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The ERISA Edit: ICYMI – Court Allows Gender-Affirming Care Ban; DOL Advisory Opinion

Employee Benefits Alert

Sixth Circuit Allows Bans on Gender-Affirming Medical Care for Minors in Tennessee and Kentucky

Earlier this year, the legislatures of Tennessee and Kentucky banned certain medical treatments for minors with gender dysphoria, which has been characterized by the American Psychiatric Association as a "persistent sense of discomfort" with one's biological sex. On September 28, 2023, the U.S. Court of Appeals for the Sixth Circuit reinstated the treatment bans, after they had been preliminarily enjoined by lower courts. See L.W. v. Skrmetti, No. 23-5600, 2023 WL 6321688 (6th Cir. Sept. 28, 2023).

Tennessee's law – the Prohibition on Medical Procedures Performed on Minors Related to Sexual Identity (the Tennessee Act) – was enacted first, on March 2, 2023. Three transgender minors, their parents, and a doctor then sued several Tennessee officials, claiming that the Tennessee Act's bans on puberty blockers, hormone therapy, and sex-transition surgery for children violated the Constitution's guarantees of due process and equal protection. They moved for a preliminary injunction, which the U.S. District Court for the Middle District of Tennessee granted as to the bans on puberty blockers and hormone therapy (but not surgery, because, the district court held, the plaintiffs lacked standing). Regarding due process, the district court held that the Tennessee Act infringed on the parents' "fundamental right to direct the medical care of their children"; as to equal protection, the court reasoned (1) that the Act improperly discriminates on the basis of sex and that transgender persons constitute a quasi-suspect class and (2) that Tennessee could not satisfy the heightened scrutiny that comes with such regulations.

On March 29, 2023, the Kentucky General Assembly overrode Governor Andy Beshear's veto to pass "An Act Relating to Children" (the Kentucky Act). Seven transgender minors and their parents sued various Kentucky officials, claiming that the Kentucky Act's bans on puberty blockers and hormone therapy violated their federal constitutional rights to due process and equal protection. They, too, moved for a preliminary injunction, which the U.S. District Court for the Western District of Kentucky granted in full, on the same grounds as the injunction granted in the Tennessee case. 

Tennessee and Kentucky appealed. The Sixth Circuit consolidated the cases and, in a two-to-one decision, the court reversed. Judges Jeffrey Sutton and Amul Thapar rested their majority opinion on three primary grounds.

First, the plaintiffs had not argued that "the original fixed meaning of the due process or equal protection guarantees covers [their] claims," which prompted "the question whether the people of this country ever agreed to remove debates of this sort . . . from the conventional place for dealing with new norms, new drugs, and new public health concerns:  the democratic process." 2023 WL 6321688, at *5. The "key problem," the majority found, was that the plaintiffs had overstated parental rights "by climbing up the ladder of generality to a perch—in which parents control all drug and other medical treatments for their children—that the case law and our traditions simply do not support." Id. at *9. Instead, our country "does not have a custom of permitting parents to obtain banned medical treatments for their children and to override contrary legislative policy judgments in the process." Id. According to the majority, so long as it acts reasonably, "a state may ban even longstanding and nonexperimental treatments for children." Id. at *10.

Second, the plaintiffs sought to extend constitutional guarantees to "new territory," suggesting that "the key premise of a preliminary injunction—a showing of a likelihood of success on the merits—is missing." Id. at *6. According to the majority, "[c]onstitutionalizing new areas of American life is not something federal courts should do lightly, particularly when 'the States are currently engaged in serious, thoughtful' debates about the issue." Id. (quoting Washington v. Glucksberg, 521 U.S. 702, 719 (1997)). In particular, the plaintiffs were not likely to succeed on their equal protection claims because the bans did not discriminate based on sex: "Under each law, no minor may receive puberty blockers or hormones or surgery in order to transition from one sex to another. Such an across-the-board regulation lacks any of the hallmarks of sex discrimination. It does not prefer one sex over the other." Id. at *13.

Third, "the recent proliferation of legislative activity" reflected that the States are, indeed, engaged in "thoughtful debates" over these issues. Id. at *6. According to the majority, "[s]ound government usually benefits from more rather than less debate," and to "permit legislatures on one side of the debate to have their say while silencing legislatures on the other side of the debate under the Constitution does not further these goals." Id. In the meantime, Tennessee's and Kentucky's interests in applying the challenged laws "to their residents and in being permitted to protect their children from health risks weigh heavily in favor of the States at this juncture." Id. at *23.

Judge Helene White dissented. After evaluating the plaintiffs' likelihood of success on the merits, she concluded that the Tennessee and Kentucky Acts were likely unconstitutional under the Fourteenth Amendment's Equal Protection and Due Process Clauses. Id. at *28. Judge White found that the Acts both "discriminate based on sex and gender conformity and intrude on the well-established province of parents to make medical decisions for their minor children." Id. at *23.

Although the plaintiffs in the Tennessee and Kentucky cases may choose not to petition the Supreme Court for review, the Sixth Circuit's decision makes it more likely that the high court will be asked to step in sooner rather than later as other cases develop. 

