Can a Texas public university limit which companies sell retirement annuities to its faculty?

Plain-English summary

The University of Texas System's general counsel asked the Attorney General whether the system could limit the number of companies (vendors) allowed to sell retirement annuity products to its faculty under the state's optional retirement program. That program is an alternative to the Teacher Retirement System for faculty at public colleges and universities; participants and their employers put money into annuities and investments that meet certain Internal Revenue Code requirements. A 1991 state auditor review had criticized the program because Texas let over 100 vendors operate across its institutions with uneven, sometimes nonexistent, vetting, and suggested that limiting vendors would give institutions leverage to negotiate lower fees and better returns. The system wanted to cut the number of vendors and select them through competitive bids, but the statute did not say in so many words whether it could.

The Attorney General said the system could. Section 830.004 of the Government Code gives a school's governing board broad authority to structure the optional retirement program, and the office saw no reason that authority would not include the power to limit how many vendors participate and to scrutinize the quality of their products. The office then addressed the system's worry about a different statute, article 6228a-5, V.T.C.S., which says an employee may designate the agent, broker, or company through which an annuity is purchased. Relying on a 1987 opinion (JM-691), the office held that article 6228a-5 does not apply to the optional retirement program created under chapter 830, so it did not give faculty a right to pick any vendor and did not stop the system from limiting the vendor pool. The office added, in a footnote, that to the extent the Texas Higher Education Coordinating Board has adopted uniformity policies for the program, the system must follow them.

Currency note

This opinion was issued in 1993. 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, deadline, or remedy mentioned here. Chapter 830 of the Government Code and article 6228a-5, V.T.C.S., may have been amended since 1993; confirm the current law before relying on anything described here.

What the opinion meant for those who asked

For The University of Texas System and other institutions of higher education: The opinion read section 830.004 as authority for a governing board to limit the number of optional retirement program vendors and to vet product quality. It treated structuring the program, including vendor limits and competitive selection, as within the board's delegated power.

For annuity and insurance vendors: The opinion described institutions as free to reduce the number of vendors and to screen them, so a company had no statutory entitlement to be among the vendors offered to a school's faculty.

For participating faculty: The opinion concluded that article 6228a-5's employee-designation language did not give optional retirement program participants a right to choose any vendor, because that statute did not apply to the chapter 830 program. Faculty choice would be among whatever vendors the institution selected.

Background and statutory framework

The optional retirement program is offered to faculty at institutions of higher education as an alternative to the Teacher Retirement System of Texas (Gov't Code § 830.002(b); see also §§ 830.003, 830.101). Participants and employers contribute to annuities and investments meeting Internal Revenue Code requirements (§ 830.002(a)). Section 830.004(a) allows a governing board to provide for contributions to any investment authorized under section 403(b) of the Internal Revenue Code (as it existed January 1, 1981) and to arrange purchases of annuity contracts from any insurance or annuity company qualified to do business in the state; section 830.004(b) lets a board with multiple component institutions run a separate program for each or combine them. The office read section 830.004 as delegating to the governing bodies the authority to structure the program, which it concluded includes limiting vendors and scrutinizing product quality. A footnote noted that section 830.002(c) requires the Texas Higher Education Coordinating Board to develop uniformity policies, which the system must follow to the extent they exist.

Article 6228a-5, V.T.C.S., lets certain state agencies, including institutions of higher education, enter agreements with employees to purchase annuities or contribute to section 403(b) investments, and its section 2(c) says the employee "is entitled to designate any agent, broker, or company through which the annuity or investment is to be purchased." The system worried that this provision might bar vendor limits. The office disagreed, relying on Attorney General Opinion JM-691 (1987), which had held that article 6228a-5 does not give optional retirement program participants the right to choose vendors because the article is inapplicable to such programs. A footnote explained that JM-691 addressed the relationship between article 6228a-5 and the predecessor to chapter 830 (former chapter 36 of Title 110B, V.T.C.S., later revised by Acts 1989, 71st Leg., ch. 179). On that basis, the office concluded article 6228a-5 did not prohibit the system from limiting vendors.

Common questions

Can a Texas public university limit which companies sell retirement annuities to its faculty?
Yes. The office concluded that section 830.004 of the Government Code gives a school's governing board authority to structure the optional retirement program, including the power to limit the number of vendors and to scrutinize the quality of their products.

Doesn't an employee have a right to pick any annuity company?
Not under the optional retirement program. Article 6228a-5 lets an employee designate any agent, broker, or company, but the office, relying on Attorney General Opinion JM-691, held that article 6228a-5 does not apply to the chapter 830 program.

Could the university select vendors by competitive bid?
The system proposed doing so, and the office found nothing in chapter 830 preventing the institution from structuring its program that way; the authority to structure the program included limiting and selecting vendors.

Did the university have to follow any statewide policy?
Yes, to the extent one existed. The office noted that section 830.002(c) requires the Texas Higher Education Coordinating Board to develop uniformity policies, and that the system must adhere to such policies where they apply.

Citations

Statutory provisions discussed:

• Gov't Code § 830.002 (optional retirement program as alternative to TRS; § 830.002(a) contributions; § 830.002(c) uniformity policies)
• Gov't Code § 830.003 (definition of "institution of higher education")
• Gov't Code § 830.004 (governing board's authority to structure the program; subsections (a) and (b))
• Gov't Code § 830.101 (eligibility to participate)
• V.T.C.S. art. 6228a-5 (agency agreements for annuities; § 2(c) employee designation of agent, broker, or company)
• Internal Revenue Code § 403(b) (authorized investments, as it existed January 1, 1981)

Prior Attorney General opinion referenced: JM-691 (1987).

