                             QBfficeof t@ PXttornep65enerat
                                           &date of Qikxae
DAN MORALES
 ATTORNEY
       GENERAL                               October 20,1993

     Honorable John D. Wbitlow                           Opiion No. DM-265
     Criminal District Attorney
     Cslboun County                                      Re: Whether the annual distribution of
     P.O. Box 1001                                       extra interest by the Texas County and
     Port Lavaca, Texas 77979                            District Retirement System to annuitants
                                                         violates article III, section 52 of the Texas
                                                         Constitution (RQ-569)

     Deer Mr. Whitlow:

             You ask whether the annual distribution of extra interest by the Texas County and
     District Retirement System to an&ants violates article JH, section 52 of the Texas
     Constitution.     This provision prohibits the legislature from authorizing a political
     subdivision “to lend its credit or to grant public money or thing of value in aid of’ any
     private individual or entity. In particular, you are concerned that this practice may run
     afoul of article III, section 52, be-cause it prohibits a city or county, in your words, “from
     giving away [] public monies for previously rendered services.” You state that “Article
     III, Section 52, is violated by the distribution of the extra checks when such additional
     be&Its are above what they received under a prior valid existing contract for no
     additional consideration.” We disagree with your conclusion because we do not believe
     that the distribution of the extra interest constitutes unbargained-for, retroactive
     compensation.

             Article XVI, section 67 of the Texas Constitution authorizes the legislature to
     enact “general laws establishing systems and programs of retirement and related disability
     and death benefits for public employees and officers.” Tex. Const. art. XVI, 3 67(a)(l).
     With respect to local retirement systems, article XVI, section 67 requires the legislature to
     provide by law for “a statewide system of benefits for the officers and employees of
     counties or other political subdivisions of the state in which counties or other political
     subdivisions may vohmtarily participate.” Id. 3 67(c)(l)(B).       It further provides that
     “[blenefits under these systems must be reasonably related to participant tenure and
     contributions. ” Id. 3 67(c)(2). l

             lArUcleXVI, section67 of the Texas Constitutionalso prevtdesthat lawsestablishingretirement
     systemsin effect at the time of its adoption remain in effea. Tex. Const. art. XVI, 8 67(a)(4). That
     provisionwas adoptedin 1975. See S.J.R 3, Acts 1975,64th Leg.. at LXXXII. Priorto 1975, the system
     was authorizedhy articleXVI, section 62, which was repealedwith the ratificationof articleXVI, section
     67. L,egislaUonestablishing the system was enacted in 1%7. Acts 1%7, 60th Leg., ch. 127, at 240.
     Originallyenaetedas article6228g, V.T.C.S., that statuteis now woditied in title 8 of the Cbvemment
     cede.


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Honorable John D. Whitlow - Page 2            (DM-265)




         The Texas County and District Retirement System (the “retirement system”) is
governed by title 8, subtitle F of the Government Code, and the management of the
retirement system’s assets is specifically governed by subchapter B of chapter 845 of that
subtitle. See Gov’t Code § 845.103 ef seq. Section 845.309 of the Government Code
requires the retirement system to deposit all income from investments into an interest fund,
and to transfer money from the interest fund on December 31st of each year in accordance
with section 845.315.

        Generally, section 845.3 15 provides for the transfer of the monies representing
“current interest” and monies in excess of that amount to various retirement system timds
and accounts. (The “current interest rate” is computed pursuant to section 845.314. It
may not exceed seven percent. Id, 8 845.3 14.) Subsection (a) of section 845.315 requires
the retirement system’s board of trustees to transfer monies constituting interest at the
“current interest rate” from the interest fbnd to several other specified funds. Id.
$845315(a).      Subsection (b) requires the board of trustees to transfer any remaining
timds to the “general reServes account” of the endowment fund as it determines necessary
(i) to provide adequate reserves against insufficient future earnings and special and
contingency requirements, and (ii) to provide for the administrative expenses for the
retirement system for the following year. Id. 5 845315(b).          Finally, subsection (c)
provides that “[a]fter the requirements of the general reserves account of the endowment
fund have been satisfied, the board of trustees shall transfer any amount remaining in the
interest lktd to the distributive benefits account of the endowment fund.” Id.
9 845.315(c); see also id. $845.310(b).

