Spotlight on Benefits

The IRS Makes It Easy for Employers to Set Up an Educational Assistance Plan

The Internal Revenue Service (IRS) recently issued a template plan document that employers can use to establish a qualified educational assistance program under Section 127 of the Internal Revenue Code (Code). For employers looking for a straightforward plan, the IRS has made it simple. For employers with more tailored objectives, including around course restrictions, grade requirements, clawback provisions, or benefit allocation, a custom plan document may be a better option.

What is a Section 127 Program?

A qualified educational assistance program under Section 127 of the Code allows employers to provide up to $5,250 per employee per year in tax-free benefits for tuition, fees, books, supplies, equipment, and qualified education loan repayments. The $5,250 cap will be indexed for inflation beginning with taxable years after 2026.

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Thinking ESOPs: Department of Labor Identifies New Enforcement Priorities

The Employee Benefits Security Administration’s (EBSA) April 2026 Field Assistance Bulletin marks a pivotal change in Department of Labor enforcement for ESOPs. The new guiding principles and enforcement priorities are designed to curb aggressive, unpredictable actions by the DOL, especially around ESOP valuation, and to ensure fair treatment for plan fiduciaries. These changes prioritize targeting only the most serious violations, require advance notice and clarity for regulated parties, and mandate leadership oversight for significant enforcement initiatives. This edition of Thinking ESOPs provides a detailed analysis of EBSA’s historical approach, the impact of these new priorities, and practical takeaways for ESOP stakeholders navigating this evolving regulatory landscape.

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DOL Proposes New Rules for Electronic and Paper Benefit Statements

On February 25, 2026, the Department of Labor (DOL) released proposed regulations that would amend the rules for electronic delivery of employee benefit plan disclosures, as required by SECURE 2.0. These proposals aim to harmonize the DOL’s electronic disclosure safe harbors with new statutory mandates regarding paper statements for retirement plans.

A Brief History of Electronic Disclosures

Since 2002, the DOL has provided two safe harbor frameworks for the electronic delivery of ERISA-required disclosures. The 2002 safe harbor permitted electronic delivery for employees with regular work-related computer access (“wired-at-work”) or those who affirmatively consented, but it required a default paper disclosure for others. The 2020 safe harbor expanded electronic delivery for retirement plans by allowing default electronic disclosure if a participant provided a valid electronic address, with an initial paper notice and the right to opt out at no cost. These rules enabled most plans to use electronic delivery; the DOL estimates that over 96% of retirement plan participants receive some ERISA disclosures electronically.

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DOL Proposes New PBM Fee Disclosure Rules

On January 30, 2026, the Department of Labor (DOL) published proposed regulations that would require pharmacy benefit managers (PBMs) to disclose direct and indirect compensation that PBMs (and their affiliates, agents, and subcontractors) receive in connection with providing pharmacy benefit management services (or advice, recommendations, and referrals regarding such services) to self-insured group health plans. If an employer has engaged a third-party administrator to provide services, including pharmacy benefit management services, for its self-insured group health plan, the third-party administrator is responsible for obtaining the required information from the PBM and disclosing it to the employer.

The DOL proposal would not apply the disclosure obligations with respect to governmental plans, small employer health reimbursement arrangements, or fully insured group health plans, although the DOL may revisit its application to fully insured plans in future rulemaking.

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Roth Catch-Up Rules for Rehires: What Employers Need to Know Under the Final Regulations

SECURE 2.0 and the final IRS regulations on Roth catch-up contributions introduce a significant administrative consideration for employers and plan administrators: how does the Roth-only catch-up rule apply to rehired employees?

Background

Section 603 of the SECURE 2.0 Act requires catch-up contributions to be made as after-tax Roth contributions if the contributing employee received wages in the prior calendar year that exceed $150,000 (and as adjusted for inflation). Wages are defined as FICA wages (as reported in Box 3 of Form W-2) paid by the employee’s common law employer in the prior year (or paid by a common paymaster or other company-controlled group member if the company has elected permissive aggregation of wages).

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The Roth Catch-Up Contribution Requirement and a Statutory Merger

As the Roth catch-up contributions become effective this month, issues not addressed in the final regulations are coming to light.

Question: Our company completed a statutory merger — how does that impact the Roth catch-up contributions requirement?

