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  #101  
Old 08-12-2019, 03:07 PM
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https://www.pionline.com/courts/feds...savers-lawsuit

Quote:
Feds mulling involvement in CalSavers lawsuit
Spoiler:
The federal government is considering whether it will get involved in a case before a U.S. District Court in California that challenges the CalSavers retirement program.
In an Aug. 2 filing, the Department of Justice said it "may have an interest in providing its views" on whether the Employee Retirement Income Security Act preempts the California Secure Choice Act, which established the CalSavers program. The agency did not indicate which side it might take in the case but did ask the court to hold off on deciding whether the case should be dismissed.
The CalSavers program, which officially launched July 1, is a defined contribution plan for private-sector workers in California who do not have access to a retirement plan sponsored by their employers. It is required for all California employers with five or more employees that don't already offer a retirement program, covering an estimated 7.5 million people.
In 2018, the Howard Jarvis Taxpayers Association filed a lawsuit alleging that ERISA preempts the California law. The taxpayer association had sought a permanent injunction banning the program and its board from spending taxpayer money on the CalSavers program.

In a March 28 decision, U.S. District Judge Morrison C. England Jr. dismissed the lawsuit. In his opinion, he wrote that eligible employers "are required to adhere to the administrative requirements of CalSavers, but because the program only applies to employers without existing retirement plans, no ERISA plans are 'governed' or 'interfered' with because of the statute."
"Finding that ERISA preempts CalSavers would be out-of-step with the underlying purposes of the act," the opinion said. "CalSavers does not govern a central matter of an ERISA plan's administration, nor does it interfere with nationally uniform plan administration."
But the court gave the taxpayers association an opportunity to amend its complaint, which it did in April.
CalSavers has asked the court to dismiss the revised complaint and, in a filing Monday, took issue with the federal government asking the court to hold off on reaching a decision. "The United States, which has not decided whether to participate in this case, has not attempted to make the showing required to obtain a stay," the filing stated. "Nor could it."
Laura E. Dougherty, an attorney for the Howard Jarvis Taxpayers Association, in an email pointed to a Department of Labor safe harbor that was used to create CalSavers and similar state programs that was repealed by Congress in 2017. "The United States has a clear interest in determining if that repeal has meaning," she said. "It is better for all if the U.S. speaks sooner than later."
The process for federal government deciding whether to participate involves coordination among multiple agencies and the approval of the DOJ through the assistant attorney general for the civil division, according to the DOJ filing. "This approval process generally takes several weeks, but it can vary depending upon the assistant attorney general's workload and availability," the filing stated. "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."
The federal government will update the court on the status of its consideration by Aug. 30, according to the filing.

https://crain-platform-cpi-prod.s3.a...0Complaint.pdf

https://crain-platform-cpi-prod.s3.a...%20Aug%202.pdf
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  #102  
Old 09-15-2019, 06:53 PM
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https://www.hjta.org/press-releases/...am-is-illegal/

Quote:
(PR): UNITED STATES DEPARTMENT OF JUSTICE AGREES THAT CALSAVERS PROGRAM IS ILLEGAL
Spoiler:
Today (13) the United States Department of Justice filed a “Statement of Interest” in the U.S. District Court agreeing with the Howard Jarvis Taxpayers Association (HJTA) in its legal action against California’s so-called “CalSavers” program. Originally called “Secure Choice,” CalSavers is a state-run retirement plan for private-sector employees. HJTA contends that it is an illegal program that leaves taxpayers, businesses and private sector employees exposed to unnecessary costs and risks.

“We are very pleased that the United States Department of Justice agrees with our core position that the program is facially invalid under the federal Employee Retirement Income Security Act (ERISA).” said HJTA president Jon Coupal.

He added, “There is no need for this program. Private employees already have access to Social Security which is backed by the Full Faith and Credit of the federal government. Moreover, individual retirement accounts (IRAs) are easy to set up. Given the poor performance of CalPERS and CalSTRS, both in terms of investment performance and governance, why would we give state politicians and bureaucrats access to another pension program?”

The case is currently pending in the United States District Court for the Eastern District of California.


