Advisory Opinion 1999-02A

Dear Mr. Isley:

This is in response to your correspondence concerning the application of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) to certain plans sponsored by Craven Regional Medical Center, a not-for-profit corporation appointed by the Craven Regional Medical Authority to operate a hospital facility. Specifically, you request an advisory opinion as to whether the Craven Regional Medical Center Money Purchase Pension Plan and Trust, the Craven Regional Medical Center 403(b) Tax-Sheltered Annuity Plan, and the Craven Regional Medical Center Employee Benefit Plan are "governmental plans" within the meaning of ERISA section 3(32).

Your submission includes facts and representations concerning the governing body of Craven County (County), the County's establishment of the Craven Regional Medical Authority (Authority), the Authority's operation of the Craven Regional Medical Center (Medical Center), and the establishment and maintenance of the Plans for the employees of the Medical Center.

In 1962 a nonprofit hospital corporation was created by a group of five individuals under the state Nonprofit Corporation Act, Chapter 55A of the General Statutes of North Carolina.⁽¹⁾ Then known as the Craven County Hospital Corporation, the nonprofit entity was exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. On May 31, 1988, the board of commissioners of Craven County established a hospital authority over the non-profit entity.⁽²⁾ The Craven County Hospital Corporation was renamed the Craven Regional Medical Center. The elected County commissioners appoint members of the Authority's board and can remove members of the Authority's board at will.⁽³⁾ The members of the Authority's board are, pursuant to the Hospital Corporations charter, the same persons who comprise the board of directors of the Medical Center. Articles of Amendment and Restated Charter of Craven County Hospital Corporation, August 16, 1988.

The Authority is described in the North Carolina Hospital Authorities Act as a public body and a body corporate and politic, which provides medical services to County residents. The Authority has the power to issue bonds, subject to the approval of the County commissioners. Articles of Amendment and Restated Charter of Craven County Hospital Corporation, August 16, 1988. The Authority has the power of eminent domain and by statute is exempt from the payment of state and municipal taxes.⁽⁴⁾ Based on the financial accountability criteria established by the Governmental Accounting Standards Board, the Authority is considered to be a component unit of the County for reporting the County's general purpose financial statements.⁽⁵⁾ In addition, pursuant to the Hospital Authorities Act, the Authority is required to submit an annual certified audit to the County commissioners. If the Authority were dissolved, its assets would revert to the County. Craven Regional Medical Authority Financial Report, September 30, 1997.

The Medical Center is a not-for-profit corporation which the Authority appointed as its agent to operate a hospital facility under an agreement dated March 17, 1988 pursuant to N.C. Gen. Stat. § 131E-23(b). The charter for the Medical Center provides that its purposes are to operate hospitals and clinics for the care and treatment of persons suffering from illnesses or disabilities; to carry on any educational activities related to the health and general welfare of the community; to carry on scientific research; and to provide hospital, medical and nursing care to all persons who are unable to pay for such care. Article III, Articles of Amendment and Restated Charter of Craven County Hospital Corporation. You represented that day-to-day control of the Medical Center is exercised by the president and by the officers who are appointed by the Authority, subject to the direction of the Authority. The Authority's oversight over the Medical Center is set forth in an organizational policy document which describes the duties and powers delegated by the Authority to the Medical Center's chief executive officer (CEO). Specifically, there are four levels of delegation of functions by the Authority to the CEO: certain actions require the Authority's prior approval, such as expenditures exceeding a specified amount, granting medical staff privileges, and appointment of officers; others require giving prior notice to the Authority; others require written notice to the Authority within a specified time after the action; and specified actions may be carried out by the CEO without notifying the Authority. The Medical Center submits copies of its financial statements on a monthly basis to the County Finance Director. The Authority leases its facility to the Medical Center. If the Medical Center were dissolved, its assets would be paid over to the Authority for the operation of other hospitals, but grants from private foundations would be distributed to non-governmental, not-for-profit corporations, pursuant to Article III of the Medical Center's charter. The Authority and Medical Center comply with the state open meetings law. N.C. Gen. Stat. § 143-318.9.18. You represented that the Medical Center has never been determined to be a private entity under any law.

The Medical Center receives no funding from the County; its revenues are primarily from patient services.⁽⁶⁾ The Medical Center is exempt from federal income taxes pursuant to section 501(c)(3) of the Internal Revenue Code and as a 501(c)(3) organization receives gifts and endowments. The Internal Revenue Service ruling in 1965 with respect to 501(c)(3) status was issued to the Hospital Corporation, as the Medical Center was then known. You represented that based on such IRS ruling, the Medical Center is also exempt from state and city taxes. You also represented that employees of the Medical Center are exempt from federal unemployment taxes, based on a 1973 IRS ruling that the Hospital Corporation was a wholly owned instrumentality of a political subdivision of North Carolina, and exempt from state unemployment taxes, based on a 1973 ruling of the state Employment Security Commission that the Hospital Corporation was an instrumentality of a political subdivision. The Medical Center has elected to pay social security taxes on behalf of employees. The sales taxes paid by the Medical Center on purchases are refunded semi-annually by the North Carolina Sales Tax Division. The Medical Center, like the County, provides workers compensation through a self-funded risk financing pool.

The Medical Center sponsors three plans: the Craven Regional Medical Center Money Purchase Pension Plan and Trust, effective October 1, 1974, to which the Medical Center contributes 10 percent of compensation; the Craven Regional Medical Center 403(b) Tax- Sheltered Annuity Plan, effective October 1, 1983 to which the Medical Center and employees contribute; and the Craven Regional Medical Center Employee Benefit Plan effective October 1, 1983 covering group health care, group dental, and group life insurance, including accidental death and dismemberment and short term disability. The Medical Center employs about 1,369 full-time employees. There are 659 participants in the Money Purchase Pension Plan, 767 participants in the 403(b) Tax-Sheltered Annuity Plan, and 1,000 or more participants in the Employee Benefit Plan, as follows: 1,195 under health coverage, 1,000 under dental coverage and 1,166 under life insurance coverage). All participants in each Plan are employees or retirees of the Medical Center or their dependents.

Section 4(b)(1) excludes from coverage under Title I of ERISA any plan that is a "governmental plan," and section 3(32) 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."

In view of the foregoing representations, it is the view of the Department of Labor that the Authority and the Medical Center are governmental agencies or instrumentalities within the meaning of section 3(32) of ERISA and that the Craven Regional Medical Center Money Purchase Pension Plan and Trust, Craven Regional Medical Center 403(b) Tax-Sheltered Annuity Plan, and Craven Regional Medical Center Employee Benefit Plan are governmental plans excluded by ERISA section 4(b)(1) from coverage under Title I.⁽⁷⁾

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Section 10 of the Procedure explains the effect of advisory opinions. This letter 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.