Who is responsible for administering the optional retirement program for Maryland public college employees?

Plain-English summary

The Director of Maryland's Central Payroll Bureau asked the Attorney General a series of questions about the Optional Retirement Program (ORP), a tax-deferred annuity program that lets eligible employees of Maryland's public colleges and universities opt out of the regular pension system in favor of individual retirement accounts with outside vendors. The questions covered who was legally responsible for the program, whether a lack of clear "sponsorship" could delay a planned expansion of the program to new vendors, whether Central Payroll could be reimbursed for its costs, when employee information could be shared with vendors, and who was eligible to participate.

The opinion concluded that ORP administration was divided by statute rather than resting with one single "sponsor": the Board of Trustees of the Retirement Systems selected and contracted with vendors, the employing institutions (the University of Maryland System, Morgan State University, St. Mary's College, and community colleges) handled each employee's enrollment, termination, and retirement, and the vendors themselves handled day-to-day tax compliance and counseling under their contracts. Central Payroll's role was limited to processing the payroll deductions it was instructed to make and was entitled to reimbursement from the program's expense fund. The opinion also concluded that Maryland's Public Information Act barred releasing an employee's Social Security number, home address, phone number, or contribution amounts to ORP vendors without that employee's consent, and it explained the statutory eligibility criteria for participating in the program.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, contact person, or program detail mentioned here.

Common questions

Did a 1995 Maryland opinion identify one agency as the "sponsor" of the state's optional retirement program for college employees?
No. The opinion concluded that responsibility for the ORP was divided by statute among the Board of Trustees of the Retirement Systems, the employing colleges and universities, and the designated investment vendors, rather than resting with a single sponsor.

Did the opinion say Maryland colleges could share an employee's Social Security number or home address with retirement plan vendors without asking first?
No. The opinion concluded that this kind of employee information could be released to ORP vendors only with the employee's consent, consistent with the confidentiality protections in Maryland's Public Information Act.

Did the opinion say Central Payroll Bureau had to cover the costs of supporting the optional retirement program out of its own budget?
No. The opinion concluded that Central Payroll was entitled to reimbursement for its ORP-related expenses from the program's dedicated expense fund, established under SPP § 30-209 and funded through the annual state budget process.

Background and statutory framework

At the time of this opinion, Maryland's Optional Retirement Program, governed by Title 30 of the State Personnel and Pensions ("SPP") Article, let eligible faculty and professional employees of the state's public colleges waive participation in the regular pension system in favor of a defined-contribution annuity program intended to qualify as a tax-sheltered plan under Internal Revenue Code § 403(b). A 1993 law had restructured the program to give the Board of Trustees of the Retirement Systems overall authority to select and contract with additional investment vendors, while assigning enrollment, termination, and retirement administration to each "employing institution," and leaving day-to-day informational and counseling services to the vendors themselves under their contracts with the state.

The opinion worked through each of Central Payroll's six questions by tracing this statutory division of labor: Central Payroll's role was that of paymaster, following the employing institution's enrollment instructions and, where it had concerns about a deduction, seeking clarification from the institution rather than resolving tax questions itself. On employee information, the opinion applied the Public Information Act's general confidentiality protections for personnel and retirement records and for home addresses and phone numbers, concluding that none of the statute's specific exceptions authorized disclosure to ORP vendors absent the employee's consent.

Citations and references

Statutes:

• SPP Title 30, establishing and governing the Optional Retirement Program
• SPP § 30-201(e)(1), giving the Board of Trustees of the Retirement Systems authority to administer the program
• SPP § 30-210, assigning enrollment, termination, and retirement administration to the employing institution
• SG § 10-616(g)(1), the Public Information Act provision generally protecting the confidentiality of retirement and personnel records
• SG § 10-617(e)(1), generally protecting a public employee's home address and telephone number from disclosure

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1995/80oag35.pdf

Original opinion text

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

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 "tax-
sheltered" or "tax-deferred" annuity. See SPP §30-205(d).

  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.

38 [80 Op. Att'y

                               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":

  2
   Until Chapter 428 opened up the ORP to competition, annuities

were available from 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).

Gen. 35] 39

         (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.

 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).

40 [80 Op. Att'y

  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

  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).

Gen. 35] 41

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.

 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.

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

  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.

  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.

44 [80 Op. Att'y

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;



  9
  Joint Committee on Pensions, Report of the 1993 Interim 3

(December 1993).
10
In addition, nothing would preclude the Agency 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.

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

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.

  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.

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.