Honorable Frank PI. Jackson
lRtccutive       Secretary
Teacher Retirement         System
., .:’::.iof..Texaa
Aust,in, Texa8                        Opinion   No. WW-1260
                                      Re:     Whether the six per cent
                                              contributions     to the Teacher
                                              Retirement    System should be
                                              based on the salary Including
                                              or excluding    the deductions
                                              made for the purchase       of a
                                              “tax sheltered”      annuity under
                                              the provisions      of Section
                                              403(b) of the Internal
                                              Revenue Code and related
Gear Mr., Jbckaont                          . quertionr,
              You have requested    an opinion from thlc       office   upon
the   question   of:
              “1. Should the 6% contributions      to the
       Teacher Retirement    System be based on the
       salary including    or excluding   the deductions
       made for the purchase     of a ‘tax sheltered’
       annuity under the provisions      of Section 403(b)
       of the Internal    Revenue Code?”
               This office     haa heretofore   commented upon ccrtaln
 aspects     of “tax sheltered”     annuity plans,    provided for under
 the proviclons      of Section 403(b) of the Internal         Revenue
 ,Code, (U.S.C.A.,      Title 26, par. 403(b), as applicable          to
 agcncicr included within the Teacher Retirement              System.
  Set ~-1211      (1961) . Under euoh an arrangement        the particular
,educa*tlonal    body or agency, a6 the employer, would divert
 a portion     of the employee18 salary to be ueed for the purpose
  of purchasing or making premium payments upon the cmployce7e
 annuity.      If the particular      employer qualiflcd    ab an exempt
  organization     under Section 501(c)       3 of the Internal       Revenue
  Code (U.S.C.A.,      Title 26, par. 501 11  c (3), the employee would
 be able to avail hlmcclf of the bcncfite            of a so-called
.~“tax sheltered     annuity”,    and could deduct the premium pay-
  mcntr upon the clnwity from hie taxable Income,              Psrtioipat ion
Honorable Frank I% Jaclmon, WV                 2 (m-1260)


In such a program             on the part   of the employee   would be
voluntary,
            This then raises     the question    of whethen the
six (6gd) per cent constibutlons      of annual compensation
required  of members of the Teacher Retirement System,,
pursuant  to the provisions      of Article    2922-1, Vernon’s
Civil Statutes,    and specifically     Section 9 and Section 10
thereof,  would be based upon the salary of the particular
teacher before or after the diverting          or deducting of a
portion of the teacher’s      salary to be used for the pur-
poet of purchasing    or making premium payments upon the
ttaoher’a   annulty.
                   Section 9(l)    of Article 2922-1, provides     In
part that:
             “In addition to the deposits      here-
     tofore required     of and made by members on
     aooount of service     rendered prior to
     September 1, 1955, each member of the
     Retirement System shall be required to
     deaosit
     -ANT    ~~~
                with the Retirement    Svstem five
     per cent (5%) of his annual cbmpensation,
     or One Hundred Eighty Dollars       ($188 . 00) >
     whichever is the lesser,       for service    rendered
     bttwetn September 1, 1955, and September 1,
     1957, and six per cent (6%) of his annual
     corn ensation    for aervlct rendered o-sub-
     -Optember                 1, 1957; . , .‘I (Emphasis
     added )
                   Election   1 (16) ot Artialr+!&;L,       provlaQs
that :

         D ‘Annual Compensation   1 shall mean
     the fu’ll rate of 6% compensation that
     is paid by or that wotijld be payable by
     his emolovers ta a teacher or auxiliary
     employee if he worked the full normal _
     working time, In caata##whcra the compen-
     aation includes naintenancs,    the State
     Board of Trustees rihall fix ths value of
     that part of the compensation    n-t paid
     in mmey, , q ** (Emphasis added)
            We are of the opinion that when a teacher
voluntarily   elbots 20 paft&c:tpsts’Zn this aa-oal3ed
Wuc rhbl2e$w       annuity pywjFafb he, or ahe ~wouJ.4in
   .‘~ ,.‘;  I                    : ‘:
.   .




        Honorable Frank 34.   J8okoo0,    pa@0   3 (W-1260)


        effect    be -rely     agreeing t0 a modlf’loatlon of his or
        her oontract of employBent 60 that a portion of the annual
        coapenaatton ia divertsd        to pay for or make premium Qay-
        mentr upon an annuity whfch acoures to the benefit           of then
        teaoher.     Actually,     the teacher would meraly be waiving-
        hi8 or.her right to receive peyment of a part of his or
        her annual compensation In caFih, and ‘in lI.eu thereof ir
        receiving    the benefit of the *tax sheltered~       annuity.
        Although partlolQ8tlon        In such a program by a teacher
        Would reduce hia or her -take home pay’, it would not
        decrease the actual annuaL compensation received during
        the school year,        Consrquently,  we are 0T the opinion
        that the 81x per C4nt contributloti       required of member8
        of the Teacher Retirement System pursuant to the pro-
        virlona of Article       2922-l should be based upon the annual
        compensation cf the teacher lnoludln$ the deductione made
        for the purchase of a “tax sheltered         annuity.
                   You also   requested    8n opinion   upon the quertion
        of:
                    “2. Should the retirement  benefits
              paid by the Teacher Retirement Syetem
              be baaed on the salary including or ex-
              cluding the deduotions made for the pur-
              chase of euoh annuity?”
                   Retirement benefit8  under the Teacher Retire-
        ment Syatem are baaed upon the “Average Former Service
        Compensation” of the Qart5.oular.teacher..  Artlole 2922-1,
        Section l( 17), provide8 that:
                    “1Averaae Former Servlos Comoensatlon~
              shall mean tiie average annuil oombeneatlon
              for such person aa a tOaOher or an auxiliary
              employee, . . .I (Emphasis added)
                     For the 8ame reasons set forth in anewer to
        your initial    question,    as well as the provisions     contained’
        in Section l(17) of Article        2922-1, we are of the opin%&,,:
        that the retirement       benefits  paid by the Teacher Retire@@i$;L,E,i,
        System should be baaed upon the particular         teacher’s    an~4@$~~:
        compenratlon Including any deductions made for the purpa&ej,::.>,      A
        of purchasing or paying        the premiums upon a “tax shelt,$$$@3lc$
        annuity,

                                   SUMMARY
              The six per cent contribiitlona to the Teaoher
              Retirement System should be baaed upon the
     Honorable    Frank   M. Jaokson,   page 4 (~~-1260)


           annual compensation     of the particular  teacher
           Including   any deductions    made for the QUroha8e
           of or premium payments upon a "tax eheltered"
           annuity   under the provisions    of Section 403
           (b) of the Internal     Revenue Code.

           The retirement    benefits   paid by the Teacher
           Retirement   System should be based upon the
           annual compensation      of the particular  teacher
           including   the deductions     made for the purchase
           of or premium payments upon a "tax sheltered"
           annuity,
                                              Very truly   YOUi’B,


                                             WILL WILSON
                                             Attorney General        of Texas
i.


      PB:lg:mkh                           By Pat Bailey
                                             Assistant
     -APPROVED:
     OPINION COMWITTEE
     W, V, Geppert, Chairmen
     .Arthur Sandlin
     Morgan Nesbitt
     Grundy Williams
     Coleman Gay
     REVIEWEDFOR THE ATTORNEYGENERAL
     BY:, Houghton Brownlee, Jr.
