Pension Benefit Guaranty Corporation 98-2 May 20, 1998 RE FE RE NC E: [*1] 402 1(b)(2 ) Plans Co vered. G overnm ent Plans OP INI ON : Th is is i n response to th e requ est that you filed (the "R equ est") n 1 for a deter minatio n by the Pen sion B enefit Gu aranty Cor por at io n ( "PBG C") that t he above-referenced plan (the "Plan") is exempt from coverage under Title IV of ER ISA , 29 U .S.C. § 130 1, et seq . Yo u asser t that the P lan is a go vernm ental p lan that is ex emp t u nd er ERI SA § 4021(b )(2). For the r easons di scuss ed below, on the basi s of t he inf ormation t hat y ou provided, we conclude t hat t he Plan is not a governmental plan. n1 Our refer ences to t he "Reque st" incl ude you r le tt ers dated Septembe r 8, 1995 ("Sept . Lt r.") ; Jan uary 5, 1996 ("Jan. Letter"); April 26, 1996 ("Apr. Ltr."); and Jul y 21, 1997 ("Jul y Lt r.") , an d att achmen ts ther eto. In addi ti on, y ou have provided PB GC co unsel in t elephone conversations with cert ain background information. The R equest The Plan sponsor i s * * * (t he "Corporation") , a * * * corporation that , under a contract wit h the city of * * * (the "C ity "), operates the * * * ( the "Transi t Sys tem"). The Request argues that the Corporat ion is a gover nmen t ins tru menta li ty , an d thu s t he Pla n is a gover nment al pl an [* 2] exe mpt f rom Tit le I V coverag e. Apr . Lt r. a t 1. In support, the Request assert s that t he governmental exemption applies because: (1) the Corporation "operates the C ity 's transit system" (Sept. Ltr .); (2) t he City "owns" the Transit Syst em, which is a "public ent erprise" withi n the meaning of N.C. Gen. St at. § 160A-311 ( Apr. Lt r. a t 1- 2); ( 3) th e Cit y i s t he "sou rce" of cont ribu ti ons t o the Plan, and, under its contr act with t he Corporation, is responsible f or paying "all past, present, and fut ure pension or profit- sharing plan liabil ity, including, without l imitati on . . . l iabili ty for ves ted, but under f unded or unf unded benef it s" (i d. at 2-3, 4); (4) in-house counsel f or * * * . , the ul timate parent of the Corporation, wrote a l ette r to t he Corporati on opining that the Corporation "and similar subsidiari es of * * * " are governm ent instr ume ntalities (id. a t 3); (5) the City p ays all expenses of t he Trans it Syst em, an d all reve nues the ref rom are propert y of the Cit y (i d. at 4); (6) the Cit y has t he power to approve in advance the appointment and removal of the "resid ent ma nage men t team" of the C orp oratio n's paren t, * * * (id.); (7) the Corporation's act iviti es are [*3] great ly r estr icte d by the pol icie s, s tandards and procedures es tabli shed by the City (id. ); (8) the Plan is a g overnmental plan wi thi n the meani ng of Tit le I of ERISA, § 3(32) (id. at 5); and (9) the Plan is a governmental pl an within t he meaning of the Inter nal Revenue Code, § 41 4(d) (id. at 5-7). n2 n2 The Reques t i nclu ded th e fol lowi ng docume nts : (1) sel ecte d sect ions of t he Cit y' s Char ter and * * * Gen eral Statutes; (2) the Corporation's Art icles of * * * Incorporation; ( 3) various reports and inter nal draft and fi nal memos of the City pe rtaining to standards applicable or desirable f or the Transi t s yst em; ( 4) th e "opin ion l ett er" dat ed March 26, 199 6, of * * * , As sistant D ivision C ouns el, * * * .; (5) the management contract dated September 1, 1994 , among the Corporation, * * * , a nd the Cit y; ( 6) Form 5303 Applicati on for pl an quali fica tion t o the IRS dat ed March 31, 1995, (7) IRS Deter minat ion Le tt ers dated Augus t 15, 1988, D ecember 7, 199 5, and undated but mailed in February 1996; (8) Plan counsel's letter to the IRS dated January 5, 1996; and (9) the Plan. Background Th e City is a p olitical sub divisio n of the S tate of * * * . Apr. Lett er at 1-2. P ursuan t [*4] to sta te statute, the City is authori zed to contr act f or the opera tion of a "public e nterpri se" such as the T ransit Sys tem . N. C. Gen . St at. § § 160A- 311, 312 (a). As we unde rst and t he f acts , f rom 1955 to 19 77, the Tra nsit System was m anag ed b y * * * was a p rivate, fo r-pro fit corpora ti on that was o wned , directly o r indire ctly, by a private com pan y base d in * * * . See Plan at § 1.6 . * * * mana ged the Tra nsit Syst em under contr act wi th t he City . In 1955, * * * es tabli shed a pensi on plan f or employees of the T ransit

