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Karen M. Tyner, Esq.
Edwards, Ballard, Bishop, Sturm, Clark & Keim, P.A.
International Center, Suite 400
101 North Pine Street, P.O. Box 5398
Spartanburg, SC 29304
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2001-08A
ERISA Sec. 3(32)
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Dear Ms. Tyner:
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This is in response 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), to certain employee benefit plans jointly
sponsored by the Spartanburg Water System (SWS) and the Spartanburg Sanitary
Sewer District (SSSD). The plans subject to your request are a long-term
disability plan, a short-term disability plan, and a group health and dental
plan (collectively, the plans). You request an advisory opinion concluding
that the plans are governmental plan[s] within the meaning of section 3(32)
of ERISA, and, therefore, excluded from Title I coverage by section 4(b)(1)
of ERISA.
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Your request and related correspondence contain the following facts and
representations. The SWS was created by the City of Spartanburg pursuant to
1896 S.C. Act 39 (Act 39), which authorizes cities and towns in South
Carolina to construct and operate waterworks systems and set payment rates
for the provision of clean water. Act 39 provides that the City of
Spartanburg Board of Commissioners of Public Works (Spartanburg Board or SWS
Board) is the governing body of the SWS and, as such, is vested with the
power to build or contract for the building of a waterworks system and
manage and control the system’s operation. The Spartanburg Board is
comprised of three members who are elected in accordance with the provisions
of Act 39 by the voters of the City of Spartanburg. The SWS is exempt from
federal and state taxation (except the obligation to pay sales tax) and is
considered to be a public body under the South Carolina Freedom of
Information Act. To finance the cost of the SWS purchasing or constructing a
waterworks system, Act 39 authorizes the city to issue bonds after approval
by registered electors; assess, levy and collect annual tax from the taxable
property within the city; and exercise the power of eminent domain.
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The SSSD was created by the South Carolina Legislature through 1970 S.C. Act
1503 (Act 1503), to construct, operate, maintain, and administer all
sewerage facilities within the district. You represent that the district
covers all the residents of the city and the residents of the county whose
area has obtained a sewer permit or has the requisite sewer lines. The SSSD
is governed by a Commission (SSSD Commission) comprised of seven members.
Act 1503 provides that the SSSD Commission members are: the Mayor of the
City of Spartanburg; the three commissioners of the Spartanburg Board; and
three other commissioners elected from the area of the district located
outside the city limits of the City of Spartanburg. The SSSD Commission’s
activities are funded, in part, by the proceeds of general obligation bonds
which are backed by the taxing power of the SSSD. Additionally, the SSSD
Commission is authorized by Act 1503 to annex areas to the district, assess
property owners for the cost of installing any sewage collection systems,
and exercise the power of eminent domain. The SSSD is exempt from all
federal and state taxation (except the obligation to pay sales tax) and is
considered to be a public body under the South Carolina Freedom of
Information Act.
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You represent that Act 39 and Act 1503 continue to govern the basic
structure and operation, respectively, of the SWS and SSSD, although other
general statutes in South Carolina supplement the powers granted to the SWS
and SSSD. See, e.g., 1908 S.C. Acts 612 (to provide for the Board of
Commissioners of Public Works for the City of Spartanburg and define their
duties); 1915 S.C. Acts 43 (to amend section 3015 and section 3017 of the
Civil Code of South Carolina, 1912, Volume I, to permit cities and towns to
purchase waterworks and electric light works); S.C. Code § 6-11-1210
(additional powers of special purpose or public service districts as to
sewage collection and disposal).
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The SWS Board and the SSSD Commission adopted the plans by resolution. The
SWS Board and SSSD Commission have the power to amend or terminate the plans,
and meet separately to review and approve changes to the plans. Each entity
is responsible for paying or forwarding payment for premiums and other
expenses attributable to its employees and former employees who participate
in the plans.(1) The SWS Board and SSSD Commission are
responsible for selecting insurance providers and other administrative
service providers for the plans. The SWS Board and SSSD Commission delegated
the responsibility for overseeing the day-to-day administration of the plans
to the SWS Human Resources Department, which is required to report back to
the SWS Board and SSSD Commission regarding the plans.
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Participation in the plans is limited to employees and former employees of
the SWS and SSSD and their dependents. The long-term and short-term
disability plans cover only employees of the SWS and SSSD, and participation
in the group health and dental plan is limited to employees and retirees of
the SWS and SSSD and their dependents. Currently, all employees of the SWS
and SSSD (approximately 240 in total) participate in the long-term
disability plan, benefits are paid by insurance, and all premiums are paid
entirely by the employers. With regard to the short-term disability plan,
approximately 195 employees of the SWS and SSSD participate. The plan is
fully insured with premiums paid by participants through payroll
withholding. The group health and dental plan covers approximately 255
employees and former employees of the SWS and SSSD and their dependents. The
SSSD and the SWS pay health and dental benefits up to designated limits out
of their general assets. Once the limits are reached, claims are then paid
by insurance. The SWS and the SSSD pay the entire premium on behalf of
employees and retirees, and a portion for the dependents of employees (the
remainder is deducted from the employees’ paychecks through a pretax
contribution). Retirees are responsible for the entire premium for their
covered dependents.
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Section 4(b)(1) of ERISA excludes governmental plans from
Title I coverage. Section 3(32) of ERISA defines the term governmental plan,
in relevant 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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We conclude from your representations that the SWS and SSSD are either
agencies or instrumentalities or political subdivisions of government within
the meaning of section 3(32) of ERISA,(2) and that the plans are
jointly established and maintained by the SWS and SSSD for the benefit of
their employees. The SWS and SSSD were created pursuant to state statutes,
are governed by the SWS Board and SSSD Commission which are comprised of
publicly elected officials, exercise governmental powers, and the property
and revenues of the SWS and SSSD are exempt from federal and state taxes.
The SWS Board and SSSD Commission established the plans by resolution and
control the operation and administration of the plans. Participation in the plans
is limited to employees and former employees of the SWS and SSSD and their
dependents. The long-term disability plan and the group health and dental
plan are funded exclusively by employer contributions from the SWS and SSSD,
and participant contributions from governmental employees and former
employees. The short-term disability plan is funded exclusively by
participant contributions from governmental employees. For the above
reasons, it is the view of the department that the plans constitute
governmental plan[s] within the meaning of section 3(32) of ERISA, and,
therefore, are excluded from Title I coverage by section 4(b)(1) of ERISA.
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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
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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There are certain employees
participating in the plans who are employed by both the SWS and SSSD.
Each entity pays a proportional share, based on work done for the
particular entity, of the premium contributions and other costs on
behalf of these employees.
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Your request asked us to conclude
that the SWS and SSSD are instrumentalities of the South Carolina
state government. It appears that special purpose districts are
characterized under S.C. Code § 6-11-435 as political subdivisions
for some purposes.
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