Court Challenge to State-Sponsored Retirement Plans Fails

CalSavers

Image credit/Copyright: BigStock: rarrarorro

A challenge to the California Secure Choice Retirement Savings Program (CalSavers) by a taxpayer advocacy association failed last week when the United States Court of Appeals for the Ninth Circuit found that CalSavers is not an ERISA plan.

The ruling in the case, brought by Howard Jarvis Taxpayers Association, is expected to make it easier for other states to establish their own plans.

CalSavers is available to California workers whose employers don’t offer a workplace retirement plan, self-employed individuals, and others who want to save extra. Savers contribute to an Individual Retirement Account (IRA) that belongs to them.

Eligible employees are automatically enrolled in CalSavers but may opt out, Circuit Judge Daniel Bress wrote in the opinion. If they do not, their employer must remit certain payroll deductions to CalSavers, which funds the employees’ IRAs.

“California manages and administers the IRAs and acts as the program fiduciary. Citing a need to encourage greater savings among future retirees, other States have enacted similar state-managed IRA programs in recent years,” he added. “California manages and administers the IRAs and acts as the program fiduciary. Citing a need to encourage greater savings among future retirees, other States have enacted similar state-managed IRA programs in recent years.”

The court noted that to its knowledge, it’s the first case challenging a state-sponsored program on ERISA preemption grounds.

Court opinion

“We hold that the preemption challenge fails,” Bress wrote, listing the following reasons:

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