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Dear Ms. League:
This is in reply to your request for an advisory
opinion regarding the applicability of Title I of the Employee Retirement
Income Security Act of 1974 (ERISA). Specifically, you ask whether certain
employee benefit programs of the Federal Reserve System are excluded from
the requirements of Title I under section 4(b)(1) of ERISA as “governmental
plan[s]” within the meaning of section 3(32) of ERISA.(1)
Your correspondence and the materials supplied in
support of your inquiry contain the following facts and representations.
The Federal Reserve System (Federal Reserve or System), our nation’s
central bank, was created by the Federal Reserve Act of 1913 “to provide
for the establishment of Federal reserve banks, to furnish an elastic
currency, to afford means of rediscounting commercial paper, to establish
a more effective supervision of banking in the United States, and for
other purposes.” Federal Reserve Act, Ch. 6, 38 Stat. 251 (1913). The
System’s central banking responsibilities include: conducting the
nation's monetary policy; supervising and regulating banking institutions
and protecting the credit rights of consumers; maintaining the stability
of the financial system; and providing certain financial services to the
U.S. government, the public, financial institutions, and foreign official
institutions. The System’s budget is not subject to the approval of
Congress. Unlike many federal government agencies whose operations are
funded through the congressional appropriations process, the operations
and other expenses of the Federal Reserve System are deducted from its
revenues and any remaining amount is transferred to the U.S. Department of
the Treasury.
The Federal Reserve System is composed principally of
the Board of Governors of the Federal Reserve System (Board of Governors
or Board) and twelve regional Federal Reserve Banks. The Board of
Governors is comprised of seven members appointed by the President of the
United States and confirmed by the United States Senate. The Federal
Reserve Banks (Reserve Banks) are structured as twelve federally chartered
corporations located in regions of the country denominated Federal Reserve
districts.
The Board’s primary functions include formulating the
nation’s monetary policy and overseeing the operations of the Reserve
Banks. The Board has the power to promulgate and enforce federal banking
regulations and assess related civil penalties that are payable to the
United States. The Board is financed by a levy on the Reserve Banks. The
Board is required to submit annual reports to Congress regarding Board
operations and must publish weekly reports concerning the condition of the
Reserve Banks. The Board must order an annual independent audit of the
financial statements of each Reserve Bank and the Board. The Board’s
financial accounts are also subject to audit by the U.S. Government
Accountability Office.
The Reserve Banks are structured as self-supporting
corporations that act as operating arms of the System. Their primary
functions include administering nationwide banking and credit policies,
serving as a banker for the U.S. Treasury, distributing the nation’s
currency and coin, operating a nationwide payments system, and supervising
and regulating member banks and bank holding companies. The Reserve Banks
are wholly owned by private-sector commercial banks (which, as members of
the Federal Reserve, are known as member banks). In terms of assets and
personnel, most of the Federal Reserve System is in the Reserve Banks.
Virtually all of the System’s assets, liabilities, revenues, and
expenses are carried on the books of the Reserve Banks, and approximately
95 percent of the over 25,000 employees of the System are employed by the
Reserve Banks.
You represent that the Federal Reserve’s part-public,
part-private composition evolved from efforts to ensure our central bank’s
balanced consideration of public and private interests at national and
regional levels. Further, although the Reserve Banks are privately owned
corporations, they differ from private sector entities in important ways.
The Federal Reserve Act gives a nine-member board of directors at each of
the Reserve Banks powers of supervision and control over the Reserve Bank,
but it also grants the Federal Reserve Board of Governors the power to
exercise oversight authority and general supervision over the management,
operations and activities of the Reserve Banks. Member banks in each
district elect three directors, who represent member banks, and three
directors, who represent the public, but the Federal Reserve Board of
Governors appoints three directors, including the chairman and deputy
chairman of each board, who also represent the public. Thus, of each
Reserve Bank’s nine directors, only three are designated by the Act to
represent the interests of the stockholding member banks. The other six
are designated by the Act to represent the public interest. Also, the
Federal Reserve has the power to approve top-level Reserve Bank employees
(including Bank presidents) and their salaries, suspend or remove any
Reserve Bank officer or director, and approve the annual budgets of the
Reserve Banks.
