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A group of retired New Orleans transit system employees could not maintain its federal court challenge to reductions in their benefits because the benefit plan qualified as a governmental plan exempt from the Employee Retirement Income Security Act, the U.S. District Court for the Eastern District of Louisiana concluded May 10 (Smith v. Regional Transit Authority, E.D. La., No. 2:12-cv-03059-CJB-KWR, 5/10/13).
Judge Carl J. Barbier found that ERISA's governmental plan exemption applied because the plan in question was established and maintained by both a political subdivision and an “agency or instrumentality” of that political subdivision.
Because the retirees were not bringing their claims pursuant to an ERISA plan, Barbier found that he lacked federal question jurisdiction and dismissed their claims without prejudice.
The plaintiffs are former employees of New Orleans Public Service Inc. (NOPSI) and retirees of Transit Management of Southeast Louisiana Inc. (TMSEL). In December 2012, they filed a lawsuit against TMSEL and the Regional Transit Authority (RTA), alleging violations of ERISA and Louisiana state law. Specifically, they asserted that RTA and TMSEL denied them premium free medical insurance, quarterly Medicare premiums, and deductible reimbursements as guaranteed by their employee benefit plan.
The retirees initially worked for NOPSI, a privately-held company that ran the New Orleans transit system until the early 1980s, when the system transitioned into a publicly held system owned by RTA and operated by TMSEL. According to the retirees, from 1983 until 2006, RTA administered their employee benefit plan as it had been administered by their former employer, NOPSI. However, in the wake of Hurricane Katrina, RTA and TMSEL began charging medical insurance premiums to retirees and stopped providing quarterly Medicare premiums and deductible reimbursements, the retirees said. Further, although these changes “were initially deemed to be temporary,” the retirees asserted that they have continued indefinitely.
RTA and TMSEL moved to dismiss the retirees' ERISA claims, arguing that the plan in question qualified as a “governmental plan” and was therefore exempt from ERISA's statutory framework. According to RTA and TMSEL, the status of a governmental plan is determined “at the time the suit is filed,” rather than at the plan's establishment. Because both RTA and TMSEL “are currently political subdivisions of the state,” the retirees' plan was exempt from ERISA as a governmental plan, the defendants argued.
The court began by explaining that a governmental plan excluded from ERISA is “a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” To that end, the court said that a plan would be considered governmental if it was “established by an entity falling within the confines of the aforementioned definition” or if it “is currently maintained by such an entity.”
Under this standard, the court found that the operative question was “whether RTA and/or TMSEL constitute political subdivisions, agencies, or instrumentalities of the United States, Louisiana, or any political subdivisions of either.”
Noting that ERISA provided no definition for “political subdivision,” the court used the test articulated by the National Labor Relations Board for determining whether an entity qualifies as a political subdivision. The court looked to the U.S. Supreme Court's ruling in National Labor Relations Board v. Natural Gas Utility District of Hawkins County, 402 U.S. 600 (1971), in which the Supreme Court adopted the NLRB's test for political subdivisions in the context of the National Labor Relations Act.
Under the NLRB test, a court should consider whether the entity was created directly by the state, so as to constitute a department or “administrative arm” of the government, or whether it was administered by individuals responsible to public officials or the general electorate, the court said.
Finding this test useful in the ERISA context, the court said that “it is clear that RTA is a political subdivision of Louisiana.” RTA was created by a public act, the court said, and its stated purpose was to plan and design a metropolitan transit system “for the benefit of the people of Jefferson, Orleans, St. Bernard, and St. Tammany parishes.” This satisfied the first prong of the NLRB test, the court said.
Further, RTA satisfied the test's second prong because it is administered by a board consisting of members appointed by the chief executive officer of each parish, “subject to the approval of its governing authority,” the court said.
Moreover, the court found that TMSEL qualified as an “agency or instrumentality” of a political subdivision under ERISA, based on the six-factor test established by the Internal Revenue Service in Rev. Rul. 57-128. The court said that TMSEL was created specifically to manage and operate the public transportation system for the benefit of certain parishes. Further, it performed this benefit specifically on behalf of RTA, its owner and a political subdivision of the state, the court found.
Given RTA's status as a political subdivision and TMSEL's status as an agency or instrumentality of a political subdivision, the court concluded that ERISA's exception for governmental plans applied. It granted the defendants' motion to dismiss for lack of jurisdiction.
The retirees were represented by James M. Garner, Howard T. Boyd III, and Paul R. Trapani III of Sher Garner Cahill Richter Klein & Hilbert, New Orleans. RTA and TMSEL were represented by Howard Shapiro, Michael D. Spencer, and Robert W. Rachal of Proskauer Rose, New Orleans.
The full text of the opinion is at http://www.bloomberglaw.com/public/document/Smith_et_al_v_Regional_Transit_Authority_et_al_Docket_No_212cv030.
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