Honorable

Chairman Committee February 12, 1990

Hugh Parmer Opinion No. JM-1142

on Inter- Re: Types of retirement plans governmental Relations that appraisal districts may Texas State Senate offer their employees P. 0. Box 12068 (RQ-1778) Austin, Texas. .78711

Dear Senator Parmer:

Weunderstand you to ask essentially two questions. First, you askus to specify the types of retirement plans that anappraisal district may offer its employees. Second, youwish toknowwhat will be the income tax consequences to individual appraisal district employees and the proper method ofdisbursing funds held inany retirement plans in the event that anyplans already inplace were entered into improperly.

Your opinion 'request is prompted.by. the issuance of Attorney General Opinion JM-1068 (1989), which concluded that appraisal districts were without authority to enter into certain contracts providing retirement plans for appraisal district employees. We construed the question submitted in that request to ask whether an appraisal district had the authority to create a local retirement system, authority similar to that conferred on incorporated cities and towns byV.T.C.S. article 6243k and on counties byV.T.C.S. article 62283. Because no statute confers explicit authority on appraisal districts or, for that matter, on any other sort of.special.district to create such
a local system, we concluded that no such authority existed.1 The opinion apparently has been misconstrued to

1. This opinion should notbe construed to call into question the legitimacy of aplan authorized by special law creating a special district.

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hold that subsections (b), (c), and (d)of secti.on67 of article XVI of the Texas Constitution sets forth the exclusive list of the retirement plans that political subdivisions may provide for their employees. However, we did not sohold; rather,we held that there was no statutory authority to create the sort of system about which we understood the reguestor to inquire.

Wewill answer your firstquestion inthree parts. We will discuss first the legislative history and proper construction of section 67of article XVI of the Texas Constitution. Thenwewill specify those retirement plans
or systems in which appraisal districts are authorized by Texas statute toparticipate. Thenwewill discuss whether appraisal districts have imnlied authority to create Iocal systems, authority analogous to that explicitly conferred by V.T.C.S. articles 6243k and 62283 on incorporated cities and counties, respectively. I

::Section 67 of'article XVI of the Texas Constitution provides:in pertinent part:

(a) General Provisions. (11The leaislature mav enact aeneral laws establishinq
> sste s an *: ement nd related ; isb' enefits for .public :Financing of benefits must be based on sound actuarial principles. The assets of a system are held intrust forthe benefit ofmembers and may notbe diverted.

. . . . (4) General laws establishing retirement systems and optional retirement programs for public employees and officers ineffect at the time of the adoption of this section remain in effect, subject to the general powers of the legislature established inthis subsection.

[(b) State Retirement Systems.]

. . . .

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(c) Local Retirement Systems. (1) The legislature shall provide by law for:

(A) the creation by any city or county of
a system ofbenefits for its officers and employees;

(B) astatewide system of benefits for the officers and employees of counties or other political subdivisions of the state in which counties or other political subdivisions mayvoluntarily participate; and

(C) a statewide system of benefits for officers and employees of cities in which ..~ cities mayvoluntarily participate.

. . . . (e)Anticipatory Legislation. Legislation enacted inanticipation of this ,amendment is not voids because it is anticipatory. (Emphasis added.)

Section 67was enacted at the same time that several other sections of the constitutions were repealed. Acts 1975. S.J.R.~3~.2The ,BillAnalysis prepared.for,S.J.,R. No. 3stated:

2. Section 48a ofarticle III, adopted in 1936, and granted the legislature the authority to establish a retirement fund foremployees ofpublic schools, colleges, anduniversities. S.J.R. 18,Acts 1935, 44th Leg., at 1219. Section 48b ofarticle III, adopted in 1965, created in the constitution.the Teachers,.Retirement System. S.J.R. 27, Acts 1965, 59th Leg., at 2201.

Section 51e ofarticle III, adopted in 1943, permitted incorporated cities and towns to create municipal retirement systems Andydisability pensions. H.J.R. 8,Acts 1943, 48th Leg., 5 1, at 1142.,, Section 51f of article III, also adopted in 1943, permitted the legislature toprovide for a statewide system of retirement and disability benefits for municipal officers and employees. H.J.R. 8,Acts 1943, 48th (Footnote Continued)

p. 6014Honorable Hugh Parmer -Page 4 (JM-1142)

Theproposed amendment issimilar to the proposal which was overwhelmingly approved during the 1974 Constitutional Convention. The proposal combines the various detailed provisions inthepresent constitution into a more concise provision, eliminates rigidities which required constitutional amendments each time the Legislature sought to improve retirement benefits, and strengthens protections formembers ofexisting systems.

The amendment enacting section 67 accomplished two broad objectives. First, subsection (a)of section 67was a grant ofauthority, conferring very flexible power on the legislature to establish retirement anddisability systams. The uSection-by-Section Arialysis":inthe BillAnalysis of Senate Joint Resolution No. 3describes subsection (a), in relevant pa*, inthe following way:

Subsection (a)(l)authorizes the Legislature to establish systems and',programs of retirement and related disability and death benefits forpublic employees. mi arant of s' provisioki whT:L flexible thans present authorize specific systems invery narrow terms andgives constitutional status to whateversvstems -ornroarams the

(Footnote Continued) L---v. I5 1,at 1142.

Section 62of article XVI, adopted in 1946, authorized the legislature to create system of retirement, disability, and death benefit: for state officers and employees. Italso authorized each county to create such a system for its officers and employees with the.approval of a majority ofvoters of the county. H.J.R. 10,Acts 1945, 49th Leg., at 1045.

