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Greg W. Isley, CPA
McGladrey & Pullen, LLP
901 College Court
PO Box 15409
New Bern, North Carolina 28561-5409
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1999-02A
ERISA Sec. 3(32)
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Dear Mr. Isley:
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This is in response to your correspondence concerning the application of
Title I of the Employee Retirement Income Security Act of 1974 (ERISA) to
certain plans sponsored by Craven Regional Medical Center, a not-for-profit
corporation appointed by the Craven Regional Medical Authority to operate a
hospital facility. Specifically, you request an advisory opinion as to
whether the Craven Regional Medical Center Money Purchase Pension Plan and
Trust, the Craven Regional Medical Center 403(b) Tax-Sheltered Annuity Plan,
and the Craven Regional Medical Center Employee Benefit Plan are
"governmental plans" within the meaning of ERISA section 3(32).
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Your submission includes facts and representations concerning the governing
body of Craven County (County), the County’s establishment of the Craven
Regional Medical Authority (Authority), the Authority’s operation of the
Craven Regional Medical Center (Medical Center), and the establishment and
maintenance of the Plans for the employees of the Medical Center.
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In 1962 a nonprofit hospital corporation was created by a group of five
individuals under the state Nonprofit Corporation Act, Chapter 55A of the
General Statutes of North Carolina.(1)
Then known as the Craven County Hospital Corporation, the nonprofit entity
was exempt from federal income tax under section 501(c)(3) of the Internal
Revenue Code. On May 31, 1988, the board of commissioners of Craven County
established a hospital authority over the non-profit entity.(2)
The Craven County Hospital Corporation was renamed the Craven Regional
Medical Center. The elected County commissioners appoint members of the
Authority’s board and can remove members of the Authority’s board at
will.(3) The members of the
Authority’s board are, pursuant to the Hospital Corporation’s charter,
the same persons who comprise the board of directors of the Medical Center.
Articles of Amendment and Restated Charter of Craven County Hospital
Corporation, August 16, 1988.
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The Authority is described in the North Carolina Hospital Authorities Act as
a public body and a body corporate and politic, which provides medical
services to County residents. The Authority has the power to issue bonds,
subject to the approval of the County commissioners. Articles of Amendment
and Restated Charter of Craven County Hospital Corporation, August 16, 1988.
The Authority has the power of eminent domain and by statute is exempt from
the payment of state and municipal taxes.(4)
Based on the financial accountability criteria established by the
Governmental Accounting Standards Board, the Authority is considered to be a
component unit of the County for reporting the County’s general purpose
financial statements.(5) In
addition, pursuant to the Hospital Authorities Act, the Authority is
required to submit an annual certified audit to the County commissioners. If
the Authority were dissolved, its assets would revert to the County. Craven
Regional Medical Authority Financial Report, September 30, 1997.
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The Medical Center is a not-for-profit corporation which the Authority
appointed as its agent to operate a hospital facility under an agreement
dated March 17, 1988 pursuant to N.C. Gen. Stat. § 131E-23(b). The charter
for the Medical Center provides that its purposes are to operate hospitals
and clinics for the care and treatment of persons suffering from illnesses
or disabilities; to carry on any educational activities related to the
health and general welfare of the community; to carry on scientific
research; and to provide hospital, medical and nursing care to all persons
who are unable to pay for such care. Article III, Articles of Amendment and
Restated Charter of Craven County Hospital Corporation. You represented that
day-to-day control of the Medical Center is exercised by the president and
by the officers who are appointed by the Authority, subject to the direction
of the Authority. The Authority’s oversight over the Medical Center is set
forth in an organizational policy document which describes the duties and
powers delegated by the Authority to the Medical Center’s chief executive
officer (CEO). Specifically, there are four levels of delegation of
functions by the Authority to the CEO: certain actions require the
Authority’s prior approval, such as expenditures exceeding a specified
amount, granting medical staff privileges, and appointment of officers;
others require giving prior notice to the Authority; others require written
notice to the Authority within a specified time after the action; and
specified actions may be carried out by the CEO without notifying the
Authority. The Medical Center submits copies of its financial statements on
a monthly basis to the County Finance Director. The Authority leases its
facility to the Medical Center. If the Medical Center were dissolved, its
assets would be paid over to the Authority for the operation of other
hospitals, but grants from private foundations would be distributed to
non-governmental, not-for-profit corporations, pursuant to Article III of
the Medical Center’s charter. The Authority and Medical Center comply with
the state open meetings law. N.C. Gen. Stat. § 143-318.9—.18. You
represented that the Medical Center has never been determined to be a
private entity under any law.
