2025 Employee Benefits Year in Review—Planning Ahead for 2026

For most benefit plans, the end of the calendar year brings a number of communications and compliance deadlines, and it’s also a convenient time to revisit the year’s significant legal updates.  To assist you with your year-end projects, this newsletter provides a summary of some important dates and new developments.

Important Reminders for 2025

• Many contribution and benefit limits will increase for 2026, so your payroll and recordkeeping systems will need to be updated.  A table setting forth the 2025 and 2026 IRS limits appears at the end of this newsletter.
• A number of notices are due 30 days before the start of each plan year, and plan administrators often like to provide other required communications at the same time.  Most notably:
  • If you have participant-directed investments and utilize a “Qualified Default Investment Alternative” (“QDIA”) for “default” investments, you should provide your default investment informational notice by December 1, 2025, if you have a calendar year plan year. Your plan recordkeeper generally will assist you in preparing the notice and coordinating its distribution. 
  • If you have a “safe harbor” 401(k) or 403(b) plan or want to adopt a safe harbor structure for 2026, you must provide your annual notice in most cases by December 1, 2025, if you have a calendar year plan year. This applies regardless of whether you are using a traditional safe harbor or an automatic enrollment safe harbor.  Make sure the notice includes a warning that the employer retains the right to reduce or eliminate safe harbor contributions on 30 days’ notice, in order to preserve this ability for you if you need it.
    • The Setting Every Community Up for Retirement Enhancement Act of 2019, commonly called the “SECURE Act,” eliminated the notice requirement for plans providing safe harbor contributions as nonelective contributions (i.e., contributions made to all eligible participants regardless of whether those participants contribute from their own paychecks), rather than as matching contributions. However, if a plan does offer matching contributions in addition to the safe harbor nonelective contribution and wants those matching contributions to qualify for the safe harbor exemption from testing, the plan must issue a safe harbor notice.^[1]  In addition, an employer needs to provide notice of its reservation of rights to reduce or eliminate the safe harbor contribution during the year on 30 days’ notice, or it will not be able to reduce or eliminate the contribution in the absence of a substantial business hardship or a qualifying plan termination in connection with a business merger, divestiture, or acquisition event.  Accordingly, while the IRS has said that it is working on guidance to eliminate the notice requirement for nonelective contribution safe harbor plans, providing a safe harbor notice with a proper reservation of rights is advisable for 2026 even if you are using the nonelective safe harbor.^[2]
  • If you have an automatic enrollment 401(k) or 403(b) plan, regardless of whether it is a “safe harbor” plan, you must provide your automatic enrollment annual notice by December 1, 2025, if you have a calendar year plan year.
  • Participant-directed defined contribution plans must provide annual notices regarding plan expenses and investments. Plans should be sure they have met that obligation; the deadline will vary depending on the timing the plan has established.  Disclosures must be provided no more than 14 months after the previous year’s disclosure.
  • The SECURE 2.0 Act allows defined contribution plans to reduce disclosures to individuals who are eligible to participate in the plan but have chosen not to contribute and do not have account balances. To qualify for this special rule, participants must have received the plan’s summary plan description and any other initial disclosures, and must receive an annual reminder notice of their right to participate which includes certain information about the plan and the contribution election process.
• If you want to make any amendments to your qualified retirement plan or 403(b) plan, you may need to adopt them before the end of the current plan year.  Generally, an amendment to a qualified retirement plan that takes effect during a plan year must be adopted before the end of the plan year, unless Congress or the IRS has granted an extension.
  • In some cases, you may need to have an approved amendment in place before the desired effective date. For example, if you are making your contribution structure less favorable to some or all participants, an advance amendment is likely to be required.

• • Changing a 401(k) or 403(b) plan to or from a matching contribution “safe harbor” structure usually requires an amendment in advance of the start of the plan year.
    • The SECURE Act gave employers more flexibility if they opt instead to use a nonelective contribution safe harbor structure. The SECURE Act allows the safe harbor structure to be added at any point until 30 days before the end of the plan year, or even retroactively during the following year if the employer offers a 4% contribution instead of the usual 3% contribution.  The contribution must be made for the entire plan year, regardless of when the safe harbor provisions are added.  Employers also have the pre-SECURE Act option of issuing a contingent notice of possible intent to adopt a safe harbor nonelective contribution design with a supplemental notice to be provided at least 30 days before the end of the plan year if a safe harbor design is adopted.
      • If the plan also offers matching contributions as to which the employer seeks exemption from the ACP test, the IRS has said that the pre-SECURE Act additional notice and more restrictive timing requirements apply to amendments adopting a nonelective safe harbor contribution structure. In addition, IRS guidance still restricts employers’ ability to change provisions of safe harbor plans during the year.  
      • Ultimately, while the IRS has said it will be making updates to reflect the SECURE Act, employers with safe harbor plans or interested in adopting a safe harbor plan should consider being proactive about approving changes before the beginning of the plan year, even if using the nonelective safe harbor.
    • Adding an automatic enrollment feature to a 401(k) or 403(b) plan or making changes to an automatic enrollment feature may also require an amendment before the start of the plan year.
    • Individually designed qualified retirement plans and 403(b) plans (i.e., plans not using a document template preapproved by the IRS) generally are required to adopt amendments reflecting legal changes by the end of the second calendar year following the year the IRS issues the required amendment list containing the change. Qualified retirement plans and 403(b) plans using IRS-preapproved documents generally also must adopt interim amendments reflecting legal changes by the end of the second calendar year after the calendar year in which the change appears on the IRS’ required amendments list.  Governmental plans are subject to special rules. 
    • Amendments reflecting changes made by the SECURE Act, the SECURE 2.0 Act, and the CARES Act of 2020 are due by the end of 2026. Special deadlines apply to governmental plans and in some cases to collectively bargained plans.

• • Benefit statements:

• • • Remember that you must provide benefit statements for your participant-directed plans within 45 days of the end of the quarter, and for non-participant-directed defined contribution plans by the filing date for Form 5500 for the plan year.
    • If you sponsor a defined benefit plan, you must either provide employed participants with an annual notice of the availability of a benefit statement on request, or with an actual benefit statement once every three years. (Bear in mind that the statute does not exempt frozen plans from these requirements.) 

• • • Defined benefit plans sponsored by employers with intranet sites (or whose plan administrators maintain plan websites for them) generally are required to make certain information from Form 5500 available on their intranet sites.  See the instructions to Form 5500 for details.
    • Make sure that you or your insurer or other service provider have provided all notices required under your group health plan this year, which may include the Women’s Health and Cancer Rights Act notice, the Children’s Health Insurance Program notice, notice of availability of the Health Insurance Portability and Accountability Act (“HIPAA”) privacy notice, and/or the Medicare Part D notice, and that you or your insurer provide required Summary of Benefits and Coverage documents during your open enrollment period. 
    • If you use a broker or consultant in connection with your group health plan (e.g., a broker to assist you in the selection of insurance products, or a consultant to assist in plan design) and you haven’t received a disclosure from them regarding the compensation (direct or indirect) that they receive in connection with their provision of services (e.g., commissions from insurance carriers), you should request such information from the broker or consultant before the next renewal of your agreement with the broker or consultant.
    • Group health plan sponsors should ensure that they are in compliance with the Consolidated Appropriations Act, 2021 (“CAA”) anti-gag clause attestation requirement, which is due December 31, 2025.  The CAA prohibits group health plans and issuers from entering agreements with “gag clauses” which (1) restrict provider specific price or quality of care information/data to referring providers, participants/beneficiaries/enrollees, individuals eligible to become participants/beneficiaries/enrollees, (2) restrict electronic access to de-identified claims and encounter information/data for each participant, beneficiary, or enrollee upon request or (3) restrict sharing the above information/data or directing the above information/data be shared with a business associate.  These gag clauses are prohibited in agreements between plans/issuers and providers, networks/associations of providers, third party administrators (“TPAs”), and any other service provider offering access to a network of providers.  Attestations are due every December 31^st.  A self-insured plan may enter into a written agreement with its TPA for the TPA to submit the attestation on behalf of the plan, but if the TPA does not submit the certification, the self-insured plan sponsor must submit it.  Insurance carriers for fully-insured plans are independently required to submit the attestation, and the Departments have indicated that when the issuer of a fully-insured group health plan submits an attestation on behalf of the plan, the Departments will consider the plan and issuer to have satisfied the attestation submission requirement.  Plan sponsors of fully-insured plans should ensure that the carrier submits the attestation, as the fully-insured plan must submit the attestation if the carrier fails to do so.  Instructions for submitting the attestation can be found here. 
    • Most retirement plan participants are required to receive annual “required minimum distributions” after turning a specified age^[3] and terminating employment with the plan sponsor.  (The requirement applies at the specified age regardless of employment status, in the case of a more-than-5% owner.)  Time limits also apply for payment to beneficiaries of deceased participants.  Each year’s payment must be made by December 31^st, with the exception of a participant’s first required minimum distribution (due April 1^st of the year following the year in which the participant attains the specified age or terminates employment, as applicable). 

