OFFKE OF THE ATTORNEY GENERAL. STATE OF TEXAS 

JOHN CORNYN 

January 12,200O 

The Honorable Jose R. Rodriguez 

El Paso County Attorney 

500 East San Antonio, Room 203 

El Paso, Texas 79901 

Opinion No. JC-0165 

Re: Constitutionality of “early exit” plan for 

school district employees, and related questions 

(RQ-0055-JC) 

Dear Mr. Rodriguez: 

You ask a number of questions regarding an independent school district’s proposed 

implementation of an “early exit” plan for school district employees. In essence, you ask whether 

the plan would be valid under Texas law and, if not, what changes would make it valid. While we 

conclude that the school district may be able to fashion a plan that meets the district’s goals and 

complies with state law, we do not determine whether the plan as you have described it is legal in 

all respects. As a general rule, a school district has only those powers expressly conferred on it by 

law or necessarily implied from powers so conferred. See Harlingen Indep. Sch. Dist. v. C.H. Page 

& Bras., 48 S.W.2d 983, 986 (Tex. Comm’n App. 1932, holding approved). A definitive 

determination ofwhether the plan you describe is authorized by law would require a thorough review 

of the complete details of the entire plan in light of the particular school district at issue and the 

particular facts surrounding the plan. Such a determination would best be made by a legal advisor 

to the district who is in a position to review a proposed plan and fully analyze the applicable state 

and federal laws with the necessary factual information at hand. This office normally does not 

construe contracts nor make findings of fact in the opinion process. See Tex. Att’y Gen. Op. Nos. 

JC-0152 (1999) at 12; JM-697 (1987) at 7. 

You tell us: “The board of trustees of an independent school district organized under Texas 

law (the “District”) is considering adoption ofa plan whereby one or more employees ofthe District 

meeting certain eligibility requirements and agreeing to participate in the plan would receive certain 

payments from the District in the future in exchange for the “early exit” of the employee 

(the “Plan”).” Letter from Honorable Jose R. Rodriguez, El Paso County Attorney, to Honorable 

John Comyn, Texas Attorney General, at 1 (Apr. 19, 1999) (on file with Opinion Committee) 

[hereinafter “Request Letter”]. To be eligible, an employee must be on active service and have more 

than ten total years of employment with the District. Id. The Plan would apply to all District 

employees, which are of four types: continuing-contract employees, term-contract employees, oneyear contract employees, and at-will employees. Id. at l-2. 
The Honorable Jose R. Rodriguez - Page 2 (JC-0165) 

An eligible employee must exit the District by retirement or resignation within the three-year 

exit period of the Plan. If the employee exits in the first year, he will receive payments totaling 

105% of his basic annual salary. If he leaves in the second year, he will receive one hundred percent 

of his salary, and if he leaves in the third year he will receive ninety-five percent of his salary. In 

each case, the salary will be paid in equal monthly installments over a period of eight years 

beginning on the exit date. A participating employee who is eligible for retirement will also be paid 

one hundred percent of his accumulated sick leave in three installments over a period of 

approximately twenty-four months. The current District policy, you tell us, is to pay a retiring 

employee fifty percent of his accumulated sick leave in a lump sum immediately upon exit or soon 

thereafter. Id. at 2. 

Eligible employees will be given a short period in which to apply for participation in the Plan 

before the Plan’s first year. “Once the ‘window’ period closes, Plan eligibility for remaining 

employees immediately ceases, and no further participation in the Plan will be allowed by the 

District.” Id. 

Employees must agree to other terms in exchange for the payments. “Under the Plan, a 

participant would be required to execute a release and waiver of all preretirement claims against the 

District, including without limitation any claims for race, sex, age, disability, ethnicity, or other 

discrimination, and would be required to agree not to seek reemployment in the future with the 

District without the District’s consent.” Id. at 2. The Plan might also include a “future performance” 

requirement whereby the employee must perform five to eight days of service for the District in each 

of the eight years during which payments are being made. Id. You tell us that because payments 

under the Plan would be made during the course of a number of different fiscal years, the Plan would 

include a “non-appropriation clause.” Id. 

