San Francisco “Pay or Play” DOA – ERISA Chews Up Another Pay or Play Law

Those of you who have been with us since the beginning (or have done some serious digging) know that one of our first posts at CE was on the unfortunate demise of the Suffolk County Fair Share Act, back in July. We said then that the Retail Industry Leaders of America was on a rampage trying to stop state “pay or play” healthcare laws by convincing federal judges they were per se preempted by ERISA – before Suffolk was a Maryland pay or play law that RILA put the brakes on.

How apropos, then, as we reflect on the year, that another business association has given us opportunity to revisit our earliest days. The Golden Gate Restaurant Association just got summary judgment in a lawsuit against the city of San Francisco in which it argued (what else) that the city’s pay or play law, which was to go into effect next week, was preempted by ERISA.

From the Sacramento Business Journal:

Under the San Francisco plan, employers with 20 to 99 employees would have to spend $1.17 an hour per employee on health benefits or pay that amount to the city. Businesses with 100 employees or more would have to spend $1.76 an hour for each employee.

Judge Wright ruled that the mandate interferes with ERISA provisions that specifies employer autonomy over whether and how to provide employee coverage. The decision stems from a lawsuit filed by the Golden State Restaurant Association, which argued the mandatory contributions place a costly burden on business owners.

Man, when ERISA makes the MSM, you know something’s going on. Though city attorney Michael Herrera is taking the appeal to the 9th Circuit, it’s clear that the state is fighting this battle, since the SF plan is pretty much a petri dish for the statewide plan sitting the Cali Legislature.

As far as Herrera’s chances go, his argument is not totally off base. From the city’s press release:

“Although state and local laws that dictate employer choices about ERISA plans are preempted, legal requirements that employers may readily satisfy without altering or adopting ERISA plans are not because they do not interfere with uniform benefit plan administration,” Herrera argued. “San Francisco’s Ordinance clearly falls in this latter category, because it allows employers to comply with the health care spending requirement without adopting an ERISA plan or altering an existing ERISA plan. If an employer wishes to avoid the burdens of setting up a plan, or wishes to maintain plan uniformity across jurisdictions, it can simply make payments to the City, and those payments will make their employees eligible for substantial health benefits—benefits that would cost a great deal more in the private market.”

Going against Herrera, of course, is the fact that this argument has completely failed twice before. In his favor is 1.) logic (to a certain extent) and 2.) the fact that the 9th Circuit is crazy, and they seem to like poking the Supreme Court in the face with cases like this.

In the meantime, though, that ERISA keeps getting fatter and fatter on preempted laws. At the risk of biased commentary, may I suggest she at least start chewing up and spitting out, rather than swallowing them whole?

Fee Disclosure Legislation = Increased Fees

[ed. note: Chad DeGroot is our employee benefits editor. Please be nice to him, because none of the rest of us understand or want to write about this crap.]

On October 4th, Representative George Miller (D-California) introduced a bill in the House seeking to increase transparency with respect to participant-directed defined contribution plan fees charged to participants. The bill essentially requires plans to disclose to each participant every fee charged to their accounts. Failure to properly inform participants would result in a $100 fee per participant, per day of noncompliance for the plan. Not only will this effort not result in a reduction or limitation on the fees participants incur, but it may result in an increase in those fees that were previously seen as unreasonable, or force those plans with relatively high fees to maintain that level.

Because of the increased administrative costs associated with an increase in disclosure, plans will be able to justify current or increased fees. One such administrative cost is going to be borne by HR departments trying to justify the fees to aggravated, uninformed participant-investors.

You think fee litigation has been on the rise as of late? Watch out.

If participants are going to see a reconciliation of the fees charged their accounts, and can understand such disclosure, there is inevitably going to be an increase in the already-saturated field of fee litigation. Much of this new litigation is going to be frivolous, and accomplish nothing but the clogging of overburdened courts and, of course, greater fees. The increase in potential liability and litigation is just going to act as another point on which a plan can justify not only leaving fees at their current levels, but may, in fact, require an increase.

Furthermore, not only will this legislation have no affect on the current fees, unless it provides grounds for an increase, but that which must be included in the disclosure is going to be complicated and convoluted to a point where the average participant will not even read it, or if they do decide to attempt the impossible, not understand it. A similar loophole has been exploited by companies in issuing proxy statements.

Many fees may currently be at inappropriate levels, but increasing the required amount of disclosure to participants is not the answer.