President Donald Trump’s promises to cut taxes, reduce regulations and promote “America First†economic policies excite many who think economic growth will result. Unfortunately, that agenda could be undermined by judges who pursue politics instead of calling balls and strikes from the bench.
That’s what Texas District Court Judge Reed O’Connor did when he ruled that American Airlines violated its fiduciary duty by including BlackRock-managed funds in its 401(k) plan, given the asset manager’s broader corporate engagement with environmental, social and governance (ESG) issues. While many conservatives oppose ESG, this case had nothing to do with it because no such funds were involved in American’s decision. O’Connor’s ruling assumes American Airlines is guilty because it dared associate with a company that has practices O’Connor doesn’t like.
This means that businesses can be penalized not just for their direct actions but for the perceived intentions or broader activities of their partners and service providers. This could lead to increased litigation risk and uncertainty for all businesses because the ruling seems to depart from legal and financial prudence, undercutting established investment practices and the ability for employers to sponsor retirement plans with the best fund choices for their employees’ needs.
Furthermore, the ruling inadvertently undermines American’s workforce efforts to prepare for a financially secure retirement. The decision casts doubt on the ability to use low-cost index funds and other popular types of funds in 401(k) plans, potentially limiting the options available to plan fiduciaries in seeking the best returns for retirees. This affects not only large corporations like American Airlines but also small businesses that manage their retirement plans under the same legal principles.
Looking at the macroeconomic picture, reigniting the American economy hinges on the stability and growth of business. Businesses are the backbone of our economy, responsible for employment and innovation. And 401(k)s are essential to Americans’ financial security. Yet, rulings like this could stifle their recovery and growth by creating an atmosphere of fear and uncertainty around investment and partnership decisions. Imagine if no one had access to a 401(k) at work because of the liability it puts on employers. At a time when we should be encouraging robust economic recovery and innovation, such decisions serve only to hinder our financial security.
The reality is that O’Connor’s ruling ignores the myriad investor protections already in federal law and regulation, including those that stem from the fiduciary duty requirements under the Employee Retirement Income Security Act of 1974 and regulations of the Securities and Exchange Commission. They have been crucial in safeguarding American investors for more than 50 years.
Policymakers and the legal community must consider the broader economic effects of judges, regardless of their preferred politics. Conservatives should question why O’Connor put his politics ahead of a consistent, predictable regulatory environment that will unleash economic growth and opportunity. Our future prosperity depends on it.
Mike Feuz is an economist and a research associate for Free the People. He wrote this for InsideSources.com.