And finally,.section 63 of article XVI, adopted in 1953, provided that 'qualified.; members of then Teacher Retirement Systemwere entitled to service credit for time earnedwhile theywereworking forthe state and, similarly, that qualified members of 'the state Employees Retirement Systemwere entitled to credit for time earned while they
were teachers. S.J.R. 6,Acts 1953, 53rd Leg., at 1169.

p. 6015Honorable Hugh Parmer -Page 5 (JM-1142)

Maislature mav create subject to the following general requirements:

(a) benefits must be based on sound actuarial principles -- a new requirement which places a new level of fiscal and fiduciary responsibility on the Legislature and the administrative bodies which manage the systems.
(b)funds or assets of the systems are to beheld in trust forthe members of the systems and cannot be diverted for any purpose other than thebenefit of themembers

--anew requirement which protects the funds frombeing used fornon-retirement purposes. (Emphasis added.)

BillAnalysis, S.J.R. 3, 64th Leg. (1975).

The legislature has created avariety of retirement and disability plans forpublic employees that subsection (a)(l) would sanction. See. e.a V.T.C.S. arts. 6243a-1, 62436-1, 6243e, 6243e.1, 6143e.2, 6343b, 6243e.3, 6243e-2, 6243e-3, 6243f, 6243f-1, 6243g, 6243g-1, 6243g-3, 62433 (setting forth provisions 'permitting the creation of, various retirement programs for firemen, policemen, and municipal employees'under certain circumstances).3 The legislature also has ~enacted several statutes permitting political subdivisions to establish various retirement or deferred

-.

3. Several of the above-listed statutes were enacted prior to the adoption of section 67of article XVI: indeed, several were enacted prior to the adoption of the constitutional amendments that section 67 was intended to replace. Subsection (a)(4) of section 67 provides the following:

General laws establishing retirement

systems and optional:retirement programs for public employees and officers ineffect & the time of the ado&ion of this section remain in effect, subject to the general powers of the legislature established inthis subsection. (Emphasis added.)

p. 6016Honorable Hugh Parmer -Page 6 (JM-1142)

compensation plans that receive favorable tax treatment under the Internal Revenue Code. These statutes will be discussed inPart IIof this opinion.

Inaddition to the conferral of flexible authority set forth insubsection (a)of section 67, subsections (b), (c), and (d) direct the legislature to establish or retain certain retirement systems.4 Subsection (c),the subsection with which you are concerned, directs the legislature to provide forthe creation of local systems by any city or county and to create two statewide systems, one for county anddistrict employees and one formunicipal employees, in which participation isvoluntary.

The "Section-by-section Analysis" of thebill analysis describing subsection (c)contains the following:

Paragraphs (l), (2),and (3)of subsection (c)require the Legislature toprovide for (a)the creation of separate local systems by cities and counties, (b)a statewide system of benefits in.which counties or other ,. political subdivisions can participate on a voluntary basis, and (c) a statewide municipal system inwhich towns and cities
canparticipate ona voluntary basis. The present prohibition '-: against legislative appropriations for local retirement systems has been deleted.,; The requirement that the creation of separate local systems by cities and counties must be approved by the voters thereof has alsobeen deleted. Since subsection deletes direct arants of authoritv enablina municinalities and counties to t es abl's teir ow retirement plans, the Leaislature mv need to enact enablina leaislation to rezlace Article III,

4. Subsection (b)of section 67, intended essentially to replace sections 48a and 48b ofarticle III and sections 62and 63ofarticle XVI, directs the legislature to create state retirement anddisability systems for teachers, state officers, and employees. Subsection (d) of section 67 directs that the legislature retain the system already in place for the state's judiciary.

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Section 51e. andArticle XVI. Section 62(b), of thenresent onstitution. Other details that have beenC deleted exist in present statutes. (Emphasisadded.)

BillAnalysis, S.J.R. 3, 64th Leg. (1975).

Pursuant to subsection (c)(l),the legislature enacted V.T.C.S. articles 6243k and 6228j, which conferred on incorporated cities and counties, respectively, the authority to create local systems.5 Pursuant to subsection (c)(2),the legislature enacted what isnow codified as subtitle Fof title 8 of theGovernment Code, creating the statewide Texas County Andy District Retirement System in which counties and special districts may voluntarily participate.~ And, pursuant,. to-,subsection (C)(3), the legislature enacted what isnow codified ,a8subtitle G of title 8ofthe Government Code, creating a statewide Texas Municipal Retirement System inwhich incorporated cities voluntarily may participate.

~Thus,while,section67 of' article.:XVIdoes direct the legislature to establish, certain retirement and disability systems, italso grants broad authority to the legislature

5. Articles 62283 and .6243k,V.T.C.S., "~ were enacted in.1975: .Acts1975, 64thLeg., ch.'426,~at 1127. Sections 3and 4ofthat bill provided:

Sec. 3. Retirement, disability, and death benefit systems or programs created under the authority ofArticle III, Section 51-e, orArticle XVI, Section 62, Subsection (b)sof the Texas Constitution, orunder the general powers ofhome-rule cities, remain in effect, subject to power granted by law to alter or abolish the systems.

Sec. 4. This Act takes effect on adoption by the qualified voters of this state of S.J.R. No. 3, 64th Legislature, Regular Session.

The amendment enacting section 67was adopted at an election held onApril 22, 1975.

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to establish other retirement anddisability systems for public employees. Itdoes not set forth any exclusive list' of the the retirement and disability systems that could be established for public employees and Attorney General opinion JM-1068 did not so hold. We now turn to those pension plans or retirement systems in which appraisal districts are authorized byTexas statute to participate.

