Happy fall! The leaves aren't the only thing changing. Here's what's news in the ESOPs, benefits, and compensation space, plus a few reminders.
Retire Through Ownership Act
In a turn of good news for the ESOP community, the Retire Through Ownership Act has become law.
The Act addresses a long-standing source of uncertainty for ESOP-owned companies and professionals: how to set the value of company stock that isn't publicly traded. Now, trustees will be able to rely in good faith on a valuation from an independent appraiser who follows long-established IRS valuation principles. It remains to be seen whether this fairly short statement in the law will meaningful affect the number or type of lawsuits filed alleging that transaction valuations are inflated or otherwise deficient.
For business owners and ESOP professionals, this would mean more predictability when selling to an ESOP. Even with this potential for added protection, companies with an ESOP, or considering one, should always confirm that their appraiser is truly independent and that the valuation process is well documented.
IRS Releases Plan Amendment Deadline Clarification
After what has already been a long and convoluted process, the IRS recently issued additional guidance clarifying when plan sponsors must update their plan documents to comply with the SECURE Act, CARES Act, and SECURE 2.0.
The deadlines depend on whether a change is optional or required. If your plan has adopted optional features, such as student loan matching contributions, emergency savings accounts, Roth employer contributions, or new types of in-service distributions, the plan document must generally be amended by December 31, 2026.
Plan amendments for CARES Act changes, including COVID-era distribution and loan relief, are also due by December 31, 2026, for most employer plans.
However, changes that the law requires, such as the new Roth catch-up contribution rules, have later plan-amendment deadlines. For a series of largely technical reasons, the Roth catch-up amendment, for example, is generally not due until December 31, 2029.
Governmental plans also have later amendment deadlines.
We recommend that plan sponsors review with their plan provider or advisor which features they have adopted, so all required amendments are in place by year-end.
Reminder: Pre-Tax Premiums Require a Written Cafeteria Plan
Many employers deduct health, dental, and vision premiums from employees' paychecks on a pre-tax basis. However, it’s worth bearing in mind that pre-tax treatment is not automatic: it is available only through a "cafeteria plan" under Section 125 of the tax code.
A cafeteria plan permits employees a choice between taking cash wages and putting part of that pay toward certain benefits tax-free. Without a written cafeteria plan, any premiums employees pay are taxable wages, even if the employer’s payroll system is set up to deduct them before taxes. The tax code requires the cafeteria plan to be in writing, and the document must be adopted before the relevant plan year begins. It must describe the benefits offered, who is eligible, the election rules, and the plan year. It also often includes terms around the company’s health FSA, HSA, dependent care FSA, and other features.
If the IRS audits a company that has no written plan, or whose plan document is out of date, it can treat all employee premium payments as taxable. That can leave both the employer and employees owing back payroll and income taxes. Employers that withhold premiums on a pre-tax basis should confirm they have a signed, current cafeteria plan document that matches how the plan actually operates.
Looking Ahead: Benefit and Compensation Changes Taking Effect in 2027
Several changes from the 2025 One Big Beautiful Bill Act (OBBBA) take effect in coming years.
First, the $5,250 annual limit on tax-free educational assistance, which can cover tuition and (now permanently) student loan repayments, will be adjusted for inflation for the first time ever. Employers with educational assistance programs should check whether their plan documents or other employee communications refer to a fixed $5,250 amount; if so, those may need to be updated.
Second, employers preparing to contribute to employees’ "Trump accounts" should note that the $5,000 annual contribution limit and the $2,500 tax-free employer contribution limit stay fixed through 2027. Contrary to some commentary suggesting an earlier date, inflation adjustments do not begin until 2028. The IRS is continuing to release guidance on how employer contributions and Trump accounts more generally will operate.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2026.
