Could a Maryland non-home-rule county set up its own deferred-compensation retirement plan for elected officials like commissioners and sheriffs?

Plain-English summary

Cecil County's Attorney asked the Attorney General to assess the legality of a 1973 deferred compensation plan the County Commissioners had adopted for elected officials, retroactive to 1970, under which the county paid annuity premiums to Aetna on behalf of commissioners, the treasurer, the state's attorney, and the sheriff, on top of their regular salaries. The opinion concluded the plan was illegal, whether applied looking backward or forward in time. It found that county commissioners in non-home-rule counties like Cecil County have only the powers expressly granted by the General Assembly, plus whatever powers can be necessarily implied from those express grants, and Cecil County had neither. The county-paid annuity premiums amounted to additional compensation for constitutional officers whose pay the Maryland Constitution requires to be fixed exclusively by state law, and no statute gave Cecil County authority to run its own separate retirement plan outside the statewide Employees' Retirement System.

Currency note

This opinion was issued in 1982. 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.

The opinion applied Article VII, Article V, Article IV, and Article III of the Maryland Constitution and various Maryland Code articles governing county commissioner powers and official salaries as they stood in 1982. Maryland's local government code articles have since been substantially recodified, and the statutes governing county retirement and deferred compensation authority may have changed. Anyone researching whether a current Maryland county has authority to establish a retirement or deferred compensation plan for its officials should verify the current statutory text rather than relying on this opinion's 1982 analysis.

Common questions

Why couldn't the county just call these annuity payments a benefit rather than compensation?
The opinion rejected that framing. It pointed out that the county's own resolution and the agreement with Aetna described the payments as compensation, and it drew a direct comparison to the state's own Employees Deferred Compensation Plan, under which deferred income still counts as "compensation" for purposes of Social Security and retirement contributions even though it isn't immediately taxable. If a state employee's deferred income counts as compensation, the opinion reasoned, a Cecil County official's county-funded annuity premiums, paid on top of a fixed salary, had to count as compensation too.

Does it matter that federal tax law allowed this kind of plan?
The opinion said it did not matter for purposes of the state-law question. It acknowledged that the plan appeared carefully structured to satisfy section 457 of the Internal Revenue Code governing deferred compensation for state and local government employees, but found the federal tax treatment "wholly irrelevant" to whether Cecil County had authority under Maryland's Constitution and statutes to adopt the plan in the first place.

Could the county have set up a retirement plan even if it wasn't extra "compensation"?
No, according to the opinion. Even treating the plan as a general retirement benefit rather than compensation, the opinion found the only retirement authority Maryland counties generally have is to participate in the statewide Employees' Retirement and Pension Systems, which Cecil County officials already did. Establishing a separate local retirement plan would require its own express statutory grant of power, and the opinion noted that a handful of other Maryland counties did have that specific express authority for particular offices, which underscored that Cecil County, not being on that list, lacked it.

Who ended up affected by this ruling?
The opinion noted that, by the time of its issuance, the county had already been paying annuity premiums since 1970 and that two former commissioners and the widow of a third had already become eligible for benefits under the plan, meaning the illegality finding had real consequences for people who believed they had already earned retirement benefits under it.

Background and statutory framework

In July 1973, the Cecil County Board of County Commissioners adopted, by resolution, a deferred compensation plan for elected officials, funded entirely by the county (not by salary reductions) through the purchase of Aetna Variable Annuity Life Insurance Company retirement annuity contracts, and made the plan retroactive to 1970, the year the affected officials took office. Under the accompanying agreement, a covered official who stayed in county employment until retirement would receive a monthly retirement income equivalent to what an Aetna annuity funded at $250 per month would pay, while an official who left early or died before retirement, or their beneficiary, would receive the full account value. The county made annual premium payments to Aetna, retroactive to 1970, for the offices of County Commissioner, County Treasurer, State's Attorney, and Sheriff, and by the time of the opinion two former commissioners and a commissioner's widow had already become eligible for benefits.

The opinion began with the basic constitutional and legal framework governing non-home-rule counties like Cecil County: under Article VII, section 1 of the Maryland Constitution, the compensation, powers, and duties of county commissioners in such counties "shall be such as now or may be hereafter prescribed by law," meaning county commissioners have no general legislative power and possess only those powers expressly granted by the General Assembly, plus powers necessarily implied to carry out express grants, quoting an earlier unpublished Attorney General opinion collecting the relevant case law, including County Commissioners for Montgomery County v. Supervisors of Elections for Montgomery County, Gaver v. Frederick County, and Miller v. Carroll County. After examining the Cecil County Code, the opinion found no public local law giving the County Commissioners express power to adopt a deferred compensation plan for elected officials.

