DAN MORALES 

ATTORNEY GENERAL 

QBffice of t@ PXttornep 65enerat 

&date of Qikxae 

October 20,1993 

Honorable John D. Wbitlow 

Criminal District Attorney 

Cslboun County 

P.O. Box 1001 

Port Lavaca, Texas 77979 

Opiion No. DM-265 

Re: Whether the annual distribution of 

extra interest by the Texas County and 

District Retirement System to annuitants 

violates article III, section 52 of the Texas 

Constitution (RQ-569) 

Deer Mr. Whitlow: 

You ask whether the annual distribution of extra interest by the Texas County and 

District Retirement System to an&ants violates article JH, section 52 of the Texas 

Constitution. This provision prohibits the legislature from authorizing a political 

subdivision “to lend its credit or to grant public money or thing of value in aid of’ any 

private individual or entity. In particular, you are concerned that this practice may run 

afoul of article III, section 52, be-cause it prohibits a city or county, in your words, “from 

giving away [] public monies for previously rendered services.” You state that “Article 

III, Section 52, is violated by the distribution of the extra checks when such additional 

be&Its are above what they received under a prior valid existing contract for no 

additional consideration.” We disagree with your conclusion because we do not believe 

that the distribution of the extra interest constitutes unbargained-for, retroactive 

compensation. 

Article XVI, section 67 of the Texas Constitution authorizes the legislature to 

enact “general laws establishing systems and programs of retirement and related disability 

and death benefits for public employees and officers.” Tex. Const. art. XVI, 3 67(a)(l). 

With respect to local retirement systems, article XVI, section 67 requires the legislature to 

provide by law for “a statewide system of benefits for the officers and employees of 

counties or other political subdivisions of the state in which counties or other political 

subdivisions may vohmtarily participate.” Id. 3 67(c)(l)(B). It further provides that 

“[blenefits under these systems must be reasonably related to participant tenure and 

contributions. ” Id. 3 67(c)(2). l 

lArUcle XVI, section 67 of the Texas Constitution also prevtdes that laws establishing retirement 

systems in effect at the time of its adoption remain in effea. Tex. Const. art. XVI, 8 67(a)(4). That 

provision was adopted in 1975. See S.J.R 3, Acts 1975,64th Leg.. at LXXXII. Prior to 1975, the system 

was authorized hy article XVI, section 62, which was repealed with the ratification of article XVI, section 

67. L,egislaUon establishing the system was enacted in 1%7. Acts 1%7, 60th Leg., ch. 127, at 240. 

Originally enaeted as article 6228g, V.T.C.S., that statute is now woditied in title 8 of the Cbvemment 

cede. 

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

The Texas County and District Retirement System (the “retirement system”) is 

governed by title 8, subtitle F of the Government Code, and the management of the 

retirement system’s assets is specifically governed by subchapter B of chapter 845 of that 

subtitle. See Gov’t Code § 845.103 ef seq. Section 845.309 of the Government Code 

requires the retirement system to deposit all income from investments into an interest fund, 

and to transfer money from the interest fund on December 31st of each year in accordance 

with section 845.315. 

Generally, section 845.3 15 provides for the transfer of the monies representing 

“current interest” and monies in excess of that amount to various retirement system timds 

and accounts. (The “current interest rate” is computed pursuant to section 845.314. It 

may not exceed seven percent. Id, 8 845.3 14.) Subsection (a) of section 845.315 requires 

the retirement system’s board of trustees to transfer monies constituting interest at the 

“current interest rate” from the interest fbnd to several other specified funds. Id. 

$845315(a). Subsection (b) requires the board of trustees to transfer any remaining 

timds to the “general reServes account” of the endowment fund as it determines necessary 

(i) to provide adequate reserves against insufficient future earnings and special and 

contingency requirements, and (ii) to provide for the administrative expenses for the 

retirement system for the following year. Id. 5 845315(b). Finally, subsection (c) 

provides that “[a]fter the requirements of the general reserves account of the endowment 

fund have been satisfied, the board of trustees shall transfer any amount remaining in the 

interest lktd to the distributive benefits account of the endowment fund.” Id. 

9 845.315(c); see also id. $845.310(b). 

Payments from the “distributive benefits account” are governed by section 

845.3 10, subsection (e) of which provides in pertinent part: 

If the board of trustees determines that the amount credited to 

the distributive benefit account on December 31 of any year is 

sufficient to do so, the board by resolution may: 

(2) authorize the distribution and payment of all or part of the 

money credited to the account to persons who were amtuitants on 

that day in the ratio of the rate of the monthly benefit of each 

annuitant to the total of all annuity payments made by the system for 

the final month of the year. 

