Ari Sonneberg | The Wagner Law Group The Wagner Law Group 2026-10-23T20:43:03Z https://www.wagnerlawgroup.com/feed/atom/ WordPress /wp-content/uploads/sites/1104921/2021/06/cropped-wagner-fav-icon-2-32x32.png by The Wagner Law Group <![CDATA[The Great Convergence: Blurred Lines in the Roles of Recordkeepers, Advisers, Asset Managers and Administrators]]> https://www.wagnerlawgroup.com/?p=70583 2026-10-09T21:22:57Z 2026-10-08T21:14:43Z ERISA Follows Function, Not Job Titles One of the fundamental principles of ERISA is that fiduciary status generally depends upon function. The name appearing on a business card does not control the analysis. Neither does the title in a service agreement. This is not just industry practice; it is codified at ERISA §3(21), which defines a fiduciary by what a party actually does - exercising discretionary authority over plan management or assets, rendering investment advice for a fee, or exercising discretionary responsibility over administration - not by what its contract for services calls it. A company can perform fiduciary functions with respect to one activity while performing non-fiduciary functions with respect to another. This becomes increasingly important as providers offer multiple services. A recordkeeper might perform ministerial administrative functions in one part of its organization while another affiliate provides fiduciary investment advice. An adviser might provide non-discretionary consulting for one purpose and accept discretionary fiduciary responsibility for another. An asset manager might provide investments while an affiliated entity operates participant advice technology. The appropriate analysis, therefore, requires plan sponsors to look beneath the provider’s overall label and identify the specific functions being performed. Who Selects and Monitors Whom? Convergence can also produce long and complicated chains of responsibility that are not always obvious at the outset of a relationship. Consider a fairly typical scenario: a plan sponsor hires an adviser, and that adviser recommends a recordkeeper. The recordkeeper, in turn, recommends its own affiliated managed-account provider, which uses investment products managed by yet another affiliate, while the recordkeeper simultaneously provides rollover services to participants who are terminating employment. By the time this chain plays out, a plan sponsor may be several layers removed from the parties actually making decisions about its participants’ money. Who monitors each party? Who evaluates conflicts? Who determines whether the compensation is reasonable? Who evaluates whether the managed-account service continues to provide value? ERISA permits fiduciaries to delegate many responsibilities, but delegation does not mean abdication. The fiduciary responsible for appointing another fiduciary must still engage in a prudent selection process at the outset and must continue to appropriately monitor the appointee throughout the relationship. As the chain of responsibility grows longer and more layered, clarity regarding exactly who appointed whom, and who is responsible for monitoring whom, becomes increasingly important. The duty to monitor is not a one-time obligation that ends at appointment. The Supreme Court held, in Tibble v. Edison International, 575 U.S. 523 (2015), that the duty of prudence is continuing, meaning a fiduciary must keep monitoring a provider it has selected, not merely select it prudently at the outset. A plan sponsor that loses track of who is performing which function within a converged arrangement has, on that reasoning, likely failed to satisfy this continuing duty. Additionally, because ERISA §405(a) imposes co-fiduciary liability on a fiduciary who knowingly participates in, or fails to remedy, another fiduciary’s breach, an unclear chain of responsibility can expose more than one party in the arrangement to a breach claim. The Rise of the 3(16) Administrator Another example of convergence involves providers marketing themselves as “3(16) fiduciaries.” Outsourcing administrative fiduciary responsibilities can be valuable. But sponsors should not assume that hiring a 3(16) fiduciary transfers every administrative responsibility. The contract matters. What duties has the provider actually accepted? Does it determine eligibility? Approve distributions? Interpret plan provisions? Handle claims? Sign the Form 5500? Correct operational failures? What responsibilities remain with the employer? A plan sponsor that believes it has transferred a function that the provider believes it has retained can create a dangerous plan governance gap. That gap is precisely where liability tends to land. The responsibilities described in the contract should, therefore, correspond to the actual operating arrangement. Pooled Employer Plans and the New Bundled Model Pooled employer plans, or PEPs, illustrate the phenomenon of convergence particularly well. A single PEP may involve a pooled plan provider, a trustee, a recordkeeper, an investment adviser, an administrator, and any number of other service providers, all working together to serve participating employers. Some of those functions may be performed by affiliates of the same corporate family, while others may be outsourced to unrelated third parties, and the resulting web of relationships can be difficult for a participating employer to fully untangle. The attraction of this bundled model for employers is obvious: a well-designed PEP can relieve participating employers of substantial administrative burdens they would otherwise have to manage on their own, and it can potentially create meaningful economies of scale that smaller, standalone plans cannot achieve. Joining a PEP, however, does not mean that an employer should stop asking fiduciary questions once the arrangement is in place. To the contrary, the employer should take the time to understand the respective responsibilities of the pooled plan provider and any other fiduciaries involved, the responsibilities that remain with the employer itself notwithstanding the pooled structure, the fees paid by the plan and by participants at every level of the arrangement, and the conflicts of interest that can be created by affiliated service arrangements within the PEP. Bundling services in this way can simplify day-to-day administration for the employer, but it can simultaneously make the underlying economic relationships considerably more complicated to evaluate. Follow the Money One of the most important consequences of convergence is that provider compensation can become harder to identify. A recordkeeper might charge a relatively low explicit recordkeeping fee because it earns revenue elsewhere. That revenue could come from investments, managed accounts, participant advice, rollover IRAs, proprietary products, float income, affiliate arrangements or other financial services. There is nothing inherently improper about a provider earning revenue from multiple services. But plan fiduciaries need to understand the economics of the arrangement sufficiently to determine whether the compensation paid in connection with the plan is reasonable and whether conflicts may affect provider recommendations. When a service appears to be unusually inexpensive, or “free, ” the fiduciary should ask the question that is begged from such discount: How is the provider being paid? That question carries more legal weight than it once did. In Cunningham v. Cornell University, 604 U.S. 693 (2025), the Supreme Court held that a participant states a prohibited-transaction claim under ERISA §406(a) merely by plausibly alleging that the plan paid a party-in-interest for services - the plaintiff does not also have to plead that the reasonable-compensation exemption in §408(b)(2) fails to apply. That shifts the burden of proving a reasonable, necessary arrangement onto the defendant, and it means opaque, cross-subsidized compensation of the kind convergence produces is now markedly more likely to survive a motion to dismiss and proceed into discovery. Proprietary Products and Conflicts Convergence also creates natural opportunities for providers to recommend their own affiliated products, and this dynamic deserves particular attention from plan fiduciaries. A recordkeeper may offer its own managed-account service alongside its recordkeeping platform. An adviser may recommend investment products offered by an affiliated asset manager. A recordkeeping or investment platform may prominently feature proprietary investments among the options it presents. And a rollover representative, when a participant is terminating employment, may recommend an IRA that happens to be managed by an affiliated entity of the recordkeeper or adviser involved. Each of these arrangements sits close to the prohibited-transaction rules under ERISA §406. Again, affiliation in and of itself does not automatically make any of these arrangements improper; providers are generally permitted to offer their own products, provided the arrangement is handled appropriately. What matters is that any resulting conflicts of interest should be identified and directly addressed rather than ignored or left unexamined. Plan sponsors, for their part, should make an effort to understand which parties benefit economically from the decisions that participants or fiduciaries are being encouraged to make, so that those conflicts can be factored into the plan’s oversight of the arrangement. Can a Contract Simply Say the Provider is Not a Fiduciary? Service agreements frequently contain provisions stating that a provider is not acting as an ERISA fiduciary except with