II

The legislature by statute has created or authorized the creation of several pension plans or retirement systems inwhich appraisal districts may choose to participate. Article 695g,V.T.C.S., authorizes political subdivisions, including appraisal districts, toparticipate Inthe fed.eral Social Security .programr'Attorney.~General Opinions S-152~ (1955): S-19 (1953);V-1198 (1951). And,~aswas pointed out inAttorney General Opinion JW-1068, appraisal districts are authorized to participate in the statewide County and District Retirement System. Gov#t~Code.§ 842.001.
Additionally, the legislature hasauthorized political subdivisions, including appraisal,districts, to establish programs that receive favorable tax treatment as "deferred compensation10plans forpurposes of subchapter D of 1 of the Internal Revenue Code.6 chapter Article 6252-3e, V.T.C.S.,7enacted in 1989,permits political subdivisions inthe :state, including appraisal districts, to create deferred compensation plans that meet the criteria.'of section 401(k) of the Internal Revenue Code. And article 6252-3f, V.T.C.S., also enacted in 1989,permits political subdivisions inthis 'state, including appraisal districts, to create deferred compensation plans thatmeet the criteria of section 457 of the Internal Revenue Code.8

6. Forpurposes of the Internal Revenue Code, pension plans, profit-sharing plans, stock bonus plans, aswell as deferred compensation plans under state law, are considered "deferred compensation" plans.

7. We note that two different statutes have been designated "article 6252-3e.l'

8. We note that bothV.T.C.S. articles 6252-3e and (Footnote Continued)

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There isno statute, however, that confers on appraisal districts the authority to create local pension systems that isanalogous to the authority conferred on incorporated cities and towns byV.T.C.S. article 6243k9 and on counties

(Footnote Continued) 6252-3f are repealed, effective September 1, ,1990,to be replaced byV.T.C.S. article 6252-351. With the enactment of these statutes, V.T.C.S. article 6252-3b, which was ~enacted in 1972 andwhich permitted any political subdivision to create adeferred compensation plan for its employees and authorized the purchase of insurance and annuity contracts andmutual fund contracts, was repealed. Acts 1989, 71st Leg., ch. 147, 54,at 522.

9. Article 6243k,V.T.C.S., provides the following:

An incorporated city or townmay create a retirement, disability, system for its and ~,death.benefit appointive officers and employees if a majority of the qualified voters of the city or townvoting on the propositions approve the creation at an election called for that purpose. Each member of the system shall contribute to the system an amount determined by the city or town, which may not exceed 10percent of the member's annual compensation paid by the city
or town, and the city or town shall contribute for eachmember anamount that at least equals but isnotmore,than twice the amount of themember's contribution. Amember of a municipal system is eligible for disability benefits ifhe is disabled inthe course of his employment with the city or town. A member iseligible forretirement benefits if he is 65years old or older, or he is 60 years oldbut less than 65years old and has (Footnote Continued)

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byV.T.C.S. article 6228j10, which were enacted pursuant to subsection (c)(l)of section 67ofarticle XVI of the Texas Constitution. It is argued, however, that appraisal districts have the _imDlied aUthOrity t0 create such local systems. It isto these arguments thatwe now turn.

III

While home-rule cities areheld tohave the full power of self-government, counties and special districts are not. Inotherwords, home-rule cities have full authority to do anything that the legislature could authorize them to do; accordingly, home-rule cities look to the acts of the legislature, not for grants of power, but only for limitations on their powers. Tex. Const. art. XI, 5 5; Local Gov't Code ch. 51; State ex rel. Rose V. Citv of ha

(Footnote Continued)

been employed by the city or town for 25 years ormore.

10. Article 62283,V.T.C.S., provides the following:

(a)A county may create a retirement, disability, anddeath benefit system for its appointive officers, and employees if a majority of the qualified voters of the county 'votingon theproposition approve the creation at an election called for that purpose and advertised in at least one newspaper of general circulation in the county once aweek for four consecutive weeks before the election isheld. Each member of
asystem shall contribute to the system an amount determined by the county, but notmore than five percent of the member’s annual compensation paid by the county. The county shall contribute for eachmember an equal amount.
(b)The assets of acounty system, after a sufficient portion is set aside each year to pay benefits as they accrue, shall be invested inbonds issued orguaranteed by the United States, this state, or counties or cities of this state.

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Porte, 386 S.W.2d 782 (Tex. 1965); Jones v. Int'l Ass#n Firefiahters Local Union No. 936, 601 S.W.2d 454 (Tex. Civ. APP. -Corpus Christi 1980,writ ref'd n.r.e.).

Counties and special districts, on the other hand, look to the legislature for grants ofpower. special district A county or a exercises only suchpowers ashave been expressly delegated to it by the constitution or the legislature or which exist by clear and implication. unquestioned

See, Canales v. Lauahlin, 214 S.W.2d 451 (Tex. 1948); Tri-CitV Fresh Water SUDD~V Dist. No. 2of Harris COUntV V.Mann, 142 S.W.2d 945 (Tex. 1940); Franklin Countv Water Dist. v.Majors, 476 S.W.Zd 371 (Tex. Civ.App. - Texarkana 1972,writ ref'd n.r.e.) (aspecial district can do only',that.which is it),.-...,.

s authorized by the statute .creating

Nevertheless, several arguments have been adduced in supportof the proposition that, inaddition to or instead of those retirement and disability plans discussed in Part IIof this opinion, appraisal districts have the wimplied" authority to create.local retirement anddisability systems. We findnone of the arguments persuasive.

The first such argument is districts have the authority to that because appraisal llcompensatet*

their employees pursuant to section 6.05(d):,of the ,TaxCode and because retirement and disability plans constitute a part of %ompensation, "11they have implied authority to. establish

11. InBvrdv. CitV of Dallas, 6 S.W.Zd 738 (Tex. 1928); the Texas Supreme Court upheld the constitutionality ofastatute authorizing pensions forcity police and fire department personnel.~ Those challenging the statute argued that thegranting ofpensions topersons whowere no longer employed by a political subdivision violated the state constitutional prohibition against granting public funds for private purposes. The court disagreed, holding that such a benefit constituted part of the compensation for which employees contracted.

