You already know that an employee benefit plan qualified as a “government plan” is exempt from ERISA’s framework.

But what is the definition of “government”? Some employers may not actually be government entities, and public private partnership may inject ERISA back into the framework.

This new case gives you the tests to apply to determine whether a government entity exists, which then means ERISA does not apply.   Smith v. Regional Transit Authority, __ F. Supp. 2d __ (E.D. La. May 10, 2013) [PDF] (whether the entity was created directly by the state, so as to constitute a department or “administrative arm” of the government, or whether it was merely administered by individuals responsible to public officials or the general electorate).

FACTS:  The Plaintiffs had been employed by New Orleans Public Service Inc. (NOPSI), a privately-held company that ran the New Orleans transit system until the early 1980s.  Then NOPSI transitioned into a publicly held system owned by RTA. Transit Management of Southeast Louisiana Inc. (TMSEL) then operated the RTA. The former employees claimed that from 1983 until 2006, RTA administered their employee benefit plan as it had been administered by NOPSI. They alleged violations of ERISA and Louisiana state law because they thought they had been wrongfully denied premium free medical insurance, among other things guaranteed by their employee benefit plan.

ISSUES:

  • Was the Employee benefit plan exempt from ERISA because it was a “governmental plan?”
  • What is a government plan?
  • What operative date does one use to determine whether a plan is a governmental plan?

TRIAL COURT HELD:

  1. A plan would be considered governmental if it was “established by an entity falling within the confines of the aforementioned definition” or if it “is currently maintained by such an entity.”
  2. The benefit plan qualified as a governmental plan and was exempt from ERISA because the plan in question was established and maintained by both a political subdivision and an “agency or instrumentality” of that political subdivision.
  3. A governmental plan is “a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” A plan is considered governmental if it was “established by an entity falling within the confines of the aforementioned definition” or if it “is currently maintained by such an entity.”
  4. What is a “political subdivision? ERISA provides no definition for “political subdivision.” The court looked to the U.S. Supreme Court’s ruling in National Labor Relations Board v. Natural Gas Utility District of Hawkins County, 402 U.S. 600 (1971), in which the Supreme Court adopted the NLRB’s test for political subdivisions in the context of the National Labor Relations Act.
  5. Under this NLRB test, a court should consider whether the entity was created directly by the state, so as to constitute a department or “administrative arm” of the government, or whether it was administered by individuals responsible to public officials or the general electorate.
  6. The court found: (a) “it is clear that RTA is a political subdivision of Louisiana.” RTA was created by a public act, the court said, and its stated purpose was to plan and design a metropolitan transit system “for the benefit of the people of Jefferson, Orleans, St. Bernard, and St. Tammany parishes”; (b) the RTA is administered by a board consisting of members appointed by the chief executive officer of each parish, “subject to the approval of its governing authority.”
  7. TMSEL qualified as an “agency or instrumentality” of a political subdivision under ERISA, based on the six-factor test established by the Internal Revenue Service in Rev. Rul. 57-128. TMSEL was created specifically to manage and operate the public transportation system for the benefit of certain parishes and performed this benefit specifically on behalf of RTA, its owner and a political subdivision of the state.

Key take away:  Some entities that look like government entities may not meet the tests stated.  Moreover, plans that involve both public and private employers may result in ERISA application.  See, e.g., South Cent. Indiana Sch. Trust v. Poyner, No. 1:06-cv-1053-RLY-WTL, 2007 U.S. Dist. LEXIS 78804, 2007 WL 3102149, at *5 (S.D. Ind. Oct. 19, 2007) [*5] (”[T]he Plan at issue involves both public and private employers for the benefit of their respective employees. It is therefore subject to ERISA regulation.”)