The purpose of the Plan is to save money: 

Based upon current feasibility studies, the District believes 

that, through the operation of the Plan, a significant number of 

higher-paid, more-experienced employees will choose to participate 

in the Plan and retire or resign from the District sooner than they 

might otherwise do. As such, the District expects to be able to 

replace such early retirees/resignees with entry-level or less 

experienced [yet still competent] persons with lower salaries or 

wages. The District hopes to achieve substantial savings by virtue of 

the “spread” between the salaries or wages of the early 

retirees/designees and the lower salaries or wages of their 

replacements. The District feels that the Plan will prove financially 

beneficial to the District. The District is interested in implementing 

the Plan because of the anticipated savings. 

Request Letter, supra, at 3. 
The Honorable Jose R. Rodriguez - Page 3 (JC-0165) 

With this background, we turn to your questions. 

Ouestion No. 1 

Is the Plan in its stated form valid under the Texas Constitution? 

Would your answer change if one or more of the four categories of 

employees were excluded from eligibility under the Plan? Would 

your answer change if the Plan limited eligibility to employees who 

are age 40 or above [i.e.- potential claimants based upon age under 

the Age Discrimination in Employment Act and under Texas Labor 

Code § 21.05 1 et. seq.]? 

Ouestion No. 2 

With respect to eligible employees who participate in the Plan during 

the term of their existing contracts, is the Plan in its stated form valid 

under the Texas Constitution? Would your answer change if the Plan 

limited such persons from electing early resignation or retirement 

until the second or third year of the Plan and required continuing 

performance of services for the District until such time? Would your 

answer change if one or more of the four categories of employees 

were excluded from eligibility under the Plan? 

While you ask about the Plan’s validity under the Texas Constitution generally, your letter 

suggests that you are concerned in particular about constitutional prohibitions on the gratuitous grant 

of public funds to private individuals. Article III, section 52 of the Texas Constitution prohibits the 

legislature from authorizing “any county, city, town or other political corporation or subdivision of 

the State to lend its credit or to grant public money or thing of value in aid of, or to any individual, 

association, or corporation whatsoever.” TEX. CONST. art. III, 5 52(a). Article III, section 53 

provides that the legislature “shall have no power to grant, or to authorize any county or municipal 

authority to grant, any extra compensation, fee or allowance to a public officer, agent, servant or 

contractor, after service has been rendered, or a contract has been entered into, and performed in 

whole or in part.” Id. § 53; see also Harlingen Indep. Sch. Dist., 48 S.W.2d at 986 (article III, 

section 53 applies to school districts). And article XVI, section 6 prohibits appropriations ofpublic 

funds for private or individual purposes, TEX. CONST. art. XVI, 5 6, although it does not bar 

expenditures made for the direct accomplishment of a legitimate public purpose, see Byrd Y. City of 

Dallas, 6 S.W.2d 738,740 (Tex. 1928). Plainly stated, these provisions prohibit a school district 

from using public funds to give away something for nothing. 

Because your question involves compensation to public employees, we focus our analysis 

on the constitutional provision that prohibits a school district from granting extra compensation to 

a public employee after services have been rendered or a contract entered into and performed in 

whole or part. TEX. CONST. art. III, 5 53. Payments made after a service or contract has been 
The Honorable Jose R. Rodriguez - Page 4 (~~-0165) 

performed are normally considered to be “extra compensation” where no consideration is offered 

by the payee for the additional payments. See, e.g., City of Greenville v. Emerson, 740 S.W.2d 10, 

13 (Tex. App.-Dallas 1987, no writ). However, where the payee offers additional consideration for 

the additional payments, there is no violation ofthis constitutional prohibition. See Tex. Att’y Gen. 

