The 9th U.S. Circuit Court of Appeals on May 6 affirmed a district court ruling that CalSavers, the state-run retirement program that provides coverage for employees whose employers do not offer a retirement plan, is not preempted by ERISA.
The 9th Circuit in Howard Jarvis Taxpayers Association v. California Secure Choice Retirement Savings Program, No. 20-15591 D.C. No. 2:18-cv-01584- MCE-KJN, May 6, 2021, affirmed an earlier ruling in which the U.S. District Court for the Eastern District of California dismissed the claims of the Howard Jarvis Taxpayers Association (HJTA) that ERISA preempts CalSavers. The district court had found that ERISA does not preempt the state program.
Circuit Judge Daniel Bress said that the case “presents a novel and important question in the law governing retirement benefits: whether [ERISA] preempts a California law that creates a state-managed individual retirement account (IRA) program.” He added that, “To our knowledge, this is the first case challenging such a program on ERISA preemption grounds.”
“There is, to be sure, an important policy debate here,” says Bress. He notes that “California steadfastly maintains that CalSavers is needed to address a serious shortfall in retirement savings that, if not addressed, will impose significant costs on the State years down the line. HJTA seemingly believes that state-run IRA programs reflect too great a role for government in private decision-making, while imposing too many costs on employers.” However, Bress says, “These are issues for California’s lawmakers and those who elect them, or for Congress should it choose to take up this issue.”
Muddy Waters
Bress noted that Congress had rejected a 2016 Department of Labor rule that sought to exempt CalSavers from ERISA under a safe harbor, but said “We hold that Congress’s repeal of that rule does not provide an answer to the preemption question.” Furthermore, he said, “We can at most conclude from Congress’s repeal of the 2016 regulation that Congress rejected the notion that CalSavers should be automatically exempt from an ERISA preemption analysis. Nothing about the repeal forecasts any answer, much less any definitive answer, on whether ERISA preempts programs like CalSavers. That issue was left to the courts to resolve. And that means we must address the ERISA preemption question that the 2016 Safe Harbor might have obviated or made easier.”
Set Up by an Employer?
The issue is not whether, had an employer set up an IRA program on its own, that program would be subject to ERISA, said Bress; rather, it is “whether a state-run IRA program like CalSavers is ‘established or maintained by an employer.’ The answer to that question is ‘no.’” He continues, “The ERISA-required ‘employer’ that supposedly ‘established or maintained’ CalSavers could only be one of two entities. The first, of course, is the State. But it seems quite clear that although California ‘established or maintained’ CalSavers, it did not do so in the capacity of an ‘employer.’”
In addition, Bress finds, California is not acting “indirectly in the interest of an employer” through CalSavers; furthermore, CalSavers does not purport to provide ready access to IRAs on behalf of California employers. In addition, he writes, CalSavers “does not represent employers in any relevant sense”; rather, it “steps in where the State regards eligible California employers as having failed to provide their workers with desirable retirement savings options.”
“That CalSavers imposes certain administrative duties on eligible employers does not mean that eligible employers complying with those obligations ‘establish or maintain’ ERISA plans,” Bress continues. He finds that “The types of determinations employers must make under CalSavers are essentially mechanical, such as which of their employees are eighteen or older, how many people they employ, and so on.”
Challenge Fails
“We hold that the preemption challenge fails,” writes Bress. He says, “CalSavers is not an ERISA plan because it is established and maintained by the State, not employers; it does not require employers to operate their own ERISA plans; and it does not have an impermissible reference to or connection with ERISA. Nor does CalSavers interfere with ERISA’s core purposes. ERISA thus does not preclude California’s endeavor to encourage personal retirement savings by requiring employers who do not offer retirement plans to participate in CalSavers. We therefore affirm the judgment of the district court.”
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