Current Thinking on Employee Benefit Developments

We hope this client alert finds all our friends and clients well. As you know, we try to keep our alerts to a minimum because we know your inboxes are already filled with “breaking news” from numerous outlets. However, we believe this is a good time to touch base on upcoming compliance deadlines and other issues we are monitoring as we approach 2026 and beyond. We cover these items below in order of importance and timing.

Important: Tax Exempt 457(b) Plans May Need Amendment by Year-End

We are sure you have heard that most of the amendments related to SECURE 1.0/2.0 and CARES Act are not due until 2026 (at the earliest) (discussed below for tax-qualified plans and governmental plans). However, 457(b) plans sponsored by tax-exempt employers have an earlier amendment deadline—December 31, 2025 (for calendar year plans)—to incorporate certain updates.

Most of these amendments will be technical—and more minor—updates, such as updating the required minimum distribution age and, if applicable, increasing the Plan’s small benefit cash-out threshold. However, since this is the first time in a long time that these 457(b) plans have required amendments, it is also a good time to take this opportunity to look at your plan document to ensure that the written terms match the manner in which the plan has been administered. Some of our clients who have had their 457(b) plans audited by the IRS in recent years have found themselves out of operational compliance because their administration has veered away from the plan’s terms over the years (e.g., eligibility, payment timing, etc.)—resulting in IRS penalties. In addition to the amendments, we can also point out any terms in your plan that we think you should revise or confirm for overall consistency in plan operations.

If your plan is on a prototype, the document vendor should have sent or will be sending you any required amendment. If you have not yet received such an amendment, you should reach out to your document vendor. We are standing-by to assist with your compliance efforts (such as by reviewing the documents from your prototype sponsor). If your plan is an individually-designed plan, please contact us to ensure you are meeting this required deadline and considering any other recommended updates.

Preparing for the New Roth Requirement for Catch-up Contributions

Beginning January 1, 2026, employees whose FICA wages exceed $145,000 (indexed) in the prior year must make any catch-up contributions on a Roth (after-tax) basis. This requirement applies to all 401(k), 403(b), and governmental 457(b) plans that permit catch-up contributions. Retirement plan sponsors should be coordinating final details of implementation with payroll providers and recordkeepers.

As a reminder, catch-up contributions are an extra savings opportunity above the standard limit for elective deferrals—for 2025, the standard limit is $23,500 plus a $7,500 catch-up for participants age 50+ or an enhanced $11,250 catch-up for participant turning ages 60-63 in a given year. Of course, employees who are at least age 50 and whose compensation does not exceed the limit noted above can continue to make catch up contributions either as pre-tax elective deferrals or as Roth after-tax elective deferrals (if the Plan so permits).

Recent Treasury guidance also clarifies that plans using “deemed election” mechanics—automatically deeming a pre-tax deferral election to be a Roth election when the 402(g) limit is exceeded—must allow participants to make an alternative election and to discontinue the deemed election if an employee no longer is subject to the mandatory Roth requirement (either in the future or because they received an amended W-2 lowering their wages). Plans using this approach must be amended by the SECURE 2.0 deadline (discussed below).

The final regulations also highlight several unique compliance issues for plans that permit special catch-up contributions, including 403(b) plans with 15-year special catch-ups and governmental 457(b) plans with three-year catch-ups for participants approaching normal retirement age. These provisions will need to be carefully coordinated with the new Roth catch-up requirement to ensure limits are applied and reported correctly. In addition, non-ERISA 403(b) plans of tax-exempt entities may face additional challenges implementing Roth catch-ups without jeopardizing reliance on the DOL’s “non-involvement” safe harbor, given the level of employer involvement required for administration.

Because these operational changes will require coordination between HR, payroll, and recordkeeping systems—and given the interaction of the Roth catch-up requirement with other compliance considerations—we recommend scheduling a brief compliance review with us before year-end to confirm readiness.

