                       The Attorney                  General of Texas
                                            August      20,    1980
MARK WHITE
Attorney General
                   Honorable Oscar H. Mauzy                      Opinion No. NW-22 1
                   Chairman
                   Senate Education Committee                    Re:    Whether     section      3.02(a)(lE).
                   Capitol Building                              Education    Code,     relating     to the
                   Austin, Texas                                 computation    of retirement      benefits,
                                                                 should be applied retroactively

                   Dear Senator   Mauzy:

                          ~You hsve raised three questions concerning   section 3.02(a)(18) of the
                   Education   Code [formerly   section 3.02(a)(21)] which, a,s amended in 1979,
                   provides as follows:

                                    ‘Best-five-years-average       compensation’ means the
                               average annual compensation          received by the member
                               as an employee         &ring the 5 years of membership
                               service (whether         or not consecutive)     in which the
                               member       earned     the highest    annual compensation.
                               Compensation        in excess of the limits established        in
                               the definition        of ‘annual compensation’         shall be
                               excluded in calculating        the ‘beat-five-years-average
                               compensation’ except that such average for a person
                               retiring    on or after the date that such limits are
                               removed shall be based on actual compensation               paid
                               or payable for service as an employee.

                   The term “annual compensation”        is defined   in section   3(a)(12) as:

                                    . . . the compensation  that is paid or payable to an
                               employee by his employers for service during a school
                               year, except that compensation        in excess of $25,000
                               for school years after September        1, 1969, but before
                               September       1, 1979, and compensation      in excess of
                               $8,400 for school years prior to September           1, 1969,
                               shall not be included as annual compensation.

                   You state that section 3.02(a)(lE) is being given “retroactive   effect” by the
                   Teacher Retirement     System, the result being that individuals     with annual
                   salaries in excess of $25,000 who retire after August 27, 1979, the effective
                   date of the amendment,      will receive retirement benefits calculated   on the
                   basis of their full salary, even though at the time they performed          their




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Honorable   Oscar H. Mauzy       - Page Two      (W-221)




services the statute  provioed that retirement   would be calculated     on a maximum of
$25,000 annual salary and even though contributions    to the retirement   system on their
behalf were limited to the first $25,000 annual earnings.   You have asked the following
questions:

                 1. ls it proper for the Teacher Retirement   System to apply
             the 1979 amendments       retroactively to accomplish  the result
             described above?

                  2. ls the manner in which the amendment      is being applied,
             as described above, in violation of article I, section 16 of the
             Constitution   of the State of Texas as constituting    retroactive
             legislation?

                  3. ls the manner in which the amendment      is being applied,
             as described above, in violation of article III, section 44 of the
             Constitution   of the State of Texas inasmuch as it is a grant of
             extra compensation     after the public service has already been
             performed?

        Your first and second questions are essentially          the same and we will therefore
consider    them together.        By virtue of amendments        passed by the 66th legislature,
section   3(a)@) now provides          that the best-five-years-average         compensation     for a
person who retires on or after the date that the limits set forth in section 3.02(a)(12)
are removed         shall be based on the actual compensation             paid or payable to the
employee      for services     rendered.     Section   3.02(a)(12), as amended,       provides     that
compensation       in excess of $25,000 for school years after September 1,1969, but before
September      1, 1979, and in excess of $8,400 for school years prior to September            1, 1969,
shall not be included as annual compensation.             The effect of these provisions is that
persons retiring “on or after the date that such limits are removed,” i.e., September 1,
1979, will have their best-five-years-average         compensation      calculated   on the basis of
actual compensation        paid or payable to them rather than on the basis of their salary as
limited by section 3.02(a)(12).

        In our view, this legislation is not “retroactive”    in the sense that the term is used
in article I, section 16 of the Texas Constitution,            which provides that “No bill of
attainder,    ex post facto law, retroactive     law, or any law impairing the obligation of
contracts,    shall be made.”       Retroactive legislation    is generally   understood   to mean
legislation   that affects acts or transactions    that occurred before the legislation       came
into effect.      See 53 Tex. Jur. 2d Statutes       §28 (1964). The amendment           to section
3(a)(l8), however, affects only those individuals          who retire on or after September         1,
1979, which date is subsequent to the effective          date of the amendment,       and then only
to the extent that their best-five-years-average           compensation     will be computed     in a
different   manner.

