Opinion 2000 - 14


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 The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

COLLECTIVE BARGAINING AGREEMENTS -- Compensation (payments into annuity program) -- Retirement Benefits (payments into annuity program)

PUBLIC OFFICERS AND EMPLOYEES -- Compensation (payments into annuity program) -- Retirement Benefits (payments into annuity program)

SCHOOL DISTRICTS -- Teachers (payments by school district into annuity program)

CIVIL SERVICE LAW 201(4); RETIREMENT AND SOCIAL SECURITY LAW 113, 470; EDUCATION LAW 3109: A school district is not prohibited under Civil Service Law 201(4), or Retirement and Social Security Law 113 or 470, from agreeing in a collective bargaining agreement with its teachers to make annual payments, either in prescribed dollar amounts or as a percentage of pay, into an annuity program under which: all school district payments into the program would terminate upon separation from service; the payments would be fully vested immediately in the teacher and available to the teacher prior to retirement; there would be no fiscal obligation for the school district to provide payments into the program after a teacher's retirement; and the school district would have no fiscal obligation regarding payments due from the program to the teacher. Prior inconsistent opinions are superseded.

You ask whether, in light of the prohibitions of Civil Service Law 201(4) and Retirement and Social Security Law 113 and 470, a school district, pursuant to a collective bargaining agreement, may make annual payments, either in prescribed dollar amounts or as a percentage of pay, into a "tax deferred annuity program" for its teachers. Under the program, all school district payments into the program would terminate upon separation from service. The payments would be fully vested immediately in the teacher and available to the teacher prior to retirement. There would be no "fiscal obligation" for the school district to provide payments into the program after a teacher's retirement and the school district would have no "fiscal obligation" regarding payments due from the program to the teacher.1

Collective bargaining between public employers and public employees is provided for by article 14 of the Civil Service Law (200 et seq.). It is well established that, pursuant to this authority, 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 State or Federal Constitution, a statute, decisional law or restrictive public policy (Matter of the Board of Education of the City of Rochester v Nyquist, 48 NY2d 97, 421 NYS2d 853; Board of Education v Yonkers Fed. of Teachers, 40 NY2d 268, 386 NYS2d 657; Board of Education v Assoc. Teachers of Huntington, 30 NY2d 122, 331 NYS2d 17).2

Section 113(a) of the Retirement and Social Security Law prohibits municipalities from creating retirement systems after April 12, 1922. The primary purpose of section 113(a) was to ". . . halt the proliferation of local retirement systems whose indeterminate costs would only be felt in the future" (NYPIRG v City of New York, 89 Misc 2d 262, 266, 390 NYS2d 784, 787, affd 63 AD2d 926, 406 NYS2d 693, affd 48 NY2d 917, 425 NYS2d 91).

Section 470 of the Retirement and Social Security Law, as last amended by L 1999, ch 138, prohibits, until July 1, 2001, changes negotiated between public employers and public employees with respect to any benefit provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees or payment to retirees or their beneficiaries, where such changes would require an act of the State Legislature (see Village of Fairport v Newman, 90 AD2d 293, 457 NYS2d 145 appeal dismissed 58 NY2d 1112). Similarly, Civil Service Law, 201(4) provides that the term "terms and conditions of employment" shall not include any benefits provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees, or payment to retirees or their beneficiaries, and declares that no such retirement benefits shall be negotiated pursuant to article 14 of that law. The basic purpose of these restrictions is to help government employers hold down increases in the cost of pension benefits (Incorporated Village of Lynbrook v PERB, 48 NY2d 398, 423 NYS2d 466, citing Governor's Memorandum, NY Legis. Ann., 1973, p 303).3

NYPIRG, supra, involved municipal contributions pursuant to collective bargaining agreements of a specified sum for each day of active employment of each covered employee to so-called "annuity funds" maintained by employee unions. The contributions varied depending on the rank and grade of the employee, and vested in the employees immediately. Upon termination of employment, regardless of duration and regardless of whether by retirement or otherwise, the employee was entitled to receive the accumulated payments made on his or her behalf, plus a proportionate share of any investment yield, payable in a lump sum or in monthly installments.

