Takeaways

The Internal Revenue Service (IRS) released guidance on November 5, 2025, granting employers relief from tax penalties for failing to provide employees information related to their (1) “qualified tips” and (2) “qualified overtime compensation” that is otherwise required under the One Big Beautiful Bill Act (OBBBA). The relief applies only to the reporting obligation for the 2025 tax year.

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Background

  • Deduction for overtime pay and tipped income: For tax years 2025 -2028, the OBBBA allows employees to take an above-the-line tax deduction on qualified overtime pay and qualified tips.
  • Employer reporting obligations: The OBBBA requires employers to report on Form W-2 the portion of an employee’s pay that is qualified overtime compensation and qualified tips. For employees receiving qualified tips, employers must also identify the employee’s qualifying tip-earning occupation. The OBBBA requires the IRS to provide transition relief for tax year 2025 for employers and payors subject to the new reporting requirements.

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The IRS announced (in IR-2025-110 and IRS Notice 2025-62) transition penalty relief for the 2025 tax year for not filing correct information returns and not providing correct payee statements (i.e., a Form W-2) to employees. Specifically, employers will NOT face penalties (under Code sections 6721 or 6722) for failing to provide a separate accounting of any amounts reasonably designated as cash tips or the occupation of the person receiving such tips. In addition, employers and other payors will also NOT face penalties for failing to provide the total amount of qualified overtime compensation separately. The relief is contingent upon the Form W-2 being complete and correct regarding the aggregate amounts required (e.g., cash tips and overtime being aggregated into the usual reporting line).

The IRS still recommends that employers provide tip and overtime information to employees for the 2025 tax year. Acceptable methods include submitting information through an online portal, providing additional written statements to employees, using other secure methods, or, in the case of qualified overtime pay, entering the amount in Box 14 of the employee’s Form W-2.

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work. Subscribe to the Benefits Law Advisor Blog here.

Takeaways

  • Generally, plan sponsors should be prepared to implement the Roth catch-up rule for taxable years beginning after December 31, 2025 (i.e., January 1, 2026, for calendar year plans).  This will require coordination with ERISA counsel, the company’s payroll provider, and the plan’s recordkeeper and third-party administrator.
  • Be prepared to discover mistakes and correct them quickly.

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On September 16, 2025, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued Final Regulations (Treasury Decision 10033) under Section 603 of the SECURE 2.0 Act. Section 603, as enacted, generally requires that catch-up-eligible participants whose prior-year FICA wages exceeded $145,000 (as indexed) make all catch-up contributions as designated Roth contributions for taxable years beginning after December 31, 2023.  However, in Notice 2023-62, the IRS provided an administrative transition period for calendar years 2024 and 2025, during which plans could continue to accept pre-tax catch-up contributions without violating the statute. The Final Regulations confirm this transition relief remains in effect only through December 31, 2025, and clarify that full compliance with the mandatory Roth catch-up rule is required for taxable years beginning after December 31, 2025 (i.e., January 1, 2026, for calendar-year plans). The Final Regulations generally apply to taxable years beginning after December 31, 2026, with 2026 administration permitted under a reasonable, good-faith interpretation. Finally, note that the regulations also provide delayed applicability for collectively bargained plans.

This article focuses on the impact of the Final Regulations on non-collectively bargained and non-governmental 401(k) plans.

Mandatory Roth Catch-Up Rule

The Roth catch-up rule requires that any catch-up eligible participant (i.e., any participant who is or will reach age 50 by the end of the taxable year) whose FICA wages for the preceding calendar year exceed $145,000 (as indexed) must designate all catch-up contributions as Roth contributions.  All catch-up eligible participants must be allowed to designate their catch-up contributions as Roth, but the Final Regulations make clear that a plan cannot require that all catch-up eligible participants designate catch-up contributions as Roth if they do not exceed the wage threshold.  If a plan does not have a designated Roth program, participants subject to the Roth catch-up rule may not make catch-up contributions.

Determining Who is Subject to the Roth Catch-Up Rule

The Final Regulations clarify that a plan determines whether a participant satisfies the $145,000 (as indexed) threshold by using the FICA wages reflected in Box 3 of the participant’s Form W-2 for the prior year from the participant’s common law employer.  In certain situations, FICA wages from multiple employers may be aggregated.  For example, in the calendar year of an asset purchase, a successor employer may aggregate the wages of a predecessor employer under the successor-predecessor rules.

