DOL sides with plaintiffs in CalSavers lawsuit

DOL sides with plaintiffs in CalSavers lawsuit
In a letter to a U.S. appeals court, the Department of Labor again argues that the state-sponsored auto IRA is preempted by ERISA
JUN 26, 2020

The Department of Labor is continuing its fight against state-sponsored auto IRAs, this month urging an appeals court to find that California’s program is preempted by ERISA.

Last Friday, the regulator filed an amicus brief with the U.S. Court of Appeals for the 9th Circuit that supports an argument made by the lead plaintiff, the Howard Jarvis Taxpayers Association. That group has sought for two years to defeat CalSavers, the state-sponsored automatic-IRA-style savings program for private-sector workers.

A finding that the program is an employee benefit plan and not outside of the scope of the Employee Retirement Income Security Act would effectively invalidate it. California formally launched CalSavers last year, and it requires that companies with at least five employees participate. While the program is up and running, it has phased deadlines, with the first on Sept. 30 applying to companies with more than 100 workers.

The conservative tax group filed its case seeking to halt CalSavers in 2018, and the case was dismissed in district court in April 2019. The plaintiffs amended their complaint, though the case was again dismissed in March. Howard Jarvis then appealed that decision.

CalSavers declined to comment on the DOL’s letter, citing advice from that state attorney general’s office not to comment on pending litigation.

The Trump administration has been closely watching the case. It follows a dramatic change in the federal government’s view on state auto-IRA programs; in 2016, the Obama administration had issued a regulation supporting such programs, but that was reversed in 2017.

The DOL’s letter to the court echoes a similar one it sent last year at the district court level.

The California lawsuit is a test case whose outcome could have dramatic consequences for other state-sponsored programs. Others, including Oregon and Illinois already have similar “Secure Choice” programs up and running, and numerous states are either moving forward with their own or considering other savings plan alternatives.

Such programs arose after years of failed attempts to pass a federal auto IRA system. The state programs are designed to provide retirement-savings access to workers who otherwise would not have it.

The DOL under Trump “take[s] a broader, expansive view that the state programs are not consistent with ERISA,” said David Levine, principal at Groom Law Group.

“Each state has a slightly different wording of its statute,” Levin said. “If the court rules against the [CalSavers] program, it could have a chilling effect on some of the state programs.”

While the Trump administration has not been supportive of state auto IRAs, it has been supportive of the pooled employer plans that were outlined in the SECURE Act. Such plans can similarly serve small businesses, though they are provided entirely by the private sector and employers are not mandated to participate.

“People assume Republicans are against regulation,” Levine said. “The DOL certainly believes in increased [retirement] savings” in plans covered by ERISA, he said.

In filing a letter with the court, “they’re taking a strong stance, because it puts the department on record,” he said.

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