Former CA State Treasurer John Chiang announce CalSavers retirement savings program. (Photo: youtube screen capture)
Appellate Court Rules in Favor of CalSavers Retirement Program
‘CalSavers imposes burdens and risks on private employers on employees’
By Evan Symon, May 7, 2021 3:45 pm
The 9th Circuit Court of Appeals ruled on Thursday that CalSavers, an automatic retirement savings fund for those not offered a 401(k) or pension in California, would not be shut down.
CalSavers was created by the state in 2017 as way to create retirement funds for those not offered a 401(k) or pension plan by their employer. Employers must send between 2% to 5% of the paycheck for each employee in the program to CalSavers. There, the automatic enrollment payroll deduction program puts that money in an IRA in the employee’s name.
While those who are eligible are automatically enrolled in the program, CalSavers is voluntary, with employees being able to opt out at any time.
Currently, CalSavers is required by law for any business with 100 or more employees. Businesses with 50 or more employees must comply by June 30th of this year, while businesses with 5 or more employees needing to follow the law by June 30, 2022. According to Calsavers, over 340,000 employees are currently enrolled, with 6.8 million projected to be enrolled when fully required.
However, shortly after being introduced in 2017, many retirement and taxpayer organizations announced their opposition against CalSavers. A few groups soon brought forth legal action. The Howard Jarvis Taxpayers Association (HJTA) filed Howard Jarvis Taxpayers Association V. California Secure Choice Retirement Savings Program in May 2018. The HJTA contended that Calsavers superseded federal law and wasted taxpayer dollars. Specifically, they said that CalSavers violated the U.S. Employee Retirement Income Security Act of 1974 (ERISA), the federal law governing retirement programs, by requiring private employers to provide certain retirement benefits.
They also laid out many burdens that CalSavers presses on both employers and employees.
“CalSavers imposes burdens and risks on private employers since participation is mandatory for most employers who do not offer a company retirement program,” Laura Dougherty, a staff attorney for the HJTA, told the Globe Friday. “CalSavers imposes risks on employees since it doesn’t follow federal standards for retirement programs and authorizes commingling with California’s already troubled public pension plans.”
3-0 ruling in favor of CalSavers
The case was eventually moved up to the Appellate court where it was finally ruled on Thursday. All three judges ruled that CalSavers does not violate federal law. While the judges admitted that it was close, since the federal law was so broad on minimum standards for pensions, they ultimately ruled in favor of CalSavers and former state Treasurer John Chiang.
“The federal law does not preclude California’s endeavor to encourage personal retirement savings by requiring employers who do not offer retirement plans to participate in CalSavers,” said Judge Daniel A. Bress writing for the three judge panel. “States are not precluded from adopting a law just because it has something to do with ‘benefits’ in a loose sense. States would be barred from requiring private employers to provide certain retirement benefits, but California has not done anything like this in CalSavers.”
The state, including current state Treasurer Fiona Ma, cheered the ruling on Thursday.
“CalSavers is a simple solution to level the playing field for workers who for too long haven’t had access to workplace based retirement plans,” said Ma in a statement after the court’s ruling.
However, the HJTA said that they are currently looking into a rehearing or possibly trying for a U.S. Supreme Court review on the CalSavers case.
“In light of the Ninth Circuit’s decision that CalSavers is not preempted by federal law, HJTA is reviewing its options to petition for rehearing or petition the United States Supreme Court to review the case,” added Dougherty.
A decision by the HJTA is expected soon.
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With the unfunded liability of CalPERS estimated to be somewhere between $160 to $200 BILLION, I would not let CalSavers take ANYTHING out of my paycheck. With a minimum of professional help or study, self-managed IRAs are simple, free, and easy to manage for most people through companies like Fidelity or Vanguard. This is not financial advice. 🙂
It’s not really that much of a burden on employers as long as the state streamlines the deductions so it’s just like SDI, in which case it’s pretty automatic with a payroll service or software. What I’m really more concerned with is the way the program will create all sorts of baby accounts – minimal amounts withheld, say, from a first paycheck, then the employee opts out, or for one-off paychecks or for temporary gigs – things like guest film and TV appearances or computer-programming gigs to out-of-state workers. You’re talking about millions of accounts with micro-balances or for people who then move away and die young.
Tom, I was concerned about the costs to the employer and the employee. Are employers required to provide a percent matching contribution and are there costs to manage the accounts (who manages the employees accounts). I agree that deductions can be made easily.
This is another reason why California is in 50th place for business friendly states. There are so many alternatives for people to self direct their financial savings. Just like the song says: “California Sucks.”