The Attorney General of Texas 

December 31, 1982 

MARK WHITE 

Attorney General 

Supreme Court Building 

P. 0. Box 12546 

Austin, TX. 76711. 2548 

512,475.2501 

Telex 9101674-1367 

Telecopier 5121475.0266 

1607 Main St., Suite 1400 

Dallas, TX. 752014709 

2141742-6944 

4624 Alberta Ave., Suite 160 

El Paso, TX. 79905.2793 

915/533-3464 

1220 Dallas Ave., Suite 202 

Howton, TX. 770026966 

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606 Broadway, Suite 312 

Lubbock, TX. 79401.3479 

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San Antonio, TX. 76205.2797 

5121225-4191 

An Equal Opportunity/ 

Affirmative Action Employer 

Mr. E. D. Walker 

Chancellor 

The University of Texas System 

601 Colorado Street 

Austin, Texas 78701 

Opinion No. m-548 

Re: Recent legislation affecting Optional Retirement Program 

and Tax Sheltered Annuity 

Programs of state colleges and 

universities 

Dear Mr. Walker: 

You have asked several questions regarding the effect of recent 

legislation on the Optional Retirement Programs (hereinafter O.R.P.) 

and Tax Sheltered Annuity Programs (hereinafter T.S.A.P.) of state 

colleges and universities. You first ask whether the conditions for 

benefit availability imposed by section 36.105 of Title llOB, Public 

Retirement Systems, V.T.C.S., control the availability of all O.R.P. 

benefits to participants in such a program. 

Because of recent statutory amendments, chapter 36 of Title 1lOB 

now permits the governing board of a state-supported college or 

university to provide for contributions to or purchase of two 

different types of investments on behalf of the O.R.P. participants. 

The board may provide for contributions to any type of investment 

authorized in section 403(b) of the Internal Revenue Code, such as 

mutual funds or money market funds. or it may provide for the purchase 

of fixed or variable retirement annuities. Prior to 1981, a governing 

board administering an O.R.P. could provide only for the purchase of 

annuities, not for contributions to all investments authorized by 

section 403(b) of the Internal Revenue Code. HOWl2Vel-, chapter 36 of 

Title 1lOB now allows a choice of investments, according to the 

following sections of the statute: 

Section 36.002. Optional Retirement Program 

(a) The optional retirement program 

established as provided by this subtitle shall 

provide for contributions to any type of 

investment authorized in Section 403(b) of the 

federal Internal Revenue Code of 1954, 42 [sic] 

U.S. Code, as it existed on January 1, 1981, and 

for the purchase of fixed or variable retirement 

annuities that meet the requirements of that 

p. 1990 
. ^ 

Mr. E. D. Walker - Page 2 (W-548) 

section and Section 401(g) of the federal Internal 

Revenue Code of 1954, 42 [sic] U.S. Code, as 

amended. 

. . . . 

Section 36.004. Administration 

(a) A governing board may provide for 

contributions to any type of investment authorized 

in Section 403(b) of the federal Internal Revenue 

Code of 1954, 42 [sic] U.S. 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 this 

state. 

As a result of the expanded investment authority of a governing 

board, an O.R.P. participant may collect either annuity benefits or 

other investment benefits. Your question involves the availability of 

the different benefits to a participant in an O.R.P. 

Section 36.105 of Title 1lOB governs availability of benefits 

under an O.R.P. That section defines termination of participation in 

an O.R.P. and stipulates that benefits are available to a participant 

only upon termination of participation. The pertinent parts of the 

statute are as follows: 

(a) A person terminates participation in the 

optional retirement program, without losing any 

accrued benefits, by: 

(1) death; 

(2) retirement; or 

(3) termination of employment in all 

institutions of higher education. 

(c) The benefits of an annuity purchased under 

the optional retirement program are available only 

if the participant terminates participation in the 

program as provided by Subsection (a) of this 

section. (Emphasis added). 

Although subsection (c) restricts the availability of annuity 

benefits, it fails to restrict similarly the availability of other 

investment benefits. Your question, then, is whether subsection (c) 

should be interpreted as controlling the availability of all 

investment benefits, or whether the benefit availability restrictions 

p. 1991 
Mr. E. D. Walker - Page 3 (MW-548) 

of Internal Revenue Code section 403(b) are controlling for benefits 

from investments other than annuities. 

