extent of

any penalty and/or interest assessed with respect

to past due taxes which may be related to the

Contractor’s failure to correctly compute the

participant’s Maximum Exclusion Allowance

(provided however, it shall not be liable for

indemnification as to any errors in the

computation of the allowance which result from

incorrect information supplied to the Contractor

from a participant).

We understand that the Retirement Agency’s contract with TIAA/CREF

has not yet been executed, although that formality is expected shortly.

The TIAA/CREF contract will contain the same provisions.

Program constitutes a tax qualified plan.” Contract §11.1(i).6

Should a vendor’s failure to carry out its contractual undertaking

result in a claim against the State, the vendor is obliged to “hold

harmless and indemnify the State, the Board of Trustees, employing

institutions, and the officers, agents, and employees of the State, the

Board of Trustees, and employing institutions ....” SPP §30-212.

As both a practical and legal matter, then, the institutions need

not check every tax calculation for accuracy or participate in every

meeting between a company’s sales representative and prospective

participant. The institutions are entitled to reasonable assurances

from the designated companies that the work is being performed in

a professional manner, as required by the contracts. If any problems

cannot be resolved informally, the institution should bring the matter

to the attention of the Retirement Agency, which can consider its

remedies under the contract. 
42 [80 Op. Att’y

III

The Role of the Central Payroll Bureau

A. Duty to Implement

Your question about the Comptroller’s duty to “implement the

expansion of Optional Retirement Program at a specific time” in the

face of perceived “sponsorship” uncertainties has been addressed by

our answer to the first question. The responsibilities allocated by

statute and contract reflect a legally sufficient regime for compliance

with the I.R.C. 

Under this scheme, Central Payroll Bureau acts in its

customary role as the paymaster of State wages and tax reporting

requirements. See SPP §6-401. It is directed to make the payments

to the designated companies. SPP §30-205(e). If Central Payroll

has doubts about the accuracy of the tax status reporting associated

with a deduction, it should request verification from the employing

institution, which in turn would seek the necessary information from

the appropriate vendor. If verification is not forthcoming, Central

Payroll can report any contributions as taxable, rather than pre-tax,

income on the employee’s annual W-2 form. If need be, Central

Payroll may place disputed or questioned amounts in escrow

pending adequate instructions. We see no reason, therefore, that

Central Payroll cannot implement its role in this program. 

B. Reimbursement

SPP §30-209 establishes an expense fund to cover the State

costs of the ORP. The fund is under the control of the Board of

Trustees of the Retirement Systems. The Board of Trustees

estimates the annual “administrative and operational expenses of the

program” and collects those costs from the designated companies.

SPP §30-209(b). Appropriation of money out of the expense fund

will occur in the annual budget bill. SPP §30-209(a).
Gen. 35] 43

7

 Thus, for example, if an employing institution bears added

administrative costs attributable to the ORP, these costs might also be

reimbursed.

8

For example,SG§10-616(g)(2)-(5) allows inspection of retirement

records by selected parties other than ORP vendors. SG §10-616(g)(6)

allows disclosure of limited retirement information regarding elected and

appointed officials.

The section establishing and regulating the expense fund does

not restrict expenditures out of the fund to those incurred by the

Retirement Agency. Rather, a number of different entities can incur

costs for this program; all can be reimbursed, so long as the

necessary appropriations are included in the State budget.7 Under

this mechanism, Central Payroll is entitled to reimbursement for its

expenses incurred for support of the ORP.

IV

Release of Employee Information

Under the Maryland Public Information Act, the retirement and

personnel records of an individual generally are confidential and

therefore may not be released by the custodian of the record. §10-

616(g)(1) and (i) of the State Government (“SG”) Article, Maryland

Code. Similarly, as a general rule, the home address and telephone

number of a public employee may not be disclosed. SG §10-

617(e)(1). These general prohibitions are subject to certain

exceptions;8

 however, none of the exceptions allows disclosure of

the confidential information to the designated vendors by the

Retirement Agency, Central Payroll, or the employing institutions.

Nor does any provision in SPP Title 30 create an additional

exception to these prohibitions. 

Of course, if an eligible employee consents to the release of

information, the Agency, Central Payroll, or the employing

institution may release it to a designated vendor. When eligible

employees were able to select only one vendor, prior to

implementation of Chapter 428 of the Laws of Maryland 1993, the

employing institutions released employee information to the sole

vendor on receipt of the employee’s application to enroll in the ORP.
44 [80 Op. Att’y

9

 Joint Committee on Pensions, Report of the 1993 Interim 3

(December 1993).

