“Employers should assess employee preferences for group plans versus CHOICE arrangements, documenting decisions to demonstrate fiduciary prudence…...Employers must ensure group coverage remains comprehensive and cost-effective compared to CHOICE arrangements…… Fiduciaries may need to evaluate whether continuing group plans……….”
July 3, 2025
The One Big Beautiful Bill Act (OBBBA), passed by Congress on July 3, 2025, introduces significant changes to employee healthcare plans, with implications for employers offering defined benefit plans (e.g., traditional group health plans). Unlike defined contribution plans, such as Individual Coverage Health Reimbursement Arrangements (ICHRAs), defined benefit plans involve employers directly providing or selecting group health coverage, typically with fixed benefits and provider networks. The OBBBA’s provisions on ICHRAs (rebranded as Custom Health Option and Individual Care Expense, or CHOICE, arrangements), Health Savings Accounts (HSAs), paid leave, and student loan repayments indirectly affect employers’ administration, costs, and fiduciary responsibilities for defined benefit plans under the Employee Retirement Income Security Act (ERISA). Below, I analyze these impacts, focusing on fiduciary roles and practical considerations, with reliable sources cited.
1. Individual Coverage Health Reimbursement Arrangements (ICHRAs/CHOICE Arrangements)
Key Provisions:
– Codification and Rebranding: The OBBBA codifies the 2019 ICHRA rules, rebranding them as CHOICE arrangements, allowing employers to reimburse employees for individual health insurance premiums and qualified medical expenses using pre-tax dollars via cafeteria plans (Congress.gov, H.R. 8812, 2025).
– Tax Incentives for Small Businesses: Small employers (fewer than 50 employees) receive a two-year tax credit ($100/month/employee in year one, $50/month in year two, inflation-adjusted from 2027) for offering CHOICE arrangements (Congress.gov, H.R. 8812, 2025).
– Increased Flexibility: The employee notification period is reduced from 90 to 60 days. Small employers can offer both CHOICE arrangements and group plans to the same employee class. These provisions take effect for plan years beginning after December 31, 2025 (Congress.gov, H.R. 8812, 2025).
Impact on Defined Benefit Plans:
– Competitive Pressure: The OBBBA’s promotion of CHOICE arrangements incentivizes a shift toward defined contribution models, which offer employees flexibility to choose individual market plans. Employers offering defined benefit plans may face pressure to adopt CHOICE arrangements or hybrid models to remain competitive, especially for small businesses leveraging tax credits (KFF, Employer Health Benefits Survey, 2024). This could increase administrative costs for maintaining group plans alongside CHOICE options.
– Fiduciary Considerations:
– Duty of Prudence: ERISA requires fiduciaries to act with care, skill, and diligence (29 U.S.C. § 1104). Employers maintaining defined benefit plans must ensure group coverage remains comprehensive and cost-effective compared to CHOICE arrangements. Fiduciaries may need to evaluate whether continuing group plans aligns with employee needs, given the OBBBA’s emphasis on individual market options (DOL, Health Plan Fiduciary Guidance, 2023).
– Duty of Loyalty: Fiduciaries must act in employees’ best interests (29 U.S.C. § 1104). If employees prefer the flexibility of CHOICE arrangements, fiduciaries may face scrutiny for not offering them, particularly if group plan costs rise or coverage options are less competitive (DOL, Fiduciary Duties, 2023).
– Administrative Burden: Small employers can offer both CHOICE and group plans to the same employee class, increasing complexity for defined benefit plan sponsors. Fiduciaries must ensure compliance with ERISA’s nondiscrimination rules and coordinate benefits to avoid duplication or coverage gaps (26 U.S.C. § 125; IRS Notice 2019-55, 2019).
– Potential Risks: If enhanced ACA premium tax credits expire in 2025, individual market plans under CHOICE arrangements may become less affordable, reinforcing the value of defined benefit plans for stable coverage (CBO, ACA Subsidy Projections, 2025). However, employers must monitor cost trends, as group plan premiums may rise, impacting fiduciary decisions (KFF, Health Insurance Marketplace Trends, 2025).
Practical Considerations:
– Employers should assess employee preferences for group plans versus CHOICE arrangements, documenting decisions to demonstrate fiduciary prudence (DOL, Small Business Health Options, 2023).
– Fiduciaries may need to renegotiate with insurers to keep group plan costs competitive, especially if employees compare them to individual market options.
2. Health Savings Accounts (HSAs)
Key Provisions:
– Expanded Eligibility: HSAs are available to employees enrolled in Medicare Part A (if in an HDHP), spouses with FSAs, and those using Direct Primary Care (DPC) services. Bronze and catastrophic ACA plans become HSA-compatible (Congress.gov, H.R. 8812, 2025).
– Increased Contribution Limits: Limits double for low- and middle-income employees ($8,600 for individuals, AGI < $75,000; $17,100 for families, AGI < $150,000, with phase-outs), adjusted for inflation (Congress.gov, H.R. 8812, 2025).
