The Employee Retirement Income Security Act RISA) impacts hundreds of millions of Americans who participate in employee benefit plans sponsored by their employers. However, as Graham v. Board of Ed. Of City of Chicago, 2021 WL 3508563 (7th Cir. Aug. 10, 2021), recently pointed out, ERISA doesn’t cover all employer-sponsored plans.

The Graham case concerned Tamika Graham’s claim that she was wrongfully denied a benefit provided to Chicago public school teachers that would have enhanced her salary based on additional college credits she earned. When Graham applied for the salary increase in July 2015, her application was ignored, and she was ultimately fired based on a finding that her application was fraudulent, which she challenged in a pro se lawsuit alleging civil rights and ERISA claims.

Finding no basis for her suit, the district court dismissed the action. Graham fared little better in the 7th U.S. Circuit Court of Appeals. The dismissal of her ERISA claim was affirmed, although the court overturned the dismissal of one of her civil rights claims.

Focusing on the ERISA issue, the court pointed out that ERISA’s reach does not extend to governmental plans. Under 29 U.S.C. Sec. 1003(b)(1), ERISA is inapplicable to “governmental plans,” which are defined in 29 U.S.C. Sec. 1002(32) to include “plan[s] 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.”

Had Graham worked in a Chicago public school, it would have been easy to conclude her ERISA claim was invalid since it involved a governmental plan. However, Graham worked for a charter school, which Graham asserted was a private body even though she was a participant in the Chicago Public Schools’ pension and welfare-benefit plans.

Unquestionably, the benefits Graham received through her charter school were “established or maintained” by the Chicago Public Schools for its employees. The U.S. Department of Labor has issued multiple advisory opinions defining the statutory phrase “for its employees” to mean that the governmental exemption from ERISA is applicable only if the plan does not include more than a “de minimis” number of non-governmental employees (citations omitted). However, the advisory opinions did not clarify whether Graham’s ERISA claim arose under a governmental plan based on the following observation by the Court of Appeals:

The immediate antecedent of “for its employees” is “maintained,” but “established or maintained” seems to be a unit of like things, which would imply that the phrase modifies both. Recent decisions of the Supreme Court have had some trouble with the series-qualifier canon and the rule of the immediate antecedent (citations omitted). It isn’t clear what the justices would make of ERISA’s language.

The court then posed a series of hypothetical questions raising interpretive problems with the Department of Labor’s analysis, including the question of the weight to be given to “Advisory Opinions,” which are neither regulations nor administrative rulings and therefore not entitled to deference pursuant to Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The court even questioned the origin of the “de minimis” standard and whether it was pulled from “thin air.”

Ultimately, the court decided that it did not have to answer those questions since, as a matter of Illinois state law, charter schools are not private entities. According to 105 ILCS 5/27A-5(a), “A charter school shall be a public, nonsectarian, nonreligious, non-home based, and non-profit school.” Charter schools are also defined under state law as operating “within the public school system” of Illinois according to 105 ILCS 5/27A-2(a)(3). Consequently, for ERISA purposes, the court determined that “charter schools have enough public attributes to make them (permissibly) governmental under ERISA.”

Wrapping up, the court discussed the nature of charter schools and what distinguishes them from purely private schools, which led the court to find: “[A] charter school in Illinois is part of the set of public educational offerings, which makes it appropriate to conclude that the school district may include charter-school teachers in its pension and welfare plans without losing its exemption under ERISA.”

ERISA is a complex law that is counterintuitive in many respects. It is not uncommon for some litigants to assert ERISA claims in situations where ERISA is inapplicable such as governmental plans and church plans, which are plans established and maintained by churches or religious congregations such as an archdiocese. Even with church plans, though, there is an option for such plans to elect to be treated as ERISA plans.

The Supreme Court addressed whether health care systems established by religious bodies fell within the church plan exemption in Advocate Health Care Network v. Stapleton, 137 S.Ct. 1652 (2017). There, the court opted for a broad reading of what is meant by a church plan. However, another flurry of litigation a few years ago addressed the question of whether plans covering workers at casinos operated by Native American tribes constituted governmental plans. The majority of rulings on that issue interpreted the governmental plan exception narrowly in that situation, and found it applied only to employees performing essential tribal governmental duties rather than commercial functions.

Another recent ruling on the governmental exception to ERISA found a claim brought by an employee of a community college fell within the exclusion. In Glover v. American General Life Ins. Co., 2021 WL 3472637 (N.D. Ill. August 6, 2021), the court remanded a disability benefit claim to state court after finding the governmental exception denied the court subject matter jurisdiction under ERISA.

In other circumstances, litigants often do not even realize that ERISA applies to their claims and find out only when an action filed in state court is removed to federal court. It is a common misconception that ERISA is applicable only to self-funded plans. Without question, though ERISA plans include fully insured plans based on the definition of “welfare” benefit plans in 29 U.S.C. Sec. 1002(1), which encompasses insured plans and thus incorporates fully insured disability, life, and health benefit plans within ERISA’s orbit. Further, even though the ERISA statute permits concurrent state court jurisdiction over benefit plans, the existence of parallel jurisdiction does not foreclose removal of ERISA claims to federal court, which is why nearly every case involving ERISA is adjudicated in federal court.

The Graham ruling is yet another useful reminder of the scope and limits of ERISA preemption.

Mark D. DeBofsky is a shareholder at DeBofsky Law.

This article was first published by the Chicago Daily Law Bulletin on August 31, 3021


Related Articles

Understanding Government and Church Plan Exceptions to ERISA

Understanding Government and Church Plan Exceptions to ERISA

The Employee Retirement Income Security Act (ERISA) is a landmark piece of legislation enacted in 1974 to safeguard the interests of employees who participate in retirement and health benefit plans offered by their employers. ERISA sets standards for these plans, ensuring transparency, fiduciary responsibility, and fairness in their administration. […]

ERISA 2023 Year in Review

ERISA 2023 Year in Review

Introduction The Employee Retirement Income Security Act of 1974 (ERISA) [1] directly impacts the lives of most Americans, yet few are familiar with ERISA despite its governance of pensions and retirement plans, along with other employer provided fringe benefits such...