Advisory Opinion 2002-10A

Dear Mr. Lanoff:

This responds 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 the University of California Retirement Plan (UC Retirement Plan) and the University of California Tax-Deferred 403(b) Plan (UC 403(b) Plan) (collectively, the UC Plans). Your inquiry concerns the effect on the UC Plans of "unwinding" a joint venture between the University of California (UC) and Stanford University. Specifically, you asked whether the status of the UC Plans as" governmental plan[s]" within the meaning of ERISA § 3(32) would be adversely affected if certain former joint venture employees, when reemployed by UC, resume participation in the UC Plans, are given service credit under the UC Retirement Plan for approximately two years of private sector employment with the joint venture, and are allowed to transfer account balances to the UC Plans from the joint venture's pension plans.

Your correspondence and other materials submitted in support of your request contain the following facts and representations. You represent that UC is a political subdivision of the State of California whose purpose is to carry out California's public higher education policy of advancing knowledge through research and teaching. See Cal. Const., Art. IX, 9; Cal. Educ. Code § 66010. See also Regents of the University of California v. Public Employment Relations Board, 485 U.S. 589 (1988). The UC system includes ten campuses. The campus of the University of California at San Francisco (UCSF) is dedicated to health sciences and houses UCSF Medical Center as well as graduate professional schools in dentistry, medicine, nursing, and pharmacy. You represent that individuals employed by UCSF, including by UCSF Medical Center, are public sector governmental employees.

You represent that UC established and maintains the UC Retirement Plan and the UC 403(b) Plan. The UC Retirement Plan, a defined benefit pension plan, covers approximately 120,000 UC employees and former employees or their beneficiaries. The UC 403(b) Plan is a tax sheltered annuity arrangement that holds accounts for approximately 80,500 UC employees and former employees or their beneficiaries. You represent, and we assume solely for purposes of your request and without considering the issue, that the UC Plans as now structured and operated are "governmental plan[s]" within the meaning of § 3(32) of ERISA.

In 1997, UC entered a consolidation agreement with Stanford University, a private university, to combine their respective medical centers into "UCSF Stanford Health Care." Under the agreement, UCSF Stanford Health Care was to operate as a private, nonprofit health care entity owned by UCSF Medical Center and Stanford University as joint venturers. UCSF Stanford Health Care's consolidation agreement, effective November 1, 1997, provided each joint venturer with equal control. Governmental employees of UCSF Medical Center either were leased to UCSF Stanford Health Care or, after terminating employment with UC, were transferred to and became common law employees of UCSF Stanford Health Care. Individuals who transferred employment to UCSF Stanford Health Care as common law employees are referred to herein as "Transferred Employees."

The Transferred Employees ceased participation in the UC Plans upon termination of their employment with UC. Upon commencement of their employment with UCSF Stanford Health Care, each of the Transferred Employees could choose participation in the UCSF Stanford Health Care Staff Pension Plan (the UCSF Stanford Staff Plan),⁽¹⁾ which is a defined benefit plan, or in the UCSF Stanford Retirement Plan, which is a tax sheltered annuity program. Benefits under the UCSF Stanford Staff Plan were based on a 2 percent career average compensation formula, but no contributions were made during the duration of UCSF Stanford Health Care joint venture because the plan was fully funded both before and after coverage of the Transferred Employees. Annual employer contributions of 5 percent of employee compensation were made to the UCSF Stanford Retirement Plan. Participants could also defer salary or contribute after-tax dollars to the UCSF Stanford Retirement Plan and UCSF Stanford Health Care agreed to make certain employer matching contributions. In addition, all UCSF Stanford Health Care's common law employees, including the Transferred Employees, could participate in a separate tax sheltered annuity plan known as the Tax Deferred Annuity Plan (the TDA Plan) that was funded entirely by employee salary reduction contributions.⁽²⁾ You represent that the UCSF Stanford Staff Plan, the UCSF Stanford Retirement Plan, and TDA Plan (collectively, the UCSF Stanford Plans) have at all times been treated as employee pension benefit plans covered by Title I of ERISA.

According to your submission, by 1999, UCSF Stanford Health Care was not meeting its business objectives. The UCSF Medical Center and Stanford University determined to dissolve the joint venture and revert to organizational structures that existed before the joint venture. The effective date of UCSF Stanford Health Care's dissolution was April 1, 2000. "Unwind" agreements provided for Transferred Employees to return to employment with UC and again be eligible to participate in the UC Plans. For the Transferred Employees who participated in the UCSF Stanford Staff Plan, the UC Retirement Plan was to accept liabilities from the UCSF Stanford Staff Plan by granting the employees service credit and recognizing compensation (for purposes of determining vesting and benefit accrual) for their period of employment with UCSF Stanford Health Care.⁽³⁾ Transferred Employees who participated in the UCSF Stanford Retirement Plan would be allowed to transfer employer contributions to the UC Retirement Plan in exchange for additional service credits in the UC Retirement Plan. Transfers to the UC 403(b) Plan would include the Transferred Employees' elective deferrals and after-tax contributions to the TDA Plan and UCSF Stanford Retirement Plan, the 5 percent employer contributions to the UCSF Stanford Retirement Plan for Transferred Employees not electing to receive service credit under the UC Retirement Plan, and employer matching contributions to the UCSF Stanford Retirement Plan. These actions would add approximately 1,800 covered participants to the UC Retirement Plan, and the UC 403(b) Plan would receive transfer accounts for about 4,900 individuals who participated in the UCSF Stanford Retirement Plan and TDA Plan.

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."  The actions you describe UC undertaking involve restoring governmental employees' participation rights in governmental plans after they return from private sector employment, providing governmental employees with service credit for time spent in such private sector employment, and allowing governmental employees to transfer their account balances from private sector retirement plans to plans maintained by UC. In the Department's view, those actions, in general, pertain to how a governmental employer decides to provide benefits to its employees, rather than actions that undermine the governmental plan status of its benefit programs under Title I of ERISA.

Based on our assumption that the UC Plans, as now structured and operated, are "governmental plan[s]"  within the meaning of § 3(32) of ERISA, we conclude that status would not be adversely affected if, under the conditions described in your request, the UC Plans provide the Transferred Employees with a one-time vesting and benefit accrual credit for approximately two years of private sector service with UCSF Stanford Health Care and allow transfer of contributions and account balances attributable to that period from the UCSF Stanford Plans to the UC Plans.

This letter relates solely to the application to the UC Plans of the provisions of Title I of ERISA. This letter is not determinative of any particular tax treatment under the Internal Revenue Code or of any status under Title IV of ERISA. It also is not intended to express any view concerning whether the proposed actions by the UC Plans meet any applicable requirements of California law. Further, it is not intended to express any view concerning the application of Title I to the UCSF Stanford Staff Plan, the UCSF Stanford Retirement Plan, and the TDA Plan, including whether actions undertaken by those plans in connection with the "unwind" agreements comply with Title I of ERISA.

This letter constitutes an advisory opinion under ERISA Procedure 76-1 and, accordingly, it is issued subject to the provisions of that procedure, including section 10 thereof concerning the effect of advisory opinions.