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Anastassia Anufrieva, Unsplash

It has been nearly 20 years since Internal Revenue Code Section 409A transformed the rules governing nonqualified deferred compensation (NQDC). Many employers updated written plan documents by the 2008 deadline—and haven’t touched them since.

As the 20‑year mark approaches, now is the perfect moment for a quick compliance check. Over time, plan administration often drifts from what the written document actually says. And with Code Section 409A’s unforgiving rules, even small mismatches can trigger significant tax implications for the participant, including immediate income inclusion, a 20% penalty tax on the amount involved, and additional penalties and interest.

Worse yet, Code Section 409A often limits an employer’s ability to fix problems simply by amending the written plan document. In many cases, the only real options are correcting past errors using the IRS correction guidance and tightening operational practices going forward.

Code Section 409A also applies more broadly than many assume. Common examples include:

  • Severance arrangements (often exempt—but not always)
  • Long‑term incentive plans
  • Phantom stock plans
  • RSUs that vest well ahead of settlement (which commonly occurs when “retirement” is a full vesting trigger)

Two decades later, Code Section 409A is still a trap for the unwary. A quick, focused review now can help prevent surprises later. Start with:

  • Revisiting deferred compensation and severance plans last updated around 2008
  • Confirming that administration matches the written plan document
  • Reviewing newer severance and incentive plans and individual arrangements for hidden Code Section 409A issues
  • Addressing problems proactively before audits, transactions, or disputes arise

Some specific compliance touchpoints to consider include:  

  • Providing new participants with clear and timely communications regarding their eligibility and deferral election timing requirements, the nature of the deferred compensation arrangement, and the consequences of late or incomplete elections. 
  • Periodically confirming that all plan participants continue to meet the plan’s eligibility criteria.
  • Ensuring commission structures are clearly documented and election deadlines align with Section 409A timing rules.

By taking time now to re-examine plan documents and administrative procedures, employers can prevent costly errors and ensure your program continues to operate smoothly for the next decade and beyond.

If you would like assistance with conducting a Section 409A compliance review or updating plan documentation, Seyfarth’s employee benefits team is here to help.

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Seyfarth Synopsis: The Department of Health and Human Services has delegated enforcement authority to the Office of Civil Rights for 42 CFR Part 2, which protects the confidentiality of substance use disorder records. Covered entities must update their HIPAA documents to reflect these changes by February 16, 2026.

On August 25, 2025, the U.S. Department of Health and Human Services (HHS) Office of the Secretary authorized the Director of the Office for Civil Rights (OCR) to enforce the “Confidentiality of Substance Use Disorder (SUD) Patient Records” regulations found at 42 CFR Part 2, including the right to impose civil penalties, issue subpoenas and take corrective actions for noncompliance. These rules, finalized in February 2024, aim to protect the privacy of patients’ SUD treatment records, and require updates to HIPAA Privacy Policies and Notices of Privacy Practices.

Continue Reading Enforcement of Substance Use Disorder Records
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Michael Discenza, Unsplash

Seyfarth Synopsis:

As we closed out 2025, Governor Kathy Hochul signed into law the New York “Trapped at Work Act,” which amends the New York Labor Law by prohibiting employers from requiring “employment promissory notes” and similar stay‑or‑pay provisions as a condition of employment. The law took effect on December 19, 2025.

Background

Effective December 19, 2025, New York’s Trapped at Work Act (the “Act”) significantly restricts the use of stay‑or‑pay provisions in employment agreements. These provisions typically require an employee to repay certain costs—often framed as training, onboarding, or other employer expenditures—if the employee resigns before a specified date.

Importantly, the Act applies to “workers,” a term defined more broadly than W‑2 employees. Under the statute, a “worker” includes not only traditional employees but also independent contractors, subcontractors, interns, externs, apprentices, volunteers, and other individuals who perform work or services for an employer, whether or not they are on the payroll. Because the definition sweeps in both employees and many non‑employee categories, the Act may apply to a wider range of agreements than employers traditionally consider in the onboarding context.

