Employee Benefit Plans Alert — Summer 2025 Edition

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This edition of the Employee Benefit Plans Alert focuses on the following three topics:

• The impact of the One Big Beautiful Bill Act (OBBBA) for certain employee benefit arrangements.
• Form 5500 changes for 2024.
• Uncashed retirement distribution checks and Internal Revenue Service (IRS) guidance.

Impacts of OBBBA

On July 4, 2025, President Trump signed into law H.R.1, known as the One Big Beautiful Bill Act (OBBBA). The legislation makes permanent some provisions from the Tax Cuts and Jobs Act (TCJA) and introduces improvements to employee benefit offerings.

Among the changes are those related to student loan repayment assistance programs and Health Savings Accounts (HSAs) — two areas of increasing importance for both employers and employees.

• Student Loan Repayment Assistance Becomes Permanent: Section 127 of the Internal Revenue Code (IRC) allows employers to offer tax-free educational assistance to employees (up to $5,250 per year per employee), traditionally for tuition and books. A temporary provision added by the Coronavirus Aid, Relief and Economic Security (CARES) Act in 2020 expanded this benefit to include student loan repayment assistance, which was set to expire at the end of 2025. Under the provisions of OBBBA, the student loan repayment benefit has been permanently extended.
  • Beginning in 2026, the annual exclusion limit will be indexed for inflation, enabling incremental increases over time. Both federal and private student loans qualify, provided the borrowed funds were used exclusively for qualified higher education expenses.
    
    
• HSAs — More Flexible, More Inclusive: OBBBA also brings significant enhancements to HSAs, tax-advantaged accounts available to individuals with high-deductible health plans (HDHPs). Beginning in 2026, these changes expand both eligibility and the types of services for which HSA funds can be utilized.
  
  
• Safe Harbor for Telehealth Made Permanent: HDHPs can continue covering telehealth and remote-care services before the deductible is met without affecting HSA eligibility. Initially introduced as a temporary COVID-era measure, this flexibility is now a permanent feature.
  
  
• Direct Primary Care Arrangements Now Permitted: Currently, HSA eligibility requires enrollment in a HDHP with no additional disqualifying health coverage. Under the new rules, however, Direct Primary Care Service Arrangements (DPCSAs) will no longer be considered disqualifying coverage for HSA purposes. A DPCSA typically involves a flat monthly fee paid directly to a primary care provider in exchange for access to basic medical services — capped at $150 for an individual or $300 for families.
  • Another key update under OBBBA allows individuals to use HSA funds to pay for these DPCSA fees — something that was previously not permitted, as HSA funds generally cannot be used for insurance premiums or similar arrangements.

• Expanded Plan Eligibility: Starting in 2026, individuals enrolled in bronze or catastrophic plans through the Affordable Care Act (ACA) marketplace will be eligible to contribute to HSAs, provided they do not have a non-HDHP. Under OBBBA, these plans will be recognized as HDHPs for HSA purposes, even if they previously did not meet the technical HDHP criteria.

Form 5500 Changes for 2024

The 2024 Form 5500 — Annual Return/Report of Employee Benefit Plan (EBP) — has some minor changes that tax preparers and plan sponsors should consider. This includes its short form for small EBPs (5500-SF) and the one-participant retirement plan form (5500-EZ).

• Plan Characteristics Code for Pension-Linked Savings Accounts (PLSA): Filers with plans that have a pension-linked emergency savings account must use the new plan characteristic code, 2Y, which is now added to the List of Plan Characteristics Codes. Use 2Y on Form 5500 (line 8a), its Schedule DCG (line 8) and Form 5500-SF (line 9a).
  
  
• Form 5558 for a Defined Contribution Group (DCG) Reporting Arrangement: Form 5558 — Application for Extension of Time — is used to apply for a one-time extension to file a variety of tax forms, including Forms 5500, 5500-SF and 5500-EZ.
  • The plan administrator of a DCG reporting arrangement can file a single Form 5558 to file Form 5500 and is not required to attach a list of participating plans in the DCG.
  • Beginning January 1, 2025, Form 5558 can be electronically filed through EFAST2. This is a welcomed process to facilitate the filing of the extension request process. The Form 5558 can still be filed with the IRS by mail using a hard copy.

• Form 5500 Schedule SB to Report Annual Actuarial and Funding Information for Single-Employer Defined Benefit Pension (DBP) Plans: The instructions for Schedule SB, line 26b (expected benefit payment projection attachment) have been modified for situations when a plan is subject to the annuity substitution rule to determine the funding target. The instructions now provide that such plans report expected benefits payable in an annuity form.
  
  
• Administrative Penalties: The instructions have been updated to reflect an increase in the maximum civil penalty for failure to file Form 5500 to $2,670 per day, as assessed under the Employee Retirement Income Security Act of 1974 (ERISA) Section 502(c)(2). This amount is adjusted each year, as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The penalty will accrue daily, with no maximum limit, until a delinquent form is filed.

Uncashed Retirement Distribution Checks and Replacement Checks

The IRS has issued a Revenue Ruling 2025-15 which is intended to assist plan administrators with withholding and reporting obligations regarding uncashed retirement plan distribution checks and any replacement check that is issued. Both of these compliance matters have plagued the retirement industry for many years.

Generally, when a retirement distribution is issued, there is a requirement to withhold income tax and report the payment on Form 1099-R. But there are some nuances that you should now understand:

• Uncashed Distribution Check: The IRS has indicated that there is no adjustment or refund of withheld income tax allowed when a benefit check for the correct payment amount goes uncashed. Reporting and withholding are determined on the facts at the time of the original retirement plan distribution.
  
  
• Replacement Check Issued: If a replacement check for the benefit distribution is issued, there are not any new tax withholding or reporting requirements, provided the reissued check is for the same or lesser amount as the uncashed original.
  • Any Difference is Subject to Withholding and, if greater than $10, Reporting: If the replacement check is for a larger amount (e.g., due to earnings), however, the employer or plan administrator must perform income tax withholding on any difference in amount between the original check and the replacement check. In this instance, the difference is treated as a separate distribution and, if $10 or more, must be reported on Form 1099-R by the employer or plan administrator. If the difference is less than $10, there is no Form 1099-R reporting requirement.

Contact Us:

The Employee Benefit Services Group at PKF O’Connor Davies is available to assist plan sponsors in meeting the various compliance requirements applicable to their plans. We also provide a full spectrum of compliance services for qualified retirement plans, non-qualified deferred compensation plans and welfare plans. For more information, please contact your client services team or either of the following: 

Timothy J. Desmond, CPA
Partner
Employee Benefit Services Practice Leader
tdesmond@pkfod.com | 551.249.1728

Louis F. LiBrandi, EA, CEBS, ChFC, TGPC
Partner
Employee Benefit Services Group
llibrandi@pkfod.com | 646.449.6327