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On June 28, 2024, the Supreme Court issued a landmark ruling in Loper Bright Enterprises v. Raimondo1 that upends a longstanding feature of administrative law—Chevron deference. In Loper Bright, the Court expressly overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.2 Loper Bright will have far-reaching implications for how courts interpret agency regulations going forward, not least in the ERISA context. It is already possible to see this playing out in three burgeoning areas of ERISA litigation—a major litigation challenging the Department of Labor’s (DOL) 2022 “ESG” rule on environmental, social, and governance factors; several recent lawsuits challenging pension risk transfers (PRTs); and 2024 litigation regarding the DOL’s 2024 Investment Advice Fiduciary Rule.

Background

Administrative agencies often promulgate regulations and interpretive guidance concerning federal statutory obligations. Under the so-called Chevron doctrine, courts faced with ambiguous statutory language often deferred to reasonable agency interpretations. The Chevron doctrine involved two steps:

  • At Step 1, courts considered whether Congress had spoken directly to the question at issue; if it did, that was the end of the matter.3 But if Congress’s statutory intent was ambiguous, courts moved on to the next step.
  • At Step 2, courts deferred to an agency interpretation so long as it was “a permissible construction of the statute,”4 even if that interpretation differed from “the reading the court would have reached if the question initially had arisen in a judicial proceeding.”5 The result was routine judicial deference in the face of ambiguous statutes to agency interpretations that were not “arbitrary or capricious” or “manifestly contrary to the statute.”6

Separate from Chevron is the concept of Skidmore deference, which dates back to the New Deal Court.7 Under it, courts determine on a case-by-case basis the appropriate level of deference—if any—to accord agency interpretations.8That deference depends on the agency’s “power to persuade,” with courts considering such things as the “thoroughness” of the agency’s consideration, the “validity of its reasoning,” and “its consistency with earlier and later pronouncements.”9

The Court’s Holding

After Loper Bright, Chevron deference is no more. The Court was unequivocal in holding that “Chevron is overruled.”10 Pointing to the Administrative Procedure Act (APA), the Court said that courts “may not[] defer to an agency interpretation of the law simply because a statute is ambiguous.”11Instead, going forward, courts “must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”12 Put differently, a court does not have to accept an agency’s interpretation if tools of construction point toward a different conclusion. And that is true “even when an ambiguity happens to implicate a technical matter,” because “Congress expects courts to handle technical statutory questions.”13

At the same time, the Loper Bright Court noted that courts may in some instances “seek aid from the interpretations of those responsible for implementing particular statutes.”14 Discussing Skidmore, the Court noted that agency interpretations “constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.”15 As a result, courts may continue to consider well-reasoned agency interpretations of the statutes that they administer as “informative,” particularly when those interpretations are based on “factual premises” within the agency’s expertise.16

Still, Loper Bright is already having a major impact on ERISA litigation—including in three areas that are working their way through the courts right now.

ESG Investing

Chevron deference is front and center in the pending lawsuit challenging the DOL’s ESG Rule in Utah v. Su, No. 23-11097 (5th Cir. 2024). That case concerns a 2022 final rule in which the DOL sought to clarify the application of ERISA’s fiduciary duties of prudence and loyalty to the selection and monitoring of investment products that involve ESG considerations.17 The final rule clarifies that the risk return factors a fiduciary may consider in evaluating a particular investment option “may include the economic effects of climate change and other environmental, social, or governance factors on the particular investment.”18 The final rule also provides that “fiduciaries do not violate their duty of loyalty solely because they take participants’ preferences into account when constructing a menu of prudent investment options for participant-directed individual account plans.”19 Finally, the rule addresses obligations under ERISA regarding proxy voting.20

A group of State Attorneys General led by the State of Utah challenged the rule in 2023. The district court rejected their challenge and granted summary judgment to the government.21 In doing so, the district court invoked the now-overruled two-step Chevron framework.22 At Step 1, the court concluded that Congress did not address the precise question at issue in ERISA.23 And at Step 2, the court concluded that the DOL’s interpretation was reasonable and thus must be afforded deference.24

The case went up on appeal to the Fifth Circuit—where Loper Bright had a significant impact. At oral argument, the panel raised the issue of remanding the case to the district court for reconsideration in light of Loper Bright.25 The court also touched on the impact of Loper Bright, including the end of Chevron deference and the role Skidmore deference might play in the case.26 The government argued that the rule should be affirmed with or without Chevron, while appellants took the position that the rule is unsupported by sufficient reasoning to warrant Skidmore deference and therefore no deference should be afforded to the DOL.27

Just days later, the Fifth Circuit remanded the case to the district court, deeming remand proper because an appellate court is a court of “review, not first review.”28 The court noted that although remand came at the cost of efficiency and economy, “both we and the circuit at large would be better served by the slight delay occasioned by remanding to the district court for its reasoned judgment.”29 Notably, the panel indicated that it will retain jurisdiction over the case should it return to the Fifth Circuit on appeal.30 In the meantime, Loper Bright will almost certainly impact the district court proceedings on remand, with a greater role for the text and structure of ERISA rather than the DOL’s interpretation of the statute.