What the Act Prohibits

With limited exception, the Act prohibits employers from requiring, as a condition of employment, any “employment promissory note.” The term is defined broadly to include any agreement, instrument, or contract provision that:

  • requires the worker to pay the employer if the worker leaves before a particular time; or
  • frames the required payment as reimbursement for training provided by the employer or a third party.

Accordingly, any clause conditioning continued employment on repayment of training‑related or onboarding‑related costs if the worker separates before a stated period is now unlawful.

Employers that violate the Act may face civil penalties of up to $5,000 per violation.

Although the Act does not create a stand‑alone private right of action, a worker who is sued by an employer attempting to enforce a prohibited agreement may recover the employee’s attorneys’ fees if the employee successfully defends against the claim.

Exceptions

The Act contains several narrow exceptions. The following categories of agreements are permitted:

  • Repayment of sums advanced to a worker that are unrelated to training
  • Payment for employer‑provided property sold or leased to the worker
  • Sabbatical‑related agreements for educational personnel
  • Requirements contained in collective bargaining agreements

These exceptions are limited, and employers should carefully evaluate any repayment provision to ensure it fits squarely within one of these categories.

Effective Date and Open Questions

The Act provides that, as of December 19, 2025:

“no employer may require, as a condition of employment, any worker or prospective worker to execute an employment promissory note.”

Based on this language, the Act appears to apply only to agreements executed or entered into on or after December 19.  However, it remains to be seen whether the New York State Department of Labor will attempt to enforce the Act in situations where an agreement was signed before December 19 but the employer seeks repayment or enforcement after that date.

The Act authorizes the New York State Department of Labor to promulgate rules and regulations, which are expected to provide additional interpretive guidance, including on issues such as scope, exceptions, and potential retroactive application.

What Employers Should Do Now

Employers should take immediate steps to ensure compliance:

  • Review offer letters, onboarding documents, training acknowledgments, bonus agreements, and any other documents that may include stay‑or‑pay provisions.
  • Remove or revise any repayment language that may qualify as a prohibited employment promissory note.
  • Avoid enforcing existing repayment obligations until they are reviewed for consistency with the Act.
  • Assess broader retention strategies, especially for multi‑state employers, given similar developments in California and other jurisdictions.
  • Employers should be aware that on January 6, 2026, a New York Assembly member introduced Bill A09452, which would provide a series of amendments to the Act (including delaying the effective date to December 19, 2026) designed to address several concerns expressed by employers.  For information related to those proposed amendments, see Seyfarth’s legal update “Proposed Amendments to NY “Trapped at Work Act” May Ease Burden on Employers.”

Please contact either of the authors or the employee benefits attorney at Seyfarth with whom you regularly work if you have any questions regarding compliance with these new restrictions.

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Seyfarth Synopsis: The IRS recently issued Notice 2025-68, providing initial guidance on a new savings vehicle: Trump Accounts, created under Section 530A of the Internal Revenue Code by the One, Big, Beautiful Bill Act (OBBBA). While proposed regulations are still forthcoming, the recent IRS guidance provides a high-level overview of various Trump Account features, including the employer contribution option.

What are Trump Accounts?

A Trump Account is a new type of traditional IRA established for the exclusive benefit of a child and must be designated as a Trump Account at inception. Trump Accounts are designed to encourage early savings for children and will operate under special rules during a “growth period,” which lasts from the time of account creation until January 1 of the year the beneficiary turns 18. Trump Accounts are tax-deferred savings accounts for children and will generally follow traditional IRA rules after the child turns 18, at which point the funds can be used for a variety of qualifying purposes, including education expenses, job training, down payment on a first home, capital to start a small business, and retirement. 

How do Trump Accounts work?

An authorized individual (parent, guardian, or other relative) can elect to open a Trump Account on IRS Form 4547 or an online portal (that is expected to be available in mid-2026). The IRS creates the initial account and coordinates it with an approved trustee (usually a bank).

