Pension & Benefits News Plans of North Carolina health care employer are ERISA-exempt governmental plans
Friday, January 10, 2020

Plans of North Carolina health care employer are ERISA-exempt governmental plans

By Pension and Benefits Editorial Staff

The retirement and health care plans of a North Carolina non-profit health care conglomerate are governmental plans exempt from ERISA’s requirements because the employer is a “political subdivision” of the State of North Carolina, according to a U.S. district court in North Carolina.

Former employees of the Charlotte-Mecklenburg Hospital Authority alleged that the Authority’s pension, 401(k) and health plans failed to comply with ERISA requirements. The employees, as representatives of a putative class action, filed suit in district court seeking a declaratory judgment confirming that the plans are covered by ERISA, as well as an order that the plans be brought into compliance with ERISA. The Authority, along with its benefits administrator, sought to dismiss the complaint.

The court sided with the Authority, concluding that the pension and health plans at issue are governmental plans and therefore not subject to ERISA. Governmental plans are exempt from ERISA’s requirements under ERISA Sec. 4(b)(1). ERISA Sec. 3(32) defines a governmental plan 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 the foregoing.”

The court determined the Authority to be a “political subdivision” as defined under ERISA. Applying a two-pronged test set forth in NLRB v. Natural Gas Utility District of Hawkins County, 402 U.S. 600 (1971), the court first concluded that the Authority was created directly by the state and thus constituted a department or administrative arm of the government. The court explained that the City of Charlotte created the Authority in 1943 pursuant to North Carolina’s Hospital Authority Act (N.C. Gen. Stat. §§131E-15). The Authority thus satisfied the first prong of the Hawkins test because it was created by the State of North Carolina through a delegation of its authority pursuant to the North Carolina statute.

The second prong of the Hawkins test—that the entity is administered by individuals who are responsible to public officials or to the general electorate—is met when public officials appoint and remove the entity’s governing members. The Authority’s board of commissioners is appointed by the county chairman from a list of nominees provided by the Authority’s board. Those commissioners may be removed by the county chairman for neglect of duty or misconduct (following notice and a hearing). Thus, the court concluded, the second prong of the Hawkins test was also satisfied.

Although satisfying either one of the Hawkin’s test prongs would be sufficient for an entity to be classified as a “political subdivision,” the court concluded that the Authority satisfied both prongs. It therefore declined to rule as to whether the Authority was also as “agency or instrumentality” under ERISA.

SOURCE: Shore v The Charlotte-Mecklenburg Hospital Authority (DC NC), No. 1:18-CV-00961, August 30, 2019.

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