On Might 28, 2025, the U.S. Division of Labor (DOL) took two main steps that sign a shift in its strategy to fiduciary oversight beneath the Worker Retirement Earnings Safety Act of 1974, as amended (ERISA). First, the DOL notified the Court docket of Appeals for the Fifth Circuit that it will stop defending its 2022 regulation addressing the consideration of environmental, social and governance (ESG) components by fiduciaries in reference to funding decision-making and, as a substitute, provoke a brand new rulemaking course of. Second, the DOL issued Compliance Help Launch No. 2025-01 (CAR 2025-01), which rescinds earlier steerage (CAR 2022-01) warning towards together with cryptocurrency funding choices in participant-directed retirement plans. The primary signifies a probable return to the anti-ESG stance taken by the DOL throughout the first Trump administration. The second removes a key inhibitor to fiduciaries deciding to incorporate cryptocurrency in participant-directed plan funding choices.
ESG Rule
In a pending Fifth Circuit case, the DOL introduced that it will stop defending its 2022 funding duties regulation insofar because it pertains to fiduciaries’ consideration of ESG components. In a letter dated April 25, 2025, however filed with the courtroom on Might 28, 2025, the DOL defined:
The Division has decided that it’s going to have interaction in a brand new rulemaking with reference to the challenged rule. This rulemaking will seem on the Division’s Spring Regulatory Agenda, and the Division intends to maneuver via the rulemaking course of as expeditiously as doable.
The 2022 regulation expressly permitted fiduciaries to think about ESG components in investing ERISA plan property to the extent these components associated to an funding’s risk-reward traits or broke a “tie” between two or extra in any other case prudent funding choices. By way of its new rulemaking, the DOL presumably will return to its stance in the primary Trump administration of broadly discouraging ESG concerns.
Assuming the brand new regulation is promulgated as anticipated, it is going to facilitate lawsuits towards plan sponsors, third-party asset managers and different fiduciaries that think about ESG components in investing ERISA plan property (together with with respect to proxy voting). We anticipate it to take action mainly by shifting the burden of proving the prudence of any such consideration to the fiduciary (as a substitute of the plaintiff). Fiduciaries that do think about ESG components must be ready to satisfy such burden, together with by partaking in a prudent decision-making course of that’s completely based mostly upon a danger and return evaluation and absolutely documenting that course of and its outcomes.
CAR 2025-01
CAR 2025-01 rescinds CAR 2022-01, which suggested fiduciaries to train “excessive care” earlier than together with cryptocurrency funding choices in participant-directed retirement plans, reminiscent of 401(okay)s. CAR 2022-01 highlighted investment-related dangers reminiscent of volatility, regulatory uncertainty and cybersecurity considerations.
By rescinding its prior steerage, the DOL has ceased to discourage plan sponsors and different fiduciaries from together with cryptocurrency in their plans’ funding choices. As an alternative, beneath CAR 2025-01, the DOL expressly takes the view that cryptocurrencies must be evaluated beneath the identical fiduciary requirements (e.g., prudence and loyalty) that apply to every other asset class. We consider {that a} prudent analysis ought to however embody consideration of the dangers described in CAR 2022-01.
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