By Pension and Benefits Editorial Staff
CalSavers, a mandated auto-enrollment retirement savings program administered by the state of California, is not preempted by ERISA, according to a federal trial court in California. The program, the court explained, is not an employee benefit plan maintained by employers and does not relate to an ERISA plan.
CalSavers draws ERISA preemption challenge. The California Secure Choice Retirement Savings Program (CalSavers), as enacted by California in 2012, is a state-sponsored retirement savings plan designed for California employees who do not have access to an employer-provided retirement savings plan. The Program is designed and implemented by the California Secure Choice Retirement Savings Investment Board (Board) and contributions are placed in the California Secure Choice Retirement Savings Trust (Trust), which is administered by the Board.
The Program requires an “eligible employer” that does not offer a retirement savings program to allow employee participation in CalSavers via payroll deductions. Eligible employers must automatically enroll their employees and remit payroll deductions to the Program unless the employee elects not to participate (i.e., “opt out”).
In May 2018, a taxpayer advocacy group filed suit against the CalSavers and the California State Treasurer, contending that the program was preempted by ERISA. The court ruled that, although CalSavers does not fall within the requirements of the ERISA Reg. §2510.3-2(d) safe harbor allowing the exclusion of payroll deduction IRAs, ERISA does not preempt the Program. According to the court, because CalSavers applies to employers without existing retirement plans, no ERISA plans are “governed” or “interfered” with by the Program.
The plaintiffs filed an amended complaint in April 2019, alleging claims similar to those made in their original Complaint. CalSavers, in May 2019, filed a motion to dismiss. Subsequently, in September 2019, the United States filed a Statement of Interest, opposing CalSavers’ motion to dismiss.
CalSavers not an employee benefit plan subject to preemption. The issue before the court was whether CalSavers is employee benefit plan, subject to ERISA preemption. An “employee benefit plan” is “an employee welfare benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan” (ERISA Sec. 3(3)). An employee pension plan is further defined as any plan, fund, or program established or maintained by an “employer” that provides retirement income to employees (ERISA Sec. 3(2)(A)(i)).
CalSavers not established or maintained by employers. In determining whether CalSavers was a plan established or maintained by an employer, the court explained that an employer’s administrative duties with respect to the plan must involve the application of more than a modicum of discretion. In addition, the court stressed, an employer who makes no promises to its employees regarding an employee benefit plan or its coverage is not considered to have established or maintained such a plan.
The plaintiffs contended that CalSavers actually requires thousands of employers to create their own separate ERISA plans. The court rejected this argument, noting that employers, under CalSavers, have no discretion in the administration of the state-sponsored Program and do not make any promises to employees. Employers are limited to providing a roster of eligible employees, supplying contact information of eligible employees, making payroll deductions, and remitting such deductions. Such ministerial duties, the court ruled, do not rise to the level of an employee benefit plan established or maintained by actual employers.
CalSavers does not relate to an ERISA plan. The court next addressed whether CalSavers was preempted as relating to an ERISA plan. A law relates to ERISA plan if it has a connection with or reference to such a plan. The issue before the court, thus was whether CalSavers has a “reference” to an ERISA plan or a “connection” with such a plan.
Reference to ERISA plan. A state law has an impermissible “reference to” an ERISA plan if: (1) the law acts immediately and exclusively upon ERISA plans, or (2) the existence of ERISA plans is essential to the law’s operation. The plaintiffs maintained that CalSavers reliance on the existence or nonexistence of ERISA plans constitutes an impermissible reference.
The court conceded that CalSavers only applies when employers do not have an existing ERISA or employer-sponsored retirement plan. However, the court stressed, the Program does not interfere with existing ERISA or retirement plans provided by employers. As the Program would be fully functional absent a single ERISA plan, it does not have an impermissible reference to ERISA.
Connection with ERISA plans. A state law has an impermissible connection with ERISA, the court explained, if the law governs a central matter of plan administration or interferes with nationally uniform plan administration.
In its March 2019 ruling, the court held that, because CalSavers applied only to employers without existing retirement plans, no ERISA plans were governed or interfered with by the statute.
The plaintiffs, in the amended complaint, and the United States argued that the court’s prior ruling should be considered in light of the Supreme Court’s holding in Gobeille v. Liberty Mut. Ins. Co. (US Sup Ct (2016) 136 S. Ct. 936). In Gobeille, the Supreme Court held that a Vermont statute that required health insurers, including ERISA plans, to disclose payments relating to health care claims and other information relating to health care services for a state database, was preempted by ERISA because the disclosure requirement interfered with the nationally uniform plan administration and regulatory reporting domain of ERISA.
The trial court, however, found Gobeille inapposite because CalSavers does not impose additional reporting requirements on existing ERISA plans. The information provided by participating employers, the court reasoned, does not interfere with ERISA’s regulatory domain because reporting is only required where no ERISA or any other employer-sponsored retirement plan exists. Thus, CalSavers imposes no additional burdens or requirements on existing ERISA or employer-sponsored retirement plans which interfere with ERISA’s regulatory domain or govern any central matter of plan administration. As such, the court concluded, there is no impermissible connection with an ERISA plan which would necessitate the preemption of CalSavers.
Source: Howard Jarvis Taxpayers Association v. The California Secure Choice Retirement Savings Program (DC CA).
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