A governmental plan is an employee benefit plan sponsored by a governmental entity.
- 1 ERISA and Code Definition of Governmental Plan
- 2 ERISA Exemptions
- 3 Tax Code Exemptions
- 4 Correction of Governmental Plan Failures
- 5 Governmental Welfare Plans
- 6 Guidance
- 7 Links
ERISA and Code Definition of Governmental Plan
ERISA provides that" "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 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." 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)."
29 U.S.C. Section 1002(32) (ERISA Section 3(32)).
Code Section 414(d) and ERISA Section 4021(b)(2) contain definitions of governmental plan that are parallel to the ERISA Title I definition.
The terms “political subdivision,” “agency,” and “instrumentality” are not defined in ERISA, and no regulations issued pursuant to ERISA interpret those terms. The DOL takes the position that whether an entity is a political subdivision, agency or instrumentality of government for purposes of ERISA section 3(32) depends on the facts and circumstances of the relationship between government and the entity whose benefit arrangement's status as a “governmental plan” is in issue.
Plans maintained by Indian tribal governments are governmental plans if the tribal government performs "essential governmental functions." See PPA.
In the view of the DOL, a “governmental plan” as defined in ERISA section 3(32) is not limited to plans established by the unilateral action of employers that are governmental entities and plans that are within the exclusive control of governmental entities. See Advisory Opinion 79-36A. Rather, in determining whether a plan that covers only employees and former employees of a governmental entity is “established or maintained” by that governmental entity for its employees, the DOL has examined the extent to which a plan is funded by the governmental entity and the extent to which the governmental entity is involved in the administration or control of the plan. See id.; Advisory Opinion 79-83A; Advisory Opinion 86-24A.
In Revenue Ruling 89-49, however, the IRS held that a plan will not be considered a governmental plan merely because the sponsoring organization has a relationship with a governmental unit or some quasi-governmental power. The IRS believes that one of the most important factors to be considered in determining whether an organization is an agency or instrumentality of the United States or any state or political subdivision thereof is the degree of control that a governmental entity or entities exercise over the organization's everyday operations. Other factors include:
- whether there is specific legislation creating the organization,
- the source of funds for the organization,
- the manner in which the organization's trustees or operating board are selected, and
- whether the applicable governmental unit considers the employees of the organization to be employees of the applicable governmental unit.
Waiving Governmental Plan Status
Governmental plans may not waive their status, even for the purpose of seeking PBGC insurance.
A governmental plan is exempt from Title I of ERISA. 29 U.S.C. Section 1003(b)(1) (ERISA Section 4(b)(1)).
Tax Code Exemptions
Qualified plans with governmental status are exempt from many Tax Code requirements, but must:
- Comply with the exclusive benefit requirement;
- Have definitely determinable benefits and a written plan document;
- Be operated in accordance with plan terms;
- Comply with the Code Section 401(a)(17) compensation limitation for purposes of contributions or benefit accruals
- Make required minimum distributions
- Meet Pre-ERISA vesting requirements in Code Section 411(e)(2)
- Comply with direct rollover requirements
- Limit contributions and benefits as provided in Code Section 415.
A special catch-up contribution is available for certain public service employees with 15 years or more of service.
457 Plans and 409A
409A (Nonqualified Deferred Compensation)
Generally, 409A applies to governmental plans.
Correction of Governmental Plan Failures
EPCRS can be used to correct governmental plan failures that may affect tax qualification.
Governmental Welfare Plans
COBRA generally applies to governmental plans through the PHSA.
HIPAA generally applies to governmental plans through the PHSA.
- Rev Rul 2006-43 (governmental pick-up plans)
- Notice 2007-62 (457 plans)
- Notice 2009-86 (normal retirement age)
- Rev Proc 2009-36 (modifies remedial a mendment cycle close and permits determination letter application for EGTRRA in Cycle E
- Final Rule on Required Minimum Distributions for Governmental Plans (Effective 9/9/09)
- Rev Rul 2011-1 (group trusts)
- EBSA Advisory Opinion 2012-01A (participation by certain private nonprofit employers in governmental health plan)
Rulings on Governmental Plan Status
- EBSA Advisory Opinion 1994-01A
- EBSA Advisory Opinion 1995-15A
- EBSA Advisory Opinion 1995-27A
- EBSA Advisory Opinion 1996-07A (federal home loan bank)
- EBSA Advisory Opinion 1997-05A (youth program)
- EBSA Advisory Opinion 1999-07A
- EBSA Advisory Opinion 2000-07A
- EBSA Advisory Opinion 2001-07A
- EBSA Advisory Opinion 2003-16A
- EBSA Advisory Opinion 2004-01A
- EBSA Advisory Opinion 2005-17A
- EBSA Advisory Opinion 2005-21A