April 16, 2020
IN THIS ISSUE:
Since 2017, when wide-ranging regulations finalized under the Obama Administration were invalidated by a federal court, a number of states have proposed rules that would establish standards for fiduciary duty with respect to investment advice – affecting some common practices by plan sponsors and their service providers.
A detailed chart of these state laws, prepared by Davis & Harman LLP and posted on the American Benefits Council website, has recently been updated to account for a number of new developments:
As with all the Council’s activities related to state and local law affecting employee benefits, our efforts are aimed at fully addressing the needs of all employers operating within the state or municipality. For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, or Jan Jacobson, senior counsel, retirement policy.
The Howard Jarvis Taxpayers Association (HJTA) has announced that it will appeal to the U.S. Court of Appeals for the Ninth Circuit in its challenge to California’s auto IRA program (known as “CalSavers”) after their case was dismissed by the U.S. District Court for the Eastern District of California on March 10.
Like many other states and municipalities, California requires employers that do not already offer a retirement plan to automatically enroll their employees in a payroll-deduction IRA program. In its lawsuit the HJTA has argued that the CalSavers program, which opened for enrollment in July, is expressly preempted by ERISA, a view supported by the Department of Labor’s Office of the Solicitor in a statement of interest filed at the district court level.
The Eastern District of California rejected this argument, stating that “Such ministerial duties” as required of employers by CalSavers “do not rise to the level of an employee benefit plan established or maintained by actual employers. … In sum, the Court finds that CalSavers is neither an employee benefit plan nor does it relate to an ERISA plan.”
The HJTA has not publicly outlined its grounds nor its strategy for appeal.
The district court ruling is positive in that it appears to affirm that CalSavers does not apply to employers with ERISA plans and strengthens the Council’s argument that employers with ERISA plans should be exempted based on filing of the Form 5500.
The Council’s state plan comparison chart featured on the Council’s Center on State Initiatives website, was recently updated to reflect legislation recently introduced in Oklahoma and Rhode Island that would create a mandatory auto-IRA program in each state.
As we reported in the April 1 Benefits Byte, the American Benefits Council offered a forceful defense of ERISA preemption in an April 1 amicus (“friend of the court”) brief filed with the U.S. Supreme Court in the case of Rutledge v. Pharmaceutical Care Management Association, which has significant implications for the applicability of state law to employer-sponsored benefit plans. The Council brief was filed jointly with the U.S. Chamber of Commerce.
The high court is slated to review a lower court ruling that was favorable to employer sponsors. The Eighth Circuit Court of Appeals found that ERISA preempts an Arkansas statute regulating the amount plans and their administrators, including pharmacy benefit managers (PBMs), must pay pharmacies for generic drugs. The state law also imposes various related requirements and allows pharmacies to decline to dispense medicine covered under the plan to participants if the pharmacy would do so at a loss.
The Council’s brief focuses on ERISA preemption, its vital importance to plan sponsors and the potential negative consequences if the court should narrow the preemption standard.
As noted in the Council’s brief, “[m]embers of both the Chamber and the Council hold differing views on the subject matter of the law at issue in this case—the efficacy of pharmacy benefit managers and maximum allowable cost pricing. Indeed, certain aspects of the PBM model stand at odds with the interests of many plan sponsors. But [the Council and the U.S. Chamber are committed] to the strong ERISA preemption principles long recognized by this Court’s jurisprudence… [and] the protection of uniform plan administration is essential to the interests of employers and their plans’ participants and beneficiaries.”
Arguments in the case had been scheduled for April 27, but the Supreme Court recently postponed many arguments. As such, timing for an oral argument, let alone a ruling, in this case remains fluid and likely will be pushed back several months.
In conjunction with the Paid Sick Leave Atlas provided to American Benefits Council members, the law firm of Seyfarth Shaw LLP has provided updates on high-profile developments in three major jurisdictions:
As Congress has pursued more expansive paid leave policies within coronavirus relief legislation, the Council has emphasized the view of large, multistate employers that paid leave policy must enable employers to provide consistent benefits to workers regardless of where they live or work. As such, any federal paid leave requirements need to preempt state laws.
On March 12, Council President James Klein wrote a letter to Congress as it was considering paid leave proposals as part of its response to the COVID-19 pandemic saying, “Legislation expanding workers’ access to paid leave is one such important component of a rapid, coordinated and practical response. As Congress proceeds, in order to achieve its objective, it is imperative that any policy enacted permit employers to offer paid leave on a uniform and consistent basis nationwide,” Klein wrote.
Ultimately, the measure Congress passed did not preempt state and local laws. However, it was made applicable only to employers with fewer than 500 employees. As Congress contemplates a next phase of pandemic response legislation, there are calls to make the paid leave mandate applicable to larger employers as well.
For more information on paid leave issues, contact Ilyse Schuman, senior vice president, health policy.