California Secure Choice, Modified, Heads for Governor’s Signature

The Golden State has modified the legislation regarding its state-run auto-IRA program for private sector workers in place, readying the measure for Gov. Jerry Brown’s expected signature.

In the wake of the Trump administration’s removal of the Obama administration’s ERISA safe harbor guidance for state-run auto IRAs, California State Treasurer John Chiang and Senate President Pro Tempore Kevin de León (D-Los Angeles) said that California’s Secure Choice program remains on track, citing a legal opinion from the law firm of K&L Gates. That opinion noted assumptions that the law implementing the program would “be amended to remove references to the 2016 Safe Harbor.” That has now taken place, along with other modifications to AB-119. The bill passed the California Senate 27-10
and the Assembly 54-23 on June 15 as part of the state budget package. Gov. Brown, who is expected to sign the bill, has until July 1 to do so.

Is ‘Auto’ Voluntary?
One of the primary concerns about the ability of these state-run automatic IRA programs to steer clear of ERISA had been concerns that a payroll withholding program which nudges employees into savings through automatic enrollment elections would not satisfy the “completely voluntary” condition of the Labor Department’s 1975 safe harbor. The May 16 letter reminds that “both the preambles to the proposed and final 2016 Safe Harbor explained the DOL’s view that a program’s auto-enrollment/escalation feature
could cause an employer to exercise undue influence over an employee’s participation and that contributions made without an affirmative election might not be completely voluntary.” However, they opined that if the employer was establishing the program not at their own doing, but as the result of a state law requiring the action, “the element of ‘employer volition’ would be absent, with the result that any employee participation in the program should be viewed as ‘[completely] voluntary.’”

Would that survive legal challenge? Well, the K&L opinion acknowledged that “the final authority to determine whether the Program as it is ultimately designed is not an ERISA employee benefit plan rests with the courts and it is possible that a court could take a different view than expressed in the 1975 Safe Harbor (as defined below) or in my analysis.”  We shall see.

Program Provisions
The program has been described by proponents as “the most ambitious push to expand retirement security since the passage of Social Security in the 1930s.” Once Secure Choice is fully operational, employers with five or more employees which don’t already provide a retirement plan will be required to either begin to offer a retirement plan or provide their employees access to Secure Choice; employers with more than 100 employees will need to offer a retirement plan within 12 months after the program is open for enrollment; employers with more than 50 employees will need to offer a retirement plan within 24 months after the program is open for enrollment; and employers with more than five employees will need to offer a retirement plan within 36 months after Secure Choice is open for enrollment.

The California Secure Choice website notes that the mandate will not go into effect for at least two years, and that 2019 is likely to be the earliest that large employers which do not offer a retirement plan to their employees will be required to provide access to Secure Choice. The mandate will be phased in over a three-year period, the website notes, specifying that “[a]ny information to the contrary is wrong,” and directing anyone who is told something different to report the issue “…so we can correct the vendor.”

Source: NAPA Net


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