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 Rose test, 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.