Since 1984, citation to Chevron v. Natural Resources Defense Council ("Chevron") has meant that courts should defer to an agency's interpretations of an ambiguous statute—as long as the agency's interpretation is "reasonable," even if not the "best" in the court's view. This deference, known as Chevron deference, was a staple of regulatory law for 40 years until June 28, 2024, when the Supreme Court overturned Chevron in Loper Bright v. Raimondo ("Loper Bright"). A few days later in Corner Post v. Board of Governors ("Corner Post"), the Supreme Court held that the time for challenging most agencies' regulations is six years from when a plaintiff is injured by the regulation, not six years from when the regulation was issued.
Employee benefit plans are regulated by the IRS, DOL, and PBGC. These agencies issue opinion letters, private letter rulings, statutory regulations, and interpretative regulations, and they take enforcement actions. What is the effect of the Supreme Court's Loper Bright and Corner Post decisions on these agencies' interpretations and enforcement actions?
The Overruled Chevron Decision and Its Effect on Agency Interpretations
Under Chevron, the courts had applied a two-step approach to statutory interpretation. If Congress meant to delegate to the agency authority to interpret the law, you begin with Step 1: Did Congress directly address the issue in the statute so that the issue is clear. If so, the inquiry ends here, or, if not, then Step 2: If the statute is silent or ambiguous with respect to the issue, the court should defer to the reasonable interpretation of the administrative agency if the agency's interpretation is based on a permissible construction of the statute, even if not the "best" in the court's view. In Loper Bright, the Supreme Court overruled Chevron holding that the Administrative Procedure Act ("APA") requires the court to interpret the law and not the agency. The Supreme Court held that it is job of the judicial branch to determine the best reading of the statute and not the job of the agency. Thus, Chevron deference as a rule of statutory interpretation now ceases to exist, but how does the demise of Chevron effect the interpretations of the IRS, DOL, and PBGC?
Agency opinion letters, private letter rulings, and revenue rulings were never entitled to Chevron deference. As noted by the Supreme Court in Loper Bright, these interpretations were governed by the Supreme Court's decision in Skidmore v. Swift & Co. that held that interpretations and opinions of the relevant agencies made in an official capacity may be considered by the court and given the weight that the court determines that is deserves, affording the agency the "power to persuade," not the "power to control." Thus, opinions of the agencies may still be considered by the court, but they are not and never were entitled to deference.
Congress by statute sometimes directs an agency to issue regulations under the statute. These regulations are sometimes referred to as statutory regulations. For example, IRS Section 414(m) states that employee benefit requirements of affiliated service groups shall be treated as those of a single employer, except to the extent provided by regulation. ERISA Section 4213(a)(2) states that withdrawal liability shall be determined by actuarial assumptions and methods set forth in PBGC regulations. Are these regulations entitled to deference? The Loper Bright decision answers this question in the affirmative stating that where Congress has expressly delegated a determination to an administrative body such delegation will be respected and will remain untouched. Therefore, the Loper Bright decision does not change the deference given to statutory regulations.
A large number of regulations issued by the agencies are interpretative regulations, regulations issued by agencies after compliance with the notice and review procedures of the Administrative Procedure Act. Under Loper Bright, a court will examine the agency's regulations to ensure that the agency engaged in "reasoned decisionmaking" in compliance with the APA, but even if it did so, its regulations are entitled to no special deference by the court. For example, the IRS proposed regulation 88 FR 12282-01, that plan forfeitures may be utilized to either reduce employer contributions or be allocated to plan participants, would be entitled to no deference, even if finalized, in litigation asserting that such discretion constitutes a breach of fiduciary duty. Similarly, Section 401(a)(9) regulations that affect the ability to defer death benefit distributions to the end of a 10-year period and then pay the benefit in a lump sum are entitled to no deference when determining whether Congress intended installment payments to continue during that 10-year period.
The Impact of Corner Post v. Board of Governors on the Employer's Ability To Challenge Agency Action
The Supreme Court ruled in Corner Post that the time period for challenging an agency's regulation or ruling is six years from the date of the injury to the plaintiff and not six years from the date of enactment of the regulation unless challenges to an agency's regulation are governed by a statute of repose that expressly provides that aggrieved parties may seek review of an a final agency order within a certain number of days after its entry. This is a welcome clarification. However, it is unlikely to significantly open the floodgates to litigation in ERISA, as the agencies and the courts have generally tied the statute of limitations to the employer's injury rather than an agency's rule or interpretation publication as ERISA claims procedures do not operate as a statute of repose. However, with the demise of Chevron deference an injured plan sponsor or plan participant may be more likely to challenge the agency's action now that the statute of limitations has been clarified.