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The Medical Center receives no funding from the County; its revenues are
primarily from patient services.(6) The
Medical Center is exempt from federal income taxes pursuant to section
501(c)(3) of the Internal Revenue Code and as a 501(c)(3) organization
receives gifts and endowments. The Internal Revenue Service ruling in 1965
with respect to 501(c)(3) status was issued to the Hospital Corporation, as
the Medical Center was then known. You represented that based on such IRS
ruling, the Medical Center is also exempt from state and city taxes. You
also represented that employees of the Medical Center are exempt from
federal unemployment taxes, based on a 1973 IRS ruling that the Hospital
Corporation was a wholly owned instrumentality of a political subdivision of
North Carolina, and exempt from state unemployment taxes, based on a 1973
ruling of the state Employment Security Commission that the Hospital
Corporation was an instrumentality of a political subdivision. The Medical
Center has elected to pay social security taxes on behalf of employees. The
sales taxes paid by the Medical Center on purchases are refunded
semi-annually by the North Carolina Sales Tax Division. The Medical Center,
like the County, provides workers’ compensation through a self-funded risk
financing pool.
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The Medical Center sponsors three plans: the Craven Regional Medical Center
Money Purchase Pension Plan and Trust, effective October 1, 1974, to which
the Medical Center contributes 10 percent of compensation; the Craven
Regional Medical Center 403(b) Tax- Sheltered Annuity Plan, effective
October 1, 1983 to which the Medical Center and employees contribute; and
the Craven Regional Medical Center Employee Benefit Plan effective October
1, 1983 covering group health care, group dental, and group life insurance,
including accidental death and dismemberment and short term disability. The
Medical Center employs about 1,369 full-time employees. There are 659
participants in the Money Purchase Pension Plan, 767 participants in the
403(b) Tax-Sheltered Annuity Plan, and 1,000 or more participants in the
Employee Benefit Plan, as follows: 1,195 under health coverage, 1,000 under
dental coverage and 1,166 under life insurance coverage). All participants
in each Plan are employees or retirees of the Medical Center or their
dependents.
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Section 4(b)(1) excludes from coverage under Title I of ERISA any plan that
is a "governmental plan," and section 3(32) defines the term
"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."
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In view of the foregoing representations, it is the
view of the Department of Labor that the Authority and the Medical Center
are governmental agencies or instrumentalities within the meaning of
section 3(32) of ERISA and that the Craven Regional Medical Center Money
Purchase Pension Plan and Trust, Craven Regional Medical Center 403(b)
Tax-Sheltered Annuity Plan, and Craven Regional Medical Center Employee
Benefit Plan are “governmental plans” excluded by ERISA section
4(b)(1) from coverage under Title I.(7)
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This letter constitutes an advisory opinion under ERISA Procedure 76-1.
Section 10 of the Procedure explains the effect of advisory opinions. This
letter relates solely to the application of the provisions of Title I of
ERISA and is not determinative of any particular tax treatment under the
Internal Revenue 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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The five incorporators were also the
original directors. Later, the board was expanded to seven members.
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For a few months in 1988 the two
entities’ names were reversed so that the not-for-profit entity,
initially known as the Medical Authority later was renamed the Medical
Center, and the hospital authority, which was initially known as the
Medical Center, was renamed the Medical Authority.
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Ch. 131E, Article 2, Part B of the
General Statutes of North Carolina.
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N.C. Gen. Stat. § 105-130.11(a)
exempts from state income tax an organization that is exempt from
federal income tax. In addition, for purposes of the exemption from
real and personal property taxes pursuant to N.C. Gen. Stat.§ 105-
278.1, the Medical Center is treated as a governmental unit of Craven
County, according to a letter from the Craven County Tax Administrator
dated September 2, 1998.
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The Authority separately operates
the Twin Rivers Nursing Center, Inc. as a not-for-profit nursing home
that has not applied for tax exempt status under section 501(c)(3) of
the Internal Revenue Code.
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Net patient service revenue in 1997
was $125,080,183 or 99% of total revenue of $126,343,995. Other
revenue of $1,263,812 included revenue from cafeteria sales; interest
income on borrowed funds, other services and vendor rebates. Revenue
recognized under agreements with Medicare, Medicaid and Champus
represents approximately 67 percent and 68 percent of total patient
service revenue for the years ended September 30, 1997 and 1996,
respectively.
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However, the governmental plan
status of each Plan described above does not extend to any benefit
arrangements that may be established for individuals employed by other
entities operated by or owned by the Authority. Also, this letter
expresses no opinion as to the governmental plan status of any of the
Plans if another employer were to participate in any such Plans.
Finally, you represented that references to ERISA in the three plans
will be removed and employees will be notified that these plans are
not subject to ERISA.
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