PRT Class Actions

Another emerging category of ERISA cases that Loper Bright could impact concerns PRTs—the process by which companies with defined benefit plans transfer some or all of the payment liabilities associated with those plans to outside annuity providers. PRTs have become increasingly popular as of late. They can take a variety of forms, including: (1) total buyouts, in which a plan sponsor transfers a pension plan entirely over to a contracting annuity provider; (2) partial buyouts, in which a plan sponsor purchases an annuity from an outside provider to fulfil payments to a subset of pension-plan participants; or (3) buy-ins, in which the plan continues to issue payments to beneficiaries but from a monthly annuity paid by the insurer.

PRTs are at the center of several recent lawsuits. So far this year, plaintiffs have filed five putative class actions regarding PRTs that transferred benefit-payment obligations to one particular annuity provider, Athene Annuity and Life Co. (Athene).31 These suits broadly allege claims of breach of fiduciary duty, prohibited transactions, and the failure to monitor fiduciaries.

Plaintiffs in these cases rely heavily on the DOL regulatory guidance from the 1990s—Interpretive Bulletin 95-1 (IB 95-1).32 Pointing to that guidance, Plaintiffs allege that by selecting Athene, plan fiduciaries failed to select “the safest annuity available” when engaging in the challenged PRTs.33 Through IB 95-1, the DOL instructs fiduciaries to consider a variety of factors when selecting an annuity provider for a PRT. But crucially, the DOL’s guidance is only that—an agency interpretation that is not itself part of ERISA.34 And some courts have long treated the DOL’s IB 95-1 guidance with skepticism. The Fifth Circuit, for instance, has said that it was “not persuaded that [ERISA] § 1104(a) imposes on fiduciaries the obligation to purchase the ‘safest available annuity’ in order to fulfill their fiduciary duties.” Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 298 (5th Cir. 2000).35>

These cases are still very much in their infancy. It remains to be seen whether plaintiffs will get past the pleadings stage. But if any do, Loper Bright and the interplay with Skidmore could end up playing a significant role at the merits stage.

2024 Rule on Investment Advice Fiduciary

Finally, earlier this year, the DOL released its new fiduciary investment advice definition. The Retirement Security Rule: Definition of an Investment Advice Fiduciary is the agency’s third attempt since 2010 to redefine who is a fiduciary by reason of providing investment advice to a plan, including an IRA—the “2024 Fiduciary Rule.”36 The decision in Loper Bright may impact the chance that the 2024 Fiduciary Rule is upheld.

Prior to 2024, the DOL issued its most recent investment advice regulation in 2016,37 which the Fifth Circuit vacated in its entirety in 2018.38 The Fifth Circuit held that the 2016 Fiduciary Rule failed at Chevron Step 1, because the rule conflicted with the unambiguous statutory text of ERISA and the common law understanding of “fiduciary” should apply.39 The court added that even if the phrase “investment advice for a fee” were ambiguous, the DOL’s interpretation was unreasonable and would fail Chevron Step 2.40

No court rulings have yet come down in either of the two lawsuits challenging the DOL’s 2024 Fiduciary Rule in Texas district court. The parties’ arguments regarding the current rule focus on how the rule does (or does not) comport with the Fifth Circuit’s 2018 decision striking down the 2016 Fiduciary Rule. For instance, in one of the cases, the DOL argues in opposition to plaintiffs’ motion for summary judgment—submitted before Loper Bright came down—that the 2024 Fiduciary Rule is consistent with the trust-and-confidence common law standard articulated by the Fifth Circuit.41 Notably, the DOL did not rely on Chevron deference.

In the other case, filed by the insurance industry and joined by financial services trade groups,42 plaintiffs argue that the DOL ignored the 2018 Fifth Circuit opinion in promulgating its 2024 Fiduciary Rule and exceeded its statutory authority under ERISA.43 They also argue that the 2024 Fiduciary Rule is a departure from the longstanding investment advice definition that has existed since 1975 and that was established close to ERISA’s enactment. This argument could be relevant under a Skidmore-type analysis: the Rule’s inconsistency with prior understandings could be a reason for a court to find the DOL’s justification less persuasive.

Ultimately, the plaintiffs and the DOL acknowledge in both pending cases that whether the 2024 Fiduciary Rule is lawful turns on whether the text of ERISA authorizes the DOL’s regulation. As a result, the fate of the 2024 Fiduciary Rule will likely depend on whether the court agrees with the DOL’s argument that the 2024 Fiduciary Rule differs significantly from the vacated 2016 Fiduciary Rule and believes that the DOL has adequately addressed the Fifth Circuit’s previous concerns.