This case stands for theproposition that a statute permitting the~creationof apension system does not violate the constitutional prohibition against granting public (Footnote Continued)

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local retirement anddisability systems, apparently without restriction. Indeed, it is argued, in thewords of one brief submitted in connection with this request, that ziyf,i;a; districts have authority to create plans "as they

Wedisagree for several reasons.
First, statutes arenot to be construed in such a way as to impute to the legislature a foolish, useless, or vain thing. State exrel. Childress v. School Trustees of Shelbv County, 239 S.W.Zd 777 (Tex. 1951); Dovalina v. Albert, 409 S.W.2d 616 (Tex. Civ.App. - Amarillo 1966, writ ref'd n.r.e.). The governing bodies of counties, cities (both home-rule andgeneral law), school districts, and special districts are empowered, either by the constitution or by statute, to %ompensatem employees. If a conferral of explicit authority to the governing body of a political subdivision to llcompensatellpublic employees necessarily entailed the implied authority to offer those employees any retirement plan that thegoverning body saw fit, then the legislature's enactments of the statutes set forth inPart I of this opinion were useless, superfluous acts. Indeed, the legislature's adoption of all of those statutes set forth originally as title 109of the,Revised Civil Statutes of Texas, recodified in 1981 as title 1lOB and finally recodified in 1989 as title 8 of the Government Code, statutes dating back to 1909and 'through 1989,would have been superfluous. While some~persons may have assumed that political subdivisions have the implied authority to offer to their employees'any retirement plan that they so. choose, legislatures going back toalmost the turn of the century evidently have not.
Second, the argument that appraisal districts have the implied authority to offer their employees any retirement plan that they sochoosewould produce an absurd result. It would mean that, while counties, cities, and school districts aregoverned by and limited to those statutes that the legislature has enacted over the years regarding retirement plans, appraisal districts have unrestricted power todo whatever they want. Moreover, itwould also

(Footnot;aCoiziued) funds: not stand for the proposition ~that a political subdivision has the implied authority to create a local pension system.

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mean that those safeguards and protections designed to vouchsafe the interests ofparticipating employees and those limitations upon inves'tmentsset forth both in section 67of article XVI and inthe statutes that authorize the creation ofvarious pension plans or retirement systems would not be applicable, since those provisions govern plans and systems enacted by general law. e. a Attorney General Opinions MW-570, MW-506 (198;:; &-ii2 (1980) (opinions construing statutory limitations on investments designed to afford protection to participants). Nor is it at all certain whether retirement plans created absent explicit statutory authority would beprotected under the Texas Trust Act, which governs the administration of private trusts. See CreDs v. Board of Firemen's Relief 8Retirement Fund Trustees of Amarillo, 456 S.W.2d 434 (Tex.Civ. App. - Amarillo 1970,writ ref'dn.r.e.). We know of no reason why the legislature would intend such a result.12

And third, interpretation by implication ispermissible onlywhen it isnecessary; the argument that a special district has tinlied authority to 'do..a thing"is inapposite inan instance inwhich it isgiven specific'authcrity to do

,Crea rv -Hidala; Countv Water Imorove283aS:W. ‘151 (Tex.Comm'n App. 1926, allev. Citv ofAustin, 22 S.W. 668 (Tex. 1893). Indeed, invoking a common rule of statutory construction, 'itcouldwell be argued that those statutory plans or systems enacted'by the legislature should be read to exclude any others. See Weaver v. ,Robison, 268 S:W. 133 (Tex. 1924); Poster v. Citv ofWaco; 255 S.W. 1104 ,(Tex. 1923); Attorney General Opinion H-604 (1975) (holding thE",,,Ezz method set forth inV.T.C.S. article 62289,which the County and District Retirement System and detailed the way inwhich apolitical subdivision could contribute to the system, was exclusive). Aswe pointed out in Part II of this opinion, special districts, including appraisal districts, that are not authorized explicitly to create a local retirement systemmay choose to do one ormore of the

12. For this same reason we reject the argument that allpolitical .-subdivisionshave the implied authority to create whatever pension plan or retirement system that they
so choose and that all of the constitutional amendments and statutes enacted by the legislature aremerely limitations
on that implied authority.

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following: participate in the federal Social Security system, participate in,the state-wide County and District Retirement System, or adopt one of thedeferred compensation plans authorized by statute. We need not strain to find an implied power when the legislature has conferred specific, though limited, powers.

It isalso argued thatAttorney General Opinions M-836 (1971)andWW-215 (1957) and Lower-Colorado River Auth. v. Chemical Bank &Trust Co., 185S.W.2d 461 (Tex.Civ.App. - Austin 1945). aff'd 190 S.W.Zd 48 (Tex.1945) -1 support the argument that appraisal lhereinafter districts have implied authority to create a local pension plan. We think that reliance on these authorities ismisplaced.

Attorney General Opinion M-836 concluded that" the' Sabine River Authority had the implied power to enter intoa deferred compensation and pension plan based upon its explicit authority to employ and fix the compensation for those executives and employees as isnecessary to carry out the functions andduties ofthe authority. That opinion relied upon :v.; 151 S.W.2d 570 (Tex. 1941),m 154 S.W.2d 659 (Tex. ,Civ. APP. - FortWorth 1941, no writ) [hereinafter. Friedman], Hvrd V. Citv of Dallas. 6 S.W. 2d 738 (Tex. 1928) [hereinafter m], andAttorney General Opinion WW-215. The latter opinion also relied upon Friedman in support,of 'the proposition that the Port ~Isabel-San Benito Navigation District had the implied power toprovide certain benefits,'~ including pension benefits, to itsemployees.

For three reasons, we do not think that the two court opinions are controlling. First, bothFriedman and,&& concerned whether specific statutes enacted by the legislature, one authorizing the creation ofpensions for citypolice and firemen and the other creating a Texas Employment Compensation Fund, violated specific provisions of the Texas Constitution. Inboth cases, the Texas Supreme Court upheld the challenged statutes, concluding that the benefits that each provided should be considered apart of the compensation that employees earned, rather than a gratuity conferred. Neither case stands forthe proposition that apolitical subdivision has any implied power.

