California Beats Back Challenge of CalSavers Retirement Plan

SACRAMENTO, Calif. (CN) – California’s state-sponsored retirement plan for private workers cleared a major hurdle Friday, with a federal judge tossing a lawsuit brought by an influential anti-tax group that hoped to kill the program before its July launch date.

Lawmakers passed the retirement plan, now called CalSavers, in 2016 with the goal of extending benefits to an estimated 7.5 million workers that aren’t offered pensions or 401(k) plans by their employers. The bill’s Democratic author called CalSavers a “big effing deal” and former Gov. Jerry Brown painted it as crucial legislation that would give the state’s “vulnerable workforce” something to rely on other than Social Security.  

The State Treasurer’s Office has already launched a pilot program and all California companies with five or more employees will have to sign up for CalSavers or provide employees with their own retirement plans by 2022. 

While the program is ostensibly free for companies – the state oversees management operations and employers will simply remit employees’ selected deductions each paycheck – critics believe it adds new worries for small employers trying to comply with California’s complicated business laws.

“There will be administrative burdens on small employers and a possibility of federal liability, which is a lot of work to comply with,” said Laura Murray, staff attorney with the Howard Jarvis Taxpayers Association.

Murray and the taxpayers association sued the state over CalSavers in federal court last year, arguing the program is pre-empted by federal laws that regulate private employers’ plans. The taxpayers association, known for pushing a 1978 proposition which froze property tax rates and limited annual increases to 2 percent, calls CalSavers an unconstitutional waste of taxpayers’ dollars.

With CalSavers set to go live in July, U.S. District Judge Morrison England on Friday tossed the taxpayers association’s main argument that the state-mandated retirement plans would clash with the federal Employee Retirement Income Security Act (ERISA). He agreed with the state that CalSavers wouldn’t create a plan that would fall under the umbrella of ERISA.

“Finding that ERISA pre-empts CalSavers would be out of step with the underlying purposes of the act. CalSavers does not govern a central matter of an ERISA plan’s administration, nor does it interfere with nationally uniform plan administration,” England’s 16-page ruling states.

England did however find that the plaintiff’s argument was ripe and that it had organizational standing to sue. He gave the taxpayers association 20 days to file an amended complaint.

In a phone interview, Murray said the taxpayers association will either file an amended complaint or appeal.

“CalSavers is an employee benefit plan, and this is exactly what Congress in 1974 expressly pre-empted when it passed ERISA,” Murray said.

The Treasurer’s Office says there will be no cost or liability for taxpayers as the program will be funded by participant fees based account balances. Supporters include the AARP, the Service Employees International Union California and the California Small Business Association.

Workers not offered private retirement plans will be automatically enrolled, but will be able to opt out. Employers are not required to match contributions and the state has signed State Street Global Advisors Trust Company to manage the program’s funds.

The state says two-thirds of the 7.5 million Californians working for employers who don’t offer retirement plans are minorities and 58% are women.

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