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Ian D. Lanoff, Esq.
Groom Law Group
1701 Pennsylvania Avenue, NW
Washington, DC 20006-5893
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2002-10A
ERISA Sec. 3(32)
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Dear Mr. Lanoff:
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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), to the University of California Retirement Plan (UC
Retirement Plan) and the University of California Tax-Deferred 403(b) Plan (UC
403(b) Plan) (collectively, the UC Plans). Your inquiry concerns the
effect on the UC Plans of “unwinding” a joint venture between the University
of California (UC) and Stanford University. Specifically, you asked
whether the status of the UC Plans as “governmental plan[s]” within the
meaning of ERISA § 3(32) would be adversely affected if certain former joint
venture employees, when reemployed by UC, resume participation in the UC Plans,
are given service credit under the UC Retirement Plan for approximately two
years of private sector employment with the joint venture, and are allowed to
transfer account balances to the UC Plans from the joint venture’s pension
plans.
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Your correspondence and other materials submitted in support of your request
contain the following facts and representations. You represent that UC is a
political subdivision of the State of California whose purpose is to carry out
California’s public higher education policy of advancing knowledge through
research and teaching. See Cal. Const., Art. IX, § 9; Cal. Educ. Code §
66010. See also Regents of the University of California v. Public
Employment Relations Board, 485 U.S. 589 (1988). The UC system includes
ten campuses. The campus of the University of California at San Francisco
(UCSF) is dedicated to health sciences and houses UCSF Medical Center as well as
graduate professional schools in dentistry, medicine, nursing, and pharmacy.
You represent that individuals employed by UCSF, including by UCSF Medical
Center, are public sector governmental employees.
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You represent that UC established and maintains the UC Retirement Plan and the
UC 403(b) Plan. The UC Retirement Plan, a defined benefit pension
plan, covers approximately 120,000 UC employees and former employees or their
beneficiaries. The UC 403(b) Plan is a tax sheltered annuity arrangement
that holds accounts for approximately 80,500 UC employees and former employees
or their beneficiaries. You represent, and we assume solely for purposes
of your request and without considering the issue, that the UC Plans as now
structured and operated are “governmental plan[s]” within the meaning of §
3(32) of ERISA.
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In 1997, UC entered a consolidation agreement with Stanford University, a
private university, to combine their respective medical centers into “UCSF
Stanford Health Care.” Under the agreement, UCSF Stanford Health Care
was to operate as a private, nonprofit health care entity owned by UCSF Medical
Center and Stanford University as joint venturers. UCSF Stanford Health
Care’s consolidation agreement, effective November 1, 1997, provided each
joint venturer with equal control. Governmental employees of UCSF Medical
Center either were leased to UCSF Stanford Health Care or, after terminating
employment with UC, were transferred to and became common law employees of UCSF
Stanford Health Care. Individuals who transferred employment to UCSF
Stanford Health Care as common law employees are referred to herein as
“Transferred Employees.”
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The Transferred Employees ceased participation in the UC Plans upon termination
of their employment with UC. Upon commencement of their employment with
UCSF Stanford Health Care, each of the Transferred Employees could choose
participation in the UCSF Stanford Health Care Staff Pension Plan (the UCSF
Stanford Staff Plan),(1) which is a defined benefit
plan, or in the UCSF Stanford Retirement Plan, which is a tax sheltered annuity
program. Benefits under the UCSF Stanford Staff Plan were based on a 2
percent career average compensation formula, but no contributions were made
during the duration of UCSF Stanford Health Care joint venture because the plan
was fully funded both before and after coverage of the Transferred Employees.
Annual employer contributions of 5 percent of employee compensation were made to
the UCSF Stanford Retirement Plan. Participants could also defer salary or
contribute after-tax dollars to the UCSF Stanford Retirement Plan and UCSF
Stanford Health Care agreed to make certain employer matching contributions.
In addition, all UCSF Stanford Health Care’s common law employees, including
the Transferred Employees, could participate in a separate tax sheltered annuity
plan known as the Tax Deferred Annuity Plan (the TDA Plan) that was funded
entirely by employee salary reduction contributions.(2)
You represent that the UCSF Stanford Staff Plan, the UCSF Stanford Retirement
Plan, and TDA Plan (collectively, the UCSF Stanford Plans) have at all times
been treated as employee pension benefit plans covered by Title I of ERISA.
