If the Senate confirms President Donald Trump's choice of Daniel Aronowitz as assistant secretary of labor for the U.S. Department of Labor (DOL), benefits attorneys could see some major policy changes later this year.
Enforcement of ERISA by EBSA
Priorities in the enforcement of the Employee Retirement Income Security Act (ERISA) are likely to change, given DOL staff cuts and Aronowitz's statements during confirmation hearings. In the past two fiscal years, supplemental appropriations have funded more than 100 full-time employees at DOL's Employee Benefits Security Administration (EBSA) to increase enforcement and oversight of health plans. Enforcement priorities included federal mental health parity laws and the No Surprises Act. However, the supplemental funding will expire at the end of this year, which is likely to result in a steep reduction in enforcement staff.
Aronowitz also stated that he plans to refocus enforcement efforts and move away from "open-ended investigations" that often last four years or more. Furthermore, he declared that he would stop vigorously enforcing rules related to employee stock ownership plans (ESOPs).
New Regulations on the ESG Rule
The DOL already has abandoned a Biden administration-era rule that allowed — but did not require — ERISA fiduciaries to take environmental, social, and governance (ESG) factors into account when choosing investment options. The DOL announced in a case challenging the ESG rule before the U.S. Circuit Court of Appeals for the Fifth Circuit that it intended to issue a new ESG rule that is likely to more closely resemble the previous Trump administration's 2020 rule on the subject.
Potential New ESOP Rule
Although President Trump's nominee has publicly announced a shift away from enforcement on ESOPs, benefits attorneys are still awaiting a potential new rule for valuing ESOP stock. Recent policy shifts and Aronowitz's public statements indicate that such a rule may be forthcoming, as some members of Congress have urged. The Biden administration's EBSA proposed an ESOP stock valuation rule in January, but the agency withdrew the proposal as soon as Trump took office.
The hope is that an ESOP stock valuation rule would provide a clear definition of "adequate consideration" in ERISA. Adequate consideration is the measure of how a plan fiduciary places a fair market value of company stock for an ESOP to purchase. The phrase is relevant in ERISA class action disputes that involve prohibited transaction claims. In these types of cases, employees often utilize the statutory exemption of adequate consideration as a defense. This exemption sets the standards for determining whether employer stock purchases relied on good faith valuation, including the condition that ESOP can't pay an amount greater than the fair market value for shares. At present, litigation continues over the meaning of the exemption.
DOL IG Probes Agency's Relationship with Law Firms
In June, the DOL Inspector General (IG) announced an investigation into the DOL's relationship with plaintiff's law firms. Through an audit of EBSA, the Wage and Hour Division, and the Office of the Solicitor, the IG is trying to determine whether the DOL shared confidential information with plaintiff's firms.
The House Education and the Workforce Committee began pushing for an investigation last November based on a DOL common interest or common cause agreement with a plaintiff's law firm that came to light during discovery in a class action lawsuit. The outcome of the IG investigation may shape future policy on whether the DOL continues to use common interest agreements in the current manner.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties.
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