       Payments from the “distributive benefits account” are governed by section
845.3 10, subsection (e) of which provides in pertinent part:

               If the board of trustees determines that the amount credited to
          the distributive benefit account on December 31 of any year is
          sufficient to do so, the board by resolution may:



               (2) authorize the distribution and payment of all or part of the
          money credited to the account to persons who were amtuitants on
          that day in the ratio of the rate of the monthly benefit of each
          annuitant to the total of all annuity payments made by the system for
          the final month of the year.
It also authorizes the board of trustees to distribute funds from the distributive benefit
account to the “subdivision accumulation kmd,” id. $ 845.310(e)(l), and to each member’s
individual account in the “saving find” and each participating subdivision’s account in the
“subdivision accumulation Smd” as supplemental interest, id. 5 845.3 10(e)(3). In enacting
this provision, the legislature has clearly authorized the retirement system to distribute
extra interest to annuitants if the distributive benefit account contains sufficient funds.



                                         p.    1391
Honorable John D. Whitlow - Page 3             (DM-265)




The originai statute establishing the retirement system contained an almost identical
provision. See Acts 1%7,6Oth Leg., ch. 127,§ V, subset. 7(b), at 251.

         The retirement system is funded by contributions from both members and their
political subdivision-employers.     Each member makes deposits from his or her
compensation on a monthly basis at a rate set by the political subdivision, and the political
subdivision matches that deposit. See Gov’t Code $4 844.702, 844.703. You do not
appear to contend that political subdivisions’ contributions to the retirement system on
behalf of employees constitute an unconstitutional grant of public monies. As the
retirement system notes in its brief, it is well-established that pensions, and by analogy
contributions to retirement fbnds, constitute compensation for services rendered and do
not run afoul of article III, section 52 of the Texas Constitution. See Byrd v. Ci@ of
LMZus, 6 S.W.2d 738, 741 (Tex. 1928) (“The right to participate in [the pension] fund is
therefore not a gratuity or donation in any sense. It is as much a part of the agreed
compensation as is the monthly stipend.“); Ciiy of Dullus v. Trammel, 96 S.W.2d 110,
111 (Tar. Civ. App.--Dallas 1936), rev’don othergroun& 101 S.W.2d 1009 (Tex. 1937)
(pension paid to retired police officer was earned but unpaid compensation); see also
Devon v. Cify of San Antonio, 443 S.W.2d 598 (Tex. Civ. App.--Waco 1969, writ refd)
(police and fire fighters pension plan does not violate article III, section 53 of the Texas
Constitution because deferred pension payment is a part of the compensation employee
receives for services rendered).*

         Once contributions are transferred to the retirement system, the funds are held in
trust for the benefit of the members and retirees of the system, Gov’t Code 5 802.201, and
must be managed by the system in accordance with chapter 845 of the Government Code.
As discussed above, chapter 845 provides that the distributive benefit account consists of
interest earned in excess of the amount necessary to pay interest on the balances of the
retirement system’s other funds, and to provide for reserves and for the retirement system’s
administrative expenses. As interest earned on the retirement system’s investments, the
extra interest distribution is indistinguishable from other benefits paid to annuitants, except
that it is not automatic and varies in amount from year to year depending upon the
retirement system’s earnings. Furthermore, the distributive benefit account has been a
feature of the retirement system since it was first established in 1967. Therefore, we do
not believe that the distribution of extra interest constitutes unbargained-for, retroactive
compensation because the statutory authority for such distributions existed at the time
current annuitants became members of the retirement system. For these reasons, we
conclude that annual distribution of extra interest by the retirement system to annuitants


         *Devon,443 S.W.Zd598, does not supportyour contentionthat the distributionof extra interest
violatesarticle ll1, section52. In that case, the comt determinedthat a police offker who left the force
More he.becameeligible for retirementbenefitswuld not recoverhis contributionto the pension fund
becauseit was poblic moneyto which he was not entitledunderhis contractof employmentor the pension
statute. The paymentat issuehere is not a refundof ao employee’scontributionsto the retirementsystem,
but rather a distributionof excess interest earned by the retirement system’sinvestmentswhich is
cxpnssly authorizedby chapter845 of the GovernmentCode.



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Honorable John D. Whitlow - Page 4                (DM-265)




pursuant to section 845.310(e)(2) of the Government Code does not violate article III,
section 52 of the Texas Constitution.3

                                       SUMMARY

                 The annual distribution of extra interest by the Texas County
            and District Retirement System to annuitants pursuant to section
            845.3 lo(e)(Z) of the Government Code does not violate article III,
            section 52 of the Texas Constitution.




                                                             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




         3You do not ask us to considerwhether the distributionof extra interestto annoitantsviolates
articleIII, section 53 of the Texas Constitutionwhich speciiicallyprohibitsthe legislahue from granting
“any extra compensation,fee or allowance to a public officer. after service has been rendered,or a
wntraet has been enteredinto. . _” For the reasonsstatedabove,we also believe that the distributionof
extrainterestto anmdtantsdoes not violatearticleIII, section 53 of the Texas Constitution.


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