The following contributions may be made into Trump Accounts:

  1. $1,000 in federal contributions under the pilot program for U.S. citizen children with Social Security Numbers born after December 31, 2024 and prior to January 1, 2029;
  2. Contributions from parents or others up to $5,000 annually (not tax deductible but indexed after 2027);
  3. Qualified general contributions from state, local or tribal governments or 501(c)(3) organizations;
  4. Employer contributions, up to $2,500 annually (indexed after 2027), which contributions are excluded from the employee’s gross income; and
  5. Qualified rollover contributions between Trump Accounts.

These contributions are not considered income for the account beneficiary when made.

Trump Accounts may be invested in certain “eligible investments,” which investments will generally include certain low-cost index-tracking mutual funds, ETFs, and other index funds comprised of equity investments in primarily U.S. companies.

How does this impact employers?

Employers have no legal obligation to contribute to Trump Accounts, but tax-exempt employer contributions may enhance employee benefit offerings. Specific administration details are still forthcoming, but recent IRS guidance confirms the following: 

  • Employers may contribute up to $2,500 to employees’ or their children’s Trump Accounts pre-tax. Please note that any employer contributions count towards the general $5,000 contribution limit mentioned in item 2 above.
  • The $2,500 limit applies on a per employee basis, meaning that if any employee has multiple children with Trump Accounts, the employer’s aggregate contributions to those children’s Trump Accounts may not exceed $2,500. 
  • Any employer contributions must be made pursuant to a written plan document and the contributions must comply with applicable nondiscrimination testing rules (which will likely look similar to the nondiscrimination testing rules applicable to Dependent Care Spending Accounts).
  • The IRS also intends to issue additional guidance explaining how an employer can facilitate employee contributions to Trump Accounts for the employee’s dependents through a Section 125 cafeteria plan. 

As with many new policy initiatives, Trump Accounts raise more questions than answers at this stage. Key issues remain regarding how these accounts will be funded and administered. We will continue to monitor developments closely and share updates as regulatory guidance emerges. In the meantime, please reach out to your Seyfarth benefits attorney with any questions.

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Josh Hild, Unsplash

Seyfarth Synopsis: Effective January 1, 2026, new California law prohibits stay-or-pay clauses in contracts of employment with limited exceptions.

Under new Section 16608 of the California Business and Professions Code, effective January 1, 2026, employers are prohibited from entering into an employment contract or other contract relating to the employment relationship that requires an employee to repay any amount to the employer upon termination of employment, except in specific limited circumstances. The law provides that contracts with non-compliant stay-or-pay provisions will be treated as void. Also, an affected employee can bring a civil lawsuit in which they can seek damages in the amount of the greater of their actual damages or $5,000, injunctive relief, and attorneys’ fees and costs related to the lawsuit.

One of the exceptions to the prohibition on these repayment obligations, that will likely be the most commonly used, is for discretionary payments made at the outset of employment (e.g. sign-on bonuses or relocation reimbursements) if each of the following conditions are met: (1) the promise to repay is in a separate written agreement; (2) the employee is notified of the right to consult an attorney no less than five days prior to signing the agreement; (3) any repayment obligation cannot be longer than 2 years; (4) the amount to be repaid must be prorated upon termination for the remaining retention period; (5) no interest is charged on the repayment amount; (6) the employee must be given the option to instead defer the payment to the end of the fully-served retention period with no repayment obligation; and (7) repayment can only be required if the employee voluntarily elects to leave or if the employee is terminated for misconduct (as defined in the CA labor code).

The new code section also has other exceptions relating to repayment of tuition assistance, certain government loans, and residential leasing or purchase assistance. For further information on these exceptions and an in depth discussion of the new law, see Seyfarth’s prior blog post here. 

Note that the new law is not triggered by a provision promising to pay an amount after a certain retention period is completed (without any repayment obligation) or otherwise deferring payments to a future date.

Employers should review existing offer letters and other employment contracts with California employees to identify payments or other benefits offered in exchange for an employee’s promise to repay upon termination of employment prior to completing a retention period. Any agreements with these provisions will need to be amended to fit into an exception, or to remove the repayment obligations.  

