Court Opinion

ID: 4130778
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:08:18.366716+00
Date Added: 2024-06-11T14:33:03.705509
License: Public Domain

lhmotableJames E. (Pete)Laney        OpinionNo. JM-691
 Chai?lUaU
.StateAffairsCommittee               Re: Designationof agent,broker
 Texas Rouse of Representatives      or company for Optional Rrtire-
 P. 0. Box 2910                      ment investmentsor annuities
 Austin, Texas 70769

Dear Representative
                  Laney:

     You ask if participantsin an Optional RetirementProgram (ORP)
authorieedby chapter 36 of Title llOB, V.T.C.S.,may designatethe
agent, broker, or company throughwhich investmentsor annuitiesmay
be arranged. You suggestthat they may do so and that their choice is
limitedonly by the provisionsof sections401(g) and 403(b) of the
federal Internal Revenue Code of 1954, as it existed on January 1,
1981.

       The 1981 date is fixed by section36.002 of Title 1lOB:

              (a) The optionalretirementprogramestablished
           as provided by this subtitle shall provide for
           contributionsto any type of investmentauthorized
           in Section 403(b) of the federal InternalRevenue
           Code of 1954, 42 U.S. Code, as it ‘existed on
           January 1, 1981. and for the purchase of fixed
           or variable retirement annuities that meet the
           requirementsof that sectionand Section 401(g) of
           the federalInternalRevenue Code of 1954, 42 U.S.
           Code, as amended.

              (b) Participationin the optional retirement
           program is an alternativeto active membershipin
           the retirementsystem.

As amended by Acts 1981. 67th Leg., 1st C. S., ch. 18. 135. at 195.
207.

    It has been argued thet section 36.004 of Title llOB, set out
below, allows the governing board of an institution of higher
education to provide for contributionsto any federally authorised
type of investmentand to arrange the purchase of annuity contracts
from “any insurance or annuity,company that is qualified to do
business in this state,” without restriction. It is said that the
language of section 36.004 “indicatesthat a participantshould be

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HonorableJames E. (Pete)Laney - Page 2   (JM-691)

allowedfreedomof choice in selectingthe vendor from which he or she
wishesto purchasean authorizedinvestment[or] annuity."

    Section 36.004, amended in 1981 by the same act that amended
section36.002,reads in its entirety:

            (a) A governing board may provide for con-
         tributionsto any type of investmentauthorizedin
         Section 403(b) of the federal Internal Revenue
         Code of 1954, 42 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 qualifiedto do business in this
         state.

            (b) If a governing board has more than one
         component institution,agency, or unit under its
         jurisdiction,the governingboard may provide a
         separate optional retirement program for each
         component or may place two or more components
         under a singleprogram.

V.T.C.S.Title llOB,PublicRetirementSystems,136.004.

     ye do not read this languageas indicatingthat a participanthas
any right to choose OptionalRetirementProgramvendors. The statute
conferscertainauthorityou "a governingboard." The most that might
be argued from this language, in our opinion, is that it does not
preventa governingboard from consideringthe wishes of a participant
in selectingOptionalRetirementProgramvendors.

    It is also suggestedthat 1985 amendmentsto articles6228a-5and
6252-3b,V.T.C.S..demonstratea legislativeintent that participants
in an Optional Retirement Program have such a right because the
categoriesof employeas affected overlap. Article 6228a-5 reads in
pertinentpart:

            Section 1. Local Boards of Education of the
         Public Schoolsof this State, the GoverningBoards
         of the state-supportedinstitutions of higher
         education,the CoordinatingBoard, Texas College
         and University System, the Central      Education
         Agency, the Texas Departmentof Hental Reslth and
         Mental Retardation'and the state schools, state
         hospitals,and other facilitiesand institutions
         under its jurisdiction,the Texas Youth Commission
         and facilitiesand institutionsunder its juris-
         diction, and the governingboards of Centers for
         CoPmDunityMental Health and Mental Retardation
         Services, county hospitals, city       hospitals,
         city-county hospitals, hospital authorities,
         hospital districts, affiliated state agencies.

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HonorableJames E. (Pete)Laney - Page 3   (JM-691)

         and political subdivisionsof each of them, mma
         enter into agreementswith their employees for
         the purchase of annuities or for contributions
         to any type of investment for their employees
         as authorizedin Section 403(b) of the Internal
         Revenue Code of 1954, as it existedon January 1.
         1981.

