2025 Q2 Newsletter

EBSA Recovers $1.4B in 2024 Enforcement Efforts

The Employee Benefits Security Administration (EBSA) recovered nearly $1.4 billion for employee benefit plans, participants, and beneficiaries in 2024, according to the EBSA’s annual enforcement fact sheet. Enforcement results for FY 2024 were consistent with FY 2023’s results, despite budget cuts and personnel resignations. The EBSA oversees 2.6 million health plans, 801,000 private retirement plans, and 514,000 other welfare benefit plans, covering 156 million individuals.

Monetary Recoveries by Source

Key Findings:

• The EBSA received nearly 200,000 informal participant and beneficiary complaints through its website and phone calls. TIP: One way to avoid a DOL/EBSA investigation is to keep plan participants happy.

• Seventy-one percent of the plans investigated were faulty, requiring plan sponsors to restore losses and/or take other corrective action. TIP: Most investigations start because of participant complaints and faulty Form 5500 filings.

• Delinquent Filer Voluntary Compliance Program (DFVCP) applications increased in 2024, reflecting growing engagement with voluntary corrections. TIP: The EBSA has two voluntary compliance programs: The DFVCP for correcting flawed Forms 5500 and the Voluntary Fiduciary Correction Program for fixing 19 types of plan infractions.

Year-Over-Year Trends

What to Expect for 2025

Daniel Aronowitz, the nominee to lead the EBSA, testified at his hearing that he plans a robust agenda to

• Improve the EBSA’s enforcement of fiduciary law,

• Provide regulatory clarity, and

• Encourage plan sponsors to expand access to retirement and health care benefits.

Regarding enforcement, Aronowitz said, “EBSA’s enforcement will be fair, even-handed, and efficient.” We can anticipate fewer investigators for the EBSA, however. Approximately 200 EBSA employees have accepted recent resignation or retirement offers. Plus, department reports have said the EBSA will need to cut over 100 investigators over 2025 due to loss of funds.

Despite the cutbacks, the EBSA will remain diligent, according to its annual budget report. A critical area of concentration will be advancing cybersecurity efforts. The agency will also continue to pursue bad actors who mismanage retirement assets, enhance ways to find missing participants, and provide guidance on implementing SECURE Act 2.0 provisions.

Conclusion

The EBSA’s enforcement results for FY 2024 were consistent with FY 2023, maintaining high levels of monetary recovery. For 2025, with fewer investigators and a smaller budget, we anticipate the EBSA will focus on cybersecurity, the mismanagement of retirement assets, missing participants, and implementing SECURE 2.0.

Last Minute Updates to Annual Funding Notices for DB Plans

The Employee Benefits Security Administration (EBSA) provided interim guidance on how defined benefit plans should comply with revised annual funding notice (AFN) requirements under ERISA §101(f), as amended by SECURE 2.0 (Section 343) in its April 3rd Field Assistance Bulletin No. 2025-02. The updates, primarily, affect single-employer defined benefit plans for plan years beginning after December 31, 2023.

The guidance addresses conflicts between the amended law and outdated regulations (DOL Reg. §2520.101-5) and includes model notices (Appendix 1: single-employer, Appendix 2: multiemployer) for plan administrators to use. Plan administrators must furnish AFNs no later than 120 days after the close of each plan year. Thus, the plan administrators were required to furnish SECURE 2.0-compliant AFNs no later than April 30, 2025.

SECURE Act 2.0 Changes to AFNs

SECURE Act 2.0 revised how DB plans calculate and disclose assets, liabilities, and funding levels in the AFNs. The changes affect metrics such as:

• The Funding Target Attainment Percentage (FTAP),

• Actuarial value of assets and liabilities,

• “At-risk” liability disclosures,

• Participant count estimations,

• Average return on assets,

• Material effect disclosures, and

• Pension Benefit Guaranty Corporation (PBGC) benefit payment explanations.

Conclusion

The DOL will treat a sponsor’s adherence to this guidance and use of model notices as a reasonable, good-faith effort to comply with the new ERISA §101(f) standards. The DOL expected plan administrators who had 2024 notices in process or finalized to evaluate and, if necessary, correct disclosures according to this guidance. EBSA has indicated it will provide further regulatory updates on this matter.

Cornell University Case Alters PT Pleading Standards

The Supreme Court has lowered the initial pleading bar in retirement plan cases involving prohibited transactions (PTs), making it easier for plaintiffs to survive early dismissal of their cases and proceed to discovery and, potentially, trial. On April 17, 2025, the Supreme Court handed down its decision in CASEY CUNNINGHAM, ET AL., PETITIONERS v. CORNELL UNIVERSITY, ET AL, holding that, to survive a motion to dismiss, a plaintiff does not have to address whether a PT exemption applies in their initial pleading—only that a PT took place.

What the Court’s Ruling Does

• Clarifies the pleading standards for PT claims, potentially making it easier for plaintiffs to bring such cases.

• Makes it easier for more cases to survive to trial.

