I have been asked whether the Supreme Court’s decision in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce et al. could affect the outcome of the litigation about the validity of the DOL’s fiduciary regulation and related exemptions. The answer is “yes”, but perhaps not in the way you might think. This article discusses the Loper Bright decision in the context of a review of the DOL’s fiduciary regulation.

To be fair, I am not an expert on constitutional law and I don’t want to create the impression that this is an authoritative article. Instead, my goal is to highlight the issues for consideration by the courts.

In the majority opinion in the Loper Bright decision, Chief Justice Roberts concluded:

Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous. (The bolding is mine and highlights the issues that I will discuss later in this article.)

As the bolded language suggests, an important question is whether ERISA delegates authority to the DOL to issue regulations.

Section 505 of ERISA grants the Secretary of Labor the authority to issue regulations that the Secretary “finds necessary or appropriate to carry out the provisions” of the law. That appears to be a fairly broad delegation…particularly the “finds…appropriate” language.

Subject to subchapter II and section 1029 of this title, the Secretary may prescribe such regulations as he finds necessary or appropriate to carry out the provisions of this subchapter. Among other things, such regulations may define accounting, technical and trade terms used in such provisions; may prescribe forms; and may provide for the keeping of books and records, and for the inspection of such books and records (subject to section 1134(a) and (b) of this title). (The bolding is mine.)

Some courts have minimized the import of that section by quoting it, but leaving out the words “Among other things” and then suggesting that the Secretary’s authority is limited to regulations about forms, books and records, and defining trade terms. But of course, a court can’t just drop words from a statute in order to reach a desired outcome.

The majority opinion included a discussion of the ways in which Congress could delegate the authority and the more limited review that the courts would use in that case. The relevant parts of that discussion are (citations omitted):

In a case involving an agency, of course, the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion. Congress has often enacted such statutes. For example, some statutes “expressly delegate[]” to an agency the authority to give meaning to a particular statutory term. Others empower an agency to prescribe rules to “fill up the details” of a statutory scheme, or to regulate subject to the limits imposed by a term or phrase that “leaves agencies with flexibility,” such as “appropriate” or “reasonable.” (I bolded the last phrase because it includes the word “appropriate”, which is in the grant of authority in section 505 of ERISA.)

The majority opinion continues:

When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The court fulfills that role by recognizing constitutional delegations, “fix[ing] the boundaries of [the] delegated authority,” and ensuring the agency has engaged in “‘reasoned decisionmaking’” within those boundaries. By doing so, a court upholds the traditional conception of the judicial function that the APA adopts.

I bolded parts of the quote to emphasize that, where authority was delegated by Congress, a court cannot substitute its views on the “best” regulatory approach, but instead must allow the agency to make the decision, so long as the regulatory approach is reasoned and within the boundaries of the delegation.

As a result, courts will have to grapple with the scope of the delegation and whether the regulation is reasoned. I don’t believe the trial courts in the lawsuits have done that. They will need to when the regulation is considered on its merits—probably mid to late next year. However, it is also possible that the trial courts will “punt” by deferring to the Fifth Circuit’s 2018 Chamber of Commerce decision on the Obama era fiduciary regulation.

Ultimately, this may need to be decided by the Supreme Court.

Concluding Thoughts

My goal in writing this article is to show that the outcome is not predetermined. That is, some observers have been saying that the Loper Bright decision will restrict the ability of the DOL to issue regulations under ERISA—for example, the fiduciary regulation and the ESG regulation. However, it is more nuanced than that. ERISA delegates authority to the Secretary of Labor to issue regulations that the Secretary finds “appropriate to carry out the purposes” of the law. That strikes me as a broad delegation.

Similarly, ERISA gives the Secretary discretion to issue exemptions to the prohibited transaction rules, but the Secretary can only issue them if the Secretary finds that the interests of participants and beneficiaries are protected. However, that is a topic for my next article.

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The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.