It also authorizes the board of trustees to distribute funds from the distributive benefit 

account to the “subdivision accumulation kmd,” id. $ 845.310(e)(l), and to each member’s 

individual account in the “saving find” and each participating subdivision’s account in the 

“subdivision accumulation Smd” as supplemental interest, id. 5 845.3 10(e)(3). In enacting 

this provision, the legislature has clearly authorized the retirement system to distribute 

extra interest to annuitants if the distributive benefit account contains sufficient funds. 

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

The originai statute establishing the retirement system contained an almost identical 

provision. See Acts 1%7,6Oth Leg., ch. 127,§ V, subset. 7(b), at 251. 

The retirement system is funded by contributions from both members and their 

political subdivision-employers. Each member makes deposits from his or her 

compensation on a monthly basis at a rate set by the political subdivision, and the political 

subdivision matches that deposit. See Gov’t Code $4 844.702, 844.703. You do not 

appear to contend that political subdivisions’ contributions to the retirement system on 

behalf of employees constitute an unconstitutional grant of public monies. As the 

retirement system notes in its brief, it is well-established that pensions, and by analogy 

contributions to retirement fbnds, constitute compensation for services rendered and do 

not run afoul of article III, section 52 of the Texas Constitution. See Byrd v. Ci@ of 

LMZus, 6 S.W.2d 738, 741 (Tex. 1928) (“The right to participate in [the pension] fund is 

therefore not a gratuity or donation in any sense. It is as much a part of the agreed 

compensation as is the monthly stipend.“); Ciiy of Dullus v. Trammel, 96 S.W.2d 110, 

111 (Tar. Civ. App.--Dallas 1936), rev’don othergroun& 101 S.W.2d 1009 (Tex. 1937) 

(pension paid to retired police officer was earned but unpaid compensation); see also 

Devon v. Cify of San Antonio, 443 S.W.2d 598 (Tex. Civ. App.--Waco 1969, writ refd) 

(police and fire fighters pension plan does not violate article III, section 53 of the Texas 

Constitution because deferred pension payment is a part of the compensation employee 

receives for services rendered).* 

Once contributions are transferred to the retirement system, the funds are held in 

trust for the benefit of the members and retirees of the system, Gov’t Code 5 802.201, and 

must be managed by the system in accordance with chapter 845 of the Government Code. 

As discussed above, chapter 845 provides that the distributive benefit account consists of 

interest earned in excess of the amount necessary to pay interest on the balances of the 

retirement system’s other funds, and to provide for reserves and for the retirement system’s 

administrative expenses. As interest earned on the retirement system’s investments, the 

extra interest distribution is indistinguishable from other benefits paid to annuitants, except 

that it is not automatic and varies in amount from year to year depending upon the 

retirement system’s earnings. Furthermore, the distributive benefit account has been a 

feature of the retirement system since it was first established in 1967. Therefore, we do 

not believe that the distribution of extra interest constitutes unbargained-for, retroactive 

compensation because the statutory authority for such distributions existed at the time 

current annuitants became members of the retirement system. For these reasons, we 

conclude that annual distribution of extra interest by the retirement system to annuitants 

*Devon, 443 S.W.Zd 598, does not support your contention that the distribution of extra interest 

violates article ll1, section 52. In that case, the comt determined that a police offker who left the force 

More he. became eligible for retirement benefits wuld not recover his contribution to the pension fund 

because it was poblic money to which he was not entitled under his contract of employment or the pension 

statute. The payment at issue here is not a refund of ao employee’s contributions to the retirement system, 

but rather a distribution of excess interest earned by the retirement system’s investments which is 

cxpnssly authorized by chapter 845 of the Government Code. 

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

pursuant to section 845.310(e)(2) of the Government Code does not violate article III, 

section 52 of the Texas Constitution.3 

SUMMARY 

The annual distribution of extra interest by the Texas County 

and District Retirement System to annuitants pursuant to section 

845.3 lo(e)(Z) of the Government Code does not violate article III, 

section 52 of the Texas Constitution. 

DAN MORALES 

Attorney General of Texas 

WILL PRYOR 

First Assistant Attorney General 

MARY KELLER 

Deputy Attorney General for Litigation 

RENEA HICKS 

State Solicitor 

MADELEINE B. JOHNSON 

Chair, Opinion Committee 

Prepared by Mary R. Crouter 

Assistant Attorney General 

3You do not ask us to consider whether the distribution of extra interest to annoitants violates 

article III, section 53 of the Texas Constitution which speciiically prohibits the legislahue from granting 

“any extra compensation, fee or allowance to a public officer. after service has been rendered, or a 

wntraet has been entered into. . _” For the reasons stated above, we also believe that the distribution of 

extra interest to anmdtants does not violate article III, section 53 of the Texas Constitution. 

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