Administrative Issues Implementing the Roth Catch-Up Rule

Plans may provide for deemed elections with respect to catch-up contributions. Participants who are subject to the Roth catch-up rule, and have elected to make catch-up contributions, are “deemed” to have elected to designate those contributions as Roth.  To implement deemed elections, participants must have an effective opportunity to decide not to make catch-up contributions.  The deemed election may apply either when pre-tax contributions reach the 402(g) limit or when combined pre-tax and Roth contributions reach that limit, which is helpful for plans that provide the spillover method.  The deemed election must end within a reasonable time after the participant is no longer subject to the Roth catch-up rule, or when an amended Form W-2 shows that the participant does not satisfy the threshold.

Correction Methods for Mandatory Roth Catch-Up Failures

Mistakes are bound to happen as plans work through the complexities of implementing the Roth catch-up rule.  The Final Regulations provide two correction methods plans may use to correct Roth catch-up failures.  As a condition of using the correction methods, plans must have adopted practices and procedures reasonably designed to ensure compliance with the mandatory Roth catch-up rule and must provide for deemed elections. The same correction method must be used for similarly situated participants, and the method used cannot be based on a participant’s investment gains. 

The regulations discuss two correction methods: a W-2 correction method and an In-Plan-Roth Rollover method.  Both options have unique challenges and advantages.  Plan sponsors should consult their ERISA counsel to discuss their best options. 

The regulations also allow for no correction in certain circumstances.  Correction is not required if the amount of the pre-tax catch-up contribution that should have been designated as a Roth contribution does not exceed $250 (not including earnings or losses). Or if the failure is due to an amended Form W-2, reflecting that the participant was subject to the Roth catch-up rule, is filed or provided after the correction deadline.

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.  Subscribe to the Benefits Law Advisor Blog here.

Private equity funds that acquire unionized portfolio companies may face significant withdrawal liability under ERISA’s multiemployer pension plan rules. A recent federal court decision in Longroad Asset Management, LLC v. Boilermaker-Blacksmith National Pension Trust underscores that liability hinges on whether the fund is deemed a “trade or business” and under “common control.” While the court limited liability to the fund itself, uncertainty persists… More

New York has officially joined the growing list of states requiring certain private employers to offer retirement savings options. The New York Secure Choice Savings Program (Secure Choice or the Program) is moving closer to implementation, and employers, particularly those without an existing retirement plan, should be preparing now.

What Is Secure Choice?

Secure Choice is a state-sponsored retirement savings program structured as an automatic-enrollment Roth IRA. Employees are automatically enrolled but may opt out at any time. Contributions are funded through payroll deduction, and unlike a 401(k), employers do not contribute, manage investments, or assume fiduciary responsibility. Their role is limited to facilitating access.

Who Must Participate?

An employer will be covered under Secure Choice if it:

  • Has 10 or more employees in New York at all times during the prior calendar year,
  • Has been in business for at least two years, and
  • Does not currently sponsor a qualified retirement plan (such as a 401(k), 403(b), SIMPLE IRA, or SEP).

Employers notified by the Program, who believe they are exempt, will need to follow specific procedures to certify their exemption.

What About New York City’s Retirement Security for All Act?

New York City’s Retirement Security for All Act (the RSA), effective in 2021, would have required certain NYC employers with five or more employees to provide an IRA program similar to Secure Choice. However, the RSA contained a clause preventing implementation if a conflicting state or federal law was enacted. Once Secure Choice became law, implementation of the RSA stopped.

Recent Developments: State Guidance Expands

New York State recently began posting updated information about the Program on its official website, including Program details and timelines. We expect additional updates as the state finalizes enrollment procedures and guidance materials. Employers will want to stay alert for these updates.

Compliance Timeline

  • Pilot phase: Underway now.
  • Program enrollment: Expected to open in late 2025.
  • Compliance window: Once the Program is live, covered employers will have up to nine months to register, upload employee data, and begin payroll deductions.

Steps Employers Should Take Now

Even before registration opens, employers can position themselves for a smooth rollout:

  • Determine Applicability – Review workforce size and retirement offerings. If you meet the thresholds and lack a qualified plan, expect to participate.
  • Prepare for Exemption (If Eligible) – If you already sponsor a qualified retirement plan, gather supporting documents to certify your exemption quickly.
  • Audit Payroll Systems – Confirm your payroll provider can withhold post-tax contributions, remit them on time, and track opt-outs.
  • Organize Employee Data – Employers will need to provide basic employee information (name, SSN, date of birth, contact details). Preparing this data now will streamline onboarding.  As always, employers should take steps to protect participant data as well.
  • Communicate with Employees – The state will provide template materials, but employers should expect questions. Early messaging can help employees understand this is a state-run program, not an employer-funded plan.
  • Evaluate Alternatives – Secure Choice is intended as a baseline option. Employers may wish to compare it against private retirement solutions, such as a 401(k) or pooled employer plan, which can offer higher contribution limits, employer matches, and broader investment menus, although additional compliance burdens may apply.

