Could a Washington third-class city buy an employee pension plan from a private life insurer?

Plain-English summary

In 1963, the Washington AG found no statutory authority for a third-class city to purchase an employee pension program from a private life insurance company. The letter identified two public retirement systems open to qualified city employees and a separate power to contract for group insurance. It treated a pension plan as outside that group-insurance grant.

The AG compared statutes for other local bodies that expressly authorized particular employee benefits. That comparison supported its view that authority to buy a pension benefit could not be inferred from general employment powers or from the group-insurance statute. The letter did not decide whether every contract issued by an insurer would be insurance; its footnote acknowledged that an annuity contract could provide a pension while distinguishing annuities from insurance contracts.

Currency note

This opinion was issued in 1963. 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

Q: Did the city have any retirement options for qualified employees?
A: The AG identified the state employees' retirement system and statewide city employees' retirement system as authorized options under the statutes it reviewed.

Q: Did permission to buy group insurance also cover a pension program?
A: The AG said no. It treated the proposed pension program as a different benefit from the group insurance authorized for second- and third-class cities.

Q: Why did the AG compare port districts and library districts?
A: The opinion used their statutes to show that some public bodies had express pension authority while a library district had been found to lack it. The AG saw the same missing grant for a third-class city buying this private plan.

Background and statutory framework

The senator asked specifically about a private insurance company's pension plan. RCW 35.23.460 authorized group insurance, while RCW 41.40.410 and RCW 41.44.050 concerned public retirement systems. The AG applied its stated rule that a third-class city's powers must be expressly granted or necessarily implied and concluded that these statutes supplied no authority for the proposed purchase.

Source

• Landing page: https://www.atg.wa.gov/ago-opinions/cities-third-class-pension-program-purchase-private-life-insurance-company

Original opinion text

Attorney General John J. O'Connell

CITIES ‑- THIRD CLASS ‑- PENSION PROGRAM ‑- PURCHASE FROM PRIVATE LIFE INSURANCE COMPANY.

A city of the third class does not have the statutory authority to purchase a pension program for its employees from a private life insurance company.

January 9, 1963

Honorable Edward F. Riley
State Senator, 35th District
222 Westlake Avenue North
Seattle 9, Washington

Cite as: AGO 63-64 No. 2

Dear Sir:

By letter dated October 4, 1962, you have asked for an opinion of this office on a question which we paraphrase as follows:

May a city of the third class purchase a pension plan for its employees from a private insurance company?

We answer your question in the negative for the reasons stated in our analysis.

ANALYSIS

It is fundamental that the powers of a municipal corporation, including a city of the third class, are only such as have been expressly granted to it by the legislature, or as are necessarily to be implied from the expressly granted powers. Othello v. Harder, 46 Wn. (2d) 747, 284 P. (2d) 1099 (1955); Pacific First Federal Savings and Loan Association v. Pierce County, 27 Wn. (2d) 347, 178 P. (2d) 351 (1947). If there is a doubt as to the existence of a power, it must be denied. Pacific First Federal Savings and Loan Association v. Pierce County, supra, page 352.

Of course, a third class city in Washington has express authority to make available to its qualified employees the retirement provisions of the Washington state employees' retirement system (RCW 41.40.410) or the state‑wide [[statewide]]city employees' retirement system (RCW 41.44.050).

[[Orig. Op. Page 2]]

In addition, we note that RCW 35.23.460 provides as follows:

"Any city of the second or third class or town may contract with an insurance company authorized to do business in this state to provide group insurance for its employees, and pursuant thereto may use a portion of its revenues to pay an employer's portion of the premium for such insurance, and may make deductions from the payrolls of employees for the amount of the employees' contribution and may apply the amount deducted in payment of the employees' portion of the premium."

However, a pension plan, as we understand you to have used that term, is not a form of insurance within the meaning of this statutory grant of authority.1/

In AGO 61-62 No. 12 [[to John A. Petrich, State Senator on February 20, 1961]], a copy of which is enclosed herewith, we advised that a port district does have authority to contribute to a pension program for its employees established by contract between a trade organization and a labor union. However, there we found, upon examination of the statutes relating to port districts, an express grant of authority (RCW 53.08.170) to

". . . establish such benefits for employees, including holiday pay, vacations or vacation pay, retirement and pension benefits, medical, surgical or hospital care, life, accident, or health disability insurance, and similar benefits, already established by other employers of similar employees, as the port commissioner shall be resolution provide. The port commission shall have authority to provide or pay such benefits directly, or to provide for such benefits by the purchase of insurance policies or entering into contracts with and compensating any person, firm, agency or organization furnishing such benefits, or by making contributions to vacation plans or funds, or health and welfare plans and funds,or pension plans or funds, or [[Orig. Op. Page 3]] similar plans or funds, already established by other employers of similar employees and in which the port district is permitted to participate for particular classifications of its employees by the trustees or other persons responsible for the administration of such established plans or funds. . . ." (Emphasis supplied.)

Thus, where the legislature has intended to authorize a municipal corporation to purchase for its employees a pension or retirement plan from a private insurance company or like organization, it has clearly expressed its intention and has not been satisfied merely to grant authority to purchase group insurance.

AGO 61-62 No. 12,supra, should be compared with AGO 57-58 No. 223 [[to Prosecuting Attorney, Spokane County on October 28, 1958]], dated October 28, 1958, a copy of which is also enclosed. In the 1958 opinion the question presented was whether a rural county library district (also a form of municipal corporation) has the power to purchase for its employees a pension program "other than the state employees' retirement system's program."

We answered this question as follows:

"The question then remains whether a rural county library district is legally empowered to provide for a retirement plan other than the state employees' retirement system.

