Court Opinion

ID: 4128411
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:38:32.054284+00
Date Added: 2024-06-11T14:37:35.829471
License: Public Domain

GREG       A B B O T T

                                                 May 30,2008

The Honorable Vicki Truitt                                Opinion No. GA-0633
Chair, Committee on Pensions and Investments
Texas House of Representatives                            Re: Whether an educational institution violates
Post Office Box 29 10                                     article 6228a-5, section 9(a)(4)-(7) of the Texas
Austin, Texas 78768-2910                                  Revised Civil Statutes if the institution contracts
                                                          with a third-party administrator that is owned by
                                                          or otherwise affiliated with a company that sells
                                                          qualified 403(b) investment products to the
                                                          institution's employees (RQ-0653-GA)

Dear Representative Truitt:

         Article 6228a-5, sections 4-1 3 of the Revised Civil Statutes provides the means by which
an educational institution's employees may participate in investment plans that meet the
requirements of section 403(b) of the Federal Internal Revenue Code (a "403(b) plan"). See
generally 26 U.S.C.A. 5 403(b) (West Supp. 2007); TEX.REV. CIV. STAT.ANN.art. 6228a-5, $4
4-13 (Vernon Supp. 2007). You tell us that "Texas educational institutions offering 403(b) plans
often obtain the services of third party administrators (TPAs) to assist in" managing their 403(b)
plans.' You ask two questions about an educational institution's use of a third-party administrator
that is affiliated with a company offering qualified 403(b) investment products for sale to employees
of the educational institution (an "affiliated third-party administrator"):

                 (1)    Does an educational institution violate Section 9(a)(4) through
                        (7), Article 6228a-5 . . . if the institution contracts with a [third-
                        party administrator] that is owned by or otherwise affiliated
                        with a company that sells qualified investment products to the
                        institution's employees?

                 (2)    Specifically, does an educational institution violate Section
                        9(a)(6) . . . if the institution contracts with a [third-party
                        administrator] described by question (1) and the [third-party

        'Letter from Honorable Vicki Truitt, Chair, Committee on Pensions and Investments, Texas House of
Representatives, to Honorable Greg Abbott, Attorney General of Texas, at 1 (Nov. 29,2007) (on file with the Opinion
Committee, also available at http://www.texasattorneygeneral.gov) [hereinafter Request Letter].
The Eonorable Vicki Truitt - Page 2            (GA-0633)

                     administrator] provides its services for free, for a nominal fee,
                     or at a reduced rate?

See Request Letter, supra note 1, at 3. Your questions raise many issues of fact, which cannot be
resolved in an opinion. See Tex. Att'y Gen. Op. No. GA-0446 (2006) at 18 ("Questions of fact are
not appropriate to the opinion process."). We can, however, provide some guidance as to the
interpretation of the statute at issue. We begin by examining article 6228a-5 in light of the facts you
have provided.

I.      Statutory and Factual Background

        Under article 6228a-5, section 5(a), an educational institution "may enter into a salary
reduction agreement with an employee of the institution" under which the educational institution
agrees to reduce the employee's salary for the purpose of directly contributing to or purchasing
certain qualified 403(b) investment products. TEX. REV. CIV. STAT.ANN. art. 6228a-5, 5 5(a)
(Vernon Supp. 2007); see id. $ 4(2), (4), (7) (defining "educational institution," "employee," and
"salary reduction agreement"); see also id. $ 5(f) ("To the greatest degree possible, employers of
employees who participate in the program offered under this section shall require that contributions
to eligible qualified investments be made by automatic payroll deduction and deposited directly in
the investment accounts."). The employee is "entitled to designate any agent, broker, or company
through which a qualified investment product may be purchased or contributions may be made," but
may purchase only eligible qualified investment products (annuities or investments) that are
registered with the Teacher Retirement System of Texas (the "Retirement System") in accordance
with article 6228a-5, section 8A. Id. $ 5(e); see id. $ 5(a); see also id. $ 4(3), (5)-(6) (defining
"eligible qualified investment," "qualified investment product," and "retirement system"); id.$ 5(d)
(requiring the Retirement System to "establish and maintain" on the Retirement System's Internet
website "a list of companies that have certified under this section"); id. 8 8A (setting out the
procedure by which a company offering a qualified investment product to an educational institution's
employees may register the product with the Retirement System).