• • • • The CARES Act allowed defined contribution plans to disregard 2020 when calculating the five-year deadline that applies for payment to be completed to certain non-spousal beneficiaries of deceased participants.
      • The IRS and DOL have dedicated resources to enforcing these rules, and require plans to indicate on Form 5500 whether they failed to make required payments. The DOL, in particular, has developed an enforcement program focused on payment timeliness and participant outreach efforts generally.  Therefore, in addition to checking in on required minimum distribution compliance, plan fiduciaries should confirm that the plan’s cash-out process for participants with small balances is operating properly, and make sure that the plan has appropriate follow-up protocols for returned mail, bounced e-mails and other indications of invalid addresses for participants and beneficiaries (whether or not currently required to commence payments).  See our January 2025 “Finding and Paying Your Retirement Plan Participants” LEGALcurrents for more information.

• • • If you completed a plan merger in the 2024 plan year in connection with a business transaction in the 2024 or 2023 plan year and want to submit an application for an IRS determination letter in connection with that merger, you must do so by the end of the plan year that begins after the date of the merger (December 31, 2025, for calendar year plans that merged in 2024).
    • If you expect to have assets remaining in your defined contribution plan’s forfeiture account at the end of the year, you should review your options and obligations under the plan document to determine whether you can (and whether you must) make arrangements to use up your forfeiture account this year.  The IRS has emphasized that plans generally should not be carrying forfeiture balances over from year to year.  As a corollary of this analysis, make sure that your recordkeeper is processing forfeitures in a timely fashion when former employees take distributions or complete five breaks in service, so that the forfeited money can be put to proper use.  As discussed at more length below, a number of lawsuits alleging improper use of forfeitures are pending in the courts, so plan sponsors and fiduciaries should take a fresh look at their rights and responsibilities when determining how and when to use their forfeitures and keep abreast of developing trends in this area.
    • Plan sponsors and fiduciaries should be sure to update lists of plan signatories and fiduciaries, as well as any other documentation enabling access to plan information and funds, to reflect changes in employees and vendors at the time a change takes effect.  However, the end of the year is a good time to do a final check and confirm that all your documentation has, in fact, been kept up to date. 
    • Likewise, the end of the year may be a good time to take a look at your plan demographics and assets and assess the adequacy and cost-effectiveness of your fidelity bonding coverage and fiduciary liability insurance.  Consider such factors as the maximum dollar amount of coverage relative to the size of your plans, the identity of the individuals and entities covered, the types of allegations covered, the extent to which coverage is available outside the litigation context (such as in connection with government audits and correction processes), and the alignment of coverage with contract indemnification rights with respect to vendors and employees as well as the legal requirements for fidelity bonds.

A Look Ahead at 2026

There are some important action items to plan for as 2026 gets underway:

• Make sure your plans are in compliance with the requirements of the SECURE 2.0 Act (see our “Highlights of the SECURE 2.0 Act for Employer Retirement Plans” LEGALcurrents for details).  In particular, the requirement that employees with prior-year FICA wages from a plan sponsor above a specified threshold (wages of $145,000 in 2025, for purposes of applying this requirement in 2026) must make Internal Revenue Code Section 414(v) catch-up contributions to 401(k) plans, 403(b) plans and governmental 457(b) plans as Roth rather than pre-tax contributions takes effect in 2026.  More details are available in the LEGALcurrents and in the discussion of the IRS’ regulations on this topic further down in this newsletter. 
• Remember that plan amendments for the CARES Act, SECURE Act, and SECURE 2.0 Act will be due by the end of 2026.
• Under the Patient Protection and Affordable Care Act, larger employers can face a “shared responsibility” (a.k.a. “pay or play”) penalty if they fail to offer full-time employees affordable medical coverage.  Larger employers are also subject to an information reporting requirement that requires them to track employees’ hours of service as well as information about their offers of coverage to their full-time employees during the year.  The 2025 calendar year Forms 1095-C must be furnished to employees by March 2, 2026.  Forms 1094-C and 1095-C are due to the IRS by March 2, 2026, for employers who do not file electronically, and March 31, 2026, for employers who do file electronically.  Note that some states (e.g., California, New Jersey, and Rhode Island), as well as the District of Columbia, have reporting requirements similar to the federal requirements.  Employers subject to these state requirements should monitor state-specific reporting deadlines, as they will not necessarily align with the extended federal deadline. 
• If required, an employer with a self-insured medical plan may need to make a second request for a taxpayer identification number (“TIN”) (i.e., a Social Security Number) for employees who have not provided a requested TIN.  As noted above, under the Affordable Care Act, larger employers are subject to information reporting requirements regarding employee full-time status and offers of coverage.  The IRS Forms used for this purpose require that TINs be included on the Form.  Employers with self-insured medical plans are responsible for collecting (or attempting to collect) TINs for employees and their family members who enroll in the employer’s medical coverage.  The IRS proposed regulations that provide a waiver from penalties if the employer is unable to obtain necessary TINs but has taken “reasonable steps” to collect such TINs, which consists of making a solicitation within the following timeframes:
  • upon enrollment;
  • within 75 days after the date of the initial solicitation; and
  • by December 31^st of the year following the year in which the individual applied for coverage or added an individual to existing coverage.
•  

If an employee does not provide a TIN for a covered spouse or dependent, the employer may use that individual’s date of birth on Form 1095-C in lieu of a TIN.

• The Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”) requires group health plans to notify the Department of Health and Human Services (“HHS”) of all breaches of unsecured protected health information.  A group health plan must notify HHS within 60 days of discovering a breach affecting 500 or more individuals.  For breaches involving fewer than 500 individuals, HITECH requires a group health plan to keep a log or other documentation of such breaches that occur within a calendar year and to notify HHS of such breaches within 60 days of the close of the calendar year.  This means that group health plans must notify HHS of all breaches affecting fewer than 500 individuals that occurred in 2025 by no later than March 1, 2026.  Notifications must be submitted online at the HHS website here.
• Medicare Part D online disclosure to the Centers for Medicare & Medicaid Services (“CMS”) for group health plans offering prescription drug coverage to individuals eligible for Medicare Part D is due by March 1, 2026. 
• Employers will need to revise their group health plan’s notice of privacy practices by  February 16, 2026 to include information about how the group health plan may use or disclose protected health information (“PHI”)  that includes information from substance use disorder programs that are subject to federal rules regarding confidentiality of substance use disorder patient records (“Part 2 Rules”).  As required by the CARES Act, the Part 2 Rules were updated to more closely align with HIPAA rules.  Updated HIPAA rules require the notice of privacy practices to include information about PHI that is subject to the Part 2 Rules. As described in our July Legalcurrents, employers that previously updated their group health plan’s notice of privacy practices to address the treatment of PHI related to reproductive health care should remove those provisions from their notice, because a Federal District Court in Texas vacated the portion of the HIPAA regulation that imposed the reproductive health care requirements
• If you are making a discretionary match to a 401(k) or 403(b) plan for the 2025 plan year, your plan document may require you to notify your participants when the match is deposited.  The IRS required such provisions in pre-approved plan documents during the last document update cycle.  Check your plan document for details.
• Will you need a summary of material modifications to update one or more summary plan descriptions to reflect 2025 changes to plan terms, insurers, trustees, or other summary plan description content?  Is your summary plan description due for replacement because it is more than five years old (ten years old, if there have been no changes)?  For a calendar year plan, updated summary plan descriptions or summaries of material modifications will be due just before the end of July (210 days after the end of the plan year).
•  

Important Developments in 2025

There have been a number of legal developments important to benefit plan sponsors and administrators.  This segment of the newsletter summarizes the items we have found to be most relevant for our clients.

