Fiduciary Update: DOL Reverses Course On ESG And Cryptocurrency Investment Policies

Highlights

• The U.S. Department of Labor (DOL) is signaling a significant shift in its stance on environmental, social and governance (ESG) investing strategies and cryptocurrency investments as they relate to qualified retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA).
• In a recent letter to the U.S. Court of Appeals for the Fifth Circuit related to a case originally filed as Utah v. Walsh, the DOL confirmed it will issue a new rule that is expected to reflect the Trump Administration's position that applying individual ESG investment factors is inconsistent with ERISA fiduciary duty requirements, thereby replacing a 2023 rule from the Biden Administration.
• In addition, the DOL has formally rescinded Biden-era rules relating to cryptocurrency investments, removing explicit warnings against such investments in defined contribution plans and effectively eliminating the regulatory headwind that had discouraged plan sponsors from offering digital asset investment options.

Recent actions by the U.S. Department of Labor (DOL) have signaled a significant shift in its stance on environmental, social and governance (ESG) investing strategies and cryptocurrency investments as they relate to qualified retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). Importantly, plan sponsors must continue to fulfill complex regulatory requirements in this uncertain transition period, and their fiduciary duty to exercise prudence remains in spite of the withdrawal of specific guidance.

ESG Factors

In a recent letter to the U.S. Court of Appeals for the Fifth Circuit related to a case originally filed as Utah v. Walsh,¹ the DOL confirmed it will issue a new rule replacing "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" (the ESG Rule), which was previously adopted in 2023 by the Biden Administration. In fact, the ESG Rule reversed restrictions under the first Trump Administration that had effectively discouraged ESG considerations in plan investments.

In Utah v. Walsh, the attorneys general of 26 states sued the DOL to invalidate the ESG Rule, alleging that it violated ERISA's requirement that fiduciaries act solely in the best interest of participants and was arbitrary and capricious under the Administrative Procedures Act. After the U.S. District Court for the Northern District of Texas upheld the ESG Rule and the Fifth Circuit remanded the case to the lower court for reconsideration in light of the Supreme Court's June 2024 decision in Loper Bright Enterprises v. Raimondo, the DOL filed a letter with the court withdrawing the agency's defense of the ESG Rule. In its letter, the DOL stated its intent to engage in new rulemaking to substantially modify (or eliminate) the existing ESG framework.

The new rule to be issued by the DOL is expected to reflect the current administration's position that applying individual ESG investment factors is inconsistent with ERISA fiduciary duty requirements. This development likely represents a return to the first Trump Administration's position that ESG factors should be considered as tiebreakers only when traditional financial factors are indeterminate (e.g., two investment options offered the same rate of return).

Cryptocurrency Investments

The DOL issued Compliance Assistance Release (CAR) No. 2025 in May 2025 and formally rescinded Biden-era rules relating to cryptocurrency investments. Under CAR No. 2022-01, the Biden Administration had expressed serious concerns about fiduciaries including cryptocurrency investments in 401(k) plan menus, citing extreme volatility, valuation challenges and custody risks inherent in digital assets. By rescinding the Biden-era rules, the DOL removes explicit warnings against cryptocurrency investments in defined contribution plans and effectively eliminates the regulatory headwind that had discouraged plan sponsors from offering digital asset investment options. In so doing, the DOL asserted it was returning to a neutral standard toward particular investment types and strategies by "neither endorsing, nor disapproving of, plan fiduciaries who conclude that the inclusion of cryptocurrency in a plan's investment menu is appropriate."

Fiduciary Considerations

In the current void of ESG regulations, fiduciaries implementing ESG-focused investment options should document that such decisions are driven by pecuniary factors rather than non-financial social policy objectives. A prudent fiduciary process under ERISA remains more critical than ever, requiring thorough evaluation of risk-return profiles (regardless of ESG considerations).

Fiduciaries would be loath to see the rescission of cryptocurrency warnings as an endorsement of digital assets by the DOL. Instead, fiduciaries considering cryptocurrency options must still satisfy heightened prudence standards given these investments' relative novelty and unique characteristics, including regulatory uncertainty, custody challenges and extreme volatility that may be considered inappropriate for retirement savings.

Recommendations

Plan sponsors should anticipate further regulatory guidance and implement processes to consider:

1. Documentation Enhancement. Strengthen investment committee processes to demonstrate prudent decision-making independent of the shifting regulatory landscape.
2. Professional Consultation. Engage investment advisors and ERISA counsel to evaluate existing ESG-focused options and potential cryptocurrency offerings within established fiduciary frameworks.
3. Participant Communication. Prepare clear disclosures regarding investment risk profiles, particularly for alternative investments that are or may become available.

The Trump Administration directives reflect broader philosophical shifts in federal retirement plan and investment policy but do not fundamentally alter fiduciary standards under ERISA. Plan fiduciaries must navigate this policy evolution by implementing and adhering to prudent processes while monitoring and adjusting to future federal (and state) regulatory guidance.

The issuance of additional rules is anticipated in the coming months, and Holland & Knight's Executive Compensation and Benefits Team will continue to monitor the situation and provide key insights into enforcement trends.

Footnote

1. The original lawsuit is State of Utah et al. v. Martin J. Walsh and United States Department of Labor. In the Fifth Circuit, the case is State of Utah et al. v. Julie A. Su, Acting Secretary, U.S. Department of Labor; United States Department of Labor.