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2004-01A
ERISA Sec. 3(32)
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Albert L. Goldman, Esq.
Angoff, Goldman, Manning, Wanger & Hynes, PC
24 School Street - 3rd Floor
Boston, MA 02108
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Dear Mr. Goldman:
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This is a consolidated response to your requests for
advisory opinions concerning the applicability of Title I of the Employee
Retirement Income Security Act of 1974, as amended, (ERISA) to the Boston
Teachers Union Health and Welfare Fund (Health Fund), the Boston Teachers
Union Prepaid Legal Services Fund (Legal Fund), and the Boston Teachers
Union Paraprofessional Health and Welfare Fund (Paraprofessional Fund).
You asked whether the Health Fund, Legal Fund, and Paraprofessional Fund
(collectively, Funds), are “governmental plan[s],” as defined in ERISA
§ 3(32), and, therefore, excluded from Title I coverage by § 4(b)(1) of
ERISA.
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In the course of your inquiry, you provided us with the following facts and
representations. The City of Boston, through the School Committee of Boston
(School Committee), employs classroom teachers and teacher paraprofessionals
in the City of Boston Public Schools. The School Committee is comprised of
seven members who are all appointed by the Mayor of the City of Boston.(1)
The Boston Teachers Union, Local 66, AFT, AFL-CIO (Union) is the exclusive
collective bargaining agent for a unit comprised of classroom teachers and
other employees (e.g., nurses) employed by the School Committee in the
Boston Public Schools, and a separate unit covering teacher
paraprofessionals.
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With regard to the Health Fund, the School Committee and the Union entered
into a bargaining agreement in 1968, pursuant to which the Health Fund was
established under an Agreement and Declaration of Trust (Health Trust
Agreement). The Health Fund’s purpose is to provide hospitalization
benefits, surgical benefits, dental benefits, and other health and welfare
benefits to “covered teachers” and their eligible dependents. The term
“covered teacher” includes classroom teachers and other persons employed
by the School Committee for whom the School Committee is required to make
contributions to the Health Fund, employees of the Health Fund, and elected
officers and full-time employees of the Union. According to the current
collective bargaining agreement, the School Committee must make a fixed
dollar contribution on behalf of each of its employees covered by the Health
Fund. The Union makes the same dollar contribution on behalf of its
participating officers and employees and participating employees of the
Health Fund. Participants and their eligible dependents make no
contributions unless they become eligible for and elect to receive COBRA
continuation coverage.
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Under the Health Trust Agreement, the Health Fund is
administered by a board of trustees consisting of up to three persons
appointed by the School Committee and up to five persons appointed by the
Union. You indicated that the Union has appointed five trustees. The
School Committee has not at this time selected any persons to serve as
trustees of the Health Fund. Under the Health Trust Agreement, four
trustees are necessary to constitute a quorum. The Health Trust Agreement
requires the trustees to provide various reports to the Union and the
School Committee on an ongoing basis. There are approximately 5800 City of
Boston Public School employees covered by the Health Fund. The Health Fund
also covers seven officers and five clerical employees of the Union, and
fifteen employees of the Health Fund.
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You represent that the Health Fund’s trustees established the Legal Fund
in 1981 pursuant to a broad grant of authority in the Health Trust Agreement
that permits the Health Fund trustees to provide “other health and welfare
benefits as [they] may deem appropriate.” The Legal Fund provides prepaid
legal service benefits to the Health Fund’s participants. You indicated
that the Health Fund trustees entered into an Agreement and Declaration of
Trust (Legal Trust Agreement) to provide these benefits based on advice that
§ 120 and § 501(c)(20) of the Internal Revenue Code (Code) required that a
separate trust be established to treat the Legal Fund as exempt from federal
income tax and to exclude the value of employer contributions and legal
services provided from the gross income of participants.(2)
According to the Legal Trust Agreement, the trustees of the Legal Fund
consist of three persons appointed by the Union, and the Union may, at any
time, remove a trustee with or without cause. The Legal Trust Agreement
provides that the powers and duties of the trustees shall be exercised at
all times consistent with the provisions of any collective bargaining
agreement or health and welfare agreement between the Union and the School
Committee. The Legal Fund has no employees and relies on Health Fund
employees to perform administrative functions and otherwise run the Legal
Fund operations. The Legal Trust Agreement requires that the Legal Fund
trustees provide various reports to the Union and the Health Fund on an
ongoing basis. A written instrument signed by a majority of the Health Fund
trustees and Legal Fund trustees may amend the Legal Trust Agreement, and
the Legal Trust Agreement provides that the Legal Fund shall be terminated
upon the termination of participation of the School Committee. The Trust
Agreement also provides that the funding for the Legal Fund will solely be
contributions made by the Health Fund trustees from contributions the School
Committee makes to the Health Fund. Currently, approximately 16% of the
School Committee’s contributions to the Health Fund are sent to the Legal
Fund.