Recent Legislation

The “One Big Beautiful Bill” enacted in July 2025 made several changes affecting health and welfare benefits.  Additional details are available in our “Mid-Year Legal Roundup: Key 2025 Developments Impacting Health & Welfare Benefits” LEGALcurrents.  Briefly:

• The statute adds a permanent safe harbor allowing (but not requiring) telehealth services to be provided under a high-deductible health plan (HDHP) without cost sharing prior to satisfaction of the deductible. The safe harbor took effect retroactively to January 1, 2025, since the prior safe harbor had expired December 31, 2024.
• The maximum dependent care flexible spending account (FSA) amount has been increased from $5,000 to $7,500 ($3,750 for a married individual filing a separate tax return, increased from $2,500), although nondiscrimination requirements that restrict the amount that highly compensated employees can contribute relative to other employees may limit the utility of this provision.
• Qualifying “direct primary care service arrangements” will not be treated as disqualifying health plan coverage for purposes of eligibility to contribute to a health savings account (HSA). This new provision applies to primary care services provided by primary care practitioners if the sole compensation to practitioners for such care is a fixed periodic fee, which cannot exceed $150 per month for one-person or $300 for two-or-more person coverage.  “Primary care services” do not include procedures that require general anesthesia, prescription drugs (other than vaccines), or laboratory services not typically administered in an ambulatory primary care setting.

Litigation Developments

Supreme Court Ruling on Prohibited Transaction Lawsuits

ERISA and the Internal Revenue Code prohibit plan fiduciaries from allowing a plan to engage in most transactions (“prohibited transactions”) with certain entities affiliated with the plan or plan sponsor (referred to by ERISA as “parties in interest”).  The list of prohibited transactions includes “furnishing of goods, services, or facilities between the plan and a party in interest” and “transfer to, or use by or for the benefit of a party in interest, of any assets of the plan,” as well as sales, leases and loans between the plan and a party in interest and self-dealing by plan fiduciaries.  The list of parties-in-interest includes the plan sponsor and certain affiliated businesses, the employees, officers, directors, and significant owners of the plan sponsor and certain affiliated businesses, plan fiduciaries, and plan service providers. 

Since the prohibited transaction rules would prevent most plans from functioning, ERISA and the Internal Revenue Code also include a list of exemptions from the prohibitions.  For example, a plan could not hire a vendor to perform services without violating the prohibition on receiving services from a party-in-interest (the service provider), nor pay the vendor without transferring assets to it.  Accordingly, ERISA and the Code allow for “contracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.”  This exemption, of course, raises the question of how a fiduciary or a court can determine if a plan has paid “more than reasonable compensation” for services.  Under DOL regulations, the reasonableness determination is made based on the particular facts and circumstances.  That, in turn, means that answering this question during a lawsuit can involve extensive discovery and costly expert witness reports.

Over the last fifteen years, hundreds of lawsuits have been filed alleging that plan fiduciaries paid excessive compensation to plan recordkeepers and/or investment fiduciaries.  Different federal courts had reached different conclusions as to whether a plaintiff had to demonstrate that the challenged compensation was unreasonable as part of the complaint, or whether it sufficed for the plaintiff to allege that compensation was paid, leaving the defendant fiduciary to demonstrate that the compensation did not exceed a reasonable amount as an affirmative defense.  In Cunningham v. Cornell Univ., the Supreme Court resolved the dispute, ruling that a plaintiff can allege a violation of ERISA’s prohibited transaction rules by asserting that a plan paid compensation to a vendor, and does not need to show that the compensation was unreasonable or that the fiduciaries’ conduct was intentionally problematic in order for the claim to survive a motion to dismiss.

In its opinion in the Cunningham case, the Supreme Court acknowledged concerns that setting such a low pleading standard might make it too easy for flimsy allegations to survive a motion to dismiss and obligate defendants to engage in an expensive discovery process.  While the Court concluded that its ruling was nonetheless required by the statutory construction, it attempted to reduce the risk that meritless accusations would result in high litigation costs by suggesting measures that courts could take to prevent the need for an inquiry into the question of the reasonableness of compensation from opening the door to full discovery.

401(k)/403(b) Fee Litigation

As noted in the discussion of the Supreme Court’s Cunningham case, lawsuits challenging the recordkeeping fee arrangements and investment options offered under defined contribution plans continue to keep the federal courts busy. 

One major factor in the likelihood that a plaintiff’s assertion of faulty investment performance and/or excessive recordkeeping or investment fees will survive an early motion to dismiss is the extent to which the court requires the plaintiffs to provide detailed comparative data, showing (as applicable) that the challenged investment options performed poorly (net of costs) relative to available similar funds, or that the plan paid more than comparable plans for comparable products or services.  When a court does require comparator data, plaintiffs and defendants often disagree strenuously regarding the extent to which one fund is comparable to another fund, or one plan’s recordkeeping needs to another’s.  In some cases, the court has determined that the question of the adequacy of the comparative data, as well as the extent to which it demonstrates problematic investments or fee payments by the relevant plan, has to be determined after discovery, either on summary judgment or at trial.  In other cases, however, the defendants have been able to persuade the court that the plaintiffs failed to carry their burden to demonstrate that the plan’s investments and/or fees were out of line with market norms and have obtained dismissal of the lawsuit. 

While the Supreme Court’s Cunningham decision is expected to make it easier for plaintiffs’ prohibited transaction claims to survive a motion to dismiss, increased judicial scrutiny of comparator data would help defendants prevent costly discovery on excess fee and underperformance claims.  Furthermore, requiring plaintiffs to include this type of information in their complaints would make it more likely that plaintiffs’ counsel will need to expend money on due diligence and expert consultants upfront, before they can file a lawsuit.  Accordingly, the requisite scope of comparative data in a complaint is a hotly debated topic, and an area where practitioners would appreciate more clarity from the Supreme Court. 

Forfeitures

Following an initial series of lawsuits filed by Hayes Pawlenko LLP in 2023, a number of lawsuits have been brought against various large employers with respect to their usage of forfeitures to reduce employer contributions rather than to pay plan expenses for the benefit of plan participants.  Some of these cases focus entirely or almost entirely on the forfeitures allegations, while others add alleged misuse of forfeitures to other types of claims, such as assertions of excessive recordkeeping fees or poorly performing investments.  The terms of the plans at issue in the bulk of the forfeiture suits to date have allowed for either use, but the plaintiffs assert that because the plan documents granted the plan administrator the ability to use forfeitures either for expenses or as a contribution offset, the plan administrator had to make the decision that was in the best interests of participants.  Thus, they allege that the plan fiduciary breached its fiduciary obligations by opting to reduce employer contributions (which benefited the company) rather than applying some (or all) of the forfeitures to pay expenses. The plaintiffs’ theory rests on the premise that the employer would have made the contributions from its own assets had the forfeitures not been made available, and the participants thus would have received both contributions and lower expenses. 

Defendants object to the characterization of a forfeiture allocation decision as fiduciary in nature on the grounds that this characterization ignores the long-established understanding that an employer acts in a “settlor” (plan sponsor) capacity when deciding on a plan’s contribution formula, and that accordingly the employer also has a “settlor” right to claim the use of forfeitures to offset contributions, if the plan allows for this use.  When acting as a settlor, the employer can act in its own business interests, and is not subject to a fiduciary obligation to act in participants’ best interests.  In line with that argument, it is worth noting that an employer faced with a need to apply forfeitures to plan expenses has the option to amend its plan to reduce future contributions, or in the case of discretionary contributions, to reduce the contribution amount approved.  Accordingly, a victory in these cases is not likely to provide a sustained advantage to plan participants.  Employers whose document providers give them the flexibility to do so have also been taking steps to amend their documents as necessary to clarify the “settlor” nature of the decision regarding permissible use of forfeitures, and to prioritize the offset of contributions over the payment of expenses or allocation to participants as new contributions.

A number of courts ruled on motions to dismiss forfeitures claims in 2025.  While a few courts determined that the lawsuits stated a valid claim, most of the decisions to date have favored the employer defendants and resulted in dismissal of the claims.  The first appellate decision is expected to come from the Ninth Circuit, in a case appealing the dismissal of claims against HP.  The DOL recently filed an amicus brief in that case, supporting dismissal of the claims.  A number of employer advocacy groups have done likewise.

 Of course, employers and fiduciaries alike should take care in the first instance to use forfeitures only in ways permitted by the plan document.  Using forfeitures to offset contributions if the plan document requires that they be applied to expenses or reallocated to plan participants as additional contributions is definitively impermissible.

Jury Trials

Traditionally, courts have viewed lawsuits alleging a breach of fiduciary duty with respect to an ERISA plan as “equitable” rather than “legal” causes of action.  The distinction dates back to the time when courts of law primarily heard cases involving money damages, and courts of equity primarily heard cases seeking other types of relief (such as injunctions) and cases involving certain types of claims traditionally considered “equitable” rather than “legal” in nature (such as claims involving a breach of duty by a trustee).  The federal courts abolished the distinction between legal and equitable jurisdiction in 1938, removing the need for a plaintiff to determine which court could hear a particular case.  However, the question of whether a case is “legal” or “equitable” in nature is still important for determining whether a litigant is entitled to a jury trial, since the U.S. Constitution only guarantees a trial by jury in “suits at common law” and not in suits at equity.  Because ERISA cases involving breach of fiduciary claims historically have been considered analogous to actions involving a trustee’s conduct, and actions of that type were traditionally matters for the courts of equity even if monetary relief was requested, courts have held consistently over the decades that litigants in an ERISA case are not entitled to a jury trial.