respect to specifically identified services. Those provisions are important, but they do not necessarily end the legal inquiry. Because ERISA fiduciary status is functional, the actual conduct of the provider matters. A contract can allocate authority, specify responsibilities, identify accepted fiduciary duties and establish indemnification rights. A contractual disclaimer, however, may not protect a provider if its actual conduct constitutes fiduciary activity under ERISA. Because ERISA §3(21) status turns on function rather than label, a disclaimer that does not match reality does not just fail to protect the provider, it can leave the plan sponsor holding an unmonitored fiduciary relationship it never realized it had, with all the exposure under ERISA §404(a) and §405(a) that comes with it. As such, plan sponsors should focus on the operational provisions of the agreement rather than simply accepting a broad fiduciary disclaimer. In entering into a contract with a service provider, the following questions should be considered: Who has discretion? Who makes the final decision? Who controls plan assets? Who interprets plan provisions? Who makes investment recommendations? Who can override another provider? These questions often reveal more than meets the eye. Artificial Intelligence Will Accelerate Convergence AI may make traditional provider categories even less meaningful. Imagine a recordkeeping platform that uses AI to provide individualized investment recommendations. Is that still merely recordkeeping? Suppose an asset manager provides an AI system that communicates directly with participants and recommends portfolio changes. Is the company acting solely as an asset manager? If a payroll provider’s technology automatically recommends plan designs and investment options to employers, what functions is the provider performing? The correct legal analysis should focus on the conduct rather than the technology. AI does not require or justify abandoning ERISA’s traditional functional framework. It makes that framework more important. A Responsibility Map One practical response to convergence is remarkably simple. Every plan sponsor and retirement plan committee should consider creating a responsibility map. This map should:
  • List every major provider
  • List its affiliates that interact with the plan
  • Identify each function performed
  • Identify which functions are fiduciary
  • Identify the fiduciary appointing each provider
  • Identify who monitors that provider
  • Identify how the provider is compensated
  • Identify significant conflicts
  • Identify what participant information the provider receives
The responsibility map should then be analyzed against service agreements. This exercise frequently reveals gaps. A responsibility assumed to belong to the recordkeeper may actually remain with the employer. A service believed to be included may be performed by an affiliate under a separate agreement. A provider believed to be monitored by the adviser may actually be the employer’s responsibility. Those are exactly the kinds of ambiguities that should be resolved before a problem arises. What Plan Sponsors Should Do Now Plan sponsors should consider revisiting their provider relationships with convergence specifically in mind. They should identify all providers and important affiliates, determine precisely which parties have accepted fiduciary status, identify retained employer responsibilities. review direct and indirect compensation, identify proprietary products, review cross-selling arrangements, understand rollover programs, examine managed-account relationships, review participant-data rights, review cybersecurity responsibilities, determine who monitors each provider and make sure the contracts reflect the actual operation of the plan. The Bottom Line Convergence is not inherently problematic. It may produce better technology, lower costs, greater efficiency and more comprehensive participant services. But convergence makes transparency increasingly important. The more functions a provider performs, the more important it becomes to understand which hat the provider is wearing at any particular moment. The exposure is not theoretical. ERISA fiduciary-breach class actions have remained near record levels in recent years, and recent Supreme Court decisions have made it easier for plaintiffs to plead past a motion to dismiss on service-provider compensation theories. A committee that cannot produce a current, accurate account of who is performing which function, and who is monitoring whom, is not merely operating inefficiently. It is carrying litigation risk that current case law makes easier for plaintiffs to press than it was even two years ago. [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1101401/2021/07/wagner_marcia_s.jpg[/author_image] [author_info] Marcia S. Wagner is the founder of The Wagner Law Group, a certified woman-owned and operated business and one of the nation’s largest and most highly regarded boutique law firms, specializing in ERISA, employee benefits, executive compensation, employment, labor, human resources, personal law (estate planning and family) and investment management law.[/author_info] [/author] [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1101401/2021/07/Ari-Sonneberg.jpg[/author_image] [author_info]Ari Sonneberg specializes in the fields of ERISA and employee benefits. Ari advises and represents clients with respect to design, compliance and all other aspects of qualified and non-qualified employee benefit plans. He has extensive experience in drafting, designing, amending, and restating qualified and non-qualified employee benefit plans and related trusts, including money purchase pension plans, profit sharing plans, 401(k) plans, defined benefit plans, welfare benefit plans, medical expense reimbursement plans, 403(b) plans, and nonqualified deferred compensation plans.[/author_info] [/author]  ]]> by The Wagner Law Group <![CDATA[Merrill Lynch’s ‘Hail Mary’ Attempt to Compel Dynasty into Arbitration Over OpenArc Breakaway Fell Yards Short After a Federal Judge Blocked the Effort]]> https://www.wagnerlawgroup.com/?p=68844 2026-08-03T15:35:44Z 2026-07-27T15:14:04Z Merrill Lynch's 'Hail Mary' Attempt to Compel Dynasty into Arbitration Over OpenArc Breakaway Fell Yards Short After a Federal Judge Blocked the Effort - Ari Sonneberg, RIABiz, July 26, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Proposal for the Establishment of the Defined Contribution Cybersecurity Insurance Corporation]]> https://www.wagnerlawgroup.com/?p=68731 2026-08-05T15:42:06Z 2026-07-09T18:04:38Z retirement plan (e.g., 401(k), profit sharing, money purchase, employee stock ownership plan, 403(b), etc.) whose account balance is taken by cyber theft, may be able to recover such losses[1] from a plan fiduciary[2] only when the theft is attributable to a cybersecurity breach that results from a breach of ERISA fiduciary duty of prudence by the fiduciary.  The possibility of recovery also exists under The Mandatory Victims Restitution Act, which provides for the compensation of victims who suffer financial loss as the result of a federal crime, but recovery under that law requires a conviction of the culprit, which seldom occurs in the case of cybercrimes, and the recoverable amount may not exceed the greater of $250,000 or twice the amount stolen.  If a loss was the result of negligence by a non-fiduciary, an action for negligence under state law may also be available, although there are unresolved ERISA preemption issues in this situation.  From a federal income tax perspective, an affected participant may be able to claim a theft loss deduction if his or account was hacked or an unauthorized individual gained access to participant information and withdrew assets from the participant’s account, but such deduction is of limited value because the theft loss cannot exceed a taxpayer’s basis in the account.[3] Unfortunately, the above forms of recovery may be of limited utility to the affected plan participant or beneficiary. The perpetrator of the cyber theft may not be discovered, and the affected participant may also bear no personal responsibility[4] for the cybersecurity breach.  In addition, especially due to the dynamic nature of cybersecurity resulting from ever-changing technological advances, the cybersecurity breach may not have resulted from a breach of ERISA fiduciary duty[5] and the bar for establishing a state-based claim for negligence, even if such remedies were available, may be too high for a participant to overcome. Simply put, there may be no one available to blame and to hold responsible for cybertheft from a defined contribution retirement plan account.  Even if there is a plan fiduciary against whom responsibility for the loss may be assessed, the fiduciary may not be liable for losses under ERISA Section 409.  The means by which the cybersecurity threat was implemented may be such that the protective standards implemented by a hypothetical responsible fiduciary would not have prevented the loss even if they had been fully and properly deployed. In the absence of a causal connection between the plan fiduciary’s deficiency in protecting a participant’s account balance, there can be no liability for a breach of fiduciary duty under ERISA Section 409. In these circumstances, it seems appropriate to consider the establishment of a federal agency that would compensate victims of cybersecurity theft when the loss occurs in the absence of legal responsibility for the loss by a plan fiduciary or a non-fiduciary third-party service provider[6].

