Huge Breaking News - No More Chevron Deference

https://www.kiplinger.com/taxes/supreme-court-strikes-down-chevron

Worth a read.  This will change our world dramatically. For the better or for the worse I do not know.  My guess is some of both.

Here is an example - what does this mean for EPCRS?  How can it stand?

Here’s BenefitsLink’s hyperlink to the majority opinion, concurring opinions, and dissenting opinion. https://www.supremecourt.gov/opinions/23pdf/22-451_7m58.pdf

In interpreting a statute, a Federal court may consider, but must not defer to, an executive agency’s interpretation. For a question not already answered by a precedent, a court must decide a dispute with the court’s interpretation of the statute.

BenefitsLink neighbors, which interpretation expressed by the Labor or Treasury department, whether in a rule or in EBSA or IRS nonrule guidance, would you like to argue is not the correct interpretation of ERISA or the Internal Revenue Code?

I have not given this a great deal of thought, but as Peter notes, won't the impact be limited to agency interpretations/guidance that the agency feels complies with the statute but that a federal court does not (and previously may have been compelled to defer despite its disagreement)?

Eliminating Chevron does not mean the agency no longer has authority to write rules; it just means (in my understanding) that a federal court is no longer required to defer to the agency's interpretation if the court thinks a better interpretation is available under the statute. In other words, you would have to find a regulation not only that you dislike, but one that also is so at odds with the underlying statute that a federal judge would change the rule. The judge might still be persuaded that the agency's rule is correct. 

That said, I would be interested to hear of good examples where this could change the outcome.

Also, EPCRS is authorized by statute (29 USC 1202a):

(a) In general

EBECatty explains the frame of removing Chevron deference.

To start with two examples of how someone might like to interpret a statute differently than the agency does:

ERISA § 3(21)(A)(ii) makes a person a plan’s fiduciary “to the extent he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so[.]” In a dispute, one may seek to persuade the court about the meaning of the quoted phrase and how that meaning applies to the facts and circumstances of the dispute. The arguments could go in either direction; for example, that an insurance producer’s recommendation is not advice, or that even a communication the Labor department’s rule describes as not advice is investment advice.

Interpreting ERISA § 104(b), one might reason that the ways to “furnish” a summary plan description or other disclosure are wider than those recognized in the Labor department’s rule.

Peter, thanks and point taken: In theory, anything not written in the statute is open to challenge with no deference to agency's guidance. 

Forfeitures cannot be used to fund QNECs (i know they fixed that one but man that one got under my skin!)

And maybe the courts would not agree that a zero QNEC is appropriate to correct 15 months of not implementing an auto enrollment. I really think EPCRS is reviewable now.  There are often statutes that say “the irs shall write regulations no later than” so I am not convinced the statute you referenced will protect it. Maybe it makes them more protected, but who knows.

How about some challenge to the conclusion that employee class exclusions are permitted under the LTPT statute.  I can imagine some sort of a class action thing where a large group of employees was improperly excluded from the ability to participate based on the IRS position. And doesn’t this sort of thing require the IRS to be far more conservative on these types of decisions? Imagine if this was reversed in 5 years by the Supreme Court in favor of excluded participants.

and along the same lines, the IRS concluded that a new spin off plan is not subject to auto enrollment. I can see a class action here too over the meaning of “established.”

Regulations are a pain. But at least you knew what the answers were and could more or less take them to the bank. Now we have to consider the level of consistency between the reg and the statute (especially important questions where the statute is silent, like LTPTs and excluded classes). It seems to me that the risk of administering 401k plans has gone up (as employers). And it also seems to me we’re going to need more courts and judges and lawyers. A lot more.

Somehow, I doubt the result of this will be Congress writing better laws that perhaps need less interpretation.

I remember now that the auto enroll zero QNEC is in the statute now, so just switch for 3 years of missed deferrals and a 25%QNEC.

And what does the statute, and for that matter, the regulation, say about this minimum meaningful benefit of 0.50% as a life annuity at Normal Retirement that all these pre-approved documents now require?

Anyway, if a plan wants reliance on its written language, I am not seeing how this Chevron change would undo the power that the treasury holds there. Sponsors are still bound to the terms of their written plans. 

austin3515, thank you for helping me with your thinking.

Let’s remark on some of your several smart observations (and some I add).

“[A]t least you knew what the answers were[.]”

For interpretations of the Internal Revenue Code, a plan sponsor, an employer, a plan administrator, and a participant, beneficiary, or alternate payee or alternate recipient still gets at least practical protection in following agency rules. For example, if a retirement plan’s administration follows Treasury interpretations about a tax-qualification condition, the IRS is unlikely to tax-disqualify the plan for failing to meet that condition. It might be capricious if it did so.