Answer: Based on past IRS guidance, it is more than likely that an employee of either company in a statutory merger that was subject to the Roth catch-up contribution requirements of SECURE 2.0 Act prior to the statutory merger will continue to be subject to the Roth catch-up contribution requirements after the merger. Similarly, if the statutory merger occurs midyear, the employee’s compensation for the year of the merger will include compensation paid by either entity.

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Updated Guidance: Minnesota Paid Family Leave and Defined Contribution Plan Compensation

In IRS Notice 2026-6, the IRS issued a one-year extension of the tax treatment of medical benefits received by an employee through a paid family leave program (PFL). Minnesota has implemented the one-year extension and will not be treating PFL medical benefits as W-2 compensation that must be reported by the employee’s employer for 2026. Accordingly, employers sponsoring a qualified retirement plan that covers Minnesota employees will have an additional year to consider the impact of the PFL medical benefit taxation on their retirement plan’s administration.

Previously we reviewed how medical benefits received by an employee pursuant to Minnesota’s PFL would impact an employee’s W-2 compensation for purposes of a qualified retirement plan. With the one-year extension from the IRS and the Minnesota Department of Employment and Economic Development, employers in Minnesota will not have to include PFL medical benefits on the employee’s W-2 for 2026 and therefore will not have an impact on the definition of compensation in the employer’s retirement plan.

Unless additional guidance is issued, beginning in 2027 the state of Minnesota will be requiring employers participating in the state’s program to report PFL medical leave benefits (not family benefits) on the employer’s Form W-2 and this may implicate the definition of compensation in the employer’s defined contribution retirement plans. Employers should review the definition of compensation in their retirement plan documents to determine whether any action is needed prior to 2027.

We will continue to monitor and provide updates. If you have any questions, please reach out to your Faegre Drinker benefits counsel.

ERISA Moments Ep. 32: Headlines vs. Reality: Here’s What the Executive Order on Alternative Assets in DC Plans Actually Says

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments. See the newest episode, Headlines vs. Reality: Here’s What the Executive Order on Alternative Assets in DC Plans Actually Says, below.

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IRS Announces 2026 Retirement Plan Limits

The Internal Revenue Service (IRS) recently announced the 2026 cost-of-living adjustments to various benefit and contribution limits applicable to retirement plans. The IRS modestly increased the applicable limits for 2026. The following limits apply to retirement plans in 2026:

The limit on elective deferrals under 401(k), 403(b) and eligible 457(b) plans increased to $24,500.
The limit on catch-up contributions by participants aged 50 or older is increased to $8,000. This means that the maximum amount of elective deferral contributions for those participants in 2026 is $32,500.
The enhanced catch-up contribution limit for those ages 60-63 in 2026 did not change and remains $11,250. This means that the maximum amount of elective deferral contributions for these participants in 2026 is $35,750.
The Internal Revenue Code (Code) Section 415 annual addition limit is increased to $72,000 for 401(k) and other defined contribution plans, and the annual benefit limit is increased to $290,000 for defined benefit plans.
The limit on the annual compensation that can be taken into account by qualified plans under Code Section 417 is increased to $360,000.
The dollar level threshold for becoming a highly compensated employee under Code Section 414(q) remains $160,000 (which, under the look-back rule, applies to HCE determinations in 2027 based on compensation paid in 2026).
The dollar level threshold for becoming a “key employee” in a top-heavy plan under Code Section 416(i)(1) is increased to $235,000.
The Roth catch-up wage threshold is increased to $150,000 (which applies to determinations in 2026 based on FICA wages in 2025).

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Minnesota Paid Family Leave and Defined Contribution Plan Compensation

Beginning in 2026, Minnesota will implement a paid family leave program (PFL) that provides family leave and medical leave benefits. The State of Minnesota will be requiring employers participating in the State’s program to report PFL medical leave benefits (not family benefits) on the employer’s Form W-2 — and this may implicate the definition of compensation in the employer’s defined contribution retirement plans. Employers should review the definition of compensation in their retirement plan documents to determine whether any action is needed prior to 2026.

Background on Minnesota PFL Taxation

On October 1, 2025, the Minnesota Department of Employment and Economic Development issued guidance on the taxation of contributions to the Minnesota PFL program and distributions from the program. This guidance only applies to employers participating in the PFL program administered by the State of Minnesota and will not apply to a fully insured or self-funded PFL program.

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