Judge Tosses Challenge to CalSavers Retirement Plan

SACRAMENTO, Calif. (CN) – A federal judge tossed with prejudice an influential anti-tax group’s challenge to California’s state-sponsored retirement plan for private workers.

Upholding his March 2019 order, U.S. District Judge Morrison England ruled Tuesday that the private sector retirement plan, now called CalSavers, isn’t pre-empted by the federal Employee Retirement Income Security Act (ERISA). England said plaintiff Howard Jarvis Taxpayers Association’s amended complaint was “substantially similar” to the original and closed the case.

“Because CalSavers is not subject to pre-emption under ERISA and plaintiffs’ first amended complaint is similar to their original complaint, the court further finds that providing plaintiffs leave to amend would be futile,” England wrote.

Looking to extend retirement benefits to the state’s most “vulnerable workers,” lawmakers approved the retirement plan’s framework in 2016 with the goal of extending benefits to an estimated 7.5 million workers without access to 401(k) or pension plans. 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.

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.

But instead of a boon for workers, the taxpayer association called it an unconstitutional waste of money and another regulatory burden for California businesses. The association, known for pushing a 1978 proposition which froze property tax rates and limited annual increases to 2%, sued in 2018 before the program went into effect.

While England found in 2019 that the plaintiffs had standing and their case was ripe, he dashed their main ERISA argument by ruling CalSavers was not an employee benefit plan and therefore doesn’t fall under ERISA’s umbrella.

Since England’s initial ruling, the taxpayer association did pick up an ally in the Trump administration which argued in a court filing CalSavers should be pre-empted by ERISA.

“The United States has a heightened interest in finding [CalSavers] pre-empted because it’s among the first of a number of similar state auto-individual retirement account laws to be challenged,” the administration wrote in an October 2019 statement of interest.

Nonetheless, the George W. Bush appointee didn’t change his tune despite the federal government’s filing.

“There are no additional burdens or requirements imposed by CalSavers on existing ERISA or employer-sponsored retirement plans which interfere with ERISA’s regulatory domain or govern any central matter of plan administration,” England wrote Tuesday.

Laura Dougherty, staff attorney with the taxpayer association, says it will appeal to the Ninth Circuit.

“Howard Jarvis Taxpayers Association finds it odd that Judge England’s ruling made no analysis in response to the brief specially filed by the United States Department of Justice. Like Howard Jarvis Taxpayers Association, the United States sees that CalSavers is pre-empted by ERISA,” Dougherty said in an email.

By June 30, all employers with more than 100 workers will have to offer retirement savings or enroll in CalSavers. Meanwhile all employers with five or more workers will have to comply with the regulations by June 2022. States like Oregon and Illinois have implemented the state-sponsored IRA savings programs and more than 1,500 California employers have already registered.

California investments are currently handled by BNY Mellon Investment Adviser Inc. and State Street Global Advisors, while CalSavers is overseen by a nine-member board, including State Treasurer Fiona Ma.  In 2019, the state said two-thirds of the 7.5 million Californians working for employers who don’t offer retirement plans were minorities, and 58% were women.

Treasurer Ma said the favorable ruling adds to CalSavers’ “building momentum.”

“There is no reason to deny millions of hardworking Californians access to this savings program when the alternative is to see them work until they drop, or suffer the hardships that come with little to no savings,” Ma said in a statement.

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