"Section 8, chapter 65, Laws of 1941, (cf. RCW 27.12.210) provides in part:

"'The trustees, immediately after their appointment or election, shall meet and organize by the election of such officers as they deem necessary. They shall . . . (3) employ a librarian, and upon his recommendation employ such other assistants as may be necessary, all in accordance with the provisions of section 11 of this act, prescribe their duties, fix their compensation, and remove them for cause; . . . (10) do all other acts necessary for the orderly and efficient management and control of the library.' (Emphasis supplied.)

"Section 6, chapter 59, Laws of 1955, (cf. RCW 27.12.060), above, provides that the rural county library district shall have such powers [[Orig. Op. Page 4]] as are necessary to carry out its functions.

"Obviously there is no express power in the above provisions to provide for a retirement plan, nor do we find such elsewhere. However, municipal corporations and other governmental units have not only those powers expressly granted but also those essential and indispensable, not simply convenient, to execution of the purposes for which such are created and those necessarily or fairly implied in or incidental to the powers expressly granted. State ex rel. Wauconda Investment Co. v. Superior Court, 68 Wash. 660, 124 Pac. 127 (1912);State ex rel. McMannis v. Superior Court, 92 Wash. 360, 159 Pac. 383 (1916);State ex rel. Port of Seattle v. Superior Court, 93 Wash. 267, 160 Pac. 755 (1916); Carpenter v. Okanogan County, 163 Wash. 18, 299 Pac. 400 (1931); 3 Sutherland, Statutory Construction, 19 § 5402. See also Board of Directors v. Peterson, 4 Wash. 147 (1892); Beasley v. Assets Conservation Co. 131 Wash. 439, 230 Pac. 411 (1924);In re Riverside Irrigation District, 131 Wash. 532, 230 Pac. 649 (1924).

"We must determine whether or not the broad power to employ and compensate personnel and to do all acts necessary for efficient management and control of the district impliedly or incidentally empowers the district to provide for a retirement plan other than the state program.

"Our court has set forth and approved the basic rule that when there is a reasonable doubt as to the implied power of a municipal corporation, political subdivision, or similar governmental unit except in the case of first class cities, the doubt is resolved against the governmental unit and the power is denied. SeeState ex rel. Port of Seattle v. Superior Court, supra;Ayers v. Tacoma, supra.

"We think it at least reasonably doubtful, if not certain, that a pension program, although [[Orig. Op. Page 5]] desirable, is actually necessary for efficient management and control of the district library; and we think it likewise doubtful, if not certain, that the power to employ and compensate personnel impliedly or incidentally empowers the district to establish its own retirement system.

"Consequently, it is our opinion that, under present conditions and existing statutes, a court would deny a rural county library district power to establish its own separate retirement plan."

Manifestly, this reasoning is equally applicable to the question which you have posed in regard to a third class city.

Finally, there is to be noted AGO 61-62 No. 18, dated March 21, 1961 [[to Prosecuting Attorney, Yakima County on March 21, 1961]], a copy of which we are also enclosing. The question there considered was:

"May a Fire Protection District pay part, or all, of the $3.50 premium per person per month for $5,000 per person of group life insurance for all the non-paid [[nonpaid]]voluntary firemen, and the paid fire chief and secretary of such District?"

We also answered that question in the negative. In so doing, we observed:

". . . We are here dealing with a particular type of municipal activity (i.e., the providing of various types of 'fringe benefits' for employees or others rendering services) with regard to which we believe the legislature has established a policy of spelling out clearly and expressly its intention to authorize such activity in those areas where such is in fact its intent. That is to say, an examination of statutes relating to certain types or classes of municipal corporations, other than fire protection districts, reveals a general course of legislative policy to grant the power to pay or provide fringe benefits, over and above normal and basic compensation, only by clear and express language evidencing such intent. See for example, [[Orig. Op. Page 6]] RCW 53.08.170 (expressly authorizing port districts to provide 'life, accident, or health disability insurance,' for its employees); RCW 28.76.410 (expressly authorizing school districts to provide 'liability, life, health and accident insurance or any one of, or a combination of the enumerated types of insurance for . . . employees of the . . . school district.'); RCW 54.04.050 (expressly authorizing public utility districts to 'enter into contracts of group insurance for the benefit of its employees, and pay all or any part of the premiums for such insurance.'); and RCW 36.32.400 (providing that 'Any county by a majority vote of its board of county commissioners may enter into contracts to provide health care services and/or group insurance for the benefit of its employees, and may pay all or any part of the cost thereof. . . .').

"The existence of this pattern of legislation, together with the absence of any express grant of power to fire protection districts to provide for its employees or volunteers the fringe benefit of group life insurance (again with the limited exception of RCW 41.24.020, supra), makes it at least doubtful that the legislature has thus far determined that fire protection districts should have this power. See 3 Sutherland, Statutory Construction (3rd Ed.) 156, § 6101, etc."

In other words, in the area of so-called "fringe benefits" for public employees in the state of Washington, there has developed a pattern of legislation from which it is to be concluded that only where the legislature has granted authority to provide a particular type of "fringe benefit" in clear and unmistakable language is a legislative intent to allow such benefits to be found.

Accordingly, it is our opinion that there presently exists no authority for a city of the third class in Washington to purchase for its employees a pension program from a private life insurance company.

We trust that the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

PHILIP H. AUSTIN
Assistant Attorney General

*** FOOTNOTES ***

1/An annuity contract, of course, could well provide a form of pension. However, research has revealed generally an attitude of distinguishing between annuity contracts and insurance contracts. In re Smiley's Estate, 35 Wn. (2d) 863, 216 P. (2d) 212 (1950), and authorities cited therein.