President Trump may have signed legislation pulling back the Obama administration’s ERISA safe harbor guidance for state-run auto IRAs, but California officials say they don’t need it.
In a press release, California State Treasurer John Chiang and Senate President Pro Tempore Kevin de León (D-Los Angeles) said that California’s Secure Choice program remains on track – and they have a legal opinion backing them up.
Earlier this week President Trump signed legislation that overturns the Obama administration’s ERISA safe harbor rule for state-run auto-IRA programs for private sector workers – on the last day he could to avoid a pocket veto of the measure under the Congressional Review Act. On May 3 the Senate passed H.J. Res. 66 by a vote of 50-49, echoing action taken by the House of Representatives in February. The action was taken under the Congressional Review Act, which allows Congress to pass legislation overturning certain significant regulations if that legislation is ultimately signed by the president.
Believe ‘Leave’
The May 16 letter from David Morse at the law firm of K&L Gates says the firm believes that “pre-2016 DOL safe harbor guidance and applicable case law provide firm grounds for the Board to accomplish its mission to design and implement Secure Choice as a non-ERISA savings program for private sector workers in California.” It goes on to state their belief that “current law should not impede the Board if it chooses to consider Program designs using an ‘opt out’ negative election approach.”
One of the primary concerns about the ability of these state-run automatic IRA programs to steer clear of ERISA has been concerns that a payroll withholding program that nudged employees into savings through automatic enrollment elections would not satisfy the “completely voluntary” condition of the Labor Department’s 1975 safe harbor. The letter reminds that “both the preambles to the proposed and final 2016 Safe Harbor explained the DOL’s view that a program’s auto-enrollment/escalation feature could cause an employer to exercise undue influence over an employee’s participation and that contributions made without an affirmative election might not be completely voluntary.” However, they opined that if the employer was establishing the program not at their own doing, but as the result of a state law requiring the action, “the element of ‘employer volition’ would be absent, with the result that any employee participation in the program should be viewed as ‘[completely] voluntary.’”
They also note that “a regulatory safe harbor is just that: it provides a bright-line standard for identifying programs that are not covered by ERISA, but does not cover the landscape for what is or is not an ERISA plan.”
Caveat ‘Ed’
Of course, it wouldn’t be a legal opinion without caveats, including that:
- the description of the California Secure Choice Program outlined in the letter is accurate;
- the law implementing that program will be amended to remove references to the 2016 Safe Harbor; and
- the “Board intends to design, implement and administer the Program in accordance with the conditions in the remaining safe harbor guidance.”
Moreover, the opinion reminds that “the final authority to determine whether the Program as it is ultimately designed is not an ERISA employee benefit plan rests with the courts and it is possible that a court could take a different view than expressed in the 1975 Safe Harbor (as defined below) or in my analysis.” The letter also cautions that things could change, and that “the Board should continue to monitor developments in this area to determine whether future judicial or regulatory developments may affect the analysis or conclusions in this letter.”
