It is a deceptively simple statement: Governmental employee benefit plans are exempt from ERISA. 29 U.S.C. § 1003(b)(1). But what about an employee benefit plan of an entity affiliated with a governmental entity, but whose employees are not government employees? In Gunn v. United of Omaha, 2014 U.S. Dist. Lexis 70520 (M.D. Fla., April 16, 2014), Report and Recommendation adopted, 2014 U.S. Dist. Lexis 70521 (May 22, 2014), the Court grappled with such a hybrid entity. Halifax Hospital Medical Center, a county hospital in Florida, created a separate non-profit entity, Halifax Staffing, Inc. (“Staffing, Inc.”) to provide staffing and management to the Hospital. In connection with the creation of Staffing, Inc., the Hospital requested and received an opinion from the Florida Attorney General that employees of Staffing, Inc. were not state employees covered by the Florida Retirement System.
Staffing, Inc. provided certain employee benefits, including long-term disability (“LTD”) benefits, funded by an insurance policy issued by United of Omaha. A Staffing, Inc. employee, David Gunn, submitted a claim for LTD benefits, which United of Omaha denied. Mr. Gunn filed a lawsuit in state court, seeking his LTD benefits under the policy. United of Omaha removed the case to federal court, on the grounds that Mr. Gunn’s cause of action was governed by ERISA.
Mr. Gunn moved to remand, on the basis that the plan was a governmental plan and therefore exempt from ERISA. A governmental plan is a plan that is established for its employees by the federal government, the state government “or any political subdivision thereof, or any agency or instrumentality of the foregoing.” 29 U.S. C. § 1002(32). While there was not much question that the Hospital was a governmental entity, the fact that Staffing, Inc.’s employees were not state employees made for a trickier question as to whether Staffing, Inc.’s plan was governed by ERISA. While the Eleventh Circuit had not spoken on the issue, two tests had emerged from other Circuits: (1) the Rose test, (Rose v. Long Island RR Pension Plan , 828 F. 2d 910 (2nd Cir. 1987); and (2) the Alley test (Alley v. Resolution Trust Corp.,984 F. 2d 1201 (D.C. Cir. 1993) (authored by the Honorable Ruth Ginsburg, then a Circuit Court Judge.)
In Rose, the Court referred to and adopted the IRS’s six-factor test used when defining a governmental “agency or instrumentality” for certain tax purposes. The Rose Court deferred to the IRS’s interpretation under the rationale that the IRS was one of the agencies that was charged with the enforcement of ERISA.
In Alley, by contrast, the Court focused on “what should be the core concern for ERISA purposes—the nature of an entity’s relationship to and governance of its employees.” Alley, 984 F. 2d at 1205 n. 11. The Court weighed such factors as whether the employees were included in the civil service system, were subject to governmental personnel rules and salary restrictions, or were participants in civil servant pension and welfare plans. United of Omaha argued that the Alley test was more appropriate under the circumstances of Staffing, Inc.’s plan, particularly when Staffing, Inc. was created to place the employees outside of the state retirement system.
However, the Magistrate Court disagreed, finding that the Alley test was not intended to be applied to entities affiliated with state government, citing federalism concerns. It opted instead to invoke the Rosetest, and found five of the six factors weighing in favor of deeming Staffing, Inc. an “agency or instrumentality” of the government. The Magistrate Court recommended that Staffing Inc.'s plan be deemed a governmental plan exempt from ERISA. The District Court concurred with the Magistrate’s approach, and ordered a remand to state court.