Could Denham Springs advance employees' annual medical spending account benefits without unlawfully donating public money?

Plain-English summary

Denham Springs considered a Flexible Medical Spending Account plan for employees' uncovered medical expenses. The city was concerned that, under the proposed plan, it might have to cover an employee's full annual election before all of the employee's monthly contributions had been made. The AG concluded that payments under a properly adopted plan authorized by the IRS were earned employment benefits, not loans or donations of public funds prohibited by Louisiana's constitution.

The opinion described the plan's assumed federal features: employees would contribute pre-tax dollars, unused year-end amounts would stay with the city, and the city would make the full annual amount available for eligible expenses when needed. The AG distinguished earned benefits from gratuitous payments for which no service was earned. It also said whether a particular payment is earned compensation is a factual question.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Did the AG view the early availability of an employee's annual amount as a public loan?

No. For a properly adopted, IRS-authorized plan of the kind described, it characterized the payments as earned benefits of employment rather than loans or donations.

Did the opinion approve a gratuitous payment to an employee?

No. The AG expressly distinguished earned compensation from unearned payments, which it said were prohibited donations.

What happened to unused amounts under the proposed plan?

The AG assumed that, as federal law required for the plan described, an unused year-end amount would be lost to the employee and remain city property.

Background and statutory framework

La. Const. Art. VII, Sec. 14(A) generally prohibited public loans and donations. The AG relied on prior opinions about earned public-employee benefits and Louisiana cases treating benefits earned by virtue of employment as compensation rather than gratuities. Its conclusion depended on the plan being properly adopted and authorized by the IRS.

Citations

• La. Const. Art. VII, Sec. 14(A) (public loans and donations).
• State v. Davis, 539 So.2d 803 (La. App. 3rd Cir. 1989) (earned-compensation determination cited by the AG).
• Morial v. Orleans Parish School Board, 332 So.2d 503 (La. App. 4th Cir. 1976) (employment benefit).
• City of Port Allen v. Louisiana Municipal Risk Agency, Inc., 439 So.2d 299 (La. 1983) (earned compensation).

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/04-0020

Original opinion text

March 25, 2004
Opinion Number 04-0020

90-A-2 PUBLIC FUNDS - LOAN, PLEDGE OR GRANT Louisiana Constitution
Article VII, Section 14

Mr. Jay J. Harris
Payments made to an employee pursuant to a properly
Harris & Pugh, L.L.C.
adopted Flexible Medical Spending Account plan, as
authorized by the Internal Revenue Service, should not be
City of Denham Springs
considered to be loans or donations. Payments made in
133 Aspen Square, Ste. B
accordance with such plans are more properly characterized
Denham Springs, Louisiana 70726 as an earned benefit of employment.

Dear Mr. Harris:

This office is in receipt of your request for an Attorney General’s opinion, on behalf of the City of Denham Springs, regarding a proposal to establish individual Flexible Medical Spending Account plans, qualified by the Internal Revenue Service, for the benefit of the City’s employees.

It is our understanding that the City’s insurance agent has proposed the plan as a means to help employees defray the cost of their insurance deductibles and uninsured medical expenses. Under the proposed plan, employees would be able to fund medical savings accounts on a monthly basis with pre-tax dollars, and would be able to draw from their accounts to cover medical expenses that are not covered by insurance. As required by federal law, we assume that any amount that is unused by an employee by the end of the year will be lost to the employee and remain the property of the employer, the City of Denham Springs. Also as required by federal law, the City of Denham Springs will be required to fund the entire amount of an employee’s expected annual contributions at any time during the year, even prior to the employee having fully funded the account, if necessary in order to cover an employee’s eligible medical expenses.

According to your correspondence, you are concerned that the requirement that the City advance in full an entire annual amount equal to the employee’s contribution toward the family medical savings plan prior to the employee’s full contribution of that amount to his own family medical savings account could violate the provisions of La. Const. Art. VII, Sec. 14(A). As you are clearly aware, La. Const. Art. VII, Sec. 14(A) generally prohibits the loan or donation of public funds, credit, property or things of value by the state and its political subdivisions to or for any person, association, or corporation.