Proposal for the Establishment of the Defined Contribution Cybersecurity Insurance Corporation (DCCIC)[7]

Executive Summary

This proposal recommends the creation of a Defined Contribution Cybersecurity Insurance Corporation (DCCIC), a federal agency designed to insure private-sector defined contribution (DC) retirement plan assets against losses resulting from cybercrimes. The DCCIC would fill a critical gap in participant protection from cyber-related losses where ERISA does not provide a cause of action for breach of fiduciary duty and other avenues of recovery are unavailable, thereby enhancing retirement security in the digital age. The Gap The PBGC insures defined benefit plans but does not cover DC plans, except for optional coverage by terminated defined contribution plans to deal with lost or unresponsive plan participants. While the DOL has issued guidance on cybersecurity best practices, there is no federal mechanism to compensate participants and beneficiaries for cyber-related losses when fiduciaries or non-fiduciary third parties are not legally liable.

Mission and Objectives of the DCCIC

Mission: To protect the retirement savings of participants and beneficiaries in defined contribution plans[8] from losses due to cybercrimes, both federal and state, by providing insurance coverage and promoting best practices in cybersecurity risk management. Objectives:
  1. Insurance Coverage: Provide financial compensation to affected participants when cybercrime results in unrecoverable losses.
  2. Risk Assessment and Monitoring: Evaluate cybersecurity practices of plan sponsors, recordkeepers, and other DC plan service providers.
  3. Premium Collection: Collect insurance premiums from covered entities based on risk profiles and plan asset levels.
  4. Education and Standards: Promote cybersecurity awareness and, in conjunction with the DOL, establish minimum standards for plan fiduciaries.
  5. Incident Response Support: Assist in forensic investigations of cybersecurity breaches and in recovery efforts following cybersecurity breaches.
Organizational Structure
  • Governance: Independent federal agency overseen by a board appointed by the President, including representatives of the DOL and the Treasury Department, as well as cybersecurity experts and retirement industry stakeholders.
  • Funding: Self-funded through premiums paid by participating plan sponsors and service providers.
  • Operations Divisions:
    • Claims and Compensation
    • Cybersecurity Risk Assessment
    • Policy and Standards
    • Education and Outreach
    • Legal and Compliance
 Eligible Plans
  • ERISA-covered defined contribution plans (e.g., 401(k), 403(b))
  • Plans must register with DCCIC and meet minimum cybersecurity standards
Covered Events
  • Unauthorized account access resulting in financial loss
  • Fraudulent distributions
  • Data breaches leading to theft of retirement assets
  • Cyberattacks on plan infrastructure
Exclusions or Reduced Coverage
  • Losses due to participant negligence (e.g., sharing passwords)
  • Losses where fiduciary breach is established and the breach caused the loss (covered under ERISA litigation)
  • Losses recoverable under the Mandatory Victims Restitution Act
  • Losses recoverable in a state-based negligence claim, to the extent not preempted by ERISA
Premium Structure
  • Risk-Based Premiums: Based on plan size, number of participants, cybersecurity maturity, and historical incident data
  • Tiered Model: Incentivizes adoption of best practices through lower premiums
Claims Process
  1. Incident Reporting: Plan sponsor or participant reports cyber incident
  2. Investigation: DCCIC conducts forensic review and determines eligibility in coordination with state forensic review
  3. Compensation: Approved claims result in direct reimbursement to affected participants
  4. Recovery Efforts: DCCIC may pursue subrogation against perpetrators, negligent third parties, and participants that make a subsequent recovery by other means.
Legal and Regulatory Considerations
  • Legislation Required: Congressional authorization to establish DCCIC and define its powers
  • Coordination with DOL and Treasury: Ensure alignment with existing ERISA enforcement and retirement policy
  • Data Privacy Compliance: Adhere to federal and state data protection law
  • Preemption of, or coordination with, state laws
Benefits and Impact
  • Enhanced Retirement Security: Protects millions of workers from cyber-related financial loss
  • Improved Cyber Precautions: Incentivizes better cybersecurity practices across the retirement industry
Next Steps
  1. Stakeholder Engagement: Convene industry, labor, and government representatives, and cyber security threat experts
  2. Legislative Drafting: Develop enabling legislation for Congressional consideration
  3. Pilot Program: Launch voluntary pilot program with select plans to test framework
  4. Full Implementation: Roll out national program following legislative approval
[1] Losses resulting from cybersecurity theft are not restricted to loss of all or a portion of a participant’s or beneficiary’s account balance: the theft of plan data containing personally identifiable information can result in losses outside the tax-favored defined contribution plan. However, redressing such losses, which include issues not present in the theft of plan assets, such as whether participant data constitutes plan assets under ERISA and Article III constitutional standing, is outside the scope of this article. [2] There is likely to be a dispute whether a third-party administrator, or possibly a custodian of plan assets, is acting in a fiduciary capacity in connection with the events constituting the cyber theft. [3] CCA 202511015. Cf. June 3, 2026, petition to Tax Court challenging IRS denial of theft loss deduction for a taxpayer who liquidated her IRA account of $800,000. Caputo v. Commissioner. [4] Even if a plan participant bears responsibility for a cybertheft, unless such plan participant is a plan fiduciary with respect to the actions that caused harm to other plan participants, the adversely affected plan participants may have no cause of action against him or her, because it may be unclear under state law whether participants in a tax-qualified plan owe any duty to each other. [5] ERISA’s duty of prudence is based on the circumstances then prevailing, and the relevant circumstances change rapidly with respect to cybersecurity developments. [6] Even if a party bears legal responsibility and should not be released from liability or financial responsibility by a third party federal agency determination, if the negligent or imprudent conduct results in loss to multiple plan participants and beneficiaries, there may still be a need for a federal agency to cover the shortfall. [7] The ERISA cyber threat issue may be analogous to the California wildfire issue, which caused insurers to lose money in fire insurance claims and in some instances to leave the state. States such as California for fire and Florida for hurricanes have state last resort arrangements but those arrangements have limitations, such as dollar caps on recovery. Therefore, there has been consideration, at least to a limited extent of having a federal back up program. These types of events are scaled down versions of the events that insurers seek to address through major event exclusions. [8] Consideration could be given to extending eligibility to governmental plans and church plans. [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1104921/2021/07/Ari-Sonneberg.jpg[/author_image] [author_info]Ari Sonneberg specializes in the fields of ERISA and employee benefits. Ari advises and represents clients with respect to design, compliance and all other aspects of qualified and non-qualified employee benefit plans. He has extensive experience in drafting, designing, amending, and restating qualified and non-qualified employee benefit plans and related trusts, including money purchase pension plans, profit sharing plans, 401(k) plans, defined benefit plans, welfare benefit plans, medical expense reimbursement plans, 403(b) plans, and nonqualified deferred compensation plans.