ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
May 22,2003
Mr. Clarence R. Josselet, ARM, CPCU Opinion No. GA-0075
Executive Director
State Office of Risk Management Re: Whether the Employees Retirement System
300 West 15th Street and the Teacher Retirement System must pay
Austin, Texas 78701 a share of the state employee workers’
compensation claims costs allocated under
Labor Code section 412.0123 (RQ-OOOl-GA)
Dear Mr. Josselet:
You ask whether the Employees Retirement System (the “ERS”) and the Teacher Retirement
System (the “TRS”) must pay the state employee workers’ compensation fund allocation that the
State Office of Risk Management (the “SORM”) has set under section 4 12.0 123 of the Labor Code.’
I. Facts
In accordance with the SORM’s authority under chapter 412 of the Labor Code to allocate
the state’s workers’ compensation claims costs among state agencies, see TEX. LAB. CODE ANN. tj
412.0123(a) (Vernon Supp. 2003), as adopted by Act of May 22,2001,77th Leg., R.S., ch. 559, 5
1,200l Tex. Gen. Laws 1076,l 0762, the SORM assessed both the ERS and the TRS for fiscal year
2002. See Request Letter, supra note 1, at 2. The ERS and TRS had paid allocations in the years
prior to 2001, when the allocations covered only the SORM’s administrative costs. See id. at 6
(“historically, both ERS and TRS have” fully participated “in the state’s self-insured program and
have paid all amounts required by the Legislature prior to” amendments made in 200 1). Prior to the
2002 allocation, the ERS and the TRS also reimbursed the state in full for workers’ compensation
claims costs that the state paid on their behalf.3 But in accordance with amendments made to chapter
‘Letter from Clarence R. Josselet, ARM, CPCU, Executive Director, State Office of Risk Management, to
Honorable John Cornyn, Texas Attorney General at 1 (Nov. 22,2002) ( on f 11e with Opinion Committee) [hereinafter
Request Letter].
*Hereinafter “Act of May 22, 2001.”
3Letter from Conni Brennan, General Counsel, and Charmaine Skillman, Assistant General Counsel, Teacher
Retirement System of Texas, to Nancy Fuller, Chair, Opinion Committee, Texas Attorney General at 4 (Feb. 24,2003)
(on file with Opinion Committee) [hereinafter TRS Letter].
Mr. Clarence R. Josselet - Page 2 (GA-0075)
412 in 2001, allocations for fiscal year 2002 included a share of the state’s workers’ compensation
claims costs in addition to the SORM’s administrative costs. See TEX. LAB. CODE ANN.
5 412.0123(a) (V emon Supp. 2003), as adopted by Act of May 25,2001,77th Leg., R.S., ch. 1456,
f~ 14.01,2001 Tex. Gen. Laws 5167, 5194-954 and by Act of May 22,2001, 8 I,2001 Tex. Gen.
Laws at 1076. Neither retirement system paid the full allocation for fiscal year 2002; rather, each
paid the amount it “determined to be reasonable.” Request Letter, supra note 1, at 2.
II. Relevant Law
A. Authority to Establish Workers’ Compensation Program
The legislature is constitutionally authorized to provide for workers’ compensation
insurance for “such [sltate employees, as in its judgment is necessary or required; and to provide for
the payment of all costs, charges, and premiums on such policies of insurance.” TEX. CONST. art.
III, 8 59. A state employee with a “compensable injury” is entitled to compensation through the
state’s workers’ compensation insurance program. TEX.LAB. CODEANN. fj501.021 (Vernon 1996);
see also id. 5 501.001(2) (Vernon Supp. 2003) (defining the term “compensable injury”). Labor
Code chapter 412 enables SORM to administer “the government employees workers’ compensation
insurance program.” Id. 8 412.01 l(a).
