The U.S. Department of Justice is backing a lawsuit that seeks to invalidate the new California state retirement plan. The DOJ’s brief also takes aim at the growing number of states sponsoring retirement savings plans for people who lack access to one at work.

The move is a head scratcher for many financial advisors, who say the CalSavers plan is not only creating future advisor clients who have well-funded retirement plans, but immediately provides an affordable, low-maintenance 401(k) option to employers, while forcing all employers with five or more employees to offer a plan by 2022.

“From the employer perspective, there is no simpler nor less expensive option out there when it comes to retirement plans that I’m currently aware of,” John S. Longstaff, a senior financial planner with The Planning Center Inc., in Fresno, Calif., told Financial Advisor magazine. “No cost, no administration, no recordkeeping. I mean really, what could be easier?” Longstaff asked.

But DOJ’s focus is on legal and jurisdictional issues with state run auto-IRA plans. In a brief filed in federal court earlier in September, the agency argued that California’s program, called CalSavers, violates the federal Employee Retirement Income Security Act of 1974, which governs 401(k)-style plans. Among other things, the Justice Department argues that state-sponsored plans would create “a patchwork of different state laws,” which is “exactly the kind of disuniformity that ERISA was designed to avoid.”

California estimates that 7.5 million state residents who lack a retirement savings plan at work are eligible for the program. It requires employers with five or more workers that don’t offer a plan to participate. Launched in July, the program has $650,000 in assets from 2,150 workers, with several thousand more opening accounts.

Of the estimated 250,000 companies in the state without a retirement savings plan, about 500 are currently signing up and 70 have begun making payroll contributions to individual retirement accounts. All employers with five or more employees must phase their employees into the CalSavers plan by 2022.

Katie Selenski, executive director of California Secure Choice Retirement Savings Investment Board and CalSavers, said not all participants will immediately be a “target market” for advisors. But “if people evolve in their financial lives and move beyond the CalSavers system to a more robust benefit or investment vehicle, then we would see that as a big success,” she said.

The average account size of participants in a similar program in Oregon, launched statewide last October, is around $400—but eventually those assets may grow to the point where investors will be looking for guidance. Portability is key with the program, designed as a Roth IRA (with a traditional IRA being introduced later this year).

CalSavers could, eventually, facilitate a new crop of clients looking for advice.

Opportunities also loom for advisors armed with technology designed to scale low-cost investments for smaller clients, to offer employers and participants a private, less expensive option than the state’s default plan.

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