Petition for Writ of Certiorari — Howard Jarvis Taxpayers Association, et al., Petitioners v. The California Secure Choice Retirement Savings Program, et al.
Supreme Court briefOct 12, 2021
Ask Donna
What actually matters in this document.
Text
No. _________
================================================================================================================
In The
Supreme Court of the United States
---------------------------------♦--------------------------------HOWARD JARVIS TAXPAYERS ASSOCIATION,
JONATHAN COUPAL, AND DEBRA DESROSIERS,
Petitioners,
v.
THE CALIFORNIA SECURE CHOICE
RETIREMENT SAVINGS PROGRAM AND
JOHN CHIANG, IN HIS OFFICIAL CAPACITY AS
CHAIR OF THE CALIFORNIA SECURE CHOICE
RETIREMENT SAVINGS INVESTMENT BOARD,
Respondents.
---------------------------------♦--------------------------------On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Ninth Circuit
---------------------------------♦--------------------------------PETITION FOR A WRIT OF CERTIORARI
---------------------------------♦--------------------------------JONATHAN M. COUPAL
TIMOTHY A. BITTLE
LAURA E. DOUGHERTY*
*Counsel of Record
HOWARD JARVIS TAXPAYERS FOUNDATION
921 Eleventh Street, Suite 1201
Sacramento, CA 95814
Telephone: (916) 444-9950
Email: laura@hjta.org
Counsel for Petitioners
================================================================================================================
COCKLE LEGAL BRIEFS (800) 225-6964
WWW.COCKLELEGALBRIEFS.COM
i
QUESTION PRESENTED
Considering California’s infamous record of mismanagement, corruption, and the cavernous underfunding of its public employee retirement systems, is
California permitted under federal law (ERISA) to now
require private employers to automatically debit employee paychecks and surrender those earnings to the
State to manage as “retirement savings,” despite the
State expressly disclaiming any fiduciary accountability, and despite Congress having exercised its authority under the Congressional Review Act to veto a
Department of Labor regulation that briefly carved out
an ERISA Safe Harbor for such state-run automatic
retirement savings plans?
ii
CORPORATE DISCLOSURE STATEMENT
The Howard Jarvis Taxpayers Association is a
501(c)(3) nonprofit public benefit corporation incorporated under the laws of the State of California. HJTA
has no parent corporation, and no publicly held company owns more than 10% of its stock, as it has none.
RELATED PROCEEDINGS
Howard Jarvis Taxpayers Ass’n v. Cal. Secure Choice
Ret. Sav. Program, No. 20-15591, U.S. Court of Appeals
for the Ninth Circuit. Judgment entered May 6, 2021.
Howard Jarvis Taxpayers Ass’n v. Cal. Secure Choice
Ret. Sav. Program, No. 2:18-cv-01584-MCE-KJN, U.S.
District Court for the Eastern District of California.
Judgment entered March 10, 2020.
iii
TABLE OF CONTENTS
Page
QUESTION PRESENTED...................................
i
CORPORATE DISCLOSURE STATEMENT ......
ii
RELATED PROCEEDINGS ................................
ii
TABLE OF CONTENTS ......................................
iii
TABLE OF AUTHORITIES .................................
vi
PETITION FOR A WRIT OF CERTIORARI .......
1
OPINIONS ...........................................................
1
JURISDICTION ...................................................
1
STATUTES AND REGULATIONS ......................
2
STATEMENT OF THE CASE..............................
5
REASONS FOR GRANTING THE PETITION .....
7
ARGUMENT ........................................................ 13
I.
The Congressional Repeal of the 2016 Safe
Harbor for State-Run Automatic Payroll
Deduction IRAs Cannot Be Meaningless
as the Ninth Circuit Found ....................... 13
A. CalSavers is a Subject of Federal Law,
Not Traditional State Law .................. 15
B. The Ninth Circuit Disregarded Chevron Deference, Auer Deference, and
the Central Arguments of the United
States ................................................... 18
II.
In a Fundamental Error, the Ninth Circuit
Used Health Plan Cases to Decide a Pension Plan Case ........................................... 23
iv
TABLE OF CONTENTS – Continued
Page
A. The Distinction Between Health Plans
and Pension Plans Needs Recognition
and Analysis ........................................ 23
B. CalSavers Requires Employees to Trust
their Employer with their Vested Retirement Money. The Ninth Circuit’s
Use of Golden Gate is Thus Inapplicable and Unreliable. Modzelewski Commands a Stricter Test for Pension Plan
Cases .................................................... 25
C. “Modicum of Discretion” is the Wrong
Test Because CalSavers Creates an
IRA Payroll Deduction Program, not a
Severance Payment ............................. 32
III.
CalSavers Fails the 1975 Safe Harbor for
Payroll Deduction IRAs ............................. 34
A. All Four Factors of the 1975 Safe Harbor Test Apply to CalSavers ................ 35
B. CalSavers Fails the Second Factor of
the 1975 Safe Harbor Test ................... 38
CONCLUSION..................................................... 39
APPENDIX
Opinion of the United States Court of Appeals
for the Ninth Circuit (May 6, 2021)................. App. 1
v
TABLE OF CONTENTS – Continued
Page
Memorandum and Order Granting Defendants’
Motion to Dismiss Without Leave to Amend,
United States District Court for the Eastern
District of California (March 10, 2020) ......... App. 37
Judgment of the United States District Court
for the Eastern District of California (March
10, 2020) ......................................................... App. 56
Memorandum and Order Granting Defendants’
Motion to Dismiss With Leave to Amend,
United States District Court for the Eastern
District of California (March 29, 2019) ......... App. 57
Order Denying Petition for Rehearing en banc
(June 15, 2021) ............................................... App. 80
29 U.S.C. § 1002(1)(2)(5)(9)(32) ......................... App. 81
115 P.L. 35 (May 17, 2017) ................................ App. 85
81 FR 59464, 59476-59477 ................................ App. 86
29 CFR 2510.3-2(d) ............................................ App. 93
29 CFR 2509.99-1(d) .......................................... App. 94
California Government Code § 100000(d) ........ App. 96
California Government Code § 100004(c) ......... App. 96
California Government Code §§ 100010(a)(8) and
(a)(12).............................................................. App. 97
California Government Code § 100034(b) ........ App. 97
California Government Code § 100036 ............. App. 98
California Government Code § 100043 ............. App. 98
California Government Code § 100046 ............. App. 99
vi
TABLE OF AUTHORITIES
Page
CASES
Alessi v. Raybestos Manhattan, Inc. (1981) 451
U.S. 504 ................................................................ 9, 16
Auer v. Robbins (1997) 519 U.S. 452 ................. 18, 19
Bassiri v. Xerox Corp. (9th Cir. 2006) 463 F.3d
927 ...........................................................................19
Bogue v. Ampex Corp. (9th Cir. 1992) 976 F.2d
1319 ................................................................... 33, 34
Cal. Division of Labor Standards Enforcement v.
Dillingham (1997) 519 U.S. 316 .............................24
Charles Schwab & Co. v. Debickero (9th Cir.
2010) 593 F.3d 916 ..................................................28
Chevron U.S.A., Inc. v. National Resources Defense Counsel, Inc. (1984) 467 U.S. 837............. 18, 19
Cline v. Industrial Maintenance Engineering
and Contracting Co. (9th Cir. 2000) 200 F.3d
1223 .........................................................................35
Collins v. Ralston Purina Co. (7th Cir. 1998) 147
F.3d 592 ...................................................................34
Credit Managers Ass’n v. Kennesaw Life & Accident Ins. Co. (9th Cir. 1987) 809 F.2d 617 ..............23
DeBuono v. NYSA-ILA Medical & Clinical Services Fund. (1997) 520 U.S. 806 ..............................24
Donovan v. Dillingham, 688 F.2d 1367 (11th Cir.
