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Contact ABA ABA-Member Relations 1120 Connecticut Ave, NW Washington, DC 20036 1-800-BANKERS Questions? E-mail: Member Services

March 21, 2000

Dear Mr. Fenner:

The American Bankers Association ("ABA") strongly objects to the National Credit Union Administration's ("NCUA") approval of the Administaff Inc. ("Administaff") client/employee component of the field of membership of PT&T Federal Credit Union ("PT&T"), Houston, TX. As discussed below, the relationship between Administaff, a select group of PT&T, and Administaff's clients does not create an employer/employee relationship for purposes of PT&T's field of membership. Administaff and its clients are separate corporate entities.

There is no legitimate basis for equating its client's employees as employees of Administaff for purposes of PT&T's field of membership eligibility. As such, this abusive process to expand PT&T's field of membership by circumventing NCUA's regulations should immediately be stopped! NCUA should immediately cease approving these Administaff/client additions to PT&T's field of membership, revoke inclusion of these clients in PT&T's existing field of membership and explicitly prohibit PT&T from soliciting future membership from the employees of Administaff's customers. Instead, if PT&T desires to expand its field of membership, it should be required to pursue such activities through the authorized framework of the select group expansion process subject to existing statutory and regulatory restrictions.

PT&T is a multiple occupational common bond Federal credit union whose field of membership includes the employees of its primary sponsor, Duke Energy, its subsidiaries and the employees of companies headquartered in Houston, Texas. One of these 133 select groups is Administaff, which describes itself as a professional employer organization providing human resources services for small to mid-size businesses on a contract basis. These services include training and development, employment administration, benefit management and payroll management among other related services. Administaff supports small and midsize businesses by providing the above services so that the client can focus more effectively on its own core business activity.

Administaff and its clients are not one and the same for the purpose of determining eligible employees for membership in PT&T. They do not have common ownership. They do not file consolidated tax returns. They do not have common officers and directors. They do not have identical stockholders. They are not corporate affiliates. They are not recognized by the public as a common company. They are not registered with state corporation commissions as one company. They are not co-marketing their products and services to common customers. Instead they are separate corporations, operating independently, in a traditional vendor/client relationship. This relationship does not qualify PT&T to solicit members from Administaff's clients' employees.

In reality, Administaff assumes the internal human resource functions of clients for a fee, freeing them from the details of these functions. This is a classic example of a vendor/client relationship. Administaff solicits its business from small and midsize businesses, provides services that these companies would rather outsource than perform internally and receives compensation from these businesses.

This vendor/client relationship is recognized in Administaff's November 1999 quarterly report (SEC form 10-Q). In this report, Administaff repeatedly refers to its clients and their employees. On page 6 of the report, Administaff discusses its increase in fee revenue per worksite employee as follows: "the addition of clients with worksite employees that have a higher average base pay than the existing client base; (iii) the attrition of clients with worksite employees that have a lower average base pay than the existing client base." On page 11 of the report Administaff further references its clients and their employees. Thus the relation between Administaff and its customers is clearly a vendor/client relationship. It never results in Administaff merging with its customers or acquiring them in any form of ownership or control.

For its own internal corporate purposes and to create the appearance that each client has a huge administrative team supporting its activities, Administaff has taken the recognized human resource term "co-employer" and converted it into a marketing gimmick. Under this marketing scheme, the client's employees are "represented" as employees of Administaff while remaining employees of the client company. Concurrently, the employees of Administaff are perceived as the employees of the client company. This creates the impression that each client company has the full support of the entire Administaff organization and that the clients' employees and Administaff's employees are all part of the same team.

The true nature of this relationship is further demonstrated in a radio commercial aired on WMAL Radio, 630AM on January 18, 2000 at 7:58AM. A transcript of this commercial featuring an Administaff employee ("WOMAN") and a client ("MS. REEVES") follows:

[Ringing of Phone.]

WOMAN: Administaff, may I help you?

MS. REEVES: Yes, this is Kay Reeves.

WOMAN: Oh, hi, Miss Reeves. How are things in Walla Walla, Washington?

MS. REEVES: We'll know in a minute.

WOMAN: Excuse me.

MS. REEVES: How many people does Administaff have in benefits administration?

WOMAN: Ah, gosh, dozens and dozens.

MS. REEVES: Okay, I'll say 48. How many Administaff people in payroll?

WOMAN: We have a whole building full.

MS. REEVES: Oh, good. I'll put down 200. And how many on your human resource staff?

WOMAN: I can't even guess.

MS. REEVES: Oh, that's okay. I can. Thanks.

