The case, the first to address the issue of ERISA pre-emption, is a positive sign for other states.
California's auto-IRA program, CalSavers, survived a legal challenge that sought to nullify the state's new retirement vehicle, and some experts see the decision as a positive indicator for states that have similar programs and those considering implementing one.
The primary question posed by the lawsuit, Howard Jarvis Taxpayers Association v. The California Secure Choice Retirement Savings Program, was whether CalSavers created an "employee benefit plan." If so, it would be trumped by federal retirement law and therefore voided.
California District Judge Morrison C. England Jr. sided with California and dismissed the lawsuit last Friday.
"This is quite significant," said Mark Iwry, a nonresident senior fellow at the Brookings Institution and former deputy assistant secretary for retirement and health policy at the U.S. Treasury Department during the Obama administration.
"It bodes well for state auto-IRAs generally," Mr. Iwry added. "It's very clear in holding that [the Employee Retirement Income Security Act] does not preempt these state auto-IRA programs."
Attorneys for both the plaintiffs and defendants declined a request for comment.
In 2012, California passed a law creating CalSavers, an automatic-enrollment, payroll-deduction individual retirement account program meant to help address a perceived shortfall in retirement savings among private-sector workers.
Auto-IRA programs like CalSavers require employers of a certain size to offer a workplace retirement plan for employees, whether that's a private-sector option like a 401(k) or the government-sponsored auto-IRA. If employers choose the latter, their responsibilities are generally limited to facilitating automatic deductions in their payroll systems.
Such programs have been legislated in six states — most recently New Jersey, last Thursday — and one city, Seattle. Programs in Oregon and Illinois are currently enrolling employees, and California's program is in a pilot phase.
Plaintiffs in the lawsuit, filed in May 2018, claimed California's program was "expressly preempted" by the Employee Retirement Income Security Act of 1974, arguing that ERISA establishes nationally uniform standards to protect private employees and doesn't allow state-run programs.
Mr. England disagreed, saying that this finding 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," he said.
The lawsuit is the first to address the issue of ERISA preemption. The judge gave the plaintiffs 20 days to file one final amended complaint.
In August 2016, the Obama administration issued a regulation to promote creation of state auto-IRA programs. The rule provided a safe harbor for states, clarifying that the programs wouldn't be subject to ERISA and preempted by it as long as they met certain conditions. The Trump administration overturned the regulation in May 2017.
Other states have taken different routes to addressing retirement shortfalls. New York Gov. Andrew Cuomo signed a law last year creating a state IRA program that is voluntary for employers. (New York City is considering an auto-IRA option.) Vermont and Massachusetts are instituting state multiple employer plans, which could make it easier for companies to offer retirement plans.
