Pension Benefit Guaranty Corporation 96-3 July 8, 1996 RE FE RE NC E: [*1] § 4021(b)(2) OP INI ON : I write i n response to your lett ers regarding coverage of the above-ref erenced Plan under Titl e IV of the Employee Retirement Inco me S ecurity A ct of 1974, 29 U.S .C . § § 13 01- 146 1 ( 199 4) (" ERI SA" ). On J an ua ry 2, 199 6, PBGC iss ued the enc losed det erminat ion th at t he Plan i s covered unde r Title I V to the exte nt that it pro vides fixed b enefits to partic ipants for past ser vice . n1 You have aske d us to al so rul e on whethe r the Plan i s a gov ernmen tal plan excl uded f rom coverage by section 4021(b)(2) of ERISA . n2 We have determi ned that t he Plan is not excluded from Title IV coverage as a go vernm ental p lan. n1 PB GC 's Januar y 2, 19 96 d eterm ination a ddr essed the Pla n spo nsor's req uest for a refund of pre mium s mistake nly paid to PBG C during the years 1989 through 19 91 on account of individual account plan assets t ransferred int o the Plan. PBGC ruled th at plan particip ants wh ose b enefits we re ba sed so lely on the transferr ed ind ividua l acco unt ba lance s shou ld not have been count ed in cal culat ing t he amount of premiums owed f or the y ea rs in q uestion . Acc ord ingly, PB GC is currently determining the amount of any refund owed to the Plan sponsor. [*2] n2 By letter dated February 14, 1994 (copy enclosed), another representati ve of the Plan s ponsor als o reque ste d a ruling re gard ing whe ther the P lan is a go vernm ental p lan. O ur op inion e xpre ssed b elow add resses b oth req uests. Our dis cuss ion of the is sues you h ave r ais ed ass umes t hat the fact s and r epres enta ti ons made in your submission are accu rate and compl ete. The Plan spons or is the * * * which is t ax-exempt under section 501(c)(6) of the Inter nal Revenue Code (the "C ode "), w as or ganized un der Ca lifornia State law as a non-pro fit mutual benefit corpo ration. * * * is a mem bersh ip * * * or gan iza ti on, and i ts member s ar e hor se t rai ner s. * * * pr ima ry objec tive is to be a "trainers' orga nizatio n" un der C alifornia State law , and it p rom otes the interests o f thoro ughb red h orse tra iners in C alifornia . * * * provides s ervice s to as sociat ions t hat condu ct horse racing m eetings. California l aw requires these ass ociations to ded uct a p ercen tage o f the pur ses pa id to horse owner s to pay for a pension plan for bac kstretch person nel. In the case of thoroughb red horse racing, these sums are then p aid to * * * as a "trainers' organization" under C alifornia law. As a "trainers' organ izat ion, " [*3] * * * mu st be inc orp orate d in C alifornia , and it must r epresent a majorit y of t horoughbred horse trainers in the State . The Plan was adopted by * * * eff ective December 31 , 1979, to provide benefits to backstret ch employees who work eith er at a racet rack in Cal if or nia t hat cont racts with * * * or at an off- sit e trai ning ce nter t hat i s approved under Califo rnia law as a faci lit y fr om which hors es can be ra ced at race tracks h aving c ontra cts with * * *. Benef its are fu nded by contributions made by * * *. The Int ernal Revenue Servi ce has det ermined t hat the Plan is a t ax-qual ifi ed, defi ned ben efit pens ion p lan. Except as pr ovided in s ecti on 4021(b ) of ERISA, T itle I V generally applies t o defined benefit pension plans that are determined by the Secretary of Treasury to be plans described in secti on 401(a) of the Code . ERISA § 4 021(a)(2). Secti on 4021(b)( 2) exc ludes fr om Title IV co verage any plan "establis hed and maintained for its employees by the Governm ent of the United States, by the government of any Stat e or pol it ical subdi vis ion t hereof , or by any agenc y or ins tru menta li ty of an y of the for egoin g.. .. " There is no defini tive statut ory or regulatory def initi on of a governmental [*4] plan, but PBGC has consi dered a number of rel evant f actors, incl uding (i ) wheth er the plan or t he plan spon sor is co ntrolled by a go vernm ental en tity, (ii) whether the off icers or members of t he plan s ponsor repres ent, or are se lect ed by, a gove rnmental enti ty, (ii i) whet her the plan or th e p la n s po ns or is f un de d b y a go ve rn me nt al en tit y, ( iv ) w he th er th e p la n's part ici pants are c onsi dered t o be government employees, (v) whet her th e plan spon sor is trea ted un der sta te or fed eral law as a go vernm ental en tity, (vi) whether there a re any p rivate interests inv olved , and (v ii) whet her a gover nment al e nti ty has t he power s and i nter est s of

