On March 29, 2019, the United States District Court for the Eastern District of California dismissed the lawsuit filed by the Howard Jarvis Taxpayers Association (HJTA) maintaining that CalSavers, California’s mandated auto-enrollment payroll deduction IRA retirement savings program, is preempted by ERISA. The court found that HJTA had standing to bring the suit and that the case was ripe for decision and would not dismiss on those grounds.
It also found that CalSavers could not rely on a 1975 Department of Labor Safe Harbor to argue ERISA did not preempt CalSavers. The Safe Harbor rules that programs whereby employers remit payroll deduction contributions to employee IRAs for employees whose participation is completely voluntary did not establish plans subject to ERISA. However, CalSavers could not use the Safe Harbor to argue that employee participation was completely voluntary for its program, requiring automatic enrollment with an employee’s ability to opt out, because “completely voluntary” was not defined in the safe harbor. Still, the court found that ERISA did not preempt CalSavers on general preemption principles.
Under general principles of preemption the court found that because CalSavers only applies to employers who don’t have existing retirement plans, no ERISA plans are governed or interfered with by it. Therefore, ERISA’s primary purposes of ensuring employees receive promised benefits and protecting employers from the burden of meeting multiple regulatory requirements in managing plans are not implicated. CalSavers does not require employers to promise any benefits to employees and remitting payroll deduction contributions to CalSavers is simply a ministerial act. The court cited the Golden Gate Resturant Association, 546 F.3d 639 (9th Cir. 2008), case that upheld San Francisco’s ordinance requiring employers within the city to make minimum healthcare expenditures on behalf of their employees as not being preempted by ERISA because the ordinance did not require employers without ERISA plans to establish one, just to contribute to the city administered plan. The court concluded that finding that ERISA preempted CalSavers would be “out-of-step” with ERISA’s underlying purposes because CalSavers does not govern an ERISA plan’s administration nor interfere with uniform plan administration.
The court did grant HJTA 20 days to amend its complaint. Unless HJTA files an amended complaint or otherwise appeals the case to the Ninth Circuit, CalSavers is here to stay. Employers with 100 or more employees who don’t otherwise provide a retirement plan must register and automatically enroll employees by July 1, 2020 or face penalties. The number of employees then drops to 50 in 2021, and 5 in 2022.