Shore v. Charlotte-Mecklenburg Hosp. Auth., 2019 WL 4141059 (M.D.N.C. 2019)
This case considered whether benefit plans sponsored by a nonprofit health care conglomerate (Hospital Authority) were governmental plans exempt from ERISA. The Hospital Authority was created pursuant to a state statute authorizing cities and counties to create hospital authorities and registered as a municipal body. It was governed by a board of commissioners sworn to support the state and federal constitutions. The original commissioners were appointed by a city mayor (a public official), with new members appointed by the chairman of county commissioners (also a public official), who had the statutory power to remove a commissioner for inefficiency, neglect of duty, or misconduct. The Hospital Authority was granted “all powers necessary or convenient to carry out the purposes” of the authorizing statute. It treated its plans, which included pension, 401(k), and health plans, as governmental plans exempt from ERISA, but former employees and plan participants disagreed with the characterization and filed a class action alleging that the plans were not governmental plans and, thus, were subject to ERISA. At issue was whether the Hospital Authority met the “political subdivision” element of the ERISA exemption for governmental plans established or maintained by the federal government, by the government of any state or political subdivision thereof, or by any agency or instrumentality thereof.
Finding that the Hospital Authority’s plans were governmental plans, the court dismissed the case. It explained that political subdivisions are entities that are either “(1) created directly by the state, so as to constitute departments or administrative arms of the government, or (2) administered by individuals who are responsible to public officials or to the general electorate.” Because the Hospital Authority was created “by a local entity pursuant to a state enabling statute,” the court ruled that the first prong of the test was satisfied. It clarified that the state itself was not required to create the Hospital Authority—a city or county exercising its state-delegated authority was enough. Although unnecessary, the court further ruled that the second prong was satisfied because a public official—the chairman—by statute had appointment and removal powers with respect to the commissioners. The court declined to consider the employees’ argument that, in actual operation, the chairman’s oversight and removal powers were not exercised.
EBIA Comment: ERISA does not define “political subdivision” for these purposes, so courts are left to interpret it. Because application of the governmental plan exemption will depend, to a large degree, on how the employing entity is treated under state law, similar entities in different states may be treated differently for purposes of the exemption. For more information, see EBIA’s ERISA Compliance manual at Section V.B (“Exemption for Certain Governmental Entities”). See also EBIA’s 401(k) Plans manual at Section II.B.2 (“Exemption for Governmental Plan”), EBIA’s HIPAA Portability, Privacy & Security manual at Section VI.H (“Governmental Group Health Plans”), and EBIA’s Self-Insured Health Plans manual at Section III.D.3 (“Plans Sponsored by Certain Governmental Entities”).
Contributing Editors: EBIA Staff.