A Texas federal judge recently upheld a U.S. Department of Labor (DOL) final rule concerning environmental, social, and governance (ESG) considerations in investment decisions by plan fiduciaries. Judge Matthew J. Kacmaryk found that the DOL’s ESG investing rule did not violate the Employment Retirement Income Security Act (ERISA). The ruling was unanticipated, as Judge Kacmaryk historically has struck down many federal agency regulations as illegal.
Twenty-five state Attorneys General and other interested parties filed this lawsuit when the DOL’s final rule was enacted on January 30, 2023. They argued that the final rule was invalid because it violated ERISA. However, the judge disagreed, noting that ERISA does not prohibit ESG investing but requires that plan fiduciaries act prudently and reasonably in their investment decisions. Furthermore, the judge noted in his decision that the choice for plan fiduciaries to consider or engage in ESG investing, which the DOL has recognized as a factor since at least 2015, is discretionary rather than mandatory.
Plan sponsors should familiarize themselves with the DOL’s final rule on ESG investing regarding fiduciary decision-making. They also should review their investment policies and policy statements based on the rule. Nonetheless, they should understand that considering ESG factors remains permissible rather than compulsory and always should be secondary to the plan’s financial interests.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
Hall Benefits Law, LLC
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