We are of the opinion that I.R.C. section 403(b) is not 

controlling and that section 36.105(c), Title llOB, Public Retirement 

systems, V.T.C.S., is controlling on the availability of - all 

investment or annuity benefits. 

Section 403(b) of the Internal Revenue Code requires that a 

custodial account to which qualified employers make contributions on 

behalf of their employees restrict the availability of benefits in 

order to have the contributed amounts obtain the desired federal tax 

treatment. The relevant part of section 403(b) is as follows: 

(7) Custodial accounts for regulated investment 

company stock. 

(a) Amounts paid treated as contributions. -- 

For purposes of this title, amounts paid by an 

employer described in paragraph (l)(A) to a 

custodial account which satisfies the requirements 

of section 401(f)(2) shall be treated as amounts 

contributed by him for an annuity contract for his 

employee if -- 

(i) the amounts are to be invested in 

regulated investment company stock to be held 

in that custodial account, and 

(ii) under the custodial account no such 

amounts may be paid or made available to any 

distributee before the employee dies, attains 

age 59%. separates from service, becomes 

disabled (within the meaning of section 

72(m)(7)). or encounters financial hardship. 

It is apparent that section 403(b) permits the conditions for 

distribution of benefits from the custodial account to be less 

stringent than the conditions for availability of benefits from the 

O.R.P. itself. If the code section 403(b) conditions were to apply to 

other investment benefits and the section 36.105 conditions were to 

apply to annuity benefits, there would be two different availability 

standards for the benefits. There is nothing in chapter 36 of Title 

LlOB to indicate that the legislature intended to have the different 

benefits available according to different conditions. The legislature 

did not expressly adopt the 403(b) standards for availability of other 

investment benefits, just as it did not expressly expand the scope of 

the availability restrictions in section 36.105 to include other 

investment benefits. Thus, we are presented with the question of 

which set of conditions, if any, can we infer that the legislature 

p. 1992 
Mr. E. D. Walker - Page 4 (MW-548) 

intended to be controlling for the availability of other investment 

benefits, since neither set of conditions was expressly made 

applicable to those benefits. 

The legislature certainly intended that some sort of availability 

restrictions apply to any type of benefits that may be distributed 

under an O.R.P. The purpose of the O.R.P. legislation, as stated in 

section 36.001 of Title llOB, is to establish a complete retirement 

program for faculty members employed in state-supported colleges and 

universities as an incentive to attract high quality faculties and 

improve the level of education at the institutions. As evidenced by 

section 36.105, the legislature considers controls on the availability 

of benefits to be a necessary part of a complete retirement program. 

Our office has also considered such controls to be an important part 

of an O.R.P. and a part necessary to achieving the program's basic 

goals. Attorney General Opinion H-1060 (1977) stated that benefits 

accumulated under an O.R.P. should not be available to a participant 

prior to termination; to make contract benefits available to 

participants before retirement would be inconsistent with the purpose 

underlying retirement systems, which is to provide security upon 

retirement. See Attorney General Opinion H-532 (1975). Thus, in 

order to preserve the financial integrity of the O.R.P.'s and to carry 

out the express purpose of the statute, the legislature certainly 

intended that the O.R.P. place some type of restrictions on the 

availability of the newly permitted investment benefits and that those 

restrictions limit the availability of benefits to the time of 

termination of employment. 

Given that some restrictions should apply to the availability of 

the other investment benefits and that the legislature did not 

expressly make applicable the restrictions of either I.R.C. section 

403(b) or of section 36.105 of Title 1lOB. we consider it more likely 

that the legislature intended to have the section 36.105 availability 

conditions apply to the other investment benefits than to have the 

section 403(b) conditions apply. 

According to Calvert v. British-American Oil Producing Company, 

397 S.W.2d 839 (Tex. 1965), the intention of the legislature should be 

ascertained from the entire statute, not isolated portions thereof. 

Under section 36.105, the definition of termination of participation 

is not restricted to employees investing in annuities; it covers those 

contributing to the other types of investments also. The only part of 

section 36.105 that is restricted to annuity benefits is subsection 

(4, which provides that those benefits are available only upon 

termination as defined by section 36.105(a). Almost every provision 

of chapter 36 applies with equal force to annuities and other 

investments purchased under an O.R.P. The administration, 

participation, and contribution provisions indicate that an O.R.P. is 

to be operated under one set of guidelines, regardless of the type of 

benefits that are forthcoming to its participants. In the absence of 

p. 1993 
Mr. E. D. Walker - Page 5 (MW-548) 

some inherent reason to impose two different benefit availability 

standards and in the absence of an expression of intent by the 

legislature to do so, we conclude that the legislature intended to 

maintain a single system of regulation for the O.R.P.'s, including a 

single regulation for benefit availability. 