1982) ...................................................... 23, 30, 31, 32
Fort Halifax Packing Co. v. Coyne (1987) 482
U.S. 1 ........................................................... 16, 34, 37
vii
TABLE OF AUTHORITIES – Continued
Page
Gobeille v. Liberty Mutual Insurance Co. (2016)
136 S.Ct. 936 ........................................... 9, 23, 24, 37
Golden Gate Restaurant Association v. City and
County of San Francisco (9th Cir. 2008) 546
F.3d 639 ........................................................... passim
Kenney v. Roland Parson Contracting Corp.
(D.C. Cir. 1994) 28 F.3d 1254 ..................................32
Kisor v. Wilkie (2019) 139 S.Ct. 2400 .........................19
Modzelewski v. Resolution Trust Corp. (9th Cir.
1994) 14 F.3d 1374 .......................... 25, 26, 30, 31, 32
New York State Conference of Blue Cross & Blue
Shield Plans v. Travelers Insurance Co. (1995)
514 U.S. 645 ....................................................... 23, 24
Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85,
103 S.Ct. 2890, 77 L.Ed.2d 490......................... 17, 29
Standard Oil Co. v. Agsalud (1980) 633 F.2d
760 ....................................................................... 35, 37
Stuart v. UNUM Life Insurance Co. (9th Cir.
2000) 217 F.3d 1145 .............................................23
Velarde v. PACE Membership Warehouse (9th
Cir. 1997) 105 F.3d 1313 .........................................34
Washington Physicians Serv. Association v.
Gregoire (9th Cir. 1998) 147 F.3d 1039 ...................23
viii
TABLE OF AUTHORITIES – Continued
Page
CONSTITUTIONAL PROVISIONS
U.S. Const. art. VI, cl. 2 .................................................1
STATUTES
5 U.S.C. § 801 ..............................................................11
5 U.S.C. § 801(b)(2) .....................................................15
28 U.S.C. § 1254(1) .................................................... 2, 5
28 U.S.C. § 133 ..............................................................1
28 U.S.C. § 1367 ............................................................1
28 U.S.C. § 517 ............................................................21
29 U.S.C. § 1002 ..........................................................31
29 U.S.C. § 1002(1) ........................................................2
29 U.S.C. § 1002(2) ........................................................2
29 U.S.C. § 1002(2)(B) ...................................................2
29 U.S.C. § 1132(e-d) .....................................................1
29 U.S.C. § 1144(a) ............................................ 3, 16, 17
Automatic IRA Act of 2011, S. 1557, 112th
Cong. ........................................................................35
Automatic IRA Act of 2013, H.R. 2035, S. 245,
113th Cong. § 2(d) ...................................................17
Automatic IRA Act of 2015, S. 245, 114th Cong.
§ 2(d) ........................................................................17
Automatic Retirement Plan Act of 2017, H.R.
4523, 115th Cong............................................... 17, 35
ix
TABLE OF AUTHORITIES – Continued
Page
Cal. Code Regs. Tit. 10, § 10008 ...................................9
Cal. Gov. Code, §§ 100000-100050 ............................ 3, 5
Cal. Gov. Code, § 100004(c) .........................................25
Cal. Gov. Code, § 100010(a)(8) and (a)(12) .................25
Cal. Gov. Code, § 100032 ...............................................9
Cal. Gov. Code, § 100032(f-j) .......................................10
Cal. Gov. Code, § 100033 ...............................................9
Cal. Gov. Code, § 100036 ......................................... 7, 26
Cal. Gov. Code, § 100046 ...............................................4
Cal. Unemp. Ins. Code, § 1088.9 .................................10
California Secure Choice Retirement Savings
Trust Act ......................................................... passim
ERISA ................................................................. passim
Pub. Law 115-35 ................................................4, 13-14
REGULATIONS
29 C.F.R. § 2509.99-1(d) .......................................... 3, 27
29 C.F.R. § 2510.3-1(j).................................................23
29 C.F.R. § 2510.3-2 .......................................... 3, 11, 36
29 C.F.R. § 2510.3-2(d) ..................................................3
40 Fed.Reg. 34527 ................................................. 27, 36
80 Fed.Reg. 72006 ................................................. 20, 38
80 Fed.Reg. 72008 ................................................. 21, 38
x
TABLE OF AUTHORITIES – Continued
Page
80 Fed.Reg. 72008-72009 ...................................... 20, 38
81 Fed.Reg. 59465-466 .....................................20-21, 38
81 Fed.Reg. 59464 ............................................... passim
81 Fed.Reg. 59465 ................................................. 20, 21
81 Fed.Reg. 59466 .......................................................21
81 Fed.Reg. 59470-59473 ...................................... 21, 38
81 Fed.Reg. 59471 .......................................................19
81 Fed.Reg. 59472 .......................................................19
81 Fed.Reg. 59473 .......................................................19
81 Fed.Reg. 59474 .......................................................19
OTHER AUTHORITIES
120 Cong. Rec. 29197 (1974) .......................................16
120 Cong. Rec. 29933 ..................................................17
Build Back Better Act .................................................15
Cal. Dept. of Finance, Budget Change Proposal
0984-001-BCP-2017-GB, Fiscal Year 2017-2018.... 8, 10
California Senate Bill 1234 (2012)................... 3, 10, 11
CalSavers Financial Statements with Independent Auditor’s Report, June 30, 2019 .................8
Letter from David Morse to Katie Selinski dated
May 16, 2017 ...........................................................11
Moore, Kathryn, State Automatic Enrollment
IRAs after the Trump Election: Are They Preempted by ERISA? (2019) 27 Elder L.J. 51 .......... 14, 28
xi
TABLE OF AUTHORITIES – Continued
Page
Said, Carolyn, California’s EDD fraud failures
could saddle innocent with taxes, penalties,
January 28, 2021, https://www.sfchronicle.com/
business/article/California-EDD-created-fertileground-for-30-15905622.php ....................................8
1
PETITION FOR A WRIT OF CERTIORARI
Petitioners, Howard Jarvis Taxpayers Association,
Jonathan M. Coupal, and Debra A. Desrosiers, respectfully petition this Court for a Writ of Certiorari to review the judgment of the United States Court of
Appeals for the Ninth Circuit in this case.
---------------------------------♦---------------------------------
OPINIONS
The panel opinion of the Ninth Circuit Court of
Appeals is published at 997 F.3d 848 and appears in
the Appendix (App.) at pages 1-36. The Court of Appeals’ Denial of the Petition for Rehearing en banc is
published at 2021 U.S. App. LEXIS 17857 and appears
in the Appendix at page 80. There are two district court
decisions. The March 10, 2020, Memorandum and Order is published at 443 F.Supp.3d 1152 and appears in
the Appendix at pages 37-55. The Order making this
decision final appears in the Appendix at page 56. The
unpublished March 29, 2019 Memorandum and Order
appears in the Appendix at pages 57-79.
---------------------------------♦---------------------------------
JURISDICTION
The district court had jurisdiction over this case
pursuant to clause 2 of Article VI of the United States
Constitution, 28 U.S.C. § 133, 29 U.S.C. § 1132(e-d),
and 28 U.S.C. § 1367. The district court entered judgment in favor of Defendants on March 10, 2020, dismissing the case. (App. 56.) Plaintiffs timely appealed.
2
On May 6, 2021, the Ninth Circuit Court of Appeals
affirmed the dismissal. (App. 36.) Petitioners then
sought rehearing en banc, which was denied on June
15, 2021. (App. 80.) This Court has jurisdiction pursuant to 28 U.S.C. § 1254(1). This Court extended time for
petitioning for certiorari by its Monday, July 19, 2021,
Order.
---------------------------------♦---------------------------------
STATUTES AND REGULATIONS
29 U.S.C. § 1002(2) (App. 81-83) defines an “employee pension benefit plan” as “any plan, fund, or program . . . established or maintained by an employer or
by an employee organization, or by both, to the extent
that by its express terms or as a result of surrounding
circumstances such plan, fund, or program” does one of
two things: (1) provides retirement income to employees, or (2) results in a deferral of income until employee
termination or beyond.
29 U.S.C. § 1002(2)(B) (App. 82) authorizes the
Secretary of the Department of Labor to create exempt
categories from pension plans via regulation.
