Advisory Opinion 2000-14A

Advisory Opinion
October 15, 2000	2000-14A ERISA Sec. 3(1)
Roderick A. DeArment Covington & Burling 1201 Pennsylvania Avenue, NW P.O. Box 7566 Washington, DC 20044-7566
Dear Mr. DeArment:
This is in response to your request on behalf of the United Transportation Union (UTU), regarding the applicability of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) to the UTU’s Job Benefit Fund/Income Security Program (JBF/ISP or Program). Specifically, you request an opinion that the JBF/ISP is not an "employee welfare benefit plan" within the meaning of section 3(1) of Title I of ERISA. In support of this request you maintain that the JBF/ISP is akin to "strike funds," that are specifically excluded from Title I coverage under the Department’s regulation at 29 C.F.R.§ 2510.3-1(h).
According to your submissions, the UTU represents railway trainmen, conductors, brakemen, switchmen, and some engineers, as well as operators for a number of bus companies and transit systems. The JBF/ISP, as maintained by the UTU from 1980 to 1998, is a program that provided a daily cash benefit to its members who ". . . suffer[ ] a loss of wages by reason of being out of employment occasioned by discharge or suspension as a penalty or method of discipline."⁽¹⁾
Under the JBF/ISP, discharge or suspension means a member has been ". . . entirely relieved, either permanently or temporarily, by his or her employer from the performance of all service . . . " Under the Program, members are not eligible for benefits or compensation for lost wages due to discharge or suspension where such claim is based and/or occasioned in whole or in part upon admitted or alleged:
Refusal to perform any duty or service as directed or when directed by a representative of the employer. Insubordination. Sleeping and/or assuming the position or appearance of sleeping while employed and on duty. Engaging in a fight and/or altercation (defensive or offensive). Missing a call. Reporting late for duty. Not being available for duty. War. Unlawful acts (criminal or civil). Strikes, lockout, furlough, calculated deliberate slowdown, work stoppage (legal or illegal). Misuse of company funds. Misappropriation of company funds. Failure to properly remit company funds. Removal of employer's property or employer customer's property from premises without proper authority. Malicious and/or willful destruction of company property. Assignment of wages and/or garnishment. Failure to pass or failure to take any required examination or test, including, but not limited to, physical or mental tests. Failure to obtain watch comparison. Failure to possess, while employed and on duty, a standard watch and/or watch card. Use of intoxicating beverages while on duty or subject to duty. Possession of intoxicating beverages while on duty. Being under the influence of intoxicants while on duty. Use of and/or possession of controlled drugs or narcotics while on duty -- being under the influence of controlled drugs and/or narcotics while on duty. Use of controlled drugs or narcotics while subject to duty. Personal injury, disability and/or sickness.
According to the 1980 UTU Board Minutes, participation in the Program is voluntary for UTU members, and is funded by UTU member contributions. The member would apply to be eligible for benefits of $10 to $60 a day, and would be assessed monthly, $.40 for each $1.00 of daily benefit selected. Daily benefits applied for could not exceed, together with other similar benefits carried by the member,⁽²⁾the average daily wages received from the job occupied at the time of applying for membership in the JBF/ISP. The duration of the payment period is based on years of service, with benefits payable for up to 240 days, or, if sooner, until the member’s death, retirement, or commencement of employment for any other railway or bus employer. Benefits may be discontinued after 60 days ". . . if the grievance involving the discipline is not being actively handled by the committee having jurisdiction."
According to your submissions, the Program is designed to provide income replacement due to periods of unemployment unique to the railway industry. You posit that there is a historical pattern of suspension or discharge of individual UTU members, allegedly for disciplinary reasons, but actually to interfere with the member’s collectively bargained or statutory rights. Specifically, you relate that UTU members have a special statutory right under the Federal Employers’ Liability Act (FELA), 45 U.S.C.§ 51 et seq., to sue their employer for general damages for work-related injuries. You suggest that, because FELA adopts a comparative negligence standard, railway employers have a strong incentive to suspend or terminate an injured employee, allegedly for cause, both to establish the employee’s negligence and thereby reduce or avoid a large FELA damage award, and to increase the economic pressure on an injured employee to settle his FELA claim quickly. You indicate that although the employee has the right to grieve and arbitrate the suspension or termination, the grievance and arbitration procedures may be lengthy and costly. You suggest that the benefits provided by the JBF/ISP protect the collective bargaining process by sustaining the UTU member during the pendency of a FELA suit and the grievance and arbitration proceedings concerning the suspension or termination.
