With an alarming number of American workers lacking adequate retirement savings, California and a handful of other states began implementing state-sponsored retirement savings programs. The CalSavers Retirement Savings Program (CalSavers) was first launched as a pilot program in 2018 and then expanded to all eligible employers in the state in July 2019 in order to provide employees access to a retirement savings program without the administrative complexity for employers. CalSavers requires employers who do not offer employer-sponsored retirement plans to its employees, such as a 401(k) plan, to automatically enroll their employees into the CalSavers plan and to remit payroll deductions to the CalSavers trust for each employee who does not affirmatively opt out of participation in the plan.
In 2018, Howard Jarvis Taxpayers Association (HJTA), a non-profit lobbying and policy group, challenged the legality of CalSavers and claimed that the program was expressly preempted by the Employee Retirement Income Security Act of 1974 (ERISA). HJTA argued that, without preemption, such state-run employee funds will have none of the protections of ERISA.
On March 10, 2020, a federal judge ruled that CalSavers does not create an “employee benefit plan” under Section 3(3) of ERISA and is, therefore, not preempted. The reasoning behind this determination was that CalSavers is not established or maintained by an “employer” and does not “relate to” any ERISA plan.
“Actual employers have no discretion in the administration of CalSavers and do not make any promises to employees; employers simply remit payroll deducted payments to the Program and otherwise have no discretion regarding the funds,” Judge Morrison C. England stated. Furthermore, the court refused to find that the California Secure Choice Retirement Savings Investment Board, the state agency board that administers CalSavers, and the California Secure Choice Retirement Savings Trust, the trust that held the contributions, are “employers” because neither the Board nor the Trust acts directly or indirectly in the interest of an employer.
Lastly, the federal district court held that CalSavers does not “relate to” an ERISA plan because it does not interfere with nor apply additional requirements on any employer-sponsored or ERISA plans. It also does not mandate that an employer establish an employee benefit plan. Rather, CalSavers applies only when an employer does not sponsor its own retirement plan.
Judge Morrison previously dismissed the lawsuit in 2019 without prejudice, which allowed HJTA to refile. Last fall, the federal Department of Justice filed a “Statement of Interest” that supported HJTA’s stance that CalSavers was preempted by ERISA. Despite this support from the Department of Justice, the federal court disagreed.
It is not clear at this time if HJTA will appeal this decision.
Jackson Lewis will continue to monitor this matter. If you have questions about CalSavers or other ERISA issues, contact a Jackson Lewis attorney to discuss.