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Employee Benefits Security Administration

Advisory Opinion

May 19, 1999

Mr. Thomas E. Hayes
Office of City Attorney
800 City Hall
200 East Wells Street
Milwaukee, Wisconsin 53202-3551

1999-07A
ERISA Sec. 3(32)

Dear Mr. Hayes:

This responds to your request for an advisory opinion concerning the status of the Employees’ Retirement System of the City of Milwaukee (“Plan”) as a “governmental plan” within the meaning of section 3(32) of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”). You ask whether that governmental plan status would be adversely affected if the Plan implements a city charter ordinance that provides for continued accrual of benefits by certain former governmental employees whose employment has been transferred to a private enterprise as part of an arrangement regarding operation of the Milwaukee Metropolitan Sewerage District.

Your submission contains the following facts and representations. The Plan is a retirement trust that was created by legislative enactment of the State of Wisconsin to provide pension benefits to the employees of the City of Milwaukee (“City”) and certain other governmental entities within southeastern Wisconsin. The Plan was placed under the legislative control of the City and is governed by the provisions of Chapter 36 of the Milwaukee City Charter, 1971 compilation as amended. You represent that the Plan is a defined benefit pension plan that constitutes a “governmental plan” within the meaning of section 3(32) of ERISA. The Plan currently covers approximately 25,221 participants.

The Milwaukee Metropolitan Sewerage District (“MMSD”), a special purpose district existing under the laws of Wisconsin, is a governmental entity whose employees participate in the Plan. On January 5, 1998, MMSD entered into a certain agreement (“Agreement”) with United Water Services Milwaukee, LLC (“United”). United is a limited liability company formed under Wisconsin law and is a subsidiary of United Water Services LLC, which you describe as a leading provider of contract operations for water and wastewater projects in the United States.

The Agreement specifies that, commencing March 1, 1998,(1) and running for a term of 10 years, United will operate and maintain certain portions of MMSD’s wastewater system for the collection, conveyance, treatment and disposal of wastewater. MMSD will retain ownership and title to all of its assets and have significant oversight authority over the wastewater treatment facilities and the work performed by United. For example, MMSD has established detailed standards that United must follow in operating and maintaining the facilities. United must adopt manuals and procedures that are consistent with MMSD’s operations and maintenance manuals; any deviations must receive MMSD’s advanced, written approval. MMSD has the right to inspect its facilities at any time, to receive periodic, audited, project financial reports from United, and to approve all capital expenditures. The individual who serves as United’s project manager is designated in the Agreement and, absent good cause, cannot be removed by United without the prior approval of MMSD. MMSD may, however, remove the project manager if it determines that the person is performing in an unsatisfactory manner. United has no revenue collection responsibility; all of its revenues will come from fees it receives from MMSD under the Agreement.

As part of the Agreement, approximately 300 individuals who were employees of MMSD working at the facilities subject to the Agreement (“Transferred Workers”) became employees of United on the Agreement’s commencement date. The Transferred Workers provide generally the same services at the same locations and with the same equipment after the commencement of the Agreement as they provided before the commencement. Also under the Agreement, and a Memorandum of Understanding between United and the four unions that represent the Transferred Workers, United has agreed not to layoff any Transferred Workers for a period of 10 years. Upon the Agreement’s termination at the end of the 10-year term, full responsibility for operating and maintaining the wastewater system will revert to MMSD, and the Transferred Workers may resume employment with MMSD.

The City, MMSD, and the relevant unions would like the Transferred Workers to continue to accrue benefits under the Plan based on their service and compensation earned as employees of United. In this regard, the City adopted a charter ordinance on December 16, 1997 (“Ordinance”) that requires the Plan to treat the Transferred Workers as covered employees for purposes of accruing benefits under the Plan, provided, among other things, that the Plan “continues to qualify as a governmental plan under applicable law.” In order to meet this condition, the Ordinance specifies that the Plan must receive favorable determinations from the Department of Labor and the Internal Revenue Service as to the continued status of the Plan as a governmental plan.(2)

Pursuant to specific provisions of the Ordinance, Agreement, and Memorandum of Understanding, MMSD will be directly responsible for making employer and employee contributions to the Plan on account of the Transferred Workers’ service with United.(3) United will provide MMSD with the payroll information MMSD will need to calculate the amounts it must contribute to the Plan, and MMSD will offset those amounts against the amounts it is required to pay United under the Agreement. You represent that no United employees other than the Transferred Workers will accrue benefits under the Plan based on their service and compensation with United. You further represent that, apart from the Transferred Workers, no other actively employed participants of the Plan are receiving service credits on account of employment by a private entity.

ERISA section 4(b)(1) excludes from coverage under Title I of ERISA any plan that is a "governmental plan," and section 3(32) defines the term "governmental plan," in pertinent part, as "a plan established or maintained for its employees by . . . the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. . . ." In view of the facts that MMSD has an obligation to the Plan to make the contributions required as a result of the Transferred Workers’ service with United, the Transferred Workers would continue to accrue retirement benefits under the same plan in which they previously accrued benefits as governmental employees, and they comprise a de minimis portion of the Plan’s total participants, we conclude that the status of the Plan as a “governmental plan” would not be adversely affected by the Plan accruing benefits for the Transferred Workers pursuant to the Ordinance.

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. This letter relates solely to the application of the provisions of Title I of ERISA and is not determinative of any particular tax treatment under the Internal Revenue Code. Nor is this letter determinative of the status of the Plan under Title IV of ERISA, which is solely under the jurisdiction of the Pension Benefit Guaranty Corporation.

Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting & Disclosure
Office of Regulations and Interpretations


Footnotes

  1. Although the Agreement stated its commencement date as “on or after March 1, 1998,” you advised by telephone that the Agreement actually did commence March 1, 1998.

  2. You have not requested our view, and we do not opine in this letter, concerning whether the Plan is a “governmental plan” as it exists prior to implementation of the Ordinance. We assume, for purposes of this letter, that the Plan has such status under Title I of ERISA.

  3. The Ordinance expressly states that, as a condition for the continued accrual of benefits, MMSD must accept direct responsibility for making employer and employee contributions to the Plan for the affected workers.