ERISA Litigation Roundup: Ninth Circuit Holds State IRA Plans Not Preempted by ERISA

In a matter of first impression, the Ninth Circuit affirmed that ERISA does not preempt a California law that created a state-managed retirement program for certain private employers. Howard Jarvis Taxpayers Association v. California Secure Choice Retirement Savings Program, 2021 WL 1805758 (9th Cir. May 6, 2021).

The plaintiff, the Howard Jarvis Taxpayers Association (HJTA), argued that CalSavers, a state-administered IRA program intended to encourage retirement savings, was preempted by ERISA. The HJTA contended, among other things, that CalSavers was necessarily preempted because Congress repealed a Department of Labor (DOL) rule that exempted state-run IRA programs from ERISA in 2016.

The court rejected the HJTA’s argument concerning Congress’ repeal of the DOL rule, and considered whether ERISA preempted the California law creating CalSavers. It held that CalSavers was not preempted because it was created and administered by the state of California and therefore was not a plan “established or maintained by an employer,” a requirement of ERISA.

The Ninth Circuit also found that CalSavers did not require employers to create an ERISA plan, did not impermissibly “refer to” ERISA, and did not interfere with ERISA’s “core purposes.” In so holding, the court reasoned that CalSavers does not regulate ERISA plans and does not require any employers to alter or provide ERISA benefits.

The holding in California Secure Choice Retirement Savings Program is significant for two reasons. First, the holding could deter future challenges to other state-administered IRA plans. Colorado, Illinois, Maryland, Oregon, and New Jersey have already enacted plans similar to CalSavers. If this trend continues, multistate employers may have to comply with differing benefit laws in various states.

Second, the holding could signal a shift toward appellate courts more narrowly construing ERISA’s preemption provision, potentially resulting in a pattern of employee benefit plan structures and requirements inconsistent with or different from ERISA. While the Ninth Circuit recognized that ERISA preemption is “clearly expansive,” here it declined to adopt an expansive view.