PLANSPONSOR - September/October 2024 - 39

INSIDE ANGLE
Loper Bright Reshapes
The Regulatory Landscape
The courts will no longer defer to the DOL's interpretation of ERISA
T
he Supreme Court's June 28 decision in Loper Bright
Enterprises v. Raimondo has sent ripples through the regulatory
waters, overturning a four-decade-long construct
and dramatically changing how courts will evaluate rules issued
by the federal government.
In this respect, Loper Bright is likely to substantially affect the
regulation of retirement plans under the Employee Retirement
Income Security Act of 1974 as the Department of Labor rules
continue to be scrutinized for consistency with the statute. This
landmark ruling, which dismantled the long-standing Chevron
framework, will reshape how courts interact with agency interpretations,
bringing a new era of scrutiny to DOL regulations.
The following briefly discusses Loper Bright and two
instances where the change in the judicial framework has already
affected DOL rules, specifically the fiduciary rule and the environmental,
social and governance rule.
End of the Chevron Deference Era
Chevron deference, established by the Supreme Court in Chevron
USA, Inc., v. Natural Resources Defense Council, Inc. required
courts to defer to an administrative agency's interpretation of a
statute when the statute was ambiguous and the agency's interpretation
was reasonable. This deference was based on a two-step test:
First, the court would determine whether Congress had directly
addressed the issue. If Congress' intent was clear, that would
govern. But if the statute was silent or ambiguous, the court would
apply step two, assessing whether the agency's interpretation was
based on a permissible construction of the statute. The doctrine
was rooted in the idea that agencies have specialized expertise and
are better equipped to make policy decisions within their domain,
provided their interpretations were not arbitrary or capricious.
For nearly four decades, Chevron deference allowed federal
agencies such as the DOL to interpret ambiguous statutes with
a degree of autonomy, assuming their expertise would guide
reasonable interpretations. However, the Loper Bright decision
has shifted this paradigm, mandating that courts exercise independent
judgment in statutory interpretation. This change means
that agencies, and the regulated public, can no longer expect an
agency's interpretations to be upheld simply due to its expertise.
DOL Rules Under the Microscope
The DOL has issued numerous rules focused on regulating the
retirement marketplace over the past few years. These rules have
already experienced challenges under this new judicial framework.
For instance, the agency's fiduciary rule, which aims to
make more individuals who provide plan services fiduciaries,
has already borne the brunt of this change. The rule was released
earlier this year and was to have taken effect on September 23.
It was challenged in two separate lawsuits-one in the Eastern
District of Texas and the other in the Northern District of Texas.
In late July, both courts issued a stay of the rule (see " Texas
Courts Stay New Fiduciary Rule, " page 4). Both cases generally
assert that the latest rule is not significantly different from the
fiduciary rule the agency set forth in 2016 and the 5th Circuit
vacated in 2018. Moreover, the courts noted that their stay was
issued because the rule conflicts with ERISA in many ways.
Both cases will need to be decided on the merits, but the rulings
in each make clear that the DOL's fiduciary rule is unlikely to
survive in either circuit.
Similarly, the U.S. Court of Appeals for the 5th Circuit
vacated a decision by the Northern District of Texas that had
found that the DOL's ESG rule was consistent with ERISA. In
reaching that conclusion, the Northern District of Texas had
relied on Chevron and deferred to the DOL's analysis. However,
due to Loper Bright, the 5th Circuit remanded the case to the
District Court for reconsideration. The Northern District of
Texas will now be tasked with reevaluating the case under the
Loper Bright framework.
Conclusion
In this evolving landscape, plan sponsors and fiduciaries must
stay on top of changes to the current regulatory regime. With
Chevron deference off the table, any current or future regulations
issued under ERISA will likely be challenged and face close scrutiny
by the courts. This shift will likely lead to legal challenges
and potential revisions as courts independently assess whether
the DOL's regulations align with the statutory text. Over the
coming years, we will not be surprised to see challenges similar
to those confront other DOL rules, including, among others, the
department's regulations interpreting ERISA Section 408(b)(2)'s
disclosure requirements.
George Sepsakos, a principal in Groom Law Group,
Chartered, in Washington, represents clients on a broad
range of Employee Retirement Income Security Act, federal
tax and securities law matters.
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