In addition, Reserve Banks differ fundamentally from
private corporations. The ownership of all stock of the Reserve Banks does
not confer on member banks the typical attributes of private sector
control and financial interest. The issuance of Reserve Bank stock is made
pursuant to federal law and may be held only by member banks of the
Reserve Bank’s respective district. Member banks are required to
purchase a statutorily determined amount of Reserve Bank stock as a
condition for membership. Stockholders do not exercise control over the
Reserve Bank and Reserve Bank stock may not be sold or publicly traded on
a stock exchange. Member banks may receive dividends on Federal Reserve
stock, but these dividends are set by federal law. Reserve Bank profits,
if any, are paid to the U.S. Treasury after funding the operations of the
Board and dividend payments.
Your request concerns twelve employee benefit plans
through which the System provides pension, medical and other welfare
benefits to eligible employees and their beneficiaries. All eligible
employees (and their beneficiaries) of the System may participate in nine
of these plans, but only Reserve Bank employees (and their beneficiaries)
may participate in the other three plans.(2)
You represent that the primary reason for this distinction is that the
Board and its employees are eligible to participate in the Federal
Employee Health Benefits Program (FEHB Program), but employees of the
Reserve Banks are not. None of the System plans permit participation by
non-System employees. The System plans are funded either entirely by
employer contributions or by a combination of employer and employee
contributions, except for the Personal Accident Insurance Plan, Group
Universal Life Insurance Plan, and Long Term Care Insurance Plan which are
described as “Voluntary Employee Pay All Plans.”
The System established a Committee on Plan
Administration (Committee) and conferred substantial authority on the
Committee to administer the twelve System plans that are the subject of
this letter. The Committee consists of five members. The Federal Reserve
Board of Governors appoints two members from its membership. The
presidents of the Reserve Banks collectively appoint the other three
members of the Committee. The Committee has authority to adopt policies
and procedures necessary for the administration of the System plans. Under
that authority, the Committee delegated many of its administrative
functions to the Office of Employee Benefits of the Federal Reserve
Employee Benefits System, which is responsible for carrying out the
day-to-day affairs of the System plans on behalf of the Committee.
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 “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 terms “political subdivision,” “agency,”
and “instrumentality” are not defined in ERISA, and no regulations
issued pursuant to ERISA interpret those terms. Accordingly, whether an
entity is a political subdivision, agency or instrumentality of government
for purposes of ERISA section 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.
In Advisory Opinion 96-07A, the Department concluded
that a Federal Home Loan Bank plan was a governmental plan within the
meaning of ERISA section 3(32) excluded from Title I coverage. The
Department noted the Bank was a “mixed ownership Government corporation”
over which the U.S. Government exerts substantial, although not total,
control, including selection of its Board members, approval of its
finances and operations, and control over the continuance of its
existence. In finding the Bank to be an “entity described in section
3(32) of Title I of ERISA - i.e., an agency or instrumentality of the
Government of the United States,” the Department concluded that the “degree
of governmental involvement in the operation of the Bank cannot be
considered merely regulatory, even in such a highly regulated trade or
industry as banking.”
You represent that various federal courts have
determined that the Federal Reserve Board is an agency or instrumentality
of the United States Government for purposes of other federal laws. See,
e.g., Szumny v. American General Finance, 246 F.3d 1065, 1069 (7th
Cir. 2001) (“Because the Federal Reserve Board is the agency charged
with [the Truth In Lending Act’s] administration, we accord its
regulation deference.”); Research Triangle Institute v. Board of
Governors of the Federal Reserve System, 132 F. 3d 985, 989 (4th
Cir. 1997) (doctrine of sovereign immunity as applied to Federal Reserve
Board). Federal courts have also determined the Reserve Banks to be
agencies or instrumentalities of the United States Government, but their
part-public, part-private composition has resulted in some courts finding
the Reserve Banks to be non-governmental entities under the specific
terminology used in certain federal statutes. Compare Brink’s, Inc.
v. Board of Governors of the Federal Reserve System, 466 F.Supp. 116 (D.D.C.
1979) (Reserve Bank a government instrumentality for purposes of the
Service Contract Act) and 2 U.S. Op. Off. Legal Counsel 211 (1978) with
Katsiavelos v. Federal Reserve Bank of Chicago, 859 F. Supp. 1183
(N.D. Ill. 1994) (Reserve Bank not “executive agency” subject to the
Rehabilitation Act of 1973). See also Federal Reserve Bank of St. Louis
v. Metrocentre Improvement District No. 1, 657 F.2d 183 (8th
Cir. 1981), judgment aff'd without opinion, 455 U.S. 995 (1982)
(status of Reserve Bank as a federal instrumentality with immunity from
state and local taxation determined by different test than federal agency
status under Federal Tort Claims Act); In Re Hoag Ranches, 846 F.2d
1225, 1227 (9th Cir.1988) (“Many financial institutions are
federally chartered and regulated and are considered federal
instrumentalities, without attaining the status of government agencies
within the meaning of federal procedural rules.”); Scott v. Federal
Reserve Bank of Kansas City, 406 F.3d 532 (8th Cir. 2005), cert.
denied, 126 S. Ct. 1433 (2006).
