OAG 96-23

June 6, 1996

Subject: Early retirement incentive programs

Written By: Scott White, Director, Civil and Environmental Law Division

Requested By: Pulaski County Board of Education and Christian County Board of Education

Syllabus: One time payments to teachers to induce retirement are constitutional under Section 3 of the Kentucky Constitution as such payments are in consideration of public service

Statutes Construed: KRS 161.600, 18A.202, 61.596, 161.790, 161.170, 161.740 and 160.291

Kentucky Constitutional Provisions: Section 3


Our Office has been presented with the issue of whether two retirement incentive programs to be offered by local school boards are constitutional. Neither this Office nor any appellate court in the Commonwealth of Kentucky has rendered an opinion on the constitutionality of retirement incentive programs offered to state employees. Before turning to our analysis and opinion, it would be well to briefly describe the programs presented for our determination.

First, the Pulaski Board of Education proposes to offer all teachers with a minimum of 30 years of service a one-time payment of $10,000 to each teacher who elects to retire. No teacher would be compelled to accept the offer. This offer would be restricted to those teachers electing retirement effective 1996. Pulaski County has stated that the purpose of this incentive is to enable “. . . the district [to] employ . . . teachers at a lower salary than those with higher salaries [which would enable the school board to] . . . employ more teachers. Overall, there will be a savings to the school district and from a fiscal management point of view this is certainly desirable.” Letter of Larry G. Bryson to Office of Attorney General, March 6, 1996.

The retirement incentive program proposed by the Christian County Board of Education is virtually identical to that of Pulaski. Christian County proposes that at any time during the 1996 fiscal year, any full time certified employee with at least 15 years of uninterrupted service in the Christian County public school district who is eligible for retirement from the State Certified Teacher Retirement system [see, KRS 161.600(1)] is eligible for access to funds in the amount of $10,000 if the teacher elects to retire and so informs the personnel office of the school board on or before June 14, 1996. See, (Draft) Policy, Certified Retirement Incentive Plan.

Although not expressly set out in the draft policy or in any correspondence to this office, Kirby D. Hall, Ph.D., superintendent of the Christian County public school system, has verbally informed this Office that the purpose of the retirement incentive plan is to enable the school system to hire teachers at a lower salary rate which would create savings to the school district.

Based upon these plans as outlined above, we must determine whether, in our opinion, they withstand constitutional scrutiny.

II. Analysis

The analysis of any plan which purports to confer a monetary payment or benefit to a state employee or officer must begin with Section 3 of the Kentucky Constitution. That section states, in pertinent part:

. . . no grant of exclusive, separate public emoluments or privileges shall bel made to any man or set of men, except in consideration of public services . . . .

There can be no doubt that the Pulaski and Christian County proposals are indeed public emoluments. Therefore, for these plans to be constitutional, they must be made “in consideration of public services.” That is the determinative issue.

It has long been the law of this Commonwealth that pension plans for public employees-- whether teachers, firemen, policemen or judges--are constitutional. See, Board of Education v. City of Louisville, 288 Ky. 656, 157 S.W.2d 337, 345 (Ky. 1941); and, Maybury v. Coyne, 312 S.W.2d 455, 457 (Ky. 1958). As stated by Justice Sims in Maybury:

. . . we do not regard a pension as being a deferred payment of salary but rather as an inducement to competent persons to enter and remain in public service, and to encourage the retirement from that service of those who become incapacitated from performing official duties as well as they might be performed by younger persons.

312 S.W.2d at 457. Although the retirement incentive programs proffered for review are not “pensions” per se, the analysis of Section 3 as it applies to “pensions” is pertinent. This is because both Maybury and Littleton, infra, define “pensions” as payments which may be used to induce retirement. This is precisely the purpose of the plans under review.

A key element in analyzing the constitutionality of pensions for public employees is whether the employee to be given a pension is actively engaged in the profession at the time the pension rights accrue. In Littleton v. Reed, 456 S.W.2d 695 (Ky. 1970), the court held that a former state employee, a judge, was not entitled to pension rights for past public service. As the court stated “. . . to appropriate public funds in recognition of some past public service for which compensation has already been paid is to grant a gratuity.” Id. at 696. The court in Littleton reasoned that the legislature cannot compensate by way of pension or retirement benefits a state officer whose public service had been completed prior to the enactment of the retirement plan.

It is clear under the analysis set out in Littleton that pension or retirement benefits cannot be given for “past” service. They can only be given to induce a person to enter or remain in public service or “to induce a person to retire . . . .” Id. at 696.

It must also be noted that “in consideration” of public services is not strictly confined to its definition in contract law. To the contrary, the term “consideration” here means “because of” or “on account of” services rendered. Talbott v. Thomas, 286 Ky. 786, 151 S.W.2d 1, 14 (1941). Therefore, the voluntary retirement payments must be “because of” or “on account of” some public service rendered by the teacher. And, the public service cannot be a past service. Littleton, supra.