 


 

1 144 S. Ct. 2244 (2024).

2 467 U.S. 837 (1984).

3 Chevron U.S.A. Inc., v. Nat. Res. Defense Council, Inc., 467 U.S. 837, 842 (1984).

4 Id. at 843.

5 Id. at 843 n.11.

6 Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44, 53 (2011) (quotation marks omitted).

7 Skidmore v. Swift & Co., 323 U.S. 134 (1944).

8 Id. at 139-40.

9 Id. at 140.

10 Loper Bright, 144 S. Ct. at 2273.

11 Id.

12 Id.

13 Id. at 2267.

14 Id. at 2262.

15 Id.

16 Id. at 2267.

17 87 Fed. Reg. 73822 (Dec. 1, 2022).

18 Id. at 73827.

19 Id. at 73827-28.

20 The 2022 rule requires a fiduciary to prudently manage a plan’s proxy voting rights, act solely in the plan’s economic interest, and not subordinate the interests of the plan to any other objective. It also requires a fiduciary to determine whether an investment manager to whom it has delegated the authority to vote proxies maintains proxy voting guidelines that are consistent with the fiduciary’s obligations and periodically review those proxy voting policies. But it removed specific provisions from the prior 2020 rule that required the fiduciary to maintain its own records on proxy voting and to monitor the proxy voting activities of an investment manager or proxy voting firm to whom it had delegated proxy voting rights. See 85 Fed. Reg. 72846 (Nov. 13, 2020).

21 Utah v. Walsh, No. 2:23-CV-016-Z, 2023 WL 6205926 at *3 (N.D. Tex. Sept. 21, 2023).

22 Id. at *3-5.

23 Id. at *4.

24 Id. at *5.

25 See Oral Arg. Tr. at 8:09-8:19, 33:16-33:35, https://www.ca5.uscourts.gov/OralArgRecordings/23/23-11097_7-9-2024.mp3.

26 Id. at 33:36-34:34.

27 Id. at 8:20-10:26.

28 Utah v. Su, No. 23-11097, 2024 WL 3451820 (5th Cir. July 18, 2024).

29Id. at * 8.

30 Id.

31 Bueno v. Gen. Elec. Co., No. 24-cv-00822 (N.D.N.Y. 2024); Konya v. Lockheed Martin Corp., No. 24-cv-00750 (D. Md. 2024); Piercy v. AT&T Inc., No. 24-cv-010608 (D. Mass 2024); Camire v. Alcoa USA Corp., No. 24-cv-01062 (D.D.C. 2024); Schloss v. AT&T, Inc., No. 24-cv-10656 (D. Mass 2024).

32 29 C.F.R. § 2509.95-1(a).

33 See, e.g., Compl. ¶ 4, Bueno, No. 24-cv-00822, Dkt. 1; Compl. ¶ 3, Konya, No. 24-cv-00750, Dkt. 1; Compl. ¶¶ 53, 119, 144-45, Piercy, No. 24-cv-010608, Dkt. 1; Compl. ¶¶ 3-4, Camire, No. 24-cv-01062, Dkt. 1; Compl. ¶¶ 3-4, Schloss, No. 24-cv-10656, Dkt. 1.

34 29 C.F.R. § 2509.95-1(a) (“This Interpretive Bulletin provides guidance concerning certain fiduciary standards . . . applicable to the selection of an annuity provider for the purpose of benefit distributions from a defined benefit pension plan . . . when the pension plan intends to transfer liability for benefits to an annuity provider.”).

35 See also Riley v. Murdock, 83 F.3d 415 (table), 1996 WL 209613, at *1 (4th Cir. Apr. 30, 1996) (per curiam) (declining to “adopt a standard that an ERISA fiduciary must select the safest available annuity to assure payment of the benefits that a plan promises to its participants,” and noting that “no federal court has adopted such a standard”).

36 89 Fed. Reg. 32122.

37 81 Fed. Reg. 20946.

38 See Chamber of Com. of the U.S. v. Dep’t of Labor, 885 F.3d 360, 388 (5th Cir. 2018).

39 Id. at 378-79.

40 Id. at 379-81.

41 Defs.’ Opp’n to Prelim. Inj., Fed. of Am. for Consumer Choice, Inc. v. Dep’t of Labor, No. 24-cv-00163 (E.D. Tex. June 14, 2024), Dkt. 20.

42 Pl. Intervenors’ Compl., Am. Council of Life Insurers v. Dep’t of Labor, No. 24-cv-00482 (N.D. Tex. June 28, 2024), Dkt. 41.

43 Pls.’ Reply in Supp. of Mot. for Prelim. Inj. and Stay of Effective Date, Am. Council of Life Insurers v. Dep’t of Labor, No. 24-cv-00482 (N.D. Tex. July 12, 2024), Dkt. 55.

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