[/author_info] [/author] [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1104921/2021/07/Barry-Salkin.jpg[/author_image] [author_info]Barry Salkin concentrates his practice in ERISA and employee benefits law. He has significant expertise drafting, amending and negotiating various ERISA and employee benefit plans, including defined benefit pension plans, profit sharing plans, 401(k) plans, as well as qualified and non-qualified deferred compensation programs.[/author_info] [/author]]]> by The Wagner Law Group <![CDATA[What Makes a Provider Partnership Truly ‘Fiduciary-Ready’?]]> https://www.wagnerlawgroup.com/?p=68714 2026-07-07T15:55:40Z 2026-07-02T15:51:51Z What Makes a Provider Partnership Truly ‘Fiduciary-Ready’? - Ari Sonneberg, planadviser, July 2, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Pontera Turns to Washington Insiders in a Backdoor Plan to Shake Loose Fidelity’s File-Sharing Ban]]> https://www.wagnerlawgroup.com/?p=68590 2026-07-01T11:58:19Z 2026-06-23T11:52:30Z Pontera Turns to Washington Insiders in a Backdoor Plan to Shake Loose Fidelity's File-Sharing Ban - Ari Sonneberg, RIABiz, June 23, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Schwab Clarifies That its Mass Proliferation of ‘Wealth’ Offices Nationally is Way to Generate ‘Connectivity’]]> https://www.wagnerlawgroup.com/?p=68407 2026-06-04T12:03:14Z 2026-06-01T11:59:44Z Schwab Clarifies That its Mass Proliferation of 'Wealth' Offices Nationally is Way to Generate 'Connectivity' - Ari Sonneberg, RIABiz, June 1, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Department of Labor Proposes New Fiduciary Safe Harbor for Investment Selection in Defined Contribution Plans]]> https://www.wagnerlawgroup.com/?p=68060 2026-04-01T19:36:31Z 2026-04-01T19:37:22Z Democratizing Access to Alternative Assets for 401(k) Investors (the “Executive Order”), and is expressly designed to reduce litigation risk while reaffirming ERISA’s long‑standing, process‑based fiduciary framework. Although prompted by concerns surrounding alternative investments, the Proposed Regulation would apply broadly to all designated investment alternatives and would arguably represent one of the most consequential shifts in ERISA fiduciary policy in decades. Comments on the proposal are due by June 1, 2026. Background and Purpose The Executive Order directed the DOL to clarify fiduciary obligations when asset allocation funds or other investments include alternative assets - such as investment vehicles that invest in private equity and credit, real estate, commodities, digital assets (such as cryptocurrency), infrastructure - and lifetime income strategies. The Executive Order specifically asked the DOL to consider “appropriately calibrated safe harbors” that would enable fiduciaries to exercise sound judgment without undue fear of litigation. The Proposed Regulation would go further than the Executive Order requested. Consistent with the DOL’s traditionally investment‑neutral approach, the Proposed Regulation does not favor or disfavor any particular asset class. Instead, it articulates a general, process‑driven standard for prudently selecting any designated investment alternative. The DOL is candid about its motivation: according to the DOL, the current ERISA litigation environment has chilled fiduciary decision‑making, discouraged innovation, and pushed plans toward defensive menu designs. The proposal is intended to realign ERISA practice with statutory text, trust‑law principles, and decades of judicial precedent. Three Foundational Principles The preamble to the Proposed Regulation identifies three principles that underpin the Proposed Regulation:
  1. ERISA is grounded in process, not outcomes. Prudence is evaluated based on the fiduciary’s investigation and reasoning at the time of the decision - not by hindsight or subsequent performance. Indeed, many practitioners colloquially refer to the prudence standard as being one of “procedural prudence.”
  2. ERISA affords fiduciaries broad discretion. The statute neither mandates nor prohibits specific investment types; fiduciaries may select among a wide range of reasonable options.
  3. Courts should defer to fiduciaries who follow a prudent process. When fiduciaries act within a documented, reasonable decision‑making framework, their judgments should receive substantial judicial deference.
The third principle - judicial deference that would be implemented under the Proposed Regulation through a presumption of prudence - is likely to be the focal point of legal challenges. The DOL anticipates this risk and grounds the proposal in existing trust‑law concepts and its statutory authority under Section 505 of ERISA, which the DOL asserts supports its authority to establish fiduciary safe harbors. The Safe Harbor Framework At the core of the Proposed Regulation is a process‑based safe harbor. A fiduciary that objectively, thoroughly, and analytically evaluates relevant factors when selecting an investment is entitled to a presumption of prudence and significant judicial deference. The Proposed Regulation identifies six non‑exclusive factors that would ordinarily be central to the analysis:
  1. Performance: Fiduciaries must consider risk‑adjusted expected returns over an appropriate time horizon, net of fees. The rule expressly rejects any requirement to select the highest‑returning option over short periods.
  2. Fees: There is no requirement to choose the lowest‑cost investment. Fees are evaluated relative to value, services, and expected performance; and fiduciaries are not required to scour the entire marketplace. Performance‑based and incentive fees may be appropriate when justified.
  3. Liquidity: Plans are not required to offer fully liquid investments. Fiduciaries may select investments with liquidity restrictions, including illiquid assets, when liquidity tradeoffs are reasonably balanced against potential diversification or risk‑adjusted returns, so long as participant‑ and plan‑level liquidity needs are responsibly addressed.
  4. Valuation: Designated investment alternatives must be capable of timely and accurate valuation. For non‑public assets, the Proposed Regulation generally anticipates at least quarterly valuation using independent, conflict‑free methods consistent with a certain specified accounting standard (FASB ASC 820).
  5. Performance Benchmarking: Each investment should be evaluated against a meaningful benchmark with comparable strategy, objectives, and risk profile. Importantly, the Proposed Regulation states that new or innovative investments are not disfavored merely because they lack long performance histories.
  6. Complexity: Complexity alone does not render an investment imprudent. Consistently with the notion that ERISA fiduciaries must be “prudent experts” (a phrase informally used by many ERISA practitioners when referring to ERISA fiduciaries), the Proposed Regulation highlights that fiduciaries must themselves understand the investment or must prudently engage qualified professionals to assist with evaluation and oversight.
