Is it common for state retirement systems to allow non-governmental employers to participate in the system? For example, I am working with a credit union (covering state employees) that is currently covered under a state retirement system. The credit union is not funded or otherwise controlled by the state. The credit union wants to withdraw from the system, but cannot (according to the state retirement board). Aren't there controlled group or ERISA issues? Otherwise, what would prevent a state retirement system from covering any employer within the state?

Don't know what state you are in, but here is my experience. Our state plan (CalPERS) has been advised, after some consultation with the IRS, that they would need to stop accepting non-governmental plans after a certain date. The service has been good enough to recognize the "gray" areas, like college run 501©(3) bookstores run by the Student Body Association, and has given guidance about what organizations are eligible. California Statutes have also been changed accordingly, I believe. You might want to check the CalPERS website for further information.

The Department of Labor has recently come out with Advisory Opinion 99-07A, which stated that a plan could be considered a governmental plan even if it covered a de minimis number of nongovernmental employees. However, the IRS appears to maintain a much stricter rule--perhaps allowing for some grey ares in terms of whether the employer is truly governmental, but treating a plan with any clearly nongovernmental employees as not being a governmental plan.
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