Amicus Brief: Utah v. Su

This is a challenge to the Labor Department’s revised duty of prudence and loyalty under the Employee Retirement Income Security Act (ERISA). In November 2022, the Biden administration replaced Trump-era rules to allow retirement plan fiduciaries to consider environmental, social, and corporate governance (ESG) factors when making investing decisions and in proxy voting for shares controlled by those plans. A coalition of 26 states and private plaintiffs, including individual plan participants, an oil and gas company, and Western Energy Alliance, filed suit in federal court in Texas.

The plaintiffs asserted that the new ESG investing rule violated the Administrative Procedure Act because it was contrary to the ERISA statute and because it was arbitrary and capricious, particularly since DOL’s proffered justification for the rule was not supported by its reasoning for discarding the 2020 rules and issuing the new one. Their challenge focused on the revised rule’s “tie-breaker” provision that loosened the standard from the prior rule and essentially permits plan fiduciaries to use collateral ESG factors to make investment decisions if they determine that two competing investments “equally serve the financial interests of the plan”—while also relieving fiduciaries from having to document and disclose those decisions. 

The district court, applying Chevron (the idea that courts should defer to reasonable agency interpretations of statutes), determined that DOL’s expansive interpretation of ERISA deserved deference and that its new rules were adequately explained. Now on appeal to the Fifth Circuit, the Manhattan Institute joined the National Center for Public Policy Research and business professor Allen Mendenhall to file a brief supporting plaintiffs’ contention that retirement plans are supposed to act “for the exclusive purpose” of providing financial benefits to plan participants. Our brief demonstrates that the new rule would decrease, rather than improve, transparency and reliability by pushing fund managers to become overly reliant on proxy-advisory firms and to vote for political ESG measures that are against the interests of savers and retirees. 

[Full disclosure: MI director of legal policy Jim Copland is one of the individual plaintiffs in this case, so he did not participate in this amicus brief in any way.]

Ilya Shapiro is a senior fellow and director of Constitutional Studies at the Manhattan Institute. Follow him on Twitter here.

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