PENSIONS ‑- RETIREMENT ‑- DEFERRED COMPENSATION ‑- CREATION OF COUNTY EMPLOYEES' DEFERRED COMPENSATION PROGRAM UNDER RCW 41.04.250(2)
(1) In establishing a deferred compensation program for county employees under RCW 41.04.250(2), a board of county commissioners may establish a special account for that purpose which would constitute a "public pension or retirement fund" within the meaning of Article XXIX, S 1 (Amendment 49) of the Washington Constitution relating to investments.
(2) Consideration and disposition of several additional, related, questions involving county employees' deferred compensation, based upon the foregoing initial premise.
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June 2, l980
Honorable John Panesko, Jr.
P.O. Box 918
Chehalis, WA 98532
ATTN: Eugene Butler
Chief Civil Deputy Cite as: AGLO 1980 No. 21
By letter previously acknowledged, you requested our opinion on a number of questions relating to the establishment of a county employee's deferred compensation program under RCW 41.04.250(2).
Because certain related, but ultimately unsuccessful, legislation was pending before our state legislature during its recent session, we held your request in abeyance until after adjournment. We have now, however, had an opportunity [[Orig. Op. Page 2]] to consider your questions and the underlying premise upon which they are seemingly based and we have come to the conclusion that there is an entirely workable solution to what you perceive to be the problems with the proposed program if your board of county commissioners desires to proceed. The question of whether or not to do so, of course, is entirely a policy question for the commissioners themselves to decide since it is quite clear that the enabling legislation is permissive and not mandatory.
RCW 41.04.250 provides, in material part, as follows:
"The state, through the committee for deferred compensation created in RCW 41.04.260,and any county, municipality, or other political subdivision of the state acting through its principal supervising official or governing body isauthorized to:
". . .
"(2) Contract with an employee to defer a portion of that employee's income, which deferred portion shall in no event exceed the appropriate internal revenue service exclusion allowance for such plans, and shall promptly with the consent of the employee, deposit or invest in a credit union, savings and loan association, bank, mutual savings bank or purchase life insurance, shares of an investment company, or fixed and/or variable annuity contracts, for the purpose of funding a deferred compensation program for the employee, from any life underwriter or registered representative duly licensed by this state who represents an insurance company or any investment company licensed to contract business in this state . . ."
The approach we have in mind, basically, is this: If the board of county commissioners decides to establish a deferred compensation program for county employees under [[Orig. Op. Page 3]] RCW 41.04.250(2), supra, a logical and (we think) legally permissible first step would be to create, by resolution or ordinance, a special fund for that purpose as outlined by the State Auditor's Office in Auditor's Bulletin No. 017, Supplement No. 3, dated November 5, 1979‑-a copy of which is enclosed for your immediate reference. Accord, RCW 43.09.200 which requires the state auditor, through the Division of Municipal Corporations, to,
". . . prescribe, and install a system of accounting and reporting, which shall be uniform for every public institution, and every public office, and every public account of the same class.
". . .
By so doing, in our opinion, the county commissioners would (in view of the underlying purpose of the fund as related to RCW 41.04.250, supra) effectively be creating a "public pension or retirement fund" within the meaning of Article XXIX, § 1 (Amendment 49) of the Washington Constitution which, as adopted in 1968, provides as follows:
"Notwithstanding the provisions of section 5, and 7 of Article VIII and section 9 of Article XII or any other section or article of the Constitution of the state of Washington, the moneys of any public pension or retirement fund may be invested as authorized by law." (Emphasis supplied)
Questions (1), (4) and (7):
And therefore, through this approach the constitutional issues raised by your first, fourth and seventh questions‑-based on Article VIII, § 7 and Article XI, § 15 of the constitution‑-could readily be overcome.1/
[[Orig. Op. Page 4]]
See also, AGO 1977 No. 51 (copy enclosed) with respect to Article VIII, S 7. In addition, with respect to Article XI, § 15 we should also advise you that we do not view that constitutional requirement for the initial deposit of county funds with the county treasurer as in any way inhibiting the later investment of those funds in accordance with legislative authorization‑-whether that authorization is in the form of a general statute such as RCW 36.29.020 or, as in the instant case, RCW 41.04.250(2),supra.
