The now conservative majority U.S. Supreme Court will hear three ERISA cases this term and decide issues involving the right to sue under ERISA.  The Intel case deals with the statute of limitations for bringing a breach of fiduciary duty claim under ERISA.  The Thole case involves whether participants in a fully funded defined benefit plan can sue for breach of fiduciary duty when there was no apparent effect on their benefits.  And the Jander case will expand upon the Dudenhoeffer ruling as to what plaintiffs need to plead in a stock drop case to avoid the case being dismissed.

Intel Corp. v. Sulyma.  This case involves the one statute of limitations set forth in the ERISA statute which is for breach of fiduciary duty.  Section 413 of ERISA provides that the deadline for filing a lawsuit is generally six years after the breach occurred.  However, if the plaintiff had “actual knowledge” of the breach the limitations period is only three years from obtaining such knowledge.  In this case, Intel Corp. argued that the shorter period applies because the breach of duty conduct complained of was contained in disclosure documents sent to participants and posted on its Web site.  Therefore, the plaintiffs should be considered to have actual knowledge.  Late last year, the Ninth Circuit disagreed with Intel and held that to a plaintiff who received the disclosure but did not read it or cannot remember reading it, does not have actual knowledge and the longer statute applied.  In a 2010 decision, Brown v. Owens Corning Investment Review Committee, the Sixth Circuit had held that failing to read the disclosure will not shield the plaintiff from having actual knowledge.  The Supreme Court will resolve the conflict among these circuits.  Oral arguments in the case will be heard on December 4, 2019.

Thole v. U.S. Bank.  In this case a purported class of participants sued for mismanagement of the assets of a defined benefit plan that caused the plan to be underfunded.  However, the employer, who bears the investment risk in a defined benefit plan, subsequently contributed more to the plan, to make it fully funded, and then moved to dismiss the suit claiming the participants had no damages.  The Eighth Circuit agreed with the employer in a decision that disagrees with decisions of other Circuit Courts.  Therefore, the Supreme Court will resolve this conflict among the Circuits, as well.  Oral arguments have not yet been scheduled.

IBM v. Jander.   This case involves what plaintiffs must plead in their complaint for breach of the fiduciary duty of prudence when a plan is invested in employer stock.  In its 2014  Dudenhoeffer decision the Supreme Court held that plan fiduciaries need not disclose inside information to plan participants about employer stock if the disclosure is likely to do more harm than good.  Earlier this year, the Second Circuit held that Jander plaintiffs properly alleged that no fiduciary could have concluded that an earlier disclosure that IBM’s microchip division was losing $700 million per year would have done more harm than good.  Therefore, IBM’s motion to dismiss was denied.

Oral argument in this case is set for November 6, 2019.  It is hoped that the Supreme Court’s decision will provide clearer standards on what must be pled in these cases.  The plaintiff’s bar hopes the decision will make it harder for such cases to be dismissed.  However, with the conservative makeup of the current Court the decision may make it easier for employers to defend these suits.

ERISA litigation continues to grow.  The high Court’s decisions in these three cases could have a chilling effect on such litigation by shortening the time for bringing cases, deciding when defined benefit plan participants may bring an action; and making the pleading standards in stock drop cases even more difficult to meet.  These cases will also be a good litmus test on just how conservative the new Court will be.

The Justice Department has submitted a Statement of Interest in the litigation, Howard Jarvis Taxpayers Association et al v. CA Secure Choice Retirement Savings Program, challenging California’s CalSavers mandated payroll deduction IRA program, as preempted by ERISA.  The Department previously asked the District court to refrain from ruling on the pending motion to dismiss until it decided whether to participate.  See U.S. Asks California Court to Delay CalSavers Decision Again.  The Department filed the Statement on September 13, 2019, for the purpose of advancing a correct and uniform interpretation of the extent of ERISA’s preemption and to promote the voluntary establishment of employer-sponsored retirement plans.  The Department stated that the United States has a heightened interest in the court finding that the California Secure Choice Act, which authorized the CalSavers program, is preempted by ERISA because it is among the first of similar state laws being challenged.

In the Statement, the Department maintains that CalSavers is preempted by ERISA because ERISA plans are necessary to its framework and it forces employers to either maintain an ERISA plan or to participate in CalSavers.  Additionally, the Department maintains that the CalSavers program itself creates an administrative scheme that employer’s must follow if not maintaining an ERISA plan.  Therefore, the CalSavers program as maintained by any one employer is an ERISA-covered plan.  From the statute’s terms a reasonable person can determine the intended benefits, beneficiaries, source of funding, and procedures for receiving benefits.  Therefore, CalSavers is a plan, fund, or program under Supreme Court and Ninth Circuit precedent, the Department maintains.  Additionally, by requiring employers in the program to determine whether an employee is eligible, set up payroll deduction arrangements, ensure employees are enrolled, deduct contributions through payroll, and forward them to CalSavers, the statute mandates employers maintain an ongoing administrative program required for an ERISA plan under the Supreme Court’s Fort Halifax, 482 U.S. 1 (1987), decision.

