Opinion Number ( 1999 )

Dear Commissioner Drennen:

You requested the opinion of this office concerning whether Health Care Services Division (the "Division") employees are eligible for 403(b) tax-sheltered annuities now that the Division is part of the LSU system. As you noted, the Division was combined with the LSU Medical Center pursuant to R.S. 17:1519.2. Employees of the Division, which includes State hospitals, are being paid by the Division of Administration through the Uniform Payroll System; however, no 403(b) benefits are currently being offered to state hospital employees.

Generally, the proceeds of an annuity plan purchased by an employer for an employee are taxable under section 403(a) of the Internal Revenue Code; however, section 403(b) provides that if an annuity contract is purchased for an employee who performs services for an educational organization described in section 170(b)(1)(A)(ii), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, such annuity contract is not subject to subsection (a). 26 USCA 403. Section 170(b)(1)(A)(ii) of the Internal Revenue Code refers to "an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. . . ."

Act 3 of the 1997 Regular Session of the Louisiana Legislature transferred nine public hospitals to the Board of Supervisors of the Louisiana State University and Agricultural and Mechanical College (the "Board of Supervisors") and created the Division. LSU Medical Center is responsible for the operation of these hospitals. All employees engaged in the performance of duties relating to the functions of the hospitals transferred to the Board of Supervisors became employees of the Board of Supervisors and continued to perform their duties and maintain their rights, privileges, and benefits in accordance with all laws, rules, and regulations applicable to civil service employees and employees of the Board of Supervisors. R.S.17:1519.1. The hospitals and administrative personnel immediately responsible for the operation of the Division comprise the Health Care Services Division of the Louisiana State University Medical Center. The Division and its component hospitals are under the immediate direction and control of the Louisiana State University Medical Center, subject to the overall direction, supervision, and management of the Board of Supervisors of LSU. The Division is an organizational unit within the medical center. R.S.17:1519.2.

Based upon the foregoing, it is the opinion of this office that the Division is an entity described in Section 403(b) of the Internal Revenue Code and therefore employees of the Division qualify for Section 403(b) tax-sheltered annuities.

Trusting this adequately responds to your request, we remain

Yours very truly,

RICHARD P. IEYOUB Attorney General

BY: MARTHA S. HESS Assistant Attorney General

RPI/MSH