The Bottom Line – For many New York employers, Secure Choice will soon shift from a policy conversation to a compliance requirement. By staying informed on the state’s latest updates, reviewing eligibility, and aligning payroll processes now, employers can avoid last-minute hurdles and decide whether a private plan might better suit their workforce.

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.  Subscribe to the Benefits Law Advisor Blog.

Introduction

On August 7, 2025, President Donald J. Trump issued an Executive Order designed to broaden access to alternative investments, such as private equity, commodities, real estate, and certain digital assets, for participants in 401(k) and other defined contribution retirement plans. The initiative is framed as an effort to “democratize” investment opportunities that were historically limited to institutional and high-net-worth investors.

While the headlines emphasize new investment possibilities, ERISA fiduciaries must proceed with caution. The Executive Order sets policy direction, but it does not alter fiduciary obligations under ERISA. Moreover, in light of recent Supreme Court precedent, fiduciaries should reexamine how much reliance they can place on agency guidance and regulations when making decisions about designated plan investment options.

What This Means for Fiduciaries of ERISA-Covered Plans

1. A Green Light to Explore

The Executive Order directs the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) to revisit existing rules and guidance. Future action may clarify how alternative assets may be offered in defined contribution plans and whether new safe harbors will be created. Until then, ERISA fiduciary duties of prudence, loyalty, and diversification remain unchanged.

2. New Opportunities, Greater Risks

Alternative investments may offer enhanced diversification and the potential for stronger long-term returns. At the same time, they present significant challenges: higher fees, illiquidity, valuation challenges, reduced transparency, reduced oversight, and in many cases greater volatility. Fiduciaries considering these options must demonstrate a prudent, well-documented process showing the decision serves participants’ best interests.

3. More Moving Parts, More Diligence Required

Unlike publicly traded mutual funds or index funds, many alternative assets do not price daily and may impose withdrawal or transfer restrictions. Fiduciaries must coordinate with recordkeepers, custodians, and investment professionals to assess operational feasibility before offering such options under a plan.

The Loper Bright Factor: Reliance on Future Regulations

In June 2024, the U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo overturned the longstanding Chevron deference doctrine, which had required courts to defer to reasonable agency interpretations of ambiguous statutes.

This shift means that even if the DOL issues a safe harbor for alternative assets, courts may ultimately determine that such rules exceed statutory authority. Fiduciaries cannot rely solely on agency guidance to shield decisions from challenge—they must independently ensure that all actions align with ERISA’s statutory text and fiduciary standards.

Next Steps for Plan Fiduciaries

Conduct a Forward-Looking Assessment

Fiduciaries should evaluate how alternatives would perform under varying market conditions, how higher expenses could affect total returns, and whether the additional complexity provides sufficient value compared to simpler, lower-cost options.  Fiduciaries also should consider whether their plan demographics, including participant withdrawal norms and the investment sophistication of their participants, should influence the decision.

Analyze the Most Prudent Offering Structure

For many plans, offering alternatives through a diversified, professionally managed vehicle—such as a collective investment trust—may be more prudent than providing participants direct access through a brokerage window. Managed structures can help control allocations and mitigate risk. 

Develop a Participant Education Strategy

If alternatives are offered, participants will need clear, accessible explanations of both benefits and risks. Fiduciaries should consider:

  • Examples illustrating how alternatives differ from traditional asset classes.
  • Educational materials tailored to participants unfamiliar with illiquid or complex products.
  • Enhancements to managed account programs to better integrate new investment classes.

Anticipate the Regulatory Curve

The DOL and SEC are expected to issue further guidance and potentially safe harbor provisions in the months ahead. Subject to the caveat raised by Loper Bright, fiduciaries should be ready to act promptly once rules are finalized. This may include amending investment policy statements, revising service provider contracts, or updating plan documents.

Action Steps for Fiduciaries

Immediate Steps

  • Monitor the rulemaking process and related litigation.
  • Begin preliminary due diligence on potential alternative investments.
  • Review governance documents to confirm they support new investment structures.
  • Evaluate what impact, if any, alternative investments would have on fiduciary insurance policies, plan audits, and Form 5500 reporting.
  • Determine whether responsibility for evaluating alternative investments should be delegated to an ERISA Section 3(38) investment manager – an investment fiduciary who assumes responsibility for investment decisions.