29 U.S.C. § 1002(1) (App. 81) defines an “employee
welfare benefit plan” as “any plan, fund, or program . . .
established or maintained by an employer or by an employee organization, or by both, to the extent” it provides medical, surgical, hospital, accident, disability,
death, unemployment, vacation, apprenticeship, training, daycare, scholarships, prepaid legal services or
3
other benefits “other than pensions on retirement or
death, and insurance to provide such pensions.”
29 U.S.C. § 1144(a) preempts “any and all State
laws insofar as they may now or hereafter relate to any
employee benefit plan.”
29 C.F.R. § 2510.3-2(d) [“Individual Retirement
Accounts.”] and 29 C.F.R. § 2509.99-1(d) [“Employer
Limitations on the number of IRA sponsors offered under the program.”] (App. 93-95) comprise the relevant
Department of Labor regulation is known as the 1975
Safe Harbor.
29 C.F.R. § 2510.3-2 formerly included a subsection (h) known as the 2016 Safe Harbor. Subsection (h)
was signed by Phyllis C. Borzi, Assistant Secretary to
the Employee Benefits Security Administration, U.S.
Department of Labor, on August 24, 2016. (App. 86-92.)
It was titled “Certain State savings programs.” Its text
can be found at the conclusion of 81 Fed.Reg. 59464,
containing the Department of Labor’s final publication
regarding “Savings Arrangements Established by
States for Non-Governmental Employees.”
California Senate Bill 1234 (2012), entitled “Retirement Savings Plans,” was the bill that created
“The California Secure Choice Retirement Savings
Trust Act.” The Act was codified and has been amended
at length in California Government Code sections
100000-100050.
4
California Government Code section 100046 declared CalSavers implemented on January 1, 2017.
(App. 99-101.)
Public Law 115-35, effective May 17, 2017, entitled “Joint Resolution: Disapproving the rule submitted by the Department of Labor relating to savings
arrangements established by States for non-governmental employees,” stated:
Joint Resolution
Disapproving the rule submitted by the
Department of Labor relating to savings arrangements established by States for nongovernmental employees.
Resolved by the Senate and House of Representatives of the United States of America in
Congress assembled,
That Congress disapproves the rule submitted by the Department of Labor relating to
“Savings Arrangements Established by States
for Non-Governmental Employees” (published
at 81 Fed.Reg. 59464 (August 30, 2016)), and
such rule shall have no force or effect.
Speaker of the House of Representatives.
Vice President of the United States and President of the Senate.
(App. 85.)
---------------------------------♦---------------------------------
5
STATEMENT OF THE CASE
This is a case of first impression. Howard Jarvis
Taxpayers Association (HJTA), California’s largest
taxpayer advocacy group, brought this action to stop
California from arrogantly proceeding with a state-run
private retirement system that Congress disapproved
when it vetoed the only Safe Harbor that would have
allowed such programs.
The California Secure Choice Retirement Savings
Trust Act, or “CalSavers” (Cal. Gov. Code, §§ 100000100050) is an automatic retirement savings mandate,
akin to the federal government’s Social Security program. CalSavers took effect on January 1, 2017, and
requires private employers of five or more employees
to automatically deduct from employee paychecks a
specified percentage of their earnings, and turn it over
to the State.
Once in State hands, the employee’s money will
not have the security that Congress, through the Employee Retirement Income Security Act (ERISA) intended. It will not be segregated in a separate account
for safekeeping but will be commingled with other
funds. It will not be invested at the employee’s direction, but will be subject to California’s maze of divestment rules focusing more on political correctness than
return on investment. And it will not be protected by
any fiduciary duty or contractual liability, but will be
at risk under a statute that expressly disclaims any
responsibility for loss.
6
Employers too will be stripped of ERISA’s protections. California has hundreds of thousands of small
businesses whose staff fluctuates above and below
five employees based on things like summer tourism,
holiday shopping, and contractual demands. These
employers will be thrown in and out of CalSavers’
mandate, repeatedly exposing them to potential liability to the State and to their own employees. If individual states are allowed to intrude into this field of
private retirement regulation that Congress expressly
preempted through ERISA, then multi-state employers will face a labyrinth of different rules, contrary to
the nationwide uniformity that ERISA was designed to
guarantee.
HJTA submits that CalSavers is preempted by
ERISA. HJTA filed this action in May 2018. In July, the
State filed a Motion to Dismiss. After requesting supplemental briefs, the District Court on March 29, 2019,
granted the State’s motion, but with leave to amend.
In April 2019, HJTA filed a First Amended Complaint.
The State filed a second Motion to Dismiss in May.
On September 13, 2019, the United States entered
the case by filing a Statement of Interest agreeing with
HJTA that CalSavers is preempted by ERISA. Nonetheless, the District Court on March 10, 2020, granted
the State’s second Motion to Dismiss, this time without
leave to amend.
HJTA noticed its appeal to the Ninth Circuit on
April 1, 2020. The parties filed their briefs. The United
States Department of Labor also filed an Amicus Brief,
7
again concurring with HJTA that CalSavers is preempted by ERISA.
The Ninth Circuit issued its Decision on May 6,
2021, and denied HJTA’s Petition for Rehearing en
banc on June 15, 2021. It is from that Decision that
HJTA now petitions this Court for certiorari.
---------------------------------♦---------------------------------
REASONS FOR GRANTING THE PETITION
The Ninth Circuit called this case asserting
ERISA preemption of CalSavers a “novel and important question in the law governing retirement benefits.” (App. 4.) Indeed it is, as it implicates ERISA’s
core concerns for the security of private employee retirement savings and the uniformity of standards and
rules governing private employers.
CalSavers must be reviewed for ERISA preemption because vested retirement funds are being automatically deducted from employee paychecks, yet the
State disclaims all liability for the safety of those employee funds and has no base level of state funding to
insure the security of employee funds.
California Government Code section 100036 provides, “The state shall not have any liability for the
payment of the retirement savings benefit earned by
program participants pursuant to this title. The state,
and any of the funds of the state, shall have no obligation for payment of the benefits arising from this title.”
(App. 98.)
8
In its inaugural year, the newly formed CalSavers
Board requested a $170 million loan from the State’s
General Fund. (Cal. Dept. of Finance, Budget Change
Proposal 0984-001-BCP-2017-GB, Fiscal Year 20172018, p. 1, https://esd.dof.ca.gov/Documents/bcp/1718/
FY1718_ORG0984_BCP1288.pdf.) That the loan ultimately approved was for only 10% of the amount requested demonstrates the State’s reluctance to put its
own money at risk even as it risks the wages of private
workers. (CalSavers Financial Statements with Independent Auditor’s Report, June 30, 2019, p. 13, https://
www.treasurer.ca.gov/calsavers/reports/audits/2019final-audit-report.pdf.)
California made headlines this year when the
State Auditor discovered that the State’s Employment
Development Department, which administers the unemployment insurance program, paid an estimated
$31 billion in fraudulent claims during the first half of
2020. Individual households were each being mailed
hundreds or thousands of checks per month, but this
draining of EDD’s account apparently raised no suspicions. The money lost by the State’s incompetence was
money that private employers paid into the system.
Rather than cover the loss, the State simply raised its
rates on those innocent employers. (See Said, Carolyn,
California’s EDD fraud failures could saddle innocent
with taxes, penalties, January 28, 2021, https://www.
sfchronicle.com/business/article/California-EDD-createdfertile-ground-for-30-15905622.php.)
The State of California wants the federal courts to
overlook its express disclaimer of accountability for
safekeeping the money it takes from private employees
9
because, after all, it is the government and can be
trusted. Judging from the EDD scandal, however, if
CalSavers were raided and employee funds disappeared, the innocent employees would bear the loss.
It is well settled that Congress preempted the field
of private retirement savings through ERISA, creating
a uniform structure that provides autonomy to employers and security to employees. (Gobeille v. Liberty Mut.
Ins. Co. (2016) 577 U.S. 312, 136 S.Ct. 936, 944, citing
Alessi v. Raybestos-Manhattan, Inc. (1981) 451 U.S.
504, 523). Under ERISA, private employers are not required to offer a retirement plan for their employees.
