Bulletins

By: Evelyn A. Haralampu, Partner, Burns Levinson LLP

Chevron Overturned

On June 28, the Supreme Court overturned the Chevron doctrine in Loper Bright Enterprises v. Raimondo, thus eliminating the requirement that courts defer to an agency’s interpretation of federal law if the law is ambiguous or silent on an issue, and the agency’s interpretation reasonable.

By overturning Chevron the Court eliminated any presumption that ambiguity in the law implicitly delegates to the agencies the power to interpret law. Rather, the courts now have the final word on what a law means.

Parties with ideological or economic objections to regulations are now in a better position of obtaining judicial review if they can establish standing and harm. Regulations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) that have come under recent scrutiny involve issues of:

• Ideology, as in the case of choosing retirement plan investments (ESG litigation);
• Threats to the economic interests of the investment industry, if regulations expand the definition of a fiduciary;
• The balance of economic rights between employers and employees when considering the proper use of unallocated forfeitures in retirement plans; and
• Defining what is nondiscriminatory in the provision of healthcare and who has the authority to determine that.

Adding to the changed judicial landscape is the expanded statute of limitations for bringing claims challenging regulations.

Regulations Under Loper Bright

The Supreme Court’s decision to overturn Chevron does not prevent Congress from directing an agency to issue regulations. If Congress does delegate rulemaking authority to agencies, as it does under ERISA, the agencies must follow the Administrative Procedures Act (“APA”) notice and comment requirements, giving the public a chance to respond to regulations before they become final.

Instead of deferring to such legislative regulations, however, a federal court can find, under Loper Bright, that a federal agency misinterpreted the statute and void or modify the meaning of the regulations. Legislative regulations that otherwise would have had the force of law, can now be set aside by a court, opening the door to potentially conflicting interpretations among the circuits, complicating operations for actors operating in more than one jurisdiction.

Corner Post

The Supreme Court also extended the statute of limitations on challenging regulations, adding to the uncertainties that Loper Bright brings to regulations.

Under Corner Post, Inc. v. Board of Governors, FRS, the Supreme Court held that the 6-year statute of limitations for suing the federal agency does not begin to run until a plaintiff is injured by the agency’s final regulations.  The Court’s holding resolved a split among the Circuits in which some had held that the 6-year statute of limitations begins to run once a final agency action is published.

The new rule now allows newcomers suffering injury under long-standing regulations to challenge those regulations in court. The extended statute of limitations and the overturning of Chevron allow the federal courts a greater opportunity for second-guessing the agencies’ regulations.

Courts Interpreting Law

Since the courts may now override certain regulations, it is appropriate to consider how federal courts interpret the meaning of a statute.

The originalists of the Supreme Court discern meaning by examining the text of a law, and the history and tradition surrounding it. Finding an “historical twin” to a current problem, however, is not required. Rather, some historical analog to the modern problem is sufficient. Yet finding what history applies is a flawed, unpredictable process, subject to judicial confirmation bias in how analogs are identified.  

For example, the majority in United States v. Rahimi found that, at the time of the adoption of the Second Amendment, legal restrictions impinging on the right to bear arms (but not actually disarming an individual) were sufficient to uphold a modern regulation requiring Rahimi to forfeit his gun after becoming subject to a restraining order for domestic abuse. However, Justice Thomas, applying a similar analysis, dissented from the majority opinion because no founding era law actually required gun forfeiture for domestic abuse.  Accordingly, he concluded that a modern law requiring a domestic abuser to forfeit his gun temporarily violated the abuser’s Second Amendment right.

In her concurring opinion in Vidal v. Elster, Justice Barrett altogether rejected the view that common law tradition and historical analogs should resolve a trademark case. Because there was no body of federal trademark law at the founding, Justice Barrett advocated instead for the articulation of a court-made standard based on judicial precedent, not an historical review.

Accordingly, while courts can now apply originalist interpretation to set aside challenged regulations, how they would do so is somewhat unpredictable.    

Another tact that courts could take is to set aside regulations that address major questions of economic or societal significance. The federal courts take the position that Congress, not the agencies, should address major questions.

ERISA Cases to Watch

It is unclear how overturning the Chevron doctrine will specifically impact legislative regulations. Because courts, and not agencies, will be the final arbiters of the law’s meaning, there may be somewhat more continuity in regulations when administrations change, but any division among the circuits as to a law’s meaning will add uncertainty.

ESG Investing

Plaintiffs have already challenged a U.S. Department of Labor regulation relating to retirement plan investments.