        Even assuming that this legislation    were retroactive,      moreover,     it would not be
prohibited   under article I, section 16 of the constitution.     The  constitutional    prohibition
against retroactive     legislation  has been construed      to apply only to laws that divest




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,   ,



        Honorable     Oscar H. Mauzy     - Page Three     (m-221)




        individuals  of vested rights acquired under existing laws, see, s,          State Board of
        Registration   for Professional   Engineers v. Wichita Engineer=      Co., 504 S.W. 2d 606
        (Tex. Civ. App. - Fort Worth 1973, writ rePd n.r.e.1; Texas Water Rights Commission v.
        Wright, 464 S.W. 2d 642 (Tex. 19711, and section 3.02(a)(lE) does not divest anyone of
        any such vested right.      See also Attorney General Opinion H-1121 (19781, H-634 (1975)
        (legislature may retroactively    place obligations on the state and its agencies).

               You next ask whether the amendment        violates article III, section 44 of the Texas
        Constitution  on the ground that it constitutes     a grant of additional compensation      after
        the public service bs been performed.         Article   III, section 44  provides, in pertinent
        part:

                           The Legislature    shall provide by law for the compensation   of
                      all officers,     servants,    agents   and ~public contractors,   not
                      provided    for in this Constitution,       but shall not grant extra
                      compensation      to any officer,     agent, servant,   or public con-
                      tractors,  after such public service shall have been performed or
                      contract entered into, for the performance        of same; . . .

        As the interpretive    commentary    and the leading cases construing this provision clearly
        indicate, the prohibition   against granting additional compensation     for services already
        rendered   was intended    to prevent payments      in the nature of gratuities   for services
        already performed.      See, s,    Byrd v. City of Dallas, 6 S.W. 2d 738 (Tex. Comm’n.
        App. 1928); City of Sfintonio       v. Baird, 209 S.W. 2d 224 (Tex. Civ. App. - San Antonio
        1948, writ ref’d).

               Byrd v. City of Dallas, w,        involved a challenge to statutes        that authorized
        cities with a population exceeding 10,000 to pay pensions to policemen and firemen who
        served 20 years in either department,       filed written statements    indicating their desire
        to become beneficiaries,    and contributed      a portion of their salary to the fund. The
        Texas Supreme Court ruled that the statutes          did not violate article III, section 44 of
        the Texas Constitutution.    After noting that the purpose of article III, sections 44, 51,
        52 and 53 was “to prevent the application        of public funds to private purposes; in other
        words,    to prevent    the gratuitous     grant    of such funds to any individual            . . .
        whatsoever,” the court observed that:

                           If the pension provided    for in this act is a gratuity    or
                      donation    to the beneficiary,   it is clearly forbidden  by the
                      fundamental    law.   On the other hand, if it is a part of the
                      compensation     of such employee    for services rendered  to the
                      city, or if it be for a public purpcee, then clearly it is a valid
                      exercise of the legislative power. 6 S.W. 2d at 740.

        The pension    plan adopted    by the City of Dallas did not, in the Court’s view, violate     this
        provision:

                           The plan.. . contemplates.     . . that as compensation        the
                      officers and employees named shall receive the salaries agreed
                      upon to be paid periodically    and shall be entitled to participate




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Honorable    Oscar H. Mauxy      - Page Four        (MW-221)




              in the fund provided for pensions according           to the statutory
             plan.     The law pertaining    to such employment       is necessarily     a
             part of the contract         of employment      and is read into the
              contract    as fully as though it had been actually incorporated
              therein. . . . When an. . . employee. . . evidences his assent to
              the pension scheme, he thereupon         has a binding contract        with
             his employer       for the stipulated     salary and likewise        to be
             ‘entitled to participate’ in the fund upon the terms prescribed.
             The right to participate     in such 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.    6 S.W. 2d at 740 - 741.
             IEmphasis added).

        The amendment       to section 3.02(a) became effective         August 27, 1979, and under
its terms, only indiviaals         who retire on or after September           1, 1979, sre affected.
Necesssarily,     anyone who will be affected           would have been employed           as of the
effective   date of the amendment,        and would therefore      still be performing    services at
that time. Accordingly,        under the rationale of Byrd and subsequent cases, see City of
San Antonio v. Baird, -,           the benefits created by the amendment,          which accrue only
to indivi&als      still employed and, therefore,      still performing     services on Algust 27,
1979, do not amount to a gratuity or &nation or provide additional compensation                  after
services have already been rendered.           Consequently,    the amendment       &es not violate
article III, section 44 of the Texas Constitution.

                                          SUMMARY

                  Section 3.02(a)(18) of the Education Code does not violate
             article    I, section 16 or article Ill, section 44 of the Texas
             Constitution.




                                               2zL*

                                                      Attorney   General   of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

Prepared    by Jon Bible
Assistant   Attorney General

APPROVED:
OPINION COMMITTEE
C. Robert Heath,    Chairman
Jon Bible
Susan Garrison
Rick Gilpin
Nancy Lynch




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