The opinion then explained why the annuity payments amounted to unauthorized additional compensation. County Commissioners, the State's Attorney, and the Sheriff are all constitutional officers whose salaries the Maryland Constitution requires to be fixed by law, under Article VII, section 1, Article V, section 9, and Article IV, section 44 respectively, and the General Assembly had in fact fixed those salaries by specific statutes (a 1980 public local law for commissioners, Article 10, section 40 for the state's attorney, and the Courts Article for the sheriff), while separately providing that the county treasurer "may not receive any other income for performing the duties of his office" under Article 25, section 51(u). The opinion found that if the county's annuity premium payments were compensation, funding them was an unlawful intrusion into an area exclusively controlled by the General Assembly. It supported this conclusion by analogy to the State's own Employees Deferred Compensation Plan under Article 73B, sections 66 through 70, which expressly treats deferred amounts as "compensation" for purposes of Social Security and state retirement contributions, even though the amounts aren't immediately taxable, and by noting that unlike the state plan, the Cecil County plan involved the county actually adding extra money on top of officials' fixed salaries rather than merely deferring a portion of existing salary.

Finally, the opinion addressed whether the plan could be justified as a general retirement benefit rather than compensation, and concluded the result was the same either way. The only general county retirement authority in Maryland was participation in the statewide Employees' Retirement and Pension Systems under Article 73B, which Cecil County officials already used. A separate local retirement plan would require its own express statutory authorization, and the opinion noted that a few Maryland counties did have such specific authority for particular offices under Article 25, section 3(g), (g-1), and (g-2), which was not extended to Cecil County. Finding no provision in the Cecil County Code or the 1973 resolution itself authorizing a local retirement plan, the opinion concluded the County Commissioners lacked authority to adopt the plan, whether viewed as compensation or as a retirement benefit, and expressly declined to reach a separate question about whether the plan also violated Article III, section 35 of the Constitution's bar on increasing an officer's compensation during their term.

Citations

Statutes:

• Md. Const. art. VII, §1
• Md. Const. art. V, §9
• Md. Const. art. IV, §44
• Md. Const. art. III, §35
• Chapter 486, Laws of Maryland 1980
• Article 10, §40
• Courts Article §2-309
• Article 25, §51(u)
• Article 73B, §66
• Article 73B, §67
• Article 73B, §68
• Article 73B, §69
• Article 73B, §70
• Article 73B, §21 et seq.
• Article 73B, §130
• Article 25, §3(a)(2)(iv)
• Article 25, §3(g)
• Article 25, §3(g-1)
• Article 25, §3(g-2)
• 26 U.S.C. §457

Cases:

• County Commissioners for Montgomery County v. Supervisors of Elections for Montgomery County, 192 Md. 196, 209 (1948)
• Gaver v. Frederick County, 175 Md. 639, 648 (1939)
• Fulker v. Baltimore County, 156 Md. 408, 410 (1929)
• O'Brien v. Baltimore County, 51 Md. 15, 22 (1879)
• Prince George's County v. Mitchell, 97 Md. 330, 337 (1903)
• Walker v. Talbot County, 208 Md. 72, 86, cert. denied, 350 U.S. 902 (1955)
• Barnett v. Charles County, 206 Md. 478, 483 (1955)
• Miller v. Carroll County, 226 Md. 105, 114 (1961)
• Frederick County v. Page, 163 Md. 619, 632 (1933)
• Howard County v. Mathews, 146 Md. 553 (1924)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1982/Volume67_1982.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Local Government—Commissioner Counties—Retirement Annuities/Deferred Compensation—Cecil County Commissioners Lack Authority to Adopt a Deferred Compensation Plan for Elected Officials

August 25, 1982

Dennis S. Glower, Esquire
County Attorney for Cecil County

You have requested our opinion on the legality of a deferred compensation plan for elected officials that was adopted by the Board of County Commissioners of Cecil County in July, 1973, and made retroactive to January, 1970.

For the reasons given below, it is our opinion that the plan was beyond the authority of the County Commissioners to adopt and is therefore illegal, whether applied retrospectively or prospectively.

I
Background

From documents and information you provided, we understand that on July 24, 1973, the then Board of County Commissioners of Cecil County, by resolution, adopted a deferred compensation plan for its elected officials, naming the Treasurer of Cecil County as the plan administrator.

The resolution provided that the plan was "to provide retirement benefits for certain of its elected officials as portions of their compensations" and was to be funded by the County, not by reductions from the officials' salaries, through the purchase of "retirement annuity contracts as issued by Aetna Variable Annuity Life Insurance Company, in such amounts as may be appropriate to provide the plan benefits". See Minutes of the Board of County Commissioners, July 24, 1973. The plan was made retroactive to 1970, the year in which the incumbents took office.