Thinking about Early 2026

Group health plans may soon need to update their HIPAA privacy notices to address the handling of “Part 2 records,” which are records maintained by federally-funded substance use disorder (SUD) treatment programs that identify a patient as being or having been diagnosed with an SUD. Although group health plans are not typically subject to the federal confidentiality rules that apply—in addition to and separate and apart from typical HIPAA rules—to “Part 2” records, a plan is a “covered entity” under HIPAA which might receive information from a Part 2 program identifying a participant as being or having been diagnosed with a SUD. In such a case, the plan’s HIPAA privacy notice may need to be revised to inform individuals about the plan’s responsibilities and the individual’s rights with respect to those Part 2 records. Of course, no updates are required for plans that do not receive or maintain Part 2 records.

The deadline for making these updates is February 16, 2026. We are hopeful that the Health and Human Services Agency will issue model language in advance (or issue guidance nullifying the need for any such updates), so we are holding off on thinking about updates to policies for now. In the meantime, group health plan sponsors should confirm whether any service providers (for example, medical and prescription drug claims administrators and EAP providers) access these records on behalf of the plan. If so, you need updates to the plan’s privacy notice.

… and The Rest of 2026 and Beyond

For retirement plan sponsors, SECURE 1.0 and SECURE 2.0 will require plan amendments and operational changes to reflect several required changes (e.g., rules regarding Roth deferrals and catch-up contributions, various changes to the required minimum distribution (“RMD”) rules, certain required automatic enrollment provisions for new plans, required paper statements, etc.), along with any optional plan provisions (e.g., emergency savings accounts, emergency withdrawals, domestic abuse and terminal illness distributions, distributions for long-term care premiums, etc.) that a sponsor would like to add.

The deadline for these plan amendments is generally:

• December 31, 2026 for tax-qualified, non-governmental retirement plans;
• December 31, 2028 for collectively bargained plans; and
• December 31, 2029 for governmental plans.

WE DO NOT RECOMMEND implementing every permitted amendment under these statutes. For example, we are generally advising our clients not to adopt certain changes—such as domestic abuse distributions, “Pension Linked Emergency Savings Accounts”, and, to a lesser extent, emergency personal distributions (up to $1,000)—until additional guidance is released as these features present unresolved legal and operational complications.

Please contact us if you would like to review and consider these design features or to determine the right approach for your plan.

As for health and welfare plan sponsors, we continue to monitor developing case law. For example, we are monitoring cases related to a health plan’s exclusion of gender affirming care (GAC) services, and whether such exclusion constitutes prohibited employment discrimination under Title VII. During the summer, the Supreme Court—relying on the Equal Protection Clause—upheld a Tennessee law prohibiting healthcare providers from providing puberty blockers or hormones to minors for the treatment of gender dysphoria, but it did not answer the Title VII question. Subsequently, the Eleventh Circuit concluded that a county health plan’s exclusion of GAC services did not constitute Title VII sex discrimination because it found the exclusion was applied uniformly as it did not cover sex change operations for anyone regardless of their biological sex. This issue may ultimately need to be resolved by the Supreme Court. In the meantime, Executive Orders issued by the Trump administration indicate that the EEOC will not challenge such exclusions, although individual plaintiffs may continue to do so. Given the continuing evolution of the legal and enforcement landscape, plan sponsors should consider a proactive review of plan design to mitigate potential litigation and compliance risks.

Second, there continues to be plaintiff challenges which allege breaches of fiduciary duties and prohibited transactions based on the high costs of services and benefits (such as pharmaceutical drugs). We believe more of these types of lawsuits are coming. As such, we continue to encourage diligence in establishing prudent governance procedures to respond to and handle these litigation challenges. These lawsuits serve as an important reminder of the importance of understanding fiduciary duties and proper governance to ensure that the Plan fiduciaries are acting solely in the interests of participants, appropriately monitoring plan investments and service providers, and the plan is only paying reasonable and necessary fees, etc. Please see our prior e-alert for recommended steps for a prudent process.

Please contact us if we can of assistance with your compliance efforts such as by having us conduct plan design reviews, a fiduciary process review, or develop governance tools.

Final Thoughts

As we look ahead, there are quite a few plan updates and compliance items coming into focus for both retirement and health and welfare plans. As always, please contact us if we can be of assistance with any of your compliance efforts and we hope for a terrific year-end for all!