As We Go to E-Press

It is difficult to put into words everything that has happened from a political, legislative, and global perspective over the last few months.  While we will leave it to others to discuss and opine on many of those issues, the benefits world has also seen major changes and updates since the Fall 2024 Newsletter.  While we endeavor to publish articles covering the important updates, we live in a 24/7 news cycle and developments come fast and furious, particularly at the end (and beginning) of a Presidential administration.  With that in mind, the editors have included a list below of some important (and timely) updates in the benefits world.  As always, we encourage you to contact us if there is a topic that you would like to see covered in greater depth in the future.

• DOL Finalizes Rule for Self-Correction under the Voluntary Fiduciary Compliance Program: On January 14, 2025, DOL released its long-awaited final rules memorializing changes to the Voluntary Fiduciary Compliance Program (VFCP). The VFCP permits plan fiduciaries, including plan sponsors, to correct certain ERISA fiduciary breaches by formally applying to EBSA for relief. The changes introduce a self-correction feature for plan sponsors to address common operational failure and allow them to self-correct late deposits of participant contributions and loan repayments without filing a formal VFCP application. Along with the VFCP final rules, DOL also amended Prohibited Transaction Exemption 2002-51, which provides excise tax relief for certain correction transactions pursuant to the VFCP.
• DOL Finally Issues Proposed ESOP Valuation Rule: For years, employee stock ownership plan (“ESOP”) transactions have been the subject of DOL investigations and enforcement actions and civil class action lawsuits arguing the valuation of the company stock was too high, resulting in the ESOP overpaying for the company’s shares. Although DOL issued proposed ESOP valuation regulations in 1988, it never finalized them. More than 30 years later, on January 16, 2025, DOL finally released its new rule proposal regarding ESOP valuations in response to requirements in the SECURE 2.0 Act that DOL defines the term “adequate consideration” under ERISA, i.e., how the company shares being purchased by the ESOP should be priced. The new rule incorporates a principles-based approach to market valuation and provides that a fiduciary must “make a good faith determination of fair market value in accordance with their fiduciary obligations of prudence and loyalty, and that the price established for the stock transaction, in fact, accords with the asset’s fair market value.” If the incoming Trump Administration does not rescind the proposed rule, the comment period is currently set to run through mid-April 2025.
• Treasury and IRS Issue Proposed Regulations on New Enrollment Requirements for 401(k) and 403(b) Plans: On January 10, 2025, the Department of Treasury and IRS issued proposed rules in response to provisions in the SECURE 2.0 Act requiring newly-established 401(k) and 403(b) plans to automatically enroll eligible employees beginning with the 2025 plan year.  The proposed rules are intended to provide guidance to plan administrators for properly implementing this statutory enrollment requirement. The comment period on the proposed rules currently expires in mid-March 2025.  Multiemployer plans appear to be exempt from the new enrollment rules.
• Legal Challenges to DOL’s ESG Rule and Fiduciary Rule Remain Pending:  The fate of DOL’s ESG Rule and its fiduciary advice rule, which were finalized under President Biden, remains uncertain. Both rules are subject to pending legal challenges arguing DOL exceeded its authority in issuing the rules and the rules themselves conflict with ERISA’s statutory language. Although a district court (N.D. Texas, J. Kacsmaryk) previously upheld the ESG Rule, the Fifth Circuit remanded the case back for a new decision following the Supreme Court’s ruling last term in Loper Bright v. Raimondo, which struck down the Chevron deference doctrine and made it easier to challenge federal agency rulemaking. DOL’s fiduciary advice rule is currently being litigated in the Fifth Circuit after two district courts (E.D. Tex., J. Kernodle; N.D. Tex., J. O’Connor) granted the challengers’ preliminary injunction motions and stayed the effective date of the rule, finding the challengers were likely to prevail on the merits and would suffer irreparable harm if the rule was not stayed pending resolution of the legal challenges.
• Industry Group Challenges New Mental Health Parity Act Regulations: On January 17, 2025, an industry trade group filed a lawsuit in the U.S. District Court for the District of Columbia (J. Kelly) against the Department of Health and Human Services, Treasury, and DOL challenging the agencies’ new regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA), which were finalized on September 23, 2024.  Those regulations require, among other things, that health plans perform detailed comparisons to ensure their mental health coverage matches their medical and surgical coverage including by focusing on “non-quantitative treatment limitations” that require pre-approval for specific mental health services.  The lawsuit alleges that several requirements in the new regulation go beyond the scope of the MHPAEA and that some are overly onerous and will discourage employers from offering mental health benefits.