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  #103  
Old 09-18-2019, 06:12 PM
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CALIFORNIA
https://www.wsj.com/articles/justice...an-11568811601

Quote:
Justice Department Backs Legal Effort Against New California Retirement Plan
CalSavers violates the federal law that governs 401(k)-style plans, the department said in a brief filed in federal court
Spoiler:

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  #104  
Old 09-19-2019, 04:37 PM
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https://www.napa-net.org/news-info/d...reempted-erisa


Quote:
Feds Say CalSavers Program Preempted by ERISA
Spoiler:
A lawsuit challenging California’s auto-IRA program for private sector workers just got the backing of the federal government.

Last month the Department of Justice asked a federal court to hold off ruling on a suit challenging California’s auto-IRA program for private sector workers.

The Case at Hand

The suit in question was a challenge by the Howard Jarvis Taxpayers Association, claiming that the California Secure Choice Retirement Savings Trust Act – which establishes the CalSavers auto-IRA program for private sector workers “violates the Supremacy Clause of the United States Constitution because it is expressly preempted by the Employee Retirement Income Security Act of 1974….” The suit was originally filed in June 2018 in the U.S. District Court for the Eastern District of California.

In April 2019, Judge U.S. District Judge Morrison C. England Jr. acknowledged that the case “presents novel legal questions concerning state-mandated retirement savings accounts” and “implicates a significant body of judicial and regulatory interpretations of ERISA,” but concluded that “finding that ERISA preempts CalSavers would be out-of-step with the underlying purposes of the Act. CalSavers does not govern a central matter of an ERISA plan’s administration, nor does it interfere with nationally uniform plan administration. On this basis, the Court finds that CalSavers is not preempted by ERISA.” He did, however, give the plaintiffs “one final leave to amend,” noting the “importance of this case” – an opening of which they recently took advantage.

Federal ‘Case’

In the Sept. 13 filing (Howard Jarvis Taxpayers Assoc. v. Cal. Secure Choice Retirement Savings Program, E.D. Cal., No. 2:18-cv-01584-MCE-KJN, statement of interest of the United States 9/13/19), the DOJ notes that “the United States has a heightened interest in finding the Secure Choice Act preempted because the Act is among the first of a number of similar state auto-individual retirement account (IRA) laws to be challenged.”

The government’s filing states that the California Secure Choice Retirement Savings Trust Act “…takes away the freedom of choice that lies at the core of ERISA by forcing employers either to establish their own ERISA plan or to maintain an equivalent plan under the Act,” and that “in taking away this choice, the Secure Choice Act disregards Congress’s careful determination that employers should not be required to maintain employee pension benefit plans. 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.”

Moreover, the DOJ characterized the fact that the Act “forces California employers who do not offer the State’s preferred types of ERISA plans (certain tax-favored employer-sponsored retirement programs and automatic enrollment IRAs) to adopt equivalent automatic-enrollment IRAs through CalSavers” as a “heads-I-win-tails-you-lose” state regulation that “cannot survive under the Court’s ‘reference to’ jurisprudence.”

The DOJ called out the Golden State for “singling out” employers who decline to sponsor the state’s preferred ERISA plans, forcing them to enroll their workers in plans that function just like the plans they have chosen not to offer. “A state law may not reference ERISA plans in order to trigger ERISA-equivalent coverage. Because the Secure Choice Act does exactly that, this Court should determine that the law is preempted on that basis,” according to the filing.

Going on to note that “If the identical functions of the CalSavers Board were instead performed by a third party administrator and investment manager voluntarily hired by an employer plan sponsor, this arrangement clearly would fall within the scope of ERISA,” the filing goes on to explain that “by requiring employers to deduct contributions from eligible employees’ wages on an ongoing basis, and to forward the contributions for deposit into IRAs established for each enrolled employee, the Secure Choice Act requires the employers to maintain an employer-based program providing “retirement income to employees” or resulting “in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” And that, they note means that it “requires the covered employers to maintain 'ongoing administrative programs' to pay employee benefits.”

‘Ministerial’ Matters

The DOJ pushed back on the notion that the role of employers in the CalSavers program is “purely ministerial” since, as one example, they “must still make ongoing determinations as to which employees are 'eligible employees,'” and that these initial eligibility determinations would necessarily be made by the employer. “The fact that employers do not voluntarily create these ERISA plans does not alter the conclusion that they are still ‘employers’ as defined by ERISA who ‘maintain’ the plan, notwithstanding any attempt by state law to redefine the role of employers,” the DOJ observes.

