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Employee Benefits Security Administration

Advisory Opinion

October 24, 2000

2000-13A
ERISA Sec. 3(32)

Mr. David McDaniel
Ernst & Young
600 Peachtree Street, Suite 2800
Atlanta, Georgia 30308-2215

Dear Mr. McDaniel:

This responds to your correspondence on behalf of the East Alabama Health Care Authority ("Authority") of Lee County, Alabama ("County") concerning the applicability of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, you ask whether the Authority's East Alabama Medical Center Financial Security Plan and its East Alabama Medical Center TSA Thrift Plan (collectively, the "Plans") are governmental plans within the meaning of § 3(32) of ERISA, and, therefore, excluded by § 4(b)(1) from coverage under Title I.

Your correspondence and the materials you enclosed contain the following facts and representations. From 1950 through 1981, the County supervised its public health and hospital activities through the Lee County Hospital Board, a nonprofit public corporation that received proceeds from the County's ad valorem hospital tax. In 1982, Alabama enacted the Alabama Health Care Authorities Act ("Act") to provide for hospital authorities. Ala. Code § 22-21-310, et seq. The Act’s stated purpose was "to promote the public health of the people of the state (1)by authorizing the several counties and municipalities in the state effectively to form public corporations whose corporate purpose shall be to acquire, own and operate health care facilities, and (2) by permitting, with the consent of the counties or municipalities (or both) authorizing their formation, existing public hospital corporations to reincorporate hereunder." Ala. Code § 22-21-312. Pursuant to the Act, the County reincorporated the Lee County Hospital Board as the Authority in 1982. As the County's wholly-owned, sole provider of public hospital services, proceeds from the County's hospital tax became the Authority's property.

The Act provides for counties and municipalities that establish hospital authorities to extensively control them. Hospital authorities are described for purposes specified in the Act as "political subdivisions" as well as "agencies or instrumentalities" of government. The Authority's incorporating documents also ensure substantial involvement by the County in the Authority’s operations. For example, the Authority is supervised by a nine-member board of directors, all of whom are elected by the County’s governing body, the Lee County Commission ("County Commission"). Directors' removal is, however, controlled by state law provisions. Ala. Code § 22-21-316(d). In addition, unless the Authority has outstanding securities or obligations, it may be dissolved and, on dissolution, must distribute its assets to the County. The Authority must file annual audits with the County. Pursuant to the Act, the Authority may exercise the power of eminent domain and is exempt from state and county taxes, including from state sales and use taxes. You advise that the Authority is exempt from federal income tax under § 501(c)(3) of the Internal Revenue Code. The Act also grants the power to issue tax-exempt bonds, and the Authority issued bonds in 1998, pledging as security 75 percent of its hospital tax proceeds.

The Authority conducts business as the East Alabama Medical Center ("Medical Center"). The Medical Center operates an acute care public hospital that provides more than 300 beds and a skilled nursing facility. The Medical Center's patient revenues, as supplemented by County hospital tax proceeds, provide almost all financial support for the Authority. The Authority has organized the East Alabama Medical Center Foundation ("Foundation") as a nonprofit, tax-exempt organization. Neither the Foundation nor the Medical Center has employees; instead, all individuals employed in Medical Center operations are employed by the Authority itself.

The Authority adopted the East Alabama Medical Center Financial Security Plan ("Security Plan") in 1987, and the East Alabama Medical Center TSA Thrift Plan ("Thrift Plan") in 1993.(1)  The Security Plan is a defined contribution plan. In accordance with the plan documents, the Authority may make discretionary annual contributions to the Security Plan, and the Authority regularly makes such annual contributions. The Thrift Plan, established pursuant to § 403(b) of the Code, permits eligible employees to make salary reduction contributions with the Authority providing certain matching contributions. You represent that the Plans cover only Authority employees.(2The Authority’s contributions to the Plans are from general operating revenues.

Section 4(b)(1) of Title I of ERISA excludes governmental plans from coverage. The term "governmental plan" is defined in § 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."

The phrase "agency or instrumentality" is not defined in ERISA, and no regulations issued pursuant to ERISA interpret that phrase. Accordingly, whether an entity is an "agency or instrumentality" of government for purposes of ERISA § 3(32), depends on the facts and circumstances of the relationship between government and the entity whose benefit arrangement's status as a "governmental plan" is in issue.

Based on your representations, we conclude that the Authority is, within the meaning of ERISA § 3(32), an "agency or instrumentality" of government.(3The Authority has governmental powers, including the power of eminent domain and the power to issue tax-exempt bonds. Further, the Authority was established and is controlled by the County under Alabama statute, including through the County Commission's election of the Authority's board of directors. In addition, the Authority is supported in part by County taxes. Accordingly, it is the view of the Department that the Plans, which we conclude are plans that are established and maintained by the Authority for its own employees, are "governmental plans" described in ERISA § 3(32), and therefore, are excluded by ERISA § 4(b)(1) from Title I coverage.

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 relating to the effect of advisory opinions. This letter relates solely to the application of provisions of Title I of ERISA and expresses no conclusion as to any particular tax treatment under the Internal Revenue Code.

Finally, we note that plan documents included in your submission state that ERISA gives certain rights to participants of the Plans and imposes duties on fiduciaries of the Plans. We believe it is important that participants and beneficiaries of the Plans have accurate information concerning the law that governs the Plans and the conduct of plan fiduciaries. You agreed that appropriate actions will be taken to remove erroneous references to rights and status under Title I of ERISA from plan documents and literature and that the Plans will promptly notify affected participants and beneficiaries that Title I of ERISA does not apply to the Plans.

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

Footnotes

  1. Beginning in 1982, the Authority contributed to the Retirement System of Alabama ("RSA"), an Alabama public pension system, for employees formerly employed by the Lee County Hospital Board. Although the Authority voluntarily ceased participating in the RSA in 1994, some employees continue to have retirement balances with the RSA.

  2. Although the plan documents you submitted indicate that employees of employers that "affiliate" with the Authority may participate therein, you represent that participation in the Plans is limited to employees of the Authority. The view expressed in this opinion concerning the Plans' "governmental plan" status does not apply if employees of employers other than the Authority begin to participate in either Plan.

  3. We note that the Alabama Health Care Authorities Act classifies hospital authorities as "political subdivisions" as well as "agencies or instrumentalities" of government for certain purposes. Distinguishing an "agency or instrumentality" of government from a "political subdivision" of government is without legal significance for purposes of determining whether a plan is a governmental plan exempt from Title I coverage. Accordingly, we do not need to decide, and this letter should not be read as expressing any opinion concerning, whether the Authority is a political subdivision of government within the meaning of ERISA § 3(32).