In Utah v. Walsh a group of 24 states sued the U.S. Department of Labor under ERISA to enjoin the application of a Biden administration rule that permits considering environmental, social and governance (“ESG”) investments in retirement plans if ESG factors serve as a tie-breaker between competing investment choices with the same risk and reward profiles over the same time horizon.

The plaintiffs take the position that the regulations are inconsistent with ERISA’s fiduciary duty requirements that include acting for the exclusive benefit of plan participants. Instead, the plaintiffs view ESG considerations as violating the ERISA fiduciary duty of loyalty to plan participants by interposing a policy issue.

In 2023, the federal District Court of Texas dismissed the case, ruling in favor of the U.S. Department of Labor under Chevron and finding no breach of fiduciary duty. The decision is now on appeal at the Fifth Circuit to re-examine the rule without Chevron deference to the agency’s regulations.

The appeal in Utah v. Walsh may follow the path of the state court that heard Wong v. New York City Employees’ Retirement System in which plaintiffs challenged ESG investing by the New York City pension plans. Because the City pension plans are not governed by any federal law or regulation, Chevron deference never applied to how the Supreme Court of the State of New York analyzed the case.

Instead, the court was able to rule directly on the substantive legal issues. The court rejected the employees’ claim to standing because they had not suffered any harm.  The employees had argued that they had standing because the City’s divided loyalties between its climate change policy and the employees’ financial wellbeing was a per se breach of fiduciary duty.

In dismissing the case, the state court found that there was no fiduciary breach and the employees’ alleged harms were purely speculative, as any investment risk of loss in a defined benefit plan falls on the City, not the employees. An appeal is expected in Wong.

The plaintiffs’ argument that ESG considerations are a violation of fiduciary duty by splitting fiduciaries’ loyalties between the financial priorities of retirement plan participants and ESG policies ignores that ESG factors are only used as a tie-breaker in choosing among investments with the same economic profiles. As a tie-breaker, there is no subordination of participants’ interests. In addition, the plaintiffs have been unable to convince the courts that considering ESG factors results in financial harm.

Fiduciary Rule

Another case to watch is American Council of Life Insurers v. U.S. Department of Labor in which plaintiffs challenge the 5-part 2024 ERISA regulation defining an investment advice fiduciary. The investment industry plaintiffs complain that the agency’s broader definition of “fiduciary” exceeded the agency’s authority by going beyond the statutory and common law definitions of a fiduciary, is unconstitutional, and arbitrary and capricious.

In addition, the plaintiffs allege that the regulation would result in curtailing the advice that may be given to customers with small retirement accounts, hurting the public with higher costs of complying with the regulations. Without Chevron deference, the courts will have freer rein to set aside the regulations if a finding is made that the agency misinterpreted the statute.

Because the new regulation expands the definition of “fiduciary” that has historically applied under ERISA, the court may well reject the new regulation as an overreach that changes the meaning of the law, as historically interpreted.

Use of Forfeitures

Another issue working its way through the courts is whether it is a breach of fiduciary duty or a violation of anti-inurement under ERISA for a plan administrator to pay recordkeeping expenses of a retirement plan by using forfeitures, or whether it must allocate forfeitures to plan participants.

The absence of Chevron deference may affect the courts’ analyses in these cases if they find that regulations permitting such use of forfeitures are improper under the statute.  Because the use of forfeitures to pay plan expenses has been allowed for decades, however, the court, applying an historical approach is apt to uphold the practice.

Healthcare Regulations

The nondiscrimination regulations under Section 1557 of the Affordable Care Act (“ACA”) have recently been the subject of legal controversy in connection with gender-affirming care.

Three   district courts have stayed and enjoined the Department of Health and Human Services from enforcing final regulations issued in May 2024 addressing gender identity. These cases are Tex. v. Becerra, Tenn. v. Becerra, and State of Fla. v. Dep’t of Health & Human Servs.

Self-insured medical plans, regulated by ERISA, are subject to federal nondiscrimination requirements under Section 1557. In addition, the regulations may apply to insured plans because the Department of Health and Human Services has interpreted Section 1557 as requiring gender-affirming medical care if the health care provider receives federal assistance such as Medicare reimbursements. The courts may  set aside this regulation if they find that  it involves a major question that is outside the scope of an agency’s powers to regulate.

Conclusion

Federal legislative regulations’ ongoing validity and meaning are now subject to challenge after Loper Bright’s overturning of Chevron. Nevertheless, unless and until a court modifies or sets aside a regulation, the regulation still applies for purposes of compliance and planning.

If a court does set aside any ERISA regulation, consideration must be given as to what jurisdictions the court’s decision applies, whether the agency will later revise the regulation, and whether Congress will speak to any major questions identified by the courts.