August 1, 1990
You are counsel to the ABC Fund (Fund). You have asked whether
G.L. c. 268A, the Massachusetts conflict of interest law, applies
to the Fund.
The Fund is a trust created by a trust agreement by and among
the DEF Agency (DEF), the Union (Union), and the Board of the Fund
(Board). The Fund is the successor in interest to a trust created
pursuant to a Declaration of Trust by and among DEF's predecessor
and the XYZ Bank.
The trust agreement was created pursuant to the provisions of
a Pension Agreement by and between DEF and the Union, as amended
(Pension Agreement). DEF was authorized to enter into the Pension
Agreement by statute (cites omitted).
The Pension Agreement establishes the Board as administrator
of the Fund. Board membership is as follows: (a) three members of
the Board are appointed by DEF, (b) one member is elected by a vote
conducted by DEF by members of the Fund who are not members of the
Union, (c) two members are designated by the Union, and (d) one
member, who holds an honorary position, is elected by the other six
members (but has no vote except as provided in the Pension
Each Board decision must be made by a vote of at least four
members, including the vote of at least two members appointed by
DEF and the votes of at least two members designated under either
(b) or (c) above.1
All monies contributed to the Fund are irrevocable and are to
be used solely to provide benefits to Union members. No part of the
corpus or income shall thereafter be used for, or be diverted to
purposes other than, the exclusive benefit of members and retired
members of the Union.
In an undated letter written by a DEF manager for
consideration in this matter, DEF states that "individuals
presently employed by the Board are not employees of DEF and,
accordingly, do not receive any compensation from DEF."
Are the Board's members and employees state employees for
purposes of G.L. c. 268A?
Chapter 268A defines a state employee as a "person performing
services for or holding an office, position, employment, or
membership in a state agency, whether by election, appointment,
contract of hire or engagement, whether serving with or without
compensation, on a full, regular, part-time, intermittent or
consultant basis." G.L. c. 268A, s.1(q). The issue of whether the
Board's members and employees are considered state employees
therefore depends upon whether the Board is a state agency, which
is defined by the conflict of interest law as "any department of
a state government . . . including the executive, legislative or
judicial and all councils thereof and thereunder and any division,
board, bureau, commission, institution, tribunal or other
instrumentality within such department thereof or thereunder." G.L.
c. 268A, s.1(p).
In its previous determinations concerning the public status
of an entity for the purposes of c. 268A, the Commission has
focused on the following factors:
(1) the means by which it was created (e.g. legislative or
(2) the entity's performance of some essentially governmental
(3) whether the entity receives and/or expends public funds;
(4) the extent of control and supervision exercised by
government officials or agencies over the entity.
See, e.g., EC-COI-84-65. None of these factors
standing alone is dispositive. For example, the Commission
concluded that local private industry councils are municipal
agencies within the meaning of G.L. c. 268A, s.1(f) because of the
role they play in the implementation of the Federal Job Training
and Partnership Act, namely in the decision-making role they share
with local elected officials in the development of job training
plans, the selection of grant recipients and the expenditure of
public funds. EC-COI-83-74; see also, EC-COI-82-25 (regional school
district is a municipal agency for c. 268A purposes because it is
supported solely by public funds and it provides a service which
each municipality in the Commonwealth is required by law to
The Board was not created by direct legislative enactment or
by administrative rulemaking or regulation, but rather was
established pursuant to the Pension Agreement made between DEF and
a private entity (the Union). Although this Commission has
exercised jurisdiction over entities formed by an Act of Congress,
state legislation and executive order (See, EC-COI-83-74; 88-16;
84-147; 84-55), it has generally declined to do so where the entity
is created by a private instrument even where one of the parties
was a governmental actor. See, e.g., EC-COI-88-19 (notwithstanding
the participation of governmental officials in organizational
efforts, an entity stemming from a contract between a private
corporation and a mayor (as the issuing authority) does not rise
to the level of a governmental agency); See also, EC-COI-84-65 (a
governmental agency cannot be created by a will). Generally, the
presence of a law, rule or regulation creating the entity is
necessary. EC-COI-82-81 (task force created by Inspector General
not a state agency because it was not created pursuant to any
statute, rule or regulation); 88-19; 88-24 (city development
authority's administrative decision to create separate corporation
was prompted by statutory mandate).
In making a determination as to governmental creation,
however, the Commission looks to the impetus for the creation as
well as the affiliation of the entity's organizers. See, EC-COI-
88-24; Cf. EC-COI-84-147, in which the Commission concluded that
a private, not-for-profit corporation formed by a state agency was
a state agency for the purposes of the conflict of interest law.