However, two district courts in the Second Circuit recently granted plaintiffs’ jury trial requests in ERISA cases against Yale University and Pentegra, respectively.  Their decisions were based on a particular Second Circuit decision regarding the availability of jury trials, and although plaintiffs in other circuits have nonetheless been inspired to assert a right to jury trial in their cases, other courts have not been inclined to agree with the Yale and Pentegra rulings.  Even in the Second Circuit, district courts have disagreed on the question.  The case involving Yale University is currently pending, so the Second Circuit hopefully will clarify its views on the matter.

While plaintiffs tend to favor jury trials and defendants to oppose them, the results in the two cases to present the issue so far have been relatively evenly divided.  The jury in the Yale case concluded that Yale’s employee fiduciaries had breached their duties but that no harm had resulted, and awarded damages of $1.00.  A number of commentators pointed to this oddly bifurcated result as bearing out the common view that ERISA cases involve complex legal and factual analyses much better suited for a judge than a jury.  In contrast, in the Pentegra case, the jury awarded damages of $38.8 million.  Pentegra subsequently settled the case.

Stable Value

Multiple 401(k) and 403(b) plans’ fiduciaries are facing challenges to their stable value funds.  A number of cases assert that the fiduciaries of the plans in question acted imprudently in their arrangements with the insurance companies that provide the “wrap contracts” that are used to stabilize the value of the relevant stable value funds.  The plaintiffs in these cases allege that the insurance companies receive too much compensation because they provide the plan with too low an interest crediting rate.  Other cases raise other types of challenges to stable value funds, such as asserting that returns are too low, or are artificially controlled by the insurance company offering the fund so as to inflate the insurance company’s profits.  Some cases also assert that the wrap contract and/or stable value product at issue was too risky, when the contract or product relies on the continued solvency of the insurance company’s general account.  Insurance contracts associated with Prudential have been a popular target for these claims, with the plaintiffs alleging that Prudential’s capitalization structure is weighted towards offshore entities and that its surplus assets are too small to safely balance the company’s potential liabilities.

As with any claim involving the prudence of an investment selection, the key to a successful defense is a thorough and well-documented analysis process supported by appropriate expertise.  Fiduciary committees should understand the types of claims that may be relevant to their stable value or other capital preservation funds and be comfortable that their plans’ processes address the concerns reflected in these claims, along with any other relevant factors.

Annuitization Challenges

A number of large employers have transferred segments of their pension liabilities to insurance companies in recent years via the purchase of annuity contracts, and participants in several plans whose benefits were transferred to the insurance company Athene sued to challenge those transactions as violations of ERISA’s requirement of fiduciary prudence, and of the associated regulatory requirement that a pension plan purchase annuities from the “safest available” provider.  The lawsuits assert that Athene’s offshore capitalization structure and association with private equity investors prevent Athene from qualifying as a “safest available” pension annuity provider. 

In the spring of 2025, one court allowed a lawsuit against Lockheed Martin’s pension annuitization to advance, finding that the plaintiffs had, “albeit just barely,” demonstrated that there was enough of a potential risk to their pensions that they met the constitutional requirement that they have “standing” to sue (i.e., that they have suffered an injury as a result of the defendants’ actions that the court could remedy if they prevailed in their claims).  In September, another court allowed a suit to proceed against Bristol-Myers Squibb, finding that plaintiffs’ allegations of a “substantial risk” of default on their benefits and their loss of ERISA’s statutory protections at the time their benefits were transferred to Athene were sufficient to qualify them to bring suit.

In contrast, courts have dismissed lawsuits against Alcoa, GE, and AT&T, on the grounds that the plaintiffs in those cases had not demonstrated an actual injury, and a magistrate judge has recommended dismissal of claims against ATI.  The judge in the GE case explained that, “Plaintiffs do include a number of allegations that would tend to suggest that Athene is more likely to fail than other identified insurance and annuity providers. But the mere fact that Athene is perhaps more risky…does not suffice to show that there is a substantial risk that Athene will fail.”  Accordingly, the court found that the plaintiffs’ benefits were not sufficiently at risk to allow them to qualify as having suffered an injury. 

A lawsuit has also been filed making similar allegations in connection with an annuity purchase from Prudential, even though Prudential had been cited in a number of the Athene lawsuits as an example of a “traditional” insurer that contrasted with the allegedly unsafe, private-equity-oriented Athene.  The case against Prudential alleged that Prudential’s current structure, like Athene’s, involves offshore capitalization.  These allegations have been picked up in turn in a number of the recent cases challenging stable value funds.

Employers and plan fiduciaries considering a partial or complete transfer of pension liabilities to an insurer should be aware of the risks of a legal challenge.  The plan sponsor should direct the termination or partial annuitization (as applicable) in its capacity as plan sponsor, so that those decisions are not subject to fiduciary challenge.  However, the fiduciaries must remember that their decisions regarding how to implement an employer’s decision to terminate or annuitize, and their selection of the annuity provider, are fiduciary decisions.  In making those decisions, fiduciaries must act prudently and undertake an appropriate investigation with the help of qualified experts, and must determine that the chosen insurer meets the regulatory “safest available” standard.  In addition, fiduciaries considering a purchase from Athene or Prudential should bear in mind the potentially heightened risk generated by the litigation targeting these companies.  In light of this risk, they should be sure their advisors assess the extent to which the allegations made by the plaintiffs have any merit and provide written conclusions prior to any decision to proceed with a purchase.

Recordkeeper Marketing Activities

Empower Retirement Services has been sued in connection with its protocols surrounding the marketing of rollover IRAs.  Like many recordkeepers, Empower has an IRA product that can be offered to participants interested in removing assets from a former employer’s plan.  Empower also makes a distribution counseling service available to its client plans’ participants and, in contrast to the approach taken by most recordkeepers, classifies its distribution counseling services as fiduciary advice rather than non-fiduciary education.

The lawsuit against Empower alleges that Empower misused its access to participant data to engage in targeted solicitation (e.g., of participants nearing retirement age), and that it failed to provide appropriate disclosures of its conflicts of interest and IRA fees and instead held itself out as a fiduciary acting in participants’ best interests.

It remains to be seen how well the allegations will stand up as the litigation progresses, but the recent Supreme Court decision in Cunningham v. Cornell University makes plan vendors especially vulnerable to being required to defend litigation alleging conflicts of interest rather than obtaining a quick dismissal.

Actuarial Equivalent Pension Litigation

A number of lawsuits challenging the actuarial factors used to convert single-life pensions into other types of annuities (such as joint and survivor annuities) continue to work their way through the courts.  It remains to be seen whether any courts will, in the end, determine that the actuarial provisions in question violate legal requirements, or what kind of relief they might grant if they do reach such a conclusion.  The Eleventh Circuit recently heard oral arguments in the case against Southern Company Services, and appeared receptive to the idea that actuarial assumptions must meet some standard of reasonableness, but it will likely take some months before a decision is issued.  Also, in September, Duke University opted to settle the lawsuit against it for $2.35 million, approximately 18% of the amount originally sought by the plaintiff.

Given the complications involved in changing actuarial assumptions without imposing impermissible benefit reductions on participants, employers who are concerned about a plan’s design should review their options with their actuaries and counsel before taking action.

Withdrawal Liability

Supreme Court has agreed to review the decision in M&K Employee Solutions, LLC v. Trustees of the IAM National Pension Fund, a case addressing whether the actuarial assumptions used for the calculation of multiemployer plan withdrawal liability must be the assumptions in effect at the end of the plan year prior to the employer’s withdrawal, or whether the assumptions can be established on a different date so long as they are based on information in existence as of that end-of-prior-year date.

Arbitration of ERISA Claims

Plaintiffs continued to claim court victories in 2025 when challenging the enforceability of arbitration clauses as a way of preventing class action claims alleging breach of fiduciary duty.  Their successes included a victory in the Ninth Circuit, which was the one appellate court that had issued a decision (albeit unpublished) that seemed amenable to enforcing arbitration clauses against these types of claims.  While the provisions of a particular arbitration clause can be relevant, courts continue to be persuaded by the more fundamental position asserted by numerous plaintiffs (and supported by the DOL) that an arbitration clause barring access to plan-wide relief for fiduciary breach claims prevents plaintiffs from “effective vindication” of their rights under ERISA, and hence is unenforceable.  The Supreme Court has turned down a number of opportunities to address the issue. 

