THE LEGAL FRONT
HJTA SUES TO STOP GOVERNMENT TAKEOVER OF RETIREMENT ACCOUNTS
The man selling tickets at one of the betting windows of Santa Anita Racetrack registered complete bewilderment when a horse stepped up and asked to bet on himself.
“What’s the matter?” asked the horse. “Are you surprised I can talk?”
“No,” answered the man. “I’m surprised you think you can win.”
That’s the way we reacted when the State of California passed legislation establishing a state-run pension program for private-sector employees.
We weren’t surprised that the state thought this was a good idea. California wants to control everything in our lives: what we can buy, what we can sell, who we can hire, what we can drive, what we can build, what our T-shirts can say, what our children are taught about sex and gender, what “fake news” we’re allowed to read, etc. Bills to establish state-run universal health care are introduced in the Legislature every year and keep gaining momentum. And although California has over 700 miles of direct access to the largest body of water on the planet, a new bill that takes effect in January, AB 1668, establishes a standard for indoor residential water use of only 55 gallons a day.
So, we’re not surprised that California wants to create a giant new government bureaucracy managing the retirement investments of private-sector employees. The thing that surprises us is that the state thinks it can succeed.
The state already has a giant government bureaucracy — CalPERS — that manages retirement funds. Although the CalPERS investment portfolio has performed much better since President Donald Trump was elected, nevertheless its annual rate of return over the last decade was less than five percent. The cities and counties that belong to CalPERS would have fared better had they invested their money in the S&P 500, which earned over 11 percent during the same time period.
One reason for CalPERS’s lower-than-average rate of return is that a host of state laws limits what it can invest in. These limits are not related to fiduciary concerns; they are politically motivated. CalPERS cannot invest in companies that produce tobacco, or coal, or firearms, or that operate private prisons, or that do business with South Africa, or that are involved in the Dakota Access Pipeline or the building of a Mexican border wall. And the list goes on.
Now California wants to take the same strategy that has failed public employees and put it to work investing the money of private employees. The program is called CalSavers. It will require every employer of five or more employees to offer the CalSavers plan, to enroll all employees in the plan unless they fill out paperwork every year to opt out, and then to withhold money from their paychecks and remit it to the state.
There are several reasons HJTA opposes this plan. First, CalSavers will grow the cost and size of government. Second, employees already have many retirement investment options available to them. CalSavers adds unnecessary new burdens on private businesses to “fix” a problem that does not exist.
A major reason we oppose the plan is that CalSavers will pay participating employees a fixed rate of return. If the state’s investments earn less, taxpayers must pick up the difference. On the other hand, if those private dollars earn more than the fixed rate of return, the state will pocket the difference.
Another reason we oppose the plan is that private employees’ contributions are not secure. If their money is mismanaged, they have no recourse. Under CalSavers, employee funds will not be federally insured or state insured; employees will not be able to sue their employers, nor can they sue the state.
But the biggest reason we oppose the plan, and the reason that we filed suit, is that the plan is illegal. It is preempted by a federal law, ERISA, which stands for Employee Retirement Income Security Act. ERISA sets forth uniform qualifications for private retirement savings plans, and uniform standards for transferring accounts, processing claims and disbursing benefits. Most important, ERISA provides security for invested funds. Any plan that does not meet ERISA’s requirements is prohibited. And that includes state-run plans.
We filed suit in federal district court on May 31, 2018. We’re asking the court to declare CalSavers invalid. Instead of answering our complaint, the state filed a motion to dismiss the case. The state argues that the case is premature because the program has not been imposed on anyone yet. It also contends that HJTA does not have standing. The briefing on the motion is complete, and we should have a decision from the court soon.