The federal government has told a U.S. District Court in California that it may get involved in a legal challenge to the CalSavers retirement program.
In a Sept. 13 filing, the Department of Justice said it "has a heightened interest" in a 2018 lawsuit filed by the California-based Howard Jarvis Taxpayers Association arguing that the Employee Retirement Income Security Act preempts the California Secure Choice Act, which established the CalSavers program.
The CalSavers program, launched July 1, is a defined contribution plan for private-sector workers in California who do not have access to a retirement plan sponsored by their employers. It is required for all California employers with five or more employees that don't already offer a retirement program, and is will cover an estimated 7.5 million people.
In a March 28 decision, U.S. District Judge Morrison C. England Jr. in Sacramento dismissed the association's lawsuit, saying that because the program only applies to employers without existing retirement plans, no ERISA plans are "governed" or "interfered" with.
After the association amended its complaint in April, CalSavers asked the court to dismiss it.
The Department of Justice said in the latest filing that its "statement of interest" does not constitute intervention in the case but argued that California's Secure Choice Act is preempted by ERISA for several reasons, including that it gives employers "the false choice of establishing an ERISA plan or maintaining California's equivalent," and "takes away the freedom of choice that lies at the core of ERISA."
The DOJ filing also disputes CalSavers' argument that the Department of Labor has an ERISA safe harbor for voluntary IRA, because its automatic enrollment arrangement is not completely voluntary.
The federal government's participation in the case "is highly symbolic," Howard Jarvis Taxpayers Association senior staff attorney Laura E. Dougherty said in an interview.
"We are just very pleased that they did present all of these arguments (about) why the program is illegal. If the program is illegal, then we are spending taxpayers' dollars on something that is illegal," she said. CalSavers is designed to eventually run at low or no cost to the state once fees begin to cover the costs but it was launched with a loan from California's general fund, and "you never know what happens with these general funds loans," Ms. Doughtery said.
CalSavers Executive Director Katie Selenski said in an email: "We stand by our arguments and remain confident in the court's prior ruling in favor of CalSavers. On the advice of the Attorney General's Office, we won't comment further on this pending litigation."