A federal judge for the second time upheld a Department of Labor rule that permits retirement plan fiduciaries to consider environmental, social and governance factors when selecting investments.
Judge Matthew J. Kacsmaryk in a Feb. 14 decision, said the DOL’s rule — Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights — does not violate the Employee Retirement Income Security Act.
Under the Biden administration, the DOL’s Employee Benefits Security Administration in 2022 finalized the rule and it 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.
Kacsmaryk in an initial September 2023 decision, dismissed the plaintiffs’ claims and upheld the DOL 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 Republican attorneys general in January 2024 filed an appeal in the 5th U.S. Circuit Court of Appeals in New Orleans and focused their argument on the rule’s tiebreaker provision that allows fiduciaries to consider collateral benefits that are not related to the risk-return analysis when weighing different investment options in the event of a tie.
The two sides made their arguments before the 5th Circuit in July, two weeks after the U.S. Supreme Court overturned the Chevron deference, a standard set by the Supreme Court 40 years ago that said judges should defer to regulators when laws are ambiguous and unclear.
Though the decision in the Loper Bright case affecting the Chevron deference wasn’t a major discussion point in either side’s oral argument, a three-judge panel at the 5th Circuit directed Kacsmaryk at the District Court level to reconsider the case with the Supreme Court’s Loper Bright decision in mind.
Kacsmaryk once again, sided with the DOL and denied the plaintiffs’ motion for summary judgement.
“The 2022 Rule does not permit a fiduciary to act for other interests than the beneficiaries' or for other purposes than the beneficiaries' financial benefit,” Kacsmaryk wrote. “For that reason, under the Loper Bright standard, it is not contrary to law.”
The Chevon deference’s demise, he added, “Changed how courts should interpret statutes — not how they review agency decisions for unreasonableness.”