The proposal includes 20 detailed examples illustrating how fiduciaries may satisfy these factors in practice. Presumption of Prudence and Judicial Review If the safe harbor process is satisfied, the fiduciary’s judgment is presumed reasonable. The DOL envisions courts applying a deferential, abuse‑of‑discretion‑type review, with plaintiffs bearing the burden of proof. It is noted that, in Loper Bright Enterprises v. Raimondo, the U.S. Supreme Court rejected the doctrine it had previously adopted in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., and dramatically generally narrowed or possibly even eliminated the extent to which the courts need to defer to agency regulations in interpreting federal statutes. Anticipating questions about judicial authority, the DOL grounded the Proposed Regulation in Section 505 of ERISA and framed the Proposed Regulation as deserving of deference established by the Supreme Court in Skidmore v. Swift & Co, a pre-Loper Bright case under which an agency’s interpretation is entitled to deference by a court in proportion to its power to persuade. Scope and Limitations The Proposed Regulation would:
  • Apply only to the selection of designated investment alternatives.
  • Not apply to brokerage windows or self‑directed brokerage accounts.
  • Not address menu construction (which the DOL referred to as “curation”) or ongoing monitoring (although the DOL has signaled forthcoming guidance built on the same principles).
  • Not alter ERISA’s duty of loyalty or the prohibited‑transaction rules.
Practical Implications If finalized as proposed and upheld by the courts, the Proposed Regulation would potentially, among other things:
  • Reduce litigation risk for fiduciaries that document a prudent selection process.
  • Encourage innovation in plan menus, particularly within professionally managed vehicles such as target-date funds and managed accounts.
  • Reaffirm fiduciary flexibility to consider alternative assets thoughtfully.
It should be noted that the Executive Order also called upon the Securities and Exchange Commission (the “SEC) to take action with respect to the definitions of accredited investor and qualified purchaser, but the SEC was not given a specific deadline to do so. It is possible that coordination with the SEC could be critical in addressing non-ERISA practical impediments to the use of alternative investments under participant-directed plans, and the Executive Order (which by its nature is at the presidential level), unlike certain previous DOL sub-regulatory guidance, expressly calls for inter-agency coordination in this context. Any SEC guidance would be issued separately, as would any companion guidance from the Department of the Treasury. Conclusion The Proposed Regulations represents a decisive shift back towards ERISA’s fundamental underlying principles: discretion, process, and deference. While legal challenges may well be likely, the Proposed Regulation, if finalized as proposed, would materially strengthen fiduciary confidence in making reasoned, well‑documented investment decisions and could meaningfully expand the range of prudent options available to retirement plan participants. We will continue to monitor developments and provide updates as the rulemaking progresses. If you have any questions about the Proposed Regulation, or any questions about ERISA’s fiduciary provisions, please feel free to contact us.]]> by The Wagner Law Group <![CDATA[Wealthfront CEO Disgorges his Mortgage Broker About a Month After the ‘Textbook Conflict’ Came to Light]]> https://www.wagnerlawgroup.com/?p=67954 2026-03-19T15:22:58Z 2026-03-16T15:14:04Z Wealthfront CEO Disgorges his Mortgage Broker About a Month After the 'Textbook Conflict' Came to Light - Ari Sonneberg, RIABiz, March 16, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[With Schwab’s New $5-per-RIA-Client Trading Fees Set to Activate Tuesday, Michael Kitces Calls it a ‘Walking-Back’ of Chuck’s 2019, Zero-Commission Pledge]]> https://www.wagnerlawgroup.com/?p=67896 2026-03-05T15:57:41Z 2026-02-27T15:49:39Z With Schwab's New $5-per-RIA-Client Trading Fees Set to Activate Tuesday, Michael Kitces Calls it a 'Walking-Back' of Chuck's 2019, Zero-Commission Pledge - Ari Sonneberg, RIABiz, February 27, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Merrill Lynch Files Motion that Berates ‘Dynasty’ for ‘Reneging’ on Arbitration]]> https://www.wagnerlawgroup.com/?p=67892 2026-03-05T15:46:17Z 2026-02-17T15:41:15Z Merrill Lynch Files Motion that Berates 'Dynasty' for 'Reneging' on Arbitration - Ari Sonneberg, RIABiz, February 17, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Major ERISA Reform Bill Moves Forward]]> https://www.wagnerlawgroup.com/?p=67738 2026-01-19T17:21:31Z 2026-01-19T17:21:31Z Protecting Prudent Investment of Retirement Savings Act (H.R. 2988), which proposes substantial amendments to the Employee Retirement Income Security Act of 1974 (ERISA). If enacted, this legislation would significantly restrict the consideration of non‑pecuniary factors in retirement plan investing. That would include restrictions on the consideration of environmental, social, and governance (ESG)-related factors. It would also impose new nondiscrimination rules for service provider selection, tighten fiduciary obligations with respect to proxy voting, and require enhanced disclosures for brokerage windows.  The bill restructures ERISA fiduciary obligations across four major divisions (detailed below), each targeting a different aspect of retirement plan governance. Division A - Increase Retirement Earnings Act This portion of the bill is aimed at limiting the use by retirement plan fiduciaries of non‑pecuniary factors in investment decisions, and would codify a strict pecuniary‑only standard for ERISA fiduciaries. Key elements of this division include:
  • Fiduciaries must base investment decisions solely on pecuniary factors, defined as those expected to materially affect risk or return.
  • Non‑pecuniary factors may only be used as a tiebreaker, and only if the fiduciary documents why pecuniary factors were insufficient; a comparison of alternatives; and how the non‑pecuniary factor being considered aligns with plan participants’ financial interests.
  • ESG‑themed funds cannot be used as a Qualified Default Investment Alternative (QDIA) if their objectives incorporate non‑pecuniary goals.
