Will Church Plan Litigation Lead to an Attack on Governmental Plan Exemptions?

Dismayed at the attention her father was receiving from her teenage friends over dinner in a Chinese restaurant, Sally Draper remarked to the table that her father’s joke about stray cats and slow restaurant service was one he had been making for years. I thought of this when I saw Mike Reilly’s interesting post last week on the test for determining whether a plan is a governmental plan or not, because I have been leading off stories about governmental plan and other exemptions from ERISA for many years with the story of a client who, in 1975, was assigned this “new law” to oversee for his employer, with the “new law,” of course, being ERISA. My client liked to say how, back then, with no case law to guide them, they would handle the exemption by means of an “if it looks like a duck and quacks like a duck, then it’s a duck” analysis. In other words, if they thought a plan looked like a governmental plan, and it was related to a governmental enterprise, then they would treat it as a governmental plan.

Of course, over the years, legal rulings have given some framework to the analysis of governmental plans, and my client accordingly moved on from the “ if it looks like a duck” school of analysis for handling plans related to government or quasi-government enterprises. The problem, though, is that determining whether to treat or not treat a particular plan as a governmental plan is not always cut and dried, because of the variety of circumstances in which a plan related to governmental functions can come into existence, in this era of quasi-governmental agencies, private contracting out of government functions, and the overlapping role of private, public and union entities in some areas of government services. Mike Reilly’s post was on governmental plan exemptions in just this type of a context, where the role of collective bargaining, a teacher’s union, and a school district overlap in a manner that impacts determining whether the plan in question is a governmental plan.

As you can see both from Mike’s post and, even more, from the District Court decision itself that he discusses, there can be a lot of moving parts – or more accurately perhaps, hands in the pot – with regard to the provision of plans in such circumstances, and all of those moving parts have to be accounted for and analyzed in deciding whether or not there is a governmental plan.

The somewhat amorphous nature of the analysis reminds me, to some extent, of the church plan exemption and the current litigation over it. That exemption likewise was subject to a somewhat rickety legal structure, based to some extent on the intersection of private letter rulings with assumptions made by courts and plan administrators as to what it takes to qualify as a church plan. Church plan status, of course, is currently under attack by the plaintiffs’ bar, and the eventual outcome is up in the air. However, it is worth noting that panelists on the church plan litigation at the recent ACI ERISA Litigation Conference in Chicago raised the question of whether governmental plans will be the next target if the plaintiffs’ bar succeeds in overturning various plans’ claims to the church plan exemption. One thing I can tell you is that if that happens, we are going to see an awful lot of briefs and court opinions that explain the difference between the two exemptions by making a pun about the separation of church and state.