EBSA Nominee Says He Will End ‘Regulation by Litigation’

Daniel Aronowitz, President Donald Trump’s nominee for assistant secretary of labor in charge of the Employee Benefits Security Administration, pledged Thursday to reduce litigation and expand retirement benefits and also to end a “war on ESOPs” in his testimony before the U.S. Senate Committee on Health, Education, Labor and Pensions.

In his opening remarks, Aronowitz, who worked as president of Encore Fiduciary before the nomination, offered a sharp critique of the current enforcement landscape, pledging to “end the practice of open-ended investigations that go on for years.” The expert on fiduciary liability insurance said he would halt what he described as “regulation by litigation.” He emphasized his intent to restore balance in the enforcement of benefit plan rules, noting, “EBSA’s enforcement will be fair, even-handed and efficient.”

He also rebuked the Department of Labor’s stance on employee stock ownership plans, benefit plans that give workers ownership interest in their company.

“Everybody’s for ESOPs except the Department of Labor for the last 20 years,” Aronowitz said. “I will end the war on ESOPs.”

In the last year, at least four companies have faced class action lawsuits over their management of cash holdings in ESOPs. Aronowitz criticized the DOL for allegedly targeting firms that support ESOP transactions.

“That can’t be right—that every single one of them are doing it wrong,” he said. “What the department is doing is nitpicking the professional judgment of the valuation professionals. I’m going to put an end to that.”

Under former President Joe Biden, the DOL released in mid-January a proposed regulation aimed at clarifying the term “adequate consideration” regarding the valuation of employer stock in employee stock ownership plan transactions, as required under the Employee Retirement Income Security Act.

The ESOP Association, which represents businesses with ESOPs, applauded Aronowitz’s candidacy and performance in the hearing.

“Daniel Aronowitz is uniquely qualified to address the challenges faced by ESOPs, workers, and potential ESOP founders under the current regulatory structure,” said James Bonham, the ESOP Association’s president and CEO, in a statement. “Today’s hearing was the clearest sign yet that the Trump administration is serious about ending the decades of mistreatment of ESOPs and pursuing a regulatory agenda that will allow ESOPs to flourish. Mr. Aronowitz has overwhelming support among The ESOP Association’s members, and should be quickly confirmed.”

In addition, legal experts have warned that the Supreme Court’s unanimous decision in Cunningham v. Cornell University will lead to a flurry of litigation for plan sponsors.

The court ruled that a worker’s claim that a “prohibited transaction” occurred in the plan, in violation of ERISA fiduciary duty, was deemed sufficient to survive a motion to dismiss, leading to expectations that more litigation will continue longer in the legal process than they do today.

“There is really no question what the No. 1 issue is in our space, and that is the explosion of retirement plan litigation,” Kent Mason, a partner in law firm Davis & Harman LLP, who assists clients in retirement planning, recently told PLANSPONSOR.

Aronowitz said in the hearing that reduced litigation with clearer regulatory guidance would enable plan sponsors to offer better benefits to their participants. His call for greater regulatory guidance included emerging areas such as mental health parity; inclusion of private equity and cryptocurrencies in plan investment lineups; and the consideration of environmental, social and governance factors when selecting retirement plan investments.

Last week, the DOL reset its stance on cryptocurrency investments in 401(k) plans to “neutral” and stated it would rewrite its ESG rule.

“With the regulatory burden and litigation risk reduced, we will unlock the full potential of the voluntary employee benefit system,” Aronowitz said. “I will champion the cause of encouraging plan sponsors to expand retirement and health care benefits to America’s workers.”

EBSA enforces ERISA and related regulations, safeguarding employer-sponsored retirement and both health and welfare benefits for workers and retirees. Its head requires confirmation by the committee and then by the full Senate. No timeline has been set for the committee to vote on the nomination.

As seen in Plan Advisor and written by James Van Bramer.