Advisory Opinion 2004-01A

Dear Mr. Goldman:

This is a consolidated response to your requests for advisory opinions concerning the applicability of Title I of the Employee Retirement Income Security Act of 1974, as amended, (ERISA) to the Boston Teachers Union Health and Welfare Fund (Health Fund), the Boston Teachers Union Prepaid Legal Services Fund (Legal Fund), and the Boston Teachers Union Paraprofessional Health and Welfare Fund (Paraprofessional Fund). You asked whether the Health Fund, Legal Fund, and Paraprofessional Fund (collectively, Funds), are "governmental plan[s]," as defined in ERISA § 3(32), and, therefore, excluded from Title I coverage by § 4(b)(1) of ERISA.

In the course of your inquiry, you provided us with the following facts and representations. The City of Boston, through the School Committee of Boston (School Committee), employs classroom teachers and teacher paraprofessionals in the City of Boston Public Schools. The School Committee is comprised of seven members who are all appointed by the Mayor of the City of Boston.⁽¹⁾ The Boston Teachers Union, Local 66, AFT, AFL-CIO (Union) is the exclusive collective bargaining agent for a unit comprised of classroom teachers and other employees (e.g., nurses) employed by the School Committee in the Boston Public Schools, and a separate unit covering teacher paraprofessionals.

With regard to the Health Fund, the School Committee and the Union entered into a bargaining agreement in 1968, pursuant to which the Health Fund was established under an Agreement and Declaration of Trust (Health Trust Agreement). The Health Fund's purpose is to provide hospitalization benefits, surgical benefits, dental benefits, and other health and welfare benefits to "covered teachers" and their eligible dependents. The term "covered teacher" includes classroom teachers and other persons employed by the School Committee for whom the School Committee is required to make contributions to the Health Fund, employees of the Health Fund, and elected officers and full-time employees of the Union. According to the current collective bargaining agreement, the School Committee must make a fixed dollar contribution on behalf of each of its employees covered by the Health Fund. The Union makes the same dollar contribution on behalf of its participating officers and employees and participating employees of the Health Fund. Participants and their eligible dependents make no contributions unless they become eligible for and elect to receive COBRA continuation coverage.

Under the Health Trust Agreement, the Health Fund is administered by a board of trustees consisting of up to three persons appointed by the School Committee and up to five persons appointed by the Union. You indicated that the Union has appointed five trustees. The School Committee has not at this time selected any persons to serve as trustees of the Health Fund. Under the Health Trust Agreement, four trustees are necessary to constitute a quorum. The Health Trust Agreement requires the trustees to provide various reports to the Union and the School Committee on an ongoing basis. There are approximately 5800 City of Boston Public School employees covered by the Health Fund. The Health Fund also covers seven officers and five clerical employees of the Union, and fifteen employees of the Health Fund.

You represent that the Health Fund's trustees established the Legal Fund in 1981 pursuant to a broad grant of authority in the Health Trust Agreement that permits the Health Fund trustees to provide "other health and welfare benefits as [they] may deem appropriate." The Legal Fund provides prepaid legal service benefits to the Health Fund's participants. You indicated that the Health Fund trustees entered into an Agreement and Declaration of Trust (Legal Trust Agreement) to provide these benefits based on advice that 120 and 501(c)(20) of the Internal Revenue Code (Code) required that a separate trust be established to treat the Legal Fund as exempt from federal income tax and to exclude the value of employer contributions and legal services provided from the gross income of participants.⁽²⁾ According to the Legal Trust Agreement, the trustees of the Legal Fund consist of three persons appointed by the Union, and the Union may, at any time, remove a trustee with or without cause. The Legal Trust Agreement provides that the powers and duties of the trustees shall be exercised at all times consistent with the provisions of any collective bargaining agreement or health and welfare agreement between the Union and the School Committee. The Legal Fund has no employees and relies on Health Fund employees to perform administrative functions and otherwise run the Legal Fund operations. The Legal Trust Agreement requires that the Legal Fund trustees provide various reports to the Union and the Health Fund on an ongoing basis. A written instrument signed by a majority of the Health Fund trustees and Legal Fund trustees may amend the Legal Trust Agreement, and the Legal Trust Agreement provides that the Legal Fund shall be terminated upon the termination of participation of the School Committee. The Trust Agreement also provides that the funding for the Legal Fund will solely be contributions made by the Health Fund trustees from contributions the School Committee makes to the Health Fund. Currently, approximately 16% of the School Committee's contributions to the Health Fund are sent to the Legal Fund.