The SORM itself is administered with legislatively appropriated funds and “through the
allocation program for the financing of state workers’ compensation benefits and risk management
costs.” Id. 8 412.012, as adopted by Act ofMay25,2001, § 14.01,2001 Tex. Gen. Laws at 5194-95
and by Act of May 22,2001, 5 1,200l Tex. Gen. Laws at 1076; cJ: id., as adopted by Act of May
27,2001,77th Leg., R.S., ch. 1017, 5 1.02,2001 Tex. Gen. Laws 2226, 22275 (adding that SORM
also shall be administered through interagency contracts). In the allocation program, each state
agency must enter an interagency contract with SORM to pay an allocated share of SORM’s
administrative costs: SORM employees’ services; materials; and equipment. Id. 9 412.012 1(a), (b),
as adopted by Act of May 25,2001, 8 14.01,2001 Tex. Gen. Laws at 5194-95 and by Act of May
22,2001, 0 1,200l Tex. Gen. Laws at 1076; id., as adopted by Act of May 27,2001, 5 1.02,2001
Tex. Gen. Laws at 2227. Additionally, since the effective date of the 2001 amendments to chapter
412, each state agency must pay an allocated share of all of the participating agencies’ workers’
compensation claims. Id. § 412.0123(a), as adopted by Act of May 25,2001, § 14.01,2001 Tex.
Gen. Laws at 5 194-95 and by Act of May 22,2001,§ 1,200l Tex. Gen. Laws at 1076. For purposes
of chapter 412, the term “state agency” means “a board, commission, department, office, or other
agency in the executive, judicial, or legislative branch of state government that has five or ‘more
employees, was created by the constitution or a statute of this state, and has authority not limited to
a specific geographical portion of the state.” Id. 8 412.001(4).
4Hereinafier “Act of May 25,200l.”
‘Hereinafter “Act of May 27,200l.”
Mr. Clarence R. Josselet - Page 3 (GA-0075)
In accordance with its authority to adopt rules necessary to implement chapter 412, see id.
4 412.03 1, SORM has promulgated a rule specifying a formula to calculate each state agency’s
allocation:
The total assessment will be divided among participating agencies based on
each agency’s:
(1) payroll as a percentage of all participating agencies’
payroll;
(2) [full-time employees (FTEs)] as a percentage of the total
of all participating agencies’ FTEs;
(3) the total number of accepted claims as multiplied by the
agency’s [injury frequency rate] modifier;
(4) claim costs as a percentage of all claims payments made
on behalf of participating agencies; and
(5) such other relevant factors as the Board may determine.
28 TEX. ADMIN. CODE 8 251.507(a) (2003); see also id. 8 25 1.503 (defining terms). SORM rules
limit “[tlhe amount of the total allocation determined by an agency’s modified total number of
accepted claims,” which cannot exceed two percent of the agency’s weighted average payroll. Id.
5 25 1.507(f). The rules similarly limit “[tlhe amount of the total allocation determined by claims
costs” to no more than four percent “of an agency’s weighted average payroll.” Id. “The difference
between the formula-based assessment amount and cap established herein shall be allocated among
all other agencies in the same manner and within the same factors as the initial assessment
calculation.” Id.
B. Authority to Establish Retirement Systems
Article XVI, section 67 of the Texas Constitution authorizes the legislature to “enact
general laws establishing systems and programs of retirement . . . for public employees and officers.”
TEX. CONST. art. XVI, 8 67(a)( 1). See generally Tex. Att’y Gen. Op. No. JC-0043 (1999) at 4-6
(“History of article XVI, section 67 of the Texas Constitution”). This constitutional provision
further requires the legislature to establish TRS “to provide benefits for persons employed in the
public schools, colleges, and universities supported wholly or partly by the state” and ERS “to
provide benefits for officers and employees of the state and such state-compensated officers and
employees of appellate courts and judicial districts as may be included under the system by law.”
TEX. CONST.art. XVI, 8 67(b)(l), (2). Deductions from state employees’ and teachers’ salaries fund
the retirement systems, together with a contribution from the state calculated as a percentage of the
number on the payroll in a fiscal year. See General Appropriations Act, 77th Leg., R.S., ch. 15 15,
art. I, I-34, rider 3, art. III, III-41, rider 3, 2001 Tex. Gen. Laws 5411, 5462, 5702. Article XVI,
Mr. Clarence R. Josselet - Page 4 (GA-0075)
section 67(a) directs that a system’s assets “are held in trust for the benefit of members and may not
be diverted.” TEX. CONST. art. XVI, 8 67(a).
