On June 2, 2023, American Airlines pilot Bryan P. Spence, on behalf of himself and similarly situated persons, brought suit against his employer and its retirement plans. The complaint begins with a paragraph from a May 16, 20231, Wall Street Journal op-ed by Marlo Oaks and Todd Russ, the State Treasurers of Utah and Oklahoma, respectively:
Many American workers don’t realize that their hard-earned money is being used against them. Firms whose job is to deliver investment returns are instead weaponizing retirement funds, public pension and other investments in pursuit of nakedly ideological goals. It is perhaps the most severe breach of the fiduciary standard in American history.
This perfectly encapsulates the cause of action. And it describes, albeit in somewhat harsher terms, what Judge Reed O’Connor of the United States District Court for the Northern District of Texas concluded.
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan fiduciaries to act “solely in the interest of participants and beneficiaries and . . . for the exclusive purpose of providing benefits to participants and their beneficiaries.”
Notwithstanding this clear and unambiguous language, Democrat administrations beginning with President Clinton’s have allowed or encouraged plan administrators to consider factors other than maximizing retirement income. Intervening Republican administrations return to a strict interpretation of the law’s requirements, only to be reversed during the following Democrat administration. A Federalist Society Review entitled “The 30-Year History of Diluting ERISA’s Fiduciary Duty”2 traces this oscillation.
On January 10, 2025, after conducting a four-day bench trial and then spending six months studying the testimony and exhibits, Judge O’Connor issued 70 pages of his Findings of Fact and Conclusions of Law3.
Briefly stated, O’Connor found that American Airlines’ plans and their administrators had breached their fiduciary duty of loyalty to the plan participants. He detailed the steps taken, and not taken, by plan administrators and investment managers.
The opinion is a primer on ERISA, on the fiduciary duties of loyalty and prudence, and on how major institutional investments are managed, including who the players are and what they do. It is also a primer on ESG—environmental, social, and governance—and other woke concerns, and on how, in this case and others, Larry Fink wielded the influence created by the trillions of dollars of OPM (other people’s money) BlackRock controls to bully corporations into adopting policies unrelated, and often detrimental, to their financial success.
“ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” writes Judge O’Connor. He notes that ESG investments underperform traditional investments, observing that during 2023, they earned about 8% as compared to 14% for non-ESG assets. On this last point, he has ordered the parties, no later than January 31, 2025, to submit to the court information to quantify any losses the retirement plans may have sustained as a result of ESG-focused investing.
Anyone participating in a corporate or governmental retirement plan would find it time well spent to study Judge O’Connor’s opinion.
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