More than 10,000 California employers have registered for CalSavers since it launched in July 2019, and 340,000 workers are enrolled and putting away money for their retirements.
(CN) — The Ninth Circuit on Thursday rejected a bid by an anti-tax group to block CalSavers, California’s state-sponsored retirement plan for private workers.
The Howard Jarvis Taxpayers Association (HJTA), an influential anti-tax group with roots in the Golden State, sued the CalSavers program claiming it was preempted by the federal Employee Retirement Income Security Act (ERISA).
CalSavers allows eligible employers that do not offer 401(k) plans or pensions to automatically enroll their employees in the program. Workers can opt out, but if they choose to stay the state of California invests their contributions.
Critics believe the program adds unnecessary requirements for small employers trying to comply with California’s complicated business laws. To that end, Howard Jarvis sued in the Eastern District of California as an employer, and also claimed CalSavers was a waste of money that discouraged people from saving money on their own.
On Thursday, a three-judge Ninth Circuit panel agreed. Writing for the unanimous panel, Donald Trump appointee U.S. Circuit Judge Daniel Bress took up the legislative history behind ERISA and other programs that either fall under its umbrella or out.
In 2016, the U.S. Department of Labor added a safe harbor resolution to ensure state-run programs like CalSavers would fall outside ERISA. But less than a year later, Congress repealed the Labor Department’s resolution — leading Howard Jarvis to believe CalSavers was preempted by ERISA.
The panel found that akin to putting words in Congress’ mouth.
“HJTA thus argues that Congress ‘specifically disavowed CalSavers by expressly repealing the 2016 DOL regulation that was designed to authorize CalSavers itself.’ We think, however, that this argument reads too much into Congress’s rejection of the 2016 Safe Harbor,” Bress wrote for the panel.
Bress also noted the Department of Labor did not take a firm position in 2016.
“It merely sought to ‘remove uncertainty’ about that question, so that states could avoid the costs and delay of ERISA preemption litigation (like this one),” wrote Bress. “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.”
In another Ninth Circuit case, Stuart v UNUM Life Insurance Co. of America, the court clarified an employer who “established or maintained” its own program fell under ERISA. If a program did not satisfy the test, it doesn’t automatically mean that it’s under ERISA, but instead warrants further evaluation under conventional tests.
The panel looked at U.S. Supreme Court precedent to determine if CalSavers falls into two categories — does the law in question reference ERISA plans, or does it have a connection with ERISA plans.
“HJTA has not shown that either test is satisfied,” Bress wrote, noting CalSavers doesn’t order any employer to create an ERISA employee benefit plan.
“It is of course true that if the state mandated that private employers provide certain retirement benefits to their employees, this would violate ERISA,” he continued. “But California has not done anything like this in CalSavers. HJTA cites no authority suggesting that the nondiscretionary administrative involvement that CalSavers requires of employers is enough to mean the employers have thereby ‘established or maintained’ ERISA plans.”
The tax group had complained employers with workers across multiple states will be forced to comply with different pension plans, running contrary to ERISA’s purpose. But that missed the point behind CalSavers since an employer’s retirement plans remain under ERISA while the requirements under CalSavers are meant to make it easier and do not come close to what an employer would need to do if they took it upon themselves to maintain their own plan.
Furthermore, the panel noted several states already have their own versions of CalSavers and employers who operate across multiples states already deal with varying state laws.
“These are issues for California’s lawmakers and those who elect them, or for Congress should it choose to take up this issue,” Bress wrote. “The question for us is whether Congress has already outlawed CalSavers. For the reasons we have explained, HJTA’s ERISA preemption challenge fails.”
U.S. Circuit Judge Andrew Hurwitz, a Barack Obama appointee, and fellow Trump appointee U.S. District Judge Clifton Corker, sitting by designation from the Eastern District of Tennessee, joined the opinion.
California State Treasurer Fiona Ma, who chairs the CalSavers Retirement Savings Board, applauded the ruling.
“CalSavers is a simple solution to level the playing field for workers who for too long haven’t had access to workplace-based retirement plans,” Ma said. “There is no reason to deny millions of hardworking Californian’s access to this savings program when the alternative is to see them work until they are physically unable to, or suffer the hardships that come with little to no savings.”
HJTA staff attorney Laura Dougherty said the group is reviewing its options to petition for en banc rehearing or appeal to the U.S. Supreme Court
“CalSavers imposes burdens and risks on private employers since participation is mandatory for most employers who do not offer a company retirement program,” Dougherty said in a statement. “CalSavers imposes risks on employees since it doesn’t follow federal standards for retirement programs and authorizes commingling with California’s already troubled public pension plans.”