On May 6, 2021, the United States Court of Appeals for the Ninth Circuit upheld a District court’s dismissal of a complaint filed by the Howard Jarvis Taxpayer’s Association (HJTA), challenging California’s state mandated IRA program, CalSavers, as being preempted by ERISA.

CalSavers is California’s mandated auto-enrollment payroll deduction IRA program that requires employers of a certain size, that don’t provide their employees with a retirement plan, to automatically withhold contributions from such employee’s pay and pay them into IRAs managed by CalSavers.  However, employees can opt out.  ERISA is a federal law that preempts any state law that “relates to any employee benefit plan” except for certain exceptions.   HJTA maintained that the CalSavers law was preempted because it required an employer to adopt an ERISA plan or enroll employees in CalSavers, which it maintained was itself an ERISA plan.  The lower court dismissed the complaint twice.  See, CalSavers Not Preempted By ERISA!HJTA appealed to the Ninth Circuit.

Originally the U.S. Department of Labor filed an amicus brief in support of preemption under the Trump Administration.  However, after President Biden won the election the Department withdrew its support of HJTA.  See, Will DOL Withdrawing Support Doom Revival Of ERISA Challenge To CalSavers?

The Ninth Circuit first held that the Department of Labor’s 2016 repeal of a safe harbor rule that would exempt CalSavers from ERISA did not resolve the preemption issue because it was merely a safe harbor meant to remove uncertainty and avoid costly litigation over preemption.  The repeal simply rejected the notion that state mandated and run programs like CalSavers were automatically exempt.

The court then held CalSavers is not preempted because it is not an ERISA plan nor does it “relate to” ERISA plans by imposing administrative obligations on employers.  The court found CalSavers is not an ERISA plan because it is established and maintained by the State of California, not employers, relying on Golden Gate Restaurant Association v. City & County of San Francisco.

To relate to ERISA plans a state law must either have “reference to” ERISA plans or have an “impermissible connection” with ERISA plans.  A law refers to ERISA plans if it acts immediately and exclusively on ERISA plans or where the existence of ERISA plans is essential to its operation.  The court found that since CalSavers specifically exempts employers that maintain ERISA plans, it does not act on ERISA plans at all.

A law has an impermissible connection if it governs a central matter of plan administration  or interferes with nationally uniform plan administration.  The court rejected HJTA’s argument that if these state run programs are not preempted, multi-state employers will be forced to comply with differing pension plan requirements in different states contrary to ERISA’s goal of nationally uniform plan administration.  The court stated that an employer’s own retirement plan is still subject to one uniform law, ERISA, and the ministerial obligations CalSavers imposes on employers do not resemble the establishment or maintenance of an ERISA plan.   The court also stated that while it’s ruling means that every state could now enact its own version of CalSavers, subjecting multi-state employers to many state laws, that is simply a function of our federal system and no different than varying state laws in other areas.

This ruling probably means that CalSavers is here to stay.  There has been no word from HJTA on an appeal to the Supreme Court.  Additionally, as it is the first Appellate Court case on preemption of these state run mandatory IRA programs no Circuit split exists.  California employers with more than 50 employees that do not provide a retirement plan for employees must register with CalSavers by June 30, 2021 or face penalties.