U.S. Contemplates Joining California Secure Choice Lawsuit

The lawsuit, alleging the act that created the program is preempted by ERISA, was filed less than a year after the Trump administration and Congress cancelled an ERISA safe harbor established by the Obama administration.

The United States is considering joining a lawsuit challenging the establishment of the California Secure Choice Retirement Savings Program.

The Howard Jarvis Taxpayers Association (HJTA) filed the complaint last year in the United States District Court for the Eastern District of California. The lawsuit alleges the act that created the Secure Choice program “violates the Supremacy Clause of the United States Constitution because it is expressly preempted by the Employee Retirement Income Security Act of 1974.”

A notice filed with the court and signed by Trial Attorney Christopher R. Healy with the U.S. Department of Justice says, “The United States may have an interest in providing its views with respect to that issue and is actively considering whether to participate.” The notice requests that the court defer ruling on the pending motion to dismiss in order to afford the United States an opportunity to complete the authorization process and determine whether to participate in the litigation.

The notice explains, “This approval process generally takes several weeks, but it can vary depending upon the Assistant Attorney General’s workload and availability. The United States is aware that Defendants’ motion to dismiss is fully briefed, and it intends to work expeditiously to complete the process of determining whether to participate in this lawsuit.”

According to its supporters, the California Secure Choice Retirement Savings Program is meant to provide a voluntary, low-risk, auto-enrollment retirement savings plan for many uncovered workers in the state who would otherwise have little opportunity to start saving in a constructive way. According to detractors, such as HJTA, the program will most likely prove to be an expensive experiment that does little to actually improve retirement savings adequacy in the state.

However, recent data shows OregonSaves, the first state-facilitated payroll deduction individual retirement account (IRA) program in the nation to launch, has demonstrated success by a number of measures. It reports more than seven in 10 workers have elected to stay in the program; workers are saving at a higher percentage of pay than anticipated (an average of $117 per month); and so far, $25 million has been saved by workers who were not saving before.

In addition, Kasey Krifka, engagement director of the Oregon Savings Network, with the Oregon State Treasury, tells PLANSPONSOR that OregonSaves became self-sustaining in July 2019, years sooner than initially planned, which means the state of Oregon and the people of Oregon are benefiting from an important program at less cost than initially projected, and with no additional loans or general fund support.

The HJTA filed its compliant less than a year after the Trump administration and Congress cancelled an ERISA safe harbor established by the Obama administration, which was meant to prevent this very preemption issue. By issuing a new final rule, “Definition of Employee Pension Benefit Plan Under ERISA,” the Department of Labor’s Employee Benefit Security Administration (EBSA) removed its final rule regarding the Employee Retirement Income Security Act (ERISA) safe harbor of government-run plans for private-sector workers from the Code of Federal Regulations.

The notice filed in the California Secure Choice litigation says the United States will update the court on the status of its consideration to participate in the lawsuit by August 30.