When employers decide to offer retirement, they are
free to choose any plan on the market, secure in the
knowledge that all legally marketed plans are ERISAcompliant. With ERISA-compliant plans, employees
have control over decisions such as whether to save for
retirement, what percentage of their income to set
aside, and what kinds of investments they’re comfortable with. Under ERISA, employees are owed fiduciary
duties and have access to the federal courts to resolve
disputes.
Here, California is inserting itself into this federally preempted field and imposing its own mandates
and rules that conflict with ERISA’s structure. This
strips both employers and employees of their rights
under federal law.
CalSavers forces employers to offer a retirement
plan – either an ERISA plan or the CalSavers plan –
or else face fines and penalties. (Cal. Gov. Code,
§§ 100032; 100033; Cal. Code Regs. Tit. 10, § 10008; see
10
also former Cal. Unemp. Ins. Code, § 1088.9.) Under
the CalSavers plan, unless an employee takes the initiative to educate himself, find and file the proper paperwork, and do so within a limited window of time for
opting out of the program, he is automatically enrolled
and a state-specified percentage of his earnings is deducted and remitted to the State to be managed as the
State sees fit. (Cal. Gov. Code, § 100032(f-j).) The State
disclaims any fiduciary responsibility for guarding
these funds or paying them back to the employees who
earned them. And, unless this Court reverses the
Ninth Circuit’s declaration that CalSavers is exempt
from ERISA, employees will have no federal cause of
action if their funds are lost in the next California government scandal.
Senate Bill 1234, the bill that created CalSavers,
was passed in reliance upon an anticipated U.S. Department of Labor regulation exempting state-run retirement savings plans from ERISA. As explained by
the CalSavers Board in its $170 million General Fund
loan request, “Before the Program can open for enrollment, SB 1234 requires the Board to report to the Governor and Legislature: . . . That the United States
Department of Labor (DOL) 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 (ERISA).” (Cal. Dept. of Finance,
Budget Change Proposal 0984-001-BCP-2017-GB,
Fiscal Year 2017-2018, p. 5, https://esd.dof.ca.gov/
Documents/bcp/1718/FY1718_ORG0984_BCP1288.pdf.)
11
The anticipated DOL regulation became known
as the 2016 Safe Harbor. It was added to 29 C.F.R.
§ 2510.3-2 on August 30, 2016, as subsection (h). (App.
86-92.)
Congress has authority under the Congressional
Review Act to review regulations promulgated by administrative agencies to ensure they do not overstep
congressional authorizations. By a joint resolution of
both houses, Congress can disapprove regulations that
have overstepped. Unless the President overrules the
resolution of Congress, the regulations are repealed. (5
U.S.C. § 801.)
Exercising its authority under the Congressional
Review Act, Congress repealed the 2016 Safe Harbor
on May 17, 2017, eight months after its adoption. (App.
85.)
Lacking the safe harbor required by SB 1234,
CalSavers should have folded its tent. Instead, in defiance of Congress and even its own enabling act,
CalSavers proceeded full steam ahead. As a fig leaf,
CalSavers’ Executive Director paid a private lawyer to
write a letter opining that CalSavers is not preempted
by ERISA. (See Letter from David Morse to Katie Selinski dated May 16, 2017, at https://www.treasurer.ca.gov/
news/releases/2017/20170518/k-l-gates-opinion.pdf.) With
that barest of cover, CalSavers is ordering employers
to sign up for the program, to automatically enroll
their employees, and to remit payroll deductions.
Other states are watching. So far, California is getting away with its plan to take control of private
12
retirement decisions. Unless this Court grants certiorari and reverses the Ninth Circuit, the precedent will
be set and, before long, there will be a smorgasbord
containing each state’s version of CalSavers, throwing
into confusion whether employees’ earned wages will
ever get returned if, for example, they move from one
state to another, or if they temporarily work in a state
but are not domiciled there, or if their employer filled
out the wrong paperwork for that state 20 years ago,
or if they never retire, or if the state’s program becomes
insolvent, etc. ERISA plans, which provide employees
their own personal accounts that follow them when
they move, and that operate under uniform federal
rules, are not haunted by such problems.
Congress, through ERISA, preempted the field of
private retirement security. Congress has provided no
safe harbor allowing states to overlap ERISA with
their own different regulations. In the one instance
when an Executive Branch agency attempted to create
such a safe harbor, Congress repealed it. This is an
easy case. CalSavers is preempted by ERISA. This
Court should grant certiorari, reverse the Ninth Circuit, and invalidate the CalSavers program.
---------------------------------♦---------------------------------
13
ARGUMENT
I.
The Congressional Repeal of the 2016 Safe
Harbor for State-Run Automatic Payroll
Deduction IRAs Cannot Be Meaningless as
the Ninth Circuit Found.
ERISA is a federal law that sets minimum standards for retirement plans and health plans provided to
employees in private industry, for the protection of
both employers and employees. ERISA requires plan
sponsors to provide participants with certain disclosures, including important information about plan
funding. ERISA imposes fiduciary responsibilities on
those who manage and control plan assets; it requires
plans to establish a grievance and appeals process for
participants to get benefits from their plans; and gives
participants the right to sue in federal court for benefits and breaches of fiduciary duty. Any arrangement
that falls within the broadly defined category of “employee pension benefit plans” must comply with ERISA
or qualify for a “safe harbor” exemption.
Congress repealed a safe harbor proposed by the
U.S. Department of Labor for certain state-run payroll
deduction IRAs, known as the 2016 Safe Harbor, declaring in a joint resolution on May 17, 2017:
Resolved by the Senate and House of Representatives of the United States of America in
Congress assembled,
That Congress disapproves the rule submitted by the Department of Labor relating to
“Savings Arrangements Established by States
14
for Non-Governmental Employees” (published
at 81 Fed.Reg. 59464 (August 30, 2016)), and
such rule shall have no force or effect.
(Pub. Law 115-35; App. 85.)
The Ninth Circuit mysteriously concluded that the
Congressional Act of repealing the 2016 Safe Harbor
did not resolve this case. (App. 15.) The Court erred.
Had the Department of Labor believed that state-run
payroll deduction IRAs were already authorized by
ERISA, it would have been unnecessary to promulgate
a regulation exempting them; and if Congress intended
CalSavers to be exempt, it would not have repealed
the regulation. Congress cannot be presumed to act
for no purpose. Nor should the DOL be presumed to
have worked for no purpose in drafting the 2016 Safe
Harbor. (See also Moore, Kathryn, State Automatic
Enrollment IRAs after the Trump Election: Are They
Preempted by ERISA? (2019) 27 Elder L.J. 51, 109 [“In
light of the disapproval of the 2016 regulatory safe harbor, there is a serious question as to whether the state
automatic enrollment IRA programs are preempted by
ERISA.”].)
The 2016 Safe Harbor was intended to permit
state-run automatic savings programs. Now that it has
been repealed, it would take a new Act of Congress to
permit CalSavers and similar state programs. When a
rule is disapproved under the Congressional Review
Act, “it may not be reissued in substantially the same
form, and a new rule that is substantially the same as
such a rule may not be issued, unless the reissued or
15
new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the
original rule.” (5 U.S.C. § 801(b)(2), emphasis added.)
Congressional intent is crystal clear, then, that Congress can consider a national automatic IRA law, such
as the one recently proposed in the Build Back Better
Act, but states may not enter this federal ground. It
has not been “specifically authorized” by Congress.
A. CalSavers Is a Subject of Federal Law,
Not Traditional State Law.
This is a case of national importance pitting one
exclusive federal law against various encroaching
state laws and programs, as well as countless potential
local government laws and programs. The federal government assumed full leadership over private retirement savings programs almost fifty years ago when it
enacted ERISA. Since that time, state track records at
managing governmental employee pension plans have
been terrible, particularly in states that now want to
tap into private payrolls through state-run automatic
savings programs. California, Illinois, and New York,
for example, have well-documented histories of mismanagement, corruption, and unfunded liabilities exceeding $100 billion. Concerns for mismanagement
and abuse of retirement funds drove the creation of
ERISA. Pressure is mounting on states to manage
their public pension liabilities, some of which are in
crisis. For the retirement plans of all private employees, however, Congress intended to be the protector, not
a bystander to the states.
16
In 1974, Congress occupied the field of private employee retirement savings with ERISA. 29 U.S.C.
§ 1144(a) preempts “any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan.” A uniform system would have been “difficult
to achieve . . . if a benefit plan [were] subject to differing regulatory requirements in different States.” (Fort
Halifax Packing Co. v. Coyne (1987) 482 U.S. 1, 9.) Specific to CalSavers, the preemption clause was designed
to “establish pension plan regulation as exclusively a federal concern.” (Alessi v. Raybestos Manhattan, Inc. (1981) 451 U.S. 504, 505, emphasis added.)
This exclusive federal concern is broad, including
as it relates to state government action. Comments
noted by the Supreme Court from the Congressional
record explain:
“Finally, I wish to make note of what is to
many the crowning achievement of this legislation, the reservation to Federal authority
the sole power to regulate the field of employee benefit plans. With the preemption of
the field, we round out the protection afforded
participants by eliminating the threat of conflicting and inconsistent State and local regulation.” 120 Cong. Rec. 29197 (1974).
Senator Williams echoed these sentiments:
“It should be stressed that with the narrow
exceptions specified in the bill, the substantive and enforcement provisions of the
conference substitute are intended to preempt
the field for Federal regulations, thus eliminating the threat of conflicting or inconsistent
17
State and local regulation of employee benefit
plans. This principle is intended to apply in
its broadest sense to all actions of State
or local governments, or any instrumentality thereof, which have the force or effect of
law.” Id. at 29933.
(Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85, 99,
emphasis added.)
Accordingly, only Congress may authorize or implement an automatic IRA mandate. For example, the
Automatic Retirement Plan Act of 2017, introduced,
but not enacted, following the Congressional repeal of
the 2016 Safe Harbor, would have amended ERISA at
29 U.S.C. § 1144 to exempt “qualified state laws” regarding automatic IRAs on certain terms and conditions. (H.R. 4523, 115th Cong.) And if Congress were to
enact a national automatic IRA mandate, even that
would need an ERISA exemption. For example, the Automatic IRA Act of 2011 in section 2(f) would have
amended ERISA to exempt the federal government’s
own automatic IRA program. (See also Automatic IRA
Act of 2013, H.R. 2035, S. 245, 113th Cong. § 2(d)
[same]; Automatic IRA Act of 2015, S. 245, 114th Cong.
§ 2(d) [same].) This proves that Congress has never intended for automatic IRAs to be exempt from ERISA
without a safe harbor, no matter who creates them.
And lacking a safe harbor, they are preempted.
18
B. The Ninth Circuit Disregarded Chevron Deference, Auer Deference, and
the Central Arguments of the United
States.
Broadly speaking, Chevron U.S.A., Inc. v. National
Resources Defense Counsel requires deference to an
agency’s interpretation of the statutes it administers
and Auer v. Robbins, recently affirmed by this Court,
requires similar deference to an agency’s interpretation of its regulations.
The Ninth Circuit did not address Chevron or
Auer deference. Without necessarily agreeing with
these doctrines in all circumstances, and knowing that
much continues to be written about them, these doctrines are current law. Thus, they require deference to
Department of Labor interpretations that CalSavers is
preempted.
The intent of Congress is clear in its repeal of the
2016 Safe Harbor. Disapproving the rule permitting
state-run savings plans plainly means that Congress
disapproved CalSavers and similar programs. If Congress had intended for CalSavers to survive, it would
have either not disapproved the 2016 Safe Harbor or
specified that the new rule was unnecessary because
such programs are already authorized.
Even if Congressional intent were not clear, however, there must be deference to the consistently expressed Department of Labor interpretations that,
without a special exemption, state-run automatic payroll deduction plans are preempted by ERISA, because
19
those interpretations are “based on a permissible construction of ” ERISA. (Chevron U.S.A., Inc. v. National
Resources Defense Counsel, Inc. (1984) 467 U.S. 837,
842-843.) The DOL’s construction would have to rise to
the level of impermissible to be invalid.
Similarly, courts must defer to the DOL’s interpretation of its own regulations unless plainly erroneous
or inconsistent. (Auer v. Robbins (1997) 519 U.S. 452;
Kisor v. Wilkie (2019) 139 S.Ct. 2400; Bassiri v. Xerox
Corp. (9th Cir. 2006) 463 F.3d 927, 931.)
The Department of Labor’s interpretation that
CalSavers is preempted by ERISA has been consistent,
beginning with the safe harbor’s regulatory language,
and continuing through its briefings to the District
Court and Ninth Circuit here. And while the current
presidential administration instructed the Department to cease participation just before oral argument
took place at the Ninth Circuit, the DOL’s briefings remain official analyses, and have not been changed.
This constitutes decades of consistent DOL interpretation to which deference is owed under Chevron and
Auer.
The 2016 Safe Harbor specifically referred to
CalSavers throughout, by its former nomenclature, the
California “Secure Choice” program. (81 Fed.Reg. 59464,
n. 5; 59471, n. 34; 59472, 59473, n. 40; 59474, n. 44.) It
stated as its purpose: “This document describes circumstances in which state payroll deduction savings
programs with automatic enrollment would not give
rise to the establishment of employee pension benefit
20
plans under the Employee Retirement Income Security Act of 1974, as amended (ERISA).” (81 Fed.Reg.
59464.) It stated clearly that, without the 2016 exemption, state-run automatic-enrollment programs would
be preempted by ERISA for failing one of the tests (the
“completely voluntary” test) of the 1975 Safe Harbor.
Phyllis Borzi, Assistant Secretary of the Employee
Benefits Security Administration, indicated this when
she explained the meaning of “completely voluntary”
under the 1975 Safe Harbor on November 16, 2015,
and on August 24, 2016. (80 Fed.Reg. 72006; 81
Fed.Reg. 59464.) Ms. Borzi painted this picture of DOL
and Congressional intent in 1975:
In essence, if the employer merely allows a
vendor to provide employees with information about an IRA product and then facilitates payroll deduction for employees who
voluntarily initiate action to sign up for
the vendor’s IRA, the employer will not have
established, and the arrangement will not be,
an ERISA pension plan.
(81 Fed.Reg. 59464, 59465, emphasis added.)
To be “completely voluntary,” an employee must
self-initiate the IRA payroll deduction arrangement.
CalSavers automates deductions.
CalSavers has an opt-out form which employees
may use during or 30 days following the automatic enrollment process. But opt-out features do not satisfy
the 1975 Safe Harbor. Opt-out features are not “completely voluntary.” (80 Fed.Reg. 72006, 72008-72009;
21
id. at n. 12; 81 Fed.Reg. 59464, 59465-59466; 5947059473.) The DOL “intended ‘completely voluntary’ to
mean considerably more than that employees are free
to opt out.” (80 Fed.Reg. at p. 72008.)
Accordingly, the DOL has been clear since 1975
that each time employees are automatically enrolled in
an IRA program, an ERISA plan is created, “trigger[ing] ERISA’s protections for the employee whose
money is deposited into an IRA.” (Id. at p. 59465, n. 14.)
And the fact that California is requiring employers to
do the automatic enrollment for the State does not
transform CalSavers into a “completely voluntary” act
of the employee. It cannot change the DOL interpretation: Employees with automatically deducted payroll
IRAs are meant to have “ERISA’s protections.” (Ibid.)
Per 28 U.S.C. § 517, the United States filed a
“Statement of Interest” in the District Court on September 13, 2019, and the DOL later filed an Amicus
Brief to the Ninth Circuit on June 19, 2020. Each
states that CalSavers is preempted by ERISA.
In its “Statement of Interest,” the United States
explained that CalSavers is preempted via “reference
to” ERISA, because CalSavers as a whole is an ERISA
plan, because employers must at minimum “maintain”
ERISA plans, because CalSavers fails the 1975 Safe
Harbor, because CalSavers has an “impermissible connection” with ERISA, and because of traditional conflict preemption principles. Specifically, it argued that
CalSavers gives employers a “False Choice,” id. at p. 2,
and “takes away the freedom of choice that lies at the
22
core of ERISA.” (Ibid.). By forcing employers to either
adopt an ERISA plan or administer CalSavers, its interference with employer choice goes too far to be exempt. (Id. at p. 18.)
