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Employee Benefits Security Administration

Advisory Opinion

July 26, 1999

Susanne K. Reed, Esq.
Assistant General Counsel
School and Legal College Services
Sonoma County Office of Education
5340 Skylane Boulevard
Santa Rosa, California 95403

1999-10A
ERISA Sec. 3(32)

Dear Ms. Reed:

This responds 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). Specifically, you ask whether participation by twenty-eight employees of the Western Association of Schools and Colleges (WASC) in the California Public Employees' Retirement System (CalPERS) would adversely affect the status of CalPERS as a “governmental plan” within the meaning of section 3(32) of ERISA.

Your correspondence and the materials you enclose contain the following facts and representations. CalPERS is a state-run system providing primarily retirement income and death benefits to public employees or their beneficiaries within the State of California.(1) Cal. Gov't Code § 20000 et seq. CalPERS is administered by a board consisting of members designated by statute or appointed by the California Personnel Board, the Governor of California, and employee-members of CalPERS. See id. §§ 20090-20095. Employees of the State of California, of a county's superintendent of schools, of a “school employer” as defined in Cal. Gov't Code § 20063, and of the University of California must participate in CalPERS. See id. §§ 20028, 20281. Any “public agency,” as defined by California statute, may participate in, and make all or part of its employees members of, CalPERS by contracting with CalPERS. See id. § 20460. On joining CalPERS, an employer is subject to formulas and conditions set by California statute that concern its participation. You represent that CalPERS has over a million participants, including about 750,000 active and inactive participants and 300,000 retirees.

Section 20057 of California’s Government Code designates various entities as “public agencies” for the purpose of being eligible to participate in CalPERS. Section 20057(w), enacted in 1997, identifies WASC as an employer able to join CalPERS, and provides as follows:

The Western Association of Schools and Colleges upon obtaining a written advisory opinion from the United States Department of Labor that the participation of the officers and employees of the association in this system would not affect this system's exemption as a governmental plan under Section 1001 et seq. of Title 29 of the United States Code [Title I of ERISA].  The association shall be deemed a "public agency" only for this purpose.(2)

No action has yet been taken to permit WASC employees to participate in CalPERS.(3)

Although Cal. Gov't Code § 20057(w) provides that WASC is a “public agency” only for the purpose of being able to participate in CalPERS, you assert that WASC serves a government function, that governmental entities control WASC to a significant extent, and that most of WASC's income consists of public funds, and, therefore, that WASC should be seen for purposes of the definition of “governmental plan” in ERISA § 3(32) as an “agency or instrumentality” of the State of California or a “political subdivision” thereof. Alternatively, you state that, even if WASC is considered a private sector employer, governmental plan status should not be affected because WASC’s participation would involve only a de minimis number of private sector employees.

WASC was organized in 1962 by individuals representing both private and public school interests and was incorporated in California pursuant to that state's nonprofit corporation statute. The U.S. Department of Education recognizes WASC as a regional accrediting agency to conduct nongovernmental, peer evaluations of educational institutions. You indicate that WASC's activities with public and private educational institutions provide quality assurance to state and federal educational programs. Within its region, which is one of six covering the nation, WASC accredits most schools at the secondary school level and above. Because all public schools in WASC's region must apply for accreditation, approximately 75 percent of schools accredited by WASC are public schools. In addition, more than 90 percent of WASC's activities involve schools in California.(4)

WASC's articles of incorporation and constitution provide for a nine-member board of directors to control and supervise its operations. Directors are selected by members of three accrediting commissions that comprise WASC. Each such commission serves one educational level; there is a WASC commission for secondary schools, one for junior and community colleges, and one for senior colleges and universities. Up to sixty-seven individuals may serve as the members of WASC's commissions.(5) Each commission has its own procedures for selecting members to represent public and private educational institutions.(6) Excepting that one employee of the California Department of Education serves on WASC's accrediting commission for secondary schools, commission members' selection is through election by public and private institutions that are subject to accreditation by WASC, through appointment by state education officials, or through selection by committee from nominees of private and public educational institutions and organizations.