Op. No. MW-68 (1979) at 1. Consequently, payments under the Plan by the school district would 

not be unconstitutional if the district received consideration from participating employees in return 

for the payments. Consideration for a valid agreement is defined as either a benefit to the promisor 

or a loss or detriment to the promisee. See Northern Natural Gas. Co. Y. Conoco, Inc., 986 S.W.2d 

603,607 (Tex. 1998). 

For example, courts have long held that the performance of employment duties is 

consideration for retirement benefits, accumulated leave payments, and other post-employment 

payments that are part of the terms of employment, and therefore such payments are not 

unconstitutional gratuities. See, e.g., Byrd, 6 S.W.2d at 740; City of Galveston v. Landrum, 533 

S.W.2d 394, 397 (Tex. Civ. App.-Houston [lst Dist.] 1976, writ refd n.r.e.); Devon v. City of San 

Antonio, 443 S.W.2d 598,600 (Tex. Civ. App.-Waco 1969, writ ref d); City of Orange Y. Chance, 

325 S.W.2d 838,840 (Tex. Civ. App.-Beaumont 1959, no writ); City of San Antonio v. Baird, 209 

S.W.2d 224,225 (Tex. Civ. App.-San Antonio 1948, writ ref d). Surrendering alegal right has also 

been held to be valid consideration. See Northern Natural Gas Co., 986 S.W.2d at 607. 

Accordingly, the District may constitutionally be able to offer the Plan to employees who are 

currently working under a contract with the District. 

The contract may be amended or a new contract entered into, provided new consideration is 

given. In City of Greenville v. Emerson, the court held that a new contract with city employees “to 

pay them additional benefits above what they received under a prior valid existing contract for no 

additional consideration” would contravene the constitution. Ciiy of Greenville v. Emerson, 740 

S.W.2d at 13. This statement implies that a new contract with new consideration would have been 

valid. And in Attorney General Opinion MW-68, this office considered whether the constitution 

prohibited a school district from increasing contract teachers’ salaries after the teachers had begun 

performing under their contracts. Tex. Att’y Gen. Op. No. MW-68 (1979) at 1. Certainly, the 

opinion stated, additional compensation could not be paid for past services rendered. “The school 

board may, however, renegotiate a contract already performed in part where new consideration 

passes to the district in exchange for new benefits provided.” Id. at 2. 

In our view, the consideration for an employee’s participation in the Plan you have described 

would be those things in the Plan to which the employee agrees: leaving employment, waiving 

discrimination claims, foregoing future employment with the District, and the like. The District 

benefits from the savings in salaries, the release of discrimination claims, and other things that you 

list in your letter. In other words, the employees would provide consideration, and the District 

would not give away something for nothing. 

Whether any particular employee provides valid consideration to the school district for 

payments under the Plan will depend upon the particular facts surrounding that employee and may, 
The Honorable Jo& R. Rodriguez - Page 5 (X-0165) 

as your question suggests, depend upon the type of employee. You tell us that the Plan would apply 

to all four types of District employees: at-will employees, one-year-contract employees, termcontract employees, and continuing-contract employees. 

Every teacher, principal, librarian, nurse, or counselor must be employed under a contract. 

TEX. EDUC. CODE ANN. 5 21.002 (Vernon 1996). Other employees may work at the will of the 

District. Id. At-will empIoyees are employees who work without a contract and who may be 

dischargedatanytime. SeeMontgome~CountyHosp.Dist. v.Brown,965 S.W.2d501 (Tex. 1998). 

Probationary-contract employees are employed for a contract term not exceeding one school year. 

TEX. EDUC. CODE ANN. 5 21.102 (Vernon 1996). A term-contract employee is employed by a 

district for a fixed term not to exceed five school years, at which point the contract may be renewed. 

Id. 94 2 1.201, .205-.209. A continuing-contract employeeneed not have his orhercontract renewed 

in order to continue working for the district: “Each teacher employed under a continuing contract 

is entitled to continue in the teacher’s position or a position with the school district for future school 

years without the necessity for annual nomination orreappointment”unti1 the person’s employment 

ends by resignation, retirement, discharge, or by several other listed means. Id. $ 21.154. 