        You tell us that educational institutions offering 403(b) plans often "obtain" the services of
third-party administrators to assist in the administration of their 403(b) plans. Request Letter, supra
note 1, at 1. You indicate that, in serving an educational institution, a third-party administrator
typically

                    receives employees' salary reduction agreements, screens the
                    agreements for compliance with applicable federal and state law,
                    and approves the required employee payroll deductions; and

                     receives the funds from the employees' payroll deductions and
                     forwards those funds to the appropriate companies for deposit
                     into the appropriate employees' 403(b) policies or accounts.

See id.(footnote omitted). You also tell us that new federal regulations promulgated by the Internal
Revenue Service place "greater responsibility" on employers "in administering their 403(b) plans"
The Honorable Vicki Truitt - Page 3              (GA-0633)

and that educational institutions are therefore likely to rely increasingly on third-party administrators.
Id. at 2.

        You explain that an educational institution must provide its third-party administrator with
access to certain personal and financial information of participating employees, such as

                      the name and identifying number (i.e., social security number or
                      employee identification number) of each employee who
                      purchases a qualified investment product;

                      records related to purchasing the investment product, including
                      the employee's salary reduction agreement;

                      information regarding the investment product purchased,
                      including information about the company from which the
                      employee purchased the investment product; and

                      information regarding the amount of the purchase.

Id.

        And you further state that third-party administrators may be affiliated with companies selling
qualified 403(b) investment products:

                        [Third-party administrators] are not always independent from
                the companies that sell qualified investment products. In some
                instances, a company that sells qualified investment products may
                form a subsidiary organization to offer [third-party administrator]
                services. In other instances, a company and a [third-party
                administrator] might both be owned by the same parent company.
                Frequently, in these situations, the affiliated [third-party
                administrator] offers services for fees reportedly ranging from $1,000
                to $5,000 annually, fees that are well below the market rate charged
                by independent [third-party administrators] for the same services.

Id.

         You are concerned that an educational institution's use of an affiliated third-party
administrator may violate article 6228a-5, section 9(a)(4)-(7). See id. at 3. With respect to section
9(a)(6) in particular, you are concerned about the practice of an educational institution accepting
affiliated-third-party-administrator services for free or at a nominal or reduced rate. The provisions
about which you ask limit the actions of an educational institution:

                (a)    An educational institution may not:
The Eonorable Vicki Truitt - Page 4                     (GA-0633)

                       (4) grant exclusive access to an employee by discriminating
                  against or imposing barriers to any agent, broker, or company that
                  provides qualified investment products under this Act;

                        (5) grant exclusive access to information about an employee's
                  financial information, including information about an employee's
                  qualified investment products, to a company or agent offering
                  qualified investment products unless the employee consents in writing
                  to the access;

                         (6) accept any benefit from a company or from an agent or
                  affiliate of a company that offers qualified investment products; or

                        (7) use public funds to recommend a qualified investment
                  product offered by a company or an agent of a company that offers a
                  qualified investment product.

TEX.REV. CIV.STAT.ANN.art. 6228a-5, 5 9(a)(4)-(7) (Vernon Supp. 2007).

