Do employee-funded pickup contributions violate state wage laws?

[Everett Moreland]

Our state statutes prohibit withholding employee-funded pickup contributions of nonunion employees unless "The employer is required to do so by law." Do you know whether an ordinance enacted by a special district applying only to its employees in a state with such a statute qualifies as such a "law"?

[Carol V. Calhoun]

So long as the state statute does not limit its application to certain laws (e.g., only state laws), and the special district has the authority to adopt a plan, I would think that such a local ordinance would apply. We have actually, in reference to service-connected disability benefits (which also must be paid under a law) taken an even broader view of the definition of "law," including for example a plan document embodied in regulations under a general enabling statute permitting plan trustees to adopt a plan.

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[Everett Moreland]

Ms. Calhoun: Thank you for your reply. The general counsel of the local government for whom I raised the question concluded that the issue is not whether a local government action requiring contributions is a "law" but whether "law" is limited to federal and state laws and, in case of local government laws, those of general applicability (i.e. those that apply to all similarily situated pension plan participants, not just to participants in the local government's pension plan). The general counsel advised that "law" probably does not include a local government law applying only to participants in the local government's pension plan. This conclusion concerns me, because many local government plans require mandatory contributions by nonunion employees. Any further thoughts you have would be appreciated.

[Carol V. Calhoun]

Obviously, this is primarily a question of interpreting a state statute, and since I don't even know which state is involved, I can't comment. However, like you, I would be troubled by this interpretation. Does the general counsel also believe that the state law would prohibit mandatory after-tax contributions to the plan? Since those contributions also come out of an employee's paycheck, I would wonder if the treatment of the two types of contributions is different.

In the case of picked up contributions, would it matter whether the contributions were picked up pursuant to salary reductions, as opposed to in lieu of salary increases? Does the state otherwise regulate the compensation of these employees, or might there by a way to simply modify pay schedules downward (or avoid pay increases) and then have the employer pay these amounts on a separate, "employer-pay-all," basis without any formal salary reduction basis?

From my point of view, there is really no difference between a salary reduction pick-up in which the salary reduction is mandatory, and a situation in which an employer has a lower pay schedule overall but makes employer contributions. Thus, so long as the reduced salary meets minimum wage requirements, and any other applicable legal requirements, it is hard to see how employees are disadvantaged by using the first method rather than the second. However, I am also aware that state legislatures are not necessarily sophisticated about sophisticated economic concepts.

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