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Employee Benefits and American Indian Law

ERISA is a complex, broad-reaching federal law that governs most retirement and welfare benefit plans of private-sector employers. However, ERISA does not apply to governmental plans. The application of this governmental exception to the employee benefit plans of Indian tribal government employers requires careful analysis, and can have a significant impact on how those plans are designed and operated.

Are Tribal Plans Subject to ERISA?

On the one hand, Indian tribal governments are sovereign entities that qualify as a government entity for most legal purposes. Yet Indian tribal governments often run for-profit commercial enterprises that fall outside the realm of government activity. As a result, for many years it was ambiguous whether employee benefit plans maintained by Indian tribal governments were subject to ERISA or whether they were exempt.

When Congress amended ERISA with the Pension Protection Act of 2006, it specifically added Indian tribal government plans to the governmental plan exemption, but only if—

  • all participants in the plan are employees of the Indian tribal government; and

  • substantially all of the participants’ services as employees are in the performance of “essential governmental functions,” but not in the performance of “commercial activities.”

Therefore, for an Indian tribal government plan to be exempt from ERISA, participation must be limited to employees who perform traditional government functions, and the plan must exclude employees who engage in commercial activities. For example, a plan in which all of the participants are teachers in tribal schools would be exempt from ERISA, but a plan covering individuals who are employed by a hotel, casino or similar commercial enterprise operated by a tribal government would be subject to ERISA.

As a result of this rule, Indian tribal governments that participate in commercial activities have two basic options: (1) they may either sponsor one ERISA plan covering all members and employees, including both commercial and government employees, or (2) they may sponsor two separate plans – one under ERISA for commercial employees and one non-ERISA plan for government employees and members.

Impact of Plan Status on Plan Design and Operation

ERISA sets forth rules for employee benefit plans related to fairness, disclosures, fiduciary duties and conflicts of interest. As a result, ERISA plans must fulfill specific requirements, including—

  • filing a Form 5500 annual report

  • distributing a summary plan description (SPD) to participants containing certain information

  • following ERISA claims and appeals procedures

  • satisfying ERISA fiduciary standards

In addition, pension plans that are subject to ERISA must pay PBGC premiums and provide certain other notices to participants.

By contrast, non-ERISA plans are free of these requirements. As a result, Indian tribal governmental plans maintained for members and non-commercial employees can be simplified in a number of respects. If a non-ERISA plan includes ERISA references and provisions, it could confuse employees or, even worse, create unintended contractual rights. That said, Indian tribal governments that choose to maintain a non-ERISA plan for governmental employees and an ERISA plan for commercial employees should carefully consider whether to borrow from some of ERISA’s framework for their non-ERISA plans in order to simplify administration of both plans.

In addition to being exempt from ERISA, Indian tribal governmental plans are exempt from certain provisions of the federal tax code that govern the tax qualification of retirement plans. These include minimum participation standards, nondiscrimination testing, top-heavy plan rules, and joint and survivor annuity requirements. As a result, non-ERISA qualified retirement plans can be considerably more flexible with regard to plan design.

© 2020 Varnum LLP


About this Author

John Arendshorst, Varnum Law Firm, Grand Rapids, Employee Benefits Attorney

John is a member of the firm’s Employee Benefits Team. He counsels employee benefit plan sponsors with respect to compliance with ERISA and IRS requirements for 401(k) plans, ESOPs and other defined contribution plans, defined benefit plans, and deferred compensation arrangements. John also advises clients on employee benefits issues in the context of corporate transactions, including qualified plan compliance issues, change-in-control agreements, continuation of health coverage, and golden parachute payments under Section 280G. John is experienced in negotiating and...

Lena Gionnete, Varnum Law Firm, Labor and Employment Law Attorney

Lena is an attorney on the Employee Benefits Practice Team. She works with employers, executives and third-party administrators on a wide range of issues relating to tax-qualified pension plans, 401(k) and profit sharing plans, non-qualified plans, and health and welfare benefit plans. She advises clients regarding compliance with federal laws governing employee benefit plans, including the Internal Revenue Code, ERISA, PPACA, HIPAA and COBRA, and also counsels clients on benefits issues in connection with corporate transactions.