Would you consider the following Charter School as a political subdivision, or governmental entity and therefore exempt from ERISA reporting?
- The charter school was organized as a private, nonprofit corporation
- The school was run by an independent board of directors
- The school received all of its funding from the city, state, and federal governments
[Chicago Mathematics & Science Academy Charter School, Inc., Employer and Chicago Alliance of Charter Teachers & Staff, IFT, AFT, AFL-CIO, Petitioner, 359 National Labor Relations Board (NLRB) No. 41 (December 14, 2012)]
To determine if a Charter School is exempt from ERISA reporting many courts apply the following 6-point IRS test, notated as the IRS Ruling 57-458. All of the items of the IRS Ruling play a role in looking at the big picture, or the totality of the set of attributes. However, numbers three and four are more pronounced in the court’s decisions.
- Is it used for a governmental purpose and performs a governmental function?
- Charter schools would answer yes. Per the IRS: Providing tuition-free elementary and secondary education is a governmental purpose and function.
- Is the performance of its function on behalf of or as one or more states or political subdivisions?
- Charter schools do not typically meet this one if those on its Board are appointed by parents and are not public officials. In addition, the charter schools are independent from the school district with little governmental oversight for the day-to-day operations.
- Are there any private interests involved, or are do the states or political subdivisions involved have the powers and interests of an owner?
- Although the entity receives funding from the government, the control of a Charter school, generally speaking, rests upon the Board which tends to be composed of private individuals elected by the parents. Furthermore, the Board may delegate control to others who are not governmental employees. All reporting of the funds goes to a governmental entity who oversees, however it does not dictate.
- Are the control and supervision of the organization vested in public authority or authorities?
- Even though Charter schools are regulated by state laws, they are not controlled by the government; the rulings of a district school in addition would not apply to a charter school.
- Is express or implied statutory or other authority necessary for the creation and/or use of such an instrumentality, and does such authority exist?
- Charter Schools tend to meet this attribute. A state government does authorize the Charter School Board to grant a charter for an open-enrollment charter school under Code section 501(c)(3) for a non-profit organization. A statutory authority is necessary for the creation and use of a charter school.
- What is the degree of financial autonomy and the source of its operating expenses?
- Even though all of the funding comes from the government, the planning and day-to-day operations are overseen by the governing board which again is typically not governmental officials.
Decision: [Updated on May 23rd: The key word, “not” was originally omitted.]
Noting that no government entity has authority to appoint or remove a board member, and no member of the board of directors is a government official or works for a government entity, the NLRB concluded that the school is not a political subdivision. It is not exempt from ERISA.
Not all charter schools follow a cookie cutter approach. Each does need to be evaluated. Wrangle strongly encourages for a Charter School to be reviewed by an ERISA attorney for determination. After all many relied on the courts to assist in the decision.
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