The ERS’s governing board administers and operates ERS’s trust fund and “is the trustee of
the system’s assets.” See TEX. GOV’T CODE ANN. $3 811.003,815.101,815.103(a) (Vernon 1994
& Supp. 2003). The comptroller has custody of ERS’s trust assets unless ERS’s governing board,
in the exercise of its constitutional discretion, has selected a commercial entity “to serve as custodian
of all or part of the retirement system’s assets.” Id. 05 815.207(a), (d), 815.310(a) (Vernon Supp.
2003). All of ERS’s assets in the comptroller’s trust fund must be credited to one of five accounts,
including an “expense account,” id. 9 8 15.3 1O(b), that ERS must use to pay its administrative and
maintenance expenses. Id. 0 815.315(b) (Vernon 1994).
Similar statutes create TRS’s board of trustees, which administers and operates TRS. See
id. 5 0 82 1.003, 825.101. TRS’s governing board “is the trustee of all assets of the retirement
system.” Id. 8 825.103(a). The comptroller generally has custody of TRS’s securities and cash,
although TRS’s governing board may select a commercial entity “to serve as custodian or custodians
of all or part of the retirement system’s assets.” Id. 5 825.207(a), (e) (Vernon Supp. 2003). TRS’s
assets “shall be credited, according to the purpose for which they are held, to one of’ six accounts,
including an expense account from which TRS pays its administrative and maintenance expenses.
Id. $§ 825.306, 825.312(b).
III. Analvsis
You ask whether, because the retirement systems’ funds are held in trust for their members’
benefit under article XVI, section 67 of the Texas Constitution, the retirement systems’ funds are
excepted from paying the state employee workers’ compensation allocation set under Labor Code
section 412.0123. See Request Letter, supra note 1, at 1. Neither you nor either retirement system
questions a retirement system’s authority to provide workers’ compensation coverage for their
employees generally. CJ: Tex. Att’y Gen. Op. No. m-1092 (1989) at 5-6 (suggesting that a
governmental entity, including a retirement system, might have an interest in insuring against a loss
of its funds through an officer’s negligence). Rather, citing their low average yearly workers’
compensation claims costs relative to, for example, the Department of Criminal Justice, the
retirement systems argue that their allocations greatly exceed the costs of claims against them and
divert retirement system trust funds to agencies with higher average claims, thereby violating article
XVI, section 67(a) of the Texas Constitution! See TEX. CONST. art. XVI, tj 67(a); supra p. 3
(discussing article XVI, section 67); see also STATEOFFICEOF RISK MANAGEMENT,BIENNIAL
REPORT TO THE 78~~ LEGISLATURE app. 2 (Jan. 1’2003) (S ummary of Losses-By Agency FY 2002)
(listing fiscal year 2002 workers’ compensation claims by agency, including ERS ($5,351)’ TRS
6Letter from Paula A. Jones, General Counsel, Employees Retirement System of Texas, to Nancy Fuller, Chair,
Opinion Committee, Texas Attorney General at lo- 11 (Feb. 24,2003) (on file with Opinion Committee) [hereinafter ERS
Letter]; TRS Letter, supra note 3, at 5.
Mr. Clarence R. Josselet - Page 5 (GA-0075)
($16,869)’ and the Department of Criminal Justice ($25,494,33 1)).7 Moreover, the retirement
systems believe that section 506.002 of the Labor Code recognizes their continuing authority to
reimburse the general revenue fund for claims paid on their behalf, rather than to pay allocated
workers’ compensation claims costs under section 412.0123(a). See TEX. LAB. CODE ANN.
5 506.002 (Vernon Supp. 2003); ERS Letter, supra note 6, at 5-6; TRS Letter, supra note 3, at 16-18;
see aZso’TEX. LAB. CODE ANN. 5 412.0123(a) (Vernon Supp. 2003)’ as adopted by Act of May 25,
2001, fj 14.02,2001 Tex. Gen. Laws at 5194-95 and by Act ofMay 22,2001, 5 1,200l Tex, Gen.
Laws at 1076; cf: id. 8 412.0121, as adopted by Act of May 27,2001,§ 1.02,2001 Tex. Gen. Laws
at 2227. Before these issues may be reached, however, the threshold issue-whether a retirement
system is a state agency for purposes of chapter 412-must be determined.
Chapter 412’s definition of the term “state agency” is sufficiently broad to include ERS and
TRS. Each retirement system has more than five employees. See TEX. LAB. CODE ANN.
