MARKWHITE Attorney General 

# The Attorney General ofTexas
August 20, 1980

Honorable Oscar H.Mauzy Opinion No. NW-22 1 Chairman Senate Education Committee Capitol Building Austin, Texas Re: Whether section 3.02(a)(lE). Education Code, relating to the computation ofretirement benefits, should be applied retroactively Dear Senator Mauzy: ~Youhsve raised three questions concerning section 3.02(a)(18) of the Education Code [formerly section 3.02(a)(21)] which, a,samended in 1979, provides asfollows:

‘Best-five-years-average compensation’ means the average annual compensation received bythe 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 asan employee. The term “annual compensation” isdefined insection 3(a)(12)as:

...the compensation that ispaid orpayable to an employee by hisemployers for service during aschool 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 beincluded asannual 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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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 ontheir behalf were limited to the first $25,000 annual earnings. Youhave 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 isbeing applied, as described above, in violation of article I, section 16of the Constitution of the State of Texas as constituting retroactive legislation? 3. ls the manner in which the amendment isbeing applied, as described above, in violation of article III, section 44of the Constitution of the State ofTexas inasmuch as it is agrant 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 insection 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 inexcess of $25,000 for school years after September 1,1969, but before September 1,1979, and inexcess 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 onthe basis oftheir salary as limited bysection 3.02(a)(12). Inour view, this legislation isnot “retroactive” inthe sense that the term isused in article I, section 16of 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 ofthe 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 16ofthe constitution. The constitutional prohibition against retroactive legislation has been construed to apply only to laws that divest

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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 onthe state and its agencies). You next ask whether the amendment violates article III,section 44ofthe Texas Constitution on the ground that it constitutes agrant ofadditional compensation after the public service bs been performed. Article III, section 44 provides, in pertinent part: The Legislature shall provide bylaw 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 contractors, after such public service shall have been performed or contract entered into, for the performance ofsame; ... Asthe 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, 6S.W. 2d738 (Tex. Comm’n. App. 1928); City ofSfintonio v.Baird, 209S.W.2d224 (Tex. Civ. App. -San Antonio 1948,writ ref’d). Byrd v. City of Dallas, w, involved a challenge to statutes that authorized cities with apopulation exceeding 10,000 to pay pensions to policemen and firemen who served 20years 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 ofarticle III, sections 44, 51, 52and 53 was “to prevent the application ofpublic funds to private purposes; inother 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 apublic purpcee, then clearly it is a valid exercise ofthe legislative power. 6S.W.2dat 740. The pension plan adopted bythe City ofDallas did not, inthe Court’s view, violate this provision: The plan..

. contemplates.

.. that as compensation the

officers and employees named shall receive the salaries agreed upon to bepaid periodically and shall be entitled to participate

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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 insuch fund istherefore not agratuity or donation in any sense. It is as much a part of the agreed compensation asisthe monthly stipend. 6S.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 ofByrd and subsequent cases, see City of San Antonio v.Baird, -, the benefits created bythe amendment, which accrue only to indivi&als still employed and, therefore, still performing services on Algust 27, 1979,do not amount to agratuity or &nation orprovide additional compensation after services have already been rendered. Consequently, the amendment &es not violate article III,section 44ofthe 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 ofTexas JOHN W.FAINTER, JR. First Assistant Attorney General Prepared byJon Bible Assistant Attorney General APPROVED: OPINION COMMITTEE C. Robert Heath, Chairman Jon Bible Susan Garrison Rick Gilpin Nancy Lynch

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