IRS Approves Automatic Enrollments

[Jilliandiz]

Can anyone tell me where I can find some rulings/more information on the newly passes IRS Automatic Enrollments, they are calling it a "general information letter" but I cant find anything regarding the rules/guidelines, etc.?

Thanks for the help!

[Kirk Maldonado]

Jilliandiz:

Here's a link to the recent letter on this topic:

http://benefitslink.com/links/20040408-027996.html

[TCWalker]

That's it. Generally referred to as IRS General Information Letter, 3/17/2004

[Guest rmeigs]

If you want some further discussion on the issue, you might try these links:

http://www.gcd.com/db30/cgi-bin/pubs/Furth...cEnrollment.pdf

http://www.milliman.com/eb/publications/cl..._autoenroll.pdf

[Guest Gordy]

You might want to check state requirements also. Last time I checked with Fred Reish a couple of months ago, here in sunny ol Caliiiifornia the Attorney General says atuomatic enrollment is still a no no.

[Harwood]

But that opinion from the California Dept. of Industrial Relations has not stopped many California employers from implementing automatic elections. Each one probably hopes they are not the first one to go to court to see if ERISA pre-empts state law on this issue.

[Kirk Maldonado]

I don't think that the State of California has jurisdiction to determine whether ERISA preempts California law. That is a federal law issue; not a California law issue.

[Harwood]

Kirk: If I sue my employer because Automatic Enrollment is contrary to state law, don't I start in state court? What would happen next?

[Kirk Maldonado]

Harwood:

You need to hire a litigator that is experienced in ERISA issues to advise you on these matters. I only represent employers on ERISA issues, I don't represent employees.

The only time I represent employees is when I am retained by an executive to negotiate his or her employment or severance package.

[Harwood]

I also work with employers and give them input on whether to adopt Automatic Enrollment or not, in a state where the state authorities have declared that AE is contrary to state payroll law.

I was trying to get a feel for what would happen should an employee challenge the deduction. Does my client face a potential lawsuit and, if so, wouldn't it be in state court?

Since the DOL won't answer the Reish & Luftman request for a ruling, does my client want to spend the money to be the first to see if ERISA/the IRS pre-empts California withholding laws?

[mbozek]

The only reason for the employee to commence a lawsuit would be to recover monetary damages against the employer. So what would be the employees claim for damages under state law if the employee is withholding pay without consent? And who will pay for employee's counsel?

The question of venue depends on how a plan is regulated. There are posters on this board who claim that a cafeteria plan is not subject to ERISA in which case there would be no ERISA preemption of state law. However, there are DOL opinions from the 90s which have held that state laws requiring employee consent to salary reduction in NY and Puerto Rico are preempted. If the employee brings a claim in state court for failure to obtain consent for salary reduction, the employer could remove the case to federal court to have the case decided under ERISA. The Fed court would decide if ERISA would preempt state laws on withholding of comp.

[Guest Gordy]

Kirk: I'm not an attorney, but, if you break California law isn't then in fact a California issue?

The employer may have to hire an attorney to fight this while the employee is represented by the State of Calfiornia? No worth it. Pay some QNEC or something. At least the money isn't going to legal fees.

[mbozek]

Does any one have any knowledge of a state suing an employer for automatic enrollment? There is question of whether state laws are being violated since the employee can opt out of withholding. The failure to opt out can be viewed as giving consent to withholding.

[oriecat]

I think it would depend upon how each state law is worded. California requires deductions to be "expressly authorized in writing" (Labor code 224). Even if the failure to opt out can be viewed as implied consent, it still isn't express or in writing, and the deduction could be viewed as an illegal wage deduction, subject to a wage claim, in my view...