Department of Labor Reaffirms ERISA Preemption of State Wage Withholding Laws

The U.S. Department of Labor (DOL) recently made available an information letter that confirms general preemption under the Employee Retirement Income Security Act of 1974, as amended (ERISA), of state civil laws that require employers to obtain written consent before withholding amounts from employees’ wages for contribution to a benefit plan subject to ERISA. 

This information letter, dated December 4, 2018, (Information Letter) responds to a question from an insurers’ association about whether ERISA would preempt a state law that prohibits an employer from implementing automatic enrollment arrangements under which the employer automatically enrolls an employee in the employer’s disability plan, and contributes part of the employee’s wages as plan contributions (unless the employee affirmatively opts out of the arrangement).      

With certain exceptions, ERISA generally preempts state laws that “relate to” ERISA-covered benefit plans. Consistent with prior DOL rulings, the Information Letter reaffirms the DOL’s view that ERISA would generally preempt a state civil law to the extent it served to: (i) “limit, prohibit, or regulate an employer’s adoption of automatic enrollment arrangements in connection with a disability benefit plan or other welfare benefit plan” covered by ERISA, or (ii) impose similar limitations on an employer’s ability to deduct wages from an eligible employee for contributions to such a plan. 

The Information Letter points out that the DOL has issued prior Advisory Opinions finding similar state laws are preempted by ERISA. For example, in 2008, the DOL found that ERISA preempted a Kentucky law that required employers to obtain written consent before withholding an employee’s wages as contributions to an ERISA-covered group health or welfare plan because that law prohibited automatic enrollment arrangements in such plans and served to regulate the employer's decisions on how it provided employee medical coverage and plan funding. A similar DOL ruling in 1994 involved an employer arrangement under which employees could implement or change their salary reduction contributions to ERISA-covered plans via phone or voice response systems (i.e., without a written form). In that matter, the DOL also concluded that ERISA preempted a New York state law that would have required employers to obtain written authorization for employee wage deductions of contributions or payments for “insurance premiums, pension or health and welfare benefits,” because the law was “specifically designed to affect employee benefit plans and [sought] to restrict the choices of such plans with regard to the administration of their funding policies.”

The DOL was careful to point out that the Information Letter did not address certain other state laws that ERISA may not preempt (such as state criminal laws), or fiduciary obligations with respect to notice and disclosure aspects of automatic enrollment arrangements. Although DOL information letters do not have the force of law and should not be relied on as governing precedent, the December 2018 Information Letter nonetheless provides helpful reassurance that the DOL’s position with respect to general ERISA preemption of state wage withholding laws remains unchanged to the extent such laws relate to ERISA-covered employee benefit plans. However, it is worth noting that non-ERISA plans (such as dependent care flexible spending accounts) are not covered under these DOL information letters. An employer that uses a uniform enrollment system/process for all of its benefit plans could potentially be at risk with respect to its non-ERISA plans and programs if applicable state wage withholding laws are not followed.