This provision reverses Biden-era rules that permitted fiduciaries to consider ESG factors as part of a risk‑return analysis to be used as a tiebreaker when investments were otherwise equal. This element of the bill would become effective 12 months after enactment and, notably, would significantly narrow the circumstances under which ESG considerations may be used by fiduciaries in plan investment decisions. Division B - No Discrimination in My Benefits Act This division of the bill amends ERISA by creating a new fiduciary duty requiring that plan fiduciaries select and retain service providers in accordance with ERISA’s fiduciary standards, and without regard to race, color, religion, sex, or national origin. It would serve to codify nondiscrimination principles governing service provider selection directly into ERISA’s fiduciary framework. The bill does not specify the effective date for this division. Division C - Retirement Proxy Protection Act This division sets new standards for retirement plan proxy voting and shareholder rights. It would impose detailed requirements on fiduciaries when exercising shareholder rights on behalf of plan participants and require that fiduciaries act solely in the economic interest of the plan when proxy voting. The bill would require fiduciaries, when voting proxies, to consider costs, evaluate material facts, and maintain records of all proxy votes and related activities. In addition, fiduciaries would be required to prudently monitor investment managers and proxy advisory firms. The bill introduces several safe-harbor proxy-voting policies, including voting only on proposals materially related to the issuer’s business, and not voting when plan assets invested in the issuer are below 5%. The effective date for this provision is retroactive to January 1, 2026. Division D - Providing Complete Information to Retirement Investors Act The bill’s final provision amends ERISA to include new disclosure requirements for retirement plans that include a participant self-directed brokerage window. Pursuant to this new requirement, participants must be provided with and acknowledge a four‑part notice before directing investments into or out of a brokerage window. First, the notice must warn that brokerage window investments are not selected or monitored by plan fiduciaries. It must also notify participants that such investments may involve higher fees, higher risk, and diminished returns. The notice must contain a graphical illustration showing projected balances at age 67 under 4%, 6% and 8% rates of return. The bill also establishes a definition for the term “designated investment alterative” that specifically excludes brokerage windows, self-directed brokerage accounts and similar arrangements. This is consistent with existing Department of Labor guidance relating to that term. This provision of the bill is to become effective January 1, 2027. _________________________ While this bill did have limited bipartisan support in the House, a supermajority of 60 votes would likely be needed in the Senate to overcome a probable filibuster - a reality that makes it unlikely the bill will be enacted, at least in its current form. Consequently, we can expect the Department of Labor to continue active regulatory projects touching on ESG investing and proxy voting under ERISA.  Each of these projects appears on the DOL’s semiannual regulatory agenda. The implications of this bill for retirement plan sponsors and other fiduciaries, however, are to expect heightened scrutiny of ESG‑related investment strategies, to prepare for expanded documentation requirements for investment decisions and proxy voting, and to review service provider selection processes for compliance with new nondiscrimination standards. [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1104921/2021/07/Ari-Sonneberg.jpg[/author_image] [author_info]Ari Sonneberg specializes in the fields of ERISA and employee benefits. Ari advises and represents clients with respect to design, compliance and all other aspects of qualified and non-qualified employee benefit plans. He has extensive experience in drafting, designing, amending, and restating qualified and non-qualified employee benefit plans and related trusts, including money purchase pension plans, profit sharing plans, 401(k) plans, defined benefit plans, welfare benefit plans, medical expense reimbursement plans, 403(b) plans, and nonqualified deferred compensation plans.[/author_info] [/author] [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1104921/2021/07/Barry-Salkin.jpg[/author_image] [author_info]Barry Salkin concentrates his practice in ERISA and employee benefits law. He has significant expertise drafting, amending and negotiating various ERISA and employee benefit plans, including defined benefit pension plans, profit sharing plans, 401(k) plans, as well as qualified and non-qualified deferred compensation programs.[/author_info] [/author]]]> by The Wagner Law Group <![CDATA[Wealthfront’s Shares Nosedive After Tepid Flows and ‘Stark’ Revelation that its CEO Owns the Bank at Heart of Robo-Advisor’s Mortgage Future]]> https://www.wagnerlawgroup.com/?p=67718 2026-01-15T14:43:08Z 2026-01-13T12:39:22Z Wealthfront's Shares Nosedive After Tepid Flows and 'Stark' Revelation that its CEO Owns the Bank at Heart of Robo-Advisor's Mortgage Future - Ari Sonneberg, RIABiz, January 13, 2025 (PDF)]]> by The Wagner Law Group <![CDATA[Envestnet ‘Intentionally’ Destroyed Crucial Evidence, a Judge Has Ruled]]> https://www.wagnerlawgroup.com/?p=67714 2026-01-15T14:38:41Z 2026-01-05T14:29:44Z Envestnet 'Intentionally' Destroyed Crucial Evidence, a Judge Has Ruled - Ari Sonneberg, RIABiz, January 5, 2026 (PDF)]]> by The Wagner Law Group <![CDATA[Pontera’s Last-Bid Gambit to Turn Fidelity Credential-Sharing Ban Into an ‘Investor Rights Issue,’ Falls Flat]]> https://www.wagnerlawgroup.com/?p=67637 2025-12-08T15:01:35Z 2025-12-01T14:56:26Z Pontera's Last-Bid Gambit to Turn Fidelity Credential-Sharing Ban Into an 'Investor Rights Issue,' Falls Flat - Ari Sonneberg, RIABiz, December 1, 2025 (PDF)]]> by The Wagner Law Group <![CDATA[Fidelity Unit Warns of ‘Massive Outages Across Major Fidelity Platforms,’ in New Lawsuit]]> https://www.wagnerlawgroup.com/?p=67580 2025-11-18T14:46:26Z 2025-11-18T00:38:23Z Fidelity Unit Warns of 'Massive Outages Across Major Fidelity Platforms,' in New Lawsuit - Ari Sonneberg, RIABiz, November 17, 2025 (PDF)]]> by The Wagner Law Group <![CDATA[Envestnet’s Six-Year Legal Fight Over Software ‘Misappropriation’ Dealt Likely Major Blow After a Key Ruling]]> https://www.wagnerlawgroup.com/?p=67807 2026-02-04T16:25:53Z 2025-08-20T15:12:17Z Envestnet's Six-Year Legal Fight Over Software 'Misappropriation' Dealt Likely Major Blow After a Key Ruling - Ari Sonneberg, RIABiz, August 20, 2025 (PDF)]]> by The Wagner Law Group <![CDATA[Trump Labor Secretary ‘Applauds’ Trump and His Executive Order to Put ‘Alts’ in 401(k)s]]> https://www.wagnerlawgroup.com/?p=67296 2025-08-11T14:09:49Z 2025-08-08T14:03:46Z Trump Labor Secretary 'Applauds' Trump and His Executive Order to Put 'Alts' in 401(k)s - Ari Sonneberg, RIABiz, August 8, 2025 (PDF)]]> by The Wagner Law Group <![CDATA[Vanguard Sued by Direct-Indexing Founders for Allegedly Cajoling a Deal for Just Invest]]> https://www.wagnerlawgroup.com/?p=67135 2025-07-18T12:55:01Z 2025-07-16T12:43:10Z Vanguard Sued by Direct-Indexing Founders for Allegedly Cajoling a Deal for Just Invest - Ari Sonneberg, RIABiz, July 16, 2025 (PDF)]]> by The Wagner Law Group <![CDATA[Important Provisions Impacting Businesses in The One, Big, Beautiful Bill]]> https://www.wagnerlawgroup.com/?p=67101 2025-07-16T14:25:24Z 2025-07-14T16:02:36Z Paid Family & Medical Leave Credit The OBBB permanently extends the TCJA-provided temporary tax credit limited to certain qualifying wages for paid leave and increases the creditable amount to 12.5–25% of paid leave wages or insurance premiums. It also provides for a reduced employee tenure requirement, from 12 months to six months. Generally, to qualify for the credit, a written family leave policy is required. Family leave benefits that are mandated by state or local law or paid for by state or local government are not eligible for the credit. An employer cannot take a business deduction for the cost of insurance premiums and also claim the credit. Childcare Credit & DCAP Expansion Under The OBBB, the childcare facility expense credit for employers is increased to 40% of expenses up to $500,000, or 50% up to $600,000 (for small employers), a drastic increase from the prior credit of 25% (up to $150,000). The new law also allows for third-party provider pooling and aggregator participation. In addition, the employee Dependent Care Assistance Program (DCAP) limits are increased to $7,500 (for joint filers) and $3,750 (for single filers) per year, respectively, from $5,000 and $2,500. Health Savings Accounts (HSAs) Under The OBBB, ACA Bronze/catastrophic plans will qualify as High-Deductible Health Plans (HDHPs).  The new law also provides that HSAs may be used to pay for Direct Primary Care (DPC) services up to $150/month for individuals and $300 for families. Finally, The OBBB makes permanent the safe harbor, originally put in place under the CARES Act in response to COVID-19, allowing pre-deductible coverage of telehealth and remote-care services under HDHPs without disqualifying HSA eligibility. Student Loan Repayment Benefit The TCJA provision allowing employer student loan repayments to be excluded from employee income (up to $5,250/year), set to expire after 2025, has been made permanent under The OBBB, with indexing for inflation beginning in 2027. Fringe Benefits Since 2009, employers were permitted to offer a tax-free reimbursement of up to $20 per month for bicycle commuting expenses (purchase, repair, storage). This benefit, however, was suspended by the TCJA through 2025 and has now been permanently repealed under The OBBB for civilian employers. Under the TCJA, the moving expense benefit deduction and income exclusion were suspended through 2025, except with respect to active-duty military. The OBBB permanently repeals the non-military moving expense benefits deduction and the exclusion from taxable wages. Executive Compensation Under prior law, executive compensation over $1 million per covered employee was non-deductible under Internal Revenue Code (IRC) § 162, but applied separately to each employer within a controlled group. Under The OBBB, compensation is aggregated across all members of a controlled group of employers, applying a global $1 million deduction cap. Qualified Small Business Stock (QSBS) Under The OBBB, the exclusion of gain from the sale of QSBS, is significantly enhanced for stock acquired after the bill’s enactment. These enhancements include:
  • Tiered Holding Periods: Instead of the current flat five-year requirement for a full 100% gain exclusion, The OBBB introduces a phased-in schedule: 50% exclusion after three years of holding; 75% exclusion after four years; and, 100% exclusion after five years.