        On its face, section 9 applies to the actions of an "educational institution," which article
6228a-5 defines to mean a school district or an open-enrollment charter school. See id. $5 4(2), 9.
You do not ask whether the term "educational institution" in section 9 encompasses a third-party
administrator as the educational institution's delegatee or agent, and therefore we do not consider
the question. See Request Letter, supra note 1, at 3.2 Moreover, whether an entity serves as a
principal's agent depends upon the resolution of fact issues-specifically whether the principal
"manifests assent to" the entity that the entity will "act on the principal's behalf and subject to the
principal's control, and the [entity] manifests assent or otherwise consents so to act"-that cannot
be resolved in an opinion. RESTATEMENT       OF THE LAWOF AGENCY        5 1.O1 (3d ed. 2006); see Tex.
Att'y Gen. Op. No. GA-0446 (2006) at 18 ("Questions of fact are not appropriate to the opinion
process."); see also RESTATEMENT     OF THE LAWOF AGENCY        $ 1.O1 cmt. c (3d ed. 2006) (describing
the elements of agency, which include the principal's right to control the agent). We turn now to the
questions you ask, considering each subsection in turn. In this way, we combine our answers to your
questions.

         'See also Letter from Steve Bresnen, Steve Bresnen & Assocs., on behalf of 1st American Pension Services,
Inc., to Honorable Greg Abbott, Attorney General of Texas, at 8 (Jan. 28, 2008) (suggesting that a third-party
administrator is an agent of the educational institution "under the principle of respondeat superior"); Letter from Susan
Jennings, General Counsel, Life Insurance Co. of the Southwest, to Honorable Greg Abbott, Attorney General of Texas,
at 5 (Feb. 7,2008) ("As the [third-party administrator] would be the school's agent (since the school is the principal who
retained the [third-party administrator] to act on its behalf regarding the 403(b) plan)," a school could be liable for a
third-party administrator's violation of section 9(a)(7)) (both letters on file with the Opinion Committee).
The Honorable Vicki Truitt - Page 5           (GA-0633)

11.    Analysis

       A.    Section 9(a)(4)

        Section 9(a)(4) prohibits an educational institution from granting "exclusive access to an
employee by discriminating against or imposing barriers to any agent, broker, or company that
provides" qualified 403(b) investment products to the educational institution's employees. TEX.
REV. CIV. STAT.ANN.art. 6228a-5, 5 9(a)(4) (Vernon Supp. 2007). In our opinion, whether an
educational institution grants "exclusive access to an employee by discriminating against or
imposing barriers to" a qualified-investment-productprovider by contracting with an affiliated third-
party administrator is a question that requires the resolution of numerous fact questions. One must
decide, for example, whether the educational institution's grant of exclusive access to a third-party
administrator discriminates against or imposes barriers to an agent, a broker, or a company that sells
qualified investment products. This office does not resolve fact questions. See Tex. Att'y Gen. Op.
No. GA-0446 (2006) at 18 ("Questions of fact are not appropriate to the opinion process.").

       B.    Section 9(a)(5)

        Section 9(a)(5) prohibits an educational institution from granting "exclusive access to
information about an employee's financial information . . . to a company or agent offering qualified
investment products unless the employee consents in writing to the access." TEX.REV. CIV.STAT.
ANN.art. 6228a-5, 5 9(a)(5) (Vernon Supp. 2007). If the term "company" encompasses only that
portion of the entity selling qualified investment products, then the educational institution may
provide the third-party administrator with exclusive access to employees' financial information
without violating section 9(a)(5), but if the term "company" encompasses subsidiaries of the
qualified-investment-product provider or entities owned by the same parent company, then providing
exclusive access to an affiliated third-party administrator violates section 9(a)(5). We consequently
consider the meaning of the term "company" for purposes of section 9(a)(5).