In order for the Plan to be constitutional with respect to a particular employee, the District 

must receive valid consideration from the employee for payments under the Plan. The consideration 

given by an employee will vary with each employee depending upon the employee’s current 

employment status with the District. Thus, payments under the Plan must be commensurate with 

the consideration given by each employee. For example, an at-will employee, who as a general rule 

could be terminated at any time, and thus, need not be offered an incentive to leave, in agreeing to 

resign does not provide the same level of consideration, and thus would not be entitled to the same 

level ofpayments as an employee with five years remaining on her contract. Any promise to or from 

an at-will employee is “illusory” and does not constitute consideration if the promise depends upon 

a period of continued employment, because either the employer or employee may terminate the 

employment at will. See Light v. Centel Cellular Co. of Tex., 883 S.W.2d 642, 644 (Tex. 1994). 

“At-will employees may contract with their employers on any matter except those which would limit 

the ability of either employer or employee to terminate the employment at will.” Id. 

The constitutional validity of the Plan will depend upon the existence of an enforceable 

agreement supported by adequate consideration with each participating employee. There must be 

evidence that the school district and participating employees formed an agreement before the 

employee performs the consideration offered and before payments under the Plan begin. We believe 

that a contract that lacks specific identification of enforceable consideration offered by the employee 

will not support payments under the Plan and will render the Plan unconstitutional at least as to that 

employee. Whether any particular employee provides consideration to the District in return for 

payments under the Plan is a question of fact beyond the scope of the opinion process. 

You also ask whether our answer would change if the Plan were limited to employees who 

are age forty or above, that is, those who are potential age-discrimination claimants. You tell us that 

release of age discrimination claims would be of significant benefit to the District. Request Letter, 
The Honorable Jose R. Rodriguez - Page 6 (~~-0165) 

supra, at 2. As we have said, surrendering a legal right can constitute valid consideration, See 

Northern Natural Gas. Co., 986 S.W.2d at 607. Thus, with respect to those employees who are 

potential claimants, the District would receive consideration in return for the post-employment 

payments. And, provided some other consideration is given for the payments, a Plan that includes 

an age-discrimination waiver for all eligible employees is not necessarily invalid with respect to 

employees who are under age forty and thus not potential age-discrimination claimants. 

Nor would offering the Plan only to employees aged forty and above necessarily violate 

federal and state anti-discrimination laws. The federal Age Discrimination in Employment Act 

(“ADEA”) forbids an employer to, among other things, “discharge any individual or otherwise 

discriminate against any individual with respect to his compensation, terms, conditions, or privileges 

of employment, because of such individual’s age.” 29 U.S.C. 4 623(a)(l) (1994). A “discharge” 

within the meaning of the ADEA may be constructive if a reasonable person in the employee’s 

position would have felt compelled to resign under the circumstances. Christopher Y. Mobil Oil 

Corp., 950 F.2d 1209, 1214 (5th Cir.), cert. denied, 506 U.S. 820 (1992). “An attractive early 

retirement offer, however, is not a constructive discharge merely because it creates a strong incentive 

to retire; an early retirement option can constitute a constructive discharge only if the employee 

shows that it sufficiently alters the status quo that each choice facing the employee makes him worse 

off.” Id.; see 29 U.S.C. 5 623(f)(2)(B)(ii) (1994). The same rule would apply to an age 

discrimination case brought under the Texas Commission on Human Rights Act (“TCHRA”), which 

also bars employment discrimination on the basis of age. See TEX. LAB. CODE ANN. 4 21.051 

(Vernon 1996); Farrington v. Sysco Food Servs., Inc., 865 S.W.2d 247,251 (Tex. App.-Houston 

[lst Dist.] 1993, writ denied) (courts may look to federal case law interpreting Title VII when 

determining burdens of proof under TCHRA). Thus, we find no law that would render the Plan 

invalid merely because it is offered only to older employees with a requirement that they waive agediscrimination claims. 