Syst em (t he " * * * Plan"). The R equest do es not assert that the * * * Plan was or is a go vernmen tal plan or otherw ise ex emp t f ro m Ti tl e I V. In 1977, the City did not extend the mana gem ent co ntract w ith * * * and in stead selecte d the C orp oratio n and * * * Comp any to manage the T ransit Sys tem. T he C orp oratio n, orga nized unde r the laws of * * * , is a subsid iary of * * * Co mpa ny (the " Par ent") , a who lly owne d, for-p rofit sub sidiary o f * * * ., a wholly ow ned subsid iary of * * * ., which is a who lly owne d sub sidiary o f * * * . The P arent is in the busi ness of pr ovidi ng mana gement ser vice s f or th e operat ion of transit systems. Cer tain employees who work in the Transi t Sys tem [* 5] are repr esente d by the * * * ( the "Union"). When * * * was replaced by the Corporation, the City and Unio n agre ed tha t the pe nsion b enefits o f Tra nsit System emp loyees should not be affec ted b y t he rep lacem ent of the ma nage men t com pan y. Th ey attem pted to ob tain the ag reem ent of * * * to trans fer assets allo cab le to tho se em ploye es from the * * * Pla n to a su ccess or p lan to b e estab lished. H owe ver, * *

* refused their req uest. Inst ead, the City and the Corporat ion est ablis hed the Plan a s a t ype of mirr or, of fse t ben efi t pl an t hat, in c ombinat ion with the * * * Plan, esse nti all y prov ided t he bene fi ts that woul d have be en pai d had t he par ti cipan ts conti nued t o be covered by the * * * Plan. From 19 80 to 1995 , without reservation, the Plan paid Title IV premiums. n3 n3 Under ERISA § § 4006 a nd 4007, only plans cove red by Titl e IV are requi red to pay premiums. Governmental plans are not required to pay premiums to PBGC . See ERISA § § 4006 (a)(1) and 4021(b )(2). The Plan is not part of any pension pl an off ered by t he City to publi c employees . Apr. Let ter at 2; Plan § 12.2. The Plan provi des t hat the Corporat ion (and not t he City ) is the s ponsor of t he Plan. See Plan § § 1.8, 2-5, [*6] 8, 10- 12. Under Plan § 3.1, the Corporat ion is requir ed to make suc h contri butions "as are deemed nece ssary to maint ain t he Plan on a sound actuarial basis . . . t aking into account . . . t he requirements of the [ Internal Revenue] Code." n4 n4 Minimum f undi ng re quir ement s pre scri bed by Tit le I of ERISA a nd sec ti on 412 of the Code do not appl y to "governmenta l plans" within the m eaning of those statutes re spec tively. ERISA § 4(b)(1); Co de § 412 (h)(3 ). Th us, if the Plan were * * * govern mental, no contri butions would be requi red under ERISA or sect ion 412 of t he Code. Par ticipati on in the Plan is limited to Co rporation e mployee s. Plan § § 1 .5, 2.1. Although the Plan grants p ast servi ce cred it for em ploym ent with privat e companies such as * * * , it does not grant past servi ce credit for employment wit h th e Cit y. Plan § § 1.17, 1.31. The Corporation a dminis ters the Plan . Plan § 8. 1. The Corporation i s empower ed to appoint an d remove the Trust ee, w ho manag es t he as set s of the Plan. Plan § 9.7. The Corporat ion h as t he exc lus ive powers , un rest ric ted by the Pla n, to amend an d ter minat e th e Plan . Pla n § § 10. 1, 10.2. Upon terminati on of the Plan, any excess assets revert to the Corporation. [*7] Plan § § 3.2, 10.2(c). The Plan also provides that "no parti cipant or other individ ual shall h ave re cou rse tow ard the satisfaction of any a ccrue d be nefit other than fr om the trust f und or the Pension Benefit Guaranty Corporation." n5 Plan * * * § 10.2(b). n5 U nder E RISA § 402 1(b)(2 ), PB GC does no t guarantee be nefits of governme ntal plans. The cont ract date d Septe mber 1, 199 4, am ong th e Co rpo ration, th e Pa rent; and the City (the "Co ntract" ), § I.A., provides that the City "engages [the Parent and the Corporation] as independent contractors to advise t he City and manage the ope ration o f its transit system . . . . now or hereinafter owned by the City ." (Emphasis added.) "T he Parent and the Corporation are * * * i ndepende nt c ontr actor s and a re not employ ees or agent s of the City and each ret ains the right to exe rcise full an d exc lusive co ntrol an d sup ervisio n ove r its emp loyees and th eir co mpe nsati on and discharge except as herein provided." Contra ct § I.A .1. The Co ntract f urther provides it shall not "be construed as creating a part ners hip, agenc y, join t ve ntu re or other s imilar re lationsh ip be tween the City an d [the P arent] or [the Co rpo ration] ." Contr act § I. A.1. The Parent [*8] is t o be comp ensated by the City for i ts manag ement ser vices in t he amount of at l east $ * * * per ann um, plus i ncenti ves and oth er charge s not t o ex ceed $ * * * over three ye ars, no t includin g "S pec ial Pro jects." Contr act § I. B.4. The Corporation is "responsible for operating t he [Transit Syst em] under the supervi sion of [the Pare nt] an d subject to the policy dir ection of the Cit y. . . ." Contract § I.A.1. Subject to t he consent of the City , th e P arent appoints and removes certai n seni or management personnel . Contrac t § II.A.1. The Parent and Corpo ration together "have primary

