Untitled Texas Attorney General Opinion ( 1982 )

The Attorney General of Texas
December 31, 1982
MARK WHITE
Attorney General
Mr. E. D. Walker Opinion No. m-548
Supreme Court Building
Chancellor
P. 0. Box 12546
Austin, TX. 76711. 2548
The University of Texas System Re: Recent legislation affect-
512,475.2501 601 Colorado Street ing Optional Retirement Program
Telex 9101674-1367 Austin, Texas 78701 and Tax Sheltered Annuity
Telecopier 5121475.0266 Programs of state colleges and
universities
1607 Main St., Suite 1400
Dallas, TX. 752014709 Dear Mr. Walker:
2141742-6944
You have asked several questions regarding the effect of recent
legislation on the Optional Retirement Programs (hereinafter O.R.P.)
4624 Alberta Ave., Suite 160
El Paso, TX. 79905.2793
and Tax Sheltered Annuity Programs (hereinafter T.S.A.P.) of state
915/533-3464 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.
1220 Dallas Ave., Suite 202
benefits to participants in such a program.
Howton, TX. 770026966
7131650-0666
Because of recent statutory amendments, chapter 36 of Title 1lOB
now permits the governing board of a state-supported college or
606 Broadway, Suite 312 university to provide for contributions to or purchase of two
Lubbock, TX. 79401.3479
different types of investments on behalf of the O.R.P. participants.
8061747-5236
The board may provide for contributions to any type of investment
authorized in section 403(b) of the Internal Revenue Code, such as
4309 N. Tenth, Suite B mutual funds or money market funds. or it may provide for the purchase
McAtle”, TX. 76501-1665 of fixed or variable retirement annuities. Prior to 1981, a governing
5121682-4547 board administering an O.R.P. could provide only for the purchase of
annuities, not for contributions to all investments authorized by
200 Main Plaza, Suite 400 section 403(b) of the Internal Revenue Code. HOWl2Vel-, chapter 36 of
San Antonio, TX. 76205.2797 Title 1lOB now allows a choice of investments, according to the
5121225-4191 following sections of the statute:
An Equal Opportunity/ Section 36.002. Optional Retirement Program
Affirmative Action Employer
(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