Ninth Circuit Rules – State Pension Mandate Not Preempted Even Though An Employer Chooses Not To Establish ERISA Plan

Seyfarth Shaw LLP
Contact

Seyfarth Synopsis:  The Court of Appeals for the Ninth Circuit has once again upheld against an ERISA preemption challenge, a State private sector benefits mandate, notwithstanding that ERISA provides that the decision to establish an ERISA plan rests solely with the employer.

The Supreme Court has often stated that ERISA is not a pension mandate statute; rather it simply encourages private sector employers to establish ERISA pension plans.  See Gobeille v. Liberty Mutual Ins. Co., 136 S.Ct. 936 (2016) (“ERISA does not guarantee substantive benefits.”)

(The federal no-mandate rule is different in the health plan context, primarily due to the Affordable Care Act.)

ERISA accomplishes its purpose to encourage, and not to mandate, plans through streamlined rules of administration, limited court remedies and a broad preemption clause.  That clause preempts all state and local laws that merely relate to an ERISA plan as a “don’t worry about state law” reward for choosing to establish an ERISA plan.  The statutory scheme is that the final word on whether to establish an ERISA pension plan remains within the complete discretion of the employer.

We have reported previously on the Supreme Court’s latest preemption decision finding no preemption — SCOTUS Upholds Arkansas PBM Law Against ERISA Preemption Arguments | Beneficially Yours. We also have reported on a recent Ninth Circuit decision with the same holding — A Ninth Circuit Panel Finds No ERISA Preemption Of Seattle Health Care Ordinance | Beneficially Yours.

Now, in Howard Jarvis Taxpayers Assoc. v. CalSavers Program, the Ninth Circuit has again found no preemption.  The issue was whether a California law, like those of six other States (and Seattle and New York City), see generally The Big Apple Joins a Small Crowd, With Possible Headaches for Local Employers | Beneficially Yours, mandates private sector employers, which choose not to establish an ERISA plan, to contribute employee wages to the state to provide pension benefits.  The court found no preemption because the contributed money becomes a state, not an ERISA, plan benefit.  It is of no moment, the court said, that the employer’s contribution becomes a pension benefit, because the state’s contributory scheme imposes minimal administrative duties on the employer. The court added that the proliferation of state benefits mandates presents serious policy issues that Congress may want to address down the road.  It is unclear whether the CalSavers preemption decision will be litigated further.

It also is unclear whether the CalSavers decision will encourage private sector employers now without ERISA plans to establish (or refrain from establishing) plans.

One current example of this preemption dilemma arises in Washington State, which recently passed the Long-Term Services and Supports Trust Act.  The Act imposes a payroll tax on each employee in Washington of .58% of wages.  These amounts are collected by the employer and sent to a trust established by the State to pay long-term care (LTC) benefits for its residents. Employees who have qualifying private LTC insurance (including coverage from an ERISA long term care plan) can be exempt from the payroll tax.  Employees still must satisfy certain eligibility requirements.  Employers with unhappy workers who must pay the tax, but never become eligible for benefits, may now feel State pressure to establish an ERISA plan, when they otherwise would not.  Or they may feel pressure not to establish an ERISA plan, relying on the State to provide benefits instead.  And, of course, the Act may be challenged on preemption grounds.

Expect more State benefit mandates and perhaps more litigation throughout the country on whether these laws are preempted by ERISA.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Seyfarth Shaw LLP | Attorney Advertising

Written by:

Seyfarth Shaw LLP
Contact
more
less

Seyfarth Shaw LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.