UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
October 12, 1979
BARRY FEINSTEIN, et al., Plaintiffs, against ALBERT B. LEWIS, Superintendent of Insurance of the State of New York, et ano., Defendants.
The opinion of the court was delivered by: WERKER
This action for injunctive and declaratory relief raises the issue of whether an employee welfare plan established pursuant to a collective bargaining agreement between a public employer and a union for the benefit of public employees is exempt from the provisions of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 Et seq.
There being no material issues of fact, and the Court having duly considered all of the legal arguments, judgment is rendered for the defendants.
Plaintiffs are trustees of four employee welfare funds
(the "Plans") which were established in accordance with collective bargaining agreements entered into between Local Union 237 (the "Union"), affiliated with the International Brotherhood of Teamsters, and each of four employers, the Town of Babylon, the Town of Islip, the Plainview-Old Bethpage Central School District, and the Brentwood School District. All of the employees covered by the four Plans are employed by one of these towns or school districts, and the Plans are exclusively funded by contributions from the employers. Each Plan is administered by a separate board of trustees comprised of six members,
three of whom are appointed by the Union and three of whom are appointed by the respective employer. In the event of a deadlock between the Union and employer trustees, the matter is submitted to arbitration.
In 1973, each of the Plans filed a registration statement with the Insurance Department of the State of New York pursuant to the provisions of the New York State Insurance Law. Thereafter, the Plans filed periodic reports and continued to comply with the state requirements. In 1975, however, ERISA came into effect and each of the Plans ceased complying with the Insurance Law and began complying with the reporting, disclosure and auditing provisions of ERISA.
In March 1975, plaintiffs sought an advisory opinion from the United States Department of Labor as to whether the Plans were exempt from or governed by ERISA. Plaintiffs did not receive a response to their request.
In December 1978, the New York Insurance Department notified the Plans that they had not been complying with the Insurance Law and requested that annual reports for the years 1976, 1977 and 1978 be filed "without delay." In response, plaintiffs advised the Insurance Department that the Plans had been complying with ERISA, but the Insurance Department nevertheless continued to insist upon compliance with the New York statutory scheme.
On March 7, 1979, plaintiffs again requested an advisory opinion from the Department of Labor. Plaintiffs did not receive a response, and after the commencement of this lawsuit, the request was withdrawn.
On April 10, 1979, and again on April 25, 1979, the Insurance Department informed plaintiffs that it would commence proceedings against the trustees of the Plans to fine them up to $ 2,500 each and/or to remove them from office.
On April 27, 1979, plaintiffs filed the instant complaint naming as defendants Albert B. Lewis, Superintendent of Insurance of the State of New York, and Ray Marshall, United States Secretary of Labor. The complaint seeks a judgment declaring Article III-A of the New York State Insurance Law illegal and inoperative as to plaintiffs, compelling defendant Marshall to enforce the provisions of ERISA and to issue regulations and advisory opinions defining the coverage of ERISA, and enjoining defendant Lewis from enforcing the provisions of Article III-A of the Insurance Law against the Plaintiffs.
On April 27, 1979, plaintiffs sought by order to show cause an order temporarily restraining defendant Lewis from commencing or maintaining any legal or administrative action to remove or fine the plaintiffs. With the consent of defendant Lewis, temporary relief was granted pending resolution of the merits of this suit.
In June 1979, the Department of Labor responded to plaintiffs' request, which had been withdrawn, for an advisory opinion. In a letter addressed to plaintiffs' counsel, the Department of Labor concluded that the subject Plans were "governmental plans" within the meaning of section 3(32) of ERISA, 29 U.S.C. § 1002(32), and therefore excluded from coverage under Title I of ERISA by virtue of section 4(b)(1), 29 U.S.C. § 1003(b)(1). The letter is reprinted at 244 Pens. Rep. (BNA), at R-3 (1979).
In July 1979, the defendant Marshall moved to dismiss the complaint as to him on the grounds of lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted.
ERISA sets forth a comprehensive scheme for the protection of employee benefit plan participants and their beneficiaries. The provisions of Title I of ERISA apply generally to "any employee benefit plan . . . established or maintained (1) by any employer . . .; or (2) by any employee organization . . .; or (3) by both." ERISA § 4(a), 29 U.S.C. § 1003(a). Specifically excluded from coverage under Title I of ERISA, however, is an employee benefit plan that is also a "governmental plan," ERISA § 4(b), 29 U.S.C. § 1003(b), which is defined as "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. . . ." ERISA § 3(32), 29 U.S.C. § 1002(32).
