Request By:
Robert W. Keats
Legal Counsel, MSD
400 South Sixth Street
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; Martin Glazer, Assistant Attorney General
You seek an opinion as to whether employees of the Louisville and Jefferson Metropolitan Sewer District are eligible for participation in the state Deferred Compensation System.
You point out that KRS 18.510(1) defines "employe" as "a person holding an office, position or employment in state government and agencies thereof and also includes persons in the public school system," that such definition appears to exclude the employees of Metropolitan Sewer District.
Such a district is authorized pursuant to KRS 76.005 - 76.295 and is defined in KRS 76.010 as a "public body corporate, and political subdivision. . . ."
Although the state statute appears to exclude political subdivisions, you cite the federal Internal Revenue Code (PL-95-600) Sec. 131(d)(1) which defines "state" as follows: "The term 'state' means a state, a political subdivision of a state, and an agency or instrumentality of a state or political subdivision of a state."
It appears to you that the state statute and federal statute are inconsistent in that the federal statute encompasses a greater variety of entities than the state statute and are in conflict. Thus, you reason, where federal and state law are in conflict, the federal law applies under the preemption doctrine and the supremacy clause of the United States Constitution.
We disagree with such an interpretation.
First of all, the federal statute on deferred compensation is an authorizing statute. It authorizes a state to create a plan which will allow employees' salaries or portions thereof to be deferred for tax purposes. A state is not required to participate in such a plan, and, undoubtedly, some states do not.
The fact that a state may participate in an agreed plan indicates that it may participate wholly or partly in such a plan.
Here, Kentucky has chosen, via state statute, to participate to the extent of allowing employees of central state government to contribute and participate and also to allow employees of school districts to participate. Such a plan was approved by the Internal Revenue Service.
Now, Kentucky could have devised a plan to be allinclusive, that is, to cover all state and local employees in one plan -- as authorized by federal law. It did not choose to do so for practical purposes.
Any such plan requires payroll deductions and reporting. The state can more easily administer a plan where the employees' payroll is controlled by a central source (Department of Finance). The myriad numbers of subdivisions and municipalities all have separate payroll sources. Therefore, Kentucky chose to limit the Kentucky plan to employees of central state government with one exception -- employees of school districts.
The state statutes also authorize the creation of separate plans by subdivision in KRS 18.590 (local programs): "Any city, county, or other political subdivision or combinations of these entities may establish for its employes a deferred compensation program. . . ." (KRS 18.590(1). (Emphasis supplied.)
There is no inconsistency between the federal and state law. The federal law authorizes participation in deferred compensation by the state and/or political subdivisions. Kentucky has chosen to separate those entities into separate plans.
For "supremacy" to be applied, there must be an inconsistency in the federal and state law which intends that the federal law preempts state law. That is not present here.
Your MSD employees can participate in deferred compensation, but not under the state plan. You can, under KRS 18.590, establish your own plan, if approved by the Internal Revenue Service. To participate in the present state plan, KRS 18.510(1), would need to be amended to include your entity.