Governmental Plans and Excludable Classes

I'm not as familiar with Governmental Plans, but have a governmental hospital who is wanting to exclude a class of employees who choose to receive a higher compensation and give up their rights to participate in the plan?  Is this allowable?  I know they aren't governed by ERISA, so I wasn't sure what classes of employees could be defined to be excluded in the plan document.  This hospital has a 457(b) and a separate 401(a) for the employer match.  Thank you so much for any guidance you may have.

It might be useful to note that several sections of ERISA Title 2 (i.e., the portion of ERISA that amends the Internal Revenue Code) contain subsections that describe exemptions.  For example, IRC 410 (Minimum Participation Standards) includes subsection (c):

(c) Application of participation standards to certain plans

(1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to-

(A) a governmental plan (within the meaning of section 414(d)),

(B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by subsection (d) of this section has not been made,

(C) a plan which has not at any time after September 2, 1974, provided for employer contributions, and

(D) a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9) if no part of the contributions to or under such plan are made by employers of participants in such plan.

(2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section for purposes of section 401(a), except that in the case of a plan described in subparagraph (B), (C), or (D) of paragraph (1), this paragraph shall apply only if such plan meets the requirements of section 401(a)(3) (as in effect on September 1, 1974).

Note:

• (c)(1)(A) includes a cross-reference to IRC 414 for definition, and
• (c)(2) above specifies that the exemption in paragraph (1) applies only if the plan meets the legal requirements in effect on the day before ERISA was effective.  The plan sponsor should discuss this issue with an ERISA attorney.