The Department of Labor has never been shy about changing its mind, and here we go again. In Advisory Opinion 2025-01A, the DOL rescinded its 2023 advisory opinion that had given some comfort to plan sponsors with racial equity vendor programs. Back then, the DOL had essentially said: if you want to factor in your corporate diversity initiatives when hiring asset managers, you could do that under ERISA without running afoul of your fiduciary duties.<\/p>\n
That was then. This is now.<\/p>\n
The 2023 Opinion: A Green Light That\u2019s Now Red<\/strong><\/p>\n The 2023 advisory opinion\u2014which I covered in detail when it came out\u2014looked at a very specific program where the plan sponsor (not the plan) would pick up the tab for some or all of the fees charged by diverse asset managers. In practice, this meant the fiduciaries could look at that subsidy as part of their decision-making process, potentially giving diverse managers an edge in being selected. The DOL said: fair enough. That arrangement, if prudently considered, was consistent with ERISA.<\/p>\n It wasn\u2019t a sweeping blessing of DEI programs in the retirement plan space, but it was a crack in the door. It signaled that ERISA fiduciaries had some leeway to acknowledge the sponsor\u2019s diversity goals without necessarily running afoul of the rules.<\/p>\n The 2025 Opinion: Not So Fast<\/strong><\/p>\n Fast-forward two years. In Advisory Opinion 2025-01A, the DOL didn\u2019t just reverse course\u2014it tore the old opinion up and threw it out. The Department shifted its focus away from fiduciary analysis under ERISA and zeroed in on the legality of the program itself.<\/p>\n According to the new opinion, the vendor diversity initiative wasn\u2019t just a questionable fiduciary exercise\u2014it was flat-out illegal discrimination under federal civil rights law. That\u2019s a bombshell. The DOL even directed the sponsor to \u201ctake immediate action to end all illegal activity\u201d in the program and made it clear that ERISA offers no shield against civil rights violations.<\/p>\n What It Means for Plan Sponsors and Fiduciaries<\/strong><\/p>\n The message is clear: you can\u2019t hang your hat on the 2023 guidance anymore. It\u2019s gone. If you have a racial equity or vendor diversity program, don\u2019t assume ERISA gives you cover. The first question now isn\u2019t \u201cis this prudent under ERISA?\u201d\u2014it\u2019s \u201cis this legal under federal civil rights laws?\u201d<\/p>\n That\u2019s a threshold issue. If the program itself is unlawful, then there\u2019s no point even talking about fiduciary prudence.<\/p>\n So what should plan sponsors do?<\/p>\n \u00b7 Reevaluate existing programs. If you have vendor or supplier diversity initiatives tied to your retirement plan, now is the time for a hard look.<\/p>\n \u00b7 Consult counsel. These issues sit at the intersection of ERISA and civil rights law. That\u2019s not a place for guesswork.<\/p>\n \u00b7 Don\u2019t rely on outdated guidance. The 2023 opinion has no weight anymore.<\/p>\n My Take<\/strong><\/p>\n This isn\u2019t about politics\u2014it\u2019s about risk. Plan fiduciaries don\u2019t get to pick and choose which federal laws to follow. If a diversity initiative crosses the line into illegal discrimination, the DOL has made it clear: ERISA won\u2019t save you.<\/p>\n Whether you loved the 2023 opinion or hated it, the takeaway is the same\u2014fiduciary decisions live and die by compliance. And if the underlying program is illegal, you\u2019re already playing in a ballgame you can\u2019t win.<\/p>\n <\/span><\/p>","protected":false},"excerpt":{"rendered":" The Department of Labor has never been shy about changing its mind, and here we go again. In Advisory Opinion 2025-01A, the DOL rescinded its 2023 advisory opinion that had given some comfort to plan sponsors with racial equity vendor … Continue reading