One of California’s leading taxpayer advocacy groups filed a lawsuit on Thursday to prevent the state from opening a government-run financial savings program that is intended to help lower-income workers prepare for retirement.
The Howard Jarvis Taxpayers Association contends the so-called CalSavers plan violates a federal consumer protection law that sets standards for retirement plans offered by employers.
The advocacy group’s director, Jon Coupal, also argues the state is incapable of managing the program for the 6.8 million Californians who might benefit from it, pointing to the state’s two underfunded public pension systems as evidence that private-sector workers are better off finding their own retirement accounts.
“We see no need for another state program when there are readily available all kinds of programs for private-sector employees to go down the street to a financial services firm to open their IRAs,” he said.
Premium content for only $0.99
For the most comprehensive local coverage, subscribe today.
The California Public Employees' Retirement System and the California State Teachers' Retirement System, the state's two largest public pension funds, manage almost $600 billion and provide retirement benefits to almost 3 million public employees and retirees. They're considered underfunded because their assets are worth about 70 percent of what they owe in total to their members.
Gov. Jerry Brown signed a law in 2016 that allowed the state to offer a retirement savings plan to people whose employers do not provide pensions or 401(k) plans.
Since the recession, California leaders spent several years working with the Obama administration to create an exemption for the program in the Employee Retirement Income Security Act, which freed employers participating in the state program being subjected to the audits and controls of the federal law.
The exemption cleared a path for California and six other states to continue developing savings plans. Congress last year passed a law that negated the exemption.
"I can only wonder why states think they will be able to produce better results than the private retirement savings system, which has been an unqualified success,” Sen. Orrin Hatch, R-Utah, said at the time, according to CNN.
Advocates for California’s plan say they’re prepared to fight the lawsuit in court.
State Sen. Kevin de León, D-Los Angeles, who wrote the law creating the savings program, said the country is sitting on a “ticking time bomb” in the form of tens of millions of Americans who are unprepared for retirement. His law was aimed at helping them.
“Ultimately it begs the question is Howard Jarvis representing senior citizens and the taxpayers of California or are they representing Wall Street?” he said. “You still have a very serious public policy issue of people who have no access to any type of retirement security at their workplaces.”
The savings program is not yet open. The state Treasurer’s Office says it could begin enrolling workers as soon as next year. Treasurer John Chiang said he's confident the program can overcome the lawsuit.
Under de León’s law, employers would be required to enroll workers in the retirement plan unless they already offer a pension or 401(k) program. Employees could opt out of the state program.
The program would be overseen by a retirement savings board that would hire a private firm to manage a portfolio. The program might require a $100 million loan from the state government to get started, according to a budget request from Gov. Jerry Brown’s office.
"We remain undaunted, undistracted, and unwavering in our commitment to successfully launch a bold, innovative program which is being heralded as the most significant expansion of retirement security since the enactment of Social Security," Chiang said.
The taxpayers association filed the lawsuit in the U.S. District Court for Eastern California. Coupal said the organization wants a quick resolution so it can block the state from spending money on a new government department.