In the instant suit, it is undisputed that the Plans are employee benefit plans within the meaning of section 4(a) of ERISA, 29 U.S.C. § 1003(a), and that the employees covered by the Plans are employees of "the government of (a) State or political subdivision thereof, or (of an) agency or instrumentality of any of the foregoing." Additionally, it cannot be disputed that the New York State Insurance Law is preempted by ERISA to the extent that the state statute purports to affect employee benefit plans covered by Titles I and IV of ERISA. ERISA § 514(a), 29 U.S.C. § 1144(a).
See Azzaro v. Harnett, 414 F. Supp. 473, 474 (S.D.N.Y.1976), Aff'd mem., 553 F.2d 93 (2d Cir.), Cert. denied, 434 U.S. 824, 98 S. Ct. 71, 54 L. Ed. 2d 82 (1977). Hence, the only issue before the Court is whether the Plans are plans "established or maintained" by governmental bodies.
"The starting point in every case involving construction of a statute is the language itself." Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975) (Powell, J., concurring). As noted above, ERISA defines a "governmental plan" as "a plan established or maintained for its employees" by a governmental body or instrumentality. The use of the conjunction "or" indicates that a plan is a governmental plan if it is Either established Or maintained by a government body for its employees.
See United States v. Astolas, 487 F.2d 275, 279 (2d Cir. 1973), Cert. denied, 416 U.S. 955, 94 S. Ct. 1968, 40 L. Ed. 2d 305 (1974).
Plaintiffs contend that the Plans are neither established nor maintained by governmental bodies. Because the Plans were established pursuant to collective bargaining agreements between the employers and the Union rather than by statute, ordinance, constitution or other unilateral governmental action, plaintiffs claim that the Plans were not "established" by governmental bodies. And, because the Plans are administered by boards of trustees composed of both employer and Union trustees, with deadlocks to be resolved by arbitration, plaintiffs argue that the Plans are not "maintained" by the towns and school districts.
I disagree in both respects. I do not believe that Congress intended the words "established" and "maintained" to be so narrowly construed. The mere fact that a town or school district sets up a benefit plan for its employees as a consequence of negotiations and collective bargaining rather than because of some unilateral action or decision simply does not lead to the conclusion that the plan was not "established" by the town or school district. Although they did so in conjunction with the Union,
the towns and school districts involved herein did nevertheless "establish" the Plans. Moreover, there can be no doubt that the Plans are "maintained" by the towns and school districts for their employees. Although the Plans are jointly administered by the Union and the employers through the boards of trustees, they are exclusively funded and hence "maintained" by the employers.
The legislative history of ERISA provides further support for the conclusion that the Plans are governmental plans within the meaning of section 4(b), 29 U.S.C. § 1003(b). ERISA was enacted primarily to curb abuses in the administration of Private employee welfare and pension plans. ERISA was preceded by the Welfare and Pension Plan Disclosure Act of 1958, 29 U.S.C. § 301 Et seq., repealed, ERISA § 111, 29 U.S.C. § 1031, certain provisions of the Labor Management Relations Act, 29 U.S.C. § 141 Et seq., and certain provisions of the Internal Revenue Code of 1954, 26 U.S.C. §§ 401-04, 501-03. See generally H.R.Rep. 93-533, 93d Cong., 1st Sess. (1974), U.S.Code Cong. & Admin.News, p. 4639. Because of the inadequacies of these acts in protecting the rights of private employees, comprehensive reform of the private pension system was deemed necessary by the legislature. Id. The Plans at issue herein do not, of course, involve private employees.
Plans established by state and local governments are generally excluded from coverage under ERISA because of concerns of federalism. In a summary of the major provisions of a predecessor bill, Senator Lloyd Bentsen commented that: "State and local governments must be allowed to make their own determination of the best method to protect the pension rights of municipal and state employees. These are questions of state and local sovereignty and the Federal Government should not interfere." 1 Legislative History of the Employee Retirement Income Security Act of 1974 220 (1976) (hereinafter cited as Legislative History ). Plaintiffs urge the Court to hold that a plan established by a governmental body for its employees is a "governmental plan" if it is established pursuant to statute, ordinance or constitution, but not if it is established pursuant to collective bargaining and negotiations. This distinction, in my view, is an untenable one; the holding urged by plaintiffs would frustrate Congress' intent to refrain from interfering with the manner in which state and local governments operate employee benefit systems. Public employers may be reluctant to institute employee benefit plans pursuant to collective bargaining and negotiations if such plans are subject to ERISA while plans established by statute, ordinance or constitution are not.
