Judge Upholds DOL ESG Rule

A Texas judge, appointed during the Trump administration, ruled that the DOL does not violate ERISA by permitting ESG in ERISA-governed plans.


A U.S. District Court ruled on Thursday against 26 states and other plaintiffs in their lawsuit challenging the legality of the Department of Labor’s final rule permitting retirement plan fiduciaries to use environmental, social and governance considerations in their decision making about investments.

The plaintiffs argued that ESG investing practices would limit the investments that oil and gas companies receive from the public markets, hurting those companies, the states that they operate in, and their employees. Additionally, ESG investing would result in lower returns for defined contribution plan participants, according to the complaint.

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At the core of the plaintiffs’ argument was an allegation that, by expressly permitting ESG in fiduciary decision making, financial interests would be subordinate to politically or philosophically motivated interests.

On Thursday, Donald Trump-appointed Judge Matthew J. Kacsmaryk on ruled in Utah vs. Walsh that the proposal does not explicitly violate the Employee Retirement Income Security Act because ERISA does not forbid ESG investing or a tiebreaker test that includes non-economic factors. The rule, he noted, requires fiduciaries to act prudently and not subordinate financial interests when considering ESG.

If the rule does not expressly violate the statute, then plaintiffs must argue that it is arbitrary and capricious, a test they failed to back, Kacsmaryk wrote. He also explained plaintiffs failed that burden because the DOL argued that they were trying to address confusion and a “chilling effect” identified by commenters about an earlier rule from 2020 which made it unclear if ESG could be considered at all, and this is the “minimal level of analysis from which the agency’s reasoning may be discerned.”

To address this confusion, the DOL said that prudent risk and return considerations can include ESG factors, but they do not need to. However, a fiduciary cannot subordinate financial interests to non-financial interests; they must consider ESG only to the extent that it is a risk-return factor. The ruling noted that the DOL has considered ESG a financial factor since at least 2015, and that the 2020 rule that plaintiffs sought to restore acknowledged that not considering ESG factors in certain circumstances could actually be a breach of fiduciary duty.

The DOL also reworked the tiebreaker test for when a plan may consider non-financial factors when choosing between two investments. The 2020 rule said that the plan must be “unable to distinguish” between the choices, but the 2022 rule says they must “equally serve the financial interests of the plan.”

The latter test is understood to be less burdensome than the former, but Kacsmaryk wrote that the modification really “changes little” and there is “little meaningful daylight” between them.

The judge also ruled that ESG can be used in evaluating a qualified default investment alternative in an employer-sponsored retirement plan as long as that investment is otherwise prudent.

At the end of the ruling, the Kacsmaryk wrote that “while the Court is not unsympathetic to plaintiff’s concerns over ESG investing trends, it need not condone ESG investing generally or ultimately agree with the Rule to reach this conclusion.”

The DOL initially expressed skepticism of the venue, the Amarillo Division of the U.S. District Court for the Northern District of Texas, and requested a venue change, which was rejected.

A separate lawsuit challenging the ESG rule in the U.S. District Court for the Eastern District of Wisconsin Milwaukee Division is still ongoing. That case is called Braun and Luehrs v. Walsh.

SageView’s Long: ‘Tremendous’ Consolidation Still to Come in Retirement, Wealth

The founder, former CEO and now chairman also says serving participants—in or out of plan—will be key to succeeding amid field of advisers and recordkeepers.


Randy Long, the former CEO and now chairman of SageView Advisory Group, has stepped aside from the day-to-day business of running the firm he helped found and build into a national retirement plan advisory and wealth management shop overseeing $170 billion in assets. But in addition to meeting with clients, he notes one area he will definitely remain focused on in a strategic advisement role: mergers and acquisitions.

“There’s obviously still going to be tremendous consolidation in the industry, both on the retirement side, as well as the wealth management side,” Long says.

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The chairman, whose move out of the CEO role was announced in August, notes that many retirement advisories have already joined larger firms such as SageView, CAPTRUST Financial Advisors or the handful of insurance-backed aggregators. That has led to the ongoing deal flow for the wealth-focused registered investment advisory space.

“There’s been a pretty significant consolidation of retirement plan advisers, overall, and I think we’ll continue to see that, but there just aren’t as many fish in the pond,” he says.

John Longley, former private wealth head of the defunct Silicon Valley Bank, started as CEO of SageView in September, bringing a background in banking, wealth management and experience founding and running a financial technology firm. Meanwhile, Jon Upham, a longtime partner of Long, will continue to focus on the firm’s retirement industry practice.

In speaking of Longley, his CEO successor, Long says: “He is an accomplished executive who has been in the space for many years. … He has built organizations and developed teams and is a really seasoned executive.”

From Plan Sponsor to Participant

Long recalls a time when many plan sponsors ran their employee retirement plan benefits without an adviser. Now, he says, most relatively larger plan sponsors work with an adviser, but it is the participants who are in need of personalized advisement.

This, in part, was the motivator for SageView to move into wealth management and ultimately get private equity backing from Aquiline Capital Partners in 2021 to drive acquisition growth.

Randy Long

“We saw an opportunity to help with financial wellness and engage participants and get them to utilize the plan and services,” he says. “Our clients were asking us: ‘How can we help our participants save more money for retirement so they can retire securely?’”

In January, SageView introduced its own financial wellness platform available for plan sponsors. It also, Long notes, has an operations center in Dallas that has CFPs to support participant outreach for smaller accounts.

“We have a fiduciary responsibility to our employers to help all participants, not just those that have money,” Long says. “We’re not just serving accounts over a million dollars. We’re really trying to be holistic to help the participant, and by helping the participant, we are helping the employer.”

That model of serving participants, he notes, is not just something other advisories are doing, but large recordkeepers as well, who are often connecting the work to their own asset management divisions.

Wealth Needs

Long says SageView does on-site education meetings with clients, but there continues to be “huge demand” for independent, fiduciary advice. The wealth management advisory side is there to serve those needs, but that business model, he notes, takes “a lot of boots on the ground.”

“We look at it as one business, not necessarily two businesses of wealth and retirement,” he says. “We even have some advisers who do both wealth and retirement. That’s a testament to our operating model. … As a national platform, we have the ability to help people with our scale across the country.”

Long says advisement should not just be focused on people rolling out of retirement plans for money management—especially as many participants do not seem to be making that move.

“More and more participants are leaving their assets in the plan, so you don’t really need to move the assets,” Long says. “There’s a lot of planning you can do, but it’s more focused on helping people understand the benefits that they have and where they make decisions as it relates to their asset allocation, where they are in retirement and where they should start drawing their assets first.

Long and team, however, still clearly see lots of runway to add wealth management services in more locatnois. The chairman notes that Aquiline’s funding, as with most private equity, has a timeline in the range of three to five years, which means the firm will likely be looking for more PE partnerships in coming years.

“I’m sure, down the road, SageView will have another private equity partner,” Long says. “The valuations have skyrocketed, so it’s not like we’re slowing down.”

Nor, does it seem, will the former CEO. He notes that, with fewer daily commitments to the firm, he will be spending more time with his grandchild and on philanthropic efforts he runs with his wife, Mary Long.

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