The Department of Justice has asked a federal court to hold off ruling on a suit challenging California’s auto-IRA program for private sector workers.
The suit in question is a challenge by the Howard Jarvis Taxpayers Association, claiming that the California Secure Choice Retirement Savings Trust Act – which establishes the CalSavers auto-IRA program for private sector workers “violates the Supremacy Clause of the United States Constitution because it is expressly preempted by the Employee Retirement Income Security Act of 1974….” The suit was originally filed in June 2018 in the U.S. District Court for the Eastern District of California.
The notice cites a federal statute (28 U.S.C. § 517) that “authorizes the Attorney General of the United States to send any officer of the Department of Justice to “attend to the interests of the United States in a suit pending in a court of the United States, or in the courts of a State, or to attend to any other interest of the United States.” In this case, the aforementioned issue of ERISA preemption, and explains that “the United States may have an interest in providing its views.”
Preempt “Shuns?”
On for the issue of ERISA preemption, Judge England had previously noted that if the CalSavers program met the requirements of a 2015 Labor Department fact sheet detailing “circumstances under which a state-required payroll deduction savings IRA program would not give rise to an employee pension benefit plan under ERISA and, therefore, should not be preempted by ERISA,” ERISA would not preempt the program.
That safe harbor outlined four requirements for ERISA exclusion of employer payroll deduction IRAs: (1) no employer contributions are allowed; (2) employee participation must be “completely voluntary”; (3) the employer cannot endorse the program; and (4) the employer cannot receive compensation from the program.
Judge England explained that only the “completely voluntary” factor was at issue here. The issue then is whether automatic enrollment – albeit one where the employees may opt out – is “completely voluntary.” Ironically, the Labor Department’s 2016 Safe Harbor interpretation that “completely voluntary” under the 1975 Safe Harbor required that the employee initiate participation played a role in the decision. That determination was, in fact, according to Judge England, what the plaintiffs relied upon exclusively in asserting their claim regarding ERISA preemption.
In April 2019, Judge U.S. District Judge Morrison C. England Jr. acknowledged that the case “presents novel legal questions concerning state-mandated retirement savings accounts” and “implicates a significant body of judicial and regulatory interpretations of ERISA,” but concluded that “finding that ERISA preempts CalSavers would be out-of-step with the underlying purposes of the Act. CalSavers does not govern a central matter of an ERISA plan’s administration, nor does it interfere with nationally uniform plan administration. On this basis, the Court finds that CalSavers is not preempted by ERISA.” He did, however, give the plaintiffs “one final leave to amend,” noting the “importance of this case” – an opening of which they recently took advantage.
Next Steps
As for the current response by the DOJ, the notice acknowledges that “the process for deciding whether to participate involves coordination among multiple government agencies and the approval of the U.S. Department of Justice through the Assistant Attorney General for the Civil Division,” and that “this approval process generally takes several weeks, but it can vary depending upon the Assistant Attorney General’s workload and availability.”
However, the notice also states that “the United States is aware that Defendants’ motion to dismiss is fully briefed, and it intends to work expeditiously to complete the process of determining whether to participate in this lawsuit.”
Stay tuned.
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