In accordance with the resolution, the County Treasurer entered into a deferred compensation agreement with the County on behalf of the elected officials of Cecil County. The agreement, which refers to Cecil County as "County" and the elected officials as "Employees", provides in part:

"WHEREAS, the Employees have agreed to serve the County, beginning July 24th, 1973, in the capacity of Elected Officials, and by reason of their experience and knowledge is [sic] of considerable value to the County; and WHEREAS, the County wishes to offer an inducement to the Employee to remain in its employ in the form of additional compensation for services which he will hereafter render; and WHEREAS, the Employee is willing to continue in the employ of the County on the basis stated herein; NOW THEREFORE, it is mutually agreed as follows:"

The agreement then provides that, if a covered official continues in the employ of the County until retirement (as defined in the agreement), the County will pay that official a monthly retirement income equal to the amount that would have been payable under an Aetna Variable Annuity Contract with an annual premium sufficient to pay $250 per month at retirement. If the official terminates employment, voluntarily or involuntarily, or dies before retirement, the official or the official's beneficiary is entitled to 100% of the amount available in the account in his or her name, with a choice of settlement options. Another provision allows the County to honor requests of officials and former officials to obtain full ownership of their annuity contracts in substitution for the County's obligation to make payments under the agreement. Nothing in the agreement, however, gives the covered officials any additional direct payment during their tenure with the County.

In accordance with the resolution and agreement, the County has paid annual premiums to Aetna, retroactive to 1970, for annuity contracts for persons holding the offices of County Commissioner, County Treasurer, State's Attorney, and Sheriff. To date, two former commissioners and the widow of a third have become eligible for benefits.

II
Basic Powers of County Commissioners

Article VII, §1 of the Maryland Constitution, titled "Sundry Officers", is applicable to counties that, like Cecil County, have neither code nor charter "home rule". It provides, in pertinent part, that the compensation, powers, and duties of the County Commissioners "shall be such as now or may be hereafter prescribed by law".

In a recent Opinion of this Office, the powers of County Commissioners were summarized as follows:

"It is well settled that in counties without home rule, which are the concern of this opinion, the county commissioners do not have general power to enact local legislation. County Commissioners for Montgomery County v. Supervisors of Elections for Montgomery County, 192 Md. 196, 209 (1948). Rather, their powers are derived solely from statutes enacted by the General Assembly (Gaver v. Frederick County, 175 Md. 639, 648 (1939), Fulker v. Baltimore County, 156 Md. 408, 410 (1929), and O'Brien v. Baltimore County, 51 Md. 15, 22 (1879)), and these powers may be altered by the General Assembly so long as the statutes do not conflict with some provision of the Constitution (Prince George's County v. Mitchell, 97 Md. 330, 337 (1903)). As a general rule, the statutes conferring powers on county commissioners are to be strictly construed. Walker v. Talbot County, 208 Md. 72, 86, cert. denied, 350 U.S. 902 (1955); Barnett v. Charles County, 206 Md. 478, 483 (1955). Accordingly, it is well established that county commissioners in counties without home rule have only those powers that are expressly granted by statute and those that can be implied as necessary to carry out their express powers. Miller v. Carroll County, 226 Md. 105, 114 (1961); Gaver, supra; Frederick County v. Page, 163 Md. 619, 632 (1933); Fulker, supra; [Howard County v.] Mathews, [146 Md. 553 (1924)]." Opinion No. 79-046 (August 20, 1979) (unpublished).

The basic enumerated powers of County Commissioners, as conferred by the General Assembly, are generally found either in Article 25 of the Maryland Code or in the public local laws of the specific county concerned. With respect to Cecil County, most of the basic powers of the County Commissioners derive from public local laws rather than from Article 25. See, e.g., Article 25, §3(a)(2)(iv).

We have carefully examined the most current edition of the Cecil County Code, which you kindly supplied, but we found no public local law conferring express power on the County Commissioners to adopt a deferred compensation plan for its elected officials. Thus, their adoption of the plan was unlawful unless the Commissioners have implied power to do so.

III
Annuity Payments are Unauthorized Additional Compensation

County Commissioners, State's Attorneys, and Sheriffs are constitutional officers, and the Maryland Constitution provides that their compensation or salary shall be prescribed or fixed by law. See Article VII, §1 (County Commissioners); Article V, §9 (State's Attorney); Article IV, §44 (Sheriff). Pursuant to these requirements, the General Assembly has set the salary and expenses for Cecil County Commissioners by public local law (Chapter 486, Laws of Maryland 1980); for the State's Attorney by Code (Article 10, §40); and for the Sheriff by Code (Courts Article, §2-309). In addition, the General Assembly has set the salary for the Cecil County Treasurer and has provided specifically that "[t]he treasurer may not receive any other income for performing the duties of his office". Article 25, §51(u).

