Seyfarth Synopsis: A class action lawsuit has been filed against Washington State’s Long-Term Services and Supports Trust Act (the “Act”) that requires each worker in Washington to contribute $0.58 per $100 (0.58%) of wages to a trust set aside to pay long-term care benefits for its residents. The lawsuit challenges the Act and requests a declaratory judgment that the Act is unenforceable as it violates ERISA and federal and state laws governing employee benefit plans. See Pacific Bells LLC et al v. Inslee et al, No 2:21-cv-01515, (W. Dist. WA). Nov. 9, 2021.

The Act was enacted in 2019 in an effort to plan for the projected long term care needs of Washington State residents. Under the Act, employers must remit on a quarterly basis a payroll tax of 0.58% (adjusted based on Washington’s CPI) of Washington employees’ wages (without a cap) to a trust establish by the State. The maximum benefit payable is $100/day up to a maximum lifetime benefit of $36,500. For more information on the Act, see our blog post here, and our webinar on the Act here.

The Act is the first of its kind in the United States and has been controversial since its enactment. This is due to several of the Act’s provisions, such as the scope of employees who must pay the tax. Under the Act, generally all employees who work in Washington State will pay the tax starting in 2022, regardless of their state of residence, although only Washington State residents will be able to use the benefit.

Another sticking point has been the benefit’s vesting schedule. Under the Act, the benefit is only available for residents who pay into the trust for: (i) a total of ten years with no more than a five-year interruption; or (ii) three of the six years before the date the resident applies for benefits. Additionally, the resident must have worked at least 500 hours per year during the ten or three year measurement period, as applicable. Older workers who are close to retirement will need to pay into the trust, even though they may not work long enough to be able to vest in the benefit. Other residents may lose their vesting if they do not pay into the trust for at least ten years.

The plaintiffs’ main argument for enjoining the Act is that it is preempted by federal law. Long term care benefits are subject to the Employee Retirement Income Security Act of 1974 (ERISA) and as a federal law, ERISA preempts any state laws that relate to an employee benefit plan. The plaintiffs claim that employer involvement in administering the Act (which includes determining the wages that are subject to the Act, which employees are subject to the Act, whether any employees are exempt from the Act, and coordinating the payment of benefits under the Act with any long-term care plan the employer maintains) is so significant that it makes the Act an employer-sponsored employee benefit plan. If so, the Act would be preempted by ERISA, which does not require an employer to provide long-term care benefits.

The complaint also alleges that the Act violates:

  • The equal protection clause of the Fourteenth Amendment of the Constitution because it charges out-of-state residents working in Washington a premium, but denies them the benefit of the premium because they must be a state resident in order to receive benefits;
  • The fundamental right to travel under Privileges and Immunities Clause of the Constitution because individuals who retire and move out of the State will no longer be eligible to receive the benefits;
  • The Age Discrimination in Employment Act of 1967 and the Older Workers Benefit Protection Act because older workers must pay into the trust but may never vest in the benefit; and
  • Washington State insurance and multiple employer welfare arrangement ( MEWA) laws because the Act does not satisfy state underwriting requirements for long-term care plans and no MEWA certificate of authority has been issued as required for plans that provide benefits to the employees of more than one employer.

As a result of these issues, the class action lawsuit requests the US District Court in the Western District of Washington to prospectively enjoin the State from collecting the payroll tax and enforcing the Act. Further, the lawsuit requests that the State return to employees any premiums paid to the trust.

Currently, the Act is still “on the books,” meaning that employers need to be ready to collect the tax starting in January, despite the filing of this lawsuit and a pending citizens’ initiative (I-1436) which would make it optional to participate in Washington’s long-term care insurance.