A broad range of compensation and reimbursement issues affect all persons working within the hospital district, including commissioners, employees, and the medical staff. This section reviews such issues as compensation parameters, insurance, pensions and expense reimbursement.

The compensation of commissioners is specifically outlined by statute. The district must establish the compensation of commissioners at a rate of $104 for each day or partial day devoted to the business of the district, including days during which he or she attends meetings with commissioners from his or her district or other hospital districts. The two major limitations to the rule are (1) total compensation paid to each commissioner during any one year may not exceed $9,984, and (2) commissioners may not be compensated for services performed of a ministerial or professional nature. [RCW 70.44.050]

A commissioner may waive any or all of his/her compensation by written waiver filed with the district. Commissioners also are entitled to be covered under a group policy of insurance maintained for the district's employees and this may include their immediate family and dependents. As the statute does not limit the types of insurance that may be provided, presumably this could include any type of group insurance maintained by the district for its employees, such as health, life, dental or disability insurance. The statute also provides that commissioners may be reimbursed for reasonable expenses incurred in connection with business and meetings of the district while away from their place of residence. Such expenses may include travel, lodging and sustenance.

Practical Considerations

The State Auditor's Office has been known to be very scrupulous in its review of commissioners' compensation. Hospital districts should follow the statutory requirements closely, including appropriate documentation of the days for which commissioners are entitled to compensation.

The superintendent is to receive such compensation as set by resolution of the board of commissioners. The fact that the statute refers to "compensation" as opposed to "salary" is significant according to the Attorney General's Office. The Attorney General's Office has construed the word "compensation" to include a variety of fringe benefits. Consequently, a district may provide its superintendent with fringe in addition to salary provided that such benefits are set by resolution and are reported properly for income tax purposes. In general, the board of commissioners has unlimited discretion in setting the compensation of the superintendent. Conceivably, if a superintendent's compensation were so outrageous that it could be considered payment far beyond the services rendered, the State Auditor's Office could challenge the compensation as a gift of public funds and prohibited under Article VIII Section 7 of the Washington State Constitution. [RCW 70.44.070] [AGO 1982 No. 8]

The statute addressing with the compensation of employees is less clear than those statutes addressing with the superintendent and commissioners. The statute merely provides that public hospital districts have authority to "make contracts, employ superintendents... and all other employees." This provision gives districts authority to enter into collective bargaining agreements for union employees and to pay the employees the negotiated compensation package. [RCW 70.44.060(10)]. The Attorney General's Office has recognized this authority and placed no limitation on the scope of the contract other than to state that the contract should be executed by the commissioners rather than the superintendent. [AGO 57-58 No. 184] Given the statutes governing commissioners and superintendents, it can be implied that the commissioners also have authority to set such compensation arrangements for its non-union (i.e., non-contract) employees as are specifically permitted for commissioners and superintendents. This leaves broad discretion to the district to establish such fringe benefits as group insurance arrangements, retirement plans (discussed in more detail below) and miscellaneous fringe benefits. In other words, it is clear that the district has authority to contract with its employees or their representative bargaining units for a wide range of salaries and benefits, limited only by the board of commissioners' discretion and other provisions of applicable law. [See RCW 41.04.180 and 41.04.205].

As for non-contract employees, the State Auditor's Office may take a dim view of non traditional fringe benefits because the legal authority is less clear. Some districts have pushed the fringe benefit issue beyond traditional benefits to include such things as employee recognition awards and holiday galas. The State Auditor has said any such fringe benefits must be "clearly denominated, structured, and treated as an employee benefit constituting part of the employee's compensation."

Further Legal Background

Public hospital districts can elect to provide certain state-sponsored benefits to its employees. For example, public hospital districts, as political subdivisions of the state, may become members of the state retirement system. [RCW 41.40]. The costs of participating for both the district and the employees are set by statute. Public hospital districts that have previously maintained their own retirement plans are not precluded from transferring to the state retirement system, and employees may elect to transfer funds into the state system.

