UpFront | Published in July 2012

Private Sector Caveat for CT

Covering nonprofits under state plan changes governmental status

By Rebecca Moore | July 2012

Covering employees of nonprofit organizations would affect the status of Connecticut’s health plan for public employees, according to the U.S. Department of Labor (DOL). In an advisory opinion issued to Connecticut Governor Dannel P. Malloy, the DOL noted that a governmental plan within the meaning of Section 3(32) of the Employee Retirement Income Security Act (ERISA) must be established or maintained for its employees by a governmental entity. In that regard, the department previously concluded in Advisory Opinion 97-05A that private sector contractors, including nonprofit or tax-exempt organizations, are not governmental agencies or instrumentalities for purposes of Section 3(32) of ERISA merely because they perform public service functions under governmental direction and control pursuant to contracts with governmental entities.

“Thus, under our existing advisory opinion guidance, the department would not treat the private nonprofit employers described in Section 1(3)(A) of the Public Act as governmental agencies or instrumentalities within the meaning of Section 3(32) of ERISA solely because they operate under a contract with a state agency for the purpose of providing direct health and human services to the public or receive 50% or more of their gross annual revenue from federal, state or local grants or funding,” the DOL concluded.

Also, in 2005, the department issued Advisory Opinion 2005-07A, which assumed that nonprofit organizations that contract with federal, state and local governments to provide health services to the public are not themselves governmental agencies or instrumentalities and concluded that a de minimis number of the organizations’ employees could participate in a state health plan without affecting that plan’s status as governmental under ERISA Section 3(32). The department­ did not establish a specific number of employees or percentage threshold that would constitute more than a de minimis number for this purpose. The opinion stated that the department would view the participation of private nonprofit employers in the Connecticut state plan described by Malloy as more than de minimis. Therefore, such participation would adversely affect the status of the state plan as governmental under ERISA Section 3(32).