Discussions in the congressional reports and hearings on the question of the exclusion of governmental plans are replete with such general references as "public employee plans," "public sector plans," "State and local public employee funds" and "plans sponsored by State and local governments."
See, e.g., H.R.Rep. 93-779, 93d Cong., 2 Sess. 46 (1974); 3 Legislative History 4685 (remarks of Representative Broyhill); Welfare and Pension Plan Legislation: Hearings on H.R. 2 and H.R. 462 Before the General Subcomm. on Labor of the House Comm. on Education and Labor, 93d Cong., 1st Sess. 222, 368, 467, 649 (1973). In commenting on the fact that a provision including state and local public employee benefit plans under the ambit of the reporting and disclosure sections of H.R. 2 had been dropped from the final draft, Representative John H. Erlenborn stated that "the Committee missed the opportunity . . . to foster honesty in government and to give Public employees the comprehensive protections and guarantees . . . deem(ed) vital to private employees." H.R.Rep. 93-553, at 44, U.S.Code Cong. & Admin.News, p. 4668 (emphasis added). See id. at 9, 43. These discussions clearly demonstrate that Congress, in exempting governmental plans, was concerned more with the governmental nature of public employees and public employers than with the details of how a plan was established or maintained. See Fleck v. Spannaus, 449 F. Supp. 644, 654, (D.Minn.1977), Rev'd on other grounds sub nom. Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S. Ct. 2716, 57 L. Ed. 2d 727 (1978) (ERISA excluded "public employees" because the legislature determined the need for protection was greatest in private industry, citing 29 U.S.C. § 1003(b)(1)) (dictum); Standard Oil Co. v. Agsalud, 442 F. Supp. 695, 703-04 n. 9 (N.D.Cal.1977) ("(References) (in legislative history of ERISA) to "private' plans were intended to refer to plans which are maintained neither by the government nor for government employees. . . . Private plans contrast with public plans, as in the case of the exemption for government plans for employees in the public sector . . . .") (dictum); Comment, The Employee Retirement Income Security Act of 1974: Policies and Problems, 26 Syracuse L.Rev. 539, 549 n. 70 (1975) ("Governmental plans include those established for the employees of federal, state and local governments.").
The third circuit has observed, in a labor law context, that "(w)hen Congress has decided to extend coverage of . . . federal labor legislation to public employees, it has specifically amended the definition of employer to include states and political subdivisions. Another technique Congress has chosen in dealing with employees in the public sector is to enact a separate statute and model it after (existing law). Had Congress intended that states and political subdivisions be covered . . ., it could have done so explicitly by means of one of these techniques." Crilly v. Southeastern Pennsylvania Transportation Authority, 529 F.2d 1355, 1362 (3d Cir. 1976) (footnotes omitted). In the instant case, Congress did not expressly include states and political subdivisions in the definition of "employer" in ERISA. See ERISA § 3(5), 29 U.S.C. § 1002(5). Additionally, Congress has in fact considered enacting a separate statute to cover public employees. ERISA expressly provides for the study of "retirement plans established and maintained or financed (directly or indirectly) . . . by any State . . . or political subdivision thereof . . . ." ERISA § 3031, 29 U.S.C. § 1231. Last year two members of Congress introduced a bill entitled the Public Employee Retirement Income Security Act of 1978, H.R. 14138, which would impose federal standards for reporting and disclosure, fiduciary responsibility, and plan administration on "all pension plans not otherwise covered under ERISA which are established or maintained for the benefit of the employees of the government of any state or political subdivision . . . ." 207 Pens. Rep. (BNA), at R-19; See also id. at A-14. Hence, it is apparent that Congress intended through section 4(b)(1) to exclude public employees from coverage.
In accordance with the above, I hold that the Plans are "governmental plans" exempt from coverage under Title I of ERISA by virtue of section 4(b)(1), 29 U.S.C. § 1003(b)(1). Judgment is rendered for the defendants
and the complaint is dismissed in its entirety.
Submit judgment on notice within 10 days after entry of this decision.