September 22, 1998 98-R-0985
FROM: Jerome Harleston, Senior Attorney
RE: Municipal Employee Benefit Plans
You asked whether municipal employee benefit plans established by 20 of Connecticut's largest municipalities are governmental plans within the meaning of the Employee Retirement Income Security Act (ERISA) and whether ERISA exempts them from state regulation.
Municipal employee benefit plans appear to fall within the definition of governmental plan under ERISA. Governmental plans are excepted from ERISA, including its preemption clause. It thus appears that states may regulate municipal employee benefit plans directly. And, under ERISA's saving clause, states may regulate health insurers and the insurance policies they sell.
The Office of Legislative Research is not authorized to give legal opinions and this report should not be considered one.
GOVERNMENTAL EMPLOYEE BENEFIT PLANS
According to the Connecticut Conference of Municipalities (CCM), all of Connecticut's largest municipalities provide employees and their beneficiaries with medical, surgical, hospital, and dental care benefits; all provide their employees with a retirement or pension benefit plan; and some provide disability and death protection benefits. A few provide prepaid legal services and day care.
ERISA defines a “employee benefit plan” as an employee welfare benefit plan or employee pension benefit plan or both (29 USCA § 1002 (3)). It defines an “employee welfare benefit plan” as any plan, fund, or program established or maintained by an employer, employee organization, or both to provide participants or their beneficiaries, through the purchase of insurance or otherwise, (1) medical, surgical, or hospital care or benefits; (2) benefits in the event of sickness, accident, disability, death or unemployment; or (3) vacation benefits, apprenticeships or other training programs, day care, scholarships, or prepaid legal services (29 USCA § 1002 (1)). A “governmental plan” is defined as a plan established or maintained for its employees by the government of any State, or its political subdivisions, agencies, or instrumentalities (29 USCA § 1002 (32)).
The employee benefit plans established and maintained by Connecticut municipalities appear to fit ERISA's definition of a governmental plan.
ERISA requirements apply to all employer-based health plans, whether fully insured through a third party or self-funded. But, governmental plans offered by local, state, or federal governments are generally excepted from ERISA requirements.
Court Decisions. In a series of decisions the courts have ruled that a (1) public school district health care plan, (2) state established optional retirement plan for university employees, (3) firemen's pension fund, (4) claim for benefits under group disability policy issued to The National Guard Association of the United States Insurance Trust, and (5) claim by a city employee against his health insurer are,or are part of, a governmental plan and not subject to ERISA.
In one case the court held that an employee welfare benefit plan was a governmental plan to which ERISA did not apply. Thus the district court lacked subject matter jurisdiction over the insured's action against the plan to compel health insurance coverage for cancer treatment. The court noted that the insured was a state employee, that the state paid all plan premiums, and that the state regulated the plan, even though a private corporation operated it.
ERISA includes two significant clauses relevant to municipal employee benefit plans: the preemption clause and the saving clause. The preemption clause provides that ERISA supersedes any and all state laws that “relate to” any employee benefit plan. The saving clause provides that ERISA will not be construed to exempt or relieve any person from any state law regulating insurance.
While the preemption clause prevents states from regulating employer-sponsored health plans, government-sponsored employee benefit plans are not ERISA plans. The act does not apply to governmental plans, which suggests that states can regulate municipal employee benefit plans directly.
But, even if the state cannot regulate municipal employee benefit plans directly, ERISA's savings clause allows a state's insurance law to “relate to” employer-sponsored employee benefits plan without preemption. The clause permits states to regulate health insurers and their policies. This is why state governments can require, or mandate, that companies selling health insurance cover specified health services such as mammography screening or the services of specified providers such as nurse midwives.