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Plaintiffs Seek Full Appellate Court Review of CalSavers Decision

Litigation

The plaintiffs in the case note that, despite a meticulous detailing of the program, the analysis applied by the appellate court “comes to the wrong conclusion for several reasons, all of which are questions of exceptional importance.”

Case History

The original suit, filed in the U.S. District Court for the Eastern District of California in 2018 by the Howard Jarvis Taxpayers Association, claimed that the California Secure Choice Retirement Savings Trust Act “violates the Supremacy Clause of the United States Constitution because it is expressly preempted by the Employee Retirement Income Security Act of 1974…” Without this preemption, the suit claims that “…such non-governmental employees’ funds will have none of the ERISA protections intended for them by the federal government since 1974.” Consequently, the plaintiffs had asserted that CalSavers is “ultra vires” (beyond the powers), and seek a declaration that CalSavers is “void.”

Subsequently, the case was dismissed, amended and refiled, lost at the district court again, the plaintiffs appealed that decision to the U.S. Court of Appeals for the Ninth Circuit, had that appeal supported by the Department of Labor during the Trump administration, only to have that support dropped in February by the Biden administration (citing the change in administrations), before having that appeal rejected earlier this month. 

And so, the plaintiffs have now requested an “en banc” session (French for “in bench”)—having the case reheard before all of the judges of a court (before the entire bench) rather than a subset of that panel.

Review Rationale

In seeking the review, the plaintiffs outlined four issues of “exceptional importance.” First, CalSavers has so far been considered in the context of health plan cases, but they argued that CalSavers is a pension plan—and “pension plans have been declared ‘distinct’ by this Court for ERISA analysis.” The plaintiffs argued that ERISA is to be construed broadly as to pension plans, “and the intent of employers and employees is irrelevant.” They claimed that as a consequence, CalSavers was not evaluated in proper context. Moreover, the plaintiffs note that, according to this very court, “ERISA pension plans are “distinct” from health plans, are subject to broader ERISA application than health plans, and the intent of both employer and employee to create or maintain an ERISA plan is irrelevant.”

Secondly, they argue that an analysis under the 1975 Safe Harbor specific to payroll deduction IRA programs is necessary. “The panel avoided this analysis because the State plays a shell game,[i] arguing it is merely establishing an IRA program as a third-party, not as an ‘employer,’ but this Court has disapproved of delegating tasks to third parties in order to recharacterize a plan under ERISA.” Said another way, the plaintiffs argue “Congress meant something when it repealed the 2016 Safe Harbor.”

Third, the plaintiffs argue that private employers have an ERISA right to choose their IRA sponsors or set criteria therefor, “including the right to work with zero IRA sponsors”—and that CalSavers “expressly interferes with this ERISA right.” 

Fourth, the plaintiffs argue that ERISA is meant to guarantee private employees ready access to the federal courts when plan funds are mismanaged—and that it is, therefore “…of great consequence to private employee participants across California whether they will be permitted to access federal courts when their retirement funds are mismanaged through the CalSavers program.” Under the panel’s decision, they will not have such access, the plaintiffs argue, pointing out specifically the potential for issues relating to failures to remit payroll deductions. “When an employer with an IRA program under the 1975 Safe Harbor, 29 C.F.R. § 2510-3.2(d), fails to remit contributions timely, the employer immediately loses exemption status and creates an ERISA plan,” they write. 

In sum, the plaintiffs conclude their motion for a rehearing of the case by the full court by noting: “CalSavers must be analyzed as a pension plan, not a health plan. The 1975 Safe Harbor has been improperly sidestepped using a third-party technique this Court has disapproved. Employer autonomy under the 1999 Interpretive Bulletin has been overlooked. Lastly, it is important to consider whether private sector employees should lose access Congress intended them to have to federal courts.”

We shall see…


[i] Later in the filing, the plaintiffs argue that “the shell game is in constant movement, with CalSavers never appearing under either of two shells. CalSavers is purportedly not under the ERISA plan shell because, technically, the State, not the employer, establishes and maintains it as a ‘third party.’ However, CalSavers is also not under the IRA payroll deduction plan shell despite federal law ruling out what is not deemed an ERISA plan and CalSavers failing to be ruled out. The State of California is thus being permitted to mimic an ERISA-covered IRA payroll deduction program, on no authority, no traditional state law grounds, and with no fiduciary responsibility.”

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