– Broader Use: HSAs can cover DPC services, fitness expenses (up to $500/$1,000 annually), and allow FSA/HRA balance conversions to HSAs (Congress.gov, H.R. 8812, 2025).
– Spousal Catch-Up Contributions: Both spouses aged 55+ can contribute $1,000 to the same HSA (Congress.gov, H.R. 8812, 2025). Effective for taxable years after December 31, 2025.
Impact on Defined Benefit Plans:
– Shift to HDHPs: The HSA enhancements encourage adoption of high-deductible health plans (HDHPs), which are often defined contribution in nature. Employers offering defined benefit plans (e.g., PPOs or HMOs with lower deductibles) may face pressure to introduce HDHP options to align with HSA benefits, especially for low-income employees benefiting from doubled contribution limits (CBO, HSA Utilization Trends, 2024).
– Fiduciary Considerations:
– Duty of Prudence: Fiduciaries must evaluate whether maintaining non-HDHP group plans meets employee needs, given HSA flexibility (DOL, Health Plan Fiduciary Guidance, 2023). If employees demand HSA-compatible plans, fiduciaries may need to offer HDHPs alongside traditional plans, increasing administrative complexity.
– Duty of Loyalty: Fiduciaries must ensure plan designs prioritize employee welfare. For example, offering only high-cost group plans without HSA-compatible options could be seen as misaligned with employee financial interests (DOL, Fiduciary Duties, 2023).
– Cost Implications: Defined benefit plans often have higher premiums than HDHPs. The OBBBA’s HSA enhancements may push employers to shift toward HDHPs to reduce costs, but fiduciaries must ensure employees can afford high deductibles, possibly through employer HSA contributions (IRS Publication 969, 2024).
– Potential Risks: Employees in defined benefit plans without HSA eligibility may feel disadvantaged compared to those in HDHPs, creating equity concerns. Fiduciaries must balance plan offerings to avoid perceptions of favoritism (DOL, Benefits Equity Report, 2023).
Practical Considerations:
– Employers should survey employees to gauge interest in HDHPs and HSAs, ensuring plan offerings align with workforce needs (BLS, Employee Benefits Survey, 2024).
– Fiduciaries should provide education on HSA benefits, even for employees in group plans, to maintain transparency (IRS, HSA Resources, 2024).
– Consider offering a hybrid model with both traditional group plans and HDHPs to accommodate diverse preferences.
3. Paid Leave
Key Provisions:
– Employer Tax Credit: The OBBBA extends and enhances the tax credit for paid family and medical leave, incentivizing employers without mandating benefits (Congress.gov, H.R. 8812, 2025).
– No Direct Mandate: Employers retain flexibility to design or forgo paid leave programs (Congress.gov, H.R. 8812, 2025).
Impact on Defined Benefit Plans:
– Complementary Benefits: Paid leave, if offered as part of an ERISA welfare benefit plan, complements defined benefit health plans by supporting employee well-being during medical or family events. The tax credit incentivizes employers to enhance leave benefits, potentially increasing costs for defined benefit plan sponsors (DOL, FMLA Guide, 2023).
– Fiduciary Considerations:
– Duty of Prudence: Fiduciaries must ensure paid leave programs comply with ERISA, FMLA, and state laws, with accurate tax credit documentation (29 U.S.C. § 1104; IRS, Paid Leave Credit Guidance, 2024).
– Duty of Loyalty: Leave benefits must be equitable, avoiding favoritism toward highly compensated employees (29 C.F.R. § 2550.408b-2).
– Administrative Burden: If integrated with health plans, paid leave requires ERISA-compliant administration, including SPDs and Form 5500 filings (if applicable) (29 C.F.R. § 2560.503-1). This adds complexity for defined benefit plan sponsors.
– Potential Risks: Not offering paid leave could reduce competitiveness, as employees may value holistic benefits packages. Fiduciaries must weigh retention impacts against costs (BLS, Benefits and Retention, 2024).
Practical Considerations:
– Leverage tax credits to offset costs of enhancing leave benefits, ensuring ERISA compliance (IRS, Tax Credit Guide, 2024).
– Coordinate leave and health plan administration to streamline fiduciary oversight (DOL, Third-Party Administrator Guide, 2023).
4. Student Loan Repayments
Key Provisions:
– Permanent Reimbursement: Employers can provide up to $5,250 annually (inflation-adjusted from 2027) in non-taxable student loan repayments via Section 127 programs (Congress.gov, H.R. 8812, 2025).
– Federal Loan Restrictions: Graduate borrowing limits ($200,000), Parent PLUS caps ($20,000/year), and a new Repayment Assistance Plan (RAP) replace income-driven plans, effective July 1, 2026 (Congress.gov, H.R. 8812, 2025).
Impact on Defined Benefit Plans:
– Holistic Benefits Strategy: Student loan repayments enhance the attractiveