Employee benefit plan sponsors and administrators may feel the effects of the U.S. Supreme Court’s decision to overturn the so-called Chevron doctrine for many years to come, predicts Katherine Hesse, CEBS, an Employee Retirement Income Security Act (ERISA) attorney.

Hesse, who is a partner with Murphy, Hesse, Toomey & Lehane, LLP, in Braintree, Massachusetts, recently recapped the decision in the Legal Update for the third quarter issue of Benefits Quarterly magazine. She provided additional comments in a telephone interview.

What did the Supreme Court decide?

The Court issued decisions in Loper Bright Enterprises v. Raimondo and Relentless, Inc., et al. v. U.S. Department of Commerce et al. (collectively, Loper Bright) on June 28, 2024. These cases involved the Chevron doctrine, which was established by the Court in 1984 in its ruling in Chevron U.S.A., Inc., v. Natural Resources Defense Council, Inc. That ruling developed the concept now known as Chevron deference, which held that the federal courts will accord deference to the federal agency charged by Congress with interpreting the law and issuing related regulations, Hesse explained in the Legal Update.

Hesse further clarified that deference in this context means that a reviewing body or court will defer to the judgment of the administrative agency that made the original judgment rather than using its own view when reviewing a regulation. The idea is that the agency is typically expected to have more expertise and more familiarity with the subject matter.

This deference is similar to the deference shown by the courts to employee benefit plan administrators, where the plan documents invest the administrator with the discretion to interpret the plan and resolve any provisions in the document that are ambiguous or unclear, Hesse wrote.

The Court overruled Chevron, saying that it is inconsistent with the Administrative Procedures Act  (APA). According to SCOTUSblog, quoting the opinion of Chief Justice John Roberts, APA “‘makes clear that agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference.’ Roberts concluded it thus remains the responsibility of the court to decide whether the law means what the agency says.”

What is the impact of the decision?

“The Court’s recent decision so dramatically limits the scope of Chevron deference that it will likely take many years and much litigation to shake out its full effects,” Hesse wrote in the Legal Update.

“It will be infinitely easier for courts to strike down regulations or other administrative interpretations by federal agencies,” Hesse’s recap continued. “It can also lead to a patchwork of inconsistent interpretations, one of the very reasons behind the passage of the Employee Retirement Income Security Act (ERISA) 50 years ago. The concerns of the compliance burdens imposed by ERISA were seen to be outweighed by the benefits of ERISA preemption of state laws. While Loper Bright and Relentless are not ERISA cases nor preemption cases, the concerns of multistate employers and other large plan sponsors about having to deal with multiple interpretations across state lines will again be front and center post-Loper Bright.”

Why do employee benefit plans need to be aware of this ruling?

“Regulations affect every single thing that plans do, and it’s not just ERISA and employee benefit plans. It’s also going to impact workplace issues,” Hesse said in the interview. “It’s already affecting wage and hour and employee classification issues. Companies that employ people and provide benefits to them are going to be subject to a lot more potential litigation.”

“There’s a lot of concern in the community because it was a big pill for employers and unions to swallow to even get ERISA enacted, and one of the big reasons that they finally were able to do that is the concept of preemption,” Hesse noted. “Large plan sponsors decided that the risk of having 50 different interpretations by 50 different states is so great that they would rather subject themselves to what could be fairly onerous federal regulations because at least they would have a single set of regulations to deal with.”

Loper Bright is not a preemption case, but the Supreme Court decision means that less deference will be given to government agencies and could create a situation akin to the very one that ERISA supporters wanted to circumvent, she added. “There will be a lot of forum shopping. People will go to the courts they want. We’re likely going to see courts across the country issuing different, even conflicting, views as to what a statute actually means. You could have 50 different interpretations of what a particular set of regulations means, whether they apply, whether they are within an agency’s discretion to adopt, etc.”

What regulations are likely to be challenged?

Any number of regulations affecting health and retirement plans could be challenged, Hesse said. Challenges to employee benefit regulations can be undertaken by benefit plan sponsors or participants who are harmed or by someone “standing in the shoes” of those who are harmed, she explained.

The following two challenges have already occurred, described as follows in the Legal Update.

1. On July 18, the Fifth Circuit Court of Appeals remanded and vacated a decision by the District Court for the Northern District of Texas on the Department of Labor’s environmental, social and governance (ESG) rule. The district court had found that the rule did not violate ERISA or APA by allowing plans to consider “nonpecuniary (nonmonetary)” factors as a tiebreaker when selecting plan investments. The Fifth Circuit was already considering whether to uphold the DOL rule, and the remand followed a filing by 26 Republican state attorneys general in which they cited Loper Bright and its overturning of the Chevron doctrine. The Department of Justice had immediately responded that it had not relied on Chevron deference in making its case and that there was no need to resort to it to find in favor of the DOL rule.

2. The Fifth Circuit has also sought briefs on how the Loper Bright ruling affects business owner Robert Mayfield’s challenge to the 2019 DOL overtime rule, which expanded the number of administrative and executive workers entitled to overtime pay. The district court had relied on Chevron deference in upholding the rule against the challenge.

The Fifth Circuit was already considering a challenge to the DOL Retirement Security Rule (formerly called the Fiduciary Rule), and the Loper Bright ruling could affect that.

Hesse predicted that other agencies will likely take the position that Chevron deference and its overturning by the Supreme Court should not affect them. “For example, it is anticipated that there will be many challenges to multiple orders over the last few years by the National Labor Relations Board (NLRB). NLRB can be expected to point out that the Court gave deference to the board’s special expertise in labor relations for decades before the Chevron doctrine was adopted. In light of how broad the Loper Bright ruling was, that pre-Chevron deference may also be expected to be challenged,” she wrote.

“The courts are going to feel free to get involved earlier and more substantively than they have in the past in how these laws are interpreted,” Hesse commented in the interview.

Hesse will provide an update on the impact of Loper Bright as well as other employee benefit plan legal activity at the 43rd Annual ISCEBS Employee Benefits Symposium, September 15-18, 2024, in Nashville, Tennessee and the 70th Annual Employee Benefits Conference in San Diego, California, November 10-13, 2024.