By Nate Raymond
(Reuters) – A federal judge in Texas on Friday upheld a rule adopted during Democratic former President Joe Biden’s tenure that allows socially conscious investing by employee retirement plans, saying it remains valid even after a U.S. Supreme Court ruling that curbed agencies’ regulatory power.
U.S. District Judge Matthew Kacsmaryk in Amarillo, Texas, rejected arguments by 26 Republican-led states, oil drilling company Liberty Energy and an oil and gas trade group that the rule was inconsistent with federal law.
The rule was adopted by the U.S. Department of Labor in 2022 and allows 401(k) and other plans to consider environmental, social, and corporate governance (ESG) factors as a “tiebreaker” between two or more financially equal investment options.
It replaced a 2020 rule adopted during Republican President Donald Trump’s first term in office that barred plans from considering any non-financial factors. Trump’s new administration is expected to revisit the rule.
Kacsmaryk was appointed by Trump in his first term.
The states argued that the 2022 rule violated the Employee Retirement Income Security Act of 1974, or ERISA, which requires retirement plan administrators to act solely in the interest of participants in the plan.
The Republican-led states said it did so by allowing such plans to consider non-financial factors. They said the rule if allowed to stand would jeopardize millions of Americans’ retirement savings.
Kacsmaryk had already rejected those arguments in September 2023.
But a federal appeals court in July directed him to reconsider his decision after the 6-3 conservative majority U.S. Supreme Court in June scrapped a 40-year-old legal doctrine known as “Chevron deference” that had required courts to defer to agencies’ interpretations of ambiguous laws they administer.
The Supreme Court said instead of deferring to agencies’ interpretations of ambiguous statutes, courts “must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”
Kacsmaryk in Friday’s decision concluded that “the rule is not contrary to ERISA under a post-Chevron analysis,” saying arguments to the contrary embodied “wooden textualism that courts should endeavor to avoid.”
Representatives for the Republican-led states and the Labor Department did not respond to a request for comment.
(Reporting by Nate Raymond in Boston; Editing by Stephen Coates)
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