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Michael T. Scaraggi, Esq.
Oransky, Scaraggi, Borg & Abbamonte, P.C.
175 Fairfield Avenue, Suite 1A
West Caldwell, New Jersey 07006
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2002-09A
ERISA Sec. 3(32)
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Dear Mr. Scaraggi:
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This is in reply to your request for an opinion on behalf of the Port Authority
Police Benevolent Association, Inc. (Association) regarding the applicability of
Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
You asked whether the Port Authority PBA Welfare Fund (Fund) is a
“governmental plan” within the meaning of section 3(32) of ERISA, and,
therefore, excluded from the requirements of Title I by section 4(b)(1) of ERISA.
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The correspondence and materials you forwarded contain the following facts and
representations. The Port Authority of New York and New Jersey (Port
Authority or Authority) was created on April 30, 1921, with the consent of the
United States Congress, by an interstate compact between New York and New Jersey
to effectuate their pledge of cooperation in the future planning and development
of the Port of New York. The compact has been codified into the laws of
both states. The Authority is administered by twelve commissioners, six of
whom are appointed by each compact state. Either compact state may remove,
for cause, the commissioners it appoints. Port Authority action is subject
to veto by the governor of either compact state. The Authority must report
annually to the legislatures of the compact states. Acting jointly, the
state legislatures may augment the powers and responsibilities of the Authority
and specify the purposes for which the Authority's surplus revenue is used.
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The Port Authority operates three major airports, a bus terminal, numerous
bridges, tunnels, and marine facilities, the World Trade Center properties, and
a subway that passes under the Hudson River. The Authority maintains a
uniformed police force, the members of which are designated by statute as
regular police and peace officers of both states. The Authority may issue
orders after hearings requiring obedience of persons subject to its
jurisdiction. It has the power of eminent domain. Income from bonds
and other obligations it issues is exempt from state and local taxation, and its
property is exempt from state and local taxation in both states. It also
generates revenue through tolls, fees, and investment income. It is not
permitted to draw on state tax revenue, pledge the credit of either state, or
otherwise impose any charge on either state, except by and with the authority of
the legislatures. Various state and federal courts have determined that the Port Authority is a political
subdivision of both New York and New Jersey. See Commissioner of Internal
Revenue v. Shamberg’s Estate, 144 F.2d 998, 999-1000 (2nd Cir. 1944); Brown v.
Port Authority Police Superior Officers Ass’n, 661 A.2d 312, 314-16 (N.J.
Super. Ct. App. Div. 1995).(1)
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The Association, a nonprofit corporation under New York law, was formed to,
among other things, improve the terms and conditions of employment of police
officers of the Port Authority through the collective bargaining process.
The Association operates pursuant to bylaws under which it negotiates with the
Port Authority for wages, hours, benefits, and other terms and conditions of
employment. The bylaws also provide for members to elect officers and
trustees of the Association. Membership in the Association is limited to
current employees or former employees of the Port Authority who are either
retired or designated as “Life Members.”(2)
By letter dated August 22, 1947, the Internal Revenue Service determined that
the Association is a tax-exempt organization under section 501(c) (4) (relating
to local associations of employees) of the Internal Revenue Code (Code).
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The Fund was established in 1993 pursuant to collective bargaining between the
Association and the Port Authority for the purpose of providing vision,
disability, death, and stress counseling benefits to members of the Association.
You indicated that, pursuant to the bargaining agreement between the Association
and Port Authority effective January 21, 1996, through January 20, 2003, the
Port Authority is required to make annual contributions of $125,000 to the Fund.
The bargaining agreement states that such contributions are “to defray the
cost of the eyeglass program of the Fund which is currently in effect.”
However, you represented that the parties to the bargaining agreement never
intended to dedicate the contributions to vision benefits only. In this
regard, you state that the bargaining agreement will be amended to clarify that
the Port Authority’s contributions may be used by the Fund to defray the cost
of any and all benefits provided by the Fund, including vision, disability,
death, and stress counseling benefits. The Fund also receives
contributions from membership dues. Under the Association’s bylaws, each
member, except retirees who are exempt from paying annual membership dues, must
pay annual dues to the Association. The dues are paid generally by payroll deductions through the Port Authority.
A portion of these dues is allocated by the Association to the Fund on behalf of
covered members. The portion of each member’s dues allocated to the Fund
is equal to three quarters of one percent of that member’s salary. Total
contributions for the Fund’s most recent fiscal year were approximately
$643,264, of which $518,264 was from membership dues, and, as noted above,
$125,000 was from the Port Authority.