You also relate that the railway industry, over the last twenty years, has undergone a significant reduction in the workforce, often involving the payment by employers of substantial severance amounts, negotiated by the UTU, to employees whose positions have been eliminated. You suggest that employers may suspend or discharge employees, allegedly for rules infractions, but actually to avoid paying severance benefits and thereby reduce the cost of downsizing. You suggest that the provision of benefits by the JBF/ISP in this context also protect the collective bargaining process by supporting UTU members during the grievance and arbitration procedures available for these suspensions and terminations.
To be an ERISA-covered employee welfare benefit plan, the Program must, among other criteria, be established or maintained by an employer or an employee organization, within the meaning of ERISA section 3(1). For the purposes of this opinion, we assume that UTU is an employee organization within the meaning of ERISA section 3(4), and that the Program is established and maintained by UTU. Therefore, if the Program provides benefits described in ERISA section 3(1), the Program is an employee welfare benefit plan covered by Title I of ERISA.⁽³⁾
Section 3(1) of Title I of ERISA defines the term "employee welfare benefit plan" to include " . . . any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 302(c) of the Labor Management Relations Act, 1947 (other than pensions on retirement or death, and insurance to provide such pensions)."
The statute does not define the term "benefits in the event of . . . unemployment" for purposes of defining welfare plans under ERISA section 3(1). The Department has had the occasion to analyze a number of income replacement programs to determine whether a particular program provides such benefits. According to Advisory Opinion 84-42A:
. . . The Department generally would analyze each plan based on its place on a continuum which considers the relationship between the benefits provided and the actual status of unemployment. Thus, at one end of the continuum would be plans which would not be viewed as providing benefits in the event of unemployment if they assist an individual who receives his regular wage for full-time employment in his customary job under a collective bargaining agreement. . . . At the other end of the continuum would be plans which provide benefits during a period that an individual is not employed. Plans which fall toward this end of the continuum would be considered to be providing unemployment benefits. See, e.g., the discussion of the guaranteed annual income benefit in ERISA Opinion 79-55A.
After careful consideration of your representations concerning the nature of the JBF/ISP benefits and your arguments as to why the JBF/ISP benefits should not be treated as "unemployment" benefits, it is the view of the Department that the JBF/ISP falls toward that end of the continuum that would be considered to be providing unemployment benefits within the meaning of ERISA section 3(1).⁽⁴⁾In this regard, it is noted that, by its own unambiguous terms, the JBF/ISP is intended to provide a daily cash benefit for members who . . . "suffer[ ] a loss of wages by reason of being out of employment . . . ."
Moreover, we are unable to conclude that the JBF/ISP is a "strike fund," within the meaning of 29 C.F.R.§ 2510.3-1(h), excluded from coverage under Title I of ERISA. That section provides, in relevant part, that:
. . . the terms "employee welfare benefit plan" and "welfare plan" shall not include a fund maintained by an employee organization to provide payments to its members during strikes and for related purposes.
You assert that the JBF/ISP program is designed to provide benefits for a purpose related to strikes — to maintain the relative bargaining position of the UTU in disputes with management, by paying benefits which support UTU members while they exercise their collectively bargained rights. You posit that the JBF/ISP benefits are like strike benefits, not unemployment benefits, and the Program is therefore not a welfare benefit program covered by Title I of ERISA.
In Advisory Opinion 92-01A, the Department considered whether a fund which paid benefits for "authorized work stoppages" was a welfare plan under ERISA or was excepted from coverage by the regulation as a "strike fund." In its consideration, the Department stated that the term "strike" within the meaning of regulation section 2510.3-1(h) was not to be equated with unemployment and took the position that the regulation would not be applicable if the term "authorized work stoppage" referred to mere unemployment rather than to a strike. See also DOL Notice of Proposed Rulemaking (Preamble), 40 Fed. Reg. 24642 (June 9, 1975) (A strike fund is not a welfare plan under section 3(1) of the Act. Although unemployment benefits are among the benefits listed in section 3(1), a strike is not to be equated with unemployment).