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With regard to the Paraprofessional Fund, the School Committee and the Union
entered into an Agreement and Declaration of Trust (Paraprofessional Trust
Agreement) in 1984 that provided for the establishment of the
Paraprofessional Fund for the purpose of providing hospitalization benefits,
surgical benefits, dental benefits, and other health and welfare benefits as
the trustees may deem appropriate. Persons eligible to participate are
paraprofessionals employed by the School Committee, certain officials and
full-time employees of the Union, and employees of the Paraprofessional
Fund. The Paraprofessional Trust Agreement provides that the Fund is to be
administered by up to five trustees appointed by the Union and up to three
appointed by the School Committee. You indicated that the Union has
appointed five trustees but the School Committee has not selected any
persons to serve as trustees. The Paraprofessional Trust Agreement defines a
quorum to consist of a majority of the trustees then in office. Pursuant to
the Paraprofessional Trust Agreement, the trustees must report to the Union
and the School Committee on an ongoing basis regarding the operation of the
Fund. The Paraprofessional Fund currently has no employees. Rather,
employees of the Health Fund perform the administrative functions of the
Paraprofessional Fund under a cost sharing formula. The School Committee
makes a fixed dollar contribution to the Paraprofessional Fund on behalf of
the approximately 1470 of its employees covered by this Fund. The Fund
currently only has one additional participant, a person on leave from the
Boston Public Schools while serving as a Union officer, for whom the Union
makes the same fixed dollar contribution. Participants and their eligible
dependents make no contributions to the Paraprofessional Fund unless they
become eligible for and elect to receive COBRA continuation coverage.
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According to your representations, which were confirmed
by a representative of the School Committee, although the School Committee
has not exercised its authority to appoint trustees to the Health and
Paraprofessional Funds, the School Committee agrees that it is maintaining
those Funds jointly with the Union, that it receives regular reports from
those Funds, and continues to agree in collective bargaining to make
contributions to those Funds. The School Committee has also confirmed that
the School Committee was aware of the Health Fund trustees’ establishment
of the Legal Fund pursuant to the broad authority in the Health Trust
Agreement, and that the School Committee agreed to fund the Legal Fund by
contributing to the Health Fund with knowledge that part of its
contributions finance the Legal Fund operations. The School Committee also
acknowledged that the Health Fund trustees provide an annual accounting to
the School Committee of the funds transferred to the Legal Fund, and that it
receives an annual statement directly from the Legal Fund of the monthly and
yearly cost of providing benefits on a per employee basis for income tax
purposes.
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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.”
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The terms “political subdivision,” “agency,”
and “instrumentality,” are not defined in ERISA, nor are there any
regulations under ERISA that interpret those terms. The specific facts and
circumstances of the relationship between the particular entity and the
government must be examined to determine whether the entity is a political
subdivision or agency or instrumentality as required in § 3(32). It is
well established that, in the Department’s view, a public school
district constitutes a governmental agency, instrumentality, or political
subdivision for purposes of § 3(32) of ERISA. See, e.g., Advisory
Opinions 95-15A and 92-10A.
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It is also the position of the Department that the term governmental plan is
not limited to plans established by the unilateral action of employers that
are governmental entities and plans that are within the exclusive control of
governmental entities. See Advisory Opinion 79-36A (June 11, 1979). Rather,
in determining whether a plan is “established or maintained” by a
governmental entity, the Department examines the extent to which the plan is
funded by a governmental entity and the extent to which the governmental
entity is involved in the discretionary administration of the plan. In
Advisory Opinion 97-20A, the Department concluded that a health and welfare
plan maintained pursuant to collective bargaining between a union and a
governmental employer, covering only governmental employees, substantially
funded by the governmental employer, and administered by a board of trustees
appointed entirely by the union, was a governmental plan within the meaning
of § 3(32) of ERISA. Further, the Department has previously concluded that
participation by a de minimis number of private sector employees will not
adversely affect a plan's status as a governmental plan. However, if a
benefit arrangement is extended to cover more than a de minimis number of
private sector employees, the Department may not consider it a governmental
plan under Title I of ERISA.
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Based on your representations and the other information
you provided, it appears that the Health Fund and Paraprofessional Fund were
established and are maintained pursuant to collective bargaining between the
School Committee and the Union. The School Committee has the authority to
substantially participate in the discretionary administration of the Health
Fund and Paraprofessional Fund by reason of its power to appoint three
trustees to the board of trustees of each Fund. Although the Legal Fund was
created by the Health Fund trustees without direct involvement by the School
Committee, and the Union has the exclusive power to appoint and remove the
trustees of the Legal Fund, the School Committee authorized the Health Fund
trustees’ establishment of the Legal Fund and continues to ratify its
ongoing maintenance. Further, the School Committee provides substantially
all of the funding for all three Funds. The School Committee also receives
periodic reports on each Fund’s financial condition and operations.
Finally, all of the participants in the Funds are governmental employees of
the School Committee, except for a de minimis number of Fund employees and
officers and employees of the Union. Accordingly, it is the view of the
Department that the Health Fund, Legal Fund, and Paraprofessional Fund each
constitutes a “governmental plan” within the meaning of ERISA § 3(32)
that is excluded from ERISA Title I coverage by ERISA § 4(b)(1).
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This letter constitutes an advisory opinion under ERISA Procedure 76-1, and
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, is not
determinative of any particular tax treatment under the Internal Revenue
Code, and does not express any view on whether the maintenance or
administration of the Funds meets any applicable requirements of state or
local law.
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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 appointed School Committee
replaced a 13-member elected committee in January 1992, as a result of
a 1991 referendum.
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Section 120(e) of the Code provides
that § 120 and § 501(c)(20) shall not apply to taxable years after
June 30, 1992. You indicated that the Legal Fund, nonetheless, has
continued to operate as a separate trust under Code § 501(c)(9). We
understand that the Paraprofessional Fund has directly provided
prepaid legal services as a benefit to its participants since November
of 1995.
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