SACRAMENTO, Calif. (CN) –Millions of Californians whose employers don’t offer pensions collectively rejoiced in 2016 after the state’s Democratic leaders proposed and passed a state-run retirement plan for private workers, but a powerful advocacy group filed a complaint in federal court Thursday to derail the program before it starts.
Lawmakers said it was crucial to get in front of a growing crisis, with over 6 million private-sector employees not offered retirement plans by their employers. The bill’s author, Los Angeles state Sen. Kevin De Leon, called it a “big effing deal” while Gov. Jerry Brown said it was “very important” to extend retirement options to the state’s vulnerable workforce.
While the state is still sorting out details for the program called CalSavers, namely courting investment planners to manage the massive portfolio, it’s preparing to implement a pilot program this year before a statewide launch in 2019.
The Howard Jarvis Taxpayers Association on Thursday painted the state-run retirement program as unconstitutional and a waste of taxpayers’ dollars in a complaint filed in federal court in Sacramento.
“This is an undue burden on small business employers and employees alike,” the complaint states. “Congress has expressly disavowed savings arrangements established by states for non-government employees.”
The taxpayers association is best known for leading a 1978 proposition which froze property tax rates and limited annual increases to 2 percent.
Now the influential group is taking aim at CalSavers. It says the program is unconstitutional and preempted by long-standing federal law that regulates employers’ offered plans.
“Without preemption of CalSavers, such non-governmental employees’ funds will have none of the [federal] protections intended for them by the federal government since 1974,”the 10-page complaint states.
The lawsuit names the program’s administrator, State Treasurer John Chiang, also a gubernatorial candidate. Chiang defended the program, calling it low-cost, low-risk and the largest retirement expansion since the federal Social Security program was enacted.
“For an organization which styles itself as a champion of taxpayers, the Howard Jarvis Taxpayers Association shockingly fails to recognize that if we don’t help our citizens build a nest egg with their own money, they will ultimately become wards of the state wholly dependent on public assistance for their most basic needs,” Chiang responded in a statement.
As constructed, CalSavers would automatically enroll applicable employees and begin diverting 2 to 5 percent of their wages into a retirement fund. Workers can choose to opt out and the program would apply to all businesses with at least five employees that don’t offer some form of retirement savings.
The Legislature has approved a $16.9 million loan to jumpstart the program and the state has spent $1.5 million in implementation costs so far.
The measure was passed by Democratic lawmakers along party-lines. Other states such as Washington, Oregon and Illinois are considering similar legislation.