Fiduciary Rule Fate Clouds in Wake of SCOTUS Chevron Doctrine Ruling

With Chevron doctrine thrown out, courts—not agencies—have more leeway to interpret statutory provisions and challenges to rulemaking are ramping up
U.S. Supreme Court chevron doctrine ruling
U.S. Supreme Court. Image credit: © Christian Offenberg | Dreamstime.com

The U.S. Supreme Court’s 6-3 decision last week in Loper Bright Enterprises v. Raimondo to overturn the Chevron doctrine—a central doctrine of administrative law that had stood since 1984—could very well derail the Department of Labor’s Retirement Security Rule, which, as of right now, is still set to take effect in September.

With Chevron overturned, the DOL’s interpretations of laws such as ERISA are expected to face more rigorous judicial scrutiny.

The Court held that Chevron, which grants significant deference to agency interpretations of federal statutes, conflicts with the Administrative Procedure Act’s (APA) command that courts, not agencies, are to “decide all relevant questions of law” and “interpret statutory provisions.”

The Chevron doctrine allowed courts to defer to federal agencies’ interpretations of ambiguous statutes, giving agencies like the DOL substantial leeway in implementing and enforcing regulations. No longer.

With Chevron overturned, the DOL’s interpretations of laws such as the Employee Retirement Income Security Act (ERISA) are expected to face more rigorous judicial scrutiny. This landmark change makes it easier for plaintiffs to challenge DOL regulations in court, potentially stalling or invalidating rules like the forthcoming Retirement Security Rule (often referred to as the fiduciary rule), which aims to impose fiduciary duties on rollover recommendations from employer-sponsored retirement accounts to IRAs.

FordHarrison's Adam Cantor
FordHarrison’s Adam Cantor

As noted in a July 2 legal brief by FordHarrison’s Adam Cantor, the pushback is under way. Cantor wrote that on the very day that Loper Bright was decided, June 28, 2024, 26 Republican state attorneys general sent a letter to the Fifth Circuit Court of Appeals in New Orleans asking the court to invalidate the DOL’s final fiduciary rule, on the ground that the DOL lacks statutory authority to introduce nonpecuniary ESG factors into retirement plan investment decisions.

The Fifth Circuit is scheduled to hear arguments in the case (State of Utah et al. vs. Julie A. Su et al.) next Tuesday, July 9. Pensions & Investments reported July 2 that both Utah and the DOL have filed documents with the appeals court referencing the Chevron deference case. Utah said the Supreme Court’s decision means the appeals court should overturn the lower court’s decision on the 401(k) rule while the DOL said it never cited the Chevron deference case even before the Supreme Court scrapped the standard.

Also on June 28th, two industry groups representing broker-dealers, the Financial Services Institute (FSI) and the Securities Industry and Financial Markets Association (SIFMA), filed a motion to intervene in another federal case seeking to invalidate the DOL’s final fiduciary rule, on the ground that such rule violates the APA.

FordHarrison’s Cantor expressed uncertainty about whether the challenges will be successful, but said it is worth emphasizing that Loper Bright does not overrule the so-called Skidmore deference doctrine.

From Cantor’s brief:

As noted by Chief Justice Roberts, “in Skidmore v. Swift & Co., 323 U.S. 134 (1944), the Court explained that the ‘interpretations and opinions’ of the relevant agency, ‘made in pursuance of official duty’ and ‘based upon . . . specialized experience,’ ‘constitute[d] a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,’ even on legal questions. . . . ‘The weight of such a judgment in a particular case,’ the Court observed, would ‘depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Under Skidmore deference, “courts may—as they have from the start—seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance’ consistent with the APA.”

While legal challenges to regulatory and sub-regulatory guidance in ERISA matters are expected to ramp up, Cantor said courts sympathetic to views of the DOL, IRS, SEC or PBGC can still invoke Skidmore deference to rule in favor of the agency.

“The real issue is likely to be, at least initially, the scope of injunctive relief obtained by those litigants challenging the guidance,” Cantor concluded. “It has been common for such litigants to seek injunctive relief in courts perceived to be friendly to the cause of limits on regulatory authority, particularly the Fifth Circuit Court of Appeals.”

The precursor to the DOL’s Retirement Security Rule, the 2016 fiduciary rule, was of course vacated by the Fifth Circuit Court of Appeals back in 2018.

In a July 2 Employee Benefits Update from Thompson Hine LLP, Partners Katherine B. Kohn and Dominic DeMatties and Managing Associate Nate Ingraham wrote they would not be surprised to see agencies conclude that in at least some cases a robust rulemaking process is not worth the effort, resulting in fewer rulemaking projects and an increase in the pace and volume of subregulatory guidance, particularly following enactment of new laws or a change in administration.

“Over time, we may also see the courts develop layers of deference under Skidmore, which could then re-incentivize agencies to engage in a robust rulemaking process,” the update concluded.

SEE ALSO:

• FSI, SIFMA Join Lawsuit Against Fiduciary Rule; CFP Board Backs It in Separate Suit

• Fiduciary Rule Update: Hearings, Lawsuits and Compliance Prep

• Nine Insurance Trade Groups Sue DOL Over Fiduciary Rule

• House Committee Vote to ‘Stop Biden’s Fiduciary Rule’ Set for Wednesday

Brian Anderson Editor
Editor-in-Chief at  | banderson@401kspecialist.com | + posts

Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.

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