9 412.001(4) (Vernon Supp. 2003) (defining the term “state agency”); General Appropriations Act,
77th Leg., R.S., ch. 15 15, art. I, I-32, 2001 Tex. Gen. Laws 5411, 5462 (Number of Full-Time
Equivalent Positions for ERS: 305); id. art. III, III-41,200l Tex. Gen. Laws at 5702 (Number of
Full-Time-Equivalent Positions for TRS: 448). Each is within the executive branch of state
government, was created by state statute in accordance with constitutional requirements, and has
authority “not limited to a specific geographical portion of the state.” TEX. LAB. CODE ANN.
tj 412.001(4) (V emon Supp. 2003).
Nevertheless, with respect to required participation in the allocation program established
under section 412.0123 of the Labor Code, which applies generally to all state agencies, section
506.002(a) contemplates a different plan that applies specifically to a state agency that holds its
funds outside the state treasury and that reimburses the state’s general revenue fund for workers’
compensation payments:
An agency or other instrumentality of state government that,
with funds that are held outside the state treasury, reimburses the
general revenue fund for workers’ compensation payments made out
of the general revenue fund to former or current employees of the
agency or other instrumentality shall reimburse the general revenue
fund by writing a check to the comptroller . . . .
Id. 6 506.002(a); see also id. 5 412.0123, as adopted by Act of May 25,2001, 0 14.02,2001 Tex.
Gen. Laws at 5194-95 and by Act of May 22,2001, 4 1,200l Tex. Gen. Laws at 1076. Section
506.002 thus recognizes a workers’ compensation reimbursement system entirely different from
chapter 412’s allocation program. Sections 412.0123 and 506.002 cannot both apply to the same
agency, or the agency would be forced to pay workers’ compensation costs twice. Conflicting
statutes, one general and one specific, should be construed so that both are effective. See TEX.
GOV’T CODE ANN. 8 3 11.026(a) (Vernon 1998). In this case, both can be given effect by construing
7AvaiZabZe at www.sorm.state.tx.us/BiennialO3/appendix2.htm.
Mr. Clarence R. Josselet - Page 6 (GA-0075)
section 412.0123 not to apply to state agencies that hold their funds outside the state treasury and that
reimburse the general revenue fund for workers’ compensation claims in accordance with section
506.002.
This construction ascribes some meaning to section 506.002. A court construing a statute
must presume that each part of a statute has some effect. See id. fj 3 11.02 l(2); Exparte Pruitt, 55 1
S.W.2d 706, 709 (Tex. 1977); Eddins- WaZcher Butane Co. v. Calvert, 298 S.W.2d 93, 96 (Tex.
1957). Although the legislature arguably repealed provisions in chapter 412 that provided for a
reimbursement system and repealed certain provisions in the current General Appropriations Act
providing for a system of reimbursing workers’ compensation claims paid out of general revenue
funds, it did not repeal section 506.002? See Act of May 25,2001, 9 14.01,2001 Tex. Gen. Laws
at 5194 (amending section 412.0122); Act of May 22, 2001, § 1, 2001 Tex. Gen. Laws at 1076
(same); General Appropriations Act, 77th Leg., R.S., ch. 1515, art. IX, 8 6.37(g), 2001 Tex. Gen.
Laws 5411, 6302 (stating that the adoption of chapter 412, Labor Code, preempts reimbursement
requirements for “participating agencies”). But see Act of May 27, 2001, 8 1.02,2001 Tex. Gen.
Laws at 2228 (setting out section 412.0122(b)). Moreover, the repeal of provisions in the General
Appropriations Act does not affect ERS and TRS, which do not receive appropriated funds.’ See
Tex. Att’y Gen. Op. No. JM-427 (1986) at 5.
In addition, the reimbursement plan section 506.002 contemplates is important given the
special character of ERS’s and TRS’s assets. Unlike most other state agencies’ funds, ERS’s and
TRS’s assets are constitutionally declared to be trusts that are held for members’ benefit and that
may not be diverted from that purpose. See TEX. CONST. art. XVI, § 67(a). As trust funds, they are
held outside the state treasury and may be held even outside the custody of the state comptroller if
the governing board, in the exercise of its discretion, decides to do so. See TEX. GOV’T CODE ANN.