The court held that, although the "annuity funds" bore certain resemblances to a retirement system, there were significant distinctions, such that the municipality's contributions did not contravene the prohibition in section 113. In particular, the court noted that the municipality's obligation was fixed and certain, requiring only the contribution of a specified sum for each day of active employment, a "monetary commitment exactly the same as if payments were made in the form of wages " (89 Misc 2d at 265, 390 NYS2d at 787). In contrast, the court noted that, in the case of a retirement system, the municipality's obligation is dependent on a variety of unknown factors, including final average salary, duration of employment and the number of years the employees survive after retirement. The court also noted that, unlike a retirement system, the "annuity funds" provided for the payment of benefits to the employee upon termination from service for any reason, not only upon retirement, and regardless of the duration of service. Thus, the payments were found to be unrelated to the purpose of a retirement system, which is to provide an incentive to an employee to faithfully perform his or her duties over an extended period.

In Incorporated Village of Lynbrook, supra, the Court of Appeals held that payment of a lump sum benefit to employees upon termination of employment did not constitute a "retirement benefit" prohibited by section 201(4) of the Civil Service Law; see also 1983 Opns St Comp No. 83?37, p 43; 1980 Opns St Comp No. 80-550, unreported). The Court noted that the termination payment in question was not a "retirement benefit" prohibited by Civil Service Law 201(4) because the award would be made to employees who terminated their services for reasons other than retirement and because it would be paid "in one lump sum geared to the length of tenure . . . [representing] deferred compensation for services rendered, as opposed to the continuing open-ended obligation of a pension" (48 NY2d at 405, 423 NYS2d at 468; see also 1979 Opns St Comp No. 79-70, p 12). The Court also held in that case that the provision of hospitalization benefits for spouses and children of deceased active and retired employees was not "brought within the common understanding of the general statutory term 'retirement benefits' merely because the plan would continue in effect after current employees retire" (48 NY2d at 406, 423 NYS2d at 469).

The instant proposal is analogous to that in NYPIRG, supra, and has significant similarities to that in Incorporated Village of Lynbrook, supra. The school district's monetary commitment is not a continuing, open-ended pension-like obligation, but instead would be limited to the annual amount specified in the agreement. Further, although annual contributions may vary based on an employee's current salary, the school district's payments would not be dependent on future years' salary, duration of employment or number of years the employee survives after retirement. Also, the contributions would vest immediately in the employee.  Availability of the annuities would not be conditioned upon retirement of the employee, and the school district's financial obligation would not continue after retirement (cf. 1988 Opns St Comp No. 88-6, p 9; 1983 Opns St Comp No. 83-94, p 114).

Accordingly, based on the holdings in NYPIRG, supra, and Incorporated Village of Lynbrook, supra, we conclude that the proposed school district contributions under a collective bargaining agreement would not constitute a "retirement system", "benefits provided or to be
provided by a public retirement system", "payments to a fund or insurer to provide income to retirees", or "payments to retirees or their beneficiaries" within the intendment of the prohibitions in section 201(4) of the Civil Service Law and sections 113 or 470 of the Retirement and Social Security Law (see also 29 PERB Opn of Counsel 29-5004; In re City of Plattsburgh, 250 AD2d 327, 681 NYS2d 649 lv den 93 NY2d 807, 691 NYS2d 1; but see 2000 Opns St Comp No. 2000-4, p 10, footnote 3).4

September 27, 2000
Howard W. Smith, Superintendent of Schools
Canton Central School District

1 We note that our opinion is limited to consideration of the applicability to the program of the prohibitions in Civil Service Law 201(4) and Retirement and Social Security Law 113 and 470. We make no comment with respect to issues of federal and state income tax law or liability for social security contributions, or treatment for final average salary purposes under the New York State Teachers' Retirement System (see Education Law 501[11]).

2 We note, as a threshold matter, that Education Law 3109 generally authorizes school districts, in their discretion, to enter into written agreements with employees to reduce the annual salary otherwise payable to the employee for purposes of purchasing an annuity "as permitted under section 403(b) of the United States Internal Revenue Code ". Since section 3109 is silent with respect to school district contributions to annuities, it does not, in our view, constitute a prohibition against inclusion in a collective bargaining agreement of a provision for employer contributions toward an annuity.

3 For purposes of this opinion, we consider a "retiree" to be a person who has filed for and is entitled to the payment of a retirement allowance from a public retirement system (see 2000 Opns St Comp No. 2000-4, p 10, footnote 2).

4 To the extent 1982 Opns St Comp No. 82-1, p 1, 1978 Opns St Comp No. 78-293, unreported and any other prior opinions may suggest that Retirement and Social Security Law 113 or 470 would prohibit a collective bargaining provision such as the proposal at issue, notwithstanding that the annuity is available and payable irrespective of the employee's retirement, they are hereby superseded.