respo nsibility to ma nage all primary and support f uncti ons necess ary t o trans it oper ations ." Contract § II. In parti cular, management r esponsibi lit ies of the Parent and the Corporat ion in clude: . . . carry ing out the f unctions of short range transi t planning, equipment and building util ization and maintenanc e, secur ity, routes, schedu les, fare analysis, equal service st andards, purchasing, budgeting, safety , employee selecti on and traini ng, employ ee rel ati ons, labor negotiations, pub lic relations, equipm ent selection, develo pmen t of all specifications, capital equip men t and c apital im pro vem ents, unle ss the [*9 ] City de sires to make other arr angements , and al l othe r normal manageri al function s reaso nab ly requir ed in the day-to-d ay op eratio n of [the Tra nsit System ] . . . . [Co ntract § I.B.1 .] The Cit y has "p rim ary responsibil ity f or policy directi on, funding, marketi ng, fi nance, and grant appli cati on/admi nis tra ti on and lo ng ran ge pla nning fo r Tr ansit Syste m op eratio ns." Contract § II. The Cit y owns all or virtually all of t he hard assets of t he Transit System, as well as t he operating revenue. Contra ct § § II I.C, V.B. In addition, the City is re spo nsible fo r paying "all op erating expe nses" of the T ransit Sys tem, which inc ludes "[c]ontributions to a pensi on plan t hat meet s Federal requir ements pur suant to [t he] Employee Retir ement [s ic] Secu rity Act of 19 74" and " all past, present, and future pension or profit sharing li abilit y, incl uding, with out li mitat ion to [ sic] liability for vest ed, but under funded or unfunded benefits." Contract § I. A.2.b. Upon termination or expiration of t he Contract, "the City or it s desi gnee shal l . . . immedi atel y ass ume responsi bili ty f or the pay ment and perf ormance of all outstanding obli gati ons ar isi ng out of the [Corpor ati on] empl oyment rel ati onshi p, inc ludi ng, [*10] but n ot l imi ted t o, . . . pension or profit shari ng plans , in cludin g, wi thout limi tati on, li ab ilit y for vested but unfun ded or underfu nded benef it s." Contr act § III .A.2. The Request does not assert, and the Contract does not provide, that t he City is di rectl y li able to t he Plan or Pla n partic ipants for un funde d be nefits. T he C ontra ct con tains no pro vision a llowing Plan particip ants to e nforc e a claim against either t he Corporation or the Cit y wit h respect to any Plan benefi t or l iabil ity . Alt hough Plan couns el sug gested that particip ants may ha ve a third -party b eneficia ry claim a gainst the City, the Contr act expli cit ly provi des t hat it "is not int ended to be a third party beneficiary cont ract and confers no right s upon anyone other than the City or [the Parent]/[t he Corporat ion] ." Cont ract § III . I. Nor is t here any stat ute t hat re quires the City t o contribute to the Pension Plan in t he event of und erfund ing. Ap r. Letter a t 3. In sub stance , the Co ntract m erely provi des f or in demnif icat ion of the Corporat ion by the City, rather than unco nditionally obligating the City to pay for unfund ed ben efits. In addit ion, Sect ion 11. 2 o f the Plan provides t hat t he Corporati on is not lia ble th ereunder [ *11] for any Plan benefits. Th us, eve n if the Cit y were, under th e Contract , vi carious ly l iable t o the part icipan ts f or the Corporat ion' s Plan ben efit liabilities, the Corp oration has no such liabilities u nder the P lan. The City' s buff er agai nst l iabil ity for Plan ben efits is further re inforce d by P lan Se ction 1 1.2, w hich p rovid es that no bene fits are pa yable e xcep t in acco rdan ce with the Plan, and, as previously noted, the Plan makes no provision whatsoever for payment of any bene fits or l iabi li ti es by the City . n6 In s um, if the Plan were go vern menta l, the Corporat ion w ould n ot be l iabl e for unf unded ben efi ts upon ter minat ion of the P lan, and , thus, the C ity would not ev en hav e inde mnifica tion liab ility with

respect to unf unded benefits. n6 Further , under Pl an § 11 .7, on ly the Corporation and the Trustee are necessary parti es to lit igation i nvolving the Plan, and participants, who are purportedly bound by such litigat ion under the terms of t he Plan, are not entit led to any notice of such l itigat ion. The Request does n ot ass ert t hat t he Corporati on is t reated as a governmental enti ty under any stat e or other federal law. Nor does the Request asser t th at employ ees of the Corporation [*12] are treated as government employees. To the con trary, as previously not ed, the Contract provides that the Corporation, and not the City, contr ols the compensation, disci pline and day-t o-day f uncti ons of employ ees who operat e the Trans it Sy stem. Contract § § I.A.1, I.A.2. a. The Req