And in filing tax returns and information returns, a taxpayer or reporter would have “reasonable cause” support for filing a return grounded on an employee-benefit plan’s having followed Treasury interpretations, even those that are not the correct reading of the statute.

For Federal taxes, the agency is the enforcer.

About ERISA, the Secretary of Labor should not pursue enforcement if the plan’s administrator followed the Labor department’s rule. Although a court does not defer to an agency’s interpretation, for an agency not to follow its own rule-made interpretation might be capricious.

How independent interpretations of a statute might help

Imagine the Treasury department publishes its final LTPT rule in 2024. Remember, the 1978 Reorganization Plan allocates to the Treasury department some interpretive authority for ERISA’s part 2. Imagine in 2025 a § 401(k) plan’s administrator denies an employee entry for elective deferrals. The plan’s governing document excludes the employee under a classification other than age or service, which the administrator finds is not contrary to ERISA § 202. The employee sues under ERISA § 502(a)(1)(B), asking a Federal court to declare she is eligible. (Or, as you suggest, a big employer/administrator faces an alleged class action for all similarly excluded employees.) The plaintiff asserts ERISA § 202 commands she is eligible as a long-term part-time employee. She argues the Treasury rule, including its interpretation about whether a classification is a subterfuge against the LTPT command, is the persuasive interpretation of ERISA § 202. Yet with no more Chevron deference, the plan’s administrator may argue a different interpretation of the statute.

A final decision in a particular case protects the plan’s administrator for whatever was litigated in that case.

“Forfeitures cannot be used to fund QNECs[.]”

That’s an example of a situation in which being free to argue the interpretation of the statute might have helped some employers—those with the resolve and resources to fight the IRS.

Congress’s express direction to make a rule.

The Supreme Court’s decision yesterday leaves undisturbed other precedents that allow an agency’s rulemaking to ‘fill-in the details’ if Congress’s Act states a delegation and enacted “an intelligible principle to which the [agency] authorized to take action is directed to conform.”

Yesterday’s opinion states: “When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court . . . is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The court fulfills that role by recognizing constitutional delegations, ‘fix[ing] the boundaries of [the] delegated authority,’ and ensuring the agency has engaged in ‘reasoned decisionmaking’ within those boundaries[.]”

For example, Internal Revenue Code § 401(a)(9) includes six express delegations to rulemaking. For those fill-in-the-details points, a court might recognize that Congress intended a later-made Treasury rule as a part of the statute.

“I really think EPCRS is reviewable now.”

The IRS’s corrections programs are grounded from Congress’s grant of authority to make closing agreements: “The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period.” I.R.C. (26 U.S.C.) § 7121(a).

Even if the IRS oversteps that authority, who would challenge an EPCRS closing agreement? One presumes not the employer/administrator that obtained the correction satisfaction. And who else would have standing to dispute the IRS’s compromise of the taxes the IRS otherwise could assert?

No ERISA right to an automatic-contribution arrangement

For the reasons mentioned above, it might not matter if the IRS too generously interprets Internal Revenue Code § 414A about whether an automatic-contribution arrangement is a tax-qualification condition. The consequence of a plan’s failure to meet IRC § 414A(b)’s conditions is that the plan’s arrangement that otherwise might be a qualified cash-or-deferred arrangement is not a § 401(k) arrangement. But it’s the IRS, not a private litigant, that applies Federal tax law.

ERISA does not generally command that an individual-account retirement plan provide an automatic-contribution arrangement. If a plan’s governing documents omit an automatic-contribution arrangement, there is none.

“It seems to me that the risk of administering 401k plans has gone up (as employers).”

Many employers and plan administrators might follow an executive agency’s interpretations. When they do, they shouldn’t fear enforcement by the agency.

A participant’s, beneficiary’s, or alternate payee’s or alternate recipient’s civil action on an ERISA claim is likely only when the situation calls the litigation resources. For example, almost none of the excessive-fee lawsuits against an individual-account retirement plan’s named fiduciary was about a plan with less than $500 million. Likewise, civil actions asserting that an employer/administrator excluded people the plan or ERISA made participants were mostly against big employers, think Microsoft.

“I doubt the result of this will be Congress writing better laws that perhaps need less interpretation.”

I think that’s so, at least until the United States returns to having a functioning legislature.

And even when a legislature does quality lawmaking, there will be gaps and other ambiguities.

“[W]e’re going to need more courts and judges and lawyers. A lot more.”

Yes! I tell my current and former students there will be plenty of demand for one’s skills.

Yet, for many plans, the practical interpretations might not change much.

Many plan administrators do not regularly engage an employee-benefits lawyer. Many tend to administer plans using frameworks set with recordkeepers, third-party administrators, and other service providers. And those frameworks tend to follow (or attempt or purport to follow) the agencies’ interpretations.

