The US Department of Justice agrees: CalSavers is illegal

Anyone paying attention to California politics knows that our public pension funds are in big trouble. Notwithstanding a vibrant economy, both the California Public Employee Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) are tens of billions of dollars in debt.

Unfunded liability, a fancy name for that debt, is not the only problem with publicly administered pension funds. Malfeasance and poor governance have plagued these funds for decades.

Given these problems, why would California choose to intrude itself into private employee pensions? But it has. Three years ago, California launched the CalSavers program. On the surface, it appeared harmless enough: an opt-out program — at least for now — that would enroll private-sector employees who don’t have a retirement plan into a state-run retirement savings account.

Beyond the wisdom of creating a new state-run pension system is an insurmountable legal problem: federal law controls private employment-based retirement savings. Such plans are exclusively governed by the Employee Retirement Income Security Act of 1974 (ERISA).

With the knowledge that programs like CalSavers were pre-empted by ERISA, states that wanted to adopt their own private employee retirement programs hit a roadblock. So they sought — and received — a regulatory interpretation from the Obama administration which, the states argued, granted them an exception from ERISA.

Forgetting for the moment the issue of whether that federal regulation was even legal (a recurring problem for President Obama’s regulatory efforts), it was rescinded shortly after President Trump took office. That stripped CalSavers of its only fig leaf of legal justification.

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