CalSavers will ultimately require all employers that don't sponsor a retirement plan and have five or more employees to enroll workers in the state-administered Roth IRAs by June 30, 2022, (Image: Shutterstock)
CalSavers, California's automatic IRA program for employers that do not sponsor a workplace retirement plan, has survived its latest and final challenge in a federal district court in that state.
In 2018, the Howard Jarvis Taxpayers Association, a California-based non-profit that advocates for fiscal restraint, filed suit against CalSavers, alleging the state plan is an employee benefits plan and is preempted by the Employee Retirement Income Security Act, a federal law.
CalSavers will ultimately require all employers that don't sponsor a retirement plan and have five or more employees to enroll workers in the state-administered Roth IRAs by June 30, 2022, when a phased rollout of the program is completed.
Under the program, employers are not allowed to make contributions, and eligible workers are automatically enrolled in the savings plans. Once automatically enrolled, employees can opt out.
That design feature—automatic enrollment—is at the core of the complaint. An ERISA safe harbor says workplace IRA plans are not employee benefit plans under the law, so long as participation is completely voluntary.
Tuesday's decision in the U.S. Court for the Eastern District of California was its second to uphold CalSavers. It previously granted CalSavers motion to dismiss the case, but allowed Howard Jarvis Taxpayers Association to amend its complaint.
Last year, the Justice Department intervened, requesting the court to delay its ruling. Justice ultimately filed a brief in favor of HJTA.
"Because the Secure Choice Act disregards and runs afoul of ERISA's statutory scheme by effectively requiring employers to maintain such plans, it is preempted by ERISA's broad, express preemption provision that disallows any state laws that 'relate to any employee benefit plan'," the Justice Department argued in its brief.
The Justice Department argued that CalSavers automatic enrollment provision fails ERISA's safe harbor, and it therefore constitutes an employee benefit plan, which is preempted by ERISA.
But the District Court found differently.
"The role of actual employers in CalSavers is limited to providing a roster of eligible employees, providing contact information of eligible employees, making payroll deductions, and remitting such deductions," wrote Judge Morrison England.
"Such ministerial duties do not rise to the level of an employee benefit plan established or maintained by actual employers," added Judge England.
HJTA did not respond to an inquiry as to its plan to appeal the decision.
"We are very pleased with the Court's ruling," said California State Treasurer Fiona Ma, whose office oversees CalSavers, said in a statement.
"CalSavers is pioneering and building momentum. Workers without access to a savings program at work are eager to start saving. 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," added Ma.
So far, CalSavers has enrolled more than 1,500 employers. Employers with more than 100 employees that do not sponsor a retirement plan are required to enroll workers by June 30, 2020.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
