                            QBfficeof the TZWmep Qikneral
                                          Mate of QLexae
DAN MORALES
 ATTORSEY
       GENERAL                              November 8,1993

      Mr. Ray Farabee                                 Opinion No. DM-271
      oene-ral coImsel
      The University of Texas System                  Re: Whether The University of Texas
      O&x of General Counsel                          System is authorized to limit the number of
      201 West Seventh Street                         vendors offering products to its faculty
      Austin, Texas 78701-2981                        members under an optional retirement
                                                      program governed by chapter 830 of the
                                                      Oovemment Code (RQ-612)



                On behalf of Tbe University of Texas System (the “system”), you ash whether the
      ~isauthorizedtolimitth~numberofvendorsoffesingproductstoitsfaculty
      members under an optional retuQnent program governed by chapter 830 of the
      Oovemment Code. Tbe optional retirement program is offbred to faculty members
      employed by institutions of higher education (“institutions”) as an alternative to the
      Teacher Retirement System of Texas. See Gov’t Code 3 830.002(b); see also id.
      §$i 830.003 (detining the term “institution of higher education”), 830.101 (discussing
      eligibility to participate). Under tbe optional retirement program, participants and their
      employers contribute to investments and purchases of retirement annuities tbat meet
      catain requirements of the Internal Revenue Code. See id. 5 830.002(a).

                You have provided us with a copy of a document entitled 0verview of rhe
      optionor Retireme& Program prepared by the state auditor in 1991. See ICE                OF THE
      STATE Au~nvx, OVERVIEWOF THE c&‘lTONALRETIREMENTPROORAM(1991). Tbe
      exammauon is critical of the optional retirement program for a number of reasons. The
      exam&ion 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
      certitication of vendors varies from institution to institution, and (iii) that some institutions
      do not evahtate vendors at all. Id. at 1. The exambtion 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 tlnancial condition and analyze the
      performance of its products as part of their selection process to control vendor quality.r




                                                D. 1413
Mr.RayFarabee      - Page 2                 (DM-271)




        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 tbis 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 5 830.004(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. 5 830.004(b). Section 830.004 clearly delegates to the governing
bodies of pattiadar institutions the authority to structure an optional retirement program
for its faculty members. There is no reason why this authority would not include the
autbotity to limit the number of vendors and to smutin& the quality of their products.*

        Article 6228a-5, V.T.C.S., provides that certain state agencies, including
in&utions 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 Interttal 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, 3 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
tmfotmded.




           ~wcak,controlmcchanirmsbavekendmlopcdatavarietyofhigher
           edocation io.5titutions. These mechaoisms . do not facilitate participsats
           gcttiIgthebcstproductsandtllelowestfees....

OFFICE
     OFTHESTATE
              Aumroa, OVERVIEW
                             OFTHEOPTIONAL     PRffiRAMatl(l991)
                                        RmREMENT

        *Section830.002(c) reqoim the Texas Higher EducationBwd to develop policies to provide
miformity in the administrationof the retirementannuity irmmnce program available to optional
timrent programparticipants. To the extent such policies exist, we believe that the systemis tqukd
tosdheletothem.


                                           p. 1414
h4rRayFarabee     - Page 3                (DM-27 1)




        In Attorney General Opiion N-691 (1987), this 05ce 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.’ 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 facuhy members,
          including the authority to limit the number of vendors and to
          scruthk the quality of their products. Article 6228a-5, V.T.C.S.,
          does not prohibit an institution of higher learning from limiting tbe
          number of vendors offering products to its faculty members under an
          optional retirement program.




                                                      DAN      MORALES
                                                      Attorney General of Texas

WILL PRYOR
Fii Assistant Attorney General

MARYKELLER
Deputy Attorney General for Litigation

RENEAI-IlcRs
State Solicitor

MADELEINE B. JOHNSON
Chair, opinion Committee

Prepared by Mary R. Grouter
Assistant Attorney General

       3AttomyGemra10piionlM~91      addmsed the relationshipbehveenV.T.C.S. article 6228a-5
andthepredecssorsIaMetochaptcr83Oofthe Oovemnmt Code, chapter36 of Title llOB, V.T.C.S.
@‘m&md, renumberedand revisedby Acts 1989,71st L.-q.,ch. 179,s 1, at 589).


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