SACRAMENTO, Calif. — California’s treasurer and top Senate leader said Thursday they’re going forward with a plan to automatically enroll private-sector workers in retirement savings accounts even after President Donald Trump signed legislation revoking a legal safe haven for the program.
Senate President Pro Tem Kevin de Leon and Treasurer John Chiang said they believe the program can withstand lawsuits even without the blessing of the U.S. Department of Labor.
But continuing without the federal guidance will require legislative approval.
“I am convinced that while Congress has dealt us a setback, it is not enough to push our coalition off the moral and legal high ground that we hold firmly,” Chiang said during a news conference at the state Capitol.
De Leon wrote legislation signed into law last year creating the state-run “Secure Choice” retirement program to automatically enroll most of the nearly 7 million California workers without access to an employer-sponsored savings program. Unless they opt out, a fixed percentage of each paycheck would be deducted and invested through an account similar to a private Individual Retirement Account.
The program was to be administered by a board under the state treasurer’s department.
Several other states have enacted similar legislation, including Connecticut, New Jersey, Maryland, Oregon and Washington.
Many employers have warned that state-run plans could subject them to onerous federal employment regulations and expose them to lawsuits. Former President Barack Obama’s administration issued guidance in October saying that wasn’t the case.
The financial services industry has said the program would be costly for workers who participate and may create political pressure for the state to backfill any investment losses.
De Leon and Chiang acknowledged that going forward with their plans could very well lead to lawsuits against the state but pointed to a memo written by New York attorney David Morse of the law firm K&L Gates. He concluded that prior court cases and a safe harbor established in 1975 by the U.S. Labor Department suggest California’s program could withstand legal challenges.
However, that safe harbor requires that enrollment be voluntary, raising questions about whether automatic enrollment with an option to opt out is truly voluntary.
State officials always believed the program met that test, Chiang said, but they decided to seek the Obama administration’s waiver as a favor for business interests nervous about liability.
Trump on Wednesday signed legislation to overturn the Obama administration rule under the Congressional Review Act, a law that allows a simple majority in the House and Senate to overturn executive-branch regulations that lawmakers consider onerous or burdensome. Trump and congressional Republicans have overturned more than a dozen Obama-era regulations.
Congressional Republicans said the state programs discourage small businesses from offering private retirement plans and have inadequate safeguards. The state plans would be exempt from federal protections that apply to private plans and would have a competitive advantage, Republicans said.
“That’s not a core function of government,” said California state Sen. John Moorlach, R-Costa Mesa, who voted against the program and supported Congress’ action. “We’re not here to solve all the problems of the world. The private sector does that.”