uest s u ggests that the IRS's f avorable qualificat ion lett er of * * * , may support the Request because the IR S's letter refer s to the Plan as a gover nmental plan. n7 However, as the Request concedes, t he IRS express ly di sclai med having considered whether the Plan met the requi rement s f or governmental plan stat us. Further, by lett er dated January 5, 1996, Plan counsel request ed the IRS t o issu e a "correct ed determi nati on let ter" wi thout the di sclai mer of consi derat ion of th e Pla n' s go ver nmen tal st atu s. Howeve r, on * * * , t he I RS inst ead iss ued a revised determinati on that eli minated the reference to the Plan as a governmental plan. n7 In a t elephone conver sati on, Plan coun sel t old PBGC counsel that the IRS had det ermined t he Plan

to be a government al plan. However, aft er PBGC counsel reque ste d a copy of th e IRS's determi nati on, Plan coun sel r eviewed

the mat te r a nd, in hi s * * * cov er le tt er to PBGC counsel , receded from the positi on that the IRS had determined that t he Plan was governmental. [*13] The Request also relies upon the "opinion letter" dated March 26, 1996, of * * * , Assis tant Divisi on Counsel of * * * (the " * * * O pinio n"). It state s that "h as alwa ys taken th e po sition" that the P lan is governmental based upon various priva te letter rulings of the IRS and the opinion of outsi de counsel . The * * * Opinion as sert s that the IRS has taken the posit ion in priva te letter ruling s that em ploye es of tran sit ope rations like those of the T ransit Sys tem ar e "ac tually government al employ ees" a nd the refore the be nefit plan s cov ering the m are gove rnme ntal plan s. Ho weve r, the * * * Opini on does n ot i nclu de or s pecif ical ly ref erenc e suc h pri vate let ter rul ing s. Moreover, nei ther the * * * Opin ion n or the Request as sert s that a privat e let ter r uli ng as t o whether the Plan is gover nment al h as ev er been reque ste d of t he IRS. Similar ly, neit her th e * * * Opinion nor t he Request i ncludes the "opini on of outs ide leg al couns el" upon whi ch the * * * Opinion relies. Discus sion ERISA § 4021(b)(2), 29 U.S.C. § 1321(b)(2), exc ludes f rom Title I V coverage any pl an "esta blis hed an d maintai ned for its employees by the Government of the United States, [* 14] by the government of any State or polit ical subdi vis ion thereof, or by any agency or instr umentality of any of the f oregoing . . ." The l egis lat ive his tory of ERISA § 4021(b)(2) indicates that * * * governmental plans were e xclud ed fro m T itle IV c ove rage b ecau se, in part, Cong ress believ ed that "the ability of go vernm ental b odie s to fulfill their ob ligations to emp loyees throug h their tax ing po wers is an adeq uate sub stitute for terminat ion * * * insurance." S. Rep. No. 93-383, 93rd Cong., 1st Sess ., 81 (1973); H.R. Rep. No. 93-807, 93rd Cong. , 2d Se ss , 1 64- 5 ( 197 4) . S ee Ros e v . L ong Is la nd R. R. , 8 28 F .2 d 91 0 ( 2d C ir . 1 987 ); PBGC Op. Ltr. 75-44. There is no d efinitive statuto ry or re gulato ry definitio n of the te rm " gove rnme ntal instrum enta li ty ." PB GC has considere d a num ber o f fa c tors in d eterm ining wh ether a plan is o r is not the plan o f a gov ernm ental instru men tality. These include (i) whether t he plan or the plan sponsor is control led by a governmental entit y, (i i) whether t he officers 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 th e plan or t he plan s ponsor is fu nded by a governmen tal enti ty, (iv) [*15] whe ther t he plan' s parti cipant s are t reated as government al emplo yees, (v) whet her th e plan spons or is t reated un der sta te or f ederal l aw as a gov ernm ental en tity, (vi) whether there are any pr ivate inter ests invo lved, a nd (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 Opini on Let ter s No. 83-16 (July 12, 1983), No . 81-40 (Decem ber 9, 1981), N o. 81-37 (No vember 16, 19 81), No. 81-31 ( Septembe r 22, 1981), No. 81-30 (Sep temb er 22 , 1981), No. 81-13 ( May 13, 1981) , No. 79- 6, (Apr il 10, 1979), N o. 78-25 (Octob er 31, 1978), N o. 77-152 (July 13, 1977 ), and No. 76-95 (August 2, 197 6). Based upon the sta tut e, i ts legi sla ti ve hi stor y, and t he cr it eri a dis cuss ed in the se Opin ion Letters, we do not agre e that the facts presented by the Req uest sho w that the relation ship b etwee n the C orp oratio n and the City is such that t he Corpor ati on s houl d be de emed a gove rnme nt al in st rume nt ali ty for pur pose s of sec ti on 4021 (b) (2) of ERI SA. (i) Control. Fi rst, t he Request does not demo nstrate t hat the City exercises control over t he Plan. To the co ntrary, the Plan is s ponsored and admini ster ed solel y by t he Corporati on and the Corporat ion' s appoint ee, the [*16] Trustee. Second, the * * * Corporat ion it self is owned an d control led by the P arent, a private , for-pro fit corporati on, rat her th an the City . Indeed, the Corporat ion' s Charte r makes no ment ion w hate ver of the Cit y. Third, by con tra ct, the Corporat ion is "an independent contractor" rather than any form of "ag ent" o f the City. O f cours e, like virtua lly any client, the City establ ishes the ov erall go als of its co ntracto r, the Co rpo ration, w ith respect to the subject of the contract. However, the Corporat ion and t he Pare nt a re s ubst anti all y re spons ibl e for how they perform their cont ractual t asks. Thus, the Parent and the Corporation are contract uall y aut horized and di rected "to manage all primary and support functi ons necessary to transit operations." Fourth, t he Request does not demo nstrate t hat, in p ractice , th e City actually manages tho se functions while the Corporation and the Parent perform merely minist erial f unctions. In sum, the evi dence pr ovided by the Request i ndicat es that t he Plan is controll ed by the Corporation, which in t urn is owned an d substa nti ally control led by pri vate int eres ts, the * * * , rat her t han by the Cit y. See PBGC Op. Ltrs . 81- 2 and 81- 13. (ii) Officers [* 17] and Directors. The Pa rent, under the Contract and by its control over t he Corp orati on, has "pr imary" responsibili ty for managing the Transi t sy stem. The Request does not demonstrat e that the Cit y has the power of app ointm ent of the officers o r direc tors o f the Pa rent. n8 M oreo ver, the P arent, and n ot the C ity, appo ints the offi cers and dire ctor s of the Corporat ion. See Rose v. LI RR, 828 F. 2d 910, 916-917 ( 2d Cir. 1987); PBGC O p. Ltr s. 81-23, 81- 30, an d 81-40. n8 Under Contract § II.A. 1., t he Parent i s respons ible f or fur nishi ng a "resi dent management team" th at must be

approved by t he Cit y. However, at l east absen t a de monst rat ion t hat the Cit y' s vet o power, in pr acti ce, a mou nted to a power of appoi ntmen t, thi s prov isi on cann ot be equa ted with a power of appoi ntmen t. Rathe r, i t appe ars simpl y t o be a typi cal provi sion i n servi ce contra cts intend ed to assure that, for ke y positio ns, the m anag ing co mpa ny selec ts from its staf f th ose employees who have appropri ate exper tis e and experi ence. (iii) Fundi ng. Under the Plan , th e Corporation, which does not have taxi ng power, i s sole ly r esponsibl e for Plan contributions. Alt hough the Cit y i s cont ract uall y [* 18] l iabl e to t he Cor p oration for reimb ursement o f those contributions, the Request does not demonst rat e th at t he Cit y woul d be liable t o the Plan or the participants for delinquent contri butions . Moreover, t he Request does not demonstrate that t he City would necessaril y be liable f or underfunding if

the P la n w er e t er mi na te d. Se e P B G C O p. Lt r. 81 -1 3 ( pl an wa s n ot go ve rn me nt al wh er e c on tr ac to r/ pl an sp on so r's contract with the gover nment provi ded that wages and pens ion co ntr ibutions att ributable to work performed for the government al project we re an "allowable exp ense," but "[n]ei ther t he Plan nor t he contr act provi des for a ny dir ect payment by [the g ove rnme ntal enti ty ] of Plan pa rti cipant benefi ts i n the ev ent t hey become unavai lable f rom other funding medi a). " See als o PBGC O p. Ltr. 7 6-9 5. Compa re PBG C Op . Ltr. 77-126 (plan is governmental where gove rnme ntal entity "is cont ractua lly requir ed to pay all benef it ent it lemen ts under the Plan, inc ludi ng, in t he eve nt of a terminati on, benefits that would be insured under Title IV . . . ."). (iv) Employee Statu s. The Request makes no showi ng that Transit Syst em employees a re government employees of the Cit y, rat her t han pr ivat e [* 19] empl oyees of t he Corpor ati on. And, under the Contract, t he Corporation "retains the right to exercise f ull and exclusi ve control and supervision over it s employees and their compensation and discharge . . . ." S ee A ll ey v. Resolut ion Trust Corp., 984 F.2d 1201, 1205-6 (D.C. Ci r. 1993) (cour t foun d no indica tion t hat Cong ress meant the ERISA exem ption to reach an ent it y whos e em ploye es are not sub ject to la ws go vernin g pub lic employees gener ally, since " the co re co ncern for E RIS A pu rpo ses is the na ture of a n entity 's relatio nship to and gover nance of i ts employ ees") ; PBGC Op. Ltr. 81-40. (v) Other Laws. The Req uest does not assert or demonstrate that t he Corporat ion is treated as a go vernm ental en tity under any other fede ral or st ate law. See PBGC Op. Ltrs . 