Advisory Opinion 2001-08A

Dear Ms. Tyner:

This is in response to your request for an advisory opinion concerning the applicability of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), to certain employee benefit plans jointly sponsored by the Spartanburg Water System (SWS) and the Spartanburg Sanitary Sewer District (SSSD). The plans subject to your request are a long-term disability plan, a short-term disability plan, and a group health and dental plan (collectively, the plans). You request an advisory opinion concluding that the plans are governmental plan[s] within the meaning of section 3(32) of ERISA, and, therefore, excluded from Title I coverage by section 4(b)(1) of ERISA.

Your request and related correspondence contain the following facts and representations. The SWS was created by the City of Spartanburg pursuant to 1896 S.C. Act 39 (Act 39), which authorizes cities and towns in South Carolina to construct and operate waterworks systems and set payment rates for the provision of clean water. Act 39 provides that the City of Spartanburg Board of Commissioners of Public Works (Spartanburg Board or SWS Board) is the governing body of the SWS and, as such, is vested with the power to build or contract for the building of a waterworks system and manage and control the systems operation. The Spartanburg Board is comprised of three members who are elected in accordance with the provisions of Act 39 by the voters of the City of Spartanburg. The SWS is exempt from federal and state taxation (except the obligation to pay sales tax) and is considered to be a public body under the South Carolina Freedom of Information Act. To finance the cost of the SWS purchasing or constructing a waterworks system, Act 39 authorizes the city to issue bonds after approval by registered electors; assess, levy and collect annual tax from the taxable property within the city; and exercise the power of eminent domain.

The SSSD was created by the South Carolina Legislature through 1970 S.C. Act 1503 (Act 1503), to construct, operate, maintain, and administer all sewerage facilities within the district. You represent that the district covers all the residents of the city and the residents of the county whose area has obtained a sewer permit or has the requisite sewer lines. The SSSD is governed by a Commission (SSSD Commission) comprised of seven members. Act 1503 provides that the SSSD Commission members are: the Mayor of the City of Spartanburg; the three commissioners of the Spartanburg Board; and three other commissioners elected from the area of the district located outside the city limits of the City of Spartanburg. The SSSD Commission's activities are funded, in part, by the proceeds of general obligation bonds which are backed by the taxing power of the SSSD. Additionally, the SSSD Commission is authorized by Act 1503 to annex areas to the district, assess property owners for the cost of installing any sewage collection systems, and exercise the power of eminent domain. The SSSD is exempt from all federal and state taxation (except the obligation to pay sales tax) and is considered to be a public body under the South Carolina Freedom of Information Act.

You represent that Act 39 and Act 1503 continue to govern the basic structure and operation, respectively, of the SWS and SSSD, although other general statutes in South Carolina supplement the powers granted to the SWS and SSSD. See, e.g., 1908 S.C. Acts 612 (to provide for the Board of Commissioners of Public Works for the City of Spartanburg and define their duties); 1915 S.C. Acts 43 (to amend section 3015 and section 3017 of the Civil Code of South Carolina, 1912, Volume I, to permit cities and towns to purchase waterworks and electric light works); S.C. Code  § 6-11-1210 (additional powers of special purpose or public service districts as to sewage collection and disposal).

The SWS Board and the SSSD Commission adopted the plans by resolution. The SWS Board and SSSD Commission have the power to amend or terminate the plans, and meet separately to review and approve changes to the plans. Each entity is responsible for paying or forwarding payment for premiums and other expenses attributable to its employees and former employees who participate in the plans.⁽¹⁾ The SWS Board and SSSD Commission are responsible for selecting insurance providers and other administrative service providers for the plans. The SWS Board and SSSD Commission delegated the responsibility for overseeing the day-to-day administration of the plans to the SWS Human Resources Department, which is required to report back to the SWS Board and SSSD Commission regarding the plans.

Participation in the plans is limited to employees and former employees of the SWS and SSSD and their dependents. The long-term and short-term disability plans cover only employees of the SWS and SSSD, and participation in the group health and dental plan is limited to employees and retirees of the SWS and SSSD and their dependents. Currently, all employees of the SWS and SSSD (approximately 240 in total) participate in the long-term disability plan, benefits are paid by insurance, and all premiums are paid entirely by the employers. With regard to the short-term disability plan, approximately 195 employees of the SWS and SSSD participate. The plan is fully insured with premiums paid by participants through payroll withholding. The group health and dental plan covers approximately 255 employees and former employees of the SWS and SSSD and their dependents. The SSSD and the SWS pay health and dental benefits up to designated limits out of their general assets. Once the limits are reached, claims are then paid by insurance. The SWS and the SSSD pay the entire premium on behalf of employees and retirees, and a portion for the dependents of employees (the remainder is deducted from the employees paychecks through a pretax contribution). Retirees are responsible for the entire premium for their covered dependents.

Section 4(b)(1) of ERISA excludes governmental plans from Title I coverage. Section 3(32) of ERISA defines the term governmental plan, in relevant 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.

We conclude from your representations that the SWS and SSSD are either agencies or instrumentalities or political subdivisions of government within the meaning of section 3(32) of ERISA,⁽²⁾ and that the plans are jointly established and maintained by the SWS and SSSD for the benefit of their employees. The SWS and SSSD were created pursuant to state statutes, are governed by the SWS Board and SSSD Commission which are comprised of publicly elected officials, exercise governmental powers, and the property and revenues of the SWS and SSSD are exempt from federal and state taxes. The SWS Board and SSSD Commission established the plans by resolution and control the operation and administration of the plans. Participation in the plans is limited to employees and former employees of the SWS and SSSD and their dependents. The long-term disability plan and the group health and dental plan are funded exclusively by employer contributions from the SWS and SSSD, and participant contributions from governmental employees and former employees. The short-term disability plan is funded exclusively by participant contributions from governmental employees. For the above reasons, it is the view of the department that the plans constitute governmental plan[s] within the meaning of section 3(32) of ERISA, and, therefore, are excluded from Title I coverage 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 provisions of Title I of ERISA and is not determinative of any particular tax treatment under the Internal Revenue Code.