Page 2

Opinion Number 04-0020
Mr. Jay J. Harris
Harris & Pugh, L.L.C.
City of Denham Springs
Page -2-

It has long been the opinion of this office that Art. VII, Sec. 14 does not prohibit earned increases in compensation or earned supplemental compensation, unless such supplemental compensation is specifically prohibited by law. Attorney General’s Opinion Nos. 95-323, 95-165A, 94-241. Similarly, this office has determined that other earned benefits of public employment, including sick leave incentive programs, rewards and recognition programs, and employee discounts, are in the nature of earned compensation and therefore constitutional. Attorney General’s Opinions Nos. 97-254, 99-137, 94-72. Of course, the payment of gratuitous unearned payments to public employees is prohibited; as such payments are tantamount to donations. Attorney General’s Opinion Nos. 92-295, 92-282, 89-190, 88-344, 86-639, 83-940A, 81-1329 and 80-806.

The determination as to whether a payment of money by a public employer to or on behalf of a public employee is earned compensation is actually a factual determination. Attorney General’s Op. No. 92-198; State v. Davis, 539 So.2d 803 (La. App. 3rd Cir. 1989), Writ denied. The constitutionality of a particular payment to a public employee is determined by whether the payment is made out of a motive of beneficence solely to enrich the employee or whether the payment is deserved and made as reasonable recompense for valuable performance or service for which the employee is not otherwise adequately compensated. Attorney General’s Opinion Nos. 97-190 and 95- 323.

In our opinion, payments made to an employee pursuant to a properly adopted Flexible Medical Spending Account plan, as authorized by the Internal Revenue Service, should not be considered to be loans or donations in either the vernacular or constitutional sense of the words. Rather, payments made in accordance with such plans are more properly characterized as an earned benefit of employment. In accord: Attorney General’s Opinion No. 01-75. See also: Attorney General’s Opinion No. 87-245.

We find support for the position taken herein in Morial v. Orleans Parish School Board, 332 So.2d 503 (La. App. 4th Cir. 1976), writ denied, 337 So.2d 530 (1976), which upheld the constitutionality of a statutory formula for determining the amount to be paid a teacher who is absent in excess of her accumulated sick leave days, and stated that the financial benefit created thereby was “earned by virtue of the employment itself”; and City of Port Allen v. Louisiana Municipal Risk Agency, Inc., 439 So.2d 299 (La. 1983), which upheld the Morial decision and stated, in footnote 6, that even thought the plaintiff Morial received pay for a period in excess of her sick leave, “this was still ‘earned’ compensation, not a gratuity”.

Page 3

Opinion Number 04-0020
Mr. Jay J. Harris
Harris & Pugh, L.L.C.
City of Denham Springs
Page -3-

We trust the foregoing to be of assistance. Please do not hesitate to contact us if we can assist you in other areas of the law.

Yours very truly,

CHARLES C. FOTI, JR.
ATTORNEY GENERAL

BY: _____
JEANNE-MARIE ZERINGUE BARHAM
Assistant Attorney General

CCF, Jr./JMZB/dam

Page 4

OPINION NUMBER 04-0020
Syllabus

90-A-2 PUBLIC FUNDS - LOAN, PLEDGE OR GRANT
Louisiana Constitution Article VII, Section 14

Payments made to an employee pursuant to a properly adopted Flexible Medical Spending Account plan, as authorized by the Internal Revenue Service, should not be considered to be loans or donations. Payments made in accordance with such plans are more properly characterized as an earned benefit of employment.

Mr. Jay J. Harris
Harris & Pugh, L.L.C.
City of Denham Springs
133 Aspen Square, Ste. B
Denham Springs, Louisiana 70726

Date Received:

Date Released: March 25, 2004

Jeanne-Marie Zeringue Barham
Assistant Attorney General