Imagine that you have spent considerable time and money to set up systems to comply with new regulations. These include changes to your plan’s record keeping system, plan document, communications and compliance procedures. Years later, a court invalidates the regulations, which might restore the prior rules. or leave important statutory issues and terms undefined. The effect of the decision might be retroactive. If it is an activist court, it might enjoin enforcement of the regulations across the country even though other judges might come out differently if the case were before them.
How do you deal with this situation? The benefits community is about to find out, and regardless of whether you think the agencies overstep in their regulations, it will not be a pretty picture.
The Supreme Court didn’t mention ERISA in Loper Bright Enterprises v. Raimondo (No. 22-451, June 28, 2024), its decision ending Chevron deference, but that decision is likely to affect employee benefit plan regulation at least as much as other areas of the law. This is because the Loper Bright decision says that courts need no longer defer to an agencies’ reasonable interpretation of ambiguous statutory provisions.
What did the Supreme Court Say? Justice Roberts’ decision found that the Constitution and the Administrative Procedure Act (APA) required that judges rather than administrative agencies interpret ambiguous statutory provisions. The Court rejected the argument that agencies have developed expertise that makes them better qualified to make such determinations, though it did say that courts could find an agency interpretation persuasive and that Congress might make a clear mandate to agencies to apply a statutory term to particular facts. To compound the uncertainty, on July 1 the Supreme Court ruled in Corner Post v. Bd. of Gov. of the Federal Reserve System (No. 22-1008) that the 6 year statute of limitations for challenging regulations under the APA does not begin to run until a plaintiff suffers an injury. Therefore, a newly created entity or one that began a new line of business could challenge a regulation when it first became subject to it, even if the challenge was filed many years after the time period for challenges had otherwise expired. Given the endless stream of new businesses, this companion case could greatly expand the challenges to existing regulations that were thought to be final.
Which Regulations are vulnerable? Internal Revenue Service, Department of Labor and PBGC guidance are all open to challenge under these rules, and they will impact existing challenges to the Department of Labor’s fiduciary rule and ESG and proxy voting rules. The Department of Labor has already filed a brief in the Texas ESG litigation arguing that it never relied on the Chevron doctrine. A proposed PBGC regulation on interest rates used to determine multiemployer plan withdrawal liability which takes a position contrary to some recent court decisions would be especially vulnerable if finalized, and perhaps the PBGC will reconsider. But all regulations would be fair game, and the subregulatory guidance issued recently by the Department of Labor in lieu of proposed regulations should have no binding effect at all.
Why is this so important for employee benefit plans?
We already know that not enough employees are covered by employer-sponsored plans, and studies consistently show that Americans are not saving enough for retirement. Employers cite the complexity of plan regulation as a reason for not adopting plans. While it is true that some regulations are unnecessarily complex, running to hundreds of pages, and may be considered overreaching, certainty about how to comply with applicable laws is necessary to incentivize new plan formation.
Employee benefits law is already extremely complex as a result of laws such as the two SECURE Acts. Further, employee benefits law is not just in one statute-laws such as the Age Discrimination in Employment Act, Title VII and the securities laws can impact how plans are run, since ERISA does not preempt other federal law. Despite Justice Roberts’ insistence that judges can make these determinations, judges are unlikely to have sufficient experience to put these claims in context since they don’t deal with ERISA issues regularly. Courts are all over the place on many basic ERISA questions even after 50 years.
In the opinion of some commentators, ERISA litigation is already out of control. The Loper decision will increase an already staggering litigation load and burden the courts. Extreme decisions could have national reach, particularly if they are filed in the Fifth Circuit, whose judges have struck down important regulations already even when Chevron deference applied. Forum shopping will increase, and the Supreme Court will undoubtedly be asked to resolve more disputes among the circuits.
Are there any current takeaways? The practical sweep of Loper will become clearer after the lower courts start issuing decisions and we see how far-reaching they are. However, there are some current takeaways:
· Plan sponsors who want to challenge regulations will have an easier job, but they will still be required to have standing, which means they must have been affected by the regulations.
· It will be easy to find new businesses to challenge even old regulations under the new limitations rule established in Corner Post. No regulation may be safe from challenge.
· Congress can try to mandate that agencies interpret statutory terms in the statutes it passes. Loper indicates that is still possible for new laws or amendments. If Congress does so, that may limit Loper’s scope.
· The practice of changing regulations as administrations change may be discouraged if there is no automatic deference.
· Agencies may become more cautious in issuing future regulations, and may stop issuing subregulatory guidance such as the Department of Labor’s warnings about investing in cryptocurrency, as subregulatory guidance should be given no weight at all under the reasoning in Loper.