PLANSPONSOR - March - April 2023 - 6

RULES & REGULATIONS
From Washington and the Courts
25 States Bring Suit
Against ESG Regulation
Twenty-five Republican state attorneys
general, a fossil-fuel company,
a fossil-fuel advocacy group and a
Manhattan Institute scholar all
claim to be negatively affected
by a Department of Labor rule
that would permit fiduciaries
to apply environmental, social
and governance investment
strategies
when
selecting
investments for an Employee
Retirement Income Security
Act retirement plan.
The rule, finalized this
past November and in effect since
January 30, permits ESG analysis in
retirement plans but does not require it.
" Collateral benefits " related to ESG may
be considered as a tiebreaker between two
investments but only if they would both
equally serve the interests of the plan.
The lawsuit argues that
undermines protection for
retirement
savings; further, it seeks declaratory and
injunctive relief against the " politicized
ESG criteria. " The lawsuit also sought
a temporary stay on the rule, but the
District Court for the Northern District
of Texas has not yet ruled on that request,
and the Department of Justice did not
return a request for comment.
The crux of this issue is whether ESG
factors meet the standard of prudence
and loyalty as required by ERISA. Or, is
using ESG primarily a strategy for evaluating
financial risks, a moralizing political
philosophy or some combination of
the two?
James Copland, the only plaintiff
listed in the complaint as an individual,
and a senior fellow and director of legal
policy at the Manhattan Institute, says it
is primarily the " E " and " S " in ESG that
are problematic. He explains that considering
governance practices is important,
6 PLANSPONSOR.COM March - April 2023
the rule
... the only plaintiff
listed in the
complaint as an
individual, says
it is primarily
the " E " and
" S " in ESG that
are problematic.
but environmental and social factors are
often not pecuniary factors. He says there
is nothing problematic with investors
investing according to their ethical principles;
the problem is when fiduciaries do so
at the expense of their clients.
The lawsuit itself asserts that ESG
factors are nonpecuniary, which, it argues,
would open the door to fiduciaries intentionally
lining up less attractive investment
options merely for political purposes.
Brad Campbell, a partner in the
Art by Simone Virgini
Faegre Drinker law firm, says it is " quite
likely " that the plaintiffs in the case
assembled such a diverse group of litigants
in order to propose as many
standing theories as possible in
hopes that at least one will stick.
DOL Sues Defunct
Company
A Department of
Labor
lawsuit asks a U.S.
District Court to remove a
defunct Michigan telemarketing
company from its position
as fiduciary of its retirement
plan in order to give
the participants access to their
retirement assets, according to the
complaint filed in Martin J. Walsh v.
Associated Community Services Inc. and
Associated Community Services 401(k)
Profit Sharing Plan and Trust.
Former Secretary of Labor Marty
Walsh is named as the lead plaintiff in
the lawsuit against ACS, a Michigan
company that provided telemarketing
services, and its 401(k) profit-sharing
plan and trust. The company was officially
dissolved as a Michigan corporation
on July 15, 2022, according to the
complaint, which alleges three counts
of fiduciary breach to the participants
under the Employee Retirement Income
Security Act. ACS was the sponsor, the
plan administrator and a named fiduciary
of the plan, with the attendant
powers and responsibilities for the
plan's management and operation, since
September 26, 2016, the complaint says.
The document alleges that ACS
breached its fiduciary duty to plan participants
on three counts of not operating the
plan solely in the interest of the participants
and their beneficiaries. The suit
asks the U.S. District Court for the Eastern
District of Michigan to remove ACS as
fiduciary; to appoint an independent fiduciary
to terminate the plan and distribute
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