Second, the holdings of these two opinions cannot be reconciled with other attorney general opinions, issued both prior and subsequent to the issuance to these opinions, thatHonorable Hugh Parmer -Page 15 (JM-1142)

donot find any implied authority to create or participate inretirement systems, absent explicit statutory authority. See, e.a., Attorney General Opinions H-903 (1976); H-604 (1975);C-581 (1966); WE-283 (1957). Nor can they be reconciled with those opinions that strictly construe authority conferred and find no implied power to provide benefits generally, absent explicit statutory authority. See e.a Attorney General Opinions JR-887 (1988); JR-543 (1986);**‘ ;M-406**  (1985);JR-143 (1984);ME-592 (1982); H-535 (1975);WW-1373 (1962).
Third, the holdings of these two opinions cannot be reconciled with the strict construction evidently given section 62of article XVI. When itwas adopted in 1946, subsection (b)of section 62provided inrelevant part .that "[E]ach county shall have the right toprovide for and administer aRetirement, Disability and Death Compensation Fund for the appointive officers and employees of the county . . . .ItThe subsection made the creation of such a fund contingent upon the approval of amajority of the qualified voters of the acounty.

In 1958 thevoters rejected an amendment to section 62 of article XVI of the Texas Constitution that would have expanded the scope of the section to include officers and employees ofprecincts.' S.J.R. 6,Acts 1957, 55 Leg., at 1631. Evenmore,significantly, in 1962 thevoters of Texas defeated an amendment to subsection (b)to expand its scope to include "[e]ach county nd anv Ha&R. other oolitical subdivision of this State." 36,Acts 1961, 57th WJ., at 1314 (emphasis added). Subsection (c)of section 62was added in.1966, which authorized the legislature to provide apension plan "for all the officers and employees of a county or other nolitical subdivision of the State." S.J.R. 4,Acts 1965, 59th Leg., at 2190. Itwas only after this amendment was adopted and pursuant to this authorization that the legislature created in 1967 the statewide County and District Retirement System. Acts 1967, 60th Leg., ch. 127, at 240 (codified originally at V.T.C.S. article 6228g and now codified at subtitle Fof title 8 of the Government Code). Clearly,,neither the legislature that proposed the 1958 and 1962 amendments nor thevoters that defeated them assumed that the implied power to create pension systems existed; if theyhad, the amendments would have been superfluous.

Both Attorney General Opinions M-836 and WE-215 contained faulty reasoning and relied upon authorities that

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donot support the proposition for which theywere cited. Accordingly, Attorney General Opinions M-836 andWW-215 are hereby overruled.

Inm, the court ofcivil appeals considered, inter a, whether the LCRAhad the implied power to increase the compensation that itpaid its officers and employees by four percent and then set aside the fourpercent ina segregated fund for the purpose ofproviding apension or retirement plan forthose officers and employees. The court held that ithad the implied power, based in part upon its explicit statutory power to compensate employees. For two reasons, we conclude thatm does not control your question.
First, keeping in mind'.thatthe purpose of the LdXA, which is inpart to provide electric power to consumers in much the sameway that'an investor-owned utility does, it is significant that the court employed the following rationale to support itsconclusion:

While designated and classified governmental agency and body politiz a .., and corporate;- the Authority's' functions and activities partake, in large measure the nature and characteristics, within legislative restrictions, of a large industrial enterprise, rather than of a strictly governmental .function. It has 'no power' to levy taxes," enact laws nor ordinances, as acity has; and its efficient~ functioning depends in largemeasure on the sound judgment and good business management of itsBoard of Directors. They have large control over the operation of itsproperties, and the income tobederived therefrom, which constitute the only source of revenue tomeet its obligations. Of necessity matters relating thereto must be left in large
measure to their judgment, experience and discretion; and obviously could not be prescribed ,indetail"by law.

. . . .
Retirement pay from funds ,~accumulated through the co-operative efforts of employer and employee are now well-established business practices among practically all

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large industrial enterprises; and are being increasingly applied by national, state and municipal governments. Typical instances are civil service employees, postal employees, fireandpolice employees, etc.

185S.W.2d at 467.

The court clearly felt that the LCRAwas not simply a political subdivision; indeed, the Texas Supreme Court decision that affirmed thew judgment of the court of appeals held forthe first time that the LCM was tax exempt fromadvalorem taxes as apolitical subdivision. Whatever elsemaybe said,about appraisal districts, they are not analogous to industrial enterprises.

We acknowledge that thepublic policy reasons that impelled the court to conclude that the LCRAhad an implied power to create pension systems can apply equally to the creation.of pension.systems for every sort of political subdivision: namely that such plans may encourage employees to remain so employed,~,with the result that there is less rnzloyee turn-over, better service to the general public ultimately less cost to the public. But itneeds tobe rem&bered that, at the time thatm was handed down, no other sort ofpension system orplan waspavailable to the employees of'the LCRL And itshould also **be** remembered that the court itself admitted that,while,pension systems for employees had become nwell-established business practices" among practically all large industrial enterprises," itwas only l@increasinglyapplied" to public employees. The force of the rationale that impelled that court to create an implied power in 1945 isgreatly weakened in 1990 in the face of the fact that the legislature explicitly hasmade provision forthe retirement benefits of special district employees.

Second, for the reasons set forth inthe discussion above regarding Vompensationl' and implied power, it is obvious that the legislature has not assumed that, whatever the ICRA might have implied power to do, all special districts have identical implied powers. If suchwere the case, again, virtually all of the legislation enacted in this areawould beunnecessary and superfluous. a may stand for theproposition that the ICRAhas the, implied power to create a pension system for its officers and employees: it does not stand for the proposition that special districts generally are soempowered.

