Court Upholds DOL’s 2022 Rule on Investment Decisions

The U.S. District Court for the Northern District of Texas was asked to reconsider a challenge to the Biden-era U.S. Department of Labor (DOL) rule “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (“the 2022 rule”). In September 2023, the court ruled in favor of the DOL, but plaintiffs appealed. The 5th U.S. Circuit Court of Appeals vacated that ruling, sending the case back for reconsideration after the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo overturned the Chevron doctrine.

In its latest ruling, the district court found the 2022 rule is consistent with the Employee Retirement Income Security Act of 1974 (ERISA) under a post-Chevron analysis. The court explained that a fiduciary choosing among investment options that all benefit beneficiaries’ financial interests does not act outside its duty by considering collateral factors.  “ERISA does not require such capriciousness,” the court explained. “A fiduciary fully meets their duty when selecting valid investment options that maximize financial benefits.”

The case stems from a back-and-forth by the DOL under the first Trump administration and the Biden administration. On Nov. 13, 2020, the DOL required fiduciaries of 401(k)s and similar plans to base investment decisions solely on financial factors, limiting the use of nonfinancial factors such as environmental, social, and governance concerns (ESG). Two years later, on Nov. 22, 2022, the DOL reversed course, allowing nonpecuniary factors, including ESG, when relevant to financial risk and return.