81- 23, 81- 30, an d 81-37. (vi) Priva te Intere sts. Th e Co rpo ration is a wholly o wned subsid iary of the Par ent, whic h in turn is a who lly owned affiliate of the privately owned * * * . Thus, the Corporation is owned and controlled b y private, comm ercial interests. See Rose v. LI RR, 828 F. 2d at 915; PBGC O p. Lt r. 81- 13. (vii) Governme ntal Int erests. The City [*20] owns the asset s and reven ues of t he Transit Syst em and is re spo nsible for most Transit System expenses. Moreover, the Transi t Sys tem ser ves a publi c purpose. However, as noted above, the Plan is spon sored by the C orp oratio n, w hi ch is o wn ed an d c on tr ol le d b y th e * * * , no t th e C ity . T he C or po ra tio n's employees are not cove red b y an y of th e Ci ty ' s pl ans . Se e Al ley v. RTC, 984 F.2d at 120 6 (C ongr ess assu med that pub lic employees exempt fr om ERISA protecti on would be "covered by some dist inct ivel y ' public' employ ee bene fi t s cheme. ") In sum, we conc lude that t he va rious fact ors used t o assess whether the Corporat ion is a government al instrum entality weigh heavily towards the conclusion t hat it is not, and t hus that t he Plan is no t a gover nmental plan exempted from Title IV protection and coverage. Fur ther, w e do no t think that the arguments raised b y the Reque st support a different conclusion. First, the Re que st asserts tha t the gov ernm ental ex emp tion ap plies b ecau se the C orp oratio n "o pera tes th e City 's transit system," which is a "publi c ent erpri se" wi thi n th e meani ng of N.C. Gen. Stat . § 160A- 311. (Apr . Lt r. a t 1- 2; Sep t. Ltr.) The fact that a privat e [*21] entit y's operations serv e a p ubli c purpos e does n ot con vert the ent it y i nto a government al ins tru menta li ty . See All ey v. RTC, 984 F.2d at 1205. I ndeed, many c lear ly priv ate compani es pr ovide pub lic transportati on, suppor t na ti onal defen se ef fort s, or oth erwi se s erve publi c purpos es. See PBGC Op. Ltr . 81- 13. Thu s, the fac t t hat the operat ions of the Corporat ion ser ve a publi c purpose does not establ ish t hat the Corp oration is a gove rnme nt instrum entality. Second, the Request ass ert s t hat the gover nment al e xempti on applies beca use th e Ci ty "owns " th e Tran si t Sy st em. (Apr. Ltr.

at 1-2.) However, although the Cit y owns the hard assets , the Corporation, and not the Cit y, employs the Transit System employees and sponsors the Plan. Third, the Request asser ts t hat the Plan is exempt because the Cit y is t he "source" of contributions to t he Pla n, a nd, under its contr act with t he Co rpo ration, th e City is respo nsible fo r paying "all pa st, prese nt, and future p ensio n or p rofit- sharing plan liabil ity, including, without l imitati on . . . liabi lit y for veste d, but un der funded or unfunded benefits. " (Apr. Ltr. at 2- 3, 4. ) However , as previ ousl y di scus sed, the Request [*22] does not demonstrate that t he taxing power of the

City necessari ly backs the obli gations of t he Plan. Fourth, the Re que st relies up on the * * * Op inion tha t the Co rpo ratio n "a nd similar subsi diaries of * * * " are government inst rumental iti es. ( Apr. Ltr . at 3.) However, the * * * Opini on is merely conclus ory. Rather than present ing substanti ve suppor t f or the posi tion t hat t he Corporati on is a g overnmental ins tru menta li ty , t he * * * Opini on rel ies upon unspecif ied private letter ruling s by the IR S and an und isclose d op inion b y * * * 's "outside legal co unsel." Plainly, the weight of the evidence tha t t he Corpor ation is no t a gov ernm ental instru men tality is not affec ted b y conc lusory, unspe cif ied, or undis closed ruli ngs or opin ions. Moreover, the * * * Opini on is ex pressl y based upon t he proposit ion th at "the employees of [the Corporation] . . . are government employees and the corresponding benefit plans are government plans ." However, as pr eviou sly dis cuss ed, t he evi dence s ubmit ted wi th t he Reque st does not support t he conclus ion th at the Co rpo ration's em ploye es are gove rnme nt emp loyees . W hile this may n ot nec essitate a find ing that the Plan is private in all cir cumst ances , i t ne gate s [* 23] t he * * * Opini on' s onl y st ated basi s f or it s posi ti on that the Plan is gove rnme ntal. Fifth, the Re que st sugge sts that the C orp oratio n is a me re co nduit contro lled b y the City b ecau se the C ity pays all expenses of th e Transit Syst em and all revenues there of are proper ty of the City (i d. at 4) ; the City ha s the po wer to approve the appo intment and removal of the "resident management team" of the Corporation's parent, * * * ( id.); and the Corporation' s acti vit ies ar e great ly r estr icte d by the pol icie s, s tandards and procedures establis hed by the City (i d.). Ho weve r, Req uest do es no t dem onstra te that the C orp oratio n is a me re co nduit o r agen t of the C ity. To the cont rary , t he Cont ract