An employer/administrator needs lawyering when it seeks an interpretation to allow doing something an agency’s interpretation doesn’t allow (or about which there is no agency interpretation), or to get better protection than the agency’s interpretation affords. Others, especially small plans’ administrators, fall in with a mainstream good-enough.

Further, many questions of law might never get a court’s decision. For some, that’s a feature, not a bug.

John Feldt is right that the Internal Revenue Service’s discretion to refuse an opinion letter for an IRS-preapproved document can be a way to push an agency’s interpretations, including even unpublished interpretations.

A plan’s sponsor might overcome some problems by adding and changing “administrative provisions” to the extent the Revenue Procedure allows without defeating reliance on the IRS’s opinion letter. Or even risking that one has lost reliance.

A plan’s administrator might overcome some problems by using the plan’s grant of discretion to interpret the plan. In doing so, knowing that Federal courts interpret statutes without deference to an agency’s interpretation sometimes might help defend a plan administrator’s interpretation of a governing document’s nonsense.

Yet, those steps might leave behind some plan provisions that are neither an ERISA command nor a condition of tax-qualified treatment.

ERISA § 404(a)(1)(D) calls a fiduciary to meet its responsibility “in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [ERISA] title [I] and title IV.”

This is not advice to anyone.

49 minutes ago, Peter Gulia said:

A final decision in a particular case protects the plan’s administrator for whatever was litigated in that case.

If a federal district court rendered such a decision, would that be binding precedent that other plan administrators could reply upon? Would it be applicable nationwide, or only within the same federal circuit? Could we end up with different precedents, and therefore different standards for the same issues, in different parts of the country?

3 hours ago, Peter Gulia said:

Even if the IRS oversteps that authority, who would challenge an EPCRS closing agreement? One presumes not the employer/administrator that obtained the correction satisfaction. And who else would have standing to dispute the IRS’s compromise of the taxes the IRS otherwise could assert?

The participants is what I was thinking.

The United States’ courts (often, called Federal courts, to distinguish them from a State’s courts) are a three-layered system, with a trial court—the District Court; an intermediate appeals court—the Court of Appeals; and a court of last resort—the Supreme Court of the United States.

District Court

Of Article III courts, the United States district courts are the general Federal trial courts. Each of the 50 States gets at least one Federal judicial district. Based on populations and geography, some States get a few districts. For example, Pennsylvania has three districts, and New York has four districts. For a map of the numbered Federal circuits (the next layer) and each’s districts (each of which relates to the whole or a part of a U.S. State or territory), see: https://www.uscourts.gov/sites/default/files/u.s._federal_courts_circuit_map_1.pdf. In thinking about where a case might be litigated, consider that some plans provide an exclusive forum (for example, the Federal court for the district and division that sits in the plan sponsor’s preferred city).

A district court’s opinion is not a precedent anywhere, not even in the same district. A district court’s opinion is persuasive authority. Within a district

Court of Appeals

The United States courts of appeals are the intermediate Federal appellate courts. They must hear all appeals of right from the district courts.

The courts of appeals are divided into 13 circuits: the First through Eleventh circuits, the District of Columbia Circuit, and the Federal Circuit. The District of Columbia Circuit has only one district. The Court of Appeals for the Federal Circuit has nationwide jurisdiction of specified claims under Federal law.

A court of appeals decision is precedent for all district courts of the circuit’s territory, and for appeals court panels in the circuit. (For the Eleventh Circuit, decisions of the Fifth Circuit before its 1981 split into the Fifth and Eleventh Circuits are precedent.) Everywhere else, a court of appeals decision is only persuasive authority.

Supreme Court of the United States

The Supreme Court of the United States is the court of last resort. It reviews decisions from the Federal courts of appeals, and from a State’s highest courts. With only a few exceptions for cases with original jurisdiction in the Supreme Court, the Court decides whether to review an inferior court’s decision. (That the Supreme Court chooses not to review a decision does not mean the Supreme Court affirms the decision.)

The Supreme Court’s decision is precedent and binding authority for all Federal courts, and for all States’ courts.

Circuit splits

That separate courts might interpret a national statute differently than other courts have interpreted the same statute has existed for about as long as the US has had interstate commerce. Differing interpretations happen readily when there is no executive agency interpretation on the question of law involved. And even when there is an agency rule, differing interpretations continued during Chevron’s 40 years. Among other possibilities, courts sometimes differed about whether a statute is ambiguous, and differed about whether the agency’s interpretation is permissible.

(Eliminating, one hopes, or lessening a plan administrator’s vulnerability to more than one interpretation of a statute’s command or about a plan provision’s meaning is among the reasons some plan sponsors like an exclusive-forum provision. We recognize that, even if this gets uniformity for a plan’s sponsor and administrator, it might not get national uniformity for a service provider.)