Upon Issuance of Guidance

  • Update the investment policy statement to include criteria for evaluating and monitoring alternatives.
  • Document each step of the decision-making process, with an emphasis on statutory compliance and regulatory guidance (in light of Loper Bright).
  • Coordinate with service providers to ensure fiduciary decisions can be implemented effectively.

Ongoing

  • Continue to review performance, fees, liquidity, and participant outcomes.
  • Monitor market developments and legal challenges to agency rules.

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The Top Three Issues Fiduciary Committees Should Be Discussing at Their Next Meeting

  1. How do the potential investment alternatives align with our participants’ demographics and needs? Will higher fees, limited liquidity, or added complexity serve participants, given their investment horizons and withdrawal patterns?
  2. What structures provide the right balance of access and protection?  Should alternatives be offered only through managed vehicles, or are there hybrid structures worth considering?
  3. How do we mitigate risk and build a defensible fiduciary record? In light of Loper Bright, what steps are we taking to ensure our process is independently prudent—beyond simply following DOL or SEC guidance?  Do we have the skills to make these decisions, or should we engage a fiduciary investment manager to assume this responsibility?

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.  Subscribe to the Benefits Law Advisor Blog.

It is increasingly evident that artificial intelligence (AI) is reshaping all facets of business, and its impact on employee benefit plans is no exception. From automating plan administration to personalizing participant communications, AI introduces both new opportunities and new responsibilities for those overseeing Employee Retirement Income Security Act of 1974 (ERISA)-covered retirement and health plans (Plans).

Plan sponsors and fiduciaries should understand how AI intersects with their legal obligations under ERISA and take proactive steps to leverage this technology responsibly to improve participant outcomes.

How AI is Already Impacting Plan Operations

AI technologies are already being integrated into various aspects of Plan management and operations. Fiduciaries should understand how these technologies can benefit participants and beneficiaries—and how to mitigate associated risks. Ignoring AI is no longer a prudent option.

For example, AI-driven platforms can analyze individual participant data to deliver tailored communications that support retirement readiness. AI-automated systems also streamline manual and repetitive tasks, reducing processing time, limiting errors, and improving compliance. These systems can process loans, hardship withdrawals, and domestic relations orders.

However, because AI is not infallible, regular validation is essential. To comply with ERISA’s prudence requirements, fiduciaries should not delegate critical responsibilities to AI without implementing ongoing oversight and monitoring protocols.

Cybersecurity and Fraud Detection

Fiduciaries have an obligation to protect participants’ personal and financial data, which includes adopting and maintaining robust cybersecurity practices. (See: Compliance Assistance Release 2024-01.)

AI-based fraud detection systems can identify anomalies in account access and distribution activity, helping protect participants from unauthorized transactions. Given AI’s capabilities, fiduciaries may face increased scrutiny if they fail to explore AI solutions that bolster account security.

At the same time, integrating AI can introduce new cybersecurity vulnerabilities. Fiduciaries should understand how AI tools operate to strengthen Plan cybersecurity without inadvertently creating risks that harm participants.

Investment Management Tools

Most fiduciaries engage professional advisors to assist with Plan investment options. As a best practice, fiduciaries should ask prospective advisors whether—and how—they use AI-enabled tools to help participants optimize their investment decisions. Similarly, fiduciaries should evaluate how advisors use AI to assess Plan investment performance and strategy.

Vendor Selection and Monitoring

Diligence in vendor selection is critical when working with AI-driven services. Fiduciaries should understand how the AI models are built, what data they use, how results are validated, and whether cybersecurity and privacy controls are adequate.

Vendor contracts should specifically address:

  • Data usage rights and limitations
  • Indemnification provisions
  • Insurance requirements
  • Audit rights and transparency obligations

Transparency and Explainability

Fiduciaries should understand how AI-based decisions are made. Reliance on “black box” AI systems—where the internal logic is opaque—could run afoul of ERISA’s prudence standards. Ongoing monitoring of AI vendors, including thorough audits and performance reviews, is essential to ensuring continued compliance.

AI Data Sources and Governance

AI outputs are only as reliable as the data they rely on. Fiduciaries should make sure the data driving AI tools is accurate, current, complete, and secure. Implementing robust processes for data validation and correction is a key governance priority.

