Loper Bright Ruling Ripples into Courts' ERISA Interpretations

The US Supreme Court’s landmark ruling in Loper Bright Enterprises v. Raimondo upended Chevron deference, a longstanding feature of administrative law. The opinion will have far-reaching implications for how courts interpret agency regulations, including in the ERISA context.

In Chevron doctrine Step 1, courts considered whether Congress had spoken directly to the question at issue; if it did, that was the end of the matter. But if Congress’ statutory intent was ambiguous, Step 2 required courts to defer to an agency interpretation so long as it was “a permissible construction of the statute.”

Going forward, a court doesn’t 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.”

Loper Bright is already impacting three areas working their way through the courts.

PRT Class Actions

Loper Bright could impact pension risk transfers—the process by which companies with defined benefit plans transfer some or all the payment liabilities associated with those plans to outside annuity providers.

Pension risk transfers have become increasingly popular. They can take a variety of forms, including total buyouts, in which a plan sponsor transfers a pension plan entirely over to a contracting annuity provider; partial buyouts, in which a plan sponsor purchases an annuity from an outside provider to fulfill payments to a subset of pension-plan participants; or buy-ins, in which the plan continues to issue payments to beneficiaries but from a monthly annuity paid by the insurer.

So far this year, plaintiffs filed five putative class actions regarding pension risk transfers that transferred benefit-payment obligations to one particular annuity provider, Athene Annuity and Life Co. 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 Department of Labor regulatory guidance from the 1990s. Pointing to that guidance, the plaintiffs allege that by selecting Athene, plan fiduciaries failed to select “the safest annuity available” when engaging in the challenged pension risk transfers.

Through Interpretive Bulletin 95-1, the DOL instructs fiduciaries to consider a variety of factors when selecting an annuity provider for a pension risk transfer. But crucially, the DOL’s guidance is only that—an agency interpretation that isn’t itself part of ERISA. And some courts have long treated IB 95-1 guidance with skepticism.

The US Court of Appeals for the Fifth Circuit, for instance, in 2000 said that it wasn’t “persuaded that [ERISA] § 1104(a) imposes on fiduciaries the obligation to purchase the ‘safest available annuity’ in order to fulfill their fiduciary duties.”

2024 Investment Rule

The agency’s attempt to redefine who is a fiduciary by reason of providing investment advice to a plan, including an IRA, is its third since 2010.

Two pending lawsuits in Texas district courts challenge the 2024 rule on the grounds it fails to comport with the Fifth Circuit’s prior 2018 decision. In each case, the district court stayed the effective date of the 2024 rule indefinitely. The DOL filed a notice of appeal in both cases.

In 2018, 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 even if the phrase “investment advice for a fee” were ambiguous, the DOL’s interpretation was unreasonable and would fail Chevron Step 2.

Ultimately, the parties in both pending cases acknowledge that whether the 2024 fiduciary rule is lawful turns on whether the text of ERISA authorizes the DOL’s regulation.

Thus, the fate of the 2024 rule will likely depend on whether the court agrees with the DOL’s argument that the 2024 rule differs significantly from the vacated 2016 fiduciary rule and believes the DOL adequately addressed the Fifth Circuit’s previous concerns.

ESG Investing

State of Utah v. Su concerned a 2022 final rule where 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. 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.”

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.” The rule addresses obligations under ERISA regarding proxy voting.

The district court invoked the now-overruled two-step Chevron framework. At Step 1, the court concluded that Congress didn’t address the precise question at issue in ERISA. And at Step 2, the court concluded that the DOL’s interpretation was reasonable and thus must be afforded deference.

Loper Bright had a significant impact on appeal. Just days after oral argument, the Fifth Circuit remanded the case because an appellate court is a court of “review, not first review,” and “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.”

The opinion will almost certainly impact the district court proceedings on remand, placing a greater role for the text and structure of ERISA rather than the DOL’s interpretation of the statute.

The case is Loper Bright Enterprises v. Raimondo, U.S., No. 22-451, decided 6/28/24.

Reproduced with permission. Published Oct. 3, 2024. Copyright 2024 Bloomberg Industry Group 800-372-1033. For further use please visit https://www.bloombergindustry.com/copyright-and-usage-guidelines-copyright/