Some of the Supreme Court’s ERISA cases resolved what lawyers call a circuit split. In trying to persuade the Supreme Court to grant review, many petitions argue that there is a circuit split and that the law needs national uniformity.

But some circuit splits are not resolved. For example, on whether ERISA provides contribution and indemnity among fiduciaries, some circuits say yes, some circuits say no, and others have no precedent. That ambiguity has persisted for ERISA’s half-century.

Litigation is rare.

About all of this, consider that many questions of law recordkeepers and third-party administrators work on are seldom litigated, and many are never litigated. Further, questions of law about what a tax-qualification condition requires are almost never litigated in Article III courts.

Why would a participant object to a correction statement or other IRS closing agreement that preserves the plan’s tax-qualified treatment, imposes no tax on the plan’s trust, and imposes no tax on the participant?

If it’s because the tax-law correction might tolerate a correction less than the participant’s rights under the plan, an IRS closing does not impair a participant’s rights under the plan and ERISA to claim the benefits the plan provides.

For example, if a plan’s administration of an automatic-contribution provision missed a participant whose account ought to have been credited with elective deferrals, related matching contributions, and attributable investment gains, the participant can claim and, if the administrator denies the claim, a court can order restoration of the participant’s account (and might order the participant to return some amount regarding the wages mistakenly paid to her).

25% is too small. It should be 100%. Maybe the Supreme Court agrees that 50% is a fair deal and now all of a sudden that applies to the whole country.

because really under EPCRS some missed deferrals get 25% and some get 50%. A missed deferral is a missed deferral. I could see a court saying so.

i confess I didn’t go to law school so maybe there is some reason why that could never happen but what I hear is if someone makes a claim of unfairness tbe fact that the irs deemed it fair no longer has any weight. I realize that participants could have sued all along but now the fact that the irs had it deemed it reasonable is border line irrelevant. It must at least be easier to bring claims like that now, right?

https://www.napa-net.org/news-info/daily-news/could-scotus-chevron-decision-undermine-fiduciary-rule

Really cool write-up on this by NAPA.

About the April 25, 2024 rule to interpret the circumstances in which a person is a fiduciary by providing investment advice, even if none of the pending civil actions seeking to vacate the rule gets such a result:

A defendant may argue an interpretation narrower than Labor’s most recent interpretation.

A plaintiff may argue an interpretation wider than Labor’s most recent interpretation.

A court interpreting ERISA § 3(21)(A)(ii) may consider any interpretation aid, which might include the Labor department’s 1975, 2016, 2020, and 2024 rulemakings (without deference for or against any of them).

Hopefully this means we won't be obligated to follow things like "the Paul Shultz memo" (sounds ridiculous, but we are all doing it) and Congress will actually clarify what the law requires instead of IRS imposing what they think Congress intended.

This all must mean SOMETHING because of everyone agrees it has to.  Less clear is what actually changes.  Perhaps in reality we will just continue to blindly follow all IRS pronouncements as gospel until we hear otherwise--and for 99.99% of the rules we will never hear otherwise.

I think the DOL's fiduciary rule is in the most trouble from the sounds of it.  Seems to check off all the "right" boxes for trouble under the Supreme Court opinion. The LTPT rules and the new auto enrollment guidance are safe (in my opinion) if for no other reason than any litigation in that area just seems really remote.  My speculations above were more theoretical than actually thinking actual litigation was likely.

We shall see!

Chevron deference, before the Supreme Court overruled it, could apply only to an interpretation in a rule or regulation—not nonrule guidance—made in compliance with the Administrative Procedure Act and other Federal law.

Many plan sponsors and plan administrators follow the IRS’s nonrule guidance because:

Many plans’ sponsors use, without one’s lawyer’s advice, IRS-preapproved documents, which often embed IRS interpretations and even preferences.

Many plans’ administrators get no advice from one’s lawyer.

A service provider that is not a law firm or accounting firm must pretend not to provide tax or other legal advice. Even when a service provider’s lawyers think an IRS interpretation is wrong, how does a service provider say so without giving legal advice?

Even when a plan’s sponsor or administrator has independent advice, many lack resources, or are reluctant to spend them, on fighting the IRS.

Even when a plan’s sponsor or administrator has independent advice, has and is ready to use resources, and will accept responsibility for not following the IRS’s interpretation, the administrator might encounter difficulty in getting services to support the not-mainstream interpretation.

Not a lot of talk about this one but it also seems to destabalize the regulatory process.

https://www.napa-net.org/news-info/daily-news/scotus-kicks-open-another-door-future-litigation

On 6/28/2024 at 6:30 PM, Peter Gulia said:

"investment advice for a fee or other compensation, direct or indirect,"

FWIW, in this specific instance, it seems to me that the language of the statute has always been much broader than the old regulation, and would fully support the new.