While general releases of employment claims are normally enforceable, see Rogers v. 

General Elec. Co., 781 F.2d 452,454-55 (5th Cir. 1986) they have their limitations. For example, 

an employee may validly release only those federal Title VII claims that arise from discriminatory 

acts that precede the date of execution of the release. Id. at 454. Some federal employment 

discrimination statutes have particular requirements that must be met to create a valid release. See, 

e.g., Oubre v. Entergy Operations, Inc., 522 U.S. 422,427 (1998) (“An employee ‘may not waive’ 

an ADEA claim unless the employer complies with the statute.“). And certain claims may not be 

waived at all. For example, a pre-injury release of a claim for gross negligence is void as against 

public policy. SeeMemorialMed. Ctr. ofEast Texas v. Keszler, 943 S.W,2d433,435 (Tex. 1997). 

And, certainly, a release will not be enforceable if it was entered into under duress, fraud, mistake, 

or the like. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171,178 (Tex. 1997). A waiver 

that is not enforceable will not constitute consideration for the Plan. Whether any particular waiver 

will be enforceable will depend upon the particular terms of the waiver, the facts surrounding its 

execution, and the alleged injury for which the waiver is asserted. 
The Honorable Jose R. Rodriguez - Page 7 (JC-0165) 

Question No. 3 

Is the “future performance” requirement of the Plan essential to its 

validity under the Texas Constitution? Would your answer change 

if the Plan excluded the “future performance” requirement for 

continuing contract and/or term contract employees? Would your 

answer change if one or more of the four categories of employees 

were excluded from eligibility under the Plan? 

Ouestion No. 4 

If a participant is unable to meet the “future performance” 

requirement due to death or disability, is it valid under the Texas 

Constitution for the Plan to still provide for payment of benefits in the 

future to the participant or his/her beneficiary? Would your answer 

change if one or more of the four categories of employees were 

excluded from eligibility under the Plan? 

Ouestion No. 5 

If a participant is unable to meet the “future performance” 

requirement for any reason, is it valid under the Texas Constitution 

for the Plan to mandate forfeiture of future, but not past, payments 

under the Plan? Would your answer change if one or more of the four 

categories of employees were excluded from eligibility under the 

Plan? 

We understand from your questions that the purpose ofthe future performance requirement 

would be to create consideration for payments under the Plan in order to make it constitutional. As 

we understand the District’s approach, the payments would be made not for work already performed, 

but for work to be performed in the future. 

In our view, the future performance requirement is not essential to the Plan’s constitutional 

validity with respect to any of the categories of employees, provided other consideration is given for 

payments under the Plan. You also ask about the effect of a participating employee’s inability to 

meet the future performance requirement due to death, disability, or any other reason. If an 

employee is unable to meet the future performance requirement for any reason, payments to the 

employee do not necessarily become unconstitutional, since the future performance requirement is 

not essential to the Plan’s constitutionality. However, nothing in the constitution prohibits the 

District from including in the Plan a provision by which payments are discontinued ifthe employee 

cannot perform. 
The Honorable Jo& R. Rodriguez - Page 8 (K-0165) 

Question No. 6 

Would the Plan be valid under the Texas Constitution if the sick leave 

payment under the Plan to a participant consisted of 100% of his/her 

accumulated sick leave payable over 24 months, as opposed to the 

current Districtpolicyofpayment of50%ofhis/her accumulatedsick 

leave in a lump sum? Would your answer change if one or more of 

the four categories ofemployees were excluded from eligibility under 

the Plan? 

You ask whether inclusion in the plan of a sick leave policy that differs from the current sick 

leave policy would render the Plan unconstitutional. A change in a sick leave policy may not be 

made so as to provide additional benefits for work already performed. See Ward v. City of San 

Antonio, 560 S.W.2d 163, 165-66 (Tex. Civ. App.-San Antonio 1978, writ ref d n.r.e.); Tex. 