That only one of these reasons need be valid for
ERISA to preempt CalSavers, and that these reasons
were not analyzed by the Ninth Circuit, especially necessitates certiorari.
In its Amicus Brief, the DOL maintained the arguments made in the Statement of Interest, and further
explained that to exempt CalSavers would be “contrary
to ERISA’s Structure.” (Amicus Br., at p. I.) ERISA has
spoken to what governments may do with their employees and to what private employers may do with
their employees. ERISA’s structure does not leave
room for a state government to cross that boundary
line and impose its own commands on private employers.
The Ninth Circuit’s failure to defer to the DOL’s
interpretation of the ERISA statutes and regulations
is grounds for granting certiorari.
23
II.
In a Fundamental Error, the Ninth Circuit
Used Health Plan Cases to Decide a Pension Plan Case.
A. The Distinction Between Health Plans
and Pension Plans Needs Recognition
and Analysis.
The cases the Ninth Circuit relied upon for preemption analysis of CalSavers were health insurance
cases, not pension plan cases. (Golden Gate Restaurant
Association v. City and County of San Francisco (9th
Cir. 2008) 546 F.3d 639; Gobeille v. Liberty Mutual Insurance Co. (2016) 136 S.Ct. 936; New York State Conference of Blue Cross & Blue Shield Plans v. Travelers
Insurance Co. (1995) 514 U.S. 645; Washington Physicians Serv. Association v. Gregoire (9th Cir. 1998) 147
F.3d 1039; Stuart v. UNUM Life Insurance Co. (9th Cir.
2000) 217 F.3d 1145 [group insurance plan, subject
to welfare plan definition and separate safe harbor,
29 C.F.R. § 2510.3-1(j)]; cf. Credit Managers Ass’n v.
Kennesaw Life & Accident Ins. Co. (9th Cir. 1987) 809
F.2d 617, 625 [“Even if an employer does no more than
arrange for a ‘group-type insurance program,’ it can establish an ERISA plan, unless it is a mere advertiser
who makes no contributions on behalf of its employees.
29 C.F.R. § 2510.3-1(j). . . . We must remember that the
existence of an ERISA plan is a question of fact, to be
answered in the light of all the surrounding circumstances from the point of view of a reasonable person.
Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir.
1982) (en banc)”].)
24
Pension plans are distinct from health insurance
and involve a different Congressional concern – protecting the security of employees’ savings for future retirement rather than providing coverage for today’s
medical expenses. Because of this distinction, the original strictness of ERISA preemption has never been
loosened as to pension plans. Notably, none of the seminal cases in which the pendulum swung somewhat
away from strict ERISA preemption were pension plan
cases. (Gobeille v. Liberty Mutual Insurance Co., supra,
136 S.Ct. 936 [healthcare data reporting]; DeBuono v.
NYSA-ILA Medical & Clinical Services Fund. (1997)
520 U.S. 806 [hospital taxes]; Cal. Division of Labor
Standards Enforcement v. Dillingham (1997) 519 U.S.
316 [prevailing wages]; New York State Conference of
Blue Cross & Blue Shield Plans v. Travelers Insurance
Co., supra, 514 U.S. 645 [hospital surcharges]). Because pension plans are in a different ERISA context
than the one discussed by the Ninth Circuit, certiorari
should be granted.
Prior to this case, the Ninth Circuit itself had declared that pension plans are subject to analysis “distinct” from health plans. (Golden Gate Restaurant
Association v. City and County of San Francisco (9th
Cir. 2008) 546 F.3d 639, 651-652.) In distinguishing
health insurance from pension plans, the Ninth Circuit
in Golden Gate explained that the definition of a pension plan subject to ERISA is “so broad” that “virtually
any contract that provides for some type of deferred
compensation will establish a de facto pension plan”
whether or not the employer intended to establish an
25
ERISA plan. (Ibid.; Modzelewski v. Resolution Trust
Corp. (9th Cir. 1994) 14 F.3d 1374, 1377.) Despite its
own precedent, the Ninth Circuit in this case relied on
Golden Gate, which did not concern a pension plan, to
find CalSavers exempt from ERISA because employers
do not intend to establish an ERISA plan; they are
simply following the State’s instructions.
The Court erred. To the extent Golden Gate applies at all, it teaches that CalSavers is subject to
ERISA. Since CalSavers is subject to ERISA, but does
not comply with ERISA, it is preempted, and therefore
disallowed.
B. CalSavers Requires Employees to Trust
their Employer with their Vested Retirement Money. The Ninth Circuit’s
Use of Golden Gate is Thus Inapplicable and Unreliable. Modzelewski Commands a Stricter Test for Pension Plan
Cases.
It is novel, and vital to decide, whether a State
may manage a private employee’s vested retirement
funds. California’s track record at managing pooled
public pensions is dismal as a matter of public
knowledge. And CalSavers is poised to commingle the
private employee funds with state and local public
pensions at the Board’s discretion. (Cal. Gov. Code,
§§ 100004(c); 100010(a)(8) and (a)(12); App. 96-97.)
Unlike the deduction from one’s paycheck of taxes,
health insurance premiums, and even Social Security
26
contributions, employees have an immediately vested
interest in their own wages dedicated to a retirement
account. They lose their vested interest in wages deducted to pay taxes, but they do not lose this interest
when funds are deducted for transfer to a retirement
fund. (Modzelewski v. Resolution Trust Corp., supra, 14
F.3d at p. 1378.)
The moment an automatic payroll deduction occurs under CalSavers, an employee must trust the
employer to remit their funds to the State. An unscrupulous or careless employer may fail to transmit the
funds to the State. Thus, an ERISA-protected risk
arises. But if CalSavers is exempt from ERISA, as the
Ninth Circuit held, then ERISA and the federal courts
are of no help to the employee. Assuming the remittance occurs, the employee’s money is then not protected by the State of California either. (Cal. Gov. Code,
§ 100036; App. 98.) At the instant of deduction, the employee is required to blindly trust both the employer
and the State of California with their financial future.
This is unprecedented.
It is novel and vital to decide whether a State may
direct and automate the deduction of private employee
paychecks because that creates the exact opportunity
for mismanagement (failure to remit) ERISA serves to
address as a federal concern. But the employee’s only
remedy if remittance does not occur under CalSavers
will be in state court. This frustrates the intent of Congress when it passed ERISA in 1974 to, in part, provide
federal court protection for employees whose retirement savings were lost or stolen.
27
To protect employees whose employer provided a
retirement savings plan as an employment benefit, the
1975 Safe Harbor for payroll deduction IRAs was born.
(40 Fed.Reg. 34527.) The 1975 Safe Harbor is, to this
day, the only expression of intent by Congress or the
Department of Labor to permit payroll-deduction IRA
programs. The 1975 Safe Harbor created a market for
ERISA-compliant payroll deduction IRAs. The 1999 Interpretive Bulletin later clarified that employers have
autonomy over selecting IRA sponsors. (29 C.F.R.
§ 2509.99-1(d); App. 94-95.)
Because employers are not required to offer a retirement benefit and, if they do, have autonomy over
selecting IRA sponsors, employers have an ERISA
right to reject CalSavers. But the State of California
here is forcing itself as an IRA sponsor upon employer
and employee.
Creation of automatic employment-based IRAs using the employee’s own money simply cannot escape
ERISA. The State contends that its program either
qualifies for the 1975 Safe Harbor or that it just doesn’t
need to. The Ninth Circuit agreed that it doesn’t need
to, and ended its analysis there. The Ninth Circuit disregarded that CalSavers creates automatic employment-based IRAs using the employee’s own money,
expressly disclaiming all liabilities except for the
employer’s liability under state law. The preemption
analysis thus remains inadequate, with an overly simplistic conclusion: because the employers are merely
following the State’s instructions, the largest ever automatic IRA payroll deduction program – which would
28
undisputedly be subject to ERISA otherwise – is exempt from ERISA. (Cf. Charles Schwab & Co. v. Debickero (9th Cir. 2010) 593 F.3d 916 [“independent IRA”
. . . “established by Wilson personally” with no employer involvement was not subject to ERISA]. Emphasis added.) The Ninth Circuit erred. There is no place
for CalSavers outside of ERISA because the employee doesn’t initiate the payroll deduction and a
governmental plan may not be created for private
employees.
