CalSavers and ERISA: An Analysis of Howard Jarvis Taxpayers Association v. The California Secure Choice Retirement Savings Program

California was the first state to enact legislation establishing a state-sponsored retirement savings program for private sector employers. That program is today known as the CalSavers Retirement Savings Program (“CalSavers”). California is now also the first state to receive judicial approval of its state-sponsored retirement savings program for the private sector. In Howard Jarvis Taxpayers Association v. The California Secure Choice Retirement Savings Program, Judge Morrison C. England, Jr. of the U.S. District Court for the Eastern District of California dismissed a challenge to CalSavers mounted under the Employee Retirement Income Security Act of 1974 (ERISA). In upholding the California retirement savings program against an ERISA-based challenge, the district court indicated that the Department of Labor’s (DOL) regulatory safe harbor for individual retirement account (IRA) payroll deposit arrangements does not protect CalSavers from classification as an employee benefit plan for ERISA purposes. The district court also held that ERISA does not preempt the California Secure Choice Retirement Savings Trust Act (“the Act”), the California statute which creates CalSavers. The district court’s ultimate substantive conclusion – California’s private sector retirement savings program survives ERISA preemption challenge – is convincing. However, the court’s underlying analysis is unpersuasive in important respects. The better reading of the DOL regulation is that CalSavers is an IRA payroll deposit arrangement. Thus, CalSavers qualifies for the regulatory safe harbor and is not an employee benefit plan governed by ERISA. Moreover, if CalSavers does not qualify for the DOL safe harbor (as the district court held), it is then necessary to determine if that private sector retirement savings program is, absent the safe harbor’s protection, an employee benefit plan for ERISA purposes. Unfortunately, the district court skipped this stage in its analysis. To sustain the district court’s ultimate legal conclusion – California’s private sector retirement savings program is not ERISA-preempted – that program cannot be an employee benefit plan regulated by ERISA. Even if unprotected by the regulatory safe harbor, CalSavers is not an employee benefit plan for ERISA-purposes as employers do not contribute to, administer or sponsor CalSavers. California employers covered by CalSavers merely perform the ministerial functions of withholding wages for allocation to employees’ state-established IRAs and of distributing to employees information packets from the CalSavers board. Besides its implications for CalSavers and other similar state-sponsored private sector retirement programs, the district court’s opinion in Howard Jarvis Taxpayers Association v. The California Secure Choice Retirement Savings Program is noteworthy as an application of ERISA preemption doctrine in light of Gobeille v. Liberty Mutual Insurance Co. The district court’s decision confirms Gobeille as an important watershed in the U.S. Supreme Court’s ERISA preemption case law. Gobeille reconciled the Supreme Court’s discordant ERISA preemption case law by retroactively realigning its earlier, broader decisions under ERISA Section 514 to comply with the Court’s subsequent and more restrained approach to ERISA preemption. In light of Gobeille, the district court properly applied this less expansive approach to ERISA preemption in sustaining the CalSavers program.