An unprecedented state law meant to create 401(k)-style retirement accounts for millions of private-sector workers in California now faces a daunting obstacle to ever being implemented: one of the most powerful federal laws on the books.
Under the state law establishing the California Secure Choice Retirement Savings Program, after it is phased in, all companies with five or more workers which do not have retirement benefits eventually would have to withhold 3 percent of worker pay and send it to the state government, with the funds to be invested in safe financial instruments such as U.S. treasuries. Workers could opt out.
The proposal was championed by state Senate President Kevin de León (pictured), D-Los Angeles, with strong support from state Treasurer John Chiang. They depicted it as crucial to helping 7 million Californians working in jobs without retirement benefits to prepare for retirement.
But the Republican-controlled Congress recently passed, and President Trump subsequently signed, a law overturning an orderissued last August by the Obama administration’s Department of Labor that exempted Secure Choice-type programs from the Employee Retirement Income Security Act (ERISA), a landmark 1974 law that established strict standards for retirement plans and their management. This erased legal concerns raised by pension lawyers aware of ERISA’s intricacies.
Yet at a news conference last week, de León and Chiang downplayed the significance of the lost ERISA exemption. They said they had only sought the federal action in response to concerns raised by the California Chamber of Commerce and the California Manufacturers and Technology Association – not because of a concern that Secure Choice would be subject to ERISA.
That’s not the conclusion one would be likely to gather after reading the language of Senate Bill 1234, the de León bill establishing Secure Choice that was signed by Gov. Jerry Brown in September. It makes specific reference to the ERISA exemption: “The United States Department of Labor has finalized a regulation setting forth a safe harbor for savings arrangements established by states for nongovernmental employees for the purposes of the federal Employee Retirement Income Security Act.”
And it says the Secure Choice governing board “shall not implement the program … if it is determined that the program is an employee benefit plan under the federal Employee Retirement Income Security Act” – which it now appears to be.
ERISA expert notes scope of landmark 1974 law
However, de León and Chiang cited a 2016 opinion from the K&L Gates law firm that sees no ERISA compliance problem. But the opinion is based on an earlier version of the bill – not the measure that passed and seemed built on the assumption that Secure Choice was only legal with the ERISA exemption.
In a March analysis released as the bill to overturn the exemption was advancing through Congress, the National Public Pension Coalition’s program manager, Tyler Bond, suggested courts might rescue Secure Choice-type laws by deciding ERISA doesn’t apply. But Bond’s background is as a communications specialist, not the law.
Michael A. McKuin, a Palm Desert lawyer who specializes in ERISA, notes on his website the long history of courts broadly interpreting ERISA’s scope because of the law’s sweeping language: “The provisions of … this chapter shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”
McKuin writes: “In determining whether a plan is governed by ERISA, courts have generally followed the approach of the Eleventh Circuit in Donovan v. Dillingham, 688 F.2d 1367 (11th Cir. 1982) (en banc). Under the Dillingham test, an ERISA plan exists if a reasonable person can ascertain: (1) the intended benefits, (2) intended beneficiaries, (3) the source of financing, and (4) the procedures for receiving benefits. … The purported plan need not be formal or written to qualify as an ERISA benefit plan, but rather, the court must look to the ‘surrounding circumstances’ to see if the four factors have been met.”
“As a practical matter, it does not take much to satisfy the test and Courts will generally find the existence of an ERISA plan even where no such plan is wanted by anyone,” McKuin writes – unless the plan has the “safe harbor” specifically mentioned in SB 1234’s ballot language.
The CA Legislature specializes in denying reality.
Sounds like another scam to fatten the state pension funds.
The democrats of the California state legislature, the boards and management of CALPERS and STRS, and Governor Brown know there will not be sufficient tax dollars available to rescue CALPERS and STRS. The direct problems are buying left wing labor votes with pension dollars (extreme political mismanagement) even though this amounts to theft which is clearly immoral.
In addition, the investment returns available in our vastly under-performing economy are dramatically decreased by the socialism that is significantly caused by the these and other government pension plans.
The California Secure Choice Retirement Savings Program, even though it says it’s for private employees, shows every characteristic of being a cruel trick to steal money for CALPERS and STRS and other government employee pension and employee medical schemes. Even if it were sincere, which it is not, would you want the state of California to have anything to do with managing investments for private employees given the state history of CALPERS and STRS? Answer: Hades no!
If it “walks and talks” like theft, its theft!
Economically-speaking, if you’re a business, get out of California if you can. The democrats are desperate for money to finance their buy-every-vote-possible schemes. If the state can’t get this scheme to work, they will find another, and another, and another. . .
Run. Do not walk through the nearest exit. If you cannot leave California, it’s time to politically stand and fight! You actually have no choice.
~RECALL BROWN~
~RECALL DELEON~