DOL backs off from CalSavers lawsuit, but damage may be done

The Department of Labor has ended its support for a lawsuit seeking to invalidate California’s auto-IRA program — but the step might be of little consequence.

Under the Trump administration, the DOL sided with the Howard Jarvis Taxpayers Association, which in 2018 sued CalSavers in an attempt to halt it. The conservative-leaving tax group has claimed that CalSavers is preempted by the Employee Retirement Income Security Act, an assertion with which the DOL agreed.

A U.S. district court judge was not compelled by that argument, ruling last March that CalSavers is not an ERISA plan. The tax group appealed that decision, and numerous outside parties, including the DOL, filed briefs supporting or opposing the case.

“After the change in administration, the acting secretary of Labor has reconsidered the matter and hereby notifies the court that he no longer wishes to participate as amicus in this case and that he does not support either side,” the Feb. 5 court filing read.

Given that the DOL already provided a detailed analysis about CalSavers falling under ERISA, that might not make much difference to the court.

“Obviously [it’s] a little disappointing, but not surprising, with the change in the administration,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association.

“They just indicated that they don’t want to be involved. Their analysis is already part of the record,” Coupal said.

If the plaintiff references the DOL’s analysis in future court hearings, it will have an ethical obligation to note that the regulator has since disassociated itself from the case, he said. However, the analysis the DOL provided in the earlier brief was thorough, and amicus briefs “can be very persuasive” in court, Coupal said.

CalSavers declined to comment, citing policy of not discussing ongoing litigation.

The DOL’s change “seems like a standard move when a new administration takes a different interpretation of policy,” Jason Roberts, CEO of the Pension Resource Institute, wrote in an email.

“The ship has sailed so to speak in terms of the arguments having already been presented to the court, but to the extent the court found it persuasive (e.g., given an agency’s bona fide concern for regulatory overlap or curtailment of its authority), its withdrawal should blunt such impact,” Roberts wrote.

In October, several states and organizations filed briefs in support of CalSavers, including Oregon and Illinois, both of which have auto-IRA programs similar to California’s that could be affected by the outcome of the case.

Many states have started developing such programs to address the widespread issue of a lack of retirement savings. The programs got states’ attention during the Obama administration, after the government failed to pass a federal auto-IRA initiative.

Last year, CalSavers began requiring employers with at least 100 workers to sign up. As of Tuesday, the program represented $38.3 million in assets among more than 109,000 funded accounts, according to figures from CalSavers. Including new accounts that have not been funded by their first payroll cycle, there are a total of about 274,000 participants.