            Sec. 2. (a). . . .

            (b) The comptrolleror the governingboard, as
         the case may be. may reduce the salaryof partici-
         pants when authorizedin writing and shall apply
         the amount of the reduction to the purchase of
         annuity contractsor to contributionsto any type
         of investmentauthorizedin Section 403(b) of the
         Internal Revenue Code of 1954, as it existed on
         January 1, 1981, the exclusive control of which
         will vest in the participants.

            (4 The employee is entitled to designate
         any agent, broker, or company through which
         the annuity or investment is to be purchased.
         (Emphasisadded).

The pertinentprovisionsof article6252-3bare:

           Sec. 1. The state or any county,city, town, or
        other politicalsubdivisionmay, by contract,agree
        with any employeeto defer, in whole or in part, anT
        portion of that employee‘s compensationand may
        subsequently,with the consent of the employee,
        contractfor, purchase,or otherwiseprocure a life
        insurance,annuity,mutual fund, or other investment
        contract for the purpose of funding a deferred
        compensationprogramfor the employee,from any life
        underwriterduly licensedby this state who repre-
        sents an insurance company licensed to contract
        business in this state, any state or nationalbank
        domiciledin this state whose deposits are insured
        by the Federal Deposit Insurance Corporation,any
        savings and loan associationdoing business in this
        state whose accounts are insured by the Federal
        Savings and Loan Insurance Corporation, or any
        credit union doing business in this state whose
        accounts are insured by the National Credit Union
        Administrationor the Texas Share Guaranty Credit
        Union or a mutual fund licensed to do business
        in this state. The amounts which participating
        employeesagree to defer are the only funds a seller
        of investment products may receive under this
        program.

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BonorableJames E. (Pete)Laney - Page 4 (JM-692)

           .   .   .   .

           Sec. 3B. (a) For investments in a deferred
        compensationproduct offered through a vlan created
        under Section 457 of the InternalRevenue Code. the
        comptrollermay not require a seller of investment
        products to solicit business, place contracts,or
        otherwise procure deferred compensationagreements
        with or through particular agents, brokers, or
        companies. Each state amployeeshall have the right
        to designatethe agent, broker, or company through
        which the investmentproduct is purchased.Provided,
        however, that nothing in this section shall prevent
        the comptrollerfrom restrictingthe participation
        of any agent, broker, or company in the deferred
        compensationprogram for good causa.

           (b) The comptroller,when solicitingbids for
        the deferred compensation plan authorized under
        Section 401(k) of the Internal Revenue Code, shall
        consider bids from companiesrequiring the use of
        their own agents to sell their products as well as
        companies selling their products through a third
        party administratoror otherwise.

           Sec. 4. For the purposesof this Act, 'employee'
        means any person whether appointed, elected. or
        under contract, providing services for the state,
        county, city, town, or other politicalsubdivision,
        for which compensationis paid.

           .   .   .   .

           Sec. 6. The deferred compensation program
        establishedby this Act shall exist and serve in
        additionto retirement,pension, or benefit systems
        establishedby the state, county, city, towu. or
        other political subdivision, and no deferral of
        incomeunder the deferredcompensationprogramshall
        affect a reductionof any retirement,pension, or
        other benefit provided by law. However, any sum
        deferred under the deferred compensationprogram
        shall not be subject to taxationuntil distribution
        is actuallymade to the employee. (Emphasisadded).

     It is true that the categoriesof employeesaffectedby articles
6228a-5 and 6252-3b overlap with those entitled to participate in
the Optioual RetirementProgram. Eligibilityto participatein the
OptionalRetirementProgram,subject to rules adoptedby the governing
board, is open to all faculty members in a component institution.
V.T.C.S.Title llOB, 1536.101.~31.001(8).Cf. Carpenterv. StephenF.
Austin State University,706 F.2d 608 (Sthir. 1983) (exclusions).

