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Court Sides With CalSavers 'Work and Save' Retirement Savings Program

Ruling allows Californians without access to a workplace plan to build a nest egg

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A federal appeals court has upheld the law creating CalSavers, California's state-facilitated retirement savings program, a move that could encourage other states to open their own programs.

Nearly half of all private sector workers ages 18 to 64 work for businesses that do not offer a retirement plan, AARP research shows. AARP has long supported state-facilitated savings programs that enable those who work for small employers without their own plans to save for retirement.

Since CalSavers began in 2018, more than 10,000 companies have registered to give their employees an opportunity to enroll. In 2018, the nonprofit Howard Jarvis Taxpayers Association (HJTA) filed a suit to invalidate the program in the U.S. District Court for the Eastern District of California. HJTA argued that CalSavers violated the Employee Retirement Income Security Act of 1974 (ERISA), which governs pensions and retirement savings plans. The district court dismissed the case in 2020 and a federal appeals court affirmed the dismissal on May 6. AARP and AARP Foundation filed an amicus brief with several other organizations in support of CalSavers.

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"'Work and Save’ programs like CalSavers are some of the most important to help Americans without workplace retirement plans build savings and a more secure future,” AARP Executive Vice President and Chief Advocacy & Engagement Officer Nancy A. LeaMond said in a May 7 statement. “This will help millions — including those who work for themselves or small businesses — have access to retirement savings programs."

The three-person federal appeals panel consists of two judges appointed by former President Donald Trump and one appointed by former President Barack Obama. The judges ruled unanimously that CalSavers is not an ERISA plan because it's established and maintained by the state, and not employers. “AARP applauds today's decision to uphold CalSavers, which ensures nearly all Californians have access to workplace retirement savings programs,” LeaMond said.

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CalSavers is a completely voluntary retirement program for employees and is separate from the California Public Employees’ Retirement System (CalPERS), which manages the state's pensions. Savers can participate in CalSavers through their employer or on their own.

A growing movement

The court decision should give momentum to other Work and Save programs. More than 30 states are looking at Work and Save options or considering legislation to create one.

California, Oregon and Illinois have implemented Work and Save programs, with over $220 million in assets under management to date. Colorado, Connecticut, Maryland, New Jersey and Virginia have passed legislation to implement auto IRA Work and Save programs but have not launched yet, and New York, Washington State, New Mexico, Massachusetts and Vermont have passed variations of Work and Save programs.

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"CalSavers and similar programs around the country are key to helping Americans save for the future,” LeaMond said. “The average working-age household only has $2,500 in retirement savings and near-retirement households only have around $14,500. There is tremendous momentum building across the country to meet the needs of tens of millions of workers who want to save for retirement. Today's decision makes clear that states have the power to help their residents build strong retirement savings."

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John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner's USA Today investing column ran in dozens of newspapers for 25 years.

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