Public hospital districts may also participate in the State employees insurance and healthcare program. The State Healthcare Authority (HCA) may establish conditions, under which the district shall participate, may hold public hearings and retains the right to reject the application. [RCW 41.04.205] In 1999, the HCA established the requirement that the terms and conditions of payment of insurance premiums be included in a bargaining agreement or terms of employment. The provisions, including eligibility, will then be subject to review and approval by the HCA at the time of application for participation. Any substantive changes must be submitted to the HCA.

Public hospital districts are given clear authority to establish retirement programs for its employees. Districts may contract with private or public institutions for such programs. Because it usually is the desire of employers and employees to make such retirement programs available to the employee on a tax-free basis, the plans that are provided by districts must comply with applicable provisions of the of the Internal Revenue Code. However, in addition to the Internal Revenue Code, numerous other federal laws are applicable including, among others, the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act of 1967 as amended (ADEA), the Military Selective Service Act, and various federal securities acts.

A qualified plan is a plan that meets the applicable requirements of Section 401(a) of the Internal Revenue Code. Qualification generally results in tax-free contributions by an employer. Taxes are deferred until benefits are actually received. Qualified plans come in two general categories, defined contribution plans and defined benefit plans. A defined contribution plan is a plan whereby the employer's contribution to the employee's account is a set amount and the retirement benefit depends on the amount accumulated in the employee's account. A defined benefit plan is a plan whereby the contribution by the employer varies in order to create an established benefit to be paid to the employee upon retirement.

The Internal Revenue Code concerning pension plans makes numerous distinctions between government employers and non-government employers. Governmental plans are specifically exempt from all of the substantive qualification requirements added to the Code by Title II of ERISA (with the exception of Section 415 limitations). Of significant importance are those sections relating to participation (Section 410(c)(1)(A)), vesting (Section 411(e)(1)(A)), funding (Section 412(h)(3)), prohibited transactions (Section 4975(q)(2)), and withdrawal of employee contributions (Section 401(a)(19)). In addition, governmental plans are exempt from ERISA's other major provisions, including reporting and disclosure requirements (Title I) and plan termination insurance (Title IV).

Other retirement vehicles available to public hospital districts include 457, 403(b), and 408(k) plans and nonqualified plans. Each of these plans is subject to numerous rules and regulations under the Internal Revenue Code governing participation, limits on contributions, discrimination, withdrawals, etc.

Section 457 and 403(b) plans can be set up purely as voluntary deferred compensation arrangements for the benefit of employees, in conjunction with any other plan. These plans permit the employee to choose to defer a limited amount of income to be received and taxed at a later date. A Section 403(b) plan is available only to public hospital districts that also have qualified as tax exempt under Section 501(c)(3) of the Internal Revenue Code.

A nonqualilfied plan is simply a plan in which the employee's right to receive benefits is subject to a substantial risk of forfeiture. The Internal Revenue Code recognizes that as long as such a risk exists, the funds set aside in the name of the employee are not taxable until such time as the funds are paid or the risk of forfeiture lapses.

Pension plans and other retirement vehicles frequently result in a pool of funds to be invested on behalf of the employee. Article VIII, Section 7 of the Washington State Constitution prohibits municipalities from owning, directly or indirectly, any stocks or bonds of any company or corporation. In order to permit greater latitude for the investment of retirement accounts, Article XXIX Section 1 was added to the Washington State Constitution in 1968 pursuant to Amendment 49, which states that "notwithstanding the provisions of this or any other section or article of the Constitu-tion of the State of Washington, the monies of any public pension or retirement fund or industrial insurance trust fund may be invested as authorized by law."