In that opinion, the Commission found that the corporation was
formed for the purpose of performing some of the state agency's
duties under the law, namely to maintain the competitiveness of a
teaching hospital through the development of new ventures.
Similarly, in EC-COI-89-24, this Commission recently found
that a not-for-profit corporation whose major corporate purpose
was to "support, enhance and extend" the research program of a
state agency's academic department2 was itself a state agency for
c. 268A purposes. The corporation was established to transform
research products developed by the academic department into
marketable items. Revenues generated by the corporation from its
activities would directly accrue to the academic department or the
state agency itself.
Here we are dealing with a trust rather than a corporation,
but the applicable principle is the same, that is, that the trust
was created pursuant to the broad authorization given to DEF by
statute to continue and modify a pension plan already in place. The
fact that the Fund is unique among entities established for the
benefit of Massachusetts state employees does not diminish its
legislative underpinnings. Although the legislative underpinning
is indirect, it is enough to satisfy this factor. See, EC-
2. Governmental Functions
The Board's sole purpose is to provide and administer pensions
and other benefits to Union members who are state employees. The
provision of such benefits to state workers is a function
traditionally provided by a state government. As noted above, for
most state employees, this function is regulated by statute, but
DEF employees were exempted from those provisions. The fact that
DEF employees are not covered by this statute, however, in no way
diminishes the Commonwealth's historic responsibility to provide
such benefits to its employees.
3. Public Funds
The Fund receives a significant portion (approximately 76%)
of its funding from or on behalf of a state agency (DEF).3 The
Commission finds that the Trust's substantial reliance on public
monies satisfies this factor. See, EC-COI-90-3 (although a
foundation's funding was derived in most part from private sources,
the Commission found that the provision of some state funds was
enough to satisfy this factor).
4. State Government Control of the Board
Because members of the Union are employed by DEF and are the
beneficiaries of the Fund, the Pension Agreement provides that the
Fund be administered through a Board consisting of several
members connected with DEF. These provisions for administration of
the Fund appear to derive out of the Pension Agreement's provisions
for some DEF accountability on the part of the Fund's managers.
Thus a plurality of the Board members are DEF officials.
Although as with all trustees of trusts, the three DEF
appointees acting in their trustee capacities owe a duty of loyalty
to the Fund first, not DEF, and they must administer the Fund
solely with a view to the accomplishment of the purposes of the
Fund, Scott on Trusts, s.379 (3d. ed. 1967), where the purpose of
the Fund is to provide benefits for DEF employees, and virtually
all the members of the Board are in fact DEF employees, the
existence of the Trust does not negate the fact that there is
obvious governmental (as opposed to private) control of the Board.
See EC-COI-83-74 (an entity is a municipal agency even where a
majority of its membership is selected from the private sector);
see also EC-COI-90-3 (the potential and reality of significant
governmental control can satisfy this factor).
Thus we distinguish this case from EC-COI-84-65, where a trust
for the benefit of a municipality was established by a private
instrument (a will). Although a majority of the trustees who were
appointed by the will were also municipal employees, this
Commission found that the individual trustees were acting in their
private capacities as trustees, not municipal employees, in
carrying out the functions of the trust. The distinction between
the two cases lies in the genesis and purpose of the trusts. The
trust established in 84-65 arose from a will and was established
by a private citizen to perform a laudable but not essential
governmental function. Here, the trust was created as a vehicle for
accomplishing a required state function and was, in part at
least, established by a state agency pursuant to an indirect state directive.
Balancing all of the foregoing, therefore, the Commission concludes
that the Board is a state agency for the purposes of c. 268A. Where it
was established to administer certain benefits for Union members
who are also state employees, the Board serves a significant state function.
It also receives substantial state funding. Accordingly, even thought he
legislative underpinning is indirect and, even though there is not direct
control over the Board by DEF4, we conclude that the Board is a state
entity for purposes of c. 268A. Consequently, its members and employees
are state employees.
This opinion is limited to finding that the Board's members and employees
are state employees for purposes of c. 268A. It should not be construed
as determining the status of the Board's members and employees, or the
Board itself, for any other purpose. This opinion shall be limited to prospective
Date Authorized: May 9, 1990
1 In the event of a failure to reach a decision, the honorary member may cast
a vote at the next meeting of the Board members. The Board is not authorized
to adopt a less restrictive rule on voting.
2 The academic department, as part of the state agency, had a statutory mandate
to provide educational services.
3 Most of the remaining funds are contributed directly by DEF employees.
4 The state does, however, have a "veto power" over any decision made by
the Board through the elaborate voting process set-up in the Trust.
End Of Decision