Jul 1, 2024

Chevron Doctrine Overruled – Potential Impacts on Plan Sponsors and Employee Benefit Plans

In an opinion announced on June 28, 2024, the Supreme Court overturned Chevron U.S.A., Inc. v. Natural Resources Defense Council, which set forth the decades-old Chevron doctrine (also known as Chevron deference). The doctrine required a court to give deference to a government agency’s reasonable interpretation of an ambiguous statute even if such reviewing court read the statute differently.

The Supreme Court, in Loper Bright Enterprises v. Raimondo, has changed the way courts in the future will look at certain government agency decisions, specifically holding that the Administrative Procedure Act requires courts to exercise their independent judgment when deciding whether an agency has acted within its statutory authority—rather than deferring to an agency’s interpretation of a statute just because it is ambiguous. The Court’s ruling does not, however, call into question prior cases that relied upon the Chevron doctrine—those past decisions remain as law and their reliance upon the Chevron doctrine is not sufficient, in and of itself, to overrule them.

Without the Chevron deference, some rules and regulations affecting employee benefit plans, such as those promulgated by the Departments of Labor (“DOL”), Treasury, Health and Human Services (“HHS”), and the Center for Medicare & Medicaid Services (“CMS”) (collectively, the “Departments”) may be scrutinized, modified, or vacated by federal courts. While the Court explained that when a statute delegates authority to an agency to interpret it, courts must continue to respect the delegation, it noted that courts must still ensure that the agency acts within its constitutional limits. As such, it is likely that there will be more litigation challenging rules and regulations promulgated by the Departments that affect employee benefits plans.

With the overturning of the Chevron doctrine, some recent legal challenges to controversial Department rules and regulations may be more likely to succeed in court, such as the challenges against the recently finalized DOL Retirement Security Rule (see Client Alert).

Compliance with governmental regulations alone may be insufficient protection for plan sponsors and fiduciaries making plan administrative and fiduciary decisions now that judicial deference to such regulations has been removed—especially in situations where the statute itself did not delegate authority to the agency. Plaintiffs’ attorneys could argue that following Department rules and regulations are insufficient to show compliance and do not qualify as safe harbors.

Going forward, plan sponsors and fiduciaries will need to pay attention to, and follow, court rulings related to employee benefit plans, specifically paying attention to those court jurisdictions in which participants reside. Because regulatory guidance from the Departments is dependent on, and impacted by, the current political administration, relying on court interpretation could be more durable in the long-run. Court opinions generally do not shift as quickly as Departmental guidance can. However, court rulings differ based upon jurisdiction and there will likely be more circuit splits resulting in different rules for different localities.

For now, plan sponsors and fiduciaries should continue following current guidance from the Departments, but should also monitor court rulings in their jurisdiction in case any such guidance is overturned. Reliance upon current law should continue to demonstrate fiduciary prudence and best practices.

If you have questions on this topic, contact your SGR Employee Benefits and Executive Compensation counsel.

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