A federal appeals court paused a legal challenge to the Department of Labor’s Biden-era rule that permits retirement plan fiduciaries to consider environmental, social and governance factors when selecting investments following the Trump administration’s request for more time to reconsider the rule.
The 5th U.S. Circuit Court of Appeals in New Orleans in an April 28 order granted a 30-day pause in the case but noted that it “will not permit an open-ended abeyance.”
The DOL is “directed to inform this court within 30 days from the date of this order what specific actions the department will take, if any, as a result of its reconsideration of the challenged rule — either to maintain the rule or to rescind it,” the court order said.
Under the Biden administration, the DOL’s Employee Benefits Security Administration in 2022 finalized the Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights rule. The rule took effect in January 2023.
That same month, a group of 26 Republican attorneys general, along with several energy companies and private individuals, challenged the rule in U.S. District Court in Amarillo, Texas, arguing that it undermines key protections for retirement savers, oversteps the department's authority under ERISA, and is arbitrary and capricious.
A federal judge in 2023 upheld the rule, which Biden-era officials contend is neutral and maintains the department's position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
The same judge upheld the rule once more in February upon appeal.
But in an April 21 filing before the 5th Circuit, the DOL, now under the Trump administration, said it’s considering rescinding the rule.
“Now that its new leadership has had the requisite time to gain familiarity with the issues in this case, the department has determined that it intends to reconsider the challenged rule, including by considering whether to rescind the rule,” the DOL said.
The department will now have until May 28 to alert the court of its decision.