This shift will also require employers to rethink how they offer sign-on and other retention bonuses to employees in California in the future. Restructuring these payment arrangements in a thoughtful manner will not only help employers to avoid costly penalties and litigation, but also should give employers a competitive advantage in recruiting and retaining employees in California.

Please contact the author or the employee benefits attorney at Seyfarth with whom you usually work if you have any questions regarding compliance with these new California restrictions.

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Seyfarth Synopsis: Recently the IRS issued Rev. Proc. 2025-32 and 2025-61, announcing the cost-of-living adjustments to certain welfare and fringe benefit plan limits for 2026 and applicable dollar amounts for the remainder of 2025.

2026 Limits for Certain Health and Fringe Benefits

The Affordable Care Act (ACA) established the Patient-Centered Outcomes Research Institute (“PCORI”), to support research on clinical effectiveness. The PCORI is funded (through the Patient-Centered Outcomes Research Trust Fund) in part by fees paid by certain health insurers and sponsors of self-insured health plans (“PCORI fees”). The PCORI fee is determined by multiplying the average number of covered lives for the plan year times the applicable dollar amount, and is reported and paid annually (by July 31) to the IRS using Form 720 (Instructions to Form 720 are available here). The applicable dollar amount as set by the IRS for plan years ending on or after October 1, 2024 and before October 1, 2025 was $3.47 per covered life.

The IRS has issued Notice 2025-61 announcing the applicable dollar amount that must be used to calculate the fee for plan years that end on or after October 1, 2025, and before October 1, 2026. This 2025-61 PCORI fee is $3.84 per covered life, an increase of $0.37 per covered life from 2025. The PCORI fee for a 2025 calendar plan year, calculated as $3.84 per covered life, is due by July 31, 2026.

For more information on paying the PCORI fee, see our prior posts here and the IRS website here. Also refer to this IRS page for a helpful chart describing the applicability of the PCORI fee to various health arrangements.

On October 9, 2025, the IRS announced 2026 cost-of-living adjustments to various tax related limits, including the dollar limits for contributions to health flexible spending accounts (Health FSAs) and qualified transportation fringe benefit programs.  

The 2026 cost-of-living adjustments (and the changes from 2025) for these plans, from 2025-32 and 2025-61 are summarized in the table below:

Please contact the employee benefits attorney at Seyfarth Shaw LLP with whom you usually work if you have any questions regarding these or other limits on health and welfare and related plans.

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Seyfarth Synopsis: The IRS is back to work and just announced the 2026 annual limits that will apply to tax-qualified retirement plans. But wait, there’s more – a surprise increase in the inaugural FICA wage limit for purposes of the mandatory Roth catch-up requirement.  Employers maintaining tax-qualified retirement plans will need to make sure their plans’ administrative procedures are adjusted accordingly.

In Notice 2025-67, the IRS announced the various limits that apply to tax-qualified retirement plans in 2026. The “regular” contribution limit for employees who participate in 401(k), 403(b) and most 457 plans will increase from $23,500 to $24,500 in 2026. The “catch-up” contribution limit for individuals who are or will be age 50 by the end of 2026 is increased from $7,500 to $8,000. 

However, the “super” catch-up contribution limit for individuals aged 60 to 63 on December 31, 2026, remains $11,250. Some were expecting that limit to be indexed to 150% of the regular catch-up limit. However, the Internal Revenue Code provides that the limit is the greater of $10,000 or 150% of the 2024 catch-up limit (i.e., $7,500). As a result, the “super” catch-up contribution limit remains $11,250 for 2026, and the $11,250 limit may be indexed for inflation in future years. 

Continue Reading Shutdown’s Over—IRS Wastes No Time Reminding You You’re Still Not Saving Enough
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Growtika, Unsplash

Artificial intelligence (AI) is transforming many industries — and employee benefit plan administration is no exception. In the latest episode of Seyfarth’s Health Care Beat podcast, co-hosts Chris DeMeo and Amanda Genovese continue their discussion on AI & Health Care: Innovation, Regulation, and Reality with Employee Benefits attorney Caroline Pieper. Together, they explore how AI is shaping health plan administration, particularly when it comes to claims administration.

