ML BeneBits

Since taking office, President Donald Trump has issued several executive orders (EOs) and actions that may have an impact on group health plans. These EOs provide insight into the US administration’s policies and outline potential actions that regulatory agencies and Congress may take to implement these policies.

A growing number of class action lawsuits have been filed against employer-sponsored self-insured group health plans alleging that tobacco cessation wellness programs violate key provisions of the Employee Retirement Income Security Act (ERISA) and the Health Insurance Portability and Accountability Act (HIPAA). These lawsuits challenge tobacco cessation programs on the grounds that they do not comply with the HIPAA nondiscrimination rules and ERISA’s fiduciary duties. As litigation on this issue continues to evolve, plan sponsors may consider proactive steps to ensure their tobacco cessation wellness programs comply with legal requirements to mitigate potential litigation risks.

Section 162(m) of the Internal Revenue Code prohibits a publicly held corporation from taking compensation-related tax deductions with respect to the compensation of a “covered employee” to the extent the compensation exceeds $1 million in a tax year. The definition of “covered employee” under Section 162(m) was expanded by the Tax Cuts and Jobs Act (TCJA) in 2017 and was expanded further by the American Rescue Plan Act (ARPA) in 2021. ARPA expanded the list of covered employees to include the company’s five most highly compensated employees, effective for tax years beginning after December 31, 2026. On January 14, 2025, prior to the presidential administration transition, the US Department of the Treasury and the Internal Revenue Service (IRS) released proposed regulations (Proposed Regulations) implementing the ARPA amendments to Section 162(m).

Each year, employers that provide prescription drug coverage to Medicare-eligible individuals through a group health plan must complete a two-step process regarding the prescription drug coverage they offer to active employees and their eligible dependents. The deadline for one of those required steps is fast approaching.

In many situations, practitioners recommend establishing a fiduciary committee to oversee ERISA-covered employee benefit plans. There are several reasons for this, including providing a well-defined process for decision-making; bringing together a diverse team with a wide set of experience to address issues relevant to the benefit plan’s administration; managing the investment, legal compliance, and operational risks that can arise in a complex regulatory landscape; and establishing clear separation between plan sponsor and fiduciary roles.

The use of artificial intelligence (AI) in the administration of group health plans is nothing new: AI has been used for a number of years to analyze data, improve risk assessment, identify fraud, and streamline claims administration. AI can automatically review and approve or deny claims based on medical codes, reducing manual processing time with the goal of improving efficiency and accuracy in claims adjudication. In some cases, plan sponsors are making AI tools that provide plan participants with personalized healthcare recommendations available at enrollment, identifying, for example, which of the plan sponsor’s benefit options is the best choice for the plan participant and any dependents.

The US Department of Health and Human Services’ (HHS) final rule on reproductive healthcare privacy is already subject to challenge even before its effective date. As described in our previous blog post, the HHS issued final rules amending the HIPAA Privacy Rule, with the intention of enhancing safeguards surrounding the use and disclosure of protected health information in the context of reproductive healthcare. Covered entities must comply with certain provisions of the final rule by December 23, 2024.

Internal Revenue Code Section 3405(e)(13) generally requires mandatory withholding on periodic and nonperiodic distributions that are to be delivered outside the United States unless the payee is a nonresident alien or recent expatriate (in which case the withholding rules under Code Sections 1441 and 877, respectively, apply). For such distributions, payees cannot elect zero withholding. The purpose of these rules is to enforce tax compliance among Americans living abroad. In furtherance of this goal, recently finalized regulations expand upon existing requirements to examine payee addresses to determine the applicable withholding rules.

In buyout or take private transactions, the management team of the target business is a key constituency that frequently—yet often unknowingly—requires legal counsel to advocate for its interests. The management team’s interests may be implicated in such transactions in various ways, which differ from those of institutional equity sellers, given that members of management are service providers and, in many cases, equity holders of the target business, who are expected to rollover proceeds to align their interests with the purchaser.

The Internal Revenue Service (IRS) released a notice providing guidance on distributions for emergency personal expense and domestic abuse victims under the SECURE 2.0 Act of 2022 (SECURE 2.0). Both distributions are optional, allow self certification as to eligibility, and may be repaid within three years.