As with the Hughes case, plan sponsors should consider discussing what proactive steps they can take if the Spence case could ignite more litigation around breaches of fiduciary duties. But sponsors should also take note that much of the heat around ESG may not involve their plans.
ESG and investing has been, and most likely will continue to be, a hot issue. Lately the news has nearly started sweating with changes concerning investing regulations and proposed legislation to curtail previous efforts on ESG. There are several levels to the news on this topic, however, and we think it might be helpful to pause not necessarily to opine on what will happen, but to stress to plan sponsors and others that not all the news is necessarily on the same topic. We think a good approach might be to follow the news about lawsuits on fiduciary duties and ESG rules for plan sponsors, not the noise about shareholder fights and congressional debates on international issues.
In January, we wrote about a new fiduciary duty issue involving ESG for our financial advisor readers. The decision in Spence v. American Airlines, Inc. caught attention from financial advisors related it its ruling on ESG issues. ESG refers to environmental, social and governance factors, part of a socially responsible investing trend. There are many concerns with ESG investing, including performance as well as so called “greenwashing.”
Many news sources missed that the ruling made in Spence in January of 2025 involved only whether fiduciary duties were involved. The federal court left open several other topics, including: “the question of losses…the questions of whether injunctive relief is warranted and what damages, if any, are appropriate.”[1]The parties were to have submitted their arguments to the court by the end of January. The court extended that deadline. Since then, both parties have submitted briefs concerning how they think damages should be calculated and if injunctive relief is necessary. Injunctive relief refers to asking the court to require a party to do or refrain from doing something. In this case, it might order American Airlines to change its plan regarding investment choices, for example.
Keep in mind, class action settlements are currently growing in number. “Settlements in 2024 across all areas of litigation totaled about $42 billion in 2024. It was the third year a row settlements eclipsed $40 billion and the third-highest total value of the last 20 years….”[2] We have previously stated that we think much of the lawsuits against plan sponsors around recordkeeping and fees were sparked by the Supreme Court’s decision in the Hughes case.[3]
When it comes to Hughes, the emphasis on the context of the plaintiff’s claims seems to be the spark that has lit the litigation bonfire concerning plan sponsors. As we said in the past: “The Court’s ruling in Hughes eschewing a categorical rule may be what plaintiffs are focusing on, rather than on the odd facts of the Hughes case.” In August of 2022, we noted that one specific takeaway from the increase in cases was clear. “Hughes may indicate that offering investment options that may be niche or suited for a limited number of employees could be troublesome.”
It is possible that Spence could have a similar effect. We continue to monitor the docket in that case for further developments. The case is being heard by Judge Reed O’Connor, appointed to the bench in 2007 and known to lean towards conservative positions. He seems to not back off making controversial rulings; Reed struck portions of the Affordable Care Act concerning preventive care and was affirmed by the Fifth Circuit.
This ruling, concerning the liability of plan sponsors as fiduciaries under ERISA, is distinct from the hullabaloo over efforts to determine how to measure a corporation’s ESG efforts when choosing investments. Much of the news about ESG lately has concerned efforts by shareholders to stop companies from implementing ESG policies.[4] Those efforts are distinct from efforts to stop the SEC and the DOL from making proposed rules about how to name certain funds. The SEC’s proposed rule would require that funds with a stated intention in their name have 80% of their assets in investments that align with the name. The DOL’s rule would allow plan fiduciaries to consider ESG. The previous rule said plan fiduciaries should focus on pecuniary factors alone.These rules faced quick push back in Congress and the courts in late 2024.
Now, new efforts around limiting ESG are finding their way into Congress and the Courts. For example, in mid-March Tennessee Senator Bill Hagerty designed to limit the impact of European rules concerning ESG. The potential for multiple conflicting rules concerning ESG is high. And consider that international accounting departments are considering how to factor ESG compliance with accounting standards.[5]
As with the Hughes case, plan sponsors should consider discussing what proactive steps they can take if the Spence case could ignite more litigation around breaches of fiduciary duties. But sponsors should also take note that much of the heat around ESG may not involve their plans.
[1] https://ecf.txnd.uscourts.gov/doc1/177117380731
[2] https://www.insurancejournal.com/news/national/2025/01/08/807313.htm
[3] https://www.bcgbenefits.com/blog/keeping-records-on-your-recordkeeping-fees
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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