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Susanne K. Reed, Esq.
Assistant General Counsel
School and Legal College Services
Sonoma County Office of Education
5340 Skylane Boulevard
Santa Rosa, California 95403
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1999-10A
ERISA Sec. 3(32)
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Dear Ms. Reed:
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This responds to your request for an advisory opinion concerning the
applicability of Title I of the Employee Retirement Income Security Act of
1974, as amended (ERISA). Specifically, you ask whether participation by
twenty-eight employees of the Western Association of Schools and Colleges (WASC)
in the California Public Employees' Retirement System (CalPERS) would
adversely affect the status of CalPERS as a “governmental plan” within
the meaning of section 3(32) of ERISA.
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Your correspondence and the materials you enclose contain the following
facts and representations. CalPERS is a state-run system providing primarily
retirement income and death benefits to public employees or their
beneficiaries within the State of California.(1)
Cal. Gov't Code § 20000 et seq. CalPERS is administered by a board
consisting of members designated by statute or appointed by the California
Personnel Board, the Governor of California, and employee-members of CalPERS.
See id. §§ 20090-20095. Employees of the State of California, of a
county's superintendent of schools, of a “school employer” as defined in
Cal. Gov't Code § 20063, and of the University of California must
participate in CalPERS. See id. §§ 20028, 20281. Any “public agency,”
as defined by California statute, may participate in, and make all or part
of its employees members of, CalPERS by contracting with CalPERS. See id. §
20460. On joining CalPERS, an employer is subject to formulas and conditions
set by California statute that concern its participation. You represent that
CalPERS has over a million participants, including about 750,000 active and
inactive participants and 300,000 retirees.
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Section 20057 of California’s Government Code
designates various entities as “public agencies” for the purpose of
being eligible to participate in CalPERS. Section 20057(w), enacted in 1997,
identifies WASC as an employer able to join CalPERS, and provides as
follows:
The Western Association of Schools and Colleges upon
obtaining a written advisory opinion from the United States Department of
Labor that the participation of the officers and employees of the
association in this system would not affect this system's exemption as a
governmental plan under Section 1001 et seq. of Title 29 of the United
States Code [Title I of ERISA]. The association shall be deemed a
"public agency" only for this purpose.(2)
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No action has yet been taken to permit WASC employees
to participate in CalPERS.(3)
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Although Cal. Gov't Code § 20057(w) provides that WASC is a “public
agency” only for the purpose of being able to participate in CalPERS, you
assert that WASC serves a government function, that governmental entities
control WASC to a significant extent, and that most of WASC's income
consists of public funds, and, therefore, that WASC should be seen for
purposes of the definition of “governmental plan” in ERISA § 3(32) as
an “agency or instrumentality” of the State of California or a
“political subdivision” thereof. Alternatively, you state that, even if
WASC is considered a private sector employer, governmental plan status
should not be affected because WASC’s participation would involve only a
de minimis number of private sector employees.
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WASC was organized in 1962 by individuals representing
both private and public school interests and was incorporated in
California pursuant to that state's nonprofit corporation statute. The
U.S. Department of Education recognizes WASC as a regional accrediting
agency to conduct nongovernmental, peer evaluations of educational
institutions. You indicate that WASC's activities with public and private
educational institutions provide quality assurance to state and federal
educational programs. Within its region, which is one of six covering the
nation, WASC accredits most schools at the secondary school level and
above. Because all public schools in WASC's region must apply for
accreditation, approximately 75 percent of schools accredited by WASC are
public schools. In addition, more than 90 percent of WASC's activities
involve schools in California.(4)
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WASC's articles of incorporation and constitution provide for a nine-member
board of directors to control and supervise its operations. Directors are
selected by members of three accrediting commissions that comprise WASC.
Each such commission serves one educational level; there is a WASC
commission for secondary schools, one for junior and community colleges, and
one for senior colleges and universities. Up to sixty-seven individuals may
serve as the members of WASC's commissions.(5)
Each commission has its own procedures for selecting members to represent
public and private educational institutions.(6)
Excepting that one employee of the California Department of Education serves
on WASC's accrediting commission for secondary schools, commission members'
selection is through election by public and private institutions that are
subject to accreditation by WASC, through appointment by state education
officials, or through selection by committee from nominees of private and
public educational institutions and organizations.
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WASC finances its activities by charging dues to schools to which it grants
accreditation, and schools with larger student enrollments must pay more
dues than smaller schools. Dues are paid by both private and public schools.