As for the notion that the CalSavers program met the requirements of a 2015 Labor Department fact sheet, the DOJ stated that that safe harbor regulation “provides that ERISA does not cover a payroll-deduction IRA arrangement otherwise covered by ERISA so long as four conditions are met: (1) the employer makes no contributions; (2) employee participation is “completely voluntary”; (3) the employer does not endorse the program and acts as a mere facilitator of a relationship between the IRA vendor and employees; and (4) the employer receives no consideration except for its own expenses” – but that since, in its assessment “CalSavers’ automatic-enrollment IRAs are not 'completely voluntary,' they are not exempt from ERISA within the 1975 IRA Safe Harbor.”

Ultimately, the DOJ concludes that since California’s Secure Choice Act requires employers who do not have ERISA plans to maintain ERISA-covered plans, it “also controls the benefits, design, and administration of the mandated plan,” and in so doing, “interferes with nationally uniform plan administration by potentially subjecting multi-state employers to numerous disparate retirement plan laws.”

‘Patchwork’ Position

And then – echoing the concern that has been raised by others amidst the emergence of state (and municipal) programs across the nation, the DOJ notes that “a decision by this Court to allow the Secure Choice Act to survive would allow for the creation of a patchwork of different state laws regulating the provision of retirement benefits to employees.” A danger, the DOJ writes, is “exacerbated because the Act applies to employers to the extent they do business in California regardless of where the company is headquartered or specific employees are located,” explaining that “a multi-state employer would not only have to keep track of payroll deductions, rates, and eligibility for CalSavers, but also for myriad other states’ automatic-enrollment IRA programs.” The DOJ notes that this result is “exactly the kind of disuniformity that ERISA 514(a) was designed to avoid.”

Referencing CalSavers attempt to dismiss the Jarvis plaintiffs’ amended filing, the DOJ ends noting, “Because the CalSavers Act is preempted by ERISA, this Court should deny Defendant’s motion to dismiss Plaintiff’s First Amended Complaint,” the filing concludes.

What This Means

Technically, this response only speaks to the issue as to whether the plaintiffs’ argument that the law that gave life to the CalSavers program is preempted by ERISA will continue to trial – and one might well expect the court to accord the federal government deference on this issue.

Then again…

Stay tuned.
https://www.plansponsor.com/u-s-argu...-court-filing/
Quote:
U.S. Argues for CalSavers ERISA Preemption in Court Filing
U.S. Attorneys have filed a Statement of the Interest of the United States in a lawsuit, offering evidence that the state-run auto-IRA program is preempted.


Spoiler:

California’s has joined other states in actually launching an automatic IRA program, but before the program was launched, a lawsuit was filed saying the program is preempted by the Employee Retirement Income Security Act (ERISA).

U.S. Attorneys have filed a Statement of Interest of the United States in the case, offering evidence that the state-run auto-IRA program is preempted.

The document notes that the Employee Retirement Income Security Act (ERISA) is a “comprehensive and reticulated statute” reflecting Congress’s careful policy choices. Among those choices is Congress’s intentional decision to give employers the freedom to choose whether to establish a retirement plan.

“Nothing in ERISA,” the Supreme Court has observed, “requires employers to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan,” the statement says, citing Lockheed Corp. v. Spink. “Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place,” it says, citing Conkright v. Frommert.

The attorneys argue that the California Secure Choice Retirement Savings Trust Act takes away the freedom of choice that lies at the core of ERISA by forcing employers either to establish their own ERISA plan or to maintain an equivalent plan under the Act. “In taking away this choice, the Secure Choice Act disregards Congress’s careful determination that employers should not be required to maintain employee pension benefit plans. 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 attorneys say.

Employers are exempt from participating in the state auto-IRA program if they offer an “employer-sponsored retirement plan” or an “automatic enrollment payroll deduction IRA” that qualifies for “favorable income tax treatment under the federal Internal Revenue Code.” The Secure Choice Act specifically provides that the CalSavers Board shall not implement the program “if it is determined that the program is an employee benefit plan under the federal Employee Retirement Income Security Act.”

