A modified version of the California Secure Choice RetirementSavings Trust Act has passed out of both chambers of the Californiastate legislature and is expected to be signed into law by Gov.Jerry Brown.

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Related: States plan to move forward with auto-IRAretirement plans

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The action comes in light of a resolution of disapproval signedinto law by President Trump in May, which nullified a Labor Department safe harbor for state-administered auto-IRAprograms issued under the Obama administration.

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California was one of five states to pass legislation requiringemployers that don’t offer workplace savings plans to auto-enrollworkers in a state-administered IRA. The states craftedlegislation to comport with the safe harbor, which was finalized inSeptember of 2016.

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Related: In Vermont, lawmakers opt for MEPretirement plan

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Under the safe harbor, states could require automatic enrollmentin the plans without subjecting employers to fiduciary requirementsunder the Employee Retirement Income Security Act.

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At issue for the state initiatives is language in an existingsafe harbor for workplace IRA plans under ERISA, incorporated inthe original law in 1975.

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Under the 1975 safe harbor, employers can offer IRAs withoutbeing subject to ERISA, but only if employee enrollment in the IRAsis “completely voluntary.”

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In modifying its Secure Choice Act, California removed languagerequiring the program to comply with the updated, Obama-era safeharbor, a move likely to be emulated by other states that havevowed to move forward with auto-IRA initiatives.

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Lawmakers in California are relying on an interpretive letterfrom David Morse, a partner and ERISA specialist at K&L Gateswho has advised California’s and other states’ auto-IRAinitiatives.

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Morse says IRAs under California’s Secure Choice plan “shouldnot be considered ERISA plans” in potential legal challenges.

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In effect, his letter reasons that the Secure Choice plans cancomply with the original 1975 safe harbor for workplace IRAs.

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Because employers would be required to participate underCalifornia’s law, “employer volition,” which is fundamental todefining an ERISA plan, would be absent.

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While auto-enrollment is required, California’s law, and otherstates’ laws, also require an opt-out provision. Moreover,employees will not be enrolled unless they acknowledge they haveread and understand the program’s disclosures.

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Employers will not be allowed to contribute to the IRAs, andtheir involvement in plan administration will be limited to basicministerial acts under the Secure Choice Act, provisions that Morsethinks should make the Secure Choice plans qualify for the 1975safe harbor.

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While Morse says language in the 1975 safe harbor and existingcase law provides “firm grounds” for California’s Secure Choice tohold up under potential legal challenges, the letter does issue apoignant caveat.

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“The final authority to determine whether the program as it isultimately designed is not an ERISA employee benefit plan restswith the courts and it is possible that a court could take adifferent view than expressed in the 1975 Safe Harbor or in myanalysis,” wrote Morse.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.