Actionable Steps for Plan Sponsors and Fiduciaries

While AI presents significant opportunities, its deployment should be subject to rigorous oversight. AI should complement, not replace, traditional methods of Plan management. Fiduciaries should evaluate and monitor AI through the lens of ERISA’s fiduciary standards.

Recommended action items include:

  • Integrate AI risk management into the Plan’s overall governance strategy
  • Evaluate and document how AI tools impact investment selection, recordkeeping, and participant advice
  • Review and revise service provider contracts to include AI-specific clauses
  • Conduct initial and periodic due diligence on vendors, involving technical experts as needed

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work. Subscribe to the Benefits Law Advisor Blog.

In an opinion issued on May 15, 2025, the State of New York Tax Appeals Tribunal, the highest administrative forum for state tax appeals, upheld the application of the state’s income tax “convenience rule” imposing New York tax on wages earned by a New York City law school professor while he worked from his Connecticut residence before and during the COVID pandemic. The petitions had been filed by taxpayers Edward A. and Doris Zelinksy.  An appeal of this decision to a New York appellate court is expected. 

The opinion affirms the November 30, 2023 determination of an Administrative Law Judge (“ALJ”) in the case. It accepts most of the ALJ’s reasoning while providing its own rationale on the constitutional and state law issues that will serve as guidance to the New York Department of Taxation and Finance and to New York-based employers with remote or hybrid nonresident employees working all or part-time in other states. The Department’s current administrative position on the convenience rule and the strict “home office” exemption can be found here. Please refer to this link for a discussion of the facts of the case and the 2023 ALJ determination.

The following are important takeaways from the Tribunal’s opinion:

  • Most remote work will not be found to be for the employer’s business “necessity.” The Tribunal states that under the convenience rule New York will not tax a nonresident’s income if it derives from a New York employer’s participation in interstate commerce through the creation of a tax nexus in another state because of the business necessity for the employee to work in the other state. Therefore, hiring remotely in other states simply because that is where the best employee candidates reside and prefer to work for their convenience will apparently never provide sufficient nexus or participation in interstate commerce to avoid the imposition of New York income tax and wage withholding on the wages earned by such nonresidents.
  • Constitutional due process was deemed satisfied because the taxpayer both worked in New York for part of the time during each year and availed himself of the economic market in New York through his employment with a New York-based employer. This is essentially the same rationale adopted by the ALJ in the case. In that earlier determination, the judge found that in our “modern economy” a virtual presence in New York through zoom meetings and internet technology was sufficient presence in New York to justify the convenience rule on constitutional grounds.
  • Nevertheless, it remains unclear whether a nonresident employee must work at least one day a year while physically in New York for the convenience rule to apply. The applicable New York income tax regulation adopting the convenience rule is, by its terms, applicable where a nonresident employee performs services for his New York employer both within and without the state. The Tribunal’s opinion makes repeated reference to this convenience rule condition. Apparently, however, Department income and employment tax auditors have taken the position that New York-based employers and their nonresident employees physically working solely outside of New York during a tax year are nevertheless subject to the convenience rule for income tax and wage withholding purposes. Therefore, a central issue remains as to whether the virtual presence in New York of a remote nonresident employee who is linked to his or her New York-based employer through the internet and other electronic means effectively eliminates the need for the employee to have physically worked in New York during a year in order for New York income tax to apply under the convenience rule or even apart from that rule. It seems that an administrative or judicial decision on the taxation of an always remote nonresident employee who never sets foot in New York will be necessary to get some resolution of that issue. In the meantime, employers desiring to support a basis for the non-applicability of the convenience rule should, wherever possible, document terms of employment without mentioning the necessity, or even the possibility, of the employee’s physical presence in New York for work.

Jackson Lewis attorneys advise many clients on how to plan for and deal with the income tax convenience rules of New York and other states. If you have questions or need assistance, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

A Texas federal court just shook the foundation of HIPAA’s reproductive health privacy protections — but the Supreme Court may have the final word. In a sweeping decision, Judge Matthew Kacsmaryk vacated key provisions of the 2024 Reproductive Health Rule, stripping away national safeguards on disclosing reproductive health information. Yet, a recent SCOTUS ruling in Trump v. CASA, Inc. could rein in the reach of that decision. What does this mean for healthcare providers, insurers, and patients navigating a patchwork of federal and state privacy laws?  More…

Takeaways

  • Republicans in the U.S. House of Representatives attempt to deliver on President Trump’s campaign promises in the One Big Beautiful Bill Act (BBB or the Act), which passed the House by a razor-thin margin of 215 in favor and 214 opposed on May 22, 2025. 
  • BBB shows favoritism of Health Savings Accounts and Health Reimbursement Account benefits, making changes to broaden their scope, increase utilization, and bolster savings.  
  • The Act also provides a glimpse into legislative or regulatory changes that may be on the horizon for ERISA-governed plans, including standards for Pharmacy Benefit Manager compensation, contractual requirements, and disclosures applicable to government-subsidized plans. 