betwe en t he Corpor ati on and t he Cit y prov id es that t he Corporation is independent from the City w ith regar d to p erform ance of its duties thereu nde r, nam ely, the op eratio n of the T ransit Syste m. For exampl e, the Contract specif ies that the Corporation is an independent contractor rat her than any ki nd of agent of the City. Mo reove r, u nde r the Contract, t he Corporation "retains the ri ght to exercise f ull and exclusi ve control and super vis ion over i ts employ ees a nd th eir compens ati on a nd d ischarg e [*24 ] . . . ." And while the City is prim arily respo nsible for basic policy choices and fundi ng, the Co rpo ration a nd the Par ent are respo nsible fo r op erating the T ransit Sys tem . Fin ally, the Co rpo ration is a wholly o wned affiliate of a lar ge, we ll establishe d, priv ately co ntrolle d group o f corpo rations, * * * , th at i s in t he busin ess, int er ali a, of op erating transit system s. Th is kind o f indep end ent ow nership is further ev idenc e that the C orp oratio n is not a m ere co nduit tha t is contro lled b y the City. Sixth, the Request asserts that t he Plan is a governmental plan wit hin the me aning o f Title I of ERISA, § 3(32 ). (Apr. Ltr. at 5). However, this is far fr om clear. The Department of Labor considers much the same factors as PB GC in determining cover age un der ERISA § 3( 32) . S ee DOL Opini on Let ter 90-09 ( April 25, 1990) . As pr eviou sly dis cuss ed, those factors indica te that the P lan is no t a gov ernm ental p lan. Ind eed , the Re que st d oes not assert t ha t an opini on of DOL concerni ng t he Pla n or an y ot her pl an of the Corporat ion w as ev er re quest ed or i ssu ed. Mo reover, the DO L opinio n letters c ited by the Requ est do no t support the co nclusion that the Plan is a government al plan. DOL Opinion [ *25] Lett er 93-28A invol ved a cit y tr ansportat ion aut horit y (t he "Authori ty") that was establ ished as a "public body" by stat e stat ute. This publi c body was empowered to levy and collect taxes, t o issue munici pal bon ds, and exerc ise the righ t of emin ent do main. Its e mplo yees we re treate d as p ublic employees for purposes of work ers' com pen sation sta tutes. T he bo ard o f directo rs of the A uthor ity was appointed by public of fici als. The plan at i ssu e was spons ored an d admin ist ered by the Auth orit y. Thus, the DOL's c onclu sion that the Authority's plan was a government al plan provides no support for the Request's position that the Plan at is sue here is gove rnment al. To the con trary, DO L car efully distingu ished the Au thority's gov ernm ental p la n fr om a di fferent plan, evidentl y non- gove rnme ntal, mainta ined b y a priva te com pan y engag ed b y the Au thority to provi de drivers and maint enance pers onnel for the bus sy stem. n9 n9 Simi lar ly , DOL Op. Ltr . 95- 21 A does not support the Request. That letter i nvolved a plan sponsored and adminis tered by a county-owned hospital. The hospital was operated pursuant to stat e statut e by the coun ty. T he ho sp ita l's powers inc luded the power t o lev y t axes , t o is sue t ax- exempt bon ds, and to exercise the ri ght of eminent domain. The cou nty was r espo nsible fo r the finan cial ob ligations o f the hos pital. T he ho spital's bo ard w as ap poin ted b y pub lic officials. DOL specif ical ly cit ed th ese g ov ernment al power s and co ntrol in concluding that the hospital was a government al entity. In con tra st, the Corporat ion doe s not have s uch powe rs, nor i s i t publ icl y owne d or control led as was the ho spital. T hus, if anyt hi ng, D OL Op . Ltr. 95 -21A supp orts the c onc lusion tha t the Pla n is not go vernm ental. [*26] Finally, even if the Plan were govern mental under Titl e I, t hat woul d not be concl usive h ere. Althoug h DO L is enti tled to de ferenc e in its interpr etation s of T itle I of ER ISA , those inte rpre tations d o no t neces sarily co ntrol in the Title

IV c ontex t. Seventh, the Request ass ert s t hat the Plan i s a gov ernmen tal plan wit hin the meani ng of the Inter nal Revenue Code, § 414(d). (Apr. Ltr. at 5-7). As p revio usly noted, h owever, t he Request does not ass ert t hat a r uli ng to t hat ef fect was request ed or i ssu ed by t he IRS. To the co ntrary, in re spo nse to Plan coun sel's Janua ry 5, 19 96 le tter, the IR S refuse d to certify that the Plan was go vernm ental. The Request also cites cert ain IRS Revenue Rulings and private lett er rulings as to other plans, but these rul ings are not persu asive tha t the Pla n is a go vernm ental p lan within the meaning of ERISA § 4021( b)(2) . Reve nue Rul ing 57-128, 195 7-1 C.B. 311, was a pr e-ERISA, non- pension r uli ng invol ving an associ ation operated by t he heads of the i nsuranc e department s of s everal stat