Advisory Opinion 2002-09A

Dear Mr. Scaraggi:

This is in reply to your request for an opinion on behalf of the Port Authority Police Benevolent Association, Inc. (Association) regarding the applicability of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). You asked whether the Port Authority PBA Welfare Fund (Fund) is a "governmental plan" within the meaning of section 3(32) of ERISA, and, therefore, excluded from the requirements of Title I by section 4(b)(1) of ERISA.

The correspondence and materials you forwarded contain the following facts and representations. The Port Authority of New York and New Jersey (Port Authority or Authority) was created on April 30, 1921, with the consent of the United States Congress, by an interstate compact between New York and New Jersey to effectuate their pledge of cooperation in the future planning and development of the Port of New York. The compact has been codified into the laws of both states. The Authority is administered by twelve commissioners, six of whom are appointed by each compact state. Either compact state may remove, for cause, the commissioners it appoints. Port Authority action is subject to veto by the governor of either compact state. The Authority must report annually to the legislatures of the compact states. Acting jointly, the state legislatures may augment the powers and responsibilities of the Authority and specify the purposes for which the Authority's surplus revenue is used.

The Port Authority operates three major airports, a bus terminal, numerous bridges, tunnels, and marine facilities, the World Trade Center properties, and a subway that passes under the Hudson River. The Authority maintains a uniformed police force, the members of which are designated by statute as regular police and peace officers of both states. The Authority may issue orders after hearings requiring obedience of persons subject to its jurisdiction. It has the power of eminent domain. Income from bonds and other obligations it issues is exempt from state and local taxation, and its property is exempt from state and local taxation in both states. It also generates revenue through tolls, fees, and investment income. It is not permitted to draw on state tax revenue, pledge the credit of either state, or otherwise impose any charge on either state, except by and with the authority of the legislatures. Various state and federal courts have determined that the Port Authority is a political subdivision of both New York and New Jersey. See Commissioner of Internal Revenue v. Shamberg's Estate, 144 F.2d 998, 999-1000 (2nd Cir. 1944); Brown v. Port Authority Police Superior Officers Ass'n, 661 A.2d 312, 314-16 (N.J. Super. Ct. App. Div. 1995).⁽¹⁾

The Association, a nonprofit corporation under New York law, was formed to, among other things, improve the terms and conditions of employment of police officers of the Port Authority through the collective bargaining process. The Association operates pursuant to bylaws under which it negotiates with the Port Authority for wages, hours, benefits, and other terms and conditions of employment. The bylaws also provide for members to elect officers and trustees of the Association. Membership in the Association is limited to current employees or former employees of the Port Authority who are either retired or designated as "Life Members."⁽²⁾ By letter dated August 22, 1947, the Internal Revenue Service determined that the Association is a tax-exempt organization under section 501(c) (4) (relating to local associations of employees) of the Internal Revenue Code (Code).

The Fund was established in 1993 pursuant to collective bargaining between the Association and the Port Authority for the purpose of providing vision, disability, death, and stress counseling benefits to members of the Association. You indicated that, pursuant to the bargaining agreement between the Association and Port Authority effective January 21, 1996, through January 20, 2003, the Port Authority is required to make annual contributions of $125,000 to the Fund. The bargaining agreement states that such contributions are "to defray the cost of the eyeglass program of the Fund which is currently in effect."  However, you represented that the parties to the bargaining agreement never intended to dedicate the contributions to vision benefits only. In this regard, you state that the bargaining agreement will be amended to clarify that the Port Authority's contributions may be used by the Fund to defray the cost of any and all benefits provided by the Fund, including vision, disability, death, and stress counseling benefits. The Fund also receives contributions from membership dues. Under the Association's bylaws, each member, except retirees who are exempt from paying annual membership dues, must pay annual dues to the Association. The dues are paid generally by payroll deductions through the Port Authority. A portion of these dues is allocated by the Association to the Fund on behalf of covered members. The portion of each member's dues allocated to the Fund is equal to three quarters of one percent of that member's salary. Total contributions for the Fund's most recent fiscal year were approximately $643,264, of which $518,264 was from membership dues, and, as noted above, $125,000 was from the Port Authority.

The Fund is operated in accordance with the Agreement and Declaration of Trust for the Port Authority PBA Welfare Fund (Trust Agreement), as restated September 9, 1999. Article III of the Trust Agreement provides for the designation of seven trustees by the Association, one of which must be the Association's President. It also provides that the Association retains the authority to remove and replace any trustee, at any time, upon notice to the remaining trustees. Article IV provides that the trustees are responsible for all aspects of plan administration, including receiving contributions, paying expenses and benefits, and managing and investing the Fund's assets. The trustees also are required to keep accurate books of account and to have the books audited annually. Under Article IV, the Port Authority has a right to review the Fund's annual audits. The trustees' interpretation of the Trust Agreement is binding on all parties, including the Port Authority. Under Article V, the Port Authority must provide the trustees with periodic reports verifying that it has made required contributions under the bargaining agreement. Article VIII provides that the Trust Agreement may be amended in any respect by the trustees, provided that each amendment shall be executed in writing by all the trustees then serving. Article VI provides that the trust may be terminated when there is no longer in force a collective bargaining agreement between the Port Authority and the Association. The Trust also may be terminated at any time by the unanimous vote of all trustees and a majority vote of the Association's membership. Although the Port Authority is not currently involved in the appointment of trustees and does not otherwise participate in the day-to-day operations of the Fund, you represent that the Trust Agreement is being amended to provide the Port Authority with the authority to appoint and remove one of the trustees on the board of trustees.

Pursuant to section 4(b)(1) of ERISA, the provisions of Title I of ERISA do not apply to a "governmental plan" as defined in ERISA section 3(32). Section 3(32) defines a "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." It has long been the position of the Department of Labor (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 that covers only employees and former employees of a governmental entity is "established or maintained" by that governmental entity for its employees, the Department has examined the extent to which a plan is funded by the governmental entity and the extent to which the governmental entity is involved in the administration or control of the plan. See id.; Advisory Opinion 79-83A (Nov. 20, 1979); Advisory Opinion 86-24A (Sept. 9, 1986).

In this case, based on the information submitted and assuming adoption of the aforementioned amendments to the bargaining agreement and the Trust Agreement, it appears that the Fund was established and is maintained pursuant to collective bargaining between the Port Authority and the Association, it covers only current and former employees of the Port Authority and their dependents, it receives substantial funding from the Port Authority, and the Port Authority will have a role in the discretionary administration and control of the Fund by virtue of its authority to appoint one trustee to the Fund's board of trustees. Further, the Department concludes that the Port Authority is a political subdivision, agency, or instrumentality of both New York and New Jersey within the meaning of section 3(32) of ERISA. Accordingly, it is the Department's view that the Fund constitutes a "governmental plan" within the meaning of section 3(32) of Title I of ERISA and, thus, is not subject to the provisions of Title I of ERISA pursuant to ERISA section 4(b)(1).

It should be noted, however, that material changes in the structure, funding, or operation of the Fund, such as allowing other employers to participate in the Fund or extending participation to individuals other than employees or former employees of the Port Authority, may affect the Department's position concerning the status of the Fund as a governmental plan.

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 Code.