What is the status of the legal challenge to the CalSavers program? Do employers still need to register?
The Howard Jarvis Taxpayers Association (HJTA) and two of its employees filed an action against the CalSavers Retirement Savings Program (CalSavers) (HJTA v. Cal. Secure Choice (9th Cir. 20-15591)), alleging that the federal Employee Retirement Income Security Act (ERISA) preempts CalSavers.
The district court found that ERISA does not preempt the California law which creates CalSavers and dismissed the action. On May 6, 2021, the Ninth Circuit Court of Appeal agreed with the district court’s decision.
In its decision, the Ninth Circuit Court of Appeal reasoned that a state-run individual retirement account (IRA) program like CalSavers is not “established or maintained by an employer,” such that it would be preempted by ERISA. Employers did not create the CalSavers program, nor do they have any control over how it is operated.
CalSavers is a retirement savings program for private sector employees whose employers don’t offer a retirement program. More specifically, it gives employees the opportunity to defer their wages, through payroll deductions by the employer, to a state-managed IRA program.
Private sector employers with at least five California-based employees, at least one of whom is at least 18 years old, and don’t sponsor a “qualified retirement” plan, are required to register for CalSavers.
Qualified retirement plans include:
- 403(a) Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan.
- 408(k) Simplified Employee Pension (SEP) plans.
- 408(p) Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan.
- 401(a) Qualified Plan (including profit-sharing plans and defined benefit plans).
- 401(k) plans (including multiple employer plans or pooled employer plans).
- Payroll deduction IRAs with automatic enrollment.
California employers that are not exempt by way of providing a qualified retirement plan are required to register with CalSavers by certain deadlines, based on number of employees.
Employers with more than 100 employees had a registration deadline of September 30, 2020. Employers with more than 50 employees must register by June 30, 2021, and those with five or more employees must register by June 30, 2022.
Exempt employers may, but are not required to, inform the CalSavers Administrator of their exemption.
Within 30 days of registration, employers must provide CalSavers with certain contact and identifying information for eligible employees, and must also set up a “payroll deposit retirement savings arrangement,” through which employers can remit employees’ contributions to the CalSavers Trust.
After the employer registers, the CalSavers Administrator delivers to all eligible employees an information packet describing the program and giving employees 30 days to opt out.
The June 30, 2021 deadline for employers with more than 50 employees still stands.
Because the CalSavers program has been upheld, any employers that are not exempt and have more than 50 employees still must register by June 30, 2021.