Several Federal Reserve plans have been determined to
be “governmental plans” for purposes of ERISA, the Code, and other
federal laws. You submitted a copy of a letter dated March 23, 1976, in
which the IRS, with the concurrence of the Department, concluded that
certain tax qualified deferred compensation plans maintained by the
Federal Reserve System were “governmental plan[s]” within the meaning
of section 414(d) of the Code. In addition, you provided copies of more
recent IRS determinations finding various retirement plans of the Federal
Reserve System to be “exempt governmental deferred compensation plan[s]”
within the meaning of section 3121(v)(3) of the Code. Similarly, the
Pension Benefit Guaranty Corporation, by letter dated October 2, 2001,
concluded that the Retirement Plan for Employees of the Federal Reserve
System was a “governmental plan” for purposes of section 4021(b)(2) of
Title IV of ERISA. You also noted that the “Federal Reserve Employees
Retirement Plans” were designated “government pension plan[s]” under
the Government Pension Plan Protection Act. See 31 U.S.C. § 9502.
Finally, the U.S. District Court in Berini v. Federal Reserve Bank of
St. Louis, 420 F. Supp. 2d 1021 (E.D. Mo. 2005), held that the Reserve
Bank of St. Louis was an “instrumentality” of the Government of the
United States within the meaning of ERISA section 3(32) and that Federal
Reserve System plans covering the Bank’s employees were governmental
plans exempt from Title I under section 4(b)(1) of ERISA.
Based on the above and your representations, it is the
position of the Department that the Federal Reserve System is an agency or
instrumentality of the Government of the United States for purposes of
section 3(32) of ERISA. We also assume based on your representations that
the twelve employee benefit plans that are the subject of your request
were established and are maintained by the System and that the plans cover
only System employees. Accordingly, it is the opinion of the Department,
based on the information you submitted, that the twelve employee benefit
plans that are the subject of your request are “governmental plan[s]”
within the meaning of section 3(32) of ERISA that are excluded from
coverage under Title I by section 4(b)(1) of ERISA.
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 Title
I of ERISA to the plans that are the subject of your request and is not
determinative of any particular tax treatment under the Code. You have not
asked for an opinion on, and this letter should not be read as expressing
any opinion with respect to, the governmental plan status under ERISA of
any employee benefit plan separately maintained by a Federal Reserve Bank.
This letter also should not be read as expressing any opinion on the
status of the Board or the Reserve Banks as agencies or instrumentalities
of government for purposes of any other law.
Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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The plans that are the subject of
your request are: (1) Retirement Plan for Employees of the Federal
Reserve System; (2) Thrift Plan for Employees of the Federal Reserve
System; (3) Retirement Plan for Employees of the Federal Reserve
System Benefits Equalization Plan; (4) Thrift Plan for Employees of
the Federal Reserve System Benefits Equalization Plan; (5) Long Term
Disability Income Plan for Employees of the Federal Reserve System;
(6) Life and Survivor Income Insurance Plan for Employees of the
Federal Reserve System; (7) Personal Accident Insurance Plan for
Employees of the Federal Reserve System; (8) Group Universal Life
Insurance Plan for Employees of the Federal Reserve System; (9) Long
Term Care Insurance Plan for Employees of the Federal Reserve System;
(10) Business Travel Accident Insurance Plan for Employees of the
Federal Reserve Banks; (11) Supplemental Retirement Plan for Selected
Officers of the Federal Reserve Banks; and (12) Health Benefits
Program for the Federal Reserve Banks.
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The plans that are the subject of
this letter are listed in footnote. 1, supra. The three plans
in which only Reserve Bank employees may participate are: (1) Business
Travel Accident Insurance Plan for Employees of the Federal Reserve
Banks; (2) Supplemental Retirement Plan for Selected Officers of the
Federal Reserve Banks; and (3) Health Benefits Program for the Federal
Reserve Banks.
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