10 In addition, nothing would preclude theAgency or Central Payroll

from directly mailing informational materials to the homes of eligible

employees at the vendors’ expense. Moreover, in the past, the Board of

Trustees has provided mail solicitation assistance to the United Charity

campaign and the Comptroller’s office. Given that the employing

institutions have been solely charged with the administration of

enrollment, however, such an action falls clearly outside the scope of the

Agency’s or Central Payroll’s statutory duty.

An employee whose deductions go to more than one vendor would

necessarily consent to disclosure to those vendors.

With the addition of new vendors to the ORP, the statutory

objective “to enhance competition by adding additional vendors to

the Optional Retirement Program”9 would be furthered if these

vendors had an effective way of reaching eligible employees with

information about the products on offer prior to the employees’

enrollment in the ORP. Nevertheless, this objective can be pursued

only within the confines of the Public Information Act. Perhaps

consent to disclosure of certain information could be solicited, or

employing institutions could provide office addresses for the

employees.10

V

Employee Eligibility

The criteria for an “eligible employee” are set out in SPP §30-

301: 

An individual is eligible to participate in

the program if the individual is eligible for

membership in a retirement system or pension

system and is:

(1) a member of the faculty of an

employing institution;
Gen. 35] 45

(2) a professional employee at any

community college or regional community

college established under Title 16 of the

Education Article;

(3) an employee of the University of

Maryland System who is not in a position

designated to be treated in the same manner as

a classified service employee under §12-111

of the Education Article;

(4) an employee of Morgan State

University who is not subject to the provisions

of the State Personnel Article that govern

classified service; or 

(5) an employee of St. Mary’s College of

Maryland who is in a position determined by

the Board of Trustees of the College to be a

professional or faculty position.

These eligibility criteria represent a clarification of the

previous law, contained in former Article 73B, §110(b)(2), updated

to reflect changes in the names and organization of various State

higher education institutions, as well as the demise of the State

Board of Community Colleges. There is no indication that the 1993

revisions were intended either to expand or reduce the pool of

employees who could elect to participate in the ORP. That

eligibility remains principally with the faculty, administrative and

professional (i.e., non-classified) personnel of the University of

Maryland System, Morgan State University, St. Mary’s College of

Maryland, and the various community colleges and regional

community colleges. 

Since these employment classifications are established for all

positions, as numerous employment regulations and benefits are

dependent upon classification, the employing institutions

automatically offer participation in the ORP to any new employee

who falls within the designated classifications. Eligible employees

then may elect to participate in the ORP; in the absence of such an

election, the employees participate in the employee’s Pension

System or the Teachers’ Pension System. Conversely, one who is
46 [80 Op. Att’y

11 We are not here discussing an employee’s opportunity under other

law to participate in a separate annuity program. For an example of such

an alternative program, see letter of advice to Senator Laurence Levitan

from Assistant Attorney General Kathryn M. Rowe (March 29, 1994).

Nothing in SPP Title 30 or in this opinion changes the way in which an

authorized, non-ORP annuity program operates. Nor can this opinion

appropriately address any policy issues that might arise from the current

operation of annuity programs outside the ORP.

not eligible for membership in a pension system is not eligible for

participation in the ORP.11

An election to participate in the ORP waives rights and

benefits under the Retirement or Pension System and substitutes the

right to a State contribution to the designated vendor. Under SPP

§30-101(f), it is this election that makes an eligible employee a

participant in the ORP.

Under SPP §30-205(b), only participants in the ORP make

additional, voluntary salary contributions. As we interpret this

provision, once an eligible employee elects to participate in the State

contributory portion of the ORP (in lieu of Retirement or Pension

System participation), the employee may then make additional salary

reduction contributions. If, however, an employee has not made this

election, the employee is not authorized by the ORP statute to make

such voluntary salary reduction contributions to the designated

vendors. 

VI

Conclusion

The ORP is a difficult program to implement. It has a long

history during which certain practices developed, and yet it now

faces a dramatic transformation. This change, wrenching to some,

takes place against a background of tax complexity with few rivals

even among the arcana of the Internal Revenue Code.
Gen. 35] 47

Yet, as we have explained, a sufficient framework now exists

for the expanded ORP to get underway. If the experience

implementing the new ORP suggests the need for more

administrative detail, that need can be met through the rulemaking

authority of the Board of Trustees. 

J. Joseph Curran, Jr.

Attorney General

Jack Schwartz*

Chief Counsel

 Opinions & Advice

*Assistant Attorneys General John K. Barry, Harriet B. Granet, and

Elena Langrill contributed to the preparation of this opinion.