es, al l members of which we re publi c offi cial s. Moreover, i n that case, the IRS opin ion th at the as sociat ion was g overnmental was [* 27] based upon the fact that "no pro prieta ry interest in the asso ciation exists other tha n th ose of the states the mselv es, whic h throu gh the m emb ership of their o fficers hav e the p owe rs and interests of an owner ." Here , i n cont rast , t he Pare nt a nd th e Corpora ti on are owned by the * * * . n10 n10 Similar ly, Rev. R ul. 65-196, 196 5-2 C .B. 3 88, w as a p re-ER ISA , non-p ensio n ruling inv olving a gov ernm ent- owned and control led sport s commissi on create d to provide r ecreati onal f acil iti es for the publ ic. Mo re to the p oint is R ev. R ul. 89- 49, 1 989- 1 C.B. 117, n11 i n wh ich th e IRS ruled that a pl an sponsored by a non- pro fit com pan y that co ntracte d to p rovid e volu nteer fire -fighting serv ices to se veral m unicip alities was n ot a government al plan. T he IR S stated that "o ne of the mos t impo rtant facto rs . . . is th e deg ree o f contro l that the . . . government has over the organizati on's everyday operati ons." Further, t he IRS stat ed that "the mere satisf action of one or all o f the facto rs is not ne cessa rily determ inative." In pa rticular, the IRS found that: [t]he degree of control whi ch the municipali ties exert [*28] over the fire com pan y in its everyd ay op eratio ns is * * * minim al. . . . [T]he re was no sp ecific legisla tion which a ffi lia te d t he co mp an y w ith th e s ta te . F ur th er , th e c om pa ny 's expenses are, in part, paid by the community donations. In addit ion, the board of tru ste es wh ic h c on tr ol s th e c om pa ny 's basic

operation is el ected by t he volunt eer fi re-f ight ers. Final ly, State X has not t reated t he company' s employees as emp loyees of the state or po litical subd ivision the reof. Similar ly, in t he ins tant case, the Re que st has no t establish ed tha t the City sub stantially cont rols the day- to- day oper ati on of th e T ra ns it S ys te m, or th at it t re at s th e C or po ra tio n's employees as Cit y employee s. Moreover, t he evidenc e here as to t he ot her f actor s not ed by t he IRS i s compar able to t he evi dence i n th at c ase. n12 n11 Unlike Rev. Rules 57- 128 and 65-196, supra, Rev. Ru l. 89-148 wa s i ssu ed under sect ion 414( d) of the Code and is t he publi shed posit ion of t he IRS wit h respect to th is ERISA-corr elat ed secti on of th e Code. n12 In PLR 7935040 (M ay 29, 1979) and PLR 9541040 (June 3 0 , 199 5), on facts similar to the insta nt case in certain respects, it was deter mined that plans of certain corporations t hat manage transit systems under contract with a city or a c ity instrume ntality were gove rnme ntal plan s. Ho weve r, un like the i nstant case, in those cases t here was no finding that the ci ties were not direct ly l iable f or pension liabi lit ies. Moreover, unli ke the i nstan t case , th e IRS found t hat the cit ies ex ercis ed substanti al control over the every day operations of the managing corporation. Here, i n contrast, the facts show t hat the Corporation's functi ons are not merely minis teri al. Moreover, a privat e let ter r uli ng appli es only to the taxpayer(s) to whom the priv ate let ter rul ing is is sued. And, in any ev ent, eve n if the two IRS cases w ere fac tually identi cal to the insta nt case , PB GC might w ell reac h a differe nt con clusion unde r Title IV than t hose two privat e let ter rulings r each under the Code. [*29] In sum, t he IRS rul ings cite d by the Reques t do not per suade us t hat t he Plan i s a govern mental plan under Tit le IV. Conclusi on For the reasons discuss ed above, we conclude that the Plan is not excluded from coverage under Title IV of ERISA as a gover nme ntal plan . PB GC 's Collec tions an d C omp liance D ivision w ill contac t you reg ardin g due and o win g premium s and assoc iated interest and pe nalties. Th is let ter consti tut es an init ial determinat ion of which reconsiderati on may be requested pursuant to 29 C.F.R. Part 4003. Absent such a request for reconsi deration, your client' s administrat ive remedies would not be exhausted. If you decide to r eques t re consi derat ion, the reque st shoul d be sen t, wit hin 30 days of t he dat e of t his let ter , t o:

Ann a G ilreath Manager Stan dard Termi nati on and Compl ianc e Divi sion Insurance Operations Department 120 0 K St., N.W . Washingt on, D. C. 20005- 4026 Th is letter is not a deter minatio n as to the app licability to the Plan of eit her Titl e I or Title II of ERISA. Any inquiry relating to such a determi nati on should be di rected t o the Department of Labor or t he Int ernal Revenue Service , respe ctively. Charles Korb Manager Processing and Technical Assistance [*30] Branch