an owner . See e.g ., PBGC O pini on Let ter 83-16 ( July 12, 1983) , PBGC Opinion Lett er 81- 40 ( Decembe r 9, 1981), PBGC Opinion Let ter 81- 37 (November 16, 1981), PBGC Opinion Let ter 81- 31 (September 22, 1981), PBGC O pini on Letter 81- 30 ( Sep te mbe r 2 2, 198 1) , P BGC Opi ni on Let te r 8 1- 13 ( May 13, 198 1) , P BGC Op inion L etter 79 -6 (Apri l 10, 1979), PBGC Op in io n L et te r 7 8- 25 ( Oct obe r 3 1, 197 8) , P BGC Opi ni on Let te r 7 7- 152 (J ul y 1 3, 197 7) an d PBGC Op inion L etter 76 -95 (A ugust 2 , 197 6). The Depart ment of Labor ("DO L") and the Internal Revenue Service ("IRS") have considered [*5] similar factors in interpre ting ER ISA § 3(3 2) an d C ode § 41 4(d ), respe ctively. Se e ER ISA Op inion L etter 90 -09 (A pril 25 , 1 990) , ERISA Opi ni on Let te r 8 9- 16 ( Aug us t 4 , 1 989 ), Rev . R ul . 8 9- 49, 198 9- 1 C. B. 1 17, an d Re v. Rul . 5 7- 128 , 1 957 -1 C. B. 311 . As the IRS has indi c ated, t he mere sat isf acti on of one or al l of t hese f actors is not necessa ril y deter minati ve. See Rev. Rul. 89-49, 1989-1 C.B . 117. W e have exami ned t he re leva nt f actor s, and bel ieve tha t t he Pla n is not excl uded f rom Title IV coverage as a government al plan . Neith er the State of Cali forni a n or an y of its agencie s or in stru mentali ties appears to man age or cont rol the Plan s ponsor - * * * -- or the Pla n. Instea d, * * *'s busine ss affairs are mana ged by its Board of Directors, and the Bo ard is chosen by * * * membe rs. * * * Amended and Restate d Bylaws (the "Byl aws") at Sections 6.01 and 6 .02. L ikewise , the Pla n is adm inistered by a co mm ittee co mpo sed o f individ uals selec ted by Plan at Secti on 5.1. Although * * * receives funding pursuant to Ca lifornia S tate law, tha t funding com es dire ctly [*6] from the priva te enti ties spon soring the ho rse rac es. Ca l. Bus. & Pro f. Code § § 1961 0-19619 .8 (Deering 1992 & Supp. 1995 ). Mo reover, the am ount o f funding that * * * receives is set by statut e, and * * * has no apparent aut hori ty to i ncrea se or decrea se that amount. Compare PBG C Opinion Lett er 76-95 (Augus t 2, 1976) (Pens ion plan hel d not t o be covered where its spon sor wa s autho rized to offset a ny fund ing de ficiency in the plan by assess ing a tax agains t county resi dents). And as you h ave sta ted, P lan pa rticipan ts are not considered government employees; rather, t hey are employees of the horse trainers a nd o wners . The business of horse raci ng i n Cali forn ia i s re gul ated by Stat e la w, s ee Cal . Bus. & Prof. Code § § 19400-19705 (D eerin g 1992 & Supp. 1995) , but the re i s no ev idenc e th at t he St ate of Cal if orni a cons ider s * * * 's ser vice s t o be government al servi ces, or that * * * provides s ervice s on behalf of a gover nmental enti ty. Nor does a government al entity appear to ha ve any owner shi p powers or i nter est s i n * * *. Ins tead, * * *'s memb ers -- the ho rse traine rs -- are pr ivate interests. See * * * Bylaws at Sect ions 3. 01-3.07. Cal ifor nia l aw does not cr eate * * * or requir e [*7] t hat * * * be a "trainers' org ani zat ion ." Al though t he fun ding tha t re ceiv es pur suan t t o Cali forn ia l aw coul d be wi thh eld i f i t di d not quali fy as a "t rai ners ' organ izat ion, " Cali forn ia l aw does not r equir e * * * t o remai n a "t rai ners ' organ izat ion. " In summar y, we bel ieve tha t t he Pla n is not excl uded f rom cover age as a gover nment al pl an unde r se cti on 4021(b) (2) of ERISA. Pl ease note, howeve r, t hat our opi nion doe s no t pur port t o int erpre t an y prov isi on of Ti tl e I or Titl e II of ERISA. See, e.g ., ERISA Opini on Let ter 95-01A (F ebruar y 13, 1995). For an interpretation of those T itles, we suggest that you conta ct DO L or I RS . The PBG C's deci sion expr essed her ein i s an i nit ial dete rmin ati on purs uant to 29 C. F.R. § 2606.1( b)(1) (1994). You may reque st recons ider ati on of thi s det erminat ion purs uant t o Subpart C of 29 C.F. R. Part 2606 (1994). This ini tial deter minat ion will bec ome effective o n the 3 1st da y after the d ate of this le tter unless an agg rieved perso n req uests reco nside ration w ithin 30 days o f the date of this letter. A ny req uest for r eco nside ration sh ould be ad dress ed to : M s. Anna Gil reat h, Manag er, Stan dard Termi nati on Compli ance Di vis ion, Ins uran ce Operat ions Depart ment, [*8] Pensi on Benef it Guarant y Corpor ati on, 1200 K St reet , N.W., Washing ton, D.C. 20005 We hope this r esponse is helpful . If y ou have any questions or need addit ional inf ormation, please c ontact me at (20 2) 3 26-4 000 . Da vid S mith, C hief Administrati ve Review and T echnical Assis tance Branch