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Ninth Circuit:
California-Run IRA Program Is Not Preempted by ERISA
By a MetNews Staff Writer
California’s individual retirement account program, CalSavers, is not preempted by the federal Employee Retirement Income Security Act of 1974, the Ninth U.S. Circuit Court of Appeals held yesterday.
Circuit Judge Daniel Aaron Bress wrote for a three-judge panel in resolving what he termed a “a novel and important question,” declaring:
“We hold that the preemption challenge fails. 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.”
The CalSavers Retirement Savings Trust Act, enacted in 2017, drew a challenge from the Howard Jarvis Taxpayers Association (“HJTA”) and two of its employees (including its president, Sacramento attorney Jon Coupal, whose column appears in the METNEWS). It contended not only that CalSavers is preempted by ERISA but also that implementation of the program should be enjoined under California Code of Civil Procedure §526a which authorizes an action to block any “waste of” taxpayer funds.
Yesterday’s opinion affirms a dismissal of the action with prejudice by District Court Judge Morrison C. England Jr. of the Eastern District of California. England rejected the preemption argument and opted not to reach the issue under state law.
Broad Language
ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan’ that ERISA covers.” That language, Bress acknowledged, is “expansive,” but said:
“States are not precluded from adopting a law just because it has something to do with ‘benefits’ in a loose sense, no matter how detached the law is from ERISA’s text and recognized objectives.”
He elaborated that ERISA pertains to “plans” established by employers. Bress explained:
“[W]e conclude that in every relevant sense, it is the State that has established CalSavers and the State that maintains it—and not eligible employers. California created CalSavers. California determines the eligibility for both employers and employees….California enrolls eligible employees….Individuals can elect to participate in CalSavers outside of the employment relationship by enrolling and making contributions via electronic funds transfer or personal check….California acts as the sole fiduciary over the trust and program….”
While certain administrative duties are imposed on employers involved with CalSavers, the jurist said, that does not mean that those employers have set up or maintain ERISA plans.
CalSavers does not “relate” to ERISA, he added, noting that any employer that has an ERISA plan is excluded from CalSavers.
Policy Questions
Bress commented:
“There is, to be sure, an important policy debate here. 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. But these are issues for California’s lawmakers and those who elect them, or for Congress should it choose to take up tins issue. The question for us is whether Congress has already outlawed CalSavers. For the reasons we have explained. HJTA’s ERISA preemption challenge fails.”
The case is Howard Jarvis Taxpayers Association v. California Secure Choice Retirement Savings Program, 20-15591.
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