Keeping Up with The Californians

California continues to be a national leader, both in terms of the number of selfies posted to social media, the number of reality show celebrities that grace its beaches and the number of new laws enacted which affect employee benefits. While some of these laws will have an indirect effect, and ERISA will pre-empt some of the provisions for employers and plans subject to ERISA, these developments will be of interest to employers with employees in California, especially governmental employers and sponsors of non-ERISA plans such as 403(b) retirement plans and dependent care flexible spending accounts. The new laws summarized below are all effective in 2020.


In previous newsletter articles we discussed laws which affect how workers are classified (Assembly Bill 5, signed by the Governor September 18, 2019) [See: Benefits Law in the Wild, Wild West], the new CalSavers Program which mandates automatic deferrals in an individual retirement accounts (The California Secure Choice Retirement Savings Trust Act, California Government Code Sections 100000 –100050)[See: The New CalSavers Law: What Employers Need to Do Now], and the expanded definition of Registered Domestic Partners (Senate Bill 30, signed by the Governor) [See: California Fully-Insured Health Plans Affected by New Criteria for Registered Domestic Partnerships]. While these laws were the celebrities of the 2020 benefits law crush, there are several more which should get their time in the sun:


Individual Mandate for Health Coverage (Senate Bill 78, signed by the Governor June 27, 2019). Feeling like a reboot of the Affordable Care Act, individuals will be subject to a penalty if they do not have minimum essential coverage. This will affect employers as there will be reporting requirements and possibly increased demand for group health coverage.Minimum essential coverage standards and reporting requirements are substantially similar to the Affordable Care Act provisions, but the penalty is specific to the state.


There are some exemptions from the penalty, including:

  • Individuals who obtain a hardship exemption from the exchange

  • Members of certain religious sects who obtain a religious-conscience certificate of exemption

  • Health care sharing ministry members

  • Incarcerated individuals

  • Non-US citizens or nationals who are not lawfully present in the US

  • Tribal members

  • Certain expatriates

  • Residents of another US state or US possession

  • Individuals enrolled in limited-scope coverage under Medi-Cal or other similar programs

Self-insured plan sponsors,health insurers and other entities that provide minimum essential health care to residents must report to the California Franchise Tax Board by March 31 of the year after close of each coverage year. Additional notices must go to covered individuals and their dependents by January 31 after the coverage year ends. Failure to report this coverage can trigger penalties of $50 per affected individual per tax year.


Expansion of MediCal (Senate Bill 104, signed by the Governor July 9, 2019). Certain expansions of MediCal will become effective, including coverage of young individuals regardless of immigration status. California enacted a law which extends health care benefits to individuals 19 to 25 years of age, regardless of their immigration status. California already offers a health care plan for those younger than 19, regardless of their immigration status.This may affect employers with employees who may become newly eligible for MediCal and reduce demand for group health coverage with the affected population.Note the federal Medicaid program prohibits payment to a state for medical assistance furnished to an undocumented immigrant who is not lawfully admitted for permanent residence or otherwise permanently residing in the United States under color of law.The bill will also provide enhanced premium subsidies to help middle-class residents buy coverage on the Affordable Care Act exchange. It will be paid for by the state version of the individual mandate previously discussed above.


New Notice Requirement for Flexible Spending Accounts (Assembly Bill 1554, signed by Governor August 30, 2019). A new notice requirement will apply for flexible spending accounts when flexible spending account funds must be claimed prior to the end of the plan year. For employers subject to ERISA, this requirement would be pre-empted for health flexible spending accounts, but not other types of flexible spending accounts that are not subject to ERISA, such as dependent care flexible spending accounts. For employers not subject to ERISA, this requirement would apply to all flexible spending accounts. Note that there is no exception for governmental employers in the statute.


Essentially, this notice requirement will be triggered by situations such as when a plan requires a terminated employee to claim all reimbursable expenses within a short time frame after termination, as opposed to the deadline for active employees after the end of the year. While the statute does not give much detail, it does require that the notice be provided in two forms. Review of flexible spending account plan document and procedures is recommended to ensure compliance.


Mandatory Arbitration Not Permitted (Assembly Bill 51, signed by Governor October 10, 2019). Employers will no longer be permitted to require an applicant for employment or an employee, as a condition of employment, continued employment, or receipt of employment-related benefits, to waive any right, forum, or procedure to pursue a claim under the California Fair Employment and Housing Act (FEHA). The law further prohibits an employer from threatening, retaliating or discriminating against, or terminating any applicant for employment or any employee because of the refusal to consent to the waiver of any right, forum, or procedure for a violation of specific statutes governing employment. In contrast, the Ninth Circuit recently ruled that mandatory arbitration is permitted for ERISA plans. (Dorman v. Charles Schwab & Co, 9th Circuit Case No. 18-15281, Dkt. No. 52-1). So, from an employee benefit perspective, this new California law will affect plans that are not subject to ERISA. Employers may continue to enter into voluntary arbitration agreements with employees, although they must ensure that such efforts are not a prerequisite for employment, continued employment, or receipt of employment-related benefits.


2019 was a big year for new benefits law in California. Stay tuned for 2020, California keeps on keeping it interesting.


If you would like to get more information regarding these new laws and how they may impact your employee benefit plans, please contact a member of our firm.


*Sherrie would like to acknowledge Kathleen Salas Bass for her assistance in writing this article.



© Boutwell Fay LLP 2019, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of December 20, 2019.



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