ESG Investing and American Airlines

The change in presidential administrations has brought another reversal of regulatory policy on the topic of programs that incorporate consideration of “environmental, social, and governance” (“ESG”) factors in the financial industry in particular and the business world in general.  Since the early days of ERISA, the DOL has required plan fiduciaries to prioritize the economic best interests of the plan over any other considerations, whether “ESG” or otherwise, and that basic requirement remains the bedrock rule of ERISA investing.  However, the DOL also had allowed fiduciaries to take non-economic factors into account when economic considerations were otherwise equal. 

Guidance issued by the Obama Administration had sought to clarify the scope of this “tie-breaker” rule.  Regulations issued by the first Trump Administration imposed additional due diligence and documentation obstacles on use of the tie-breaker rule and on the use of “ESG” funds as qualified default investment alternatives, and were accompanied by other regulations intended to discourage ERISA plan proxy voting activities.  While the final version of the Trump regulation eliminated much of the expressly anti-ESG content included in the proposed version and accompanying commentary in response to strong objections from the financial industry, the Trump regulations remained unpopular with financial professionals and fiduciaries on the grounds that they imposed administrative burdens and increased litigation risks despite the lack of any significant ESG activity by ERISA plans in the first place.  Financial professionals also remained concerned that the regulations called into question the ability of investment professionals to consider ESG factors even when those factors had important economic implications. For example, a prudent investor would take into account the financial risks posed by a known liability for a potential portfolio company to clean up an environmental brownfield, regardless of the investor’s views on sustainability or climate change or the policy merits of brownfield laws.   

Accordingly, the regulations were withdrawn by the Biden Administration and replaced by regulations which largely restored the prior status quo but included some revisions intended to further clarify the standard for use of the “tie-breaker” rule and the ability of fiduciaries to honor participant interest in ESG (or, for that matter, anti-ESG or other “themed” investments) when those investments satisfied the normal economic standards for inclusion in the plan’s investment array.  The Biden Administration also largely restored the prior position that ERISA plans should generally vote proxies, and that only in unusual circumstances would the costs of doing so augur against voting.  The Biden Administration regulations were upheld by a Texas district court.  However, the Trump Administration nonetheless has indicated its intention to once again revamp the regulations.  

The continued regulatory flux in this area is unfortunate, but fundamentally fiduciaries remain obligated to make investment decisions based on the economic best interests of the plan, as they have been required to do for decades.  Fiduciaries considering more complicated situations, such as the use of the tie-breaker rule or offering an ESG, anti-ESG, or other themed fund, or selecting an investment consultant based on DEI considerations, should proceed cautiously and be sure that they document the way in which any decision satisfies the “economic best interest” standard.

The interplay of ERISA’s requirements with ESG-oriented investments and investment management firms was tested by the recent case Spence v. American Airlines.  More details about the case’s background and the initial ruling following trial are available in our January 2025 LEGALcurrents.  Briefly, the plaintiff alleged that American Airlines improperly managed its 401(k) plans’ investments with an eye towards fulfilling ESG goals favored by the company and BlackRock, one of its major shareholders and lenders, rather than acting in the economic best interests of plan participants.  Originally, the plaintiff complained about a number of investments available under the plan’s brokerage window, in contravention of the generally accepted rule that plan fiduciaries are not expected to monitor and restrict the hundreds or thousands of funds typically available through a brokerage window.  Eventually, the plaintiff changed gears and the final version of his complaint focused on the BlackRock funds available under the plan and BlackRock’s ESG-oriented proxy voting activities, and in particular challenged a proxy vote with respect to Exxon which was followed by a drop in Exxon’s stock price.

While the judge took the opportunity to express his disapproval of the manner in which the finance industry operates and the use of ESG strategies, the judge ultimately concluded that the American Airlines fiduciaries could not be found to have been imprudent by acting in keeping with market norms.  The judge did find, however, that American Airlines had breached its fiduciary duty of loyalty when it came to the arrangements in place with BlackRock in connection with plan investments.  The judge noted that the American Airlines employee charged with overseeing plan investments was also the corporate liaison to BlackRock as shareholder, and described other indications of entanglement between American Airlines and BlackRock.  The judge requested briefing on the extent to which the breach of the duty of loyalty actually resulted in any loss to the plan.

In September 2025, the judge issued a decision finding that the plaintiff had failed to prove that the plans had suffered financial harm, and hence the plans were not entitled to a financial recovery.  The judge did, however, issue an injunction requiring certain safeguards for plan relationships with BlackRock or any other major shareholder, mandating certain changes to the plans’ governance processes, specifying certain disclosures that American Airlines will need to make, and barring any future investment or proxy voting activities related to ESG, DEI or other non-financial considerations that “are not in the exclusive best financial interests of plan fiduciaries.”  The injunction’s breadth and its lack of clarity on certain points, as well as concerns regarding potential political motivation, have sparked criticism from benefits practitioners.[4]  However, the denial of a financial award, as well as the fact that what success the plaintiffs did experience turned on American Airlines’ specific conflicts of interest rather than on a more general theory of liability that might translate readily to other cases, allow cautious optimism that plaintiffs’ lawyers will not find it lucrative to target plans and plan sponsors simply because a plan sponsor, fiduciary, or vendor has taken an unpopular political position or espoused a social cause that a plaintiff dislikes.  Of course, the outcome of plaintiffs’ counsel’s request for $7.9 million in attorneys’ fees may make a difference in this regard.

Ultimately, the cautionary tale coming from the American Airlines case is a warning of the consequences of failing to protect fiduciary decision-making against conflicts of interest.  The case failed to demonstrate that there was any merit to plaintiff’s allegations of economic harm arising from ESG-oriented decision-making.  Nonetheless, fiduciaries should take note of the fact that the judge’s determination that the American Airlines fiduciaries had acted prudently was based on their adherence to an investment selection and oversight process that met typical standards.  Fiduciaries should be sure that they likewise are acting in accordance with standard expectations of conduct for a prudent and expert investor and that they keep records to demonstrate their adherence to this level of care.

Conflicts of Interest

As discussed in the previous section, American Airlines’ decision to allow its plan fiduciary committee to become entangled with the corporate relationship to BlackRock, as a shareholder and lender, allowed the plaintiff in the Spence v. American Airlines case to prevail on his claim that the fiduciaries had breached their duty of loyalty.  While the plaintiff was unable to demonstrate that the breach actually resulted in any loss and hence was unable to obtain a monetary recovery, the loss on that claim at trial required American Airlines to continue to spend time and money defending the case and generated unfavorable publicity.

Another company’s recent litigation experience provides an even more telling demonstration of the importance of training fiduciaries to identify and avoid conflicts of interest, and ensuring that a company’s management likewise understands the importance of not mixing the company’s business activities with its plan investments and plan vendor relationships.  Earlier this year, UnitedHealth settled a class action lawsuit relating to its decision to offer Wells Fargo target date funds in its 401(k) plan for $69 million.  The record in the case was rife with evidence that UnitedHealth’s concern to retain its contract with Wells Fargo’s health plan and to retain Wells Fargo as a banker and lender influenced the plan fiduciary committee’s decision to retain Wells Fargo’s target date funds as a plan investment.  Most notably:

• The fiduciary committee’s investment advisor had raised concerns about the Wells Fargo funds and recommended a change, but the committee failed to take action for an extended period of time, and ultimately opted to retain the funds.
• The investment advisor was excluded from a number of meetings, including finalist interviews, and the committee failed to keep minutes and abandoned a scorecard protocol that had been unfavorable to Wells Fargo.
• UnitedHealth’s CFO served on the committee and also as Wells Fargo’s corporate sponsor at UnitedHealth. As the fund selection process entered its final month, he knew UnitedHealth would soon have to bid to retain Wells Fargo as a customer.  The committee’s talking points cited the corporate relationship as a point in Wells Fargo’s favor.  The UnitedHealth CFO asked about the “balance of trade” between UnitedHealth and the fund candidates at a committee meeting and other committee members provided the information.
• When UnitedHealthcare’s bid to retain Wells Fargo’s business failed, the CFO told a contact at Wells Fargo “that given what he thought was a growing relationship, he ‘stepped in front of the freight train’ last fall to save their $5bn AUM business from leaving Wells. His team had “run amok, and he stepped in to save it given the growing WFC/UNH relationship.’”