You represent that accredited public schools, rather than private schools,
provide most of WASC's income from dues and, for that reason, that WASC's
income is mostly from public school funds.
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You represent that all nongovernmental employees constitute only an
extremely small fraction of one percent of CalPERS participants. In that
regard, we note that not all the entities named in Cal. Gov't Code § 20057
are subject to the requirement to obtain a written advisory opinion from the
Department on CalPERS governmental plan status under ERISA before they can
participate in the system. See Cal. Gov't Code §§ 20057(u)-(w), 20057.1.
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Title I of ERISA covers employee pension benefit plans and employee welfare
benefit plans. In general, a covered employee pension benefit plan includes
any plan, fund, or program established or maintained by an employer or by an
employee organization, or by both, to provide retirement income to
employees. Section 4(b)(1) of Title I of ERISA, however, excludes
governmental plans from coverage. The term “governmental plan” is
defined in section 3(32) to include “a plan established or maintained for
its employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing.” It is the Department's view that
governmental plan status is not affected by participation of a de minimis
number of private sector employees. See Advisory Opinion 95-27A. However, if
a benefit arrangement is extended to cover more than a de minimis number of
private sector employees, the Department may not consider it a governmental
plan under Title I of ERISA.
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Based on the information and representations that are provided in your
request, and without expressing any views on the status of WASC as an
“agency or instrumentality” or a “political subdivision” of
government within the meaning of ERISA § 3(32), it is the Department's view
that participation of twenty-eight WASC employees would not adversely affect
any status of CalPERS as a “governmental plan” within the meaning of
Title I of ERISA. Even if WASC's employees are private sector employees, it
is our understanding, based on your representations, that all
nongovernmental employees participating in CalPERS, including WASC
employees, would constitute no more than a small fraction of one percent of
all CalPERS participants and would be de minimis. This letter should not be
read as expressing any views on other employers mentioned in Cal. Gov't Code
§ 20057 joining CalPERS.
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This letter constitutes an advisory opinion. It is issued under ERISA
Procedure 76-1, including section 10 thereof concerning the effect of
issuing advisory opinions. This letter relates solely to the application of
provisions of Title I of ERISA and is not determinative of any particular
tax treatment under the Internal Revenue Code (the Code). We encourage you
to contact the Internal Revenue Service National Office, Employee Plans
Division, to clarify the treatment of this arrangement under the Code.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting & Disclosure
Office of Regulations and Interpretations
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You assume for purposes of your
request that CalPERS is a “governmental plan” under ERISA §
3(32). For purposes of this opinion, we also assume, without examining
the issue, that CalPERS as it currently operates constitutes a
“governmental plan” within the meaning of § 3(32). This letter
expresses no position of the Department on that question.
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In Advisory Opinion 93-4A, the
Department concluded that ERISA § 514 preempted a state law that
attempted to permit the state to apply its laws to an employee benefit
plan until the plan obtained an advisory opinion from the Department.
We concluded that § 514(a) is, by its own terms, self-executing.
Noting that § 514(a) contains no provision that conditions its effect
on any action to be taken by the Department or any other governmental
body, we concluded that any attempt by the state, through legislation,
regulatory action, or otherwise, to alter or limit the scope of the
preemption under § 514(a) would itself be subject to the preemption
provided by § 514(a). You have not asked for our views regarding, and
this opinion should not be read as expressing any views on, the
application of § 514(a) to Cal. Gov’t Code § 20057(w).
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Some WASC employees would be
rejoining CalPERS because they participated during former employment.
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Other schools applying to WASC for
accreditation are in Hawaii, American Samoa, Guam, the Commonwealth of
the Northern Mariana Islands, Federated States of Micronesia, the
Republic of the Marshall Islands, and the Republic of Palau. Also
obtaining accreditation through WASC are schools in Fiji and in the
area served by the East Asia Regional Council of Overseas Schools (EARCOS).
EARCOS serves schools in Australia, Cambodia, Hong Kong, Indonesia,
Japan, Korea, Malaysia, New Guinea, Peoples Republic of China,
Philippines, Singapore, Taiwan, and Thailand.
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Any accrediting commission may
remove a commission member by a two-thirds vote of members.
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Some selections must represent the
general public, faculty interests, administrative interests, and
regional interests. Some organizations of religious educators and
parent-teacher organizations also participate in the nomination
process.
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