This conversation explores:

  • Where AI is already making an impact in streamlining administrative processes, reducing costs, and improving member experiences;
  • The evolving regulatory landscape, including compliance and fiduciary duties under ERISA;
  • Key legal and ethical considerations when adopting AI tools or partnering with vendors that leverage machine learning in plan operations; and
  • Practical steps employers and plan administrators can take now to harness innovation responsibly.

As health plans and their administrators increasingly turn to technology to manage complexity and efficiency, understanding the balance between innovation and compliance is critical.

Listen to Episode 53, here.

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REGISTER HERE

Wednesday, October 22, 2025
12:00 p.m. to 1:00 p.m. Eastern
11:00 a.m. to 12:00 p.m. Central
10:00 a.m. to 11:00 a.m. Mountain
9:00 a.m. to 10:00 a.m. Pacific

About the Program

The Treasury and IRS have released final regulations implementing key SECURE 2.0 provisions, including the Roth catch-up requirement for high earners and the enhanced “Super Catch-Up” contribution limits for participants ages 60 to 63. These final regulations provide much-needed clarity for plan sponsors and administrators but also raise important questions about plan design and administration.

Join Seyfarth’s Employee Benefits team as they break down what the final regulations mean in practice, including:

  • How to determine who is subject to the Roth catch-up requirement and apply the FICA wage threshold.
  • Key design and administrative approaches for implementing the Roth catch-up requirement, including real-world examples based on different catch-up contribution schemes.
  • Correction methods for Roth catch-up contributions.
  • Implementation and plan amendment considerations for the new Super Catch-Up limits.

Speakers

Lisa Loesel, Partner, Seyfarth Shaw LLP

Diane Dygert, Partner, Seyfarth Shaw LLP

Irine Sorser, Partner, Seyfarth Shaw LLP

REGISTER HERE

If you have any questions, please contact Sadie Jay at [email protected] and reference this event.

To comply with State CLE Requirements, CLE forms requesting credit in IL or CA must be received before the end of the month in which the program took place. Credit will not be issued for forms received after such date. For all other jurisdictions forms must be submitted within 10 business days of the program taking place or we will not be able to process the request.

Our live programming is accredited for CLE in CA, IL, and NY (for both newly admitted and experienced).  Credit will be applied as requested, but cannot be guaranteed for TX, NJ, GA, NC and WA. The following jurisdictions may accept reciprocal credit with our accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, AR, CT, HI and ME. For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used for self-application. CLE decisions are made by each local board, and can take up to 12 weeks to process. If you have questions about jurisdictions, please email [email protected].

Please note that programming under 60 minutes of CLE content is not eligible for credit in GA. programs that are not open to the public are not eligible for credit in NC.

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Seyfarth Synopsis: Earlier today, Treasury and the IRS issued highly-anticipated final regulations addressing several changes to the catch-up contribution provisions implemented by SECURE 2.0.  Proposed regulations were issued earlier this year (see our Legal Update here), and administrative questions lingered following the issuance of the proposed regulations. The much-welcomed final regulations answer a number of open questions that we had been grappling with following the enactment of SECURE 2.0 and the issuance of the proposed regulations earlier this year. Below is a high-level overview of several pressing issues that have been addressed by the final regulations. We will be issuing a more comprehensive Legal Update on the final rules in the coming days.

1. Designated Roth Contributions Counted for Purposes of Roth Catch-up Requirement

Under the proposed regulations, designated Roth contributions made by a participant at any point within a calendar year must be counted towards satisfying the Roth catch-up requirement (“Roth Catch-Up Requirement”). This provision caused administrative concerns and several commenters asked that the final rules make this permissive so that plans had the choice as to whether to include Roth deferrals made by the participant at any point in the calendar year towards the Roth Catch-Up Requirement. The final regulations provide plan administrators that use the deemed Roth approach with some – but not universal – flexibility. The final regulations do not seem to go so far as making this optional approach available in all situations, which we will cover in the forthcoming Legal Update. 

Continue Reading Final Catch-Up Rules: What Now? (Spoiler Alert: There is No Extension)