The more stringent standards for benefit availability under an 

O.R.P. are not incompatible with the standards under I.R.C. section 

403(b). The terms of section 403(b) indicate that the restrictions 

should be imposed by the custodial account itself as minimum 

availability standards. Once those minimum standards have been 

established, a program such as the O.R.P., through which an employer 

makes contributions to the custodial account, may itself establish 

availability criteria at least as stringent or more stringent than 

those established by section 403(b) and still be compatible with the 

Internal Revenue Code. 

On the other hand, the less stringent provisions of Internal 

Revenue Code section 403(b). if considered to be binding maximum 

restrictions on O.R.P. benefits, would appear to be incompatible with 

the general goal of the O.R.P. of creating a complete retirement 

system that restricts benefit availability to the time of termination. 

For example, under the financial hardship provision of section 403(b), 

an employee might be able to obtain investment benefits for the 

purpose of purchasing a residence or providing higher education for 

his or her children. See H.R. Conf. Rep. No. 95-1800, reprinted in 

[1978] U.S Code Gong. andd. News 7198, 7218. Such a situation would 

frustrate the O.R.P.'s goal of providing a retirement program and 

would render meaningless the idea of retirement benefits as pay 

withheld to induce continued faithful service. Teacher Retirement 

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

1953). aff'd, 264 S.W.2d 98 (Tex. 1954). The purpose of a teacher 

retirement system, for which the O.R.P. provides an alternative type 

of investment, is to provide support for teachers after their teaching 

days are over. Duckworth, supra. The legislative intent in creating 

such a system was to provide security for teachers and to encourage 

qualified persons to become and remain teachers in the public schools. 

Woods v. Reilly, 218 S.W.2d 437 (Tex. 1949). 

In light of such intent and purposes, statutes regulating 

retirement nroerams . - or svstems should be construed liberallv in order 

to carry out the whole purpose of the plan. Woods, supra. - In - State 

v. Standard Oil Company, 107 S.W.2d 550 (Tex. 1937), the court stated 

that when the purpose of a statute is ascertained, the meaning of 

words used may be restricted or enlarged or words may be disregarded 

to give the statute the meaning that effectuates its purpose. Thus, 

we read section 36.105 of Title 1lOB to mean that benefits under the 

optional retirement program are available only upon termination of 

participation; the word "benefits" refers to those from an annuity or 

from other available investments. 

p. 1994 
Mr. E. D. Walker - Page 6 (MW-548) 

The bill analysis to the legislation which first enacted the 

language now codified as section 36.105 supports our conclusion. 

House Bill No. 1719 of the Sixty-seventh Legislature amended section 

51.358 of the Education Code, now codified as section 36.105. Acts 

1981, 67th Leg., ch. 441, at 1864. The portion of the bill analysis 

entitled Purpose/Synopsis states as follows: 

The optional retirement program for faculty 

members at public institutions of higher learning. 

in which both employer and employee contribute 

into the individual's retirement account, at set 

rates is, under this bill, freed from being used 

only for the purchase of retirement annuities and 

may be used to make any type of general investment 

authorized in section 403(b) of the IRS Code of 

1954. 

There may be not only different investment 

plans set up for each institution, but for each 

component of sn institution. 

An individual may collect the full benefits of 

these plans only if he or she dies, retires or 

terminates employment due to disability. 

Otherwise, the employee may withdraw only his or 

her accumulated contributions. (Emphasis added). 

This item of legislative history indicates that the legislature 

intended the benefits of all plans under the O.R.P. to be available 

only upon death, retirement, or termination of employment. 

Your second question asks whether the board of regents may define 

the term "financial hardship" that is used in the Internal Revenue 

Code, if the availability of O.R.P. investment benefits is governed by 

I.R.C. guidelines. Our answer to your first question renders 

unnecessary an answer to this question. 

You next ask whether the companies offering expanded investment 

opportunities under an O.R.P. or T.S.A.P. are required by law to be 

"qualified and admitted to do business" in the State of Texas. 

