Advisory Opinion 1999-15A

Dear Mr. Pizer:

This responds to your request for an advisory opinion concerning the applicability of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) to the East Islip Teachers' Association, Local 2618, AFT Welfare Trust Fund (hereinafter, the Fund). The Fund provides welfare benefits to active employees of the East Islip Union Free School District No. 3 (hereinafter, the School District), to individuals retired from employment with the School District,⁽¹⁾ and to one individual employed by the Fund itself. Based on these and other representations and on documents that you submitted, you request an opinion concluding that the Fund is a "governmental plan," as defined in ERISA 3(32) and, thus, that it is excluded from ERISA Title I coverage by § 4(b)(1).

You advise that the School District has signed an agreement with the East Islip Teachers' Association, Local 2618, American Federation of Teachers, AFL-CIO (hereinafter, the Local Union), to contribute to the Fund on behalf of eligible, active School District employees. You further state that the Local Union operates pursuant to a constitution and bylaws that provide for active members to elect Local Union officers, including the officers who serve on the Local Union's executive board,⁽²⁾ and that the Local Union represents both teachers and certain other School District employees in collective bargaining. Moreover, the School District has recognized the Local Union as the exclusive bargaining agent for its employees who are teachers, nurses, clerical workers, and paraprofessionals, including aides for monitoring, instructional, clerical, and health duties.

According to the collective bargaining agreement between the School District and the Local Union, the Fund was established in 1975 to provide health and other welfare benefits to supplement the benefits that are unilaterally provided by the School District to its employees. The Fund operates under a Trust Agreement administered by four trustees appointed by the executive board of the Local Union. The Agreement also provides that neither the terms of the Trust nor any amendment to the Trust may be inconsistent with collective bargaining agreements in effect between the Local Union and the School District.⁽³⁾ The Fund is currently required by collective bargaining agreement to furnish its current annual audit to the School District's superintendent of schools. In addition, at the School District's request through the New York Public Employment Relations Board, a certified public accountant recently audited the Fund and provided the School District with the results.

The Fund currently has a total of 677 participants: 520 active School District employees who are represented by the Local Union in collective bargaining; 150 retired School District employees; six clerical employees of the School District who, because they are "confidential" staff of the School District's superintendent, are ineligible for Local Union membership; and one employee of the Fund. The Fund provides different benefits for actively employed School District employees in different job classifications; among the benefits provided are life insurance; accidental death and dismemberment insurance; excess major medical benefits; excess dental benefits; legal services benefits; vision benefits; co-pay and deductible reimbursement; and funeral benefits.⁽⁴⁾ Retired School District employees may elect to receive only legal services benefits, major medical benefits, and life insurance.⁽⁵⁾

The School District contributes an average of approximately $1,200 on behalf of each participating teacher and secretary and an average of approximately $1,000 on behalf of each paraprofessional, for a total of $748,000 in contributions during the 1997-98 fiscal year (a year in which the Fund's revenues from all contributions totaled $762,680).⁽⁶⁾ Retirees' contributions for the 1997-98 fiscal year averaged about $94 each. The single Fund employee participant pays $555 for the 1997-98 fiscal year in order to participate in the Fund.⁽⁷⁾

You represent that, until recently, the Fund had taken the position generally that it was covered by Title I of ERISA and has submitted annual reports pursuant to ERISA Title I filing requirements, but the Fund now asserts that it is not covered by Title I because it constitutes a governmental plan within the meaning of ERISA § 3(32).

Section 3(32) of ERISA defines a "government plan" as "a plan established and 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 term "governmental plan" also includes a plan administered by an "employee organization," within the meaning of ERISA § 3(4), that provides benefits exclusively to employees of a political subdivision, agency, or instrumentality of local government who are also the only members of the employee organization, provided that the plan is funded exclusively by the government and by the government's employees who are members of the sponsoring employee organization.⁽⁸⁾

We note that the Fund covers, in addition to the employee-members of the Local Union, one non-governmental employee (i.e., the one employee of the Fund who also participates in Fund benefits). It is our view that inclusion of this one individual is not sufficient to alter the nature of the plan as a governmental plan. It would not be consonant with the intended scope and purpose of the "governmental plan" exception to treat the Fund as failing to fall within the exception in ERISA § 4(b)(1) because of the participation of one Fund employee, particularly inasmuch as the activities of that employee on which participation is based relate exclusively to conducting the affairs of the Fund. 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. Based on your representations concerning current operations of the Local Union, the School District, and the Fund, it is the Department's view, therefore, that the Fund constitutes a "governmental plan" within the meaning of ERISA § 3(32) that is excluded from ERISA Title I coverage by ERISA § 4(b)(1).⁽⁹⁾

In closing, in view of the Fund's prior position on being covered by Title I of ERISA, we believe it is important that participants and beneficiaries covered under the Fund are furnished with a written notice and explanation informing them of the Fund's current position that it is an excluded governmental plan and advising them that any information they have received about rights under Title I of ERISA no longer applies. It is our understanding from you that the Fund will be furnishing such a disclosure.

This letter constitutes an advisory opinion. It is issued under ERISA Procedure 76-1, including section 10 thereof, concerning the effect of issuing advisory opinions. This letter relates solely to the application of provisions of Title I of ERISA and is not determinative of any particular tax treatment under the Internal Revenue Code.