Opinion letter to the Honorable John Twitty

.JOHN C. DANFORTH ATTORN£Y GENCAAL.. OFFICES OF THE ATTORNEY GENERAL OJI.l" MIS§OUR.I J EFFERSON GITY April 2 , 1974 OPINION LETTER NO . 23 Honorabl e John Twitty Representative , District 130 Room 235B , Capitol Building Jefferson City , Missouri 65101 Dear Representative ~vit ty : This l etter is in response to your r equest for an opinion on the fol l owing question : "Shoul d the Public Schools , through school boards , superintendents , or any teacher or- ganizations , have t he priv ilege or right to dictate to its employees , from whom , cer.tain named companies or individuals, they must purchase their voluntary Tax Shelter ed Annu- ity Contracts under Section 403(b) of the Internal Reve nue Code in order for the school to honor them? " Tax- sheltered annuities for public school teachers are au- thorized by Se ction 403(b) of the Internal Revenue Code of 1954 , as amended. This section provi des that the amounts contributed by an employer for an annuity contract will not be taxabl e to t he employee as compensation a t the time such contributions a re made (within limits set in the statute and not relevant here) . The r egulations accompanying Section 403(b) state that the purchase of the annuity contract for a teacher may be made as a supplement to past or current compensation, or it may be made pursuant to an agreement by the teacher with the school to take a reduction in salary in exchange for the annuity . I . R. S . Reg . §l . 403(b) - l(b ) (3) (i). Therefore , the statement of your question presents a misunderstanding of the laws authorizing the· annuities . The an- nuities are purchased by the school district pursuant to an agree- ment with the teachers and not by t he teachers themselvesi it is _ ...-...... :· ~':': , _ __::,~::.:.----·· ... Honorable John Twitty this feature which al l ows the postponement of tax liability by the teachers. Your opinion request inquires about the validity of certain restrictions allegedly placed on insurance companies desiring to sell annuity contracts to schools for the benefit of teachers. This office understands that the general practice of school districts is that once a board of education authorizes the procedure for the with- holding of monies , companies which sponsor the tax sheltered annuity plans· are then allowed to present their proposal to the teachers. Your opinion request indicates that, through the action of either the school board, the superintendent or a teachers ' organization , certain insurance companies or agents are denied the opportunity to present proposals to the teachers and thereby are not allowed the opportunity to compete for the underwriting of tax sheltered annu- ity plans. The reason for this denial is not set out in your opin- ion request. This office has recently conducted an investigation into the insurance purchasing practices of school districts relative to their fire, content , and vehicle coverages . The investigation disclosed that n\.unerous school districts were. limiting the companies which could compete for tht=> 'mrlt=>r"~AJr i t.ing of such coverages by est.abli::-:h-- i11g :;.:-es i.:.ric L.i..ow:> l.imi ting competing companies to those which either reside in, pay taxes in or maintain offices in that school district. In response to the findings of the investigation, this office is- sued Advisory Guidelines which determined that such restrictions were contrary to state and federal restraint of trade laws. Opin- ion No. 275, Advisory Guidelines , 1973, copy enclosed . However, your request does not indicate on what grounds spe- cific companies are refused the opportunity to sell annuities in t he district . Therefore, this office is unable to render a spe- cific opinion on the validity of any such restrictions under state and federal l aws including laws prohibiting the illegal restraint of trade. · · Enclosure : . Op. No . 275, Yours ~(l very truly, . 0-----l'._:x:, JOHN C. DANFORTH Attorney General Advisory Guidelines , 1 973 -2-