With regard to the Paraprofessional Fund, the School Committee and the Union entered into an Agreement and Declaration of Trust (Paraprofessional Trust Agreement) in 1984 that provided for the establishment of the Paraprofessional Fund for the purpose of providing hospitalization benefits, surgical benefits, dental benefits, and other health and welfare benefits as the trustees may deem appropriate. Persons eligible to participate are paraprofessionals employed by the School Committee, certain officials and full-time employees of the Union, and employees of the Paraprofessional Fund. The Paraprofessional Trust Agreement provides that the Fund is to be administered by up to five trustees appointed by the Union and up to three appointed by the School Committee. You indicated that the Union has appointed five trustees but the School Committee has not selected any persons to serve as trustees. The Paraprofessional Trust Agreement defines a quorum to consist of a majority of the trustees then in office. Pursuant to the Paraprofessional Trust Agreement, the trustees must report to the Union and the School Committee on an ongoing basis regarding the operation of the Fund. The Paraprofessional Fund currently has no employees. Rather, employees of the Health Fund perform the administrative functions of the Paraprofessional Fund under a cost sharing formula. The School Committee makes a fixed dollar contribution to the Paraprofessional Fund on behalf of the approximately 1470 of its employees covered by this Fund. The Fund currently only has one additional participant, a person on leave from the Boston Public Schools while serving as a Union officer, for whom the Union makes the same fixed dollar contribution. Participants and their eligible dependents make no contributions to the Paraprofessional Fund unless they become eligible for and elect to receive COBRA continuation coverage.

According to your representations, which were confirmed by a representative of the School Committee, although the School Committee has not exercised its authority to appoint trustees to the Health and Paraprofessional Funds, the School Committee agrees that it is maintaining those Funds jointly with the Union, that it receives regular reports from those Funds, and continues to agree in collective bargaining to make contributions to those Funds. The School Committee has also confirmed that the School Committee was aware of the Health Fund trustees' establishment of the Legal Fund pursuant to the broad authority in the Health Trust Agreement, and that the School Committee agreed to fund the Legal Fund by contributing to the Health Fund with knowledge that part of its contributions finance the Legal Fund operations. The School Committee also acknowledged that the Health Fund trustees provide an annual accounting to the School Committee of the funds transferred to the Legal Fund, and that it receives an annual statement directly from the Legal Fund of the monthly and yearly cost of providing benefits on a per employee basis for income tax purposes.

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 terms "political subdivision," "agency," and "instrumentality," are not defined in ERISA, nor are there any regulations under ERISA that interpret those terms. The specific facts and circumstances of the relationship between the particular entity and the government must be examined to determine whether the entity is a political subdivision or agency or instrumentality as required in § 3(32). It is well established that, in the Department's view, a public school district constitutes a governmental agency, instrumentality, or political subdivision for purposes of § 3(32) of ERISA. See, e.g., Advisory Opinions 95-15A and 92-10A.

It is also the position of the 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 is "established or maintained" by a governmental entity, the Department examines the extent to which the plan is funded by a governmental entity and the extent to which the governmental entity is involved in the discretionary administration of the plan. In Advisory Opinion 97-20A, the Department concluded that a health and welfare plan maintained pursuant to collective bargaining between a union and a governmental employer, covering only governmental employees, substantially funded by the governmental employer, and administered by a board of trustees appointed entirely by the union, was a governmental plan within the meaning of 3(32) of ERISA. Further, the Department has previously concluded that participation by a de minimis number of private sector employees will not adversely affect a plan's status as a governmental plan. 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 and the other information you provided, it appears that the Health Fund and Paraprofessional Fund were established and are maintained pursuant to collective bargaining between the School Committee and the Union. The School Committee has the authority to substantially participate in the discretionary administration of the Health Fund and Paraprofessional Fund by reason of its power to appoint three trustees to the board of trustees of each Fund. Although the Legal Fund was created by the Health Fund trustees without direct involvement by the School Committee, and the Union has the exclusive power to appoint and remove the trustees of the Legal Fund, the School Committee authorized the Health Fund trustees establishment of the Legal Fund and continues to ratify its ongoing maintenance. Further, the School Committee provides substantially all of the funding for all three Funds. The School Committee also receives periodic reports on each Fund's financial condition and operations. Finally, all of the participants in the Funds are governmental employees of the School Committee, except for a de minimis number of Fund employees and officers and employees of the Union. Accordingly, it is the view of the Department that the Health Fund, Legal Fund, and Paraprofessional Fund each constitutes a "governmental plan" within the meaning of ERISA § 3(32) that is excluded from ERISA Title I coverage by ERISA § 4(b)(1).

This letter constitutes an advisory opinion under ERISA Procedure 76-1, and is issued subject to the provisions of that procedure, including section 10 thereof relating to the effect of advisory opinions. This opinion relates solely to the application of the provisions of Title I of ERISA, is not determinative of any particular tax treatment under the Internal Revenue Code, and does not express any view on whether the maintenance or administration of the Funds meets any applicable requirements of state or local law.