Thus, it is the Department's position that an income replacement program will be excluded from Title I of ERISA pursuant to this regulation if the benefit payments are provided to members whose loss of work and consequent loss of income occurs during a strike. The unemployment benefits paid under the JBF/ISP are not paid during a strike. Rather, the JBF/ISP benefits are paid during periods of unemployment for individual UTU members who have been suspended or discharged by their employer as a penalty or method of discipline. Indeed, prior to 1998, the JBF/ISP specifically prohibited the payment of benefits if the unemployment is occasioned by "[s]trikes, lockout, furlough, calculated deliberate slowdown, [or] work stoppage (legal or illegal)." Therefore, the express terms of the Program excluded it from the definition of a "strike fund."⁽⁵⁾
Nor, in the Department’s view, could the JBF/ISP benefits be considered to be for a "related purpose" within the meaning of the regulation, and hence excluded from ERISA coverage. The Department has not had the occasion to articulate what a "related purpose" would be. However, the definition would not, in the Department’s view, include benefits for unemployment as described in ERISA section 3(1) other than benefits provided in a situation involving a strike. Even though the JBF/ISP benefits may be intended to equalize an employee’s bargaining power, that purpose relates to individual circumstances of suspension or discharge for disciplinary reasons.
On the basis of the facts, representations and documents provided, we conclude that the JBF/ISP Program is an employee welfare benefit plan providing unemployment benefits within the meaning of ERISA section 3(1). The exclusion of "strike funds" does not, in our view, provide a basis for considering the benefits provided under the Program as outside the scope of ERISA section 3(1).
This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, it is issued subject to the provisions of the procedure, including section 10 thereof relating to the effect of advisory opinions.
Sincerely, John J. Canary Chief, Division of Coverage, Reporting and Disclosure Office of Regulations and Interpretations

Footnotes
The JBF/ISP, although it continues in existence, was amended in 1998. This opinion only addresses the terms of the Program provided in the Minutes of the Meeting, UTU Board of Directors, July 14, 1980 (1980 UTU Board Minutes) (Exhibit 5 of Memorandum Attachment to letter of June 3, 1999). You confirmed that UTU members receiving JBF/ISP benefits while pursuing a grievance challenging their suspension or termination are also eligible for unemployment benefits under the Railroad Unemployment Insurance Act, 45 U.S.C.§ 351 et seq. (RUIA). Your submission indicates that the UTU originally sponsored the JBF alone. In addition to benefits similar to those later offered by the JBF/ISP, the JBF provided a "retirement dividend," which returned to members a portion of their contributions into the Fund upon retirement. In 1980, membership in the JBF was frozen, and the JBF/ISP was established by UTU to provide a greater daily benefit to participating members. The new program eliminated the retirement dividend, except for then current members of the JBF who waived participation in the JBF/ISP. Although your submission does not contain sufficient facts to be definitive, nothing in the materials you submitted suggest that the JBF/ISP benefits paid at employment termination would be considered pension benefits under ERISA section 3(2). See 29 C.F.R.§ 2510.3-2(b). However, you do not indicate whether there are UTU members who may have elected to remain members under the JBF, and therefore may still be eligible, upon retirement, for a retirement dividend. You have not sought an opinion as to the status of the JBF as an employee welfare or pension plan under Title I of ERISA, and therefore this letter does not address any issues with respect to that Fund, or its assets which may remain held by UTU. The Department does not believe that treatment of the JBF/ISP benefits as "unemployment" benefits is inconsistent with the concept of unemployment under other Department of Labor programs or other federal laws. The JBF/ISP was amended in 1998 to delete this exclusion. You have not sought an opinion as to whether this change in the Program would have any effect on the extent to which the Program is covered under Title I of ERISA after the effective date of the change.