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New Law Includes Tribes in ERISA

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by Brad Jolly, Partner

August 22, 2006

President Bush signed the Pension Protection Act of 2006, which made significant changes to the Employment Retirement Income Security Act ("ERISA"). Section 906 of the new Act brings Indian tribes expressly under the ERISA. Prior to this new law, ERISA did not mention tribes and it was not entirely clear whether ERISA applied to tribes. Many tribes and law firms, including Smith & Jolly, did not concede that ERISA applied to tribes.

The Pension Protection Act, similar to the amendments to FUTA several years ago, provides that employee benefit plans of tribal governments and their subdivisions and agencies are to be considered "governmental plans" and, consequently, exempt from ERISA and the Internal Revenue Code ("Code") requirements that correspond to ERISA requirements, such as vesting and funding rules.

The new Act uses language very similar to the Indian Tribal Government Tax Status Act of 1982 in defining what tribal plans are to be considered government plans. Specifically, it provides that all of the participants of the plan must be employees of the tribal government or agency "substantially all of whose services as such an employee are in the performance of essential government functions but not in the performance of commercial activities (whether or not an essential government function)." The Tax Status Act also ties governmental exemption for tribes to "essential government functions." Therefore, for instance, the Act does not allow plans offered by tribal economic enterprises to be treated as government plans.

While it is beneficial to clarify that tribal government retirement plans need to be treated the same as state government retirement plans, as with the Tax Status Act, the limitation upon economic enterprises is disappointing and reflects the continued narrow view of the United States government with respect to tribal economic enterprises which provide tribes with elemental government revenue in the way taxes provide states with such revenue. The Internal Revenue Service will publish rules governing the specifics of the ERISA exemption, but it will be likely that the rules will narrowly construe the exemption, much as they do with the Tax Status Act.

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