DOL Issues Advisory Opinion on Payment of Plan Investment Management Fees Under Corporate Racial Equity Program 

On September 29, 2023, the U.S. Department of Labor (DOL) issued Advisory Opinion 2023-01A to Citibank, Inc. and its affiliates (Citi) that addressed the application of ERISA's fiduciary duty and prohibited transaction provisions to Citi's Action for Racial Equity Asset Manager Program (the Program). The Program, aimed at advancing racial equity practices in the financial services industry, involves a commitment by Citi to pay the investment management fees for "Diverse Managers" retained by Citi-sponsored employee benefit plans. A "Diverse Manager" under the Program is an investment manager company owned by minorities or females. According to the Advisory Opinion, fiduciary investment committees for the Citi plans are responsible for selecting investment managers for those plans and the investment committees would take Citi's payment of Diverse Manager fees into account, among a host of other factors, when making investment manager selections for the plans. Citi indicated to the DOL that it expects to publicize the Program to the public when reporting on its racial equity initiatives. 

The Advisory Opinion addressed three questions:

Issue 1: Will Citi become a fiduciary with respect to the selection of investment managers under the Plans by reason of establishing the Racial Equity Program or by making payments to a Diverse Manager or reimbursing a Plan for a Diverse Manager's fee pursuant to its program commitments?

The DOL stated that, based on Citi's representations regarding the Program, it would not view Citi as a fiduciary with respect to the selection of investment managers for its plans solely by reason of establishing the Program or by paying or reimbursing the plans for Diverse Managers' fees pursuant to its Program commitments and in accordance with plan documents. The DOL cited its long recognition of non-fiduciary, settlor activities related to the formation and design of plans, including decision-making regarding which plan expenses are to be paid by the plan or the plan sponsor. The DOL also stated that it was not opining on Citi's discharge of its fiduciary responsibilities for selecting and monitoring its plans' investment committees' members in light of the Program, as those questions are inherently factual.

Issue 2: Will the Investment Committees be deemed to have violated ERISA sections 403, 404, or 406, by reason of taking Citi's fee payment commitment into account in decisions regarding the selection of or allocation of investment assets to a Diverse Manager?

In the DOL's view, investment committee members will not violate ERISA sections 403(c)(1) (prohibiting the inurement of benefits to employers using plan assets) or 404 (setting forth ERISA's fiduciary duties) solely by virtue of considering as one factor in the selection process that an investment manager's fees otherwise payable by the plan will be paid by Citi under the Program. Rather, it said it would view appropriate consideration of the Program and any commitments under it as another relevant financial factor in evaluating the fees to be incurred by the plan in choosing among investment managers. Further, the fact that Citi may pay a Diverse Manager's fee would not, in and of itself, create an adversity of interests that would result in an investment committee's violating ERISA's self-dealing prohibition, section 406(b)(2). The DOL also said it would not view investment committee members' best judgment as fiduciaries as being influenced merely because they were aware of the Program's potential for generating reputational benefits to Citi. However, it would be inconsistent with the duties and prohibitions of ERISA sections 403, 404, and 406 for investment committee members to exercise their fiduciary authority primarily to advance Citi's corporate policy goals.

Issue 3: Will the inclusion of information regarding the Racial Equity Program and payment of fees under the program in disclosures required under 29 CFR 2550.404c-1 result in ERISA section 404(c) being unavailable to an otherwise eligible plan?

ERISA section 404(c) and its implementing regulations provide fiduciaries of certain individual account plans relief from liability for losses that are the result of investment instructions given by a participant or beneficiary, subject to certain disclosure obligations and other conditions. Required disclosures must contain the operating expenses of investment alternatives and may contain other information about fund expenses that a plan administrator determines is appropriate for comparisons of funds, provided such information is not inaccurate or misleading. One of the conditions for section 404(c) liability relief is that a participant or beneficiary has independent control over their account and is not subjected to "improper influence" by plan fiduciaries. 29 CFR 2550.404c-1(c)(2). Citi asked the DOL whether disclosing Citi's payment of Diverse Manager fees under the Program along with its fund expense disclosures would constitute "improper influence." The DOL stated Citi's disclosures would not violate the "improper influence" provision. 


The DOL's views on Issue 1 are consistent with its prior treatment of plan sponsor decision-making on the allocation of plan fees as a settlor function, albeit in the new context of a plan sponsor's racial equity initiatives. On Issue 2, it seems reasonable to conclude as the DOL did that an investment committee could make prudent and loyal decisions about how and where to invest plan assets without consideration of reputational benefits that may inure to Citi when a Diverse Manager is selected, but that decision-making is something participants will likely scrutinize to make sure fiduciary standards were followed. On Issue 3, the DOL's analysis is somewhat conclusory, but it does provide some insight into the type of information that can go into section 404(c) disclosures without running afoul of the "improper influence" standard.

There are interesting parallels between the DOL's views in Advisory Opinion and its most recent position on Environment, Social, and Governance (ESG) factors with respect to investment decision-making involving ERISA plan assets. In both scenarios, fiduciary investment decision-making can comply with ERISA even when indirect financial or other benefits may flow to non-participants or the public-at-large, but fiduciaries must base their decisions on financial factors and a risk/return analysis that benefit the plans and their participants.

Upcoming Speaking Engagements and Events

On October 31, Joanne Roskey and Dawn Murphy-Johnson will present, "State Legislative Activities Impacting Employee Benefits," an American Staffing Association webinar.

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