As the American Airlines case demonstrates, the plaintiffs still would have needed to persuade the court that the breach of the duty of loyalty indicated by these records actually caused a loss to the plan in order to obtain a monetary recovery.  However, the investment advisor’s concerns about the funds and the committee’s own early scoring suggests they may well have been able to do so.  At the very least, the demonstrated conflicts made the case much more difficult to defend.  UnitedHealth’s $69 million settlement costs could potentially have been prevented by a small investment of time and money in basic ERISA training for the plan fiduciaries and company management.

Class Action Litigation Regarding Pharmacy Benefit Manager Selection

Similar class action lawsuits were filed against Johnson & Johnson and Wells Fargo in 2024, and against JPMorgan Chase in 2025, and the plan fiduciaries of their self-insured group health plans alleging breach of fiduciary responsibility in connection with the plan fiduciaries’ retention of the pharmacy benefits manager (“PBM”) for the plans.  The lawsuits allege that the plan fiduciaries breached their fiduciary duty by agreeing to contracts with the PBM that result in the plan (and plan participants) paying unreasonably high prices for certain drugs.  The complaints contain a detailed description of PBM practices and the types of “pricing models” that are typically used in group health plan contracts with PBMs, including “spread pricing” models, where the amount the PBM charges the plan for drugs may be higher than the amount that is paid to the pharmacy by the PBM, with the PBM keeping the “spread” or difference as compensation for its services.  The Johnson & Johnson case was dismissed in January 2025 and the Wells Fargo case was dismissed in March 2025, both on the ground that  the plaintiffs do not have standing to bring the lawsuit because they have not suffered harm.  In both cases, the court allowed the plaintiffs to file an amended complaint and in both cases, the defendants have filed a new motion to dismiss. In the JPMorgan Chase lawsuit, JPMorgan Chase has filed a motion to dismiss.  We expect to see additional litigation regarding health and welfare plan costs in the future and plan fiduciaries should examine their practices regarding plan fiduciary oversight of the selection and monitoring of plan services providers such as PBMs and medical claims administrators.

Wellness Program Litigation

Over the past several years, lawsuits have been filed against a number of large employers alleging that their wellness programs relating to tobacco usage do not comply with longstanding HIPAA wellness program regulations.  Many employers maintain wellness programs that provide a reduced employee contribution for health insurance coverage or other reward for employees who certify that they are not tobacco users.  Under longstanding HIPAA wellness regulations under this form of wellness program, employees must be offered a “reasonable alternative” to be able to qualify for the reward if they are tobacco users.  Normally, the reasonable alternative is to complete a tobacco-use cessation program.  HIPAA wellness program regulations contain specific requirements regarding notifying employees about the reasonable alternative and delivery of the reward when the employee has completed the reasonable alternative.  The lawsuits generally allege that the employer did not satisfy the requirements for disclosure of the reasonable alternative or delivery of the reward when the reasonable alternative was completed. 

Notably, in early November 2025, the Federal District Court for the District of Rhode Island granted an employer’s motion to dismiss in a case challenging the employer’s tobacco use wellness program (Williams v. Bally’s Management Group, LLC). Like many of the recent cases, the plaintiff alleged that the wellness program didn’t comply with the HIPAA wellness program regulations because it insufficiently notified participants of the availability of a reasonable alternative standard (a tobacco cessation program) and because the employer did not provide retroactive reimbursement of the surcharge when the tobacco cessation program was completed.  The plaintiff also alleged that the employer had breached its fiduciary duty. The HIPAA wellness program regulations specify that the “full reward” must be provided to an individual who completes the reasonable alternative.  Neither the regulations nor the law itself define “full reward.”  In the preamble to the regulations, the Departments of Labor, Treasury and Health and Human Services offered their interpretation of the term as requiring delivery of the reward for the period prior to the individual’s satisfaction of the reasonable alternative (e.g., if the employee completed the tobacco cessation program on April 1^st, the employer would have to refund/credit the individual for the amount of surcharge they paid for the months of January through March).  The Court held that it was not required to give deference to the Departments’ preamble interpretation of the term “full reward” and determined that the employer was only required to deliver the reward prospectively, from the date of completion of the reasonable alternative.  The Court also held that the employer’s communications regarding the wellness program satisfied the requirements of the HIPAA wellness program regulations, again determining that it did not have to give deference to the Departments’ statements in the preamble to the regulations.  We expect that the plaintiff will appeal this decision. Employers should examine their wellness programs to ensure they are in compliance with the HIPAA regulations. 

Fiduciary Breach Lawsuits Regarding Health Plan Coverage Options

Two nearly identical class action lawsuits were brought against Northwestern University and the University of Rochester and their group health plan fiduciaries relating to the health plan coverage options offered to plan participants.  In each case, the employer offered multiple health benefit coverage options, including a high deductible/low premium option and a low deductible/high premium option. In each case, the plaintiffs allege that the low deductible option was “financially dominated” by the high deductible option—that there would be almost no situation where it would be beneficial financially for a participant to choose the low deductible/high premium option.  Plaintiffs alleged that the decision to offer the coverage options and the pricing of those options was a fiduciary decision and that it was imprudent for the low deductible/high premium option to be offered. Plaintiffs also allege that the plan fiduciary had a duty to disclose that the low deductible/high premium option was financially dominated by the high deductible option.  Northwestern University has filed a motion to dismiss on several bases, the first of which being that the plaintiffs lacked standing, having received all benefits to which they were entitled under the plan.  In addition, Northwestern argues that it was acting as a settlor of its group health plan, and not in a fiduciary capacity, when it decided what coverage options to offer and the pricing for those options, and that it accurately communicated the options to employees.  We think the defendants have good arguments here.  Under established precedent, plan design decisions (such as what coverage options to offer) and the pricing (i.e., required employee contributions to participate) of those options are settlor, non-fiduciary decisions.  Accurate communication regarding the coverage options, of course, is a fiduciary responsibility.

Executive Order on Alternative Investments

The Trump Administration recently issued an Executive Order intended to facilitate use of cryptocurrency and private equity investments within 401(k) plans, directing the DOL and SEC to take action to eliminate regulatory obstacles and discourage private lawsuits against fiduciaries opting to allow plan investment in these assets.

The tone of the Executive Order has been perceived as seeking to actively encourage access to alternative investments, at least in the context of “asset allocation funds” such as target date funds, although the Executive Order does acknowledge the need for fiduciaries to conclude that any such assets are prudent investments before adding them to the plan. 

In that regard, many in the employee benefits industry remain concerned that lack of liquidity, high fees, the expertise needed to select and manage these investments, and lack of transparency make it difficult at best to incorporate private investments into defined contribution plans, even in the context of the “white-label” investment funds used by some of the largest plans which involve professional managers overseeing a specified portfolio of the plan’s assets.  Cryptocurrency’s history of extreme volatility, along with other risks such as loss of a password, similarly make it a challenge to include in a defined contribution plan.  It is possible new ETF and mutual fund products beginning to make their way into the marketplace will ameliorate some of these issues, but increased demand for access to these types of investments due to expansion into retail and 401(k) investors’ portfolios may heighten other concerns.  Plan fiduciaries should be sure to consult with counsel and investment professionals who are familiar with the legal and investment risks associated with these types of investments before deciding whether (and in what context) they may be suitable for use by a given plan. 

In particular, plan fiduciaries looking to invest in funds with private and/or cryptocurrency in the plan’s investment array or to include assets of these types in white-label funds or other fiduciary-managed investment pools should also be sure they understand the potential for loss of liquidity and have methods in place to ensure the plan can pay benefits when due.  In this regard, the fiduciaries should bear in mind that if the company anticipates a reasonable probability of acquisition, closure, downsizing, or other situation that might result in the need to terminate or merge the plan and/or the departure of a large number of employees in the relatively near future, the presence of potentially illiquid assets will be especially problematic.

Department of Labor News

Fiduciary Conflict of Interest Regulations

The DOL has repeatedly asked courts to hold off on hearing challenges to the Biden Administration’s Retirement Security Rule, which revised the circumstances under which a person offering investment advice for a fee becomes an ERISA fiduciary, saying that it is reviewing the prospect of withdrawing and replacing the regulations.  The Biden regulations reflected the latest in a back-and-forth regulatory effort that began during the Obama Administration.