Post-Chevron World: Cases and Areas of Law To Watch
It is unclear how the end of Chevron deference will affect employee benefits legislative regulations long term; current litigation may give insight.
ESG
The DOL promulgated a regulation that permits fiduciaries of private-sector employee benefit plans to consider environmental, social, and governance investments ("ESG") in retirement plans if ESG factors are a "tie breaker" between other investment choices that have the same time horizons and the same risk and reward economic profiles. However, in Utah v. Walsh, a group of states sued the DOL to enjoin the application of the rule. In September 2023, the U.S. District Court for the Northern District of Texas dismissed the case; the plaintiffs appealed. The case is currently pending in the U.S. Court of Appeals for the 5th Circuit. Without Chevron deference, the DOL rule is at risk.
Section 1557
Days after Loper Bright, three federal district courts issued a nationwide preliminary injunction preventing the Department of Health and Human Services ("HHS") from enforcing its final rule that implemented Section 1557 of the ACA. Section 1557 of the ACA would have required health plans that receive funding from HHS to not unlawfully discriminate against gender—meaning plans would not be able to prevent individuals from receiving gender-affirming care ("Final Rule"). Plaintiffs in all three cases (Texas v. Becerra, Tennessee v. Becerra, and State of Florida v. Department of Health and Human Services) claimed the Final Rule violated statutory and constitutional law because the ACA and Title IX do not expressly include gender identity as a protected category. The plaintiffs' cases may have gotten stronger with the elimination of Chevron deference.
Use of Forfeitures
A new class action complaint filed in the Central District of California alleges that a national bank improperly used forfeited plan money. Plaintiffs allege that when the bank puts forfeited funds toward employer contributions, it reduces plan assets and ultimately harms the participants. This complaint mirrors two existing lawsuits—one filed in the Northern District of California, where the District Court found that the plaintiff had sufficiently pled that the plan was damaged when a company reallocated forfeited funds for its own benefit. Similarly, in a suit filed in the Southern District of California, the court also found the plaintiff's claim to be plausible—that the company violated its duty of prudence when it used forfeited retirement funds to reduce its plan contributions. The current forfeiture litigation cases are especially relevant because the IRS already ruled that 401(k) plan forfeitures can be used to reduce future employer contributions. But with the end of Chevron, the courts may have a different interpretation.
DOL's Final Fiduciary Rule
Two courts have issued decisions to halt the September 23 implementation of the DOL's final fiduciary rule: the U.S. District Court for the Eastern District of Texas and the U.S. District Court for the Northern District of Texas. In both cases, Federation of Americans for Consumer Choice v. U.S. Department of Labor and American Council of Life Insurers v. U.S. Department of Labor determined that the DOL's final fiduciary rule did not meet APA requirements and the DOL did not analyze enough impact data while conducting its cost-benefit analysis. The DOL's final fiduciary rule expanded the definition of "fiduciary" so sellers of non-variable indexed annuities are held to a fiduciary standard; they must put the interest of clients first. This rule isat risk with the elimination of Chevron deference.
IRS Code Section 401(a)(9) RMDs
Required minimum distributions ("RMDs") could be the next area of litigation post-Chevron. Previously, the SECURE Act of 2019 changed the five-year payout requirement for inherited defined contribution plans to a 10-year payout requirement. Under the five-year payout rule, the balance of the plan could be distributed in one lump sum at the end of the fifth year, but for the new 10-year payout requirement, the IRS stated that, for participants who died after their required beginning date, annual RMDs would be required in each of the years instead of as a lump sum in at end of the 10th year. As a result of misunderstandings, the IRS provided relief from excise taxes for failure to take the RMD in late 2022, in Notice 2022-53and again most recently in Notice 2023-54. However, this relief could be subject to challenge under Loper Bright and potentially overturned. Plan sponsors and taxpayers could face more uncertainty.
What Employers Should Consider
The end of Chevron deference will give more opportunity to employers to contest and prevail on actions challenging agency interpretations but at the same time it will increase the uncertainty as to compliance which may ultimately lead to an increase in administrative costs for employers. Employers should carefully monitor developments in this area, and contact their DWT benefits attorney for more information.