WASC finances its activities by charging dues to schools to which it grants accreditation, and schools with larger student enrollments must pay more dues than smaller schools. Dues are paid by both private and public schools. You represent that accredited public schools, rather than private schools, provide most of WASC's income from dues and, for that reason, that WASC's income is mostly from public school funds.

You represent that all nongovernmental employees constitute only an extremely small fraction of one percent of CalPERS participants. In that regard, we note that not all the entities named in Cal. Gov't Code § 20057 are subject to the requirement to obtain a written advisory opinion from the Department on CalPERS governmental plan status under ERISA before they can participate in the system. See Cal. Gov't Code §§ 20057(u)-(w), 20057.1.

Title I of ERISA covers employee pension benefit plans and employee welfare benefit plans. In general, a covered employee pension benefit plan includes any plan, fund, or program established or maintained by an employer or by an employee organization, or by both, to provide retirement income to employees. Section 4(b)(1) of Title I of ERISA, however, excludes governmental plans from coverage. The term “governmental plan” is defined in section 3(32) to include “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.” It is the Department's view that governmental plan status is not affected by participation of a de minimis number of private sector employees. See Advisory Opinion 95-27A. 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 the information and representations that are provided in your request, and without expressing any views on the status of WASC as an “agency or instrumentality” or a “political subdivision” of government within the meaning of ERISA § 3(32), it is the Department's view that participation of twenty-eight WASC employees would not adversely affect any status of CalPERS as a “governmental plan” within the meaning of Title I of ERISA. Even if WASC's employees are private sector employees, it is our understanding, based on your representations, that all nongovernmental employees participating in CalPERS, including WASC employees, would constitute no more than a small fraction of one percent of all CalPERS participants and would be de minimis. This letter should not be read as expressing any views on other employers mentioned in Cal. Gov't Code § 20057 joining CalPERS.

This letter constitutes an advisory opinion. It is issued under ERISA Procedure 76-1, including section 10 thereof concerning the effect of issuing advisory opinions. This letter relates solely to the application of provisions of Title I of ERISA and is not determinative of any particular tax treatment under the Internal Revenue Code (the Code). We encourage you to contact the Internal Revenue Service National Office, Employee Plans Division, to clarify the treatment of this arrangement under the Code.

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


Footnotes

  1. You assume for purposes of your request that CalPERS is a “governmental plan” under ERISA § 3(32). For purposes of this opinion, we also assume, without examining the issue, that CalPERS as it currently operates constitutes a “governmental plan” within the meaning of § 3(32). This letter expresses no position of the Department on that question.

  2. In Advisory Opinion 93-4A, the Department concluded that ERISA § 514 preempted a state law that attempted to permit the state to apply its laws to an employee benefit plan until the plan obtained an advisory opinion from the Department. We concluded that § 514(a) is, by its own terms, self-executing. Noting that § 514(a) contains no provision that conditions its effect on any action to be taken by the Department or any other governmental body, we concluded that any attempt by the state, through legislation, regulatory action, or otherwise, to alter or limit the scope of the preemption under § 514(a) would itself be subject to the preemption provided by § 514(a). You have not asked for our views regarding, and this opinion should not be read as expressing any views on, the application of § 514(a) to Cal. Gov’t Code § 20057(w).

  3. Some WASC employees would be rejoining CalPERS because they participated during former employment.

  4. Other schools applying to WASC for accreditation are in Hawaii, American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau. Also obtaining accreditation through WASC are schools in Fiji and in the area served by the East Asia Regional Council of Overseas Schools (EARCOS). EARCOS serves schools in Australia, Cambodia, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Guinea, Peoples Republic of China, Philippines, Singapore, Taiwan, and Thailand.

  5. Any accrediting commission may remove a commission member by a two-thirds vote of members.

  6. Some selections must represent the general public, faculty interests, administrative interests, and regional interests. Some organizations of religious educators and parent-teacher organizations also participate in the nomination process.