The U.S. Attorneys argue that this runs afoul of ERISA Section 514(a), which provides that ERISA supersedes any state laws that “relate to any employee benefit plan.” They note that the Supreme Court has identified two separate threads of ERISA preemption—“reference to” preemption and “connection with” preemption.

Under the “reference to” inquiry, the Supreme Court has held preempted a law that “impos[ed] requirements by reference to [ERISA] covered programs.” The attorneys say CalSavers falls squarely in the category of cases holding state laws preempted because of their improper reference to ERISA plans. They note that ERISA plans are essential to the operation of the Secure Choice Act’s regulatory framework—the Act forces California employers who do not offer the State’s preferred types of ERISA plans (certain tax-favored employer-sponsored retirement programs and automatic enrollment IRAs) to adopt equivalent automatic-enrollment IRAs through CalSavers. Under the Secure Choice Act, California singles-out employers who decline to sponsor the state’s preferred ERISA plans, forcing them to enroll their workers in plans that function just like the plans they have chosen not to offer.

“A state law may not reference ERISA plans in order to trigger ERISA-equivalent coverage. Because the Secure Choice Act does exactly that, this Court should determine that the law is preempted on that basis,” the statement says.

The attorneys argue that the Secure Choice Act is alternatively preempted because an employer’s ongoing maintenance of CalSavers Plans makes them ERISA-covered plans.

They note that ERISA defines a “pension benefit plan” as “any plan, fund, or program . . . established or maintained by an employer. . . to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program—(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” The attorneys’ statement points out that the “intended benefits” are the retirement income from tax-deferred contributions provided by the IRAs required by the Act, the “beneficiaries” are the employees whose wages are withheld, the “source of financing” is the automatic payroll deductions, and the “procedures for receiving benefits” are those provided through the IRA product. “If the identical functions of the CalSavers Board were instead performed by a third party administrator (TPA) and investment manager voluntarily hired by an employer plan sponsor, this arrangement clearly would fall within the scope of ERISA,” the statement says.

The attorneys content that by requiring employers to deduct contributions from eligible employees’ wages on an ongoing basis, and to forward the contributions for deposit into IRAs established for each enrolled employee, the Secure Choice Act requires the employers to maintain an employer-based program providing “retirement income to employees” or resulting “in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” The defendants in the suit, however, argue that these are just ministerial duties.

But, the U.S. Attorneys point to case precedent which found that an employer’s need to make eligibility determinations can be sufficient to establish or maintain an ERISA-covered plan. They note that employers subject to the Act must make ongoing determinations regarding their eligibility, the eligibility of employees, and the associated contribution rate. For example, employers must monitor whether any particular employee is or becomes exempt by virtue of the fact that he or she is “engaged in interstate commerce” or whether the employee is or becomes exempt because contributions are required on that employee’s behalf to a multiemployer plan pursuant to a collective bargaining agreement.

“In sum, each private employer that participates in the CalSavers program maintains an employee pension benefit plan covered by ERISA, regardless of the role of the state mandate in creating the withholding arrangements,” the statement says.

The attorneys note that the U.S. District Court for the Eastern District of California previously ruled that “CalSavers does not govern a central matter of an ERISA plan’s administration, nor does it interfere with nationally uniform plan administration.” But they argue that the Act interferes with nationally uniform plan administration by potentially subjecting multi-state employers to numerous disparate retirement plan laws. “In that regard, a decision by this Court to allow the Secure Choice Act to survive would allow for the creation of a patchwork of different state laws regulating the provision of retirement benefits to employees. This danger is exacerbated because the Act applies to employers to the extent they do business in California regardless of where the company is headquartered or specific employees are located. A multi-state employer would not only have to keep track of payroll deductions, rates, and eligibility for CalSavers, but also for myriad other states’ automatic-enrollment IRA programs,” the statement says. “This is exactly the kind of disuniformity that ERISA Section 514(a) was designed to avoid.”
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  #105  
Old 09-26-2019, 03:41 PM
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NEW YORK

https://www.thinkadvisor.com/2019/09...&utm_term=tadv

Quote:
New York City Mayor Floats Auto-IRA for Workers
But the Justice Department is already challenging a similar plan in California.
Spoiler:
Retirement Security for All, as the initiative is called, is part of Mayor Bill de Blasio’s push for workers’ protection and benefits.

