Request By:
Mr. Thomas C. Greenwell
Commissioner
Department of Personnel
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: David L. Armstrong, Attorney General; Kevin M. Noland, General Counsel
You have requested an opinion of this office as to whether election of so-called "cafeteria plans" for health care benefits would be impermissible for merit system employees under existing law.
Under cafeteria plans, employees having payroll deductions for family health care coverage could elect to have their deductions made from before tax wages rather than after tax, as is the case currently. As provided in the Federal Internal Revenue Code, Section 125, a "cafeteria plan" allows employers' contributions, under a written plan which permits employees to elect between taxable and nontaxable benefits, to be excluded from gross income of an employee to the extent that the nontaxable benefits are elected. See, Legislative History PL95-600, p. 75, Rev. Act. of 1978.
Under KRS 18A.025(3)(d), the Personnel Department is given broad general authority to design and administer programs of employee benefits. KRS 18A.225 authorizes voluntary payroll deductions for premiums for health care benefits for employees in excess of the amount paid by the state.
In your letter, you report that acceptance or rejection of a cafeteria plan will be strictly voluntary by state employees. There are currently a number of voluntary payroll deductions made from employees' salaries for such things as credit union shares and loan repayments, United Way Campaigns, and various kinds of insurance policies. The flexible benefit plan would be elective, just as these other payroll deductions are elective, and an employee who did not wish to make the election could continue to have the deductions for his or her family health care premiums made from his or her after-tax salary, although you expect that few would. The statute that may be troublesome for implementation for the proposed cafeteria plan is KRS 18A.110(2)(a), which deals with state employees in the classified service (merit system) and which provides:
"Except as provided by KRS 18A.355 [the authority for five percent annual increments except where the revenues require a lower increment] , the commissioner [of Personnel] shall not promulgate administrative regulations that would reduce an employe's salary. " (Emphasis added).
The issue becomes whether the proposed cafeteria plan would involve a reduction of an employee's salary such as is prohibited by KRS 18A.110(2)(a). On the one hand, an argument based upon a literal reading of KRS 18A.110(2)(a) could be made that the cafeteria plan is a reduction in the gross salary of an employee as to that portion of the salary to be treated as an agency contribution under the cafeteria plan, thus resulting in a violation of KRS 18A.110(2)(a).
On the other hand, a reasonable argument may be made that the deduction for family health care coverage is presently from after tax wages and salaries but under the cafeteria plan the deduction would be from pre-tax wages and salaries. Since the deduction from family coverage will not be considered income for tax purposes, employees electing the cafeteria option will actually increase their "take home" pay.
We believe the more reasonable conclusion is to take the latter approach, i.e., that the proposed cafeteria plan does not violate KRS 18A.110(2)(a). It is obvious that the purpose of KRS 18A.110(2)(a) is to protect state employees and their salaries from adverse action by the Commissioner of Personnel. Given the apparent legislative intent of protection of state merit employees, it seems unreasonable to conclude that a voluntary benefit for state employees would violate the statute in question.
Courts will consider the purpose which a statute is intended to accomplish and will not give a strict, literal construction to a statute if to do so would lead to an unreasonable or absurd conclusion. See, Newport v. Board of Ed. of Berea Independent School Dist., Ky., 409 S.W.2d 513 (1966). See also: City of Frankfort v. Triplett, Ky., 365 S.W.2d 328 (1963), and City of Louisville v. Helman, Ky., 253 S.W.2d 598 (1953).
In conclusion, it is our opinion that "cafeteria plans," under which state employees having payroll deductions for family health care coverage could elect to have their deductions made from before tax wages rather than after tax, are not impermissible under existing law, including KRS 18A.110(2)(a).
However, we do want to point out that specific statutory authority for such plan is preferable rather than depending upon existing legislative authority and subsequent positive court interpretations should a question arise as to whether such statutory authority presently exists.