Because of these distinguishing facts, there is no
direct case on which to rely in deciding the question
presented. But the case the Ninth Circuit and District
Court relied upon is definitely wrong. Golden Gate Restaurant Association v. City and County of San Francisco, supra, 546 F.3d 639, is both inapplicable and
unreliable. (See also Moore, Kathryn, State Automatic
Enrollment IRAs after the Trump Election: Are They
Preempted by ERISA? (2019) 27 Elder L.J. 51, 92-93, n.
243, 247 [finding Golden Gate distinguishable from
state automatic enrollment plans because three of the
four factors used in Golden Gate to exempt program at
issue do not apply].)
In Golden Gate, San Francisco employers were
mandated to financially support the City’s healthcare
plan known as the “Health Access Plan” or HAP. The
HAP was not a retirement plan, not based upon employment relationships, did not create accounts, and
did not use or direct channeling of the employee’s
own money. It was a government entitlement program
“available to low- and moderate-income residents of
29
San Francisco, regardless of employment status.” (Id.
at p. 653.) Employers could satisfy their duty under the
ordinance by writing a check for what was a de facto
tax to support the healthcare plan for San Francisco
residents. (Id. at p. 657.) In short, the Ninth Circuit
found no ERISA preemption because employer “obligation ceases as soon as they make the required payments.” (Id. at p. 652.) Unlike here, however, the
employers in Golden Gate were not writing checks out
of their employees’ wages.
The Golden Gate precedent is also unreliable as
many believe it was incorrectly decided and that the
HAP actually was preempted by ERISA. Reviewing the
complexity of the non-alternative payments and effects
on employer health plan choices, eight judges dissented from the denial of the petition for rehearing en
banc, finding that the “decision in this case creates a
circuit split with the Fourth Circuit Court of Appeals,
renders meaningless the tests this Court set out in
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct.
2890, 77 L.Ed.2d 490 (1983), conflicts with other Supreme Court cases establishing ERISA preemption
guidelines, and, most importantly, flouts the mandate
of national uniformity.” (Golden Gate, supra, Denial of
Pet. for Rehearing en banc (9th Cir. 2009) 558 F.3d
1000, 1004.) Thus, the Ninth Circuit decision finding
that ERISA does not preempt CalSavers relies on a
case that does not apply to retirement plans, may not
stand the test of time, and conflicts with this Court’s
decision in Shaw.
30
Nonetheless, the Ninth Circuit found that Golden
Gate “stands for the proposition that an employer’s
non-discretionary administrative obligations under a
government-mandated benefit program do not, without more, ‘run the risk of mismanagement of funds or
other abuse’ by employers, which is ERISA’s focus.”
(App. 24.) But the employee’s own money – not at stake
in Golden Gate – could easily be mismanaged here,
triggering the need for ERISA scrutiny. Therefore, no
matter how “mechanical” (App. 26), a task it may be for
employers to calculate and remit IRA contributions,
CalSavers creates the very opportunity for mismanagement that is ERISA’s central focus, even as stated in
Golden Gate. Where a State creates the opportunity for
abuse, mistake, or mismanagement which ERISA regulates as its central focus, surely Congress intends
ERISA to apply.
When Golden Gate declares pension plans distinct
from health plans, it points specifically to another case
which remains underutilized here: Modzelewski v. Resolution Trust Corp., supra, 14 F.3d at p. 1374. Modzelewski, the Ninth Circuit declared in Golden Gate, was
in the “distinct” area of pension plans, and thus was
not eligible for the deferential analysis applied in
Golden Gate. (546 F.3d at pp. 621-652 [“ERISA’s definition of ‘employee pension benefit plan’ is distinct from
its definition of ‘employee welfare benefit plan’.”].) If
pension plan analysis should not apply to health plan
analysis, the converse should be true.
In the same portion of Golden Gate, the Ninth Circuit also referenced Donovan v. Dillingham (11th Cir.
31
1982) 688 F.2d 1367, which provides the well-known
four-factor test for finding an ERISA plan. The wellknown Donovan test determines, from the surrounding
circumstances, if a de facto ERISA plan has been created as follows: “In determining whether a plan, fund
or program (pursuant to a writing or not) is a reality a
court must determine whether from the surrounding
circumstances a reasonable person could ascertain the
intended benefits, beneficiaries, source of financing,
and procedures for receiving benefits.” (688 F.2d at p.
1373.) This is easily done as to CalSavers, and the Department of Labor agreed in each of its writings.
Both Donovan and Modzelewski remain good law
and CalSavers needs analysis thereunder. In Modzelewski, the concept of vesting appears and should be
considered here because employee wages are being
deducted and transferred to CalSavers. Modzelewski
holds that as soon as wages are deducted for remittance to a retirement plan, employees have a vested
right in those wages as retirement funds.
The Ninth Circuit itself has gone straight to the
Donovan test when examining the establishment of a
pension plan. Per Modzelewski citing Donovan, “[w]e
have interpreted this language [of 29 U.S.C. § 1002]
broadly, holding that a pension plan is established if a
reasonable person could ‘ascertain the intended benefits, beneficiaries, source of financing, and procedures
for receiving benefits.’ . . . That is clearly a sufficient
allegation of the establishment of a plan.” (Modzelewski, 14 F.3d at p. 1376, emphasis added.) The D.C. Circuit has also gone straight to the Donovan factors to
32
determine existence of a pension plan. (Kenney v. Roland Parson Contracting Corp. (D.C. Cir. 1994) 28 F.3d
1254.) Preemption of CalSavers should be determined
under the Donovan test confirmed in Modzelewski.
C. “Modicum of Discretion” is the Wrong
Test Because CalSavers Creates an IRA
Payroll Deduction Program, not a Severance Payment.
Instead of applying the Donovan test confirmed in
Modzelewski, the Ninth Circuit employs a test from
Golden Gate called “modicum of discretion.” (App. 4951.) But this test is out of context and does not apply
to CalSavers.
Per the “modicum of discretion” test, if employers
have only a ministerial duty to pay money, then ERISA
is not implicated. This is the wrong test for pension
plans where the money belongs to the employee, not
the employer. However, even if it applied, the Ninth
Circuit overlooked what CalSavers requires employers
to do. As will be discussed below, applying this “modicum of discretion” test to a pension plan is no different
than applying the third factor of the 1975 Safe Harbor
in isolation. Additionally, defining “ministerial” is still
a vague and amorphous inquiry that deserves input
from this Court. Most importantly, though, it is simply
the wrong test because Golden Gate draws the test exclusively from severance pay cases and CalSavers is
not a severance payment mandate.
33
Golden Gate was the first, and until now was the
only, non-severance-pay case to apply the “modicum of
discretion” test. As discussed, employers were required
to calculate annual payments to the HAP based on
hours of employee time. This calculation of a onceannual payment was deemed to impose a mere “modicum of discretion” on the part of the employer, and thus
not to create an ERISA plan.
By contrast, in Bogue v. Ampex Corp. (9th Cir.
1992) 976 F.2d 1319, the Ninth Circuit found that an
employer’s discretion in a severance pay program surpassed a “modicum of discretion.” The Court named
three non-exclusive factors in determining whether the
degree of discretion exercised by an employer surpassed the “modicum of discretion” threshold: (1) the
duration of the arrangement’s term; (2) the number of
participants; and (3) a case-by-case determination of
terms. (Id. at p. 1323.) Even assuming that CalSavers’
per-pay-period calculations and paperwork can be
deemed ministerial, the other two factors identified in
Bogue – duration of the program (indefinite) and volume of participants (all of California’s private employees without existing ERISA plans) – weigh toward a
finding of preemption. The sheer scale of CalSavers,
the higher risk of employer error, and the fact that
employee, not employer, funds are involved, puts it in
another category to which “modicum of discretion”
analysis is insufficient.