The mayoral-led initiative builds upon efforts in previous years through bills that would empower a new retirement savings board to offer individual retirement accounts for New York City businesses with 10 or more employees.

The initiative would apply to private-sector workers, a “staggering 60%” of whom have no access to a retirement plan, according to a statement from New York State Attorney General Letitia James.

An AARP representative said Monday at a media briefing heralding the legislation that there are “over 2 million people that will be covered by this law.”

The mayor’s office maintains that 40% of New Yorkers between the ages of 50 and 64 have less than $10,000 saved for retirement.

The features of the proposal consist of an IRA that would have automatic enrollment for firms that don’t already have one.

Retirement Security for All would also contain an opt-out component for employees as well as an ability to change their contribution rates, according to the proposal.

Also, the IRAs would be portable — the payroll deduction pretax savings accounts would travel with the employee from job to job.

The enrollment would cover part-time workers of 20 hours a week or more and full-time workers.

The mayor’s office envisions the retirement board managing the program to launch by the end of 2021.

The proponents of the proposed retirement plan use the example of an employee with a salary of $50,850, the median salary in the city, who invests 5% a year at a 4% return. He or she will have accumulated $146,274 in savings after 30 years, they claim.

“This innovative program will make NYC the first city in the country to provide this benefit to businesses and their employees. This plan will give hope to workers whose retirement plan is now ‘work ‘til I die,’” stated John Adler, director of the Office of Pensions and Investments and chief pension investment advisor for the mayor in a statement touting the proposal.

However, while the proposal has received a warm welcome, it has not become law.

De Blasio made a similar announcement in February 2016, working with then-Public Advocate James, who first introduced a bill in 2015 to create a retirement board charged with creating a retirement security proposal.

The bills currently under consideration, dating from 2017, would not cost employers anything, according to a statement from James.

The life insurance industry is not clamoring to embrace the bill; representatives from trade associations did not comment or said they were still reviewing it.

The industry has been skeptical in the past of state-run plans, and there are also concerns that the federal government said it might challenge the California CalSavers Retirement Savings Program for private-sector workers because it is not compliant with ERISA’s consumer protections.

Although a U.S. District judge found that CalSavers was not pre-empted by ERISA, the U.S. Department of Justice is weighing in before a final ruling on the case, according to news and industry association reports.

DOJ filed a statement of interest in the case on Sept. 13.

The DOJ is seeking a “correct and uniform interpretation of the extent of ERISA preemption” in “promoting the voluntary establishment of employer-sponsored retirement plans with nationally uniform standards of administration,” the filing declared.
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  #106  
Old 10-02-2019, 04:20 PM
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ILLINOIS

https://www.dhbusinessledger.com/bus...nt-savings-law

Quote:
Small businesses prepare for state’s new retirement savings law

Spoiler:
Small businesses in Illinois face a deadline to implement a new state initiative that advocates hope will help workers save for retirement.

The Illinois Secure Choice Retirement Savings Program requires that Illinois businesses with at least 25 workers automatically enroll their employees in a state-sponsored retirement savings program, if they do not provide a qualified savings plan of their own.

Mark Grant, Illinois director of the National Federation of Independent Business, said workers and employers both need to be aware of what's happening with Secure Choice.

"It's an automatic opt-in, so that's a bit of a burden on the employer," Grant said. "For all those employees who don't opt-out, businesses are going to have to arrange for an automatic deduction out of their paycheck."

The initiative mandates that employers withhold 5 percent of a worker's pay to be placed in a retirement account. There is a requirement that business owners alert workers to the changes, but Grant said it still could create unneeded friction in the workplace.

"There will be employees for whom this will be a surprise," Grant said. "And they're going to wonder why their employer is taking another 5 percent out of their paycheck. I think there's going to be some problems with many employers getting some blowback from employees who may not be aware they have to opt-out."

The NFIB opposed the new law because of the burden it placed on small business and the myriad alternatives available in the private sector. Grant said retirement saving is a good thing, but it's not always practical for workers.