  • Increased Exclusion Cap: The per-stockholder-per-issuer gain exclusion cap rises from $10 million to $15 million, with indexing beginning in 2027.
  • Higher Gross Asset Threshold: The qualifying corporation size limit increases from $50 million to $75 million, also with inflation indexation starting in 2027, thereby including more companies in the QSBS benefit.
Full Expensing of Research and Development Expenses Domestic R&D expenditures incurred between January 1, 2025, and December 31, 2029, may now be deducted immediately. Retroactive relief is available for small businesses with average gross receipts of $31 million or less over the prior three years. Foreign R&D expenses remain subject to amortization over 15 years. Previously, under the TCJA, domestic research expenditures generally had to be amortized over five years (and 15 years for foreign research expenses). Permanent 100% Bonus Depreciation Bonus depreciation is a tax incentive that allows businesses to deduct a significant percentage (often 100%) of the cost of certain qualified property in the year the property is placed in service, rather than depreciating it gradually over the asset’s useful life. The OBBB reinstates and makes permanent 100% depreciation for qualified property placed in service from January 19, 2025, forward.   Prior to enactment of The OBBB, bonus depreciation was in a scheduled phase-down post-2022 (80% in 2024 down to zero in 2027). Business Interest Expense Limitation Calculation of the business interest expense limitation, which limits the amount of business interest expense that a taxpayer can deduct in a given taxable year, has reverted to the more lenient “Earnings Before Interest, Taxes, Depreciation, and Amortization” standard for tax years beginning in 2025. Prior to the enactment of The OBBB (since 2022), the interest limitation was calculated using a more stringent “Earnings Before Interest, Taxes” standard, which tightened allowable interest deductions. The definition of business interest expense has been modified to include certain capitalized interest. Enhanced § 179 Expensing Cap Internal Revenue Code § 179 allows businesses to immediately expense the full purchase price of certain qualifying property, rather than recovering the cost over time through regular depreciation. It is a tax election, not automatic, and is often used by small and medium-sized businesses to accelerate cost recovery and reduce taxable income in the year that property is placed in service. The OBBB increases the expensing limit to $2.5 million, with a phase-out at $4 million, and both are indexed for inflation starting in 2025. Under prior law, there was a $1.25 million cap with a $3.12 million phase-out limit, without adjustment for inflation. Optional 100% Expensing for Qualified Production Property Qualified Production Property (QPP) refers to a specific category of tangible property that is used in domestic manufacturing or industrial production activities. This category was expanded and specially designated under The OBBB to encourage U.S.-based industrial investment. The OBBB introduces QPP as a new tax classification designed to target strategic sectors, particularly those tied to manufacturing, advanced technology, national security, and critical supply chain resilience. QPP includes manufacturing equipment, industrial machinery, robotic systems, assembly-line components, and production-related software and control systems (if integrated into tangible assets). Specifically excluded from being categorized as QPP are real estate, office equipment not used in production, general-purpose vehicles and non-depreciable property. The OBBB introduces a new and elective 100% expensing regime for Qualified Production Property, separate and distinct from IRC § 179 expensing and bonus depreciation. Under prior law, similar production property expenses would generally only qualify for bonus depreciation or Modified Accelerated Cost Recovery System (MACRS) depreciation over 3–20 years, depending on asset class. The Qualified Production Property must either be property the construction of which began after January 19, 2025 and before January 1, 2029, or property acquired after January 19, 2025. Permanent Pass-Through (Qualified Business Income) Deduction The OBBB permanently extends the deduction for Qualified Business Income (QBI) at the existing 20% rate, which under the TCJA was set to expire at the end of 2025. A proposed increase of the rate to 23% was not included in The OBBB.  QBI is certain domestic business income earned by pass-through entities, including sole proprietorships, partnerships, S corporations and some trusts and estates. There is a minimum deduction of $400 for entities with QBI of at least $1,000 and the phase-in limit amounts were increased from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers. Permanent Excess Business Loss Limitation The Excess Business Loss Limitation limits the ability of noncorporate taxpayers (such as individuals, trusts, and estates) to deduct business losses in excess of certain thresholds ($313,000 in 2025) against their nonbusiness income (e.g., wages, interest, dividends, or capital gains). The OBBB repeals the sunset provision for the excess business loss limitation, amends IRC § 461(l) to make the rule permanent for tax years beginning after December 31, 2025, and provides that any disallowed losses are carried forward as net operating losses.  In addition, The OBBB codifies technical clarifications from prior IRS guidance, including: the requirement to aggregate all trade or business income and deductions from pass-through entities owned by the taxpayer; and the application of the limit at the individual level (even if losses are passed through from multiple sources). Enhanced Opportunity Zones Opportunity Zones are census tracts nominated by states and certified by the U.S. Treasury as low-income communities. The law provides preferential capital gains tax treatment for investments in Opportunity Zones made through Qualified Opportunity Funds (QOFs), designed to spur long-term private investment in economically distressed communities. The OBBB enacts a significant extension and expansion of the Opportunity Zone program, including the extension of the capital gains deferral period from December 31, 2026, to December 31, 2029, and the reinstatement of the 10% basis increase for investments made before December 31, 2026, and held for at least five years (note that the 15% step-up for seven-year holds was not reinstated). The OBBB also authorizes states to designate new Opportunity Zones in 2026, based on updated census and economic data and incorporates reforms to enhance oversight and accountability. The types of businesses excluded from Qualified Opportunity Zone eligibility (“sin businesses”) have also been expanded under The OBBB. Form 1099 & 1099-K Reporting Thresholds The OBBB restores the pre‑2021 de minimis threshold for filing Forms 1099. As a result, Forms 1099-K (for third-party network transactions, e.g., Venmo, PayPal) are required only if payments exceed both $20,000 and 200 transactions per payee in a calendar year. The prior threshold for 1099‑K issuance by payment platforms had been reduced to amounts exceeding $600 in aggregate payments, with no transaction minimum. The OBBB also addresses the threshold for Forms 1099‑NEC and 1099‑MISC (for purposes of business payments reporting) by increasing the