The “modicum of discretion” test has, until Golden
Gate and now, been narrowly confined to severance
pay cases, mainly distinguishing between those that
34
require one-time calculations or a multiplicity of calculations. (See, e.g., Fort Halifax Packing Co. v. Coyne
(1987) 482 U.S. 1; Bogue v. Ampex Corp, supra, 976 F.2d
1319; Velarde v. PACE Membership Warehouse (9th Cir.
1997) 105 F.3d 1313; Collins v. Ralston Purina Co. (7th
Cir. 1998) 147 F.3d 592; see ibid. at p. 596 [modicum of
discretion test failed where severance payments were
not made at one time, but caused “the prospect of paying out disbursements of varying amounts to its managers and at varying times.”].) But none of these cases
involve payroll deductions and the ones with any level
of an ongoing administrative duty were found to be
subject to ERISA. The “modicum of discretion” test is
too vague for an IRA payroll deduction program, particularly one of this scale, and is inapplicable for determining ERISA preemption outside of the severance
payment context. The Ninth Circuit erred. Certiorari
should be granted.
III. CalSavers Fails the 1975 Safe Harbor for
Payroll Deduction IRAs
Having determined (erroneously) that CalSavers
imposes only a “modicum of discretion” on employers,
the Ninth Circuit concluded that ERISA does not preempt CalSavers because “it is established and maintained by the State, not employers” (App. 4), although
the Court admitted that its approach was based on
“scant” authority. (App. 22.)
One glaring problem with the Court’s approach is
that the “modicum of discretion” test discussed above
35
is the equivalent of the third factor of the 1975 Safe
Harbor. Applying the third factor – the “modicum of
discretion,” a.k.a. the “degree of employer involvement”
test in isolation transforms the third factor of the test
into the whole test. It converts one factor of a four-part
test into a stand-alone Get-Out-of-ERISA-Free card.
This impermissibly renders the other three factors
meaningless surplusage.
A. All Four Factors of the 1975 Safe Harbor Test Apply to CalSavers.
The notion that Congress must have intended to
exempt CalSavers from ERISA because a state created
it requires careful attention. There is simply no legislative evidence for this and it is opposite what must be
presumed. Hawaii’s own prepaid healthcare plan was
not exempt until Congress passed special legislation
because it did not fit an “express” or “specific” exemption in ERISA. (Standard Oil Co. v. Agsalud (1980) 633
F.2d 760, 764.) Congress has considered a national automatic IRA program, and accompanied it each time
with an express exemption from ERISA. (See Automatic IRA Act of 2011, S. 1557, 112th Cong.; Automatic
Retirement Plan Act of 2017, H.R. 4523, 115th Cong.)
If Congress itself needs an exemption, then there is no
vacuum where states get a free pass.
The understanding since 1974 has been that
ERISA would apply to all employment-based IRAs absent a safe harbor. (See Cline v. Industrial Maintenance Engineering and Contracting Co. (9th Cir. 2000)
36
200 F.3d 1223, 1230 [“The Regulations provide that
certain ‘individual retirement accounts’ or ‘individual
retirement annuities,’ collectively ‘IRAs,’ fall within
the scope of ERISA and others do not. 29 C.F.R.
§ 2510.3-2. Under this regulation, certain IRAs which
have little or no employer involvement, including no
employer contributions, are excluded from the definition of ‘employee pension benefit plan’ and are thereby
completely excluded from ERISA coverage.”]. They are
excluded because they pass the four-factor 1975 Safe
Harbor test. On August 15, 1975, the Department of
Labor wrote, regarding the developing 1975 Safe Harbor:
Comments received by the Department of
Labor pursuant to the June 9 proposed regulations indicated a substantial need for guidance in two areas of coverage not addressed
in the June 9 proposal: individual retirement
programs under section 2002(a) of the Act,
and voluntary gratuitous payments traditionally made by employers to retirees not covered
or inadequately covered by a pension plan.
The comments were to the effect that the silence of the proposed regulations on these
subjects would lead to a conclusion that the
requirements of Title I of the Act were applicable and that, as a consequence of the expected burden of compliance, individuals and
employers would terminate these programs.
Such results would be clearly undesirable.
(40 Fed.Reg. 34527, emphasis added.)
37
The 1975 Safe Harbor for IRA payroll deduction
programs was born. It has four factors. All four must
be met to exempt an IRA payroll deduction plan:
(1) no contributions by the employer; (2) “completely
voluntary” participation by the employee; (3) minimal
employer involvement limited to remitting payroll deductions and not endorsing the program; and (4) no
consideration to employers from the program. (App.
93.) As the District Court found, primarily due to failure under the second factor, “CalSavers is not entitled
to the exemption set forth in the 1975 Safe Harbor.”
(App. 73.)
To exempt CalSavers from ERISA, the Ninth
Circuit’s analysis essentially applies the third factor
of the 1975 Safe Harbor in isolation. There is no evidence of Congressional intent for this strange interpretation that one factor may be isolated to exempt a
program just because a state creates the scheme. Ironically, the Ninth Circuit correctly acknowledges that if
employers are mandated to take ERISA actions, the
state’s mandate will not exempt them from ERISA.
(App. 26.) Although this contradicts its conclusion, the
Court nonetheless rules that the exercise of state
power somehow exempts CalSavers from ERISA. This
was error because a state mandate does not by itself
save a program from ERISA application. (Standard
Oil Co. v. Agsalud, supra, 633 F.2d at p. 764; Gobeille
v. Liberty Mutual (2016) 136 S.Ct. 936; Fort Halifax,
supra, 482 U.S. at pp. 7, 12, 16.) As shown above, states,
and even Congress itself, need a special exemption if
they cannot pass the full 1975 Safe Harbor test. The
38
four-factor 1975 Safe Harbor applies here, and CalSavers clearly fails the second prong of the test by automatically deducting employee paychecks.
B. CalSavers Fails the Second Factor of
the 1975 Safe Harbor Test.
As explained above, the 1975 Safe Harbor for IRA
payroll deduction programs has four factors. The second factor requires “completely voluntary” participation by the employee. For a plan to be “completely
voluntary,” an employee must self-initiate the IRA
payroll deduction arrangement. CalSavers, however,
automates both enrollment in the plan and deductions from an employee’s paycheck unless the employee learns of his right to opt out, obtains the correct
forms, completes them correctly, and submits them
within 30 days following the start of the automatic enrollment period.
This burdensome “right” to opt out does not make
CalSavers “completely voluntary.” Even if it were easy,
an opt-out feature does not satisfy the 1975 Safe Harbor. (80 Fed.Reg. 72006, 72008-72009; id. at n. 12; 81
Fed.Reg. 59464, 59465-59466; 59470-59473.) The DOL
“intended ‘completely voluntary’ to mean considerably
more than that employees are free to opt out.” (80
Fed.Reg. at p. 72008.)
By failing to satisfy the second factor of the 1975
Safe Harbor test, CalSavers does not qualify for the
exemption applicable to payroll deduction IRAs. It is
39
not ERISA-compliant. It is preempted by ERISA. The
Ninth Circuit erred. Certiorari should be granted.
---------------------------------♦---------------------------------
CONCLUSION
For the reasons explained, including that CalSavers lost the 2016 Safe Harbor that was specifically designed to exempt it, that CalSavers fails the 1975 Safe
Harbor for IRA payroll deduction programs, and that
the Ninth Circuit relied solely on an unreliable and inapplicable case to declare CalSavers exempt, the petition for writ of certiorari should be granted.
DATED: October 12, 2021.
Respectfully submitted,
JONATHAN M. COUPAL
TIMOTHY A. BITTLE
LAURA E. DOUGHERTY*
*Counsel of Record
HOWARD JARVIS TAXPAYERS FOUNDATION
921 Eleventh Street, Suite 1201
Sacramento, CA 95814
Telephone: (916) 444-9950
Email: laura@hjta.org
Counsel for Petitioners
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.