CalSavers case: Rethinking retirement and estate planning

Prudent estate planning applies a financial sunscreen to the future. Since 2017, CalSavers, the statewide pension program, has applied a legal sunscreen to an increasing number of California residents to the skin of retirement savings. A recent decision by the Ninth Circuit Court of Appeals has, momentarily, preserved employees’ ability to soak up the sun in retirement.

Compliance deadlines expand CalSavers numbers

The statute requires private-sector employers to enroll in the program if they do not provide a retirement option themselves. Compliance deadlines vary by number of employees. Private-sector employers with between 50 and 99 employees must enroll by June 30.

Already, over 140,000 employees at over 10,000 employers have contributed to and registered in the program. Employers enjoy reduced obligations that closely-related federal legislation regarding employer-offered pension plans demand. For example, they pay no fees nor assume any fiduciary liability.

Court determines CalSavers outside the scope of ERISA

Employer obligations and the state’s role in managing the program prompted a state employer to contest CalSavers’ legal validity under the Employee Retirement Security Act. Specifically, a provision for automatic enrollment of employees by the state — who have the option to opt out once enrolled — placed it outside a safe house provision in the law.

The Court reasoned, however, that the test for a safe harbor provision under ERISA does not involve an either/or analysis. Among other reasons, it does not violate ERISA because the state operates and manages the program. Moreover, the employees, not the employers, fund the program.

Retirement planning and estate planning remain intertwined

CalSavers’ constitutionality – not to mention the financial protection provided to California employees – lies in knotty legal lingo that the Supreme Court may determine. Retirement planning, however, comprises merely one ingredient in the recipe for estate planning. An experienced attorney can assess if and how other estate planning options, such as a will or trust, and the relevant tax consequences, will create a lotion that could prevent financial burn.