P- **6028**Honorable Hugh Parmer -Page 18 (JM-1142)

Instructive inthis regard isAttorney General Opinion V-569 (1948), in which the state auditor asked whether a list of 31 special districts were authorized to participate inthe Employees Retirement System ofTexas. All of the districts were created pursuant to section 59 ofarticle XVI of the Texas Constitution. The opinion discusses the &Q&
case and sets forthessentially the same quotation set forth above, describing the LCRA8s functions and power, before concluding that its employees were not authorized to participate inthe Employees Retirement System, based upon the statutory definitions of l'employeelland tldepartment" that govern participation inthe retirement system. In spite of the fact that the LCRAhad been held tobe an agency of the state in b$ load McGraw, 83 S.W.2d 629 (Tez.1935) the opinion concluded that LCRA employees were not ~empl~yees of the State" for purposes of the retirement system. Reasoning by analogy, the opinion held that employees of conservation and reclamation districts were not llemployeesof the State" for purposes of the retirement system either. Curiously, the opinion referred to the "apparent" authority of the LCRA to create its own retirement system, but failed to state that conservation and reclamation districts possessed the same power:

We note here that from reading Lower

Colorado River Authority v. Chemical Bank and Trust Co., supra, the L.C.R.A. apparently has its own retirement system. Inany event, the employees ofthis particular district would beprecluded frommembership in the system afforded by H. B. 168 [the Bmployees Retirement System of Texas], by reason of Section l.c., of H. B. 168 which defines 'employee.'

We are, therefore, of the opinion that the employees of the conservation and reclamation districts named in your reguest are not eligible for membership in the Employees Retirement System ofTexas.

Id. at 7.

The reason forthe apparent failure of the legislature specifically to provide for the inclusion of special districts in the statewide plan forcounties until 1967 probably stems from the factthat the proliferation of

p. 6029Honorable Hugh Parmer -Page 19 (JM-1142)

special districts in Texas is a comparatively recent phenomenon. As recently as February 1959, there were an estimated 524 special districts inTexas. Of these, 115
were authorized by local lawand 409were created under some 13 general laws governing water districts. See w. Thrombley, Special Districts and Authorities Institute of PublicAffairs, in Texas, University ofTexas at Austin (1959). By 1979 therewere over 420 special districts in Harris County alone. We think it significant that in a treatise onpublic employee retirement inTexas written in 1955,nomention ismade ofany implied authority of special districts tocreate local pension systems, nor is mention made of the LcRA case. See Swanson 8 Miskell, Public Employment Retirement inTexas, University of Texas at Austin Institute of Public Affairs, (1955). Indeed, the .only reference to any so* of retirement system for specialsdistricts in this 1955 treatise is the federal Social Security program. Id. atTable XIV, part III, atp. 91;

Threesother arguments have been adduced, each, relying upon misconstrued ore ~misunderstood provisions, specific statutory

insupport of the "implied power" theory.' The firstmaintains that the facts that participation in the County and District Retirement System isvoluntary and that the System's boardmust approve any such participation by a special district, Gov't Code 0842.001(c), necessarily mean that special districts have the implied authority to create. their own local pension systems.

This argument is faulty intwo respects. ignores the authority conferred by statute toOne; it create deferred compensation plans and to participate in the federal Social Security program. And two, it wrongly presupposes that aretirement plan has to be offered to employees inthe first instance. Inotherwords, itassumes that the only choice a special district has iseither to participate inthe County and District Retirement System or to create a local pension system analogous to those authorized byV.T.C.S. articles 62283 and 6243k.

In fact, neither federal nor state law requires a local political subdivision to create apension plan. The federal Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et sea. (llERISAn)does not ,governlocal political subdivisions. Attorney General Opinion H-618 (1975); 29 U.S.C. 5 1003(b). And noprovision in state law requires local political subdivisions, except independent school

p. 6030Honorable Hugh Parmer -Page 20 (JM-1142)

districts, to make participation ina retirement program available to itsemployees: participation isvoluntary.

For example, inAttorney General Opinion H-1122 (1978), this office held that amunicipality that chooses to exempt itself fromthe operation ofV.T.C.S. article 6243e, which governs retirement systems forvolunteer fire departments, isnot required tocreate an alternate retirement system. InAttorney General Opinion H-903 (1976), in answer to a question asking whether employees of a hospital whose administration had been taken over by the county were authorized to establish their ownpension plan, this office held that employees became automatic members of County and District Retirement System if the county was already participating in the system or the county could elect to discontinue participation inthe statewide system and create
a local one pursuant toV.T.C.S. article 62285. No other alternative was available. Thus, inan instance inwhich a special district isnot authorized explicitly by statute to create apension plan, itmay only do one ormore of the following: adopt a'deferred compensation plan pursuant -to statute, participate inthe federal Social Security program, again by statute, orparticipate inthe County and District System. Or itmay offer nothing atall.

The next argument misconstruing specific statutory provisions asserts that the existence of_what .,is now codified as section 842.006 intheGovernment Code amounts to arecognition by the legislature that special districts have the implied authority tocreate local pension systems. That section provides:

A local pension system established for employees of asubdivision maymerge into the [County and District] retirement system on conditions prescribed by the board of trustees [ofthe County and District Retirement System].

Section 842.006 is the amended version ofwhat originally
was denominated sections 10 and 11 in V.T.C.S. article 6228g.

Subsection (c)of section 62article XVI, which created the County and District Retirement System, authorized the legislature to provide foravoluntary merger of subdivision (b) "local systems" into the state system. Pursuant to this authorization, section 10 ofarticle 6228g, V.T.C.S., was

p. 6031Honorable Hugh Parmer -Page 21 (JM-1142)

enacted to govern themerger ofa .localcounty system into the newly-created state-wide system. pertinent part: It provided in

The voluntary merger into the System established by this Act (in this Section called the 'state system') ofpension systems heretofore established under Subsection (b) of Section 62 of Article XVI of the Constitution ofTexas (inthis Section called the 'local system') ishereby authorized upon the terms and conditions stated in this section, andupon such additional terms and conditions asmaybeprescribed by the Board of Trustees of the state system, and after approval of the merger proposal by the governing body of the subdivision.

