United States: Department of Labor ESG and Cryptocurrency-Related Matters

By: Robert L. Sichel, Ruth E. Delaney, William P. Wade, and Lael R. Franco

The Department of Labor will engage in new rulemaking to replace Biden era regulations labeled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” that allowed plan fiduciaries may consider ESG factors when choosing ERISA retirement plan investments. The Department announced its intention in a filing to the Fifth Circuit Court of Appeals in connection with a legal challenge to the regulations.

While the Department stated that it intends to move through the rulemaking process “as expeditiously as possible,” the timeline for a new rule proposal remains unclear at least until the Department releases its next regulatory agenda. The regulations remain effective until the new rulemaking process is complete or, alternatively, if the plaintiffs prevail in their appeal of the case that the Fifth Circuit Court of Appeals remanded back to the district court.

Additionally, the Department announced in a Compliance Assistance Release available here that it is rescinding its 2022 guidance on the inclusion of cryptocurrencies in 401(k) plans. According to a Department press release, “By rescinding the 2022 guidance, the department reaffirms its neutral stance, neither endorsing, nor disapproving of, plan fiduciaries who conclude that the inclusion of cryptocurrency in a plan’s investment menu is appropriate.”

The Department’s 2022 guidance was widely criticized for departing from taking a neutral, principles-based approach to fiduciary investment decisions. The Department itself acknowledged that the “extreme care” standard articulated in its prior guidance was inconsistent with the statutory standard. Fiduciaries considering digital assets, such as cryptocurrencies, should, like with respect to any plan investment, act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.