$9 8 15.207(d), 825.207(e) (Vernon Supp. 2003). Finding that buildings and grounds purchased with
ERS’s or TRS’s trust funds are “impressed with the trust,” this office has concluded that a general
statute placing the management of state real property in the hands of the State Board of Control did
not apply to ERS’s and TRS’s real property. Tex. Att’y Gen. Op. No. C-705 (1966) at 5; see Tex.
Att’y Gen. Op. No. M-644 (1970) at 2-3. Similarly, because retirement system funds are held in trust
outside the general revenue fund, this office concluded that the statutory Position Classification Plan
did not apply to retirement system employees. See Tex. Att’y Gen. Op. No. M-949 (1971) at 3.
*To the contrary, the current legislature is considering a bill that would amend section 506.002(d), as well as
numerous other statutes, to permit, rather than require, the State Auditor’s Office to audit certain state entities. See Tex.
S.B. 19, 0 62,78th Leg., R.S. (2003).
‘Although the retirement systems receive contributions from the state, calculated as a percentage of the number
on the payroll in a fiscal year, these contributions are not considered appropriated funds. As the San Antonio court of
civil appeals has stated with respect to municipal contributions to a pension fund, once the city pays money into the
pension fund, it “loses control over [the money,] and it no longer belongs to the city.” Bolen v. Bd. of Firemen,
Policemen & Fire AZarm Operators’ Tn., 308 S.W.2d 904,905 (Tex. Civ. App.-San Antonio 1957, writ ref d).
Mr. Clarence R. Josselet - Page 7 (GA-0075)
IV. Conclusion
To give section 506.002 some effect, we construe section 4 12.0 123 to apply to state agencies
except those to whom section 506.002 applies--i.e., state agencies that hold their funds outside the
state treasury and that reimburse the general revenue fund for workers’ compensation payments made
on the agencies’ behalf. See TEX. LAB. CODE ANN. 8 506.002(a) (Vernon Supp. 2003); see also id.
9 412.0123, as adopted by Act of May 25,2001,§ 14.02,2001 Tex. Gen. Laws at 5194-95 and by
Act ofMay 22,2001,§ 1,200l Tex. Gen. Laws at 1076. Because ERS’s and TRS’s funds are held
“outside the treasury,” i.e., in a trust fund outside the general revenue fund, they may continue to use
the reimbursement scheme that section 506.002 ofthe Labor Code recognizes. See TEX. LAB. CODE
ANN. 8 506.002(a) (Vernon Supp. 2003); see also Friedman v. Am. SW. Co. of N.Y., 151 S.W.2d
570,576,578 (Tex. 1941) (describing unemployment compensation fund as “not the property ofthe
State” because the fund does not go into state treasury and benefits unemployed workers); Tex. Att’y
Gen. Op. No. JM-427 (1986) at 4 (stating that a reference to funds held outside the state treasury is
equivalent to funds held in special trust funds outside the general revenue fund).
Given this conclusion, we need not answer your second question: “To what extent are ERS
and TRS funds subject to the assessment mandated by Labor Code [section] 412.012.” Request
Letter, supra note 1, at 1.
Mr. Clarence R. Josselet - Page 8 (GA-0075)
SUMMARY
The allocation program that the State Office of Risk
Management has established under section 412.0123 of the Labor
Code applies to state agencies generally, with the exception of those
agencies that hold their funds outside the state treasury and reimburse
the general revenue fund under section 506.002 of the same code
for workers’ compensation claims costs. Because the Employees
Retirement System and the Teacher Retirement System, whose funds
are held in trust outside the state treasury, reimburse the state’s
general revenue fund under section 506.002(a), they are not required
to participate in the allocation program established under Labor Code
section 412.0123, as adopted by Act of May 25, 2001, 77th Leg.,
R.S., ch. 1456,s 14.01,2001 Tex. Gen. Laws 5167,5194-95, andby
Act of May 22,2001, 77th Leg., R.S., ch. 559, 8 1,200l Tex. Gen.
Laws 1076,1076.
Very truly yours,
BARRY R. MCBEE
First Assistant Attorney General
DON R. WILLETT
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Kymberly K. Oltrogge
Assistant Attorney General, Opinion Committee