Case Information
*1 TWEA%TOIZNE~GENERAL OF'TEXAS AUSTIN. Trcx~s 78711 Sept. 23, 1977 Opinion No. ~-1060 Honorable E. J. Voorhis, Acting Director
State Board of Insurance Re: Change of optional 1110 San Jacinto retirement program contracts Austin, Texas 78786 or carriers.
Dear Mr. Voorhis:
Your office has asked 'if.sections 51.352 (6) and 57.358 of the Texas Education Code prevent optional retirement pro- gram (hereafter ORP) participants from using benefits accrued under an ORPcontract to.fund a different ORP contract offered by the same carrier or by a different one. ,~
It is the responsibility of the governing body of each Texas institution of higher education to administer an optional retirement program and to provide for the purchase of annuity contracts from a variety of qualified carriers. Education Code ss 51.353; 51*354. The purpose is to provide retirement bene- f.its &to teachers and administrators at state supported institu- tions of higher education. Education Code S 51.351; Attorney General Opinion H-532 (1975).
Of the two Education Code sections,you cite, the first, section 51.352, reads:
In this subchapter:
. . . .
(6) ~'Optional Retirement Program' .means the program under this Subchapter to pro- vide fixed or'variable retirement annuities which meet the requirements of . . . :tcer- tain sections of the Internal Revenue Code of 19541, and the benefits of such annuities are to be available only upon termina- tion of employment in the Texas public institutions of higher education, retire- ment, death or total disability of the participating faculty member.
p. 4352 *2 Honorable E. J. Voorhis - Page 2 (H-1060) (Emphasis added).
The other, section 51.358, reads: Participation in the Optional Retirement Program shall terminate and the benefits of such annuities will be available only if the participant
(1) Dies;
(2) Terminates his employment due to total disability; (3) Accepts retirement; (4) Terminates employment in the Texas public institutions higher edu- cation. . . . Transfers between such institutions mentioned in this section and changes in carriers shall not constitute termination of employment. An institution of higher education shall accept the transfer of any participant's Optional Retirement Program.
(Emphasis added).
In Attorney General Opinion H-532 (1975) at 3, we said section 51.358 constitutes.an express limitation on the avail- ability of benefits for ORP annuitants, and that such benefits "are unavailable so long as the faculty participant remains an employee in a public institution of higher education." Further, we said:
[Al participant in the ORS [Optional Retirement System] has never had the right to surrender his annuity contract for cash or to receive a loan of all or any part of the accumulated contributions during the time he remained an ~employee of a public institution of higher educa- tion. . . . While participants' rights under an ORP vest in one year, theses rights are to receive future benefits upon termination of,employment by a public institution of higher education. There is no wright to those future bene- fits prior to termination. Id. at 4. *3 - page 3 (H-1060)
Ouir analysis in R-532 was strongly influenced by Woods v. Reillv, 218 S.W.Zd 437 (Tex. 1949), and by Teacher Retire- ment Systc~ am v. Duckworth, 260 S.W.Zd 632 (Tex. Civ. App. -- Fort Worth 19531, binion adopted, 264 S.W.Zd 98 (Tex. 1954). Citing them, we sa ctual retirement system annuities are to be regarded as "pay withheld to induce ~ continued faithful service," and that cash surrender or loan
provisions which make contract benefits available to parti- cipants before retirement "are inconsistent with the Purpose underlying retirement systems, which is to provide security upon retirement." H-532 (1975) at 4.
Your office suggests that the benefits of an ORP contract do not *become available" to the ORP participant ieheh the contri- butions and earnings accumulated pursuant to one institutionally- approved ORP ctintract are transferred directly to another such institutionally-approved contracti You suggest that if the transfer is accomplished in a manner that prevents possible diversion or unauthorized use of the accumulated Oti assets, the basic purpose and pian of the retirement system cbntinues to be servedt a, pay 'continues to be withheld to induce con- tinued faithful service, and no benefits become avaiiabis to a participant in a way inconsistent with the provision of security upon retirement.
We agreti. Section 51i358~ ocintefnplates that Ddrtibipants may change carriers or transfer programs from one institution to another. It d&%fully provides that such transactions "shall a termination of empioyment," the event which hOt’&hBtitUte gives participants access to the benefits of their annuity con- tracts& Attorhey deheral Opinion R-532 dealt with one aspect of that matter when it observed that a "participant may transfer programs and receive benefits from both." R-532 (1975) at 3. We recognized that a participant might discontinue mdking~con- tributions to one program and begin particieating in another approved program; and where its hssetsiWere fiat transferred from the old program to,fdnd the new one, that the participant could do so without forfeiting future benefits under the old contract; See Ins. code art. 3*72, S 31~) (i)+
In Attorney General Opinion R;.532 we were.&& if the 12~ prohibited ORP contracts from containing provisiotis for cash surrenders and contract loans to a still-employed participant and whether this prohibition would affect the transfer of a participant from one institution to another or froth one ORR to another, Our attention was given to determining if the trans- action would allow participants immediatei unfettered access to accrued contractual benefits. We did not address the legality other arrangements which might be made in such an event.. *4 - PWe 4 (H-1060)
.<.In our opinion, neither Texas Education Code, section 51.352 (,6),~nor section 51.358 prohibits participants from transferring from one approved optional. retirement program to another, so long as the actions taken are note subterfuges to obtain pre-termination access to ORBbenefits or assets, and do not otherwise frustrate the law. We do not think the autho- rized transfer of ORB assets to a different, approved ORB gives them such access. Cf. Internal Revenue Ruling 73-124 (change of carriers is neit= a surrender of annuity nor a taxable event).
SUMMARY Neither Texas Bducation Code,~,section 51.352 (6)., ,nor section 51.:358 prohibits still-employed participants from trans- ferring fromone approlied.op&tional re:' tirement program to another, so,long as the actions taken are not subterfuges to ~obtaiir pre-termination access~ to ORB benefits or assets, land-do not.otherwise frustrate the law.
-Very truly yours, AL. HILL Attorney General of Texas ~APPROVBD:
c. ROBERT,HBATH, Chairman,
Opinion Committee
jst
p. 4355 :' :.