         Article 6228a-5 does not define the term "company," but section 9(a)(6) distinguishes
between a company and an affiliate of the company: "a company or . . . an agent or affiliate of a
company that offers qualified investment products." Id. fj 9(a)(6). While the term "affiliate" is not
defined in article 6228a-5 and has not been defined by a court specifically in the context of article
6228a-5, the term ordinarily refers to "[a] corporation that is related to another corporation by
shareholdings or other means of control" or "a 'company effectively controlled by another or
associated with others under common ownership or control."' Eckland Consultants, Inc. v. Ryder,
Stilwell Inc., 176 S.W.3d 80'88 (Tex. App.-Houston [lst Dist.] 2004, no pet.) (quoting BLACK'S
LAWDICTIONARY        59 (7th ed. 1999); WEBSTER'STHIRDNEWINTERNATIONAL               DICTIONARY    35
(1971)); see also TEX.GOV'TCODEANN.55 312.001-.002(a) (Vernon 2005) (directing that, with
respect to the construction of "all civil statutes," "words shall be given their ordinary meaning").
Consequently, article 6228a-5, section 9(a)(6) indicates that the term "company" does not encompass
affiliates of the company, i.e., companies with the same parent company or a company's subsidiary.
And a term should be defined consistently throughout a statute. See Helena Chem. Co. v. Wilkins,
47 S.Ivli.3d 486,493 (Tex. 2001) (stating that a court should not give one provision in a legislative
The Honorable Vicki Truitt - Page 6                        (GA-0633)

enactment a meaning out ofharmony or inconsistent with other provisions). As a result, we construe
the term "company" throughout section 9 not to include affiliate^.^

        Construing the term "company" in this way is consistent with the term's definition in rules
adopted by the Retirement System. The Retirement System has express statutory authority to "adopt
rules" for use in administering certain portions of article 6228a-5, not including section 9. See TEX.
REV.CIV.STAT.ANN.art. 6228a-5,s 6(c) (Vernon Supp. 2007) (authorizing the Retirement System
to "adopt rules only to administer [Section 61 and Sections 5,7,8,8A, 11, 12, and 13 of this Act");
see also id. art. 6228a-5, 5 4(6) (defining "retirement system"). As the Retirement System defines
the term, a company is

                   [a]n entity that offers and issues a qualified investment product and
                   that has primary liability to the purchaser for performance of the
                   obligations described in the product, contract, annuity contract or
                   annuity certificate, or policy. Generally, "company" does not include
                   . . . third party administrators, . . . unless such entities have primary
                   liability for performance of the obligations in the product or contract.

34 TEX.ADMIN. CODE$ 53.1(5) (2008) (Retirement System, Definitions). While the Retirement
System is not authorized to define the term for purposes of section 9, a term ideally should be
construed consistently throughout a statute. See Helena Chem. Co., 47 S.W.3d at 493 (stating that
a court should not give one provision in a legislative enactment a meaning out of harmony or
inconsistent with other provisions).

       We therefore conclude that, for purposes of article 6228a-5, the term "company"
encompasses only that portion of an entity selling qualified investment products; it does not
encompass a subsidiary company or a company owned by the same parent corporation.
Consequently, an educational institution may provide an affiliated third-party administrator with
exclusive access to employees' financial information without violating section 9(a)(5). Nevertheless,
whether providing such exclusive access violates section 9(a)(5) in particular circumstances is a

           30ther statutes define the term "company," but we are reluctant to apply any of these definitions to article
6228a-5 without considering the purposes for which the Legislature adopted each of the acts that define the term. See,
e.g., TEX. REV. CIV. STAT.ANN. art. 581-4.B. (Vernon Supp. 2007) (defining the term "company" to "include a
corporation, person, joint stock company, partnership, limited partnership, association, company, firm, syndicate, trust,
incorporated or unincorporated"); TEX.FIN.CODEANN.8 6 1.002(6)(Vernon Supp. 2007) (defining "company" to mean
"a corporation, partnership, trust, joint-stock company, association, unincorporated organization, or other similar entity
or a combination of any of those entities acting together"); TEX.GOV'TCODEANN.5 806.001(3) (Vernon Supp. 2007)
(defining "company" to mean "a sole proprietorship, organization, association, corporation, partnership, joint venture,
limited partnership, limited liability partnership, limited liability company, or other entity or business association whose
securities are publicly traded, including a wholly owned subsidiary, majority-owned subsidiary, parent company, or
affiliate of those entities or business associations, that exists to make a profit"). Additionally, to the extent other statutory
definitions would include affiliates, they would be inconsistent with section 9(a)(6), which makes clear that for purposes
of article 6228a-5, section 9, the term "company" does not include an affiliate.
The Honorable Vicki Truitt - Page 7                     (GA-0633)

