June 2025 Regulatory & Legislative Update

This regulatory and legislative update covers issues involving non-enforcement of MHPAEA final rules, ERISA plan administrator obligations, employer shared responsibility penalties, and more.

Non-Enforcement of MHPAEA Final Rules

As you may recall, the ERISA Industry Committee filed a lawsuit challenging the Mental Health Parity Addiction Equity Act (MHPAEA) final regulations. See past Benefit Beat article here. The Departments of Labor, Health and Human Services, and Treasury (the Departments) asked the Court to pause litigation to allow the Departments time to determine whether to rescind the rule in its entirety or modify the rule with new proposed rulemaking. On May 12, 2025, the Court granted the Department’s request.

The Department issued a non-enforcement statement on May 15, 2025, announcing a non-enforcement period for the final rule. The non-enforcement period will remain in effect for 18 months after a final decision is made by the Court. During this time, employers do not have to comply with the following provisions of the 2024 MHPAEA Final Rule:

• Fiduciary certification requirement
• New definitions
• Requirement to provide meaningful benefits
• Requirement to collect and analyze relevant data as part of the comparative analysis

The elements of the MHPAEA that were in place prior to the 2024 MHPAEA Final Rule are unaffected, and employers need to continue to comply. In particular, employers should ensure their plans are designed and administered in accordance with the MHPAEA, test quantitative treatment limitations for parity, and prepare, and have available, a written comparative analysis.

We will continue to monitor this matter for updates and will issue additional information as it becomes available.

Another Reminder to Have Clear and Accurate Communications

On February 9, 2024, the U.S. Court of Appeals for the Tenth Circuit ruled in Watson v. EMC Corp., that an employer may be liable for the value of group life insurance benefits absent the employer’s failure to inform the employee of the plan’s conversion requirements.

In this case, the plaintiff, Marie Watson, sued EMC Corp. for leading her husband to believe his basic life insurance coverage would remain in effect following his voluntary separation of employment. MetLife issued the group policy. EMC was an ERISA plan fiduciary and had a duty to act in the best interests of participants.

Thayne Watson had been a participant in the plan when he accepted a voluntary separation in 2015. As part of the separation arrangement, Thayne Watson stopped working for EMC but would continue to be paid by EMS through November 2016. At the time of separation, he emailed EMC to verify that his benefits would remain in place; he was informed that his benefits would remain active and that he would be billed through EMC’s payroll process. He paid all bills sent to him prior to his death, which occurred about nine months following his separation from service.

A claim for life insurance benefits was denied for failure to convert his group life insurance coverage to individual coverage. Marie Watson initiated a lawsuit against EMC for breach of fiduciary duty for providing misleading information, which resulted in Mr. Watson’s failure to convert the group coverage to individual coverage. The district court ruled that no benefit is owed due to the failure to convert. Ms. Watson appealed that decision, and the Tenth Circuit found that even though no benefits were due under the terms of the life insurance contract, Ms. Watson may have equitable relief under ERISA. ERISA offers a “catchall” for relief for beneficiaries harmed due to breaches of fiduciary duty.

Upon further review, the District Court found that there was actual harm to Watson as a result of EMC’s actions, and Watson sought a surcharge under § 1132(a)(3). The Court awarded a surcharge in the amount of $633,000, indicating this amount was equitable and would make Watson whole. The surcharge amount was reduced by any premium amounts that would have been required under the coverage. In addition, Watson is permitted to file a motion for reasonable attorneys’ costs and fees under ERISA § 1132(g).

This case serves as an important reminder for ERISA plan administrators of the duty to act prudently, including the obligation to provide complete and accurate information to participants and beneficiaries, especially in response to inquiries about continuing coverage. As this case highlights, failure to do so can result in liability.

Employer Shared Responsibility Penalties

A recent decision by the U.S. District Court in Texas may have implications for employer shared responsibility penalty assessment. The Court in Faulk Company, Inc. v. Xavier Becerra et al., found that the IRS did not have authority to impose penalties on Faulk for failure to offer health coverage to its full-time employees.

As a reminder, the ACA requires employers with 50 or more full-time employees, including full-time equivalent employees, to offer affordable health coverage or risk assessment of penalties. A penalty would apply if a full-time employee qualifies for premium assistance for coverage purchased through the exchange, and it is determined that the employer did not offer adequate affordable coverage. The law gives HHS the responsibility to certify that an individual has qualified for premium assistance. Shortly after the law took effect, HHS delegated this authority to the IRS.

Faulk received a 226-J letter from the IRS indicating its intent to assess penalties for the failure. The letter also served as a certification that one or more of Faulk’s employees had received a tax credit and enrolled in a health plan through the exchange. Faulk paid the penalties “under protest” and requested a refund. Faulk initiated a suit, alleging that the ACA required HHS, not the IRS, to certify employer liability before a penalty is assessed. The Court ruled in favor of Faulk, concluding that the ACA did not permit HHS to delegate this authority to the IRS. The Court granted the plaintiff’s motion for summary judgment and ordered the government to refund the penalties that the plaintiff had paid.