The only lllocalsystem11towhich this section could apply is
a local county system section 62. authorized by subsection (b) of

~Section 11of article 6228g,V.T.C.S., governed "other local systems" andprovided inpertinent part:

Thevoluntary merger into the state system created by this Act of pension systems heretofore or hereafter established for employees ~-of subdivisions as hereinabove defined (exclusive of such systems as are included within theprovisions of Section X, above)13 is authorized to be effected upon

13. Subdivision 3 of section 2 of article 6228g, V.T.C.S., defined %ubdivisionW inthe following way:

The term 'subdivision# means and includes: the several counties of this State; all other political subdivisions of this State now existing or hereafter established, which consist of all of the geographical area of a county, or ofall or parts of more than one county; the several political subdivisions of each county of this State which have the .(FootnotaContinued)

p. 6032Honorable Hugh Parmer -Page 22 (JM-1142)

It terms and conditions to **be** prescribed by the Board ofTrustees of this state system, and generally inaccordance with the provisions of Section X, above, so faras applicable.

is argued that the existence of this section indicates legislative recognition that special districts have the implied power to create local pension systems because it isonly to these systems that the section could refer. We disagree. If,at the time that this section was enacted, therewere no other subdivisions that had explicit statutory authority to create pension systems towhich this section could have applied, this argument might be more compelling. Such, however, was not the case. s e. a V.T.C.S. arts. 4494i, 4494n (nowrecodified as chaEterq.28; of the Health 8 Safety Code); board ofManaaers of the J Ha rsCount H 8
. ist.v. for the Citv ofHouston, 449 S.W.2d 33 (Tex. 1969); Attorney General Opinion WW-904 (1960)
. The fact that the legislature enacted section 11 of article 6228g is not evidence of legislative recognition that special districts that donot have the explicit statutory authority to create local pension systems possess the implied authority to create them.

The third argument. misconstruing specific statutory provisions asserts that the existence of section 802.001 of title 8.~of the Government Code indicates legislative recognition that special districts have the authority to create localpension systems. implied We disagree.

(Footnote Continued)

power of taxation; and all counties and cities operating acity-county hospital under theprovisions of Chapter 383, Acts of the 48th Legislature,.Reg-ular Session, 1943, as amended [V.T.C.S.'art. 4494i, now recodified
asHealth &Safety Code 55 265.011 - .016]. The term also includes, for thepurpose of providing similar coverage for its own employees, the Texas County and District Retirement System. But the term 'subdivision' excludes all incorporated cities and towns, and all school districts and junior college districts established under the laws of this State.. Honorable Hugh Parmer -Page 23 (JM-1142)

Chapter 802 of title 8of theGovernment Code sets forth certain administrative requirements governing public retirement systems, and provides that, with certain specified exceptions, all must register with the State Pension Review Board. Subdivision (2) of section 802.001 defines "public retirement system" for purposes of that chapter andprovides:

'Public retirement system' means a continuing, organized program of service retirement, disability retirement, or death benefits for officers or employees of the state or a political subdivision, or of an agency or instrumentality of the state or a political subdivision, other than: .
(A) a program providing only workers' compensation benefits:

(B) aprogram administered by the federal government;14,. /\

(C) an individual retirement account or individual retirement annuity within the meaning of Section 408, or aretirement bond within the meaning of Section 409, of the Internal ,Revenue.Code..of;:1986 (26 U.S.C., Sections 408, 409):

(D) aplan described bye Section 401(d) [sic]of the Internal Revenue Code of 1986 (26U.S.C. Section 401)~~~

(E)an individual account plan consisting of an annuity contract described by Section 403(b) of the Internal Revenue Code of 1986 (26U.S.C. Section 403);16

14. See V.T.C.S. art. 695g.

15. &g V.T.C.S. art. 6252-3e, to be superseded by V.T.C.S. art. 6252-3g.

16. &8 V.T.C.S. art. 6252-5a.

p. 6034Honorable Hugh Parmer -Page 24 (JM-1142)

(F) eligible state deferred compensatizz plan described by Section 457(b) ofthe Internal Revenue Code of 1986 U.S.C. Section 457);17 or (26

(G)(i) inSections 802.104 and 802.105 of this chapter, aprogram forwhich benefits
are administered by a life insurance company; and
(ii)in the rest of this chapter, a program forwhich the on1 funding agency is
a life insurance company.18

This section merely requires that all public retirement systems, other than those programs specifically listed above,must register with the State 'PensionReview Board. The list sets forthprograms inwhich political subdivisions have been authorized toparticipate explicitly by statute or inwhich they **arguably** maybe permitted toparticipate in the future. It isnot a list ofprograms in,which political subdivisions have implied authority toparticipate nor does it in any way constitute an affirmative conferral of authority to participate. in such programs. Moreover, section 802.105, which requires that each public retirement system register with theboard, provides that registrants must include "acitation of the lawunderwhich the system
was created." Gov't Code s802.105(b)(3) (emphasis added). Obviously, any systemwhose authority **was** merely imnlied could not comply with this provision. Thus it is evident that the legislature did not assume that such implied authority existedl9.

17. See V.T.C.S. art. 6252-3f, to be superseded by V.T.C.S. art. 6252-3g.

18. j&9 V.T.C.S. art. 6252-5a.

19. It issuggested that the Internal Revenue Code itself confers authority on special districts to enter into plans approved by the IRS. We disagree. The form letter that the IRS sends special districts approving **a** plan specifically disclaims that it constitutes approval under local law: (Footnote Continued)

p. 6035Honorable Hugh Parmer -Page 25 (JM-1142)

The final argument adduced to support the claim that appraisal districts have the implied authority to create local pension systems does notmisconstrue any statutory provisions. Instead, it misapplies a rule of statutory construction. It is urged that, because the staff of the State Property Tax Board, in itspublished newsletters and pamphlets, declared that appraisal districts were empowered to create local pension systems other than those whose creation is specifically authorized by statute, this administrative construction should be given great weight. Wedo not find this argument convincing.