The Department also rejects CalSaver’s position that even if the IRAs under the program are ERISA plans, they are exempt under the 1975 Safe Harbor, maintaining that the program is not “completely voluntary.”  The Department noted that other cases involving such wording have held that automatic enrollment, even with an opt out is not completely voluntary.

The Department also maintains that the statute is preempted by ERISA for having an impermissible connection with ERISA-covered plans because it governs a central matter of plan administration and requires employers who do not have ERISA plans to maintain an ERISA-covered plan and the statute controls the benefits, design, and administration of the mandated plan.  Therefore, the statute interferes with the nationally uniform plan administration at the heart of ERISA preemption and potentially subjects multi-state employers to numerous disparate state retirement plan laws.  Finally, the Department maintains that because the statute forces employers to either adopt an ERISA plan or provide an equivalent through CalSavers, which is ERISA-covered, it is preempted as conflicting with ERISA which merely encourages employer’s to voluntarily adopt retirement plans.

It remains to be seen, what effect, the Department’s position will have on the District Court’s ruling.

As previously reported, the U.S. Department of Justice asked the United States District Court for the Eastern District of California not to decide whether to dismiss the lawsuit by the Howard Jarvis Taxpayers Association maintaining that the CalSavers retirement program is preempted by ERISA until the Department decides whether to participate in the lawsuit on behalf of the United States.  In its August 2, 2019 filing the Department indicated that it would give the court an update on the status of its process of deciding by August 30, 2019.  On August 30, 2019, the Department again asked the court to defer ruling on the pending motion to dismiss to give it additional time to conclude the process of deciding whether to participate.  The Department stated it would provide another update to the court on September 13, 2019.  CalSavers filed a response to the Department’s original notice asking the court not to defer its ruling, which apparently has been ignored as the court failed to rule.  Given the importance of the preemption issue it would be good to hear the Department’s point of view.

Just a brief post to let you know that I will be presenting a webinar for the Western Pension and Benefits Council Governing Board titled Voluntary Closing Agreements–The Non-EPCRS Correction Program on August 21 at 10 am PST.  I will discuss fixing plan issues that do not qualify for correction under the Employee Plans Correction Resolution System (EPCRS) through the Employee Plans Voluntary Closing Agreement Program, including the advantages and disadvantages of closing agreements.  I will also present some case studies of issues that have been resolved through the program.

Attendees will learn:

  • What is a closing agreement?
  • What is the EP Voluntary Closing Agreement Program?
  • What can be corrected under the program?
  • What is the procedure for applying under the program?

Click here to Register:


The issue of whether CalSavers is preempted by ERISA is being tracked by the Justice Department as it decides whether to participate in the litigation challenging the program.

CalSavers, California’s mandated payroll deduction program for certain California employees who do not have access to retirement plans at work became effective July 1, 2019.  However, still pending is a lawsuit by the Howard Jarvis Taxpayers Association to invalidate the law as preempted by ERISA.  See CalSavers Moves to Dismiss Amended Complaint Challenging Program under ERISA.  A motion to dismiss the amended complaint is awaiting a hearing.  However, interestingly, on August 2, 2019, the United States Department of Justice filed a Notice Concerning Potential Participation requesting that the court defer ruling on the motion in order to permit the United States an opportunity to determine whether it will participate in the litigation.  The Justice Department states in the motion that the United States may have an interest in providing its views with respect to the ERISA preemption issue and is actively considering whether to participate.  Federal law permits the Attorney General of the United States to send any officer of the Justice Department to attend to the interests of the United States in a suit pending in court.  The process for deciding to participate takes several weeks, the motion states the United States will update the court on the status of its consideration by the end of August.

Of course, the motion does not indicate whether the United States has a position on whether the law is preempted by ERISA.


This post takes a deeper dive into the expansion of the self-correction program under EPCRS by reproducing my article from this month’s Compensation Planning Journal.  The article discusses the increase in user fees under the Voluntary Correction Program which caused the industry to push back on the cost and request expanded self-correction to ease the cost of correction.  It also discusses issues with the concept of self-correction and some proposed resolutions.  I hope you enjoy it.


Effective August 16, 2019, final regulations require all “top hat” notices to be filed electronically through the Department of Labor’s website.

In 1989’s film Back to the Future II, Marty McFly rides a hoverboard (flying skateboard) to escape Griff Tannen and his gang of teenage thugs in the year 2015.  Well it’s 2019, and we still don’t have hoverboards to ride, however, thanks to the Department of Labor we now have mandatory electronic top hats.