As of now, the ruling only applies to Faulk. HHS has appealed the ruling, and we will continue to monitor this matter. In the meantime, employers should continue to comply diligently with the law. If a penalty assessment is received, the employer will want to work with its professionals to preserve the right to request a refund should that arise.

Annual PCORI Fee and Filing Reminder

The PCORI fee, filing, and payment for plan or policy years ending in 2024 is due by July 31, 2025. The employer accomplishes the filing using the second quarter Form 720. The current version of Form 720 can be found here.

The PCORI fee is assessed on the average number of lives covered under the policy or plan. For policy and plan years ending between October 1, 2023, and September 30, 2024, the fee is $3.22 per covered life. For policy and plan years ending between October 1, 2024, and September 30, 2025, the fee is $3.47 per covered life. What this means is plans ending before October 1, 2024, use the $3.22 figure. Plan years ending between October 1, 2024, and December 31, 2024, use $3.47.

As background, the PCORI fee is assessed on the average number of lives covered under the policy or plan. Virtually all health plans, whether insured or self-funded, are subject to the PCORI fees. With regard to reimbursement type plans, health reimbursement arrangements (HRA) and medical flexible spending account (FSA) plans are subject to these fees. However, FSA plans that qualify as HIPAA-excepted plans are not subject to these fees. The PCORI fee does not apply to stand-alone dental or vision plans.

The PCORI fees are assessed on the insurer of an insured plan. For a self-funded plan, the plan sponsor is required to pay the fee on behalf of its plan. Because the law provides that the PCORI fees are to be paid by the plan sponsor, at least for plans subject to ERISA, the fees cannot be paid from plan assets.

Additional information about the PCORI fee is available on the IRS’ dedicated PCORI webpage and Questions and Answers webpage.

Deductibility of Unreimbursed Medical Expenses

A recently issued private letter ruling (PLR) may be of interest to employers offering coverage for surrogacy. In this PLR, the IRS responds to a taxpayer question about the ability to deduct unreimbursed expenses for in vitro fertilization and gestational surrogacy as medical expenses. The PLR affirmed the deductibility of medical expenses related to IVF procedures, screenings, fertility medication and treatment, and egg and sperm retrieval as long as the following applied:

1. Medical expenses in each year the deduction is sought exceed 7.5% of adjusted gross income;
2. Married to each other at the end of each year the deduction is being requested; and
3. Must file either amended returns or original returns for each year to claim the deduction.

Not surprisingly, the IRS determined that egg and sperm retrieval affect the structure of the bodies and, therefore, are deductible medical expenses under IRS Section 213(a) and (d)(1)(A). On the other hand, any expenses incurred as a result of gestational surrogacy were denied as they are not medical expenses of the taxpayer.

Importantly, PLRs are only binding on the taxpayer that requested the ruling. PLRs are not binding authority and should not be used as precedent. They do, however, provide insight into how the IRS is thinking about things.

It’s Official, Maryland’s Paid Family Leave Delayed

On May 6, 2025, Governor Moore signed into law HB 102, delaying the Paid Family and Medical Leave Act. Employee/employer contributions to the fund will begin January 1, 2027 (previously July 1, 2025), and benefits will begin January 3, 2028 (previously July 1, 2026).

As a reminder, Maryland’s paid family and medical leave law provides eligible employees with up to 12 weeks of paid leave for baby bonding, to care for a family member, for one’s own serious health condition, or for a qualifying military exigency. For more information, see the Department of Family and Medical Leave Insurance webpage.

Missouri Repeals Earned Paid Sick Leave

On May 14, 2025, the Missouri Legislature passed HB 567, repealing the Missouri earned sick leave law, which was passed by ballot initiative in November 2024. If Governor Kehoe signs the bill, as he is expected to, the repeal will take effect August 28, 2025.

In the meantime, employers subject to the law must comply until that date. Employers will want to review their leave policies to ensure that they have reserved the right to amend, modify, or terminate the policy, thus allowing a modification if the employer chooses to no longer provide the benefit once the repeal takes effect.

Chicago Paid Leave Payout Changes

Chicago’s Paid Leave and Paid Sick Leave Ordinance requires accrual of one hour of both paid leave and paid sick leave for every 35 hours worked, up to 40 hours in a 12-month period as of July 1, 2024. This applies to covered employees (those who have worked at least 80 hours in any 120-day period within the city’s geographic limits).

Beginning July 1, 2025, medium-sized employers (51-101 covered employees) join large employers in being obligated to pay out the full amount of unused paid leave upon an employee’s separation of employment. Small employers are not obligated to pay out unused paid leave. See the City’s FAQ guidance here.

The City of Chicago’s Department of Business Affairs and Consumer Protection has additional information on its website.

New York’s COVID-19 Paid Emergency Leave Law Ends Soon

Effective July 31, 2025, New York’s COVID-19 Paid Emergency Leave law is repealed. As a reminder, this law was enacted in March 2020 and requires employers to provide up to 14 days of protected, paid leave to employees who are subject to a mandatory or precautionary order of quarantine or isolation due to COVID-19 and who cannot work remotely.

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.