Advisory Opinion 2003-16A

Dear Ms. Gracia:

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 the Lower Colorado River Authority 401(k) Plan and the Lower Colorado River Authority Retirement Plan (collectively, the LCRA Plans). Specifically, you request an advisory opinion concluding that the status of the LCRA Plans as "governmental plan[s]" within the meaning of section 3(32) of ERISA would not be adversely affected if they were extended to cover the employees of GenTex Power Corporation (GenTex).

Your correspondence and the materials you enclosed contain the following facts and representations. The Texas legislature passed the Lower Colorado River Authority Act (LCRA Act) in 1934 to create the Lower Colorado River Authority (LCRA) as a conservation and reclamation district.⁽¹⁾ Section 1 of the LCRA Act provides that LCRA "shall be and is hereby declared to be a governmental agency and body politic and corporate, with the powers of government and with the authority to exercise the rights, privileges and functions hereinafter specified, and the creation of such district is hereby determined to be essential to the accomplishment of the purposes of Section 59 of Article 16 of the Constitution of the State of Texas . . . ." 1934 Tex. Gen. Laws, 4th C.S., ch. 7, at 19. LCRA's statutorily defined purposes include: to control, store, preserve and distribute the waters of the Colorado River and its tributaries within the district's boundaries; to develop and generate electric energy and power; to develop and manage parks on district owned land; and to conserve and develop forests, water and electric power in the State of Texas. LCRA is statutorily precluded from levying taxes, creating any indebtedness payable out of taxes, or in any way pledging the credit of the state.

LCRA is controlled by a board of fifteen directors all of whom are appointed by the governor of the State of Texas. The LCRA board of directors consists of at least one director from each of the counties comprising the district and three directors appointed at large. The board of directors has the authority to exercise the powers, right and privileges conferred by general law upon a conservation and reclamation district created pursuant to Section 59 of Article 16 of the Texas Constitution, including the power to acquire by condemnation property within the district's boundaries.

LCRA created GenTex⁽²⁾ as a nonmember, nonstock corporation pursuant to section 152.051 of the Texas Water Code. Section 152.051 authorizes river authorities, such as LCRA,⁽³⁾ engaged in the distribution and sale of electric energy to the public to create nonprofit corporations to act as the district's instrumentality in exercising powers and functions conferred upon the district by law. GenTex's purpose, as stated in its Articles of Incorporation, is to accomplish the "public purposes of LCRA by . . . acquiring, financing, construction, rebuilding, repowering, operating and selling facilities related to the generation of electricity; selling the output of such facilities . . . and performing such other activities that are associated with the generation, purchase, sale, transmission and provision of energy services as may be authorized by LCRA's Board of Directors . . . ."

Under section 152.054 of the Texas Water Code, GenTex's activities are subject to the continuing review and supervision of LCRA's board of directors. GenTex's board of directors is appointed by and serves at the will of the LCRA's board of directors. Under GenTex's bylaws, five of the nine members on GenTex's board of directors must be members of LCRA's board of directors. LCRA's board of directors possesses the authority to amend GenTex's governing documents, bylaws and articles of incorporation, and may dissolve GenTex at any time. GenTex's budget must be approved by LCRA's board of directors, and any net earnings of GenTex must be paid to LCRA.⁽⁴⁾ GenTex may not issue bonds and other debt obligations without approval from LCRA's board of directors.⁽⁵⁾ GenTex is subject to both the Texas Open Meetings Act and the Texas Open Records Act.

The Lower Colorado River Authority Retirement Plan (LCRA Retirement Plan) and the Lower Colorado River Authority 401(k) Plan (LCRA 401(k) Plan) were established by duly executed resolutions of LCRA's board of directors in 1946 and 1984, respectively. Both plans have been amended and restated several times by LCRA's board of directors since their inception. You represent that the LCRA Plans are single employer plans and only LCRA employees participate in the plans at this time. The LCRA Retirement Plan is funded by contributions solely from LCRA, and the 401(k) Plan is funded by participant elective deferrals and employer matching contributions from LCRA. You represent for purposes of your request, and we assume without examining or expressing an opinion on the issue, that each of the LCRA Plans as currently operated constitutes a "governmental plan within the meaning of section 3(32) of ERISA.

Section 4(b)(1) of ERISA excludes from coverage under Title I of ERISA any plan that is a "governmental plan." The term "governmental plan" is defined in section 3(32) of ERISA, 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 phrase "agency or instrumentality" is not defined in ERISA, and no regulations issued pursuant to ERISA interpret that phrase. Accordingly, whether an entity is an "agency or instrumentality" of government, depends on the facts and circumstances of the relationship between the government and the entity whose benefit arrangement's status as a "governmental plan" is at issue.

Based on the facts and representations you provided as described above, it is the view of the Department that GenTex is an "agency or instrumentality" of state government for purposes of section 3(32) of ERISA. Accordingly, and based on the assumption that the LCRA Plans as currently organized and operated are "governmental plan[s]" excluded from Title I coverage by section 4(b)(1) of ERISA, it is the opinion of the Department that amending the LCRA Plans to permit participation of GenTex's employees would not adversely affect the status of the plans as "governmental plan[s]" within the meaning of section 3(32) of ERISA.

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