A federal court recently rejected an effort by the first Trump Administration to impose fiduciary status on financial advisors offering advice regarding distributions from an ERISA plan, even if the advisor was not previously associated with the plan.  Although the Trump Administration had withdrawal Obama-era regulations in favor of the original 1970s standard for determining fiduciary status that required investment advice to be offered on a “regular basis” in order for an advisor to be a plan fiduciary, the Trump Administration DOL had issued sub-regulatory guidance stating that an expectation of a post-distribution relationship was sufficient to satisfy the “regular basis” requirement, even though the money would no longer be in the plan.  The court rejected the portions of this guidance that allowed for consideration of an investment relationship with a non-ERISA tax-qualified vehicle like an IRA when determining whether an advisor was a fiduciary with respect to an ERISA plan.

Alternative Investment Access

In keeping with the Executive Order discussed above, the DOL has rescinded Biden-era guidance disfavoring cryptocurrency investments and outlining risk factors for 401(k) fiduciaries to consider in connection with private equity investments.

The SEC is also making efforts to facilitate broader access to cryptocurrency and alternative investments.  Investment professionals have noted the importance of regulatory support from both the SEC and the Commodity Futures Trading Commission in order for a broad-based cryptocurrency fund market to develop.

Guaranteed Income Investments as QDIAs

The DOL issued an Advisory Opinion to AllianceBernstein discussing the use of a fund series that includes a guaranteed income component as a qualified default investment alternative (“QDIA”).  The Advisory Opinion expressed the DOL’s viewpoint that an investment option of this sort can qualify as a QDIA, even if offered in the form of a variable annuity contract, and confirmed that a fiduciary who follows one of the sets of “safe harbor” guidelines for selection of annuity products laid out in Section 2550.404a-4 of the Labor Regulations or in Section 404(e) of ERISA would be protected accordingly against fiduciary liability risks related to the selection of the annuity provider.

Missing Participants

At the end of December 2024, the DOL activated a “Retirement Savings Lost and Found” database (https://lostandfound.dol.gov/).  The database is intended to make it easier for participants and beneficiaries to identify plans which may owe them benefits and contact the plan administrator.  The DOL has asked employers to provide relevant participant information on a voluntary basis.  However, given the legal restrictions and liability risks associated with disclosing personal information, an employer interested in doing so should consult counsel.  The DOL has included this project on its recently announced guidance plan, so more developments may follow in 2026.

Regardless, however, employers should be aware that the DOL has continued with an extensive audit and enforcement program related to ensuring that plans are making diligent efforts to find and pay participants and beneficiaries who are due benefits.  Among other things, the DOL requires that plans maintain appropriate procedures to address bad addresses, uncashed checks, and nonresponsive payees.  More information is available in our “Finding and Paying Your Retirement Plan Participants” LEGALcurrents.

Employers unable to locate payees may want to consider the DOL’s temporary policy (announced in January 2025) allowing escheatment of benefits valued at $1,000 or less to state unclaimed property funds, if certain requirements are met.  A number of those requirements may render this option unavailable or at least non-cost-effective in many cases, but the temporary policy may be helpful in some situations.  More information is available in our LEGALcurrents.

Annual Funding Notice

The DOL issued updated model funding notices, reflecting revised requirements under the SECURE 2.0 Act.

ESOP Stock Valuation Regulations

The DOL issued proposed regulations providing instructions on how employer stock in closely held companies should be valued for purposes of ESOP transactions, only to withdraw them as mandated by the regulatory freeze imposed by the incoming Trump administration.  The DOL has indicated that reissued proposed regulations are slated for 2026.

VFCP

The DOL has reissued its Voluntary Fiduciary Correction Program (“VFCP”), which allows plan fiduciaries to obtain regulatory approval and penalty relief for certain types of compliance violations.  Most notably, the new version will allow self-correction of late remittances of elective deferrals and loan repayments withheld from participant paychecks which meet the self-correction program’s requirements, eliminating the previous requirement to file an application with the Department for formal approval of the correction, and accommodate self-correction of certain plan loan issues in keeping with the IRS’ Employee Plans Compliance Resolution System.  See our January 2025 LEGALcurrents for details.

Deregulation Efforts

In obedience to the Trump Administration’s directive to reduce regulatory burdens, the DOL removed three regulations.  However, the DOL then reversed this decision and reinstated two of the regulations (one relating to defined contribution annuity safe harbors and one to certain insurance policies issued on or before December 31, 1998), after receiving objections from commentators explaining that these regulations in fact remain relevant.   

Internal Revenue Service News

SECURE Act/SECURE 2.0 Act Guidance

The IRS has issued additional guidance implementing provisions of the SECURE 2.0 Act.  Highlights calling for current action are discussed above, and more details are available in our SECURE Act and SECURE 2.0 Act LEGALcurrents.  Significant pieces of guidance published in 2025 include:

• Proposed regulations on the SECURE 2.0 Act’s automatic enrollment requirements that took effect in 2025 (see our January 2025 LEGALcurrents for details).
• Proposed and subsequently final regulations on enhanced catch-up contribution limits that became permissible in 2025 for individuals attaining age 60-63 during a specified year, and on the Roth catch-up contribution mandate for individuals with FICA wages in excess of a specified threshold during the prior year.  Good-faith compliance with the Roth mandate is required for 2026; compliance with the final regulations will be required beginning in 2027.

Key points from the catch-up regulations include:

• A plan may, but need not, allow employees between ages 60 and 63 to utilize the increased limits on catch-up contributions. If a plan does so, it generally must extend the opportunity to all age-eligible employees (including all age-eligible employees of any other controlled group or affiliated service group members), except that it is permitted to be more restrictive with respect to collectively bargained employees and/or non-resident aliens without U.S. source income.
• In terms of the Roth catch-up contributions mandate:
  • A plan cannot require all catch-up contributions to be made on a Roth basis. Pre-tax catch-up contributions must be an option for those below the FICA threshold.
  • A plan may establish a rule that all catch-up contributions for individuals covered by the Roth requirement are automatically Roth contributions, so long as an affected individual has the right to opt instead to discontinue contributions after reaching the non-catch-up deferral limit or to make additional pre-tax deferrals to the extent that the individual’s total pre-tax deferrals for the year have not reached the non-catch-up deferral limit. As a general matter, employers should add this feature to their plans, since plans without this feature will face challenges should they need to correct violations of the Roth catch-up rule.  So long as a plan has processes in place that are designed to prevent violations of the statutory pre-tax contribution limit and provides for catch-up contributions to automatically be considered Roth contributions with respect to participants subject to the Roth mandate, correction of excess pre-tax contributions can be accomplished by treating the contributions as Roth contributions and reporting them accordingly on Form W-2, or via an in-plan Roth rollover.
    • These options provide alternatives to needing to distribute pre-tax contributions in excess of the permissible non-catch-up elective deferral limit.
    • A plan may allow for either or both correction methods, but (i) the W-2 method may be used only if Form W-2 has not yet been issued to the affected participants, and (ii) under the final regulations, a plan must apply the same method to all “similarly situated” participants whose contributions were in excess of a given limit for a particular year.
    • As a practical matter, the deadline for correction will depend on which statutory limit necessitated the treatment of the contributions as catch-up contributions. While the IRS’ final regulations allow for an extended deadline to correct the pre-tax/Roth tax classification, failure to complete the correction by the deadline for correcting violations of the relevant limit may result in the adverse tax consequences associated with violating that limit, even if the plan corrects the Roth violation in time to avoid incurring a qualification failure by reason of the pre-tax classification of the contribution.
  • The IRS also addressed the rules for determining whether a person’s FICA wages exceed the threshold of $145,000 (as indexed; now set at $150,000 for 2025 wages for purposes of 2026). Under the proposed regulations, wages were to be calculated with respect to the individual’s common law employer who sponsors the plan.  The proposed regulations also specified that wages paid by different common law employers would not be aggregated (even if the employers are related and participating in the same plan) and that self-employed individuals and certain employees whose wages are not subject to FICA therefore are not subject to the Roth mandate.  These rules remain applicable under the final regulations, but the final regulations will permit employers using a common paymaster or who are members of a controlled group to opt to aggregate FICA wages.  Employers who opt for voluntary aggregation should be sure they understand the nondiscrimination testing rules that will apply and will need to document that aggregation in their plan document as part of the amendment for SECURE 2.0.
  • If a plan does not allow Roth contributions, the plan can bar individuals subject to the Roth mandate from making catch-up contributions even if it allows other individuals to make pre-tax catch-up contributions. The IRS explained that this will not violate the “universal availability” rule that in order to make catch-up contributions available to anyone, the plan must offer them to all age-eligible participants.  In this situation, the permissible amount of catch-up contributions for individuals above the FICA threshold is $0.  The IRS warned, however, that it is possible that this design could cause non-discrimination testing issues due to the limitation on access to catch-up contributions as a feature under the plan. 
  • If Roth catch-up contributions are permissible for individuals subject to the Roth mandate, the Roth catch-up option also has to be available to all other catch-up eligible participants.
  • If a participant subject to the Roth catch-up mandate made both pre-tax and Roth contributions during the year, Roth contributions can count towards the catch-up amount that must be classified as Roth contributions, even if those contributions were made before the participant exceeded the dollar limit on non-catch-up contributions. Although the final regulations permit a plan to re-set a participant’s election to Roth status once a participant has reached the dollar limit on non-catch-up contributions when taking into account both Roth and pre-tax, a plan that does so must nonetheless allow the participant to override the re-set and resume pre-tax contributions to the extent of the dollar amount remaining once Roth contributions earlier in the year are subtracted.
  • The additional elective contributions permitted for 403(b) and 457(b) plan participants who meet certain requirements are in addition to the usual catch-up contributions under Section 414(v) of the Internal Revenue Code, and are not subject to the Roth mandate.

