A federal court Tuesday again dismissed a lawsuit challenging the CalSavers Retirement Savings program.
The $2.2 million CalSavers Retirement Savings Program is a defined contribution plan for private-sector workers in California without access to a retirement plan sponsored by their employers. The federal court dismissed the Howard Jarvis Taxpayers Association’s lawsuit without giving the plaintiffs another opportunity to amend their complaint.
In response, the Howard Jarvis Taxpayers Associations plans to appeal the ruling to the 9th U.S. Circuit Court of Appeals, said Laura Dougherty, staff attorney for the association, in an email. She said that the association “is confident about its prospect on appeal.”
The association had sued to permanently stop the implementation of the program and prevent its board from spending taxpayer money on the CalSavers program, arguing that the state program is preempted by federal law.
In April 2019, U.S. District Judge Morrison C. England Jr. dismissed the lawsuit but said the Howard Jarvis Taxpayers Association could amend the complaint.
In dismissing the association’s amended complaint Tuesday, the court ruled that CalSavers is not an employee benefit plan under the Employee Retirement Income Security Act of 1974 and so the state-mandated auto-enrollment retirement savings program is not preempted by ERISA.
“CalSavers is pioneering and building momentum,” said California state Treasurer Fiona Ma, who is a member of the California Secure Choice Retirement Savings Investment Board, in a news release. “There is no reason to deny millions of hard-working 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.”
Ms. Ma declined to comment on the association’s plan to appeal.
“We have been proceeding and will continue to proceed full steam ahead,” said Katie Selenski, CalSavers’ executive director, about the association’s plan to appeal.
Ms. Selenski said in an interview that the first employer deadline is approaching. On June 30, employers with more than 100 employees who do not already sponsor a retirement plan must register for CalSavers. More than 1,500 employers have registered since the program launched on July 1.
So far, more than 90% of the plan participants are remaining in the default investment option, which invests the first $1,000 in a capital preservation fund and the remainder in a target-date fund, Ms. Selenski said.
The average contribution rate was 5.17% as of March 10. What’s more, 98% of the first group of participants accepted the automatic-escalation option that raised contributions to 6% from 5% of pay in January, Ms. Selenski said.
Ms. Dougherty noted that the U.S. Justice Department had filed a statement of interest in the case, saying that it did not constitute intervention but argued that CalSavers is preempted by ERISA because among other arguments it gives employers “the false choice of establishing an ERISA plan or maintaining California’s equivalent.”
She said that CalSavers is an ERISA plan with no safe harbor for a voluntary IRA because the plan is not voluntary due to its automatic enrollment feature.
CalSavers “disserves the California taxpayers who will wind up paying for this risky and unnecessary program,” Ms. Dougherty said.
