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CalSavers Not Preempted By ERISA

With an alarming number of American workers lacking adequate retirement savings, California and a handful of other states began implementing state-sponsored retirement savings programs.  The CalSavers Retirement Savings Program (CalSavers) was first launched as a pilot program in 2018 and then expanded to all eligible employers in the state in July 2019 in order to provide employees access to a retirement savings program without the administrative complexity for employers. CalSavers requires employers who do not offer employer-sponsored retirement plans to its employees, such as a 401(k) plan, to automatically enroll their employees into the CalSavers plan and to remit payroll deductions to the CalSavers trust for each employee who does not affirmatively opt out of participation in the plan.

In 2018, Howard Jarvis Taxpayers Association (HJTA), a non-profit lobbying and policy group, challenged the legality of CalSavers and claimed that the program was expressly preempted by the Employee Retirement Income Security Act of 1974 (ERISA). HJTA argued that, without preemption, such state-run employee funds will have none of the protections of ERISA.

On March 10, 2020, a federal judge ruled that CalSavers does not create an “employee benefit plan” under Section 3(3) of ERISA and is, therefore, not preempted. The reasoning behind this determination was that CalSavers is not established or maintained by an “employer” and does not “relate to” any ERISA plan.

“Actual employers have no discretion in the administration of CalSavers and do not make any promises to employees; employers simply remit payroll deducted payments to the Program and otherwise have no discretion regarding the funds,” Judge Morrison C. England stated.  Furthermore, the court refused to find that the California Secure Choice Retirement Savings Investment Board, the state agency board that administers CalSavers, and the California Secure Choice Retirement Savings Trust, the trust that held the contributions, are “employers” because neither the Board nor the Trust acts directly or indirectly in the interest of an employer.

Lastly, the federal district court held that CalSavers does not “relate to” an ERISA plan because it does not interfere with nor apply additional requirements on any employer-sponsored or ERISA plans.  It also does not mandate that an employer establish an employee benefit plan. Rather, CalSavers applies only when an employer does not sponsor its own retirement plan.

Judge Morrison previously dismissed the lawsuit in 2019 without prejudice, which allowed HJTA to refile. Last fall, the federal Department of Justice filed a “Statement of Interest” that supported HJTA’s stance that CalSavers was preempted by ERISA. Despite this support from the Department of Justice, the federal court disagreed.

It is not clear at this time if HJTA will appeal this decision.

Jackson Lewis P.C. © 2020National Law Review, Volume X, Number 78


About this Author

Donald P. Sullivan Employment Lawyer Jackson Lewis

Donald P. Sullivan is a Principal in the San Francisco, California, office of Jackson Lewis P.C. Mr. Sullivan has more than 20 years of experience defending and counseling employers, as well as fiduciaries and sponsors of employee benefit plans, in state and federal courts and before state and federal agencies, including the United States Department of Labor, the Equal Employment Opportunity Commission, and California’s Departments of Industrial Relations and Fair Employment and Housing. 

In his employee benefits practice,...

Jean Y. Yu Los Angeles Employment Lawyer

Jean Y. Yu is a Principal in the Los Angeles, California office of Jackson Lewis P.C.

Ms. Yu has experience in employee benefits, Employee Retirement Income Security Act, multiemployer, collective bargaining, executive compensation and corporate transactions.

Employee Benefits and ERISA

  • Designs and implements traditional retirement plans (e.g., 401(k), profit-sharing, and pension plans), health and welfare plans, and various deferred compensation plans and arrangements. 
  • Represents clients in negotiations with the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation in audits, investigations and on other complex compliance issues, including correction of plan qualification errors through Employee Plans Compliance Resolution System program.
  • Advises on ERISA fiduciary and prohibited transaction issues.

Multiemployer and Collective Bargaining

  • Negotiates and implements collective bargaining agreements and multiemployer plans and trusts.
  • Counsels employers on union and pension plan related issues, such as benefits, partial termination and withdrawal liability.
  • Implements mergers of multiemployer funds and transfers of assets and liabilities between multiemployer funds
  • Advises on the day-to-day functions and responsibilities of fund offices, including reviewing and selecting fund staff and vendors, counseling on benefit appeals, reviewing qualified domestic relations orders and preparing fund handbooks, manuals, procedures and policies.

Executive Compensation

  • Negotiates employment agreements and equity compensation arrangements at public and private companies across many industries.
  • Counsels on non-compete, non-solicitation, confidentiality, non-disparagement and other restrictive covenant issues.
  • Advises on the impact of 409A rules and regulations.
  • Renders employment, compensation and tax advice to celebrities, public personalities, influencers and high net worth individuals in connection with their business activities.

Corporate Transactions

  • Counsels on employee benefits issues in corporate mergers and acquisitions, such as executive compensation, disposition of equity awards upon change of control, and other severance issues.
  • Designs and implements equity-based plans and agreements (e.g., SARs, stock options, and restricted stock), bonus plans, severance plans, employment agreements and other nonqualified deferred compensation plans and arrangements.  


Professional Associations and Activities

  • California State Bar Association
  • Washington State Bar Association