Opinion 88-6


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

PUBLIC OFFICERS AND EMPLOYEES -- Retirement Benefits (authority of municipality to contribute to "defined contribution pension plan")

CIVIL SERVICE LAW, §§200 et seq.; MUNICIPAL HOME RULE LAW, §10(1)(ii)(a)(1); RETIREMENT AND SOCIAL SECURITY LAW, §§113, 470: A municipality may not, by local law or collective bargaining, contribute to a "defined contribution pension plan" under which the municipality's contributions will constitute an indeterminate cost and benefits are not payable until retirement.

You ask whether a "defined contribution pension plan" established pursuant to an agreement entered into between a town and a local bank constitutes a local retirement system for purposes of section 113(a) of the Retirement and Social Security Law. Section 113(a) prohibits municipalities from establishing a local retirement system for its officers or employees after April 12, 1922.

The plan, which was established by the town by resolution, provides that the town will contribute an amount equal to ten percent of the compensation paid to each participating employee during any year in which the employee performs 1,000 hours of service. An employee becomes a participant in the plan by completing one year of service. A participating employee is fully vested at all times and is eligible to receive benefits at the "normal retirement age" of sixty-five. The plan also permits voluntary contributions by participating employees. The agreement with the bank provides that the town will pay all fees under the plan.

Initially, we note that there is no statutory authority for a town, by resolution, to establish the type of plan at issue here (see 1981 Opns St Comp Nos. 81-337 and 81-338, pps 367, 370; cf. State Finance Law, §5 authorizing political subdivisions to establish plans for the deferral of part of the compensation of their employees, subject to the rules and regulations promulgated by the Deferred Compensation Board). Thus, it is our opinion that the town may not contribute to this plan unless, notwithstanding the prohibition in section 113, the town may implement the plan under its home rule powers or pursuant to collective bargaining.

A town may adopt local laws, not inconsistent with any general law or the constitution, relating to the compensation and welfare of its officers and employees (Municipal Home Rule Law, §10[1][ii][a][1]). In addition, an item may be included in a collective bargaining agreement, whether or not it involves a term or condition of employment subject to mandatory bargaining, unless there is a plain and clear prohibition against such inclusion in the constitution, a statute, decisional law or restrictive public policy (Board of Education v Yonkers Federation of Teachers, 40 NY2d 268, 386 NYS2d 657; Civil Service Law, §201[4]).

Section 113(a) does not define the term "retirement system." However, the provisions of section 113 were construed in NYPIRG v City of New York, 89 Misc 2d 262, 390 NYS2d 784, affd 48 NY2d 917, 425 NYS2d 91.

In NYPIRG, supra, a collective bargaining agreement provided that the City of New York was to contribute a fixed sum for each day of an employee's active service to a trust fund established by the employees' union. The City's payments to the fund vested in the employees immediately and upon termination of employment, regardless of duration, an employee was entitled to receive the accumulated payments plus interest.

In determining that a retirement system had not been established in violation of section 113(a), the court found that, while the trust funds bore a resemblance to a retirement system, they were distinguishable in that the City's obligation was fixed and certain and not dependent on variables, such as salary increases, years in service or mortality rate. In addition, the court emphasized that the employees could receive the benefits from the trust fund upon termination of service, regardless of the duration of service, noting that a principal characteristic of retirement systems is that benefits are payable only upon retirement after a designated minimum period of service. Thus, the court stated that the reason for which the trust fund was created was unrelated to the purpose of a retirement system - to provide an incentive to employees to faithfully perform their duties over an extended period. The court also expressed the view that a legislative purpose of section 113(a) was to halt the proliferation of local retirement systems whose indeterminate costs would be felt only in the future, a problem not present in the NYPIRG case.

Unlike the plan under consideration in NYPIRG, supra, however, the plan established in this instance obligates the town to make a contribution which is not fixed and certain. Rather, as was noted, the contribution by the town is equal to ten percent of the annual compensation of each employee who performs 1,000 hours of service. Thus, the town's contributions constitute an indeterminate cost, and like pension contributions, will vary depending on salary increases or decreases and the number of qualifying employees. In addition, although benefits under the plan vest immediately and in full, they are not payable until the "normal retirement age" of sixty-five. Thus, unlike the NYPIRG situation, benefits are not payable upon any type of separation of service and seem to be designed as an incentive for employees to perform services over an extended period.

Accordingly, viewed as a whole, it is our opinion that the town's plan would constitute a retirement system within the meaning of section 113(a). It is our further opinion, therefore, that a local law authorizing such a plan would be inconsistent with the provisions of section 113(a) prohibiting local retirement systems and that a collective bargaining provision establishing such a plan would be prohibited by section 113(a). We also note that providing for the plan by collective bargaining may also contravene Retirement and Social Security Law, §470. Section 470 prohibits changes negotiated between public employers and employees with respect to any benefit provided by a public retirement system, or payments to a fund or insurer to provide as income for retirees or payments to retirees or their beneficiaries, except where such changes would not require an act of the State Legislature (see Village of Fairport v Newman, 90 AD2d 293, 457 NYS2d 145; cf. Inc. Village of Lynbrook v P.E.R.B., 48 NY2d 398, 423 NYS2d 466, holding that hospitalization insurance for families of current employees who die after retirement is not a prohibited subject of collective bargaining).

February 24, 1988
Cornelius F. Healy
Deputy State Comptroller