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The Fund is operated in accordance with the Agreement and Declaration of Trust
for the Port Authority PBA Welfare Fund (Trust Agreement), as restated September
9, 1999. Article III of the Trust Agreement provides for the designation
of seven trustees by the Association, one of which must be the Association’s
President. It also provides that the Association retains the authority to
remove and replace any trustee, at any time, upon notice to the remaining
trustees. Article IV provides that the trustees are responsible for all
aspects of plan administration, including receiving contributions, paying
expenses and benefits, and managing and investing the Fund’s assets. The
trustees also are required to keep accurate books of account and to have the
books audited annually. Under Article IV, the Port Authority has a right
to review the Fund’s annual audits. The trustees’ interpretation of
the Trust Agreement is binding on all parties, including the Port Authority.
Under Article V, the Port Authority must provide the trustees with periodic
reports verifying that it has made required contributions under the bargaining
agreement. Article VIII provides that the Trust Agreement may be amended
in any respect by the trustees, provided that each amendment shall be executed
in writing by all the trustees then serving. Article VI provides that the
trust may be terminated when there is no longer in force a collective bargaining
agreement between the Port Authority and the Association. The Trust also
may be terminated at any time by the unanimous vote of all trustees and a
majority vote of the Association’s membership. Although the Port
Authority is not currently involved in the appointment of trustees and does not
otherwise participate in the day-to-day operations of the Fund, you represent
that the Trust Agreement is being amended to provide the Port Authority with the
authority to appoint and remove one of the trustees on the board of trustees.
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Pursuant to section 4(b)(1) of ERISA, the provisions of Title I of ERISA do not
apply to a “governmental plan” as defined in ERISA section 3(32).
Section 3(32) defines a “governmental plan,” in pertinent part, as “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 has long been
the position of the Department of Labor (Department) that the term governmental
plan is not limited to plans established by the unilateral action of employers
that are governmental entities and plans that are within the exclusive control
of governmental entities. See Advisory Opinion 79-36A (June 11, 1979).
Rather, in determining whether a plan that covers only employees and former
employees of a governmental entity is “established or maintained” by that
governmental entity for its employees, the Department has examined the extent to
which a plan is funded by the governmental entity and the extent to which the
governmental entity is involved in the administration or control of the plan.
See id.; Advisory Opinion 79-83A (Nov. 20, 1979); Advisory Opinion 86-24A (Sept.
9, 1986).
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In this case, based on the information submitted and
assuming adoption of the aforementioned amendments to the bargaining agreement
and the Trust Agreement, it appears that the Fund was established and is
maintained pursuant to collective bargaining between the Port Authority and the
Association, it covers only current and former employees of the Port Authority
and their dependents, it receives substantial funding from the Port Authority,
and the Port Authority will have a role in the discretionary administration and
control of the Fund by virtue of its authority to appoint one trustee to the
Fund’s board of trustees. Further, the Department concludes that the
Port Authority is a political subdivision, agency, or instrumentality of both
New York and New Jersey within the meaning of section 3(32) of ERISA.
Accordingly, it is the Department’s view that the Fund constitutes a
“governmental plan” within the meaning of section 3(32) of Title I of ERISA
and, thus, is not subject to the provisions of Title I of ERISA pursuant to
ERISA section 4(b)(1).
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It should be noted, however, that material changes in the structure, funding, or
operation of the Fund, such as allowing other employers to participate in the
Fund or extending participation to individuals other than employees or former
employees of the Port Authority, may affect the Department's position concerning
the status of the Fund as a governmental plan.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1 and,
accordingly, 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
is not determinative of any particular tax treatment under the Code.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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In Hess v. Port Authority
Trans-Hudson Corp., 513 U.S. 30 (1994), the Court held that the Port Authority
is not one of the “United States” entitled to immunity under the Eleventh
Amendment. Hess at 42-43. Section 3(32) of ERISA, however, covers
not just plans of states, but also plans established or maintained by
political subdivisions and agencies or instrumentalities of states and
political subdivisions. The terms “political subdivision,” “agency,”
and “instrumentality” are not defined in Title I of ERISA; nor are there
regulations under ERISA that interpret those terms. The specific facts
and circumstances of the relationship between the particular entity and the
government must be examined to determine whether the entity is a political
subdivision, agency, or instrumentality within the meaning of section 3(32).
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According to the bylaws, a
Life Member must be a current or former employee of the Port Authority who is
designated and approved as a Life Member by the Bylaw Committee and Executive
Board of the Association. A Life Member gains no rights by virtue of
Life Membership over and above those enjoyed by that member immediately prior
to the granting of Life Membership status except, in the case of any current
employee, an exemption from annual membership dues. You represent that
there are currently two Life Members.
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