Court Finds American Airlines Breached ERISA Duty of Loyalty Over ESG Proxy Voting

In Spence v. American Airlines, a U.S. District Court found that American Airlines and its employee benefits committee violated the Employee Retirement Income Security Act of 1974 (ERISA) duty of loyalty by failing to monitor and address the impact of an investment manager’s ESG-oriented proxy voting.

As explained by the Verril firm, the court held that the fiduciaries met their duty of prudence but concluded that their failure to address the influence of non-plan interests amounted to a breach of loyalty.

The case arose from American Airlines’ 401(k) plan management from 2017 to 2022. The plans included various investment options, including passively managed index funds held in a collective investment trust managed by BlackRock.

American Airlines had a strong corporate commitment to ESG goals and maintained a close financial relationship with BlackRock. Despite BlackRock’s known ESG focus, the employee benefits committee failed to evaluate required proxy voting attestations or assess whether BlackRock’s voting activities aligned with the Plan’s financial interests.

Plaintiffs argued that this lack of oversight allowed non-pecuniary interests to influence the management of the Plan.

The court found that American Airlines breached its duty of loyalty under ERISA by failing to monitor BlackRock’s proxy voting and influence. It concluded that the employee benefits committee should have conducted its analysis of ESG investing, met directly with BlackRock to discuss fiduciary obligations, or implemented additional monitoring measures.

However, the court found no breach of prudence since the plan achieved competitive returns with lower fees during the class period.

Attorneys should note that this decision highlights the importance of carefully managing conflicts of interest, monitoring investment activities, and separating corporate and fiduciary roles.

Fiduciaries should closely monitor investment decisions, assess proxy voting practices, and ensure that investment strategies prioritize the financial interests of plan participants over corporate ESG goals.