• Resolves a circuit split, providing a uniform standard across federal courts.

• May subject retirement plan fiduciaries to increased scrutiny.

• Adjusted the court's process for weeding out meritless claims.

Case Background

In 2016, participants in Cornell University's 403(b) retirement plans filed a class-action lawsuit. The plaintiffs claimed the actions listed below constituted PTs and breaches of fiduciary duty under ERISA. They alleged that Cornell and its fiduciaries breached their duties by

• Paying excessive fees for recordkeeping and administrative services,

• Failing to monitor and control these costs effectively,

• Offering underperforming investment options, and

• Choosing higher-cost retail share classes over lower-cost institutional shares.

District and Second Circuit Court Decisions

The U.S. District Court for the Southern District of New York dismissed several claims and granted summary judgment on others, siding with Cornell. The plaintiffs appealed, but on November 14, 2023, the Second Circuit Court of Appeals affirmed the lower court's decision. The appellate court held that

• To allege a PT under ERISA §406(a)(1)(C), plaintiffs must plausibly claim that the services were unnecessary or that the compensation was unreasonable.

• Simply stating that a fiduciary paid for services is insufficient without alleging unreasonableness or unnecessary services.

This interpretation aligned with the Second Circuit's precedent but differed from other circuits that allowed broader claims under the same ERISA provision.

Supreme Court Review and Decision

Recognizing the split among federal appeals courts, the U.S. Supreme Court granted certiorari to address the differing interpretations of ERISA's PT provisions. On April 17, 2025, the Supreme Court unanimously reversed the Second Circuit's decision. Justice Sonia Sotomayor, writing for the Court, stated, “Plaintiffs are not required to anticipate and negate potential statutory exemptions in their initial pleadings. Instead, it is the responsibility of the defendants to raise these exemptions as affirmative defenses.” This ruling reinstated the class-action lawsuit, allowing the plaintiffs to proceed with their claims against Cornell University.

The following table outlines how courts screened claims for merit before the Supreme Court’s decision in Cunningham and how they likely will do so after. Before the decision in Cunningham, many ERISA claims did not survive dismissal; after Cunningham, more cases are expected to survive to trial or settlement, as fewer, presumably, will be dismissed early in the legal process. Of course, time will tell.

How Lower Courts Screen Claims — Before and After Cunningham

(1) One party argues that there is no real dispute about the key facts of the case and that they are entitled to win as a matter of law.

(2) A pre-trial ruling granted when the evidence shows no genuine dispute of material fact, allowing the judge to decide the case legally without a full trial.

EBSA Now Takes Neutral Stance on Cryptocurrency

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) is no longer cautioning plan fiduciaries to exercise “extreme care” before adding cryptocurrency options to 401(k) plan menus. Instead, the organization is taking an impartial stance as outlined in its May 28, 2025, Compliance Assistance Release No. 2025-01. The EBSA stated that the previous language deviated from the Employee Retirement Income Security Act (ERISA) and the DOL’s historically neutral, principles-based approach to fiduciary investment decisions.

Background

In March 2022, the DOL’s EBSA issued Compliance Assistance Release No. 2022-01, cautioning plan fiduciaries to exercise “extreme care” before adding cryptocurrency options to 401(k) retirement plan menus. The guidance reflected the DOL’s concerns about the prudence of exposing plan participants to direct investments in cryptocurrencies or related products, citing risks such as volatility, fraud, theft, and the evolving regulatory landscape.

Key Points of the New Neutral Stance

• The DOL neither endorses nor disapproves of plan fiduciaries who decide to include cryptocurrency options in 401(k) investment menus.

• Plan fiduciaries should make plan investment decisions, not federal regulators.

• Plan fiduciaries should make plan investment decisions

  • That are in the best interests of plan participants, and

  • By applying ERISA’s standards of prudence, loyalty, and diversification to all investment options, including cryptocurrencies.

HSA Dollar Limits Increase for 2026

The IRS recently released Revenue Procedure 2025-19 with the 2026 inflation-adjusted amounts for health savings accounts (HSAs), high-deductible health plans (HDHPs), and excepted-benefit health reimbursement arrangements (HRAs). The following chart summarizes the changes.

Key Notes

• The maximum employer contribution for Excepted Benefit HRAs increases to $2,200 for plan years beginning in 2026 (up from $2,150 in 2025).

• No other HRA types (such as Qualified Small Employer HRAs or Individual Coverage HRAs) have indexed limits for 2026.

Court Upholds Use of Forfeitures to Reduce Employer Contributions

In Hutchins v. HP Inc., No. 5:23-cv-05875-BLF (N.D. Cal. Feb. 5, 2025), a federal court in California ruled that plan fiduciaries did not violate their ERISA duties by using forfeited plan assets to reduce employer contributions, rather than pay administrative costs the plan charges to plan participants. This case reflects a broader trend of class actions challenging the use of forfeitures. Still, courts and regulators continue to uphold the long-standing practice of using forfeitures to offset employer contributions, provided plan document language allows it, and employer discretion is minimized.