Tax Reporting and Withholding for Uncashed Checks

The IRS issued Revenue Ruling 2025-15 to provide guidance on tax withholding and reporting in connection with uncashed retirement benefit checks.  The Revenue Ruling confirms that amounts withheld as taxes and remitted to the IRS cannot be reclaimed by the plan or employer, since the taxes were validly deducted from the payment when it was issued.

The IRS explained that the payment should be reported for tax purposes in the year issued, despite the payee’s failure to cash the check.  If the check is reissued in a subsequent year, it is not reported again at that time.  However, if for some reason the second check is more than $10 higher than the original check, then additional withholding and reporting would be required. 

As discussed above, the DOL has been aggressively enforcing its view that plan fiduciaries have an obligation to locate and pay missing participants, and that includes individuals with uncashed checks.  The DOL has also emphasized that plans should reclaim funds underlying issued but uncashed checks from clearing accounts that do not allocate investment earnings on account assets back to the plan, and restore these funds to an account that will allow any earnings to benefit the plan.  Accordingly, fiduciaries should monitor the plan’s outstanding checks and have processes in place to locate payees.

Required Amendments

The Required Amendments List for individually designed plans that was issued in 2023 (Notice 2023-79) did not include any amendments, so individually designed plans do not have amendments due as a result of legal or regulatory changes at the end of 2025.  A plan may, of course, need to be amended to reflect changes that are necessary or desirable for other reasons.

The 2024 Required Amendments List was issued in Notice 2024-82, and the amendments included will be due December 31, 2026 for both individually designed and pre-approved plan documents (subject to extended deadlines in certain cases, such as for governmental plans).  The IRS reorganized the list, adding a section for optional plan provisions.

New SEC Compliance and Disclosure Interpretation guidance on 401(k) plans and Section 16/insider trading from April 28, 2025

The SEC issued several new Compliance and Disclosure Interpretations relating to the impact of various insider trading rules and “10b5 plan” exemptions on 401(k) plans on April 25, 2025.  See Questions 120.21, 120.22, 120.23, 120.30 and 120.32 on the SEC’s website.  Employers whose plans include company stock should consult with their securities counsel.

PBGC News

The PBGC issued a regulation that made various clarifications and procedural updates.  The regulation applies to plan years beginning on or after January 1, 2026.

Cybersecurity and Anti-Fraud Measures

Protection of participant data and prevention of fraudulent access to plan benefits remain key concerns for employers and plan vendors alike.  Plan fiduciaries should be sure that both their in-house systems and those of their vendors maintain appropriate safeguards, and should be familiar with the contractual protections applicable to each vendor relationship.  At a minimum, the fiduciaries should confirm that a plan’s arrangements align with the best practices cited by the DOL, absent good reasons why a given practice is not appropriate for a particular plan. 

In particular, plan fiduciaries should bear in mind that the DOL expects plans to maintain written cybersecurity procedures.  These procedures should address both how the plan will protect against potential cyberattacks, and how the plan will respond in the event of a successful cyberattack.  Further, the DOL has indicated that plan fiduciaries should maintain adequate cybersecurity insurance dedicated specifically to the plan.  Plan fiduciaries should review this cybersecurity insurance to ensure it is comprehensive in scope, and that they are aware of any privacy and security practices that the policy requires the plan to follow in order to obtain coverage.  More information is available in our cybersecurity LEGALcurrents on cybersecurity policies and the DOL’s best practice recommendations.

A number of cases seeking damages for data breaches at benefit plan vendors are pending in the courts, and some have recently settled.  For example, a 2024 data breach involving Conduent and HealthEquity has been the subject of class action lawsuits, and Infosys McCamish, SAG-AFTRA, and Sequoia Benefits and Insurance Services recently settled cases.  New York imposed a $2 million fine on dental insurer Healthplex for failing to apply appropriate cybersecurity measures.

Moving beyond concerns about illicit access to plan data, plan fiduciaries should be aware of potential risks associated with the activities of vendors who have legitimate possession of participant data.  As noted above, Empower was recently sued as a result of its use of client plan data to facilitate its marketing activities.  Plan fiduciaries should understand how plan information is being used, and negotiate for limits, disclaimers, or other protections when appropriate.

In addition to cybersecurity and data privacy concerns, plan fiduciaries should educate themselves about how plan vendors and in-house systems are using artificial intelligence in connection with plan activities.  Naturally, plan fiduciaries want their vendors to provide plan staff and participants with the best quality support, and that is increasingly likely to include documents and features that are created and/or operate using artificial intelligence.  However, plan fiduciaries need to understand when and how artificial intelligence is being used, what sort of quality controls, intellectual property protections, and data safeguards are in place, and other important issues.

Puerto Rico

Employers that maintain retirement plans for employees in Puerto Rico must satisfy the requirements of Puerto Rico’s tax laws, even if the plan also satisfies U.S. Internal Revenue Code requirements.  If you have a retirement plan covering employees in Puerto Rico, regardless of whether it is a Puerto Rico only plan or a “dual qualified” plan that also covers U.S. employees, consult Puerto Rico counsel about your obligations. 

One important piece of information for 2026 is that the IRS has clarified the interplay between the mandate that employees with FICA wages above $145,000 (as indexed)[5] make any Internal Revenue Code Section 414(v) catch-up contributions to 401(k), 403(b) or governmental 457(b) plans as Roth contributions, and the fact that Puerto Rico’s tax laws do not allow Puerto Rico residents to make Roth contributions.  This is not an issue for plans qualified only in Puerto Rico, since the Roth mandate is a matter of U.S. tax law.  Sponsors of dual-qualified plans, however, were concerned about how to comply with the mandate, Puerto Rico’s prohibition, and the requirement that catch-up contributions be offered to all deferral-eligible employees of the proper age if offered to any employees (except as provided by a collective bargaining agreement).  The IRS’ proposed regulations initially allowed a dual-qualified plan to prohibit Puerto Rico participants subject to the Roth catch-up mandate from making catch-up contributions if they were allowed to make traditional after-tax contributions.  However, the final regulations excuse Puerto Rico participants in dual-qualified plans from complying with the Roth requirement for so long as Puerto Rico disallows Roth contributions.

The IRS’ new regulations also confirm that restricting Puerto Rico participants to the lower Puerto Rico dollar limit on catch-up contributions does not violate the requirement to make catch-up contributions available to all eligible employees.

Puerto Rico’s Hacienda department has released Administrative Directive 25-03, which provides that SECURE 2.0 amendments to qualified retirement plans in operation in Puerto Rico (both dual-qualified and Puerto Rico-only qualified plans) do not have to be filed with Hacienda for review.

Employee Benefits Year-End Checklist: Updated Internal Revenue Code and Other Statutory Limits

[1] A technical correction to the SECURE Act eliminated an exception to this rule for Qualified Automatic Contribution Arrangements.

[2] Alternatively, plans using the nonelective safe harbor have the ability to notify participants that the safe harbor may be used, without committing in advance, and to provide a follow-up notice at least 30 days before the end of the year if a safe harbor design is adopted.

[3] In the case of a participant born before July 1, 1949, the specified age is age 70½.  In the case of a participant born on or after July 1, 1949, but before January 1, 1951, the specified age is age 72. In the case of a participant born on or after January 1, 1951, but before January 1, 1959, the specified age is age 73. Under the IRS’ proposed regulations, the specified age for a participant who was born in 1959 would be age 73, resolving an open issue created by a technical error in the SECURE 2.0 Act. In the case of a participant born on or after January 1, 1960, the specified age is age 75.

[4] American Airlines has requested some clarifications and modifications to the injunction (including an exemption for the brokerage account investments).

[5] The dollar limit increased to wages of $150,000 in 2025 for purposes of the 2026 determination.