Compliance October 20, 2021

Plaintiffs Ask Supreme Court to Take Up Case Against CalSavers

They say ERISA pre-empts the state-run retirement program, therefore invalidating it, but that argument has been previously rejected by both an appellate and a district court.

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Nearly six months after the 9th U.S. Circuit Court of Appeals rejected their lawsuit, the plaintiffs in an Employee Retirement Income Security Act (ERISA) pre-emption lawsuit have petitioned the U.S. Supreme Court to take up their case.

The lawsuit, filed by the Howard Jarvis Taxpayers Association, sought to block the CalSavers Retirement Savings Program on the grounds that the ERISA, a piece of federal legislation, pre-empts CalSavers, therefore invalidating the program. These claims were previously rejected by both the 9th Circuit and the District Court for the Eastern District of California.

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In its dismissal earlier this year, the appellate court found that ERISA does not pre-empt CalSavers in the way the plaintiffs suggest. In summary, the court’s logic was that CalSavers is not an ERISA plan because it is established and maintained by the state, not employers. Furthermore, it does not require employers to operate their own ERISA plans, and it does not have an impermissible reference to or connection with ERISA. Nor does CalSavers interfere with ERISA’s core purposes, the court ruled, concluding for all these reasons that ERISA does not pre-empt the California law.

As is the standard procedure in Supreme Court appeals, the appellants early in their petition offer a short and succinct summary of their legal question: “Considering California’s infamous record of mismanagement, corruption and the cavernous underfunding of its public employee retirement systems, is California permitted under federal law (ERISA) to now require private employers to automatically debit employee paychecks and surrender those earnings to the state to manage as ‘retirement savings,’ despite the state expressly disclaiming any fiduciary accountability, and despite Congress having exercised its authority under the Congressional Review Act to veto a Department of Labor [DOL] regulation that briefly carved out an ERISA safe harbor for such state-run automatic retirement savings plans?”

The last part of the question refers to actions the DOL took between 2015 and 2017. In short, the DOL under former President Barack Obama first crafted a rule that would provide a pathway for states like California to create retirement savings programs that would not be subject to all the normal rules and requirements put on private employers under ERISA. President Donald Trump’s administration later did away with this “safe harbor” rule.

The Howard Jarvis Taxpayers Association’s appeal to the Supreme Court includes various arguments to the effect that, once in state hands, participant employees’ money will not have the security that Congress intended.

“[Participant assets] will not be protected by any fiduciary duty or contractual liability, but will be at risk under a statute that expressly disclaims any responsibility for loss,” the appeal alleges.

The full text of the appeal is available here.

Data and Research October 20, 2021

Participants Missing the Full Match Remains a Big Problem

A new survey shows there are several reasons employees decide not to contribute to their retirement plans.

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Millions of Americans are not contributing enough to their workplace retirement plan to get the full company match, as a recent study found 12% of employed adults—or as many as 17.5 million working Americans—aren’t contributing enough.

According to a MagnifyMoney survey of 1,233 employed Americans, 59% say their employer offers a retirement saving plan, 34% say their employers do not and 7% did not know if a plan was offered. Those with higher annual household incomes are more likely to work in jobs with employer-sponsored retirement savings plans—78% among those with incomes of $100,000 or more, versus 41% among those with incomes below $35,000, according to the survey.

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Among those respondents whose employers offer plans, 83% say they are currently contributing to the plan, 12% have contributed to it in the past but aren’t doing so currently and 6% have never enrolled.

The survey found there are several reasons employees decide not to contribute to their retirement plans. Thirty-five percent of respondents say they could not afford to contribute to their plan—the top reason. Meanwhile, 17% say they forget to enroll and 12% are waiting until they are older.

Men are more likely than women to work for an employer that offers a retirement saving plan (64% versus 56%), and women were less likely than men to know if their employer offers matching funds (20% of women didn’t know versus 12% of men).

The survey also examined if those who were saving were accumulating enough to last through retirement. Just 20% of respondents said their retirement plan balances have reached $100,000 or more, with significantly more men (30%) than women (11%) in this category. Older generations were more likely to have higher balances in their retirement accounts, with 48% of Baby Boomers and 31% of Generation Xers having a balance of $100,000 or more, versus 9% of Generation Zers and Millennials.

“If your employer offers to match a certain amount of your retirement contributions, that’s a part of your total compensation package,” says Ismat Mangla, MagnifyMoney senior content director. “Matching contributions from your employer will help you save and invest more for retirement. If you don’t contribute enough money to get your employer match, you are literally leaving free money on the table.”

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