Justice Department Contends CalSavers Is Preempted by ERISA
October 1, 2019
On September 13, 2019, the U.S. Department of Justice (DOJ) filed a Statement of Interest in Jarvis Taxpayers Association et al. v. CA Secure Choice Retirement Savings Program, asserting that California’s mandatory payroll deduction retirement program (CalSavers) is preempted by ERISA. The submission follows a DOJ request to the California district court to delay ruling on a pending dismissal motion. According to the DOJ, the purpose of the filing was to advance a correct and consistent interpretation of the scope of ERISA preemption and to promote the voluntary establishment of employer-sponsored retirement plans.
As background, Congress enacted ERISA in 1974 to ensure that employees would receive the benefits to which they were entitled under employer-sponsored plans. Significantly, ERISA did not require that employers establish benefit plans, but instead provided incentives for employers to do so. ERISA also established a uniform set of plan administrative rules and procedures, so employers operating in more than one state did not have to navigate various state laws. As federal law, ERISA was designed to supersede or “preempt” any conflicting state laws.
The Secure Choice Act was enacted by the California legislature and applies to California employers that have five or more employees and do not already sponsor an ERISA retirement savings plan. These employers are required to automatically enroll employees in individual retirement accounts (IRAs) managed by a state board, and to fulfill ongoing responsibilities with respect to their employees covered by the CalSavers program. The DOJ indicated that it had a heightened interest in a preemption ruling in this case because the Secure Choice Act was the first amongst similar state auto-IRA laws to be challenged.
In the brief, the DOJ asserts that the California law is preempted by ERISA because ERISA plans are vital to its framework: an employer is compelled to either establish an ERISA plan or participate in the California equivalent. So, an employer who elects not to sponsor an ERISA plan must now enroll employees in CalSavers and follow the state’s administrative structure. Accordingly, the Secure Choice Act obstructs ERISA’s voluntary plan sponsorship and uniform national administrative scheme.
Additionally, the DOJ emphasizes that CalSavers is a plan as defined by ERISA and Ninth Circuit precedent because the benefits, beneficiaries, funding source, and procedures for receiving benefits can be reasonably ascertained from the Secure Choice Act’s terms. The state law also requires an employer to determine and monitor eligibility, payroll deductions, and contribution rates for employees, thus assuming obligations analogous to those of maintaining an ERISA plan. As a result, the Department alternatively argues, the CalSavers program as maintained by an employer is actually an ERISA plan.
The brief further notes that the existing 1975 IRA Safe Harbor, which provides an exception from ERISA coverage for payroll deduction IRAs, is not applicable to CalSavers because the program is not “completely voluntary.” Past precedents have established that “completely voluntary” for purposes of the exception requires an employee’s affirmative election to participate (as opposed to automatic enrollment and the opportunity to opt out, as is the case under the CalSavers regime).
The DOJ’s filing is significant because it reinforces the federal government’s role as primary regulator of employer sponsored retirement plans. The core issue is one of federal preemption and the scope of ERISA’s application. Clearly, the DOJ views the obligations imposed by the CalSavers program as conflicting with and preempted by ERISA.
It is not yet known to what extent the DOJ’s opinion will influence the district court’s ruling on the pending dismissal motion. However, employers in California to which the CalSavers program applies will likely want to follow this litigation. Although not directly affected by the immediate ruling, employers in other states with similar IRA programs may also wish to monitor this development.
Jarvis v. CA Secure Choice »