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October 24, 2000
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2000-13A
ERISA Sec. 3(32)
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Mr. David McDaniel
Ernst & Young
600 Peachtree Street, Suite 2800
Atlanta, Georgia 30308-2215
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Dear Mr. McDaniel:
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This responds to your correspondence on behalf of the
East Alabama Health Care Authority ("Authority") of Lee County,
Alabama ("County") concerning the applicability of Title I of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).
Specifically, you ask whether the Authority's East Alabama Medical Center
Financial Security Plan and its East Alabama Medical Center TSA Thrift Plan
(collectively, the "Plans") are governmental plans within the
meaning of § 3(32) of ERISA, and, therefore, excluded by § 4(b)(1) from
coverage under Title I.
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Your correspondence and the materials you enclosed
contain the following facts and representations. From 1950 through 1981, the
County supervised its public health and hospital activities through the Lee
County Hospital Board, a nonprofit public corporation that received proceeds
from the County's ad valorem hospital tax. In 1982, Alabama enacted
the Alabama Health Care Authorities Act ("Act") to provide for
hospital authorities. Ala. Code § 22-21-310, et seq. The Act’s
stated purpose was "to promote the public health of the people of the
state (1)by authorizing the several counties and municipalities in the state
effectively to form public corporations whose corporate purpose shall be to
acquire, own and operate health care facilities, and (2) by permitting, with
the consent of the counties or municipalities (or both) authorizing their
formation, existing public hospital corporations to reincorporate
hereunder." Ala. Code § 22-21-312. Pursuant to the Act, the
County reincorporated the Lee County Hospital Board as the Authority in
1982. As the County's wholly-owned, sole provider of public hospital
services, proceeds from the County's hospital tax became the Authority's
property.
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The Act provides for counties and municipalities that
establish hospital authorities to extensively control them. Hospital
authorities are described for purposes specified in the Act as
"political subdivisions" as well as "agencies or
instrumentalities" of government. The Authority's incorporating
documents also ensure substantial involvement by the County in the Authority’s
operations. For example, the Authority is supervised by a nine-member board
of directors, all of whom are elected by the County’s governing body, the
Lee County Commission ("County Commission"). Directors' removal
is, however, controlled by state law provisions. Ala. Code §
22-21-316(d). In addition, unless the Authority has outstanding securities
or obligations, it may be dissolved and, on dissolution, must distribute its
assets to the County. The Authority must file annual audits with the County.
Pursuant to the Act, the Authority may exercise the power of eminent domain
and is exempt from state and county taxes, including from state sales and
use taxes. You advise that the Authority is exempt from federal income tax
under § 501(c)(3) of the Internal Revenue Code. The Act also grants the
power to issue tax-exempt bonds, and the Authority issued bonds in 1998,
pledging as security 75 percent of its hospital tax proceeds.
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The Authority conducts business as the East Alabama
Medical Center ("Medical Center"). The Medical Center operates an
acute care public hospital that provides more than 300 beds and a skilled
nursing facility. The Medical Center's patient revenues, as supplemented by
County hospital tax proceeds, provide almost all financial support for the
Authority. The Authority has organized the East Alabama Medical Center
Foundation ("Foundation") as a nonprofit, tax-exempt organization.
Neither the Foundation nor the Medical Center has employees; instead, all
individuals employed in Medical Center operations are employed by the
Authority itself.
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The Authority adopted the East Alabama Medical Center
Financial Security Plan ("Security Plan") in 1987, and the East
Alabama Medical Center TSA Thrift Plan ("Thrift Plan") in 1993.(1)
The Security Plan is a defined contribution plan. In accordance with the
plan documents, the Authority may make discretionary annual contributions to
the Security Plan, and the Authority regularly makes such annual
contributions. The Thrift Plan, established pursuant to § 403(b) of the
Code, permits eligible employees to make salary reduction contributions with
the Authority providing certain matching contributions. You represent that
the Plans cover only Authority employees.(2)
The Authority’s contributions to the Plans are from general
operating revenues.
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Section 4(b)(1) of Title I of ERISA excludes governmental
plans from coverage. The term "governmental plan" is defined in §
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."
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The phrase "agency or instrumentality" is not
defined in ERISA, and no regulations issued pursuant to ERISA interpret that
phrase. Accordingly, whether an entity is an "agency or
instrumentality" of government for purposes of ERISA § 3(32), depends
on the facts and circumstances of the relationship between government and
the entity whose benefit arrangement's status as a "governmental
plan" is in issue.
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Based on your representations, we conclude that the
Authority is, within the meaning of ERISA § 3(32), an "agency or
instrumentality" of government.(3)
The Authority has governmental powers, including the power of eminent
domain and the power to issue tax-exempt bonds. Further, the Authority was
established and is controlled by the County under Alabama statute, including
through the County Commission's election of the Authority's board of
directors. In addition, the Authority is supported in part by County taxes.
Accordingly, it is the view of the Department that the Plans, which we
conclude are plans that are established and maintained by the Authority for
its own employees, are "governmental plans" described in ERISA §
3(32), and therefore, are excluded by ERISA § 4(b)(1) from Title I
coverage.
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This letter constitutes an advisory opinion under ERISA
Procedure 76-1 and, accordingly, it is issued subject to the provisions of
that procedure, including section 10 thereof relating to the effect of
advisory opinions. This letter relates solely to the application of
provisions of Title I of ERISA and expresses no conclusion as to any
particular tax treatment under the Internal Revenue Code.
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Finally, we note that plan documents included in your
submission state that ERISA gives certain rights to participants of the
Plans and imposes duties on fiduciaries of the Plans. We believe it is
important that participants and beneficiaries of the Plans have accurate
information concerning the law that governs the Plans and the conduct of
plan fiduciaries. You agreed that appropriate actions will be taken to
remove erroneous references to rights and status under Title I of ERISA from
plan documents and literature and that the Plans will promptly notify
affected participants and beneficiaries that Title I of ERISA does not apply
to the Plans.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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Beginning in 1982, the Authority
contributed to the Retirement System of Alabama ("RSA"), an
Alabama public pension system, for employees formerly employed by the
Lee County Hospital Board. Although the Authority voluntarily ceased
participating in the RSA in 1994, some employees continue to have
retirement balances with the RSA.
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Although the plan documents you
submitted indicate that employees of employers that
"affiliate" with the Authority may participate therein, you
represent that participation in the Plans is limited to employees of the
Authority. The view expressed in this opinion concerning the Plans'
"governmental plan" status does not apply if employees of
employers other than the Authority begin to participate in either Plan.
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We note that the Alabama Health Care
Authorities Act classifies hospital authorities as "political
subdivisions" as well as "agencies or instrumentalities"
of government for certain purposes. Distinguishing an "agency or
instrumentality" of government from a "political
subdivision" of government is without legal significance for
purposes of determining whether a plan is a governmental plan exempt
from Title I coverage. Accordingly, we do not need to decide, and this
letter should not be read as expressing any opinion concerning, whether
the Authority is a political subdivision of government within the
meaning of ERISA § 3(32).
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