“In all my time reading the column, the Experts have defined a church plan, but I don’t recall ever seeing a definition of a governmental plan. What is the definition of a governmental plan?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
You are correct that, though we have responded to reader questions regarding governmental plans, the Experts have never actually received a question from a reader asking for the definition, so congratulations on being the first to pose this question!
Here is the definition in the Employee Retirement Income Security Act (ERISA) (29 U.S.C. § 1002(32)):
The term “governmental plan” means 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. The term “governmental plan” also includes any plan to which the Railroad Retirement Act of 1935, or 1937 [45 U.S.C. 231 et seq.] applies, and which is financed by contributions required under that Act and any plan of an international organization which is exempt from taxation under the provisions of the International Organizations Immunities Act [22 U.S.C. 288 et seq.]. The term “governmental plan” includes a plan which is established and maintained by an Indian tribal government (as defined in section 7701(a)(40) of title 26), a subdivision of an Indian tribal government (determined in accordance with section 7871(d) of title 26), or an agency or instrumentality of either, and all of the participants of which are employees of such entity substantially all of whose services as such an employee are in the performance of essential governmental functions but not in the performance of commercial activities (whether or not an essential government function).
So basically, a governmental plan under ERISA is a plan established or maintained by:
- The federal government;
- A State government;
- A political subdivision of a State government (e.g. a city or a county); or
- An agency or instrumentality of a State government (e.g. a state Department of Education).
And, less commonly:
- A plan to which the Railroad Retirement Act of 1935 or 1937 applies; or
- Plans of Indian Tribal Governments or subdivisions/agencies/instrumentalities, but all employees of such plans must perform government functions and not commercial activity (or substantially all of their services must be government functions).
Setting aside the less common components of the definition, states, counties, cities, towns, etc. are clearly governments that satisfy the governmental plan definition. Beyond that, though, it can be less clear whether an entity would qualify as an “agency or instrumentality” of a state/county/city/town. Some entities, such as city/county hospitals and public colleges and universities, have been generally acknowledged to maintain governmental plans under the ERISA definition, but a lot of the Department of Labor (DOL) guidance available, such as Advisory Opinion 2012-01A, does not provide tremendous clarity.
It should also be noted that, although the IRS’ definition of a governmental plan under Code Section 414(d) is the same as the ERISA definition, the IRS is scheduled to release future guidance on the definition of a governmental plan, so governmental plan sponsors and those who work with them should pay close attention to such guidance as soon as it is released.
Having said all of that, recent cases have challenged the extent to which certain entities fit within the definition. In Skornick v. Principal Financial Group, Principal Life Insurance Company and Brooklyn Public Library, 2019 WL 1723741 (S.D.N.Y. April 18, 2019), the court found that a disability plan of the Brooklyn public library was not a governmental plan. Another case filed late last year, Shore v. The Charlotte-Mecklenburg Hospital Authority, complaint at 2018 WL 6586825 (M.D.N.C. November 19, 2018), claims, similar to some of the cases alleging that church-related hospitals cannot have church plans, that the retirement and health plans sponsored by a County hospital system are not governmental plans. While each of these cases turns on specific facts and circumstances, if there is any doubt at all as to whether an entity maintains a governmental plan for purposes of ERISA, counsel with specific expertise in such matters should be consulted.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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