In light of these provisions, if the County's payment of premiums (i.e., the approximate present value of the future annuity income) is compensation to these officials, it is an unlawful intrusion into an area that is unambiguously within the General Assembly's exclusive authority.1

1 The General Assembly has also legislated with respect to deferred compensation plans. Article 73B, §§66 to 70 of the Maryland Code. The State Employees Deferred Compensation Plan enables employees to gain the tax advantages of deferring a portion of their income until retirement. However, unlike the Cecil County plan, State employees receive no increment over their regular compensation to pay into the plan. See Article 73B, §68. Significantly, even this program was adopted only after enactment of express enabling legislation.

In our view, such payment is compensation. Indeed, it is described as such in the Board's own resolution and in the agreement. Similarly, under the State's own Employees Deferred Compensation Plan, the statute requires that the amounts deferred "shall be included in the employee's compensation for purposes of computing [Social Security] contributions and contributions to a State retirement system", although the amounts are not then taxable. Article 73B, §69 of the Maryland Code.2 If a State employee receives "compensation" for the portion of his or her salary that the employee pays for an annuity under the State plan, surely a Cecil County official likewise receives compensation for the additional money, over and above his or her salary, that the County pays for an annuity under its plan.

2 See note 1 above.

We have recently received a copy of a memorandum, dated May 29, 1982, from Jonathan M. Topodas, Counsel to Aetna Life and Casualty Insurance Company, to Paul Chamberlin, General Agent, in support of the plan's validity under §457 of the Internal Revenue Code, 26 U.S.C. §457, which governs the federal income tax status of state or local government deferred compensation plans. While we do not dispute his contention that the plan was carefully drawn to comply with requirements of §457 and IRS rulings, we believe that the federal income tax ramifications of the plan are wholly irrelevant to the issue of the County's authority to adopt such a plan under Maryland's Constitution and statutes.

Mr. Topodas' memorandum states in part: "Whether the compensation deferred results from employer additions or an employee salary-reduction arrangement has never been of any consequence for federal tax law purposes." Memorandum at p. 2. This distinction, however, is of consequence under State law. Because the only income that may be deferred under the provisions of §457 is a portion of a public employee's annual compensation, it follows that the amount deferred through "employer additions" (the annuity premiums paid by the County) necessarily increases the annual compensation of each plan participant beyond the amount fixed by the General Assembly. Such an increment is, therefore, contrary to State law.

IV
Establishment of Retirement Plan is Beyond Commissioner's Powers

Even if we assume that the plan is not truly a compensation plan but is, instead, a general noncontributory retirement plan for the elected officials of Cecil County, our answer is no different. The only general retirement authority given to the counties of Maryland by the General Assembly is the authority to participate in the Employees' Retirement and Pension Systems of the State. Article 73B, §21 et seq. and §130 of the Maryland Code. We have been advised by the State Retirement Systems that officials and employees of Cecil County do, in fact, participate.

In our view, if the county commissioners of a particular county also wish to establish a separate local retirement plan for some or all of the county's officers or employees, an express grant of such power would be required. In fact, several counties do have such express authority. See Article 25, §3(g) (Kent, Dorchester, and Charles Counties); §3(g-1) (Charles County Sheriff's department); §3(g-2) (Kent County Sheriff's Department). If the General Assembly had intended to give similar authority to Cecil County, it would, we believe, have included Cecil County among these other counties so authorized.

We have found no reference in the Cecil County Code or in the 1973 resolution of the County Commissioners to any provision of public general or public local law that authorizes the establishment of a local retirement or pension plan for that County's elected officials. Absent such a provision, we must conclude that the County Commissioners lacked the requisite authority to adopt such a plan.

V
Conclusion

In summary, it is our opinion that the deferred compensation plan for elected officials adopted by the Board of County Commissioners of Cecil County in July, 1973, was beyond the authority of the County Commissioners to adopt and is, therefore, illegal.3

3 In light of our conclusion, we need not consider here whether that plan also violated the provisions of Article III, §35 of the Maryland Constitution by increasing the compensation of the officers of Cecil County during their terms or by retroactively authorizing payment in 1973 for services rendered in 1970, 1971, and 1972.

Stephen H. Sachs, Attorney General
Carol S. Sugar, Assistant Attorney General
Avery Aisenstark
Chief Counsel,
Opinions and Advice