"A lot of low-wage workers don't do that because they don't have the income to do it," he said.

By the end of October, employers with between 25 and 99 employees who don't already offer a savings plan must register for the state program.

"That deadline is coming up and employers need to go online and take a look and see if they need to register so they can avoid any potential problems in the next week or so," Grant said.

Employers who do not comply with the Secure Choice Savings Program Act may be subject to penalties, beginning with a $250 fine for each employee who neither was enrolled in the program nor had elected to opt out of participation.


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  #107  
Old 10-08-2019, 07:20 PM
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CALIFORNIA

https://www.ocregister.com/2019/09/2...alsavers-plan/
Quote:
Feds wise to challenge wasteful Calsavers plan

Spoiler:
California has dug a deep hole with the public pension plans that provide taxpayer-backed retirements for government employees. Instead of focusing on reforming those debt-ridden and underfunded systems, state officials instead created a new program, now known as Calsavers, which sticks its nose into the private sector.

Calsavers went into effect in July to help private workers save for their Golden Years. Most private-sector workers should save more for retirement, but this program will do little to realize that goal. In the meantime, it imposes new costs and red tape for businesses. Any company with at least five employees will, within two years, be required to offer a 401(k) program or participate in this state-run version.

Fortunately, the Trump administration has weighed in this month on behalf of a Howard Jarvis Taxpayers Association legal challenge to Calsavers. We generally oppose federal involvement in state matters – even when our state embraces bad policies – but there is a legitimate federal role in challenging Calsavers under the federal Employee Retirement Income Security Act, or ERISA.

“ERISA sets forth uniform qualifications for private retirement savings plans, and uniform standards for transferring accounts, processing claims and disbursing benefits,” according to the taxpayer group’s legal director. The group says Calsavers doesn’t meet those standards by leaving employees subject to unnecessary costs and risks, given that there is no federal guarantee for any losses.




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Calsavers isn’t like a pension fund that imposes unfunded liabilities on taxpayers, but it could leave taxpayers on the hook in some scenarios. Other states are passing similar programs, so the administration’s effort could have nationwide implications.

As the Trump administration’s U.S. District Court filing explains, “Because CalSavers, unlike ERISA, forces (rather than encourages) employers to have an ERISA-covered pension plan … it conflicts with ERISA.” Furthermore, the federal statute pre-empts Calsavers because it has “its own administrative regime, fiduciary obligations, reporting procedures, and enforcement mechanisms … .”

Gov. Gavin Newsom accused the administration of waging “war against commonsense laws and policies” and of threatening “the retirement security of millions of low-income California workers.” Such hyperbole is at odds with the reality of Calsavers, which will provide only a small amount of savings for California’s private workers.

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We’ll see how the legal challenge unfolds, but there are myriad other problems with Calsavers. Private workers already have many options for saving for retirement. Creating a state-run program that handpicks the investment-fund choices will encourage companies that already offer plans to shift their workers to the state-run program. That could crowd out private retirement investment choices.
As we explained in a June editorial, this idea emerged in 2011 when California was in the midst of a budget crisis, which was driven in part by ballooning pension liabilities. Public sector unions and their political allies feared a public backlash against their generous pensions. So they proposed giving the state’s private workers some benefits to head off efforts to trim government pension deals.


Although the fledgling Calsavers is far different than the behemoth public-pension systems, it still is wasteful and redundant. We agree with HJTA President Jon Coupal, who asks, “Why would we give state politicians and bureaucrats access to another pension program?” The state should fix its own pension plans and leave private workers and businesses alone.
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  #108  
Old 11-25-2019, 04:14 PM
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https://thehill.com/homenews/state-w...rement-savings

Quote:
States embrace nudge theory to promote retirement savings

Spoiler:
A new government program that takes money out of people’s paychecks is gaining interest in state legislatures across the country — in part because it is wildly popular with voters.

Oregon, Illinois and California have launched initiatives to create retirement savings accounts for residents whose employers do not offer company-sponsored programs. In those states, tens of thousands of workers have saved more than $40 million for their own retirements.

The programs automatically divert 5 percent of an employee’s paycheck into a retirement account with a few basic investing options. Employees have the option to set a different savings level, or to opt out entirely, without penalties.