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Article

The goal of the U.S. Senate is to pass One Big Beautiful Bill in a form on which Senators can agree, send it back to the U.S. House of Representatives, who then would have it on President Trump’s desk for signature by July 4, 2025.  Time will tell whether this accelerated schedule is practical and what ultimately makes its way into federal law. 

Without getting too far ahead of the legislative process and certainly staying out of the weeds of the 1,038 pages of legislative proposals, the BBB reveals fringe benefit, health and welfare benefit, and executive compensation priorities.  The legislation also tips the hand of the Trump Administration, shining a light on areas in which we may see additional activity. 

HSA, HRA Improvements

It is clear that House Republicans like Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA).  There are pages of text aimed at expanding eligibility (including permitting Medicare-eligible enrollees to contribute to HSAs), increasing savings opportunities, allowing rollovers from other healthcare accounts, and permitting the reimbursement of qualified sports and fitness expenses.  If the Act becomes law, employers offering HSA or HRA benefits will have some new bells and whistles to add to their programs.  

Fringe Benefits That Make Education and Childcare More Affordable

With a focus on families and paying down student loan debt, BBB makes permanent an employer’s ability to make student loan debt repayments on a tax-favored basis under Section 127 of the tax code.  BBB also enhances the employer-provided childcare tax credit, further incentivizing employers to provide childcare services to their employees.  Whether the employer operates a childcare facility or pays amounts under a contract with a qualified childcare facility, BBB entices employers to add this much-needed employee benefit.   

Executive Compensation Changes

The executive compensation changes baked into BBB are designed to help pay for some of the other changes.  BBB expands the application of the excise tax on certain tax-exempt organizations paying compensation over $1 million (or excess parachute payments) to include former employees (think: severance).  BBB also requires public companies to allocate the Internal Revenue Code Section 162(m) $1 million deduction limit among controlled group members relative to compensation when specified covered employees receive pay from those related employers. 

Tax Cuts and Jobs Act Extension

A priority of President Trump, who touted extending his tax cuts during the campaign trail, BBB extends and makes permanent the Tax Cuts and Jobs Act changes.  For example, BBB permanently makes qualified moving expense reimbursements taxable.

Pharmacy Benefit Manager Regulation   

BBB also includes a few surprise new twists related to Pharmacy Benefit Managers (PBM).  Although the legislative reforms currently focus on Medicaid and prescription drug programs subsidized by the federal government (e.g., Medicare Part D plans, including Employer Group Waiver Plans for retirees absent a waiver), it is clear that the Trump Administration and Republicans in Congress seek transparent and fair pricing of prescription drugs.  These initiatives eventually may spill over to apply to ERISA-governed plans, in furtherance of President Trump’s Executive Orders advancing Most-Favored Nation prescription drug pricing and directing increased transparency over PBM direct and indirect compensation.  So, the changes are worthy of note by all employers that use PBMs. 

For Medicaid, BBB prohibits the “spread pricing” model in favor of “transparent prescription drug pass-through pricing model,” which essentially is cost-plus pricing.  No more than fair market value can be paid for PBM administrative services. 

In the case of Medicare Part D plans, BBB imposes contractual requirements limiting PBM compensation to bona fide service fees.  Rebates, incentives, and other price concessions all would need to be passed on to the plan sponsor.  Further, the PBM would be required to define and apply in a fully transparent and consistent manner against pricing guarantees and performance measures terms such as “generic drug,” “brand name drug,” and “specialty drug.” 

Transparency also is paramount.  BBB requires PBMs not only to disclose their compensation, but also their costs and any contractual arrangements with drug manufacturers for rebates, among other details.   

It certainly is possible these PBM reforms are coming to an ERISA plan near you.  BBB provides a roadmap for the Department of Labor’s Employee Benefits Security Administration to issue ERISA fiduciary standards, best practices, or disclosure requirements.

The Jackson Lewis Employee Benefits Practice Group members can assist if you have questions or need assistance. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.  Subscribe to the Benefits Law Advisor Blog here.