decision for a c0u1-t.~CJ:Tex. Att'y Gen. Op. No. GA-0446 (2006) at 18 ("Questions of fact are not
appropriate to the opinion process.").

         C.     Section 9(a)(6)

       The issue with respect to section 9(a)(6), which prohibits an educational institution from
accepting "any benefit from . . . an . . . affiliate of a company that offers qualified investment
products," is whether an educational institution accepts a benefit if an affiliated third-party
administrator manages the 403(b) plan for free or for a nominal or reduced fee. TEX.REV.CIV.
STAT.ANN.art. 6228a-5, 5 9(a)(6) (Vernon Supp. 2007).

        Article 6228a-5 does not define the term "benefit." See generally id. art. 6228a-5. But
statutes that attempt to prevent corrupt influences on public servants define the term "benefit" to
mean "anything reasonably regarded as pecuniary gain or pecuniary advantage." TEX.PENALCODE
ANN.5 36.01(3) (Vernon 2003); TEX.TRANSP.       CODEANN.5 366.2521(a) (Vernon Supp. 2007); see
also TEX. PENALCODEANN. 5 1.07(a)(7) (Vernon Supp. 2007) ('"Benefit' means anything
reasonably regarded as economic gain or advantage. . . ."). The Waco court of appeals has construed
the term "benefit" in the context of one of these statutes to include "anything to which a price can
be assigned," excepting goods or services of minimal value. Smith v. State, 959 S.W.2d 1,20-21
(Tex. App.-Waco 1997, pet. ref d). The Texas Ethics Commission, the entity charged with
administering the Penal Code provisions prohibiting a public servant's acceptance of a benefit, has
determined that the waiver of a private organization's membership fees constitutes a benefit. See
Op. Tex. Ethics Comm'n No. 268 (1995) at 1. Similarly, the Ethics Commission determined that,
but far the fact that the Legislature has specifically excepted from the term "benefit" the use of a
governmental entity's property or facilities, unlimited free parking in city-owned or city-leased
spaces would constitute a benefit. See Op. Tex. Ethics Comm'n No. 186 (1994) at 1; see also Op.
Tex. Ethics Comm'n No. 282 (1995) at 1 ("A discount on child care costs is a benefit.").5

        Because article 6228a-5, section 9(6) appears on its face to discourage corrupt influences on
educational institutions, the statutory definition, judicial definition, and the Ethics Commission's
interpretations are instructive. In addition, this definition of the term "benefit" is consistent with the

          4Section 9(a)(5) prohibits the granting of exclusive access to an employee's financial information "unless the
employee consents in writing to the access." TEX.REV.CIV.STAT.ANN.art. 6228a-5, 5 9(a)(5) (Vernon Supp. 2007).
Accordingly, an educational institution that obtains the services of an affiliated third-party administrator may wish to
protect itself by obtaining employees' consent in the event that providing information to the third-party administrator
violates section 9(a)(5).

