For the second year in a row, benefits attorneys will have the opportunity to spend their holidays reviewing and analyzing new Department of Labor rules affecting retirement plans and investors. Last year, we had the pleasure to review and analyze DOL’s “ESG Rule,” while this year DOL unveiled on Halloween its long-awaited revised fiduciary rule. Whether you consider the new proposed fiduciary rule as a “trick” or “treat” likely depends on your vantage point. However, three things in life are certain: death, taxes and legal challenges to fiduciary rules. So, if and when DOL finalizes the new fiduciary rule in 2024, the industry will be closely watching the court cases that are likely to follow.
As loyal readers of the Newsletter know, the format and publication timeline make it difficult for us to publish detailed articles on every late breaking development in the benefits space. We are also mindful that some developments, like the DOL’s new fiduciary rule, are extensively covered by other sources. For these reasons, we use “As We Go To E-Press” to highlight topical issues and developments (including the new fiduciary rule) so that readers are aware of them and can do a deeper dive into them if they desire to do so. If you are interested in a more fulsome article on any of these topics in a future edition of the Newsletter, please let us know.
- DOL’s ESG Rule Survives First Court Challenge: On September 21, 2023, the Northern District of Texas granted summary judgment to the DOL in a lawsuit filed by 26 states and other private litigants challenging the DOL’s ESG Rule. The plaintiffs argued the rule was arbitrary and capricious, went beyond the DOL’s statutory authority, and violated the Administrative Procedures Act. Engaging in a detailed analysis, the district court concluded the ESG Rule was not “manifestly contrary” to ERISA and deferred to the DOL’s analysis and judgment. The plaintiffs have appealed the court’s summary judgment ruling to the Fifth Circuit, which is currently pending. A second lawsuit challenging the ESG Rule is also pending in the Eastern District of Wisconsin.
- DOL Issues New Proposed Fiduciary Rule: On October 31, 2023, the DOL issued its long-awaited proposed fiduciary rule after the 2016 version was vacated by the Fifth Circuit in 2018 and parts of Prohibited Transaction Exemption (“PTE”) 2020-02 were invalidated in February 2023 by a district court in Florida. Among other things, the proposed fiduciary rule (and accompanying PTE amendments) redefines who is an investment advice fiduciary under ERISA and replaces the long-standing 1975 regulation (known as the “five-part test”). The proposed rule was published in the Federal Register on November 3, 2023, with comments due by January 2, 2024. An online hearing is currently scheduled on December 12, 2023.
- IRS and Treasury Issue Proposed Regulations for Long-Term, Part-Time Employees in 401(k) plans: On November 27, 2023, the Department of Treasury and the Internal Revenue Service (“IRS”) published in the Federal Register proposed rules to provide guidance on the handling of long-term, part-time employees (“LTPTE”) in 401(k) plans to comply with provisions in the SECURE Act and SECURE 2.0 Act. Among other things, the proposed rules seek to define more clearly who is an LTPTE, describe eligibility conditions for participating in 401(k) plans, and provide guidance on the treatment of former LTPTEs. Comments on the proposed rules are due by January 26, 2024, with a public hearing scheduled for March 15, 2024.
- Second Circuit Widens Circuit Split Over Prohibited Transaction Pleading Standards in ERISA Class Action Against Cornell University: On November 14, 2023, the Second Circuit affirmed the district court’s dismissal of the plaintiff-participants’ fiduciary breach and prohibited transaction claims arising from the alleged mismanagement of Cornell University’s 403(b) plan. Acknowledging an existing circuit split over the requisite pleading standard for prohibited transaction claims, the Second Circuit held that certain exemptions in ERISA 408(b) are expressly incorporated into ERISA 406(a), so a plaintiff must plausibly allege “facts calling into question the fiduciary’s loyalty by challenging the necessity of the transaction or the reasonableness of the compensation provided.” Because the Ninth Circuit earlier this year held that a more lenient pleading standard applied to prohibited transaction claims under ERISA 406(a), the Supreme Court may ultimately need to weigh in on this issue.
While the editors do their best to stay apprised of material developments, employee benefits is an expansive (and ever growing) subject matter. As such, we acknowledge that there may be topics of interest that are not being adequately covered. This is your Newsletter, and we want to make sure we are publishing anything that interests you. So please let us know if there are topics or issues that you would like us to cover. Please also let us know if you (or someone you know) would be interested in authoring an article for an upcoming edition of the Newsletter. The Newsletter depends on EBC members like you who are willing to contribute their time, effort and perspectives.