Gov. Jerry Brown's office announced the lawsuit Friday, saying he wants to defend last year's law requiring state employees to contribute more to their pensions to ensure the retirement system remains viable.
Federal labor officials determined the changes violate collective bargaining rights by forcing union members to pay more. The agency blocked at least $1.6 billion in U.S. Department of Transportation grants to California.
The state's lawsuit calls the decision "arbitrary, capricious and unconstitutional."
Brown also announced signing legislation to keep the money flowing while the state challenges the federal ruling. AB1222 temporarily exempts local transit agency workers from the pension changes.