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Members of the board of directors and employees of a trust fund created by a pension agreement between a union and a state agency to provide pension benefits to state employees are considered employees of a state agency pursuant to G.L. c. 268A, s. 1(p).
Note: This opinion was overturned by the SJC in MBTA Retirement Board v. State Ethics Commission, 414 Mass. 582 (1993).
This opinion was overturned by the SJC in MBTA Retirement Board v. State Ethics Commission, 414 Mass. 582 (1993).
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 Agreement).
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.1All 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 administrative action);
(2) the entity's performance of some essentially governmental function;
(3) whether the entity receives and/or expends public funds; and
(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 provide).
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- COI-89-24.
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.
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).
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 the 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 application only.
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.