                            p. 3203
HonorableJames E. (Pete)Laney - Page 5 (JM-692)

Each of those persons is also now an "employee of a governmental
budy covered" vithin the meaning of article 622Sa-5. and a person
II
 appointed,elected, or under contract,providingservices. . . for
which compensationis paid" within section4 of article 6252-3b. Cfi
Attorney General OpinionM-313 (1968) (coordinatingboard employees).
But we do not think the overlapaffectsthe constructionof chapter36
of Title 1lOB. Cf. Attorney GeneralOpinionMU-570 (1982) (overlapof
coveragebetweenyticles 6252-3band 622Sa-5).
     Chapter 36 of Title 1lOB establishesthe Optional Retirement
Program as a retirementsystem for certain state employeesin which
such employees can choose to participateinstead of, participating
in the Teachers Retirement System of Texas. V.T.C.S. Title llOB,
5811.001(2).31.001, 36.001. 36.002(b). On the other hand, articles
6228a-5 and 6252-3b do not establish retirement systems;      they
merely accord employeesan opportunityto take advantageof certain
federaltax reductionmeasures, if available. See Attorney General
OpinionC-83 (1963) (article 6228a-5 intent). The differencesare
not cosmetic. V.T.C.S.Title 1lOB. §11.001(2). See AttorneyGeneral
OpinionMU-548 (1982).

     All such employeesmust make contributionsof a certain level to
a retirementsystem -- either the Teacher RetirementSystem or the
OptionalRetirementProgram. V.T.C.S. Title llOB, 1136I201.35.4C3.
32.002, 31.001(14). Such contributionsare mandatory. --  See In re
Ropar. 49 B.R. 4 (Bank=.N.D. Tex. 1984). The state is statutorily
required to make even greater contributionsfor the employer's
benefit.Id. 1136.201.35.404.But benefitsin the OptionalRetirement
ProgramvZ   in a participantonly after a full year of participation.
Id. 136.204. Aud benefitsare availableto the participantonly upon
death. retirement,or terminationof the participant'semploymentin
all 'institutionsof higher education. ,Id.$36.105(c). See Attorney
GeneralOpinion MB-548 (1982) (availabilfty of investment%nefits as
well as annuitybenefitsrestricted).

     By contrast, participationin a tax sheltered annuity or in-
vestment plan under article 622Sa-5, or in either of the deferred
compensationplans under article 6252-3b. is purely voluntary and
the state contributes no funds toward the realization of any of
them. They are not establishedfor the same reasons that retirement
systemsare established,&.     to provide security for the employees
as well as to encouragequalifiedpersons to become and remain public

      1. By electing to reduce their salaries,participantsmay. in
 effect,also voluntarilycontribute(unmatched)additionalamounts to
                                See V.T.C.S.Title 11OB. 536.203.
 the OptionalRetirementProgram. -

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HonorableJames E. (Pete)Laney - Page 6   (3-f-692)

employess. Tex. Const. art. XVI, 567. See Woods v. Reilly, 218
S.W.Zd 437 (Tex. 1949); Attorney General Opxon Nos. B-1060 (1977);
B-532 (1975).

    There is no delayed vesting or statutorily-mandated   delayed
realizationof benefitsunder the tax shelteror deferredcompensation
plans because the public interestis not the same. No public money,
in the ordinary sense, is invested or contributed;the security,
safety,and stabilityof those investmentprogramsare private - not
public - concerns.

     We advise that the law does not accord participants in an
OptionalRetirementProgram any right to designatethe agent, broker,
or company through which investmentsor annuitiesmay be arranged
pursuantto chapter36 of Title llOB, V.T.C.S.,althoughthe governing
board of an institutionestablishingsuch a program may take into
account the wishes of participantsabout such matters if it may be
done in a manner consistentwith law and the protectionof the public
interest.

                            SUMMARY

            Participantsin the OptionalRetirementProgram
        have no statutory right to designate the agent,
        broker, or company through which investments or
        annuitiesmay be arrangedpursuantto chapter 36 of
        Title 1lOB. V.T.C.S.

                                  f-l-h
                                      Very truly yours
                                            .

                                      JIM    MATTOX
                                      AttorneyGeneral of Texas

JACRBIGBTOWER
First AssistantAttorneyGeneral

MARY KELLER
ExecutiveAssistantAttorneyGeneral

JUDGE ZOLLIE STEARLBY
SpecialAssistantAttorneyGeneral

RICK GILPIN
Chairman,OpinionCommittee
Preparedby Bruce Youngblood
AssistantAttorneyGeneral

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