| 96-2 |
| July 8, 1996 |
| REFERENCE: |
| ยง 4021(b)(2) |
| OPINION: |
| We write in response to your request for reconsideration of PBGC's initial determination dated September 13, 1995, |
| regarding coverage of the above-referenced pension plan (Plan) under Title IV of the Employee Retirement Income |
| Security Act of 1974, as amended (ERISA). Pursuant to section 4021(b)(2) of ERISA, the initial determination held that the |
| Plan is not a governmental plan, and is covered by Title IV. |
| We have considered your request for reconsideration and concluded that the Plan is a governmental plan, and is not |
| covered by Title IV of ERISA. Accordingly, your request for reconsideration is granted. |
| Background |
| We have assumed that the following facts and representations made in your submission are accurate and complete. The |
| Plan sponsor is the * * * |
| The Company was formed on or about June 25, 1956, as a non-profit corporation under the laws of the state of California, |
| for the sole purpose of operating the * * * |
| California and Pacific Grove drafted the Company's articles of incorporation and by-laws. Any disputes concerning the |
| articles and by-laws must be resolved in favor of California, and those documents may not be amended without the |
| state's consent. The Company's board of directors is appointed by a state agency, and all of its officers must be chosen |
| from the board. Under California law, the board is considered a state entity whose meetings must generally be open to the |
| public, and the Company's books and records are subject to public disclosure. Also, the top officer's salary is determined |
| California owns the conference facility and surrounding property on which the Company conducts its operations, and uses |
| it as a state park. The Company is licensed to operate the facility in accordance with the terms of a concession agreement |
| with the state. n1 The state is the Company's single largest customer and exercises significant control over its operations |
| and finances. The state determines who can use the conference facilities and prescribes the fees that the Company may |
| charge for their use. In practice, the state sets the user fees at a level that merely covers the Company's operating |
| costs; i.e. the Company does not make a profit. All revenue from operation of the facility must be deposited into a state- |
| controlled trust account for the operation and maintenance of the conference facility. The state sets the level of cash the |
| Company may have on hand, and receives any excess cash from operations. Moreover, the Company may not borrow |
| n1 According to your submission, California terminated the concession agreement effective January 31, 1995. However, |
| the state legislature has authorized the Company to continue operating the conference facilities until a successor is |
| In 1975, the National Labor Relations Board ruled that the Company was a governmental entity exempt from the National |
| Labor Relations Act. The Internal Revenue Service (IRS) has ruled that the Company is a government instrumentality for |
| purposes of the Internal Revenue Code. Similar findings have been made as a matter of state law by a California |
| appellate court and the state's attorney general. The Company has also generally conducted its employee relations in |
| accordance with state laws applicable to public employees. However, the California Public Employees' Retirement System |
| (CALPERS) has determined that the Company does not qualify as a public agency for purposes of participation in the |
| state employees' retirement plan. Under that state law, CALPERS found that the individual directors of the Company also |
| The Pension Plan |
| The Plan is a defined benefit pension plan established and maintained by the Company for its employees. The Plan |
| became effective July 1, 1966 and was last amended and restated effective July 1, 1987. The Company is the named |
| Plan administrator and funds the Plan. Although the Plan document authorizes the appointment of a committee as the Plan |
| administrator, none has ever been appointed. Rather, all decisions regarding the Plan are made by the Company's board of |
| directors. |
| The Company has never made PBGC premium filings or payments. In fact, the Plan's agents have confirmed that the |
| Plan has been administered from its inception as a governmental plan. The Plan administrator annually filed IRS Form |
| 5500-G, Annual Report for Government and Certain Church Plans, until that reporting requirement was discontinued in |
| Legal Standard |
|
Section 4021(b)(2) of ERISA excludes from Title IV coverage any plan "established and 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 the foregoing...." There is no definitive statutory or regulatory definition of the term "governmental |
|
instrumentality." The PBGC, however, has considered a number of non-exclusive factors in determining whether a plan is |
|
or is not the plan of a governmental instrumentality. These include: (i) whether the plan or the plan sponsor is controlled by |
|
a governmental entity; (ii) whether the officers or members of the plan sponsor represent, or are selected by, a |
|
governmental entity; (iii) whether the plan or the plan sponsor is funded by a governmental entity; (iv) whether the plan's |
|
participants are treated as governmental employees; (v) whether the plan sponsor is treated under state or federal law as a |
|
governmental entity; (vi) whether there are any private interests involved; and (vii) whether a governmental entity has the |
|
powers and interests of any owner. See e.g., PBGC Opinion Letters No. 83-16 (July 12, 1983), No. 81-40 (December 9, |
|
1981), No. 81-37 (November 16, 1981), No. 81-31 (September 22, 1981), No. 81-30 (September 22, 1981), No. 81-13 (May |
|
13, 1981), No. 79-6 (April 10, 1979), No. 78-25 (October 31, 1978), No. 77-152 (July 13, 1977), and No. 76-95 (August 2, |
|
1976). |
|
The Department of Labor and the IRS have considered similar factors in interpreting section 3(32) of ERISA and section |
|
414(d) of the Internal Revenue Code, respectively. See ERISA Opinion Letter 90-09 (April 25, 1990); ERISA Opinion Letter |
|
89-16 (August 4, 1989); Rev. Rul. 89-49, 1989-1 C.B. 117. |
|
Discussion |
|
Upon reviewing your request for reconsideration and applying the relevant factors, we have determined that the Plan is |
|
excluded from Title IV coverage as a governmental plan. Your submission demonstrates that the state of California |
|
exercises significant control over the Company. For example, the articles of incorporation and by-laws of the Company |
|
were subject to state approval and the state has final veto power over any proposed changes to the Company's |
|
governance. The board of directors is appointed by a state agency, and all officers are chosen from the board. The top |
|
officer's salary is also determined by state law. |
|
The conference facility in which the Company conducts its operations is owned by the state and was established under |
|
state law to function as a governmental facility. The state decides who may use the facility and sets user fees. All |
|
revenue must be deposited into a trust account over which the state has control. The state also controls the Company's |
|
operating budget and receives any excess cash flow from operations. |
|
Moreover, with the exception of the CALPERS' determination, the Company has generally been treated as a governmental |
|
entity or instrumentality under both state and federal law. CALPERS' determination, however, was based on the fact that |
|
the Company's directors are not themselves public agencies. That particular fact is not determinative for purposes of |
|
coverage under Title IV of ERISA. |
|
Conclusion |
|
For the reasons discussed above, and on the basis of the information provided to us, we conclude that the Plan is a |
|
governmental plan within the meaning of section 4021(b)(2) of ERISA, and is not covered by Title IV of ERISA. |
|
David Smith |
|
Chief, Administrative Review & Technical Assistance Branch |