On Friday, a federal Judge in Texas ruled that American Airlines violated federal law by including nonpecuniary measures into its employee retirement plan.
The suit, initially filed in June 2023, alleged that American Airlines violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA) due to hiring asset managers that offered ESG policies to other interested clients.
Following a four-day bench trial, North Texas district court Judge Reed O’Connor made an uncommon and unique decision; he ruled that American Airlines violated its fiduciary duty of loyalty because they employed asset manager BlackRock to help manage the funds even though BlackRock was not named in the proceedings or a party to the lawsuit.
Judge O’Connor’s unusual, first-of-its-kind ruling has caused a significant stir in the retirement space because it appears the Judge focused more on politics than policy to make his case — especially after the Financial Times highlighted that American Airlines’ investments and relationship with BlackRock “did not include any ESG-specific strategies,” and was largely comprised of “passive index funds.”
Ironically, the Judge decided to defer ruling on whether American Airlines’ retirement plan participants actually even suffered losses or reduced returns — likely because reports dating back to February 2024 admitted the plaintiff could not yet “factually prove any harm.”
“This, to me, looks like the same claim could be brought against literally any 401k plan in America,” said Josh Lichtenstein, a partner at law firm Ropes & Gray, raising serious concerns about the legitimacy of the lawsuit and the potential costly, unintended consequences this ruling will have on other states’ retirement plans.
While O’Connor attempted to use BlackRock’s proxy voting to further justify his ruling, it failed to tell the story of how the financial company supported just 4% of ESG shareholder resolutions in 2024. The single-digit support is nearly a 20-point drop from just a few years ago before Gov. Ron DeSantis, Chief Financial Officer Jimmy Patronis and others successfully fought to keep ESG out of Florida’s own retirement and financial systems.
Less than a day before the Texas Judge’s ruling, BlackRock decided to step away from the Net Zero Asset Managers (NZAM) Initiative — the second major climate-related membership the asset manager dropped out of in recent months after previously leaving Climate Action 100+.
This follows an industry trend — led in large part by BlackRock and other large financial companies — of stepping back from ESG as pressure increased to do away with such initiatives in states like Florida, Texas, Arkansas and others.
Under DeSantis, Florida was one of the first states in the country to move away from ESG investments and protect state investments and retirement from going “woke.”
While there will be a lot of attention on the expected appeals of this Texas ruling given the potential broad ramifications for both private sector retirement plans and public employees and retirees alike, the public sector retirees in Florida are protected thanks to DeSantis and Patronis’ efforts to keep ESG out of the state’s retirement system. But without those past actions, this ruling, if it stands, seemingly sets a dangerous precedent that could negatively harm millions of Americans’ financial futures.
With DeSantis expected to announce his appointment to fill U.S. Sen. Marco Rubio’s seat any day and Patronis expected to win the Special Election to fill the seat previously held by U.S. Rep Matt Gaetz, Congress will benefit from strong Florida representatives who know how to protect Americans’ retirement savings.
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