On May 28, 2025, the U.S. Department of Labor (DOL) took two major steps that signal a shift in its approach to fiduciary oversight under the Employee Retirement Income Security Act of 1974, as amended (ERISA). First, the DOL notified the Court of Appeals for the Fifth Circuit that it would cease defending its 2022 regulation addressing the consideration of environmental, social and governance (ESG) factors by fiduciaries in connection with investment decision-making and, instead, initiate a new rulemaking process. Second, the DOL issued Compliance Assistance Release No. 2025-01 (CAR 2025-01), which rescinds earlier guidance (CAR 2022-01) warning against including cryptocurrency investment options in participant-directed retirement plans. The first indicates a likely return to the anti-ESG stance taken by the DOL during the first Trump administration. The second removes a key inhibitor to fiduciaries deciding to include cryptocurrency in participant-directed plan investment options.
ESG Rule
In a pending Fifth Circuit case, the DOL announced that it would cease defending its 2022 investment duties regulation insofar as it pertains to fiduciaries' consideration of ESG factors. In a letter dated April 25, 2025, but filed with the court on May 28, 2025, the DOL explained:
The Department has determined that it will engage in a new rulemaking on the subject of the challenged rule. This rulemaking will appear on the Department's Spring Regulatory Agenda, and the Department intends to move through the rulemaking process as expeditiously as possible.
The 2022 regulation expressly permitted fiduciaries to consider ESG factors in investing ERISA plan assets to the extent those factors related to an investment's risk-reward characteristics or broke a “tie” between two or more otherwise prudent investment options. Through its new rulemaking, the DOL presumably will return to its stance in the first Trump administration of broadly discouraging ESG considerations.
Assuming the new regulation is promulgated as expected, it will facilitate lawsuits against plan sponsors, third-party asset managers and other fiduciaries that consider ESG factors in investing ERISA plan assets (including with respect to proxy voting). We expect it to do so chiefly by shifting the burden of proving the prudence of any such consideration to the fiduciary (instead of the plaintiff). Fiduciaries that do consider ESG factors should be prepared to meet such burden, including by engaging in a prudent decision-making process that is exclusively based upon a risk and return analysis and fully documenting that process and its results.
CAR 2025-01
CAR 2025-01 rescinds CAR 2022-01, which advised fiduciaries to exercise “extreme care” before including cryptocurrency investment options in participant-directed retirement plans, such as 401(k)s. CAR 2022-01 highlighted investment-related risks such as volatility, regulatory uncertainty and cybersecurity concerns.
By rescinding its prior guidance, the DOL has ceased to discourage plan sponsors and other fiduciaries from including cryptocurrency in their plans' investment options. Instead, under CAR 2025-01, the DOL expressly takes the view that cryptocurrencies should be evaluated under the same fiduciary standards (e.g., prudence and loyalty) that apply to any other asset class. We believe that a prudent evaluation should nevertheless include consideration of the risks described in CAR 2022-01.
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