It isan accepted ,principleof statutory construction that the construction placed upon a statute by the agency charged with itsadministration isentitled togreat weight, Exnarte Roloff, 510 S.W.2d 913 (Tex. 1974): State v.: Aransas Dock and Channel Co., 365 S.W.2d 220 (Tex.Civ.App.

- SanAntonio 1963,writ ref'd), especially where contemporaneous, ornearly so, with the statute itself, Burroubhs

**V.** Lvles, 181 S.W.Zd 570 (Tex. 1944); Stanford v. Butler, 181 S.W.Zd 269 (Tex. 19441. But inthis instance. the application of this 'principle is undermined because the administrative construction made by the staff of the State Property Tax Board has not been consistent.

As early as 1983, the pamphlet published by the agency entitled "Appraisal BoardManual: AHandbook forCountywide Appraisal District Directors" provided specifically that ,appraisal districts could participate ineither the County and District Retirement System or aprivate retirement plan. Id. at 19-20. But even earlier, inan issue of the agency's monthly newsletter ?3tatement," published inAugust 1980, the agency indicated that the only options available to appraisal districts were participation inthe federal Social Security program, the County and District Retirement System,
orboth. Id. at 9.

Moreover, the application of this principle of construction has been invoked in instances in which an

(Footnote Continued)

This opinion relates only to the acceptability of the formof the plan under the Internal Revenue Code. It isnot an opinion of the effect of other Federal or local statutes. (Emphasis added.)

p. 6036Honorable Hugh Panzer -Page 26 (JM-1142)

administrative agency has construed an act that it is charged to administer. Inthis instance, the State Property Tax Board has no duties relative to any of the statutes governing the creation of pension systems or deferred compensation plans. Without regard to either the skill or knowledge of the staff ofthe State Property Tax Board, their administrative construction of these statutes is entitled to no greater weight than the administrative constructions of these same provisions by the staff of, for example, the TexasWater Commission or the Department of Public Safety.

We therefore conclude that appraisal districts have no implied authority, absent specific statcltoryauthority, to create local pension systems. Accordingly, we conclude taat appraisal districts may participate in the following: .the federal Social Security program pursuant to article 695g, V.T.C.S., the County andDistrict Retirement System pursuant to chapter 842 of the Government Code, and deferred compensation plans authorized by article 6252-3e and 6252-3f,,V.T.C.S. (to be superseded by article 6252-3g, V.T.C.S., effective September 1, 1990). Appraisal districts have no implied authority to create local retirement systems analogous to those authorized by articles V.T.C.S. **6243k** and 62283, which incorporated cities and counties, respectively, may create. We turn finally toyour second question.

You wish to know what will be the income tax consequences to individual appraisal district employees and theproper method ofdisbursing funds held inany retirement plans in the event that any plans already inplace were entered into improperly. The Texas Association ofAppraisal Districts conducted a survey of itsmembers that indicated that, among the 254counties of the state, 124 appraisal districts offer "local retirement plans." Ifan appraisal district created a local plan thatwas not authorized by statute, the apparent varieties as to contracts entered into, benefits offered, system or plan administration, restrictions as to participation, years required for vesting, employee contributions, and appraisal district contributions are sogreat that an attempt would necessarily require us to answer hypothetical questions and engage in fact-finding, neither ofwhich ispermitted inthe opinion process. Accordingly, we decline to answer your second question.

p. 6037Honorable Hugh Parmer -Page 27 (JM-1142)

We are not unmindful of the possible consequences of
ourdecision, but the consequences of legal interpretation do not control. Regarding a matter of constitutional interpretation, the Texas Supreme Court declared inKov v. Scheider, 218 S.W. 479 (Tex. 1920):

Nomatter how far-reaching and disastrous would be the consequences . . .wewould not decline tomake the declaration if such was believed to be the true intent of the language of the Constitution.
Quoted in Director of the DeD't of Asric. and Env't v. Printina Indus. Ass'n. ofTexas, 600 S.W.2d 264 (Tex. 1980). --SheDherd v. SanJacinto Junior Collece Dist., 363 S.W.2d 742 (Tex. 1962); Cramerv. ShenDard, 167 S.W.2d 147 (Tex. 1942). We areno lessbound by this principle.

The situation with which we arehere confronted is not altogether unprecedented. When the legislature was apprised of the fact thatmany appraisal districts inthe state had entered into long-term lease agreements for the rental of office space orentered into contracts for the construction ofbuildings or thepurchase of real property without the statutory authority to do'so, 'it enacted section 6.051 of the Tax Code to soempower those appraisal districts. Acts 1987, 70th Deg., ch. 55, S2,at 147. ,Theremedy for the situation withwhich we are here confronted lieswith the legislature.

We affirm the result of Attorney General opin'ion JN-1068. SUMMARY

Appraisal districts are authorized to participate in the federal Social Security program by article 695g, V.T.C.S., to participate in the County and District Retirement System by chapter 842 of the Government Code, and to create deferred compensation plans authorized by V.T.C.S. articles 6252-3e and 6252-3f. Appraisal districts have no implied authority to create local pension systems analogous to those systems that incorporated cities and counties
may create pursuant to V.T.C.S. articles 6243k and 62283 respectively. Because an answer to thequestion as to the possible

p. 6038Honorable Hugh Parmer -Page 28 (JM-1142)

income tax consequences to individual appraisal district employees ofparticipating ina retirement system that isnot authorized by statute would require us toboth answer hypothetical questions and make findings of fact, we decline to answer your second question. We affirm the result of Attorney General Opinion JM-1068 (1989).

Very truly yours,

,
3-W JIM MATTOX Attorney General ofTexas

MARYRELIRR First Assistant Attorney General

JUDGE ZOLLIE **STEAKLEY** Special Assistant Attorney General

RENEA HI& Special Assistant Attorney General .

RICK GILPIN Chairman, Opinion Committee

Prepared by JimMoellinger Assistant Attorney General

p. 6039