Happy Summer from the Kaufman & Canoles ESOPs, Benefits & Compensation team! As the weather heats up and we enjoy the longest days of the year, we have a few updates and reminders on the benefits front for your consideration. Please find a few of our thoughts below and, as always, feel free to chat with a member of our team with any questions.
DOL’s New Enforcement Stance Could Help Lighten Load on ESOPs
On April 14, 2026, the Employee Benefits Security Administration (EBSA) issued Field Assistance Bulletin No. 2026-01. EBSA is a Department of Labor agency that is tasked with regulating retirement, health, and other workplace-related benefits. The Bulletin details new principles on how EBSA will designate investigation and enforcement priorities. Although not specifically directed at them, the Bulletin has implications for ESOPs.
In prior years, ESOPs have been subject to challenging EBSA policies, such as sweeping investigations lasting for extended periods of time, irregular enforcement of policies, claims based on detailed fiduciary judgments and process, and novel enforcement by way of costly litigation. Coupled with EBSA’s inclusion of ESOPs on its list of enforcement priorities for over twenty years, the ESOP community faced significant scrutiny.
However, the Bulletin sets forth a series of new enforcement principles that appear to be designed to ease this burden. Along with the recent removal of ESOPs from EBSA’s enforcement priorities, stakeholders are hoping these new EBSA positions translate into real change.
Under the Bulletin’s new principles, EBSA will prioritize investigations evidencing the “most egregious conduct” or “significant harm.” As a result, it will focus on enforcement of loyalty breaches, or direct evidence of non-exempt prohibited transactions that involve impermissible conflicts of interest, as opposed to claims of fiduciary process, which often involve fact-specific decision-making and valuation methods. This may help to reduce the volume of litigation and investigations into routine decision-making by plan fiduciaries.
Also, the Bulletin states that EBSA will no longer “regulate through enforcement” when possible. As a result, unless there is written approval from EBSA leadership, enforcement activity now must have a close nexus to (1) the plain language of ERISA (2) clearly established guidance or (3) clearly established case law.
Virginia Non-Compete Payment Law May Implicate Deferred Compensation Rules
Effective as of July 1, Virginia’s new non-compete law (SB 170) is now in effect. The law, among other things, requires employers who desire to enforce a non-compete agreement against a terminated employee to compensate the employee for the right to enforce that agreement if the employee was terminated without cause.
As a reminder, a non-competition agreement triggered on termination from employment is an agreement on behalf of an employee not to work for competitors or start a competing business following termination for a specific period of time and within a specified geographic area.
While the detailed requirements of the new law are not yet clear, it has the potential to implicate deferred compensation and trigger rules under Sections 409A and 457(f) of the tax code, because severance pay can be considered deferred compensation depending on the amount of compensation provided, the timing of the payments, and the reason for the payment.
While both of those tax code sections contain fairly broad exemptions for severance pay, employers need to consider those rules when designing employment agreements, non-compete agreements, and severance agreements given the new requirement for compensation.
Retirement Plan Amendments Deadline Approaching
As a reminder, the IRS requires formal adoption of plan-document amendments for the SECURE Act (2019), CARES Act (2020), and SECURE 2.0 Act (2022) by December 31, 2026. These deadlines have been extended several times, but it does not appear they will be extended again.
This deadline applies to most standard private-sector qualified plans, such as 401(k) plans, profit-sharing plans, ESOPs, and defined benefit plans. Governmental plans have a longer timeline.
Now is a good time to verify that your third-party administrator or plan provider is ready to assist in updating your plan documents. For K&C clients who receive their plan documents directly from our firm, we will contact you later this summer about the amendment process.
New ACA Penalty Increase
In May of this year, the IRS published Revenue Procedure 2026-22, which provides updated employer shared responsibility mandate penalty amounts for 2027.
As a reminder, under Internal Revenue Code Section 4980H, certain large employers may incur penalties if they fail to offer affordable health benefits to their full-time employees. An applicable large employer, defined as an employer of at least fifty full-time equivalent employees, is required to give its full-time employees the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan.
There are separate penalties for separate sections of Section 4890H. The penalty for subsection (a) (generally imposed where the employer does not offer coverage to enough full-time employees) is calculated based on the number of full-time employees after the first thirty. The penalty for subsection (b) (generally imposed where the employer’s offer of coverage is not “affordable” or otherwise deficient) is based on the number of full-time employees who purchase health coverage on a public exchange and are certified to receive a premium tax credit or payment reduction in connection with the exchange-based coverage.
The 2027 penalty changes are:
- $3,780 (up from $3,340) under IRC section 4980H(a); and
- $5,670 (up from $5,010) under IRC section 4980H(b).
The increases are applicable for tax and plan years after December 31, 2026. With this latest increase in penalty fees, this is a great time to verify that you are in compliance with the ACA.
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.