Att’y Gen. Op. No. DM-129 (1992) at 3. However, like other employment benefits, new sick 

leave policies are not unconstitutional if they form part of the employee’s compensation or if the 

employee otherwise offers additional consideration for the policy. See Tex. Att’y Gen. Op. No. 

MW-221(1980) at 3-4. 

In Ward v. City ojSan Antonio, the court considered the effect of a new state law that 

allowed city fire fighters to be compensated for all of their accumulated sick leave upon retirement. 

The new law became effective on September 1,1975. Under the old law, retiring fire fighters could 

be compensated only for no more than ninety days of accumulated sick leave. The court 

held that although retirees could be compensated for all of their sick leave accumulated after 

September 1, 1975, they could not be paid for more than ninety days of leave that accumulated 

before that date. 

The contract between the parties to this suit prior to 

September 1, 1975, was for the payment of only 90 days of 

accumulated sick leave and an effort to apply the provision of the 

September 1, 1975 amendment to accumulated sick leave in excess 

of 90 days earned prior to September 1, 1975, would impair the 

obligation of the contract as it then existed. The payment of 

more than 90 days sick leave accruing prior to September 1, 1975, 

would be in violation of Art. 3, 5 53 of the Texas Constitution. 

Ward. 560 S.W.2d at 165-66. 

In Ward, the terms of the earlier contract did not change, and thus additional sick leave 

payments would have constituted extra compensation under that contract with no additional 

consideration from the tire fighters. By contrast, under the District’s proposed plan, participating 

employees would provide consideration for payments under the Plan. Consequently, we do not 

believe the Plan’s amended sick leave policy renders the Plan unconstitutional. 
The Honorable Joso R. Rodriguez - Page 9 (JC-0165) 

Ouestion No. 7 

If you believe that the Plan as stated is unconstitutional, but that a 

particular combination of the above-stated basic, additional, or 

alternative elements or features of the Plan would render the Plan 

valid under the Texas Constitution, what are such combination(s)? 

We believe that the Plan you describe may be created in a way that does not violate the Texas 

Constitution. As we have said, however, we are unable to craft a plan for the District in the opinion 

process. While we can advise you on the general legal principles implicated by the proposal, it is 

for the District to determine how it wishes to meet its objectives in compliance with the law and in 

light of the particular factual circumstances at hand. 

Ouestion No. 8 

Are the payments to be made under the Plan an authorized 

expenditure ofthe District’s funds under Section 45.105 ofthe Texas 

Education Code, assuming that the District’s Board of Trustees 

determines that it is in the best interests of the District to implement 

the Plan because ofthe anticipated compensation and wage savings? 

Public funds may not be spent by a school district except as provided by section 45.105 of 

the Education Code. TEX. EDUC. CODE ANN. 5 45.105(a) (Vernon Supp. 2000). State and county 

school funds, which are appropriated to school districts from the state permanent school fund, may 

be used only for the payment of teachers’ and superintendents’ salaries and for any interest on money 

borrowed to pay those salaries. Id. 5 45.105(b). We do not believe that payments under the Plan 

you describe are “salaries” for which state and county funds may be used. But local school funds, 

which come from taxes and other local sources, may be used for salaries and “for other purposes 

necessary in the conduct ofthe public schools determined by the board oftrustees.” Id. § 45.105(c). 

In addition to the authority under section 45.105 to expend local funds for salaries and other 

necessary purposes, school districts have authority over the management of districts in general and 

over employment policies in particular. “The [board ofj trustees as a body corporate [has] the 

exclusive power and duty to govern and oversee the management of the public schools of the 

district.” Id. $11.15 1 (b). With respect to school district employees, “[tlhe board of trustees of each 

independent school district shall adopt a policy providing for the employment and duties of district 

personnel.” Id. 3 11.163(a). The employment policy may specify the terms ofemployment with the 

district. Id. 5 11.163(c). 

