The Department of Labor is backing a twice-dismissed challenge to the CalSavers program, arguing in a brief filed June 19 that the law establishing it, the California Secure Choice Act, is pre-empted by ERISA.
The $2.54 million CalSavers Retirement Savings Program is a defined contribution plan for private-sector workers in California who do not have access to a retirement plan sponsored by their employers. It rolled out statewide in July 2019.
The challenge began in 2018 when the California-based Howard Jarvis Taxpayers Association sued CalSavers in U.S. District Court for the Eastern District of California to stop the program, arguing that it is pre-empted by ERISA and no taxpayer money should be spent on it. The court In April 2019 dismissed the association's case, but allowed it to amend its complaint. On March 10, the court again dismissed the lawsuit, without the ability to amend the complaint.
In September, the Department of Justice on behalf of the Department of Labor told the court it had a "heightened interest" in the lawsuit. Now that the case has gone through the courts, Labor Department lawyers are arguing to have it reversed.
The Department of Labor brief said that the California Secure Choice Act is pre-empted under ERISA's "reference to" doctrine "because the existence of an ERISA-covered plan is essential to its operation. To comply with the act, employers either must have an ERISA-covered retirement plan, or must use the CalSavers withholding arrangement. If they use the withholding arrangements mandated by the act, they establish or maintain plans, funds or programs of benefits for their employees, which therefore are themselves ERISA-covered plans. The fact that the withholding arrangements are compelled by state law does not alter the ERISA pre-emption analysis," the brief said.
Another point of pre-emption is the "connection with" doctrine, the Labor Department argued, because it governs a central matter of plan administration and interferes with nationally uniform plan administration. "The act interferes with nationally uniform plan administration of retirement benefits by subjecting multistate employers to a patchwork of state laws that directly regulate how employers must structure their program or plan in providing retirement benefits," the brief said.
The filing also disputes CalSavers' argument that the Department of Labor has an ERISA safe harbor for voluntary IRAs, because ERISA requires a "completely voluntary", not merely a voluntary choice, from opting out of the automatic enrollment arrangement.
CalSavers Executive Director Katie Selenski said in an email that on the advice of the California attorney general's office, it is not commenting on pending litigation.