On June 17, 2019, the Department of Labor announced that effective August 16, 2019 final regulations require that all “top hat” notices be filed with the Department electronically through its website.  Top hat statements are what a nonqualified deferred compensation plan for a select group of management or highly compensated employees (i.e., the top hat group) must file in order to be exempt from ERISA’s reporting and disclosure rules.  Top hat plans escape ERISA’s participation, vesting, funding, and fiduciary rules by statute.  However, the Department requires the top hat statement setting forth the name, address, and EIN of the employer; number of participants in each plan and number of plans.  The statement is supposed to be filed within 120 days of the beginning of the plan.  Once filed, the top hat plan need not file a Form 5500 or meet other reporting and disclosure rules.

In 2014, the Department established the ability to file top hat statements electronically on its website.  Filing electronically was completely voluntary (so, technically, we had electronic top hats before the hoverboard). Now, the Department is making it mandatory, beginning next month.  This is an important development for employers instituting any kind of deferred compensation plan for a select group that may be considered a retirement plan under ERISA.

It should be noted that the final regulation also applies to apprenticeship and training welfare benefit plans to be exempt from reporting and disclosure.

On April 11, 2019, the Howard Jarvis Taxpayer’s Association (HJTA) filed its amended complaint challenging the propriety of California’s new CalSavers retirement program after a federal district court dismissed its first complaint on March 28, 2019 but granted leave to amend the complaint due to the Court’s awareness of the importance of the case.  See HJTA Files Amended Complaint Challenging CalSavers Program, See also, CalSavers Saved from ERISA Preemption By District Court.  On May 28, 2019, lawyers for CalSavers again filed a motion to dismiss the suit.

The new motion challenges the amended complaint as not presenting any new arguments.  It argues that CalSavers is not preempted by ERISA because it is not an employee benefit plan under ERISA nor does it require employers to maintain an ERISA plan.   CalSavers establishes IRAs for employees who participate and IRAs are not ERISA plans.  The CalSavers law does not require employers to do anything more than they could do on their own with respect to payroll deduction IRAs without maintaining an ERISA plan.  Employers are only required to perform ministerial acts under the law and program and have no discretion as to the administration of the program.

CalSavers also argues that the program is not an ERISA plan under the 1975 DOL Safe Harbor because an employee’s participation is “completely voluntary”.  Despite the fact that eligible employers must automatically enroll employees, such employees can easily opt out of participating in CalSavers online, via email, telephone, overnight and regular mail.  The minimal effort needed to opt out of the automatic enrollment into the program should not prevent an employee’s participation from being “completely voluntary”, CalSavers argued.

CalSavers also argued that neither the individual taxpayer plaintiffs nor HJTA have standing to bring the state law claims because they have no direct injury.

HJTA can file an opposition to the CalSavers motion to dismiss.  The court will determine whether oral arguments are necessary.

Employers taking advantage of any self-correction should prepare appropriate documentation.

By now you’ve probably read that the IRS has expanded the failures that can be self-corrected under the Employee Plans Compliance Resolution System (EPCRS) as set forth in Rev. Proc. 2019-19 issued April 19, 2019.  This development comes on the heels of the IRS changing how user fees are determined under the Voluntary Correction Program (VCP) from a participant-based fee to an asset-based fee.  See, Plan Mistakes are Now More Costly to Correct.  The expansion will help smaller employers with significant plan assets save money by permitting certain failures to be corrected without filing under VCP and paying a user fee.

Failures that can now be self-corrected include: certain plan document failures caught by the end of the second plan year after the plan year in which the failure occurred; retroactive plan amendments to correct an operational failure by conforming the plan document to its actual operation; and certain plan loan failures.

Plan document failures.  If a plan would no longer be considered a qualified plan or 403(b) plan because it failed to timely adopt a good faith amendment or interim amendment required by law, this failure can be self-corrected if discovered early enough.  The employer must adopt the necessary amendment by the end of the second plan year following the plan year in which the amendment was required to be adopted.  The plan must already have a letter indicating it is tax favored to be eligible for self-correction.  A failure to originally adopt a plan timely cannot be self-corrected.

Operational failures.  If a plan was operated with respect to benefits, rights, and features contrary to the provisions of its plan document, such an operational failure can be self-corrected by adopting a retroactive plan amendment to conform the document to the operation.  The amendment must increase the benefit, right or feature for all eligible employees and otherwise be permitted under the Internal Revenue Code and satisfy EPCRS correction principles.  An example, would be a plan that in operation has been permitting in-service distributions at age 59 ½ when the document does not provide for such.  This could be self-corrected by a retroactive amendment permitting such distributions for all employees.