Construing the predecessor statutes to sections 45.105, 11.151(b), and 11.163(c), this office 

concluded that school districts have implied authority to pay employees for accrued sick leave. See 

Tex. Att’y Gen. Op. No. DM-48 (1991) at 3. “Clearly, the Education Code authorizes a board of 

trustees to hire employees and to set the terms and conditions of their employment, including their 
The Honorable Jose R. Rodriguez - Page 10 (JC-0165) 

benefits and compensation. We believe these provisions confer upon boards of trustees the implied 

power to adopt policies allowing payment for unused sick leave.” Id. at 2. 

Additionally, several courts and numerous opinions ofthis office have concluded that school 

district trustees have wide latitude to determine what expenditures are ‘*necessary” for public schools 

and thus within the spending authority of section 45.105(c) of the Education Code and its 

predecessor, former section 20.48 of the Education Code. See, e.g., City of Garland Y. Garland 

Indep. Sch. Dist., 468 S.W.2d 110, Ill-12 (Tex. Civ. App.-Dallas 1971, writ refd n.r.e.) (stating 

that trustees could determine whether expenditure for paving streets abutting school property is 

“necessary in the conduct of the public schools”); Tex. Att’y Gen. Op. Nos. DM-48 (1991) at 3 

(concluding that trustees have “broad discretion to expend local school funds”); JM-1265 (1990) at 

4 (concluding that trustees might find college scholarships to be “necessary” in the conduct of the 

public schools”); JM-490 (1986) at 2 (concluding that trustees could determine that crossing guards 

are “necessary”); H-133 (1973) at 5, 7 (trustees could determine that travel and legal expenses of 

trustees were “necessary”); C-601 (1966) at 3-4 (concluding that trustees have discretion to 

determine whether expending surplus money from operation of school cafeteria to provide lunches 

to needy pupils is “necessary cost in the efficient conduct of its public schools”); Tex. Att’y Gen. 

LO-93-93, at 4 (concluding that trustees might find use of local school funds to provide college 

scholarships to be “necessary in the conduct of the public schools”). 

In our view, the authority of a school district to hire employees, set their compensation, and 

establish the terms of their employment could include the authority to offer the type of “early exit” 

incentive you describe. Furthermore, section 45.105(c) broadly authorizes a school district to 

expend local funds “for other purposes necessary in the conduct of the public schools determined 

by the board of trustees.” TEX. EDUC. CODE ANN. 5 45.105(c) (Vernon Supp. 2000) . While the 

determination as to what constitutes a necessary expenditure of public funds is to be made by a 

school district in the first instance, we caution that a district’s decision is subject to judicial review. 

See Tex. Att’y Gen. Op. No. H-133 (1973) at 4. Again, we do not determine whether the particular 

plan you have described in all respects constitutes a permissible expenditure by a school district. 

Question No. 9 

Does the Plan constitute a “deferred compensation plan” within the 

meaning of Section 609.001 et. seq. ofthe Texas Government Code? 

Ouestion No. 10 

May an independent school district adopt a deferred compensation 

plan that does not comply with Section 609.001 et. seq. of the Texas 

Government Code? 

Finally, you ask whether the Plan is a “deferred compensation plan” within the meaning of 

chapter 609 of the Government Code, see TEX. GOV’T CODE ANN. ch. 609 (Vernon 1994 & Supp. 
The Honorable Jest? R. Rodriguez - Page I I (X-0165) 

1999), and whether the District may create a deferred compensation plan that does not comply with 

chapter 609. 

For purposes of chapter 609 of the Government Code, a “deferred compensation plan” for 

employees ofpolitical subdivisions “means a plan established under [subchapterB ofchapter 6091.” 

Id. 5 609.101 (Vernon 1994). Subchapter B of chapter 609 provides for the establishment of a 

401(k) plan or a 457 plan for political subdivision employees. Id. 5 609.102. A 401(k) plan is a 

deferred compensation plan governed by section 40 l(k) of the Internal Revenue Code, and a section 

457 plan is a deferred compensation plan governed by section 457 of the same code. Id. 