It is clear to us that a public employee voluntarily retiring to assist the state (or school board) in fiscal savings is a “public service.” Similar examples include Distinguished Service Awards given by agencies of the Commonwealth to employees for exemplary service to the state. 101 KAR 2:036, Section 11. Another example is the State Employee Suggestion System. See, KRS 18A.202. There, state employees who make suggestions which generate savings to the Commonwealth are rewarded with a cash payment up to $2,500. Both of these examples indicate that emoluments for “public services” are not necessarily confined to an employee’s defined duties.

Perhaps the strongest example of the constitutionality of the proposed retirement incentive payments is found at KRS 61.596. That statute provides that any employee who retired between July 15, 1988, and September 30, 1988, would receive credit bonus for pension purposes. The purpose for this plan, set out in the statute, was to:

. . . bring expenditures in line with general fund revenues. No discrimination is intended by this section against any present or future employees. It is the intent of this section to encourage those employees nearing retirement to elect retirement as a voluntary service to the Commonwealth.

KRS 61.596(7) (emphasis added). By enacting this early retirement incentive plan, the legislature clearly stated its intent that voluntary retirement was a “service to the Commonwealth.” Although the statute was never challenged, we are well aware of the constitutional principle that acts of the legislature are imbued with a strong presumption of constitutionality. Fischer v. State Board of Elections, 879 S.W.2d 475, 476 (Ky. 1994).

Given the clear intent of the legislature expressed in KRS 61.596, as well as the other examples outlined above, we find no significant difference between those and the retirement incentive plans proposed by Pulaski and Christian counties. It is, therefore, our opinion that these two plans are constitutional.

Both the Pulaski and Christian County plans’ stated purpose is to generate savings. Both plans are available only to teachers already eligible to retire under the Teachers Retirement System. All such teachers, by definition (unless over the age of 65), would have due process rights under KRS 161.790--since they are employed under continuing service contracts. KRS 161.170(4), and 161.740. None of these teachers could be forced to retire by the school system. In short, retirement by these teachers would be a purely voluntary act on their part. In this context, retirement would be a service to the Commonwealth. If the school system as a matter of its policy were to induce such voluntary retirements with a cash payment, then the Constitution is not offended.

In conformity with this Office’s policy to solicit input from state agencies with expertise in a particular area, the Kentucky department of Education, via letter dated May 21, 1996, expressed an opinion on the constitutionality of the Pulaski and Christian county plans. The Kentucky Department of Education likewise concluded that these two plans were constitution, but apparently on a different basis. DOE’s conclusion rested on KRS 160.291 which provides in pertinent part:

(3) . . . the Board of Education may also adopt a plan for providing a program of fringe benefits to its employees.

(4) All payments made for salaries, extra duties, and fringe benefits by the Board of Education under the authority of this section are deemed to be for services rendered and for the benefit of the common schools . . . .

KRS 160.291. Based on this, the Kentucky Department of Education concluded:

The proposals that you described in your letters indicate that it would be a service to the Commonwealth if individuals eligible for retirement proceeded with that plan voluntarily. This is very similar to the legislation cited above [citation omitted] which made it clear that the offer was in consideration of public service. This would appear to meet the criteria of Section 3 of the Kentucky Constitution.

Letter of Anne Keating, Office of Legal Services, Kentucky Department of Education, May 21, 1996, at 2.

For the reasons we have already set forth in this opinion, we must distinguish DOE’s analysis. KRS 160.291 states that salaries, extra duties and fringe benefits given to teachers are deemed to be for services “rendered”--emphasis on the past tense. It must be clearly stated that if the proposed payments are being made for the past service of the teacher, then the plan would be unconstitutional under the analysis of Littleton. Thus, if the $10,000 payments were being made for the “years of service” which had already been compensated for in salary and other fringe benefits, then such payments would be tantamount to a pure unconstitutional gratuity. Moreover, were the payment to be made for past services rendered, then any teacher who met the 30-year threshold of service required by Pulaski County or the 27-year threshold of service required by Christian County would be entitled to the $10,000 payment irrespective of whether the teacher actually retired. The key fact which makes these payments constitutional is the voluntary retirement of the teacher--that is the public service rendered. Such an act is a “present” service for which an emolument is paid, not a past service for which a gratuity is given.

III. Conclusion

It is, therefore, the opinion of the Attorney General that the retirement incentive plans of Pulaski and Christian counties are constitutional public emoluments made to teachers in consideration of the public service of voluntarily retiring when otherwise not required. It must also be specifically stated that this opinion should not be construed to endorse any particular policy adopted by these specific school boards or any other school board which in the future proposes such plans. We leave it to the individual school board to set forth the criteria necessary

to insure the retirement of a particular teacher is indeed being done early, as opposed to a teacher who would have retired anyway. The former would be constitutional, the latter not.