25 States and 3 Fossil Fuel Industry Actors Sue to Block DOL Rule Permitting ESG Investing

The lawsuit seeks an injunction against the rule, set to take effect Monday, which would allow ESG considerations in retirement plan investment decisions.

Twenty-five states with Republican attorneys general, two oil-services companies and an oil and natural gas advocacy group filed a lawsuit in U.S. District Court on Thursday against the Department of Labor seeking to prevent and overturn its rule permitting environmental, social and governance considerations in retirement investing.

The lawsuit, filed in the U.S. District Court for the Northern District of Texas, also was brought by oil-service companies Liberty Energy and Liberty Oilfield Services, advocacy group Western Energy Alliance and retirement plan participant James R. Copeland. It seeks to prevent the implementation of the DOL’s final rule regarding the use of ESG strategy in retirement investing, set to take effect on Monday, January 30.

The lawsuit claims the rule oversteps the Department of Labor’s statutory authority under the Employment Retirement Income Security Act of 1974 and seeks a preliminary injunction against it. The plaintiffs are also asking the court to grant “permanent relief in the form of a declaration that the ESG Rule violates the [federal Administrative Procedures Act] and ERISA and is arbitrary and capricious.”

The rule clarifies that fiduciaries may consider ESG factors in investing without violating their fiduciary duties, but does not require it. The rule as adopted clarifies how the fiduciary duties of prudence and loyalty under ERISA apply to selecting investments and investment courses of action, including selecting qualified default investment alternatives; exercising shareholder rights such as proxy voting; and the use of written proxy voting policies and guidelines.

The rule reverses amendments to the department’s investment duties regulation adopted in 2020, during the administration of President Donald Trump.

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The lawsuit claims that the rule “undermines key protections for retirement savings of 152 million workers—approximately two-thirds of the U.S. adult population and totaling $12 trillion in assets.”

The state attorneys general bringing the suit represent Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, Ohio, South Carolina, North Dakota, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming.

Tags: anti-ESG, ESG, Litigation, United States Department of Labor (DOL)

The Pension Benefit Guaranty Corporation announced Thursday it will provide Special Financial Assistance to two union pension plans: the Alaska Ironworkers Pension Plan and the Plasterers Local 82 Pension Fund.

The Plasterers Local 82 Pension Fund is based in Portland, Oregon, and has 317 participants. It applied in September 2022 for $20.07 million more than three years after cutting benefits to 250 participants by 25% in February 2019 under the Multiemployer Pension Reform Act of 2014. On Thursday, this amount was approved, plus interest from the date of the application, making the final amount $20.50 million.

The Alaska Ironworkers Pension Plan, based in Anchorage, has 744 participants. In July 2018, the plan cut benefits by 26.5% under the MPRA. The PBGC granted it $53.5 million in SFA funds.

The Alaska Ironworkers Pension Plan submitted a comment letter on the final rule on SFA assistance in August 2021. The letter noted that the PBGC calculates its SFA grants in order to keep a plan solvent through 2051 and prioritizes restoring lost benefits and saving plans that are in imminent risk of insolvency. The letter suggests that this strategy merely kicks the can down the road and that some plans may opt for MPRA benefit reductions in the name of indefinite solvency, rather than take a bailout which anticipates insolvency 30 years down the road.

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The Plasterers Local plan could not be reached for comment.

The 2051 solvency is still used by the PBGC in its calculus for SFA relief, and the Alaska Ironworkers Pension Plan grant would have used this method. The Alaska Ironworkers Pension Plan did not return a request for comment.

The SFA provision of the American Rescue Plan Act allows for PBGC funding for severely underfunded multiemployer pension plans. Pension funds that receive assistance must monitor the interest resulting from the grant money as separate from other sources of funding. The PBGC requires that at least two-thirds of the money it provides be invested in “high-quality fixed income investments.” The Final Rule on Special Financial Assistance, issued in July 2022, states that the other third can be invested in “return-seeking investments,” such as stocks and stock funds.

Tags: PBGC, SFA