reporting threshold to $2,000 per payee per year, indexed for inflation after 2026, effective for payments made after December 31, 2025. Prior to The OBBB, business payments of $600 or more to a non‑employee (e.g., independent contractor, rent, legal services) triggered the requirement to issue a Form 1099‑NEC or 1099‑MISC. The OBBB mandates new 1099-style reporting to support emerging deductions including tip deductions (not taxed up to designated limit), overtime pay deductions, car loan interest deductions, and excise-taxed remittances. Tip Income The tip income provisions in The OBBB introduce critical changes to both the reporting and the deduction of tip income for employees in the service industries in which workers are customarily and regularly tipped, an issue with respect to which the IRS will need to issue guidance, aiming to improve tax compliance, increase tax benefits for individual earners, and provide more relief for employers in tip-heavy sectors. Tips are restricted to cash tips, so the IRS will need to confirm that credit card payments and payments in apps constitute cash tips. Payroll taxes are unaffected by the tip income provisions of The OBBB. The tip income exclusions are temporary and expire at the end of 2028. The OBBB requires employers to track and report tip income as part of wages for payroll tax purposes, ensuring accurate tax remittance. Employers are also granted a 100% deduction for the tips they report, provided they are properly documented and paid to employees. This allows employers to offset payroll taxes related to tip income. Additionally, under The OBBB, individual employees who receive tip income are provided a new above-the-line deduction from gross income of up to 10% of their reported tips, designed to cover expenses typically incurred by tip earners, such as personal clothing, travel, or business-related costs (not reimbursed by the employer). This new deduction comes with a cap and phase-down:
  • The tip income deduction is capped at $5,000 annually per individual, regardless of the total amount of tips reported.
  • For individuals with modified adjusted gross income (MAGI) above $100,000 (single filers) or $200,000 (joint filers), the tip income deduction will phase down gradually.
  • The deduction begins to phase out for MAGI above these thresholds and is completely eliminated once MAGI reaches $150,000 (single) or $300,000 (joint).
The OBBB also expands the tip credit under the Fair Labor Standards Act (FLSA), allowing service industry employers to apply a larger portion of tips toward meeting the federal minimum wage. This credit is phased out for employers with gross receipts over $5 million, in line with a gradual increase in the federal minimum wage. Overtime Pay Under The OBBB qualifying workers can temporarily (until 2028) deduct premium pay received for overtime from their gross income.  This deduction is capped at $12,500 per employee, for single filers, or $25,000 for joint filers. For those with modified adjusted gross incomes (MAGI) exceeding $150,000 (or $300,000 for joint filers), however, the deduction is gradually phased out—reduced by $100 for every $1,000 of MAGI. The deduction is limited to the premium portion (i.e., the amount paid above an employee’s standard hourly rate) of overtime pay.  This deduction applies only to the mandatory premium pay under Section 7 of the Fair Labor Standards Act. Overtime pay that exceeds federal requirements due to state laws or union contracts does not qualify for the deduction. Employers must now separately report qualified overtime compensation on Form W-2.  Starting with tax years after December 31, 2025, withholding procedures will be updated to reflect this deduction.  For the 2025 tax year, a transition rule under The OBBB allows employers to use any reasonable IRS-approved method to estimate and account for qualified overtime compensation separately.  Employers should monitor IRS updates for additional guidance on this reporting and deduction process. Charitable Contribution Deductibility The OBBB includes several provisions affecting the deductibility of charitable contributions. Under The OBBB, corporations can deduct only those charitable contributions exceeding 1% of their taxable income beginning with tax years after December 31, 2025 - the 10% cap on deductions remains in place. While corporate contributions exceeding the 10% ceiling can continue to be carried forward for five years, amounts disallowed due to the new 1% floor can only be carried forward if the aggregate corporate contributions exceed 10% of taxable income, including the disallowed amounts. For tax years beginning after December 31, 2025, non-itemizing taxpayers may deduct cash contributions up to $1,000 (single) or $2,000 (joint), but contributions to donor-advised funds are not eligible for deduction.   A similar provision was in effect during the pandemic, permitting $300 above-the-line charitable deductions. The OBBB also provides that itemizing individuals may only deduct contributions to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI).  In addition, the TCJA’s temporary increase in the AGI limit for cash contributions to public charities (from 50% to 60%) is made permanent under The OBBB.  For high-income donors in the top tax bracket, the value of itemized deductions is reduced, now capped at 35% instead of 37%.   As a result, a $1,000 charitable contribution results in a $350 deduction, rather than a $370 deduction. Beginning in 2027, a tax credit of up to $1,700 is available for cash gifts to eligible scholarship-granting organizations, which cannot also be claimed as a charitable contribution. Under The OBBB, the federal estate and gift tax exemption increases to $15 million in 2026 (adjusted for inflation thereafter), and university endowments face a new tiered tax on investment earnings. [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1104921/2021/07/Ari-Sonneberg.jpg[/author_image] [author_info]Ari Sonneberg specializes in the fields of ERISA and employee benefits. Ari advises and represents clients with respect to design, compliance and all other aspects of qualified and non-qualified employee benefit plans. He has extensive experience in drafting, designing, amending, and restating qualified and non-qualified employee benefit plans and related trusts, including money purchase pension plans, profit sharing plans, 401(k) plans, defined benefit plans, welfare benefit plans, medical expense reimbursement plans, 403(b) plans, and nonqualified deferred compensation plans.[/author_info] [/author] [author] [author_image timthumb='on']https://www.wagnerlawgroup.com/wp-content/uploads/sites/1104921/2021/07/Barry-Salkin.jpg[/author_image] [author_info]Barry Salkin concentrates his practice in ERISA and employee benefits law. He has significant expertise drafting, amending and negotiating various ERISA and employee benefit plans, including defined benefit pension plans, profit sharing plans, 401(k) plans, as well as qualified and non-qualified deferred compensation programs.[/author_info] [/author]]]> by The Wagner Law Group <![CDATA[An ERISA Journey for ESG via American Airlines By Way of Utah?]]> https://www.wagnerlawgroup.com/?p=68003 2026-03-30T21:15:51Z 2025-05-30T20:59:24Z An ERISA Journey for ESG via American Airlines By Way of Utah? - Marcia Wagner, Andrew Oringer, Barry Salkin, Jon Schultze, and Ari Sonneberg, 401(k) Advisor, May, 2025]]>