5 609.001(10), (II); see 26 U.S.C. $5 401, 457 (1994). To establish a 401(k) or 457 plan, an 

employer must meet a lengthy series of detailed requirements. See 26 U.S.C. $5 401,457 (1994). 

Generally speaking, these plans involve contributions to a trust fund by the employer, the employee, 

or both. Federal income taxes on contributions to these plans are deferred until the contributions are 

paid f?om the fund to the employee, usually upon retirement or other separation from employment. 

Certainly, if the District intends to adopt a deferred compensation plan as that term is defined 

by chapter 609, the District may do so only in compliance with chapter 609. Furthermore, a school 

district may not adopt an analogous plan unless specifically authorized by law to do so. See Tex. 

Att’y Gen. Op. No. JM-1142 (1990) at 26. For example, Attorney General Opinion JM-1142 

concluded that absent express statutory authority, an appraisal district had no implied authority to 

create a local pension plan where state law specifies pension plans or retirement systems in which 

an appraisal district may participate. Id. However, we doubt that the Plan about which you ask can 

be described as “deferred compensation” either within the meaning of chapter 609 or within the 

ordinary meaning of that term. 

To be deferred compensation within the meaning of chapter 609, the Plan must be a 401 (k) 

plan or a 457 plan. While the details of the federal tax statutes make us unable to determine with 

absolute certainty whether the District’s Plan is a 401(k) or 457 plan, from a review of the 

requirements it does not appear to us that the Plan constitutes either one oftheseplans. For example, 

a 401(k) plan must be a pension, profit-sharing, or stock bonus plan, see 26 U.S.C. $401(a) (1994), 

and a pension plan is described by the Internal Revenue Service as “a plan established and 

maintained by an employer primarily to provide systematically for the payment of definitely 

determinable benefits to his employees over a period of years, usually for life, after retirement.” 26 

C.F.R. 5 1.401-l(b)(l)(i) (1999). The IRS has said that the term “plan” implies a permanent as 

distinguished from a temporary program. Id. 5 1.401-l(b)(2). You have told us that the District’s 

early exit Plan will be offered only for a limited time. Furthermore, you have not told us that either 

the District or participating District employees will make contributions to a trust fund for later 

payments under the Plan. Consequently, we doubt that the District’s Plan is a deferred compensation 

plan within the meaning of chapter 609 of the Government Code. 

While the phrase “deferred compensation plan” has a particular meaning for the purposes of 

chapter 609 and for federal tax purposes, the phrase can also describe other types of plans whereby 

an employee’s compensation is earned or determined at one point in time, but is actually paid to the 
The Honorable Jose R. Rodriguez - Page 12 (JC-0165) 

employee at a later time. In a divorce case, a court described deferred compensation as something 

that is earned or accrued during the course ofthe employee’s service. See Whorrall v. Whorrafl, 69 1 

S.W.2d 32, 37-38 (Tex. Civ. App.-Austin 1985, writ dism’d). Thus, the court held, a “special 

payment” made for the purpose of encouraging an employee to retire early so as to eliminate an 

unproductive position was not deferred compensation. As you describe the school district’s plan, 

the payments would not constitute compensation for work performed during an employee’s term of 

employment, but would in essence constitute compensation for leaving employment, like the 

“special payment” in Whorrall. Thus, we doubt whether the Plan can be characterized as “deferred 

compensation.” 

SUMMARY 

An independent school district’s “early exit” plan for school 

district employees, whereby,certain employees of the district receive 

payments from the district in return for leaving employment and other 

agreements, is not an unconstitutional gratuity if participating 

employees provide consideration to the district for payments under 

the plan. Such a plan may be authorized by sections 1 I.163 and 

45.105 of the Education Code. 

Attorney General of Texas 

ANDY TAYLOR 

First Assistant Attorney General 

CLARK KENT ERVlN 

Deputy Attorney General - General Counsel 

ELIZABETH ROBINSON 

Chair, Opinion Committee 

Barbara Griffin 

Assistant Attorney General - Opinion Committee