Thus, the prohibition on municipalities owning stock does not apply to retirement plans of public hospital districts. Further, the Attorney General's Office has recognized that voluntary deferred compensation plans are to be treated as "any public pension or retirement fund" under Article XXIX Section 1 of the Washington State Constitution. Therefore, deferred compensation plans are also not prohibited from investing in stocks or bonds of private companies or corporations. [AGO 1980 No. 21]

Public hospital districts are specifically authorized to pay the actual necessary travel expenses and living expenses incurred while in travel status for (a) qualified physicians or other health care practitioners who are candidates for medical staff positions; and (b) other qualified candidates for superintendent or other managerial and technical positions. These expenditures, which may include the expenses of family members accompanying the candidate, are authorized only when personal interviews with the candidate "are necessary or desirable for the adequate staffing" of the district's health care facilities and held in the district. [RCW 70.44.060(9)]

A district also can make contracts with current or prospective employees, physicians or other health care providers for the payment or reimbursement of health care training or education expenses, including debt obligations incurred by them. In return, they must agree "to provide services beneficial to the public hospital district." [RCW 70.44.060(10)]

Note: Model documents for employee educational assistance are available in the "Publications and Resources" section of the AWPHD web site (www.awphd.org).

Further Legal Background

The State Auditor's Office traditionally has been more concerned with expenditures for food and drink as opposed to necessary travel expenses, presumably because the purpose of the travel is more easily established as related to the affairs of the district.

Many of the issues regarding eating and drinking at public expense were addressed in detail in a 1987 AG memorandum to the State Auditor. In conclusion and as a framework for analysis, the following criterion was set forth to determine the appropriateness of the expense:

• What documentation is there for this expenditure? Is the documentation sufficient to note who consumed the food and beverages, what type of food and beverages were consumed, how they were purchased and from whom, and for what purpose?

• Is the expenditure authorized by local policy, contract, or ordinance [or resolution]?

• Is the expenditure rationally related to some public purpose and is it reasonable in its amount and its nature?

• Is the local ordinance or policy [or resolution] consistent with state law? Are there any state constitutional, statutory, or public policy provisions which (despite the existence of some local policy) would preclude the expenditure in question?

The memorandum also provides some guidance on the issue of reimbursement of expenses for alcoholic beverages:

Thus, it is clear that the district has broad discretion in determining what items, including alcoholic beverages, are reimbursable. [Informal Attorney General Memorandum, May 14, 1987]

There are strict procedural requirements for accounting for municipal corporations before they can reimburse officers and employees for expenses, including meals and travel. The statute states "[n]o claim for reimbursement of any expenditures by officers or employees of any municipal corporation... for transportation, lodging, meals or any other purpose shall be allowed... unless the same shall be prescribed in a detailed account." The statute also states that "the commissioners may prescribe by resolution the amounts to be paid officers or employees as reimbursement for use of their personal automobiles or other transportation equipment in connection with officially-assigned duties and other travel for approved municipal purposes or as reimbursement in lieu of actual expenses incurred for lodging, meals or other purposes." The rates for reimbursement may be computed on a mileage, hourly, per diem or other basis as the board of commissioners determines. An employee is required to certify as to the validity of such expenses. [RCW 42.24.090]

The issuance of charge cards to district employees is permitted for the sole purpose of covering expenses incident to authorized travel. Within thirty days of the billing date, the employee must submit a fully itemized travel expense voucher. Any disallowed charges not repaid permit the district to lien any amounts payable to the employee from the district, such as salary or wages. [RCW 42.24.115]. PHDs can now also use credit cards for official government purchases and acquisitions. [See also Chapter 4, Types of Borrowing Devices]

Bonuses for municipal officers are limited pursuant to Article II, Section 25, Article XI, Section 8, and Article XXX, Section 1, of the Washington State Constitution. Prior to 1968, when Article XXX was adopted, Article XI Section 8 provided that salary of a municipal officer could not be increased during the term of the officer's position. Article XXX Section 1 permits an increase during the term of the officer, provided that the officer receives compensation in accordance with the law in effect at the time that the services are being rendered. This would preclude the awarding of a bonus retrospectively. However, the constitution does not prohibit a prospective salary increase or a prospective awarding of a bonus that is for services rendered in accordance with established criteria.

The Attorney General's Office specifically approved the authority of a municipal corporation to pay gratuities, bonuses or cash awards to employees for suggestions that might or could improve the services of the municipal corporation to the public, or result in reduced costs. The bonus or incentive plan should be established by resolution with clear criteria to be achieved by the officer or employee well in advance of the contemplated awarding of the bonus or incentive payment. [AGO 57-58 no. 59]