As for the interrelationship between those two last cited statutes (i.e., the issue raised by your second question2/), there is clearly nothing in RCW 36.29.020 which prohibits the county treasurer from investing funds in the manner additionally and independently authorized by some other statute such as, in this case, RCW 41.04.250(2). We would therefore respond to question (2) in the negative.
[[Orig. Op. Page 5]]
Next, it will also be seen that the establishment of a special county employees' retirement account or fund, as contemplated by the state auditor's bulletin,supra, should solve the problem referred to in your third question.3/ Under the approach which we are here suggesting, the answer to this question would likewise be in the negative for the simple reason that the monies involved would no longer be held in the current expense fund at all. Instead, they would be in a separate account or fund. Accord, 15 McQuillin, Municipal Corp., (1970 Rev.), §§ 39.44-.45. And, under the express language of the state auditor's bulletin, supra, expenditures of such monies would be regarded as "non-budgetary transactions."
Questions (5) and (6):
By your fifth and sixth questions,4/ you have indicated a concern over whether the contractual liabilities incurred by a county in establishing a deferred compensation program for its employees might, somehow, run afoul of the constitutional [[Orig. Op. Page 6]] and statutory debt limitation set forth in Article VIII, § 6 of the constitution and chapter 39.36 RCW. In accordance with the reasoning of our state supreme court in State ex rel. Wittler v. Yelle, 65 Wn.2d 660, 339 P.2d 319 (1965), we would think not. A "debt" or an "indebtedness," within the meaning of such constitutional and statutory provision as those, was held by the Court in that case only to encompass an obligation to repay borrowed money. Therefore, while the establishment of a deferred compensation program for public employees most certainly does involve the incurrence of a contractual liability,5/ it does not trigger, or violate, either the constitutional or statutory debt limitations.
Finally, by this question you have asked:
"(8) If the full compensation is not paid to the employee in the year in which it was earned, but is paid in some year in which it was not earned, is there a lending of credit to the employee contrary to Article 8, Section 7 of the Constitution of the State of Washington?"
We would also answer this inquiry in the negative. Whatever else the constitutional prohibitions against lending credit may mean, they do not cover a simple deferral in the payment of compensation; otherwise, all of our existing public pension laws would be unconstitutional and they quite clearly are not. Cf.,Bakenhus v. Seattle, supra.
It is hoped that the foregoing will be of assistance to you.
Very truly yours,
PHILLIP H. AUSTIN
Deputy Attorney General
*** FOOTNOTES ***
1/These three questions, as set forth in your letter, asked:
"(1) Is the Treasurer prohibited by provision of Article 11, Section 15 of the Washington State Constitution from investing that money in a fixed and/or variable annuity contract?
"(4) Is such an investment a use of county money for a purpose not authorized by law and a felony contrary to Article 11, Section 15 of the Constitution of the State of Washington?
"(7) Does the investment of county money in a fixed and/or variable annuity contract constitute a lending of credit to the annuity contractor contrary to Article 8, Section 7 of the Constitution of the State of Washington?"
In order to provide you with our thoughts in a logical sequence, we will similarly deal with your remaining questions in a different order than they were listed in your letter.
2/This question asks:
"Is the Treasurer prohibited by provision of RCW 36.29.020 from investing that money in a fixed and/or variable annuity contract?"
3/This question reads:
"Is the money held pending time for pay out by the county or invested in a fixed and/or variable annuity contract an unbudgeted cash balance in the current expense fund of the county in the meaning of RCW 36.40.090?"
4/These questions ask:
"(5) Does the contract with the employee providing for future payment of the deferred income create an indebtedness by the county to the employee within the meaning of Article 8, Section 6 of the Washington State Constitution?
"(6) Does the contract with the employee providing for future payment of the deferred income create an indebtedness by the county to the employee within the meaning of Chapter 36.36 RCW?"
5/See, Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956).