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Governmental Plan Status


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Is governmental plan status determined only by looking at the participating employers and employees under the plan? Unlike elsewhere in the Code and ERISA where the term "employer" is used and includes the employer's controlled group, the definition of governmental plan seems to focus on the employees for whom the plan was established and the entity that established and/or maintains the plan (the term employer is not used). If a governmental political subdivision or instrumentality maintains governmental plans but then operates a non-governmental for-profit subsdiary, does the mere fact of the subsidiary's existence jeopardize the governmental plan status even if the subsidiary's employees are not eligible for participation in the plans? Under the literal reading of the statutes, this does not seem to be the case (meaning that governmental plan status is determined just by looking at the employees and participating employers in the plan itself). Although there are a number of IRS rulings on governmental plans, I have not been able to find any on this particular point. There are some rulings that discuss how having a de minimis number of non-governmental employees in a governmental plan does not jeopardize the plan's status (at least for DOL and IRS purposes -- PBGC may have another take on this), but those facts are not totally aligned with the issue I am reviewing. Thanks in advance for any input.

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If non-governmental employees are brought into a governmental plan, the status of the plan as a governmental plan is indeed jeopardized. The "mere fact of the subsidiary's existence" does not cause a problem. And as you point out there are circumstances where a de minimis no. of non-governmental employees can be allowed into a governmental plan.

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