On Thursday, a U.S. appeals court directed a Texas judge to review his ruling that upheld a Biden administration regulation, which permits employee retirement plans to invest in socially conscious causes. This review was ordered in light of a significant recent ruling by the Supreme Court.
In an attempt to prevent the implementation of the U.S Department of Labor rule, a coalition of 25 states led by Republicans and oil drilling company Liberty Energy has filed a lawsuit. However, their efforts were initially denied by U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas last September. Undeterred, the states and Liberty have since appealed the decision.
In his ruling, Kacsmaryk cited the legal principle of Chevron deference, which has been in effect for 40 years. This principle mandates courts to give deference to the interpretations of unclear laws made by the agencies responsible for enforcing them.
Last month, the U.S. Supreme Court abolished Chevron deference, stating that courts must employ their own judgment to determine the validity of agency rules. This decision has greatly limited the rulemaking authority of federal agencies.
On Thursday, a three-judge panel of the 5th U.S. Circuit Court of Appeals ruled that Kacsmaryk is required to make a decision on the case without relying on Chevron deference. However, the rule is still in place at present.
As of February 2023, a new rule has been implemented that permits 401(k) and other plans to use environmental, social, and corporate governance (ESG) factors as a deciding factor between two or more investment options of equal financial value. The previous rule, which was introduced during the Trump administration, forbade plans from taking into account any non-financial factors.
Requests for comment from the Attorneys General of Texas and Utah, as well as Liberty and the Department of Labor, have not yet been answered.