          5Coincidentally, the Texas Commissioner of Insurance recently has determined that the provision of
administrative services by a third-party administrator "on a no-additional-fee basis" may "constitute an . . . inducement
that is not specified in the" underlying insurance policy in violation of sections 541.056(a) and 543.003(1)(A), (C) of
the Insurance Code. Commissioner's Bulletin #B-0004-08 (Jan. 31, 2008), available at http://www.tdi.state.tx.us/
bulleti~s/index.html(last visited May 29,2008). The Department of Insurance thus "strongly cautions" an insurance
company, insurance agent or agency against directly or indirectly providing administrative services "at no additional fee."
Id.
The Honorable Vicki Truitt - Page 8                   (GA-0633)

term's ordinary meaning. See THE NEWOXFORDAMERICANDICTIONARY                    154 (2001) (defining
"benefit" as "an advantage or profit gained from something"); see also TEX.GOV'TCODEANN.
tjtj 312.001-.002(a) (Vernon 2005) (directing that, with respect to the construction of "all civil
statutes," "words shall be given their ordinary meaning"). We thus construe the term "benefit" in
article 6228a-5, section 9(a)(6) to encompass "anything reasonably regarded as pecuniary gain or
pecuniary advantage," excepting perhaps goods or services of minimal values6 TEX.PENALCODE
ANN.5 36.01(3) (Vernon 2003); TEX.TRANSP.       CODEANN.5 366.2521(a) (Vernon Supp. 2007); see
also TEX. PENALCODEANN. 5 1.07(a)(7) (Vernon Supp. 2007) ("'Benefit' means anything
reasonably regarded as economic gain or advantage."); Smith, 959 S.W.2d at 20-21 ("a 'benefit'
could . . . be anything to which a price can be assigned"). Based on the definition of the term
"benefit" and the Ethics Commission's determinations, a court likely would find that the receipt of
third-party-administrator services for free or for a reduced fee constitutes a benefit.

         Section 9(a)(6) suggests, however, that the benefit must flow to the educational institution.
See TEX.REV. CIV. STAT.ANN. art. 6228a-5, 5 9(a)(6) (Vernon Supp. 2007) ("An educational
institution may not accept any benefit. . . ."). Depending upon how the educational institution and
third-party administrator structure their contractual arrangement, it may be the educational
institution's employees, not the educational institution itself, that benefit. Determining the
beneficiary in any particular arrangement is a question of fact that cannot be resolved in the opinion
process. See Tex. Att'y Gen. Op. No. GA-0446 (2006) at 18 ("Questions of fact are not appropriate
to the opinion process.").

        D.     Section 9(a)(7)

        We finally consider section 9(a)(7), which prohibits an educational institution from using
"public funds to recommend a qualified investment product offered by a company or an agent of
a company that offers a qualified investment product." TEX.REV. CIV.STAT.ANN.art. 6228a-5,
tj 9(a)(7) (Vernon Supp. 2007). Whether the use of an affiliated third-party administrator in
particular circumstances constitutes using public funds to recommend qualified 403(b) investment
products sold by a particular company is a question of fact that cannot be resolved in the opinion
process. See Tex. Att'y Gen. Op. No. GA-0446 (2006) at 18 ("Questions of fact are not appropriate
to the opinion process.").

               ~ not suggest that a third-party administrator's waiver or reduction of fees is of "minimal value." See
         6 Y o do
Request Letter, supra note 1, at 1-3. Therefore, we need not consider here whether article 6228a-5, section 9(a)(6)
excepts benefits of minimal value.
The Honorable Vicki Truitt - Page 9         (GA-0633)

                                      S U M M A R Y

                       Whether an educational institution violates article 6228a-5,
              section 9(a)(4), (6)-(7) of the Revised Civil Statutes by contracting
              with a third-party administrator that is affiliated with a company
              that sells qualified 403(b) investment products to the educational
              institution's employees is a question requiring the resolution of
              facts. An educational institution may provide a third-party
              administrator that is affiliated with a company offering qualified
              403(b) investment products to employees of the educational
              institution with exclusive access to employees' financial information
              without violating section 9(a)(5), although a court may find a
              violation in particular circumstances.

                                            ~ttom&&dneral     of Texas

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Kymberly K. Oltrogge
Assistant Attorney General, Opinion Committee