Other authority referenced: Office of the State Auditor, Overview of the Optional Retirement Program (1991).

No court cases were cited in this opinion.

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0271
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1993/dm0271.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

November 8, 1993

Mr. Ray Farabee
General Counsel
The University of Texas System
Office of General Counsel
201 West Seventh Street
Austin, Texas 78701-2981

Opinion No. DM-271

Re: Whether The University of Texas System is authorized to limit the number of vendors offering products to its faculty members under an optional retirement program governed by chapter 830 of the Government Code (RQ-612)

Dear Mr. Farabee:

On behalf of The University of Texas System (the "system"), you ask whether the system is authorized to limit the number of vendors offering products to its faculty members under an optional retirement program governed by chapter 830 of the Government Code. The optional retirement program is offered to faculty members employed by institutions of higher education ("institutions") as an alternative to the Teacher Retirement System of Texas. See Gov't Code § 830.002(b); see also id. §§ 830.003 (defining the term "institution of higher education"), 830.101 (discussing eligibility to participate). Under the optional retirement program, participants and their employers contribute to investments and purchases of retirement annuities that meet certain requirements of the Internal Revenue Code. See id. § 830.002(a).

You have provided us with a copy of a document entitled Overview of the Optional Retirement Program prepared by the state auditor in 1991. See Office of the State Auditor, Overview of the Optional Retirement Program (1991). The examination is critical of the optional retirement program for a number of reasons. The examination found, among other things, (i) that while most states with similar programs limit the number of vendors available to participants, in Texas there are a total of over 100 vendors offering products at over 100 separate institutions, (ii) that the evaluation and certification of vendors varies from institution to institution, and (iii) that some institutions do not evaluate vendors at all. Id. at 1. The examination suggests that setting limits on the number of vendors would allow institutions to obtain leverage, giving them the ability to negotiate for favorable fee schedules and rates of return. It also suggests that institutions should review a potential vendor's financial condition and analyze the performance of its products as part of their selection process to control vendor quality. [Footnote 1]

You state that in light of this examination the system would like to limit the number of vendors offering products to its optional retirement program participants and to select optional retirement program vendors through competitive bids. You state that "[t]he current statutory provisions governing the [optional retirement program] do not address the number of vendors an employer may offer," and that "[t]he Texas Higher Education Coordinating Board, which is responsible for developing policies and practices in accordance with the [optional retirement program] statutes, has not issued any rules, regulations, memoranda, or procedures with respect to this issue."

Chapter 830 of the Government Code does not address the number of vendors an employer may offer. Section 830.004 states that a governing board may provide for contributions to any type of investment authorized under section 403(b) of the Internal Revenue 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 the state. Gov't Code § 830.004(a). It also provides that if a governing board has more than one component institution under its jurisdiction, it may provide a separate optional retirement program for each component or may place two or more components under a single program. Id. § 830.004(b). Section 830.004 clearly delegates to the governing bodies of particular institutions the authority to structure an optional retirement program for its faculty members. There is no reason why this authority would not include the authority to limit the number of vendors and to scrutinize the quality of their products. [Footnote 2]

Article 6228a-5, V.T.C.S., provides that certain state agencies, including institutions of higher education, may enter into agreements with their employees for the purchase of annuities or for contributions to investments authorized by section 403(b) of the Internal Revenue Code, as it existed on January 1, 1981. Section 2(c) of article 6228a-5 provides that "[t]he employee is entitled to designate any agent, broker, or company through which the annuity or investment is to be purchased." V.T.C.S. art. 6228a-5, § 2(c). You express concern that article 6228a-5, particularly section 2(c), could be construed to prohibit the system from limiting the number of vendors offering products to participants of an optional retirement program. We believe that this concern is unfounded.

In Attorney General Opinion JM-691 (1987), this office concluded that article 6228a-5 does not give participants in an optional retirement program the right to select vendors of their choice on the basis that article 6228a-5 is inapplicable to such programs. We see no reason to revisit that opinion and we rely upon it here for the proposition that article 6228a-5 does not apply to an optional retirement program established pursuant to chapter 830 of the Government Code. [Footnote 3] Therefore, we conclude that article 6228a-5 does not prohibit the system from limiting the number of vendors offering products to its faculty members under an optional retirement program.

SUMMARY

Section 830.004 of the Government Code delegates to the governing bodies of institutions of higher education the authority to structure an optional retirement program for its faculty members, including the authority to limit the number of vendors and to scrutinize the quality of their products. Article 6228a-5, V.T.C.S., does not prohibit an institution of higher learning from limiting the number of vendors offering products to its faculty members under an optional retirement program.

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Attorney General for Litigation

RENEA HICKS
State Solicitor

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General

Footnote 1: "[W]eak control mechanisms have been developed at a variety of higher education institutions. These mechanisms . . . do not facilitate participants getting the best products and the lowest fees . . . ." Office of the State Auditor, Overview of the Optional Retirement Program at 1 (1991).

Footnote 2: Section 830.002(c) requires the Texas Higher Education Board to develop policies to provide uniformity in the administration of the retirement annuity insurance program available to optional retirement program participants. To the extent such policies exist, we believe that the system is required to adhere to them.

Footnote 3: Attorney General Opinion JM-691 addressed the relationship between V.T.C.S. article 6228a-5 and the predecessor statute to chapter 830 of the Government Code, chapter 36 of Title 110B, V.T.C.S. (amended, renumbered and revised by Acts 1989, 71st Leg., ch. 179, § 1, at 589).