Neither article 6228a-5, V.T.C.S., which authorizes the operation of a 

T.S.A.P., nor chapter 36 of Title llOB, V.T.C.S., which authorizes the 

operation of an O.R.P.. specifically requires that a company offering 

403(b) investments be qualified and admitted to do business in the 

state, although chapter 36 does require that an insurance or annuity 

company selling the annuity contracts must be "qualified" to do 

business here. We are of the opinion that the legislature did not 

intend that a company offering the 403(b) investments meet the same 

"qualifications" to do business in the state as an insurance or 

annuity company. 

p. 1995 
. . 

Mr. E. D. Walker - Page 7 (MW-548) 

An insurance company that is offering annuities to participants 

in an O.R.P. or T.S.A.P. must be authorized to do business in this 

state and becomes authorized to do so by meeting certain financial and 

administrative requirements and then obtaining the approval of the 

State Board of Insurance to begin operations. We do not believe that 

the companies offering the other kinds of investments under 403(b) 

"ill, simply by virtue of offering such investments, be acting as 

insurance companies. Thus, there is no authorization for the State 

Board of Insurance to require those companies to "qualify" under the 

Insurance Code to do business as insurers in this state. We therefore 

cannot assume that the legislature, through either chapter 36 or 

article 6220a-5, intended to impose the same requirement of being 

qualified to do business in Texas on the companies offering the 

expanded investment opportunities as are imposed on insurance and 

annuity companies, because the qualifications, as they relate to an 

insurance company, would be inherently inapplicable to a company 

presumably not involved in an insurance business. Of course, if the 

company were to be engaged in an insurance business, as well as 

engaged in the sale of the 403(b) investments, the provisions of the 

Insurance Code would be applicable of their own accord, without resort 

to either chapter 36 or article 6228a-5. 

Your question under review at this point is phrased in terms of 

whether companies are required "by law" to be qualified and admitted 

to do business in the state. You do not request us to address any 

particular law or laws. Although we are of the opinion that the 

O.R.P. and T.S.A.P. laws do not specifically require such companies to 

be qualified and admitted to do business in the state, the laws 

regulating foreign corporations, as well as the laws regulating the 

sale of securities, would be applicable to such companies. The Texas 

Securities Act, article 581-1 et seq., V.T.C.S., and the regulations 

promulgated thereunder, in particular regulation under 7 T.A.C. 0123.1 

(19W, the administrative guidelines for registration of open-end 

investment companies, requires registration of securities sold in this 

state. Article 8.01 of the Texas Business Corporation Act requires a 

foreign corporation to obtain a certificate of authority before being 

allowed to transact business in the state. These statutes to the 

extent applicable to a particular company, require a company offering 

the expanded investment opportunities to be "qualified" to do business 

in the state of Texas. Furthermore, there may be other statutes, the 

application of which depends upon the activities of the company, that 

may affect the operation of these companies. Without particular 

facts, we cannot state that no laws other than those specifically 

mentioned will affect these companies. 

In light of the wide-ranging regulation afforded by the laws of 

this state, a company offering the 403(b) investments does subject 

itself to statutes requiring some sort of "qualification" for the 

company to do business in this state, even though neither article 

6228a-5, V.T.C.S., nor chapter 36 of Title llOB, V.T.C.S., 

p. 1996 
Mr. E. D. Walker - Page 8 (MW-548) 

specifically require such qualification. In your fourth question you 

have asked whether the board of regents may require such qualification 

to do business or the posting of some sort of bond if the law does not 

require such qualification. Because we are of the opinion that 

various statutes do require the investment companies to be qualified 

to do business in this state, we do not consider it necessary to 

answer your fourth question. 

SUMMARY 

The availability of benefits under an O.R.P. is 

regulated by section 36.105 of Title llOB, 

V.T.C.S.. regardless of whether those benefits are 

annuity benefits or other investment benefits. 

Neither chapter 36 of Title 1lOB. V.T.C.S., nor 

article 6228a-5, V.T.C.S., specifically require a 

company offering the expanded investment 

opportunities to be "qualified" to do business in 

the state; however, those companies remain subject 

to the laws generally regulating corporations 

transacting business in this state and the laws 

regulating the sale of securities in this state. 

Very truly yours, 

MARK WHITE 

Attorney General of Texas 

JOHN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

Prepared by Charmaine Rhodes 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Susan L. Garrison, Chairman 

Rick Gilpin 

Patricia Hinojosa 

Jim Moellinger 

Charmaine Rhodes 

. 

p. 1997