Loans.  Loan issues have historically been the number one cause for correction under EPCRS.  Now certain loan failures can be self-corrected.  If a loan was made from a plan that requires spousal consent for such a distribution, but such consent was not obtained, it can be self-corrected by notifying the Participant and spouse and obtaining written consent of the spouse currently.  If one or more participants has exceeded the number of loans permitted for a Participant under the plan document, the plan can be retroactively amended to conform to the operation as self-correction.

Likewise, where a participant defaults on making timely payments on a plan loan can now be self-corrected.  The failure can be for any reason, including the employer’s failure to start payroll deduction timely.  The default can be corrected by: the Participant making a single sum payment of the missed payments to “catch up”; by re-amortizing the outstanding balance over the remaining term of the loan; or a combination of the two.  In all of these cases of self-correcting loans, there is no deemed distribution to the Participant and no Form 1099-R need be issued.

It is important to note, that participant loans are allowed as an exception to the prohibited transaction rules.  Therefore, if a loan fails to meet the requirements for the exception, a prohibited transaction has occurred.  However, the sponsoring employer and other plan fiduciaries cannot obtain the Department of Labor’s blessing on the correction through a no-action letter stating it will not pursue penalties or legal action for fiduciary breaches because currently it will only accept corrections made through VCP under its Voluntary Fiduciary Correction Program.  It remains to be seen whether this will change.

Documenting the self-correction.

Expanded self-correction is beneficial given how measuring user fees based on plan assets tends to increase the cost of correction for plans with a small amount of participants but significant assets.  Of course, these are not the only failures that can be self-corrected.  Significant operational failures can still be self-corrected  by the end of the second plan year in which the failure occurred.  Likewise, insignificant operational failures can still be self-corrected at any time.  However, the overarching issue with self-correction is that the employer sponsoring the plan is never completely certain that on audit of the plan, the auditing IRS agent will agree that the matter was eligible  for self-correction and properly self-corrected.  In such case, the agent may attempt to require the employer enter the Audit Closing Agreement Program to maintain the qualified status of the plan where the employer will have to pay a substantial penalty.  This is quite different than VCP where the plan sponsor receives a compliance statement from the IRS agreeing not to disqualify the plan, if the corrections are timely made pursuant to the VCP submission.

That said, Employers taking advantage of any self-correction should prepare appropriate documentation regarding the correction so that they can defend it if the plan were audited.  Employers should prepare and keep detailed records reflecting the Employer’s action relating to the self-correction including resolutions or meeting minutes recording: the issue; its eligibility for self-correction;  the employer decision to self-correct; the number of participants affected;  the dollars involved; and the employer action taken.  These documents should be kept with the employer records of business action such as a corporate book as well as with the plan documents.    Detailed documents showing the actual correction should also be created and kept.  For example, if an amendment was adopted, a signed copy of the amendment should be included.   If a loan agreement’s payment schedule is changed, this should be documented with an amendment to the loan agreement and both included. If payments were made and accounts adjusted, documents demonstrating this should be included.  I also recommend that all the correction documents be kept in their own separate “self-correction” file that can be easily found and reviewed without sifting through several other documents. A memorandum summarizing the entire correction is also a good idea so when years have passed it can easily be determined how the issue was corrected.

These steps will help defend the self-correction should it ever be challenged by the IRS.


On April 11, 2019, the Howard Jarvis Taxpayer’s Association (HJTA) filed its amended complaint challenging the propriety of California’s new CalSavers retirement program after a federal district court dismissed its first complaint on March 29, 2019.  See CalSavers Saved from ERISA Preemption By District Court.  Like the first complaint, the amended complaint attacks the statutory program in two ways.  First, it argues that the program is preempted by ERISA and therefore should be declared void.  Second, under California state law, the complaint asks the court to enjoin the implementation of CalSavers as a waste of taxpayer funds.

The amended complaint emphasizes that since the 2016 Department of Labor safe harbor for savings  arrangements established by states for nongovernmental employees was repealed by Congress that there is no exception from ERISA preemption.  Additionally, since under the CalSavers statute, the state is not liable for any loss of the payroll deduction contributions, the purposes of ERISA are thwarted by the program.

The complaint further alleges that since the CalSavers program has already spent over $1.5 million and has requested to borrow $20,000,000 more to further implement the program, the state is wasting taxpayer money when all California employees already have access and opportunity to save for retirement through private IRAs.  CalSavers has until May 25, 2019 to file its answer to the amended complaint.

To learn more about the CalSavers program and lawsuit, attend the Capitol Forum on Pensions on June 5, 2019, at Arden Hills resort in Sacramento which will have a session called “CalSavers is Here…Are You Ready?” featuring a panel of myself, Aaron Karr, from Ameriprise Financial, and a representative from CalSavers.  Details of the conference can be found at this link CFOP.