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501(c)(3) Employer claims to be Govt also


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A 501(c)(3) employer provides medical care as a health center.  It files Form 990 annually.  It has provided a copy of their 2015 IRS letter acknowledging they are a 501(c)(3) public charity. It has sponsored a 403(b) plan since 2003. 

Now they claim that they are also a governmental entity and therefore not required to file Form 5500 nor obtain a plan audit.  

Part of it's claim to governmental status is that they receive federal funding.  Additionally they are deemed as FTCA.  I do not believe just because the clinic employees are treated as federal employees for malpractice insurance coverage purposes, the entity is therefore governmental.

If the center was not established and is not maintained by a health district, city, county, state or federal governmental entity, it is not governmental, correct? 

Thank you. 


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Whether or not an entity is governmental for purposes of the low 400s of the federal tax code can be very tricky to determine and in my experience the IRS can be pretty demanding about the criteria because governmental plans are not subject to discrimination rules, among others. Your your penultimate paragraph is a bit simplistic, but is the starting point for the analysis. Your initial skepticism is warranted.

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I have had many clients over the past 25+ years that were governmental hospitals.  Most were county hospitals.  They overwhelmingly received 501(c)(3) status so they could maintain 403(b) plans.  In addition, many maintained 457(b) plans.  As governmental entities, they were not subject to ERISA and the pre-ERISA IRC governs with a few exceptions.  Not your facts, but they are governmental with 501(c(3) status.

This sounds like your client is a FQHC, a Federally Qualified Health Center.  FQHC employees are Federal employees and they get FTCA 'protection.'  They get funded through the PSA and get their authority from Medicare rules, I think. 

See DOL Opinion 2005-07A.  Again, not your situation exactly, but the DOL ruled on a statewide group of FQHCs.  Reading between the lines, did the DOL consider FQHC to be non-governmental?

There are also FQHC look-a-likes out there but I don't know much about them.

I suggest you run it by the DOL if someone will talk to you. I bet they have thought about this.  There are thousands of FQHCs operating.

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I have seen government healthcare organizations with 501(c)(3) determination letters.  DOL Opinion 2005-07A 1) appears to lean heavily on the "de minimus" position of the DOL, and 2) warns that the opinion does not address any issues under the tax code. I recall from long ago (in the last century, so things may have changed) that the IRS has not adopted the same "de minimus" position with respect to non-governmental employees participating in governmental plans. As Ebplans stated, neither is your situation. Before you read too much between the lines or think the DOL can provide you with comfort, beware that on some evidently parallel provisions in their statutes, the DOL and IRS differ. If you can get the DOL to address the specifics, that may be very helpful, especially if on the negative side. "No" would be an easier way put an end to the question, no matter how the IRS might differ. I hope you are not being asked to validate or deny the status of the plan. All I can conclude is that you have legitimate concerns, whatever your reasons for caring. 

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Thank all of you for your replies.  

I did verify this center is on the HRSA.gov FQHC list.  Everything I've read indicates that FQHC or FTCA covered employees are considered federal employees for the purpose of malpractice insurance only. 

We were not asked to determine their status. Rather, a few years ago, when we notified them their 403(b) plan had grown to audit size, they instructed that we treat the plan as governmental, as such they were not required to file Form 5500 nor obtain an audit.  I was not involved at that time, but recently became aware of the situaiton.  I don't believe we have adequate CYA regarding the decision to cease Form 5500 filings.  I do not believe they are governmental.  If not, they have missed a few years of Form 5500 filings and large plan audits.  That is my concern.  

Thanks again....

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