The new programs are meant to address a growing percentage of Americans who are not prepared for retirement.

About a third of households headed by those over the age of 55 have no savings, according to Federal Reserve data.

Another Fed study found 61 percent of Americans would be able to cover a $400 emergency expense with cash, but the other 39 percent would be forced to borrow money from relatives or carry a balance on a credit card to meet that expense.

“About half the people who are working in the country and in Oregon too don’t have any way to save for retirement. They’re totally on their own,” said Tobias Read (D), the Oregon state treasurer who runs his state’s program, OregonSaves. “How do we put the power of compound interest to work for people?”

To spur more savings, the new programs rely on behavioral science research pioneered by Richard Thaler, the Nobel Prize–winning University of Chicago economist, and Cass Sunstein, a University of Chicago legal scholar, whose work led to an approach to public policy known as the nudge theory.

That theory relies on subtle social cues meant to influence behavior.

Two other economists, David John — then at the conservative Heritage Foundation — and Mark Iwry at the progressive Brookings Institution, applied that theory to propose an automatic individual retirement account, a plan both then-Sens. Barack Obama (D-Ill.) and John McCain (R-Ariz.) endorsed in 2008 while they were running for president.

The nudge comes in the default setting: Workers are much more likely to begin and continue saving if they are automatically opted into the program, rather than if they have to take affirmative steps to join.

“States that have taken a leadership role in setting up these retirement savings programs understanding that most people haven’t saved very much,” said Angela Antonelli, who runs the Center for Retirement Initiatives at Georgetown University.

Workers “have been hungering for this kind of opportunity, for someone to make it just that much easier for them, given everything else they have going on in their lives, to save for retirement,” she added.

Some financial services firms opposed the initial legislation in the three pilot states. Those groups argued that the government was getting too involved in what should be handled by private business.

Asked about the government-run opt-out programs, a spokesman for Fidelity said the company favored a different approach.

“Fidelity appreciates policymakers’ interest in improving retirement coverage and increasing retirement savings,” said Eric Sandwen, a Fidelity spokesman. “We believe the best approach to address the retirement coverage gap is to make enhancements to the existing private retirement system.”

Sandwen urged Congress to pass legislation sponsored by House Ways and Means Committee Chairman Richard Neal (D-Mass.) that would expand multiple employer plans. That bill passed the House with 417 votes; it has stalled in the Senate.

But Read said opposition in Oregon was fading as financial services companies begin to see those new savers as potential customers down the road.

“To try to serve a high number of low-balance accounts is not profitable. So that is something government should be doing, in my opinion, getting people started,” he said. “In the long run, we’re growing their future customers. What we have in our program is super basic, and if we succeed, it’ll be great and people will have enough in their accounts to become dissatisfied with the limited options that we have. And it’s their IRA, they can roll it over and do something else with it.”

In Oregon, the first state to begin implementing its automatic IRA program, more than 54,000 accounts have been created.

Those owners have saved a collective $36 million so far, Read said. In Illinois, about 24,000 private sector workers saved $5 million by the beginning of September through Illinois Secure Choice.

California’s CalSavers had enrolled about 2,200 residents in the first three months, the last time the state reported data.

The investment options in each case are basic. In Oregon, the first $1,000 invested goes into a low-yield, low-risk capital preservation fund. Residents can opt to invest in an S&P 500 index fund or in target date funds that adjust investment risk levels based on when someone plans to retire.

But the results are proving popular among Oregon voters. A poll conducted in Oregon for the AARP found 82 percent of state residents support the idea of an automatic savings plan.

About a dozen other states are either studying their own version of the automatic retirement plans or moving to implement pilot programs, Antonelli said.

They range from states led by conservative legislatures like Idaho, Wisconsin and North Carolina to bluer states like New York, Maryland and Connecticut. Seattle has already implemented a similar program, and New York City is considering its own version.

The states themselves see benefits to a workforce that is better prepared for retirement. The more someone saves, the less likely they are to rely on government services, Antonelli said.

“The state is just making it much easier to connect the worker to the IRA,” she said. “The consequences for state budgets as well as the national budget in terms of safety net services are enormous.”

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