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Mr. Vincenzo Oliveto
68 Kenwood Drive
Bohemia, New York 11716-1316
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2000-11A
ERISA Sec. 3(32)
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Dear Mr. Oliveto:
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This responds to your request for an advisory opinion concerning the status
of the Firefighters’ Variable Supplements Fund (VS Fund) under Title I of
the Employee Retirement Income Security Act of 1974, as amended (ERISA). As
discussed below, we conclude that the VS Fund is a “governmental plan”
within the meaning of section 3(32) of ERISA, and, therefore, is excluded
from ERISA Title I coverage pursuant to section 4(b)(1) of ERISA.
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The following is a summary of the facts as we understand them from the
information and various materials furnished with your request. The VS Fund
originated from collective bargaining in 1968 between the City of New York
(City) and the Uniformed Firefighter’s Association (UFA). The City and the
UFA agreed in those negotiations to provide supplemental income to retired
New York City firefighters from funds that were to be raised by investing a
portion of the Fire Department Pension Fund (Pension Fund) in equities
rather than fixed income securities.(1) The
Pension Fund was at that time, and has continued to be, a defined benefit
pension plan that provides retirement benefits for City firefighters.
Covered employees contribute a fixed amount of pay to the Pension Fund and
the City is responsible for funding the remaining benefit cost, which
appears to constitute the major portion of the Pension Fund’s financing.
It appears that no one has contested, and we assume for purposes of this
opinion, that the Pension Fund is a “governmental plan” within the
meaning of section 3(32) of ERISA.
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Institution of the supplemental income payments required implementing
legislation which the New York State legislature enacted in 1970. Under that
legislation, as described in documents you submitted,(2)
the VS Fund was created as a trust fund to be administered by a board of
trustees comprised of a representative of the Mayor of the City, the City
Comptroller, and two representatives of the UFA. Acts of the board of
trustees were to be adopted by the votes of at least three board members,
except that deadlocks were to be resolved by arbitration. The statutory
provisions defined the permissible class of retired firefighters who would
be eligible to receive VS Fund payments(3)
and vested the trustees with discretion to determine the “form, amount,
and cases” in which payments would be made, “giving consideration to
equity, fairness, and principles of prudent management.” Benefits were to
be paid from amounts, if any, made available under a prescribed formula
based on investments of the Pension Fund in equities. In general, the
formula determined the amount by which the return on the portion of the
Pension Fund invested in equities, including offset of losses against gains
on a cumulative basis, exceeded the hypothetical return that such portion
would have earned had it been invested in fixed income securities. Such
“excess” equity earnings in each year would be transferred from the
Pension Fund to the VS Fund for distribution to VS Fund beneficiaries. The
statutory provisions also specified that the trustees were not to make any
benefit payments unless a plan “setting forth the basis and amounts of
such payments and the qualifications for receipt thereof” was filed with
the Superintendent of Insurance and approved by him or her as being
consistent with the statutory provisions relating to the VS Fund.
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The legislature amended the VS Fund statutory provisions in 1989, as a
result of collective bargaining, to effect certain changes in the VS
Fund’s benefit structure, funding, and administration. In particular, as
to the benefit structure, the scheme of conditioning supplemental payments
to participants on the availability of investment earnings from the Pension
Fund and on the discretion of the trustees and approval of the
Superintendent of Insurance, was replaced with a statutory schedule of
annual benefit payments that increase each year to the year 2007 and then
level off. As to funding, a cap was placed on annual transfers of money from
the Pension Fund to the VS Fund to limit such transfers to the amount of the
VS Fund’s unfunded accrued liability, and the City guaranteed the VS
Fund’s benefit obligation. Regarding the VS Fund’s administration, the
amendments designated the City Commissioner of Finance as a fifth member of
the board of trustees and required that acts of the board be adopted by at
least a three-fifths vote of board members. The 1989 legislation also
directed that a portion of the VS Fund’s assets be transferred to the
City.
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Title I of ERISA covers employee pension benefit plans
and employee welfare benefit plans. In general, a covered “employee
pension benefit plan” (or “pension plan”) includes, subject to
certain exceptions, any plan, fund, or program established or maintained
by an employer or by an employee organization, or by both, to provide
retirement income to employees. Section 4(b)(1) of Title I of ERISA
excludes governmental plans from coverage. The term “governmental
plan” is defined in section 3(32) to include “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.(4)
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The information before the Department of Labor (Department) in this case
indicates that the VS Fund has, at all times relevant to ERISA Title I
coverage, been a “governmental plan” within the meaning of section 3(32)
of ERISA. It has been the view of the Department that the term
“governmental plan” as defined in section 3(32) is not limited to plans
established by the unilateral action of employers that are governmental
agencies. In this regard, the Department has interpreted the term
"governmental plan" to include plans established or maintained
pursuant to a collective bargaining agreement between a governmental entity
and a labor union where such plans are funded by, and cover only employees
of, governmental entities. In the instant case, as indicated above, the VS
Fund is the product of collective bargaining between the UFA and the City
and has limited its coverage to employees of the City. The VS Fund’s
creation and continued existence have been dependent on legislation enacted
by the New York State legislature, and the VS Fund’s basic features have
been embodied in such legislation. Further, the City has participated in the
VS Fund’s administration through, among other things, its representation
on the VS Fund’s board of trustees. Although the City has not made direct
contributions to the VS Fund, the VS Fund receives the monies it uses to pay
its benefits from the Pension Fund through statutorily mandated asset
transfers, and the status of the Pension Fund as a governmental plan
established and maintained by the City is uncontested. Under these
circumstances, the fact that employees have contributed to the Pension Fund
does not, in the Department’s view, negate a conclusion that the variable
benefits made available under the VS Fund through 1988 were funded by the
City for purposes of the VS Fund being treated as a governmental plan under
Title I of ERISA. The City also has guaranteed the VS Fund’s fixed benefit
payments that were adopted under the 1989 amendments.
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Based on the foregoing, it is the view of the Department that the VS Fund is
a “governmental plan” within the meaning of section 3(32) of ERISA, and,
therefore, is excluded from ERISA Title I coverage pursuant to 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 opinion 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 & Disclosure
Office of Regulations and Interpretations
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Similar arrangements for
supplemental income payments were negotiated at various times by the
City and unions representing other classes of City employees such as
fire officers and certain employees of the City Police Department.
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Your submission did not include a
complete copy of the statutory provisions as originally enacted. The
current statutory provisions relating to the VS Fund are contained in
the Administrative Code of the City of New York, §§ 13-335 to
-335.1, 13-382 to -391.1.
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Although the eligibility provisions
have been amended several times, VS Fund benefits have always been
limited to persons who are retired employees of the City Fire
Department.
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Although the VS Fund was established
and has been maintained through the joint efforts of the UFA and the
City to provide payments to certain retired City employees that
supplement the benefits they receive under the Pension Fund, the
legislative materials you submitted indicate that, for purposes of New
York state law, section 13-383 of the Administrative Code of the City
of New York states that “[i]t is hereby declared by the legislature
that the firefighters’ variable supplements fund shall not be, and
shall not be construed to constitute, a pension or retirement system
or fund, and that it shall function as a means whereby payments, not
constituting a pension or retirement allowance, shall be made . . . as
a supplement to benefits received [under the Pension Fund].” We do
not believe this characterization of the VS Fund by the New York
legislature for state law purposes is material to our determination
that the VS Fund is a “governmental plan” under Title I of ERISA.
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