On May 6, 2021, the US Court of Appeals for the Ninth Circuit (appellate court) affirmed a lower court’s ruling in Howard Jarvis Taxpayers Ass’n v. Cal. Secure Choice Ret. Sav. Program, 2021 WL 1805758 (9th Cir. 2021) that the CalSavers Retirement Savings Program is not preempted by ERISA. Specifically, the appellate court does not consider the program to be an ERISA plan, nor does it place additional requirements on an employer. Under the program, only employers who have chosen not to adopt an ERISA plan would be required to participate.
Beginning June 30, 2020, California employers with more than 100 employees must offer employees a qualified retirement plan (such as a 401(k)) or participate in the state-run retirement savings program known as CalSavers. The requirement applies to employers with 51 to 100 employees on June 30, 2021, and to employers with five or more employees on June 30, 2022. For these purposes, employer size is based on the number of California-based employees reported on the Employment Development Department quarterly report.
Before the applicable deadline, employers must sponsor a qualified retirement plan or register with CalSavers. Under CalSavers, an employer must automatically enroll eligible employees in the retirement program with a contribution of at least 3% of earnings. New employees must be enrolled within 30 days of employment. Employees may choose to opt out of the program.
If an employer fails to comply for up to 90 days, a penalty of $250 per employee could be assessed against the employer. If noncompliance continues, the per-employee penalty could increase to $500.
Employers with five or more employees in California should continue compliance efforts in either maintaining an employer sponsored retirement plan or registering with CalSavers, based on size and applicable effective date.
The ruling will also be of interest to all employers as more than half of the states have either adopted similar programs or have established Task Forces to research the issue. The cities of New York and Seattle have also adopted a similar government-run autoenrollment savings program.
The appellate court’s decision indicates that such plans may not be preempted by ERISA, clearing the way for states to impose these requirements.
Source: NFP BenefitsPartners