Key Findings

1. Plan Terms Govern Forfeiture Use

The HP 401(k) plan explicitly allowed the plan to use forfeitures for several purposes, including reducing employer contributions, paying administrative expenses, or restoring previously forfeited benefits. The fiduciaries followed these terms, exercising their options as permitted by the plan.

2. Supported by Longstanding Regulatory Practice

IRS regulations allow plans to use forfeitures to reduce employer contributions. Regulatory guidance and ERISA do not require prioritizing administrative expenses over reducing employer contributions.

3. Full Benefits Provided

The court emphasized that all participants received the full benefits promised by the plan. Fiduciaries must ensure participants get what the plan guarantees. Sponsors are not required to maximize every possible pecuniary benefit or always resolve ambiguities in favor of participants.

4. No Fiduciary Breach or Self-Dealing

The court rejected the argument that fiduciaries must always use forfeitures to reduce participant fees before reducing employer contributions. The existence of a potential conflict of interest is not enough to establish a breach of the duty of loyalty. There was no evidence that fiduciaries acted improperly, that forfeitures reverted to HP, or were used contrary to plan terms.

Conclusion

Fiduciaries do not violate ERISA by using forfeitures to reduce employer contributions instead of plan administrative costs, if they act according to the plan’s terms and ensure participants receive all promised benefits. There is no requirement under ERISA that fiduciaries always maximize participant pecuniary benefits or resolve every issue in favor of participants. Other similar cases emphasize following the terms of the plan document and minimizing employer discretion.

Legislative Update

2025 Budget Reconciliation Bill

House Action

On May 22, 2025, the U.S. House of Representatives passed the “One Big, Beautiful Bill Act” (H.R. 1), a bulky budget reconciliation bill advancing Republicans’ tax and spending priorities, including making the 2017 Trump tax cuts permanent if enacted. Of note, the House-passed bill would, among other things,

• Preserve the current favorable tax treatment of employer-provided health insurance and retirement plans,

• Expand Health Savings Accounts (HSAs) with several enhancements,

• Create “Money Account for Growth and Advancement” or “MAGA” savings accounts, for children where earnings would grow tax-deferred and withdrawals for qualified expenses (e.g., education, first home purchase, or starting a business) would be taxed at the long-term capital gains rate,

• Enhance Achieving a Better Life Experience (ABLE) accounts, and

• Expand the definition of qualified higher education expenses for 529 plans.

Senate Action

The Senate Finance Committee released its version of the reconciliation bill on June 16, 2025, including many provisions identical or similar to House priorities. There are some differences, however, one of which is the exclusion of all HSA expansion provisions included in the House bill. Further changes are likely as negotiations continue. The Senate’s goal is to vote on the package by the week of June 23, 2025, and send the bill to the President by July 4.

Summary

Both chambers are moving forward with comprehensive tax reform, focusing on extending the Trump-era tax cuts and maintaining the current tax advantages for employer benefits, but the Senate has stripped out the House’s proposed HSA expansions. The legislative process is ongoing, with further changes expected before the bill becomes law. Govtrack.us gives the bill a 55 percent chance of enactment.

Auto Reenroll Act of 2025 (S1831)

U.S. Senators Bill Cassidy, M.D. (R-La.), chair of the U.S. Committee on Health, Education, Labor and Pensions (HELP) Committee, and Tim Kaine (D-Va.) introduced the Auto Reenroll Act of 2025 (S1831). The bill would amend the Internal Revenue Code and ERISA to allow for periodic automatic reenrollment under qualified automatic contribution arrangements (QACA) and eligible automatic contribution arrangements (EACA) at least once every three years unless the individual affirmatively opts out again. Status: Referred to the Committee on Health, Education, Labor, and Pensions.

Freedom to Invest in Tomorrow’s Workforce Act (H.R.1151)

Introduced February 7, 2025, by Rep. Rob Wittman (R‑VA‑1), H.R. 1151 would permit the use of 529 plans to pay for programs like postsecondary training and credentialing, including the Certified Financial Planner designation. Sen. Amy Klobuchar (D-MN) introduced a similar bill S.756 in the Senate. Status: Currently pending in the House Ways & Means Committee and Senate Committee on Finance.

Retirement Savings for Americans Act of 2025 (H.R. 2696)

Rep. Smucker (R‑PA) introduced H.R. 2696 on April 7, 2025, proposing the American Worker Retirement (AWR) Plan. The AWR Plan would be a federal, portable, tax-advantaged retirement savings program for workers without employer plans, featuring automatic enrollment, federal matching for low- and moderate-income workers, and simple investment choices. The bill is intended to close retirement savings gaps and has sparked debate over its potential effects on the private retirement system and overall retirement security. Status: Referred to the Committees on Education and Workforce and Ways and Means for further consideration.

Conclusion

The aforementioned bills are sitting in committee—save for the H.R. 1. According to govtrack.us, most bills have a four percent chance of getting past committee and a two percent chance of being enacted.