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According to your submission, by 1999, UCSF Stanford Health Care was not meeting
its business objectives. The UCSF Medical Center and Stanford University
determined to dissolve the joint venture and revert to organizational structures
that existed before the joint venture. The effective date of UCSF Stanford
Health Care’s dissolution was April 1, 2000. “Unwind” agreements
provided for Transferred Employees to return to employment with UC and again be
eligible to participate in the UC Plans. For the Transferred Employees who
participated in the UCSF Stanford Staff Plan, the UC Retirement Plan was to
accept liabilities from the UCSF Stanford Staff Plan by granting the employees
service credit and recognizing compensation (for purposes of determining vesting
and benefit accrual) for their period of employment with UCSF Stanford Health
Care.(3)
Transferred Employees who participated in the UCSF Stanford Retirement Plan
would be allowed to transfer employer contributions to the UC Retirement Plan in
exchange for additional service credits in the UC Retirement Plan.
Transfers to the UC 403(b) Plan would include the Transferred Employees’
elective deferrals and after-tax contributions to the TDA Plan and UCSF Stanford
Retirement Plan, the 5 percent employer contributions to the UCSF Stanford
Retirement Plan for Transferred Employees not electing to receive service credit
under the UC Retirement Plan, and employer matching contributions to the UCSF
Stanford Retirement Plan. These actions would add approximately 1,800
covered participants to the UC Retirement Plan, and the UC 403(b) Plan would
receive transfer accounts for about 4,900 individuals who participated in the
UCSF Stanford Retirement Plan and TDA Plan.
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ERISA § 4(b)(1) provides that Title I of ERISA does not apply to an employee
benefit plan that is a “governmental plan” as defined in ERISA § 3(32).
Section 3(32) of ERISA 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.”
The actions you describe UC undertaking involve restoring governmental
employees’ participation rights in governmental plans after they return from
private sector employment, providing governmental employees with service credit
for time spent in such private sector employment, and allowing governmental
employees to transfer their account balances from private sector retirement
plans to plans maintained by UC. In the Department’s view, those
actions, in general, pertain to how a governmental employer decides to provide
benefits to its employees, rather than actions that undermine the governmental
plan status of its benefit programs under Title I of ERISA.
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Based on our assumption that the UC Plans, as now structured and operated, are
“governmental plan[s]” within the meaning of § 3(32) of ERISA, we conclude
that status would not be adversely affected if, under the conditions described
in your request, the UC Plans provide the Transferred Employees with a one-time
vesting and benefit accrual credit for approximately two years of private sector
service with UCSF Stanford Health Care and allow transfer of contributions and
account balances attributable to that period from the UCSF Stanford Plans to the
UC Plans.
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This letter relates solely to the application to the UC Plans of the provisions
of Title I of ERISA. This letter is not determinative of any particular
tax treatment under the Internal Revenue Code or of any status under Title IV of
ERISA. It also is not intended to express any view concerning whether the
proposed actions by the UC Plans meet any applicable requirements of California
law. Further, it is not intended to express any view concerning the
application of Title I to the UCSF Stanford Staff Plan, the UCSF Stanford
Retirement Plan, and the TDA Plan, including whether actions undertaken by those
plans in connection with the “unwind” agreements comply with Title I of
ERISA.
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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 concerning the effect of advisory opinions.
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Sincerely,
John J.
Canary
Chief,
Division of Coverage, Reporting and Disclosure
Office of
Regulations and Interpretations
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Stanford Health Services originally
sponsored the plan, but upon formation of UCSF Stanford Health Care,
sponsorship of the then fully funded plan was transferred to UCSF Stanford
Health Care.
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The Department’s regulations at 29 C.F.R. § 2510.3-2(f) exclude from Title
I coverage certain tax sheltered annuity programs. This opinion is not
intended to express any view concerning the status of the TDA Plan under 29
C.F.R. § 2510.3-2(f).
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It is not expected that any assets
will be transferred from the UCSF Stanford Staff Plan to the UC
Retirement Plan as a result of the “unwind” agreements.
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