Adding Administaff just put us over the top.

WOMAN: Ms. Reeves, what's this all about?

MS. REEVES: It's about our ranking in Wicket Beat Magazine.

WOMAN: Ranking?

MS. REEVES: They call that Worldwide Wickets are bigger than Walla Walla. (sic.)

WOMAN: Aren't they?

MS. REEVES: Not when you factor in the Administaff factor.

WOMAN: The what?

MS. REEVES: The Administaff factor. When you add Administaff's crack team of human resources, benefits and payroll specialists, Walla Walla absolutely rules.

WOMAN: Well, Administaff does make Walla Walla seem like a much bigger company. But I'm not sure about being counted in that survey.

MS. REEVES: Okay, no problem.

WOMAN: Oh, good.

MS. REEVES: I just won't use your real name.

ANNOUNCER: Get the support you need to grow your company. Call Administaff. Call 1-800-465-3800. Administaff. We take care of your people so you can take care of your business.

This commercial's message is clear. Administrative makes your company seem like a bigger company through the illusion of Administaff's employees serving as employees of the Walla Walla Wicket Company and vice versa. Administaff's mission is administrative service to its clients and the enhanced perception of such service through the co-employer marketing fiction.

The creation of such a fiction does not support the application of this marketing tool to the field of membership of PT&T. The employees of each client company are not employees of Administaff. There is no permanent ongoing relationship between Administaff and its clients' employees. Thus, there is no basis to include Administaff's client's employees within the field of membership of PT&T. Instead, if PT&T were to seek to incorporate these employees within its field of membership, it should do so through the select group process. Each such select group would be treated similar to Administaff in terms of its employees' eligibility for membership in PT&T. Each would have to meet the select group criteria enunciated in NCUA's regulations. If it failed to successfully meet these criteria and complete the process, it would have to seek credit union services elsewhere, not through Administaff.

In addition to the "Administaff factor" fiction, such an expansion of the field of membership to incorporate the client's employees is contrary to the treatment NCUA has accorded associational common bonds and a similar client/vendor relationship. Even though the common bond in question is not associational, the guidance provided by NCUA relating to the client/vendor relationship should be applicable to the client/vendor relationship of occupational credit unions.

NCUA in its Organization and Operations of Federal Credit Unions regulation, 12 CFR Part 701, addresses this issue in Section III A.3, Sample Single Associational Common Bonds. In that section, NCUA provides examples of unacceptable single associational common bonds to include: "Customers of Fleetwood Insurance Company. (Policyholders or primarily customer/client relationships do not meet associational standards)." Thus, it is clear that clients are in an unacceptable category for the associational common bond and are distinguishable from employees for inclusion in this type of common bond.

The ABA believes that this co-employer marketing fiction also violates the requirement under NCUA's multiple occupational common bond regulation that requires unrelated employer groups to be "within reasonable geographic proximity of the credit union." In its regulation, NCUA further clarifies this statement as follows: "That is, the groups must be within the service area of one of the credit union's service facilities." Using Houston, TX as the base for PT&T's geographic service area, it is unreasonable to expect that Administaff's clients can be adequately served from this geographic location. As is readily apparent from Administaff's website, Administaff serves clients or, as the company terms them, "co-employers" in every state and in most major metropolitan areas. (Attached Administaff Client Service Map). From Walla Walla, WA to Miami, FL, from Portland, ME to San Diego, CA, Administaff serves co-employers eligible for inclusion within PT& T's field of membership virtually everywhere in the United States. PT&T's service area is not every state in the United States. The Administaff co-employer marketing fiction bends and breaks the multiple occupational common bonds of PT& T and defies NCUA's regulation on service areas.

Also, with this nationwide co-employer marketing fiction, PT&T is likely to repeatedly defy the language of the Credit Union Membership Access Act in setting a potential 3000 member ceiling below which, with limited exceptions, groups are otherwise eligible to be included within a multiple occupational credit union's field of membership. These Administaff client employees could easily exceed the 3000 potential member level and should be fully capable of chartering their own Federal credit unions. In any case, the "Administaff factor" has the potential for incorporating, in the aggregate, hundreds of thousands of potential members for PT&T. This violates Congressional intent to structure the credit union movement so as to encourage large employer groups to establish their own credit unions rather than be absorbed by multiple occupational credit unions such as PT&T operating on a nationwide basis.

For the above reasons, the ABA urges NCUA's prompt action to restructure PT&T's field of membership to eliminate its nationwide co-employer expansion.

Sincerely,

John C. Rasmus

Questions? Please contact John Rasmus for more information.

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