Negative 401(k) Elections - California

[lkpittman]

Has the DOL issued an opinion in response to a request regarding ERISA preemption of CA wage withholding law? Is that request still pending (from 1999)? Does anyone have any experience with a California employer implementing negative 401(k) elections?

[mbozek]

I am not aware of any ruling about cal but the DOL has issued rulings preempting NY and Puerto Rico wage withholding laws as they apply to ERISA plans.

[lkpittman]

Thanks for responding, mbozek. I was aware of the NY and PR opinions, but I'm pretty sure that a request for an opinion was submitted for California, too. I couldn't find anything by searching BenefitsLink, so I guess there's nothing yet. I'm assuming that most companies are opting to use the safe harbor options to satisfy ADP/ACP rather than negative elections. Any thoughts?

[Kirk Maldonado]

My clients are opting for negative elections rather than safe harbor contributions.

[Alf]

Safe harbor formulas are too rich, so many non-top-heavy clients use negative elections, but comply with state law by getting specific written authorization on hire date as part of their new hire paperwork. I understand that it goes against the negative election concept somewhat, but is being done. Otherwise, I feel the 2 or 3 existing DOL opinions are general enough to apply in other states depending on how the statute is worded if authorizations are unworkable. Is the California statute more burdensome that simple written authorization?

[mbozek]

Why is it necessary to get employee authorizations for salary reduction in a plan subject to ERISA? If the ER gets employee authorization why bother with preemption? Under the Ingersol-Rand decision state laws are preempted in their application to an employer who sponsors a plan subject to ERISA as well as to the plan.

[RCK]

To respond to the last part of the original question: we have employees in California and have been using automatic enrollment since March of 1999. We started with a 2% default deferral and just moved to 3% in the last month. We have not had any problems.

As an aside, we have always referred to the program as Automatic Enrollment, in order to give it a little more positive spin, but also because it is a more accurate description. To me, an Automatic Enrollment is what happens in a 401(k) plan and a Negative Election is what happens in politics.

RCK

[lkpittman]

mbozek,

I know I don't need to quote the law for you, but ERISA Section 514(a) provides that the provisions of ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." The U.S. Supreme Court has held that state laws relate to an employee benefit plan "if it has any connection with or reference to such a plan." However, there have been many cases denying ERISA preemption on the grounds that the particular State law only had a "tenuous" relation to an ERISA covered plan. The general opinion is that the CA Labor Code provisions regarding wage withholding aren't specific enough to employee plans, so preemption is not guaranteed. I'd lean towards agreeing with Alf's opinion and "rely" on the opinions that are already out there, even if they don't relate specifically to CA, but as you know, when working with attys, you've got to cover all your bases. B)

RCK--I agree that "automatic" enrollment sounds better than "negative" enrollment.

In the end, our client is already providing a pretty generous match that is already 100% vested--I think we can persuade him to go to a safe harbor match that will satsify ADP and ACP.

Thanks, everyone for your input.

[Guest Gordy]

Just received Sal's eRISA UPDATE.

In the back, after page 140 is a "pending legislation section". On page 5 M(2) is the following:

(2) Automatic Enrollment plans. Section 403 would grant fiduciary relief, treating participants as in control of assets, with respect to "automatic contributions trusts" (i.e. automatic enrollment elective deferral plans). Any State law that would preclude such an arrangement would be preempted by ERISA. Proposed effective date: plan years beginning ater December 31, 2003.

This indicates that ERISA 514(a) may provide for ERISA preemption there's plenty of room for interpretation. Also specific legislation is needed to specify preemptions application. I hope "any such arrangement" means "automatic enrollment plans".

[Harwood]

Reish and Luftman made the original request to the DOL, because the Chief Counsel of the California Department of Industrial Relations wrote an opinion adamantly opposing negative elections.

Fred Reish maintains a url on the issue at http://www.reish.com/practice_areas/EmpBen...irsguidance.cfm

It does not appear that the DOL ever responded to the Reish and Luftman letter.

[Guest carsca]

Re: Automatic Enrollment:

Has there been any update on the state withholding issues since last year?

Also, has the DOL ruled on the ERISA 404© issues?

[Harwood]

No response.

[Guest Gordy]

I contacted Fred Reisch a couple of months ago on California's position on negative enrollment. He said they were unchanged and still adverse to it.

[Guest KBoticzi]

Does anyone know of any litigation on this issue? Any definitive articles written on the topic?

[Randy Watson]

Have there been any updates on this issue? Has California changed its position?

[E as in ERISA]

If HR 2830 passes in the next couple of weeks this may no longer be an issue.