ERISA section 3(32), 29 U.S.C. § 1002(32), defines a governmental plan (exempt from Title I of ERISA) as:
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.
Internal Revenue Code section 414(d) defines a governmental plan as:
a plan established and 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.
So what happens if a plan is established by a private entity, but later maintained by a government or one of its agencies or instrumentalities? The Eastern District of Louisiana considered this issue in Smith v. Regional Transit Authority (May 10, 2013).
Prior to 1983, the New Orleans Transit System had been operated by a privately-held company, New Orleans Public Service, Inc. (“NOPSI”). In the late 1970s and early 1980s, the system transitioned into a politically held system owned by the Regional Transit Authority (“RTA”) and operated by Transit Management of Southeast Louisiana, Inc. (“TMSEL”). RTA and TMSEL took over NOPSI’s obligations under its existing retiree health plan. The suit related to retiree health benefits initially promised by NOPSI, the obligation for which was later assumed by RTA and TMSEL. The former NOPSI employees, who had by then become retirees, sued in federal court under ERISA. The question was therefore whether the retiree health plan was covered by ERISA, or was exempt as a governmental plan.
The court dismissed the case based on a finding that RTA was a political subdivision of government, that TMSEL was an agency or instrumentality of government, and thus that the plan was a governmental plan not covered by ERISA. It did this notwithstanding the fact that the employees filing suit were former NOPSI employees, and that the benefits at issue arose due to RTA and TMSEL assuming benefits originally promised by NOPSI.
The case illustrates the complexities that can arise when a plan has both governmental and nongovernmental aspects. It is clear that if the plan had continued to be operated by NOPSI, the retirees could have sued in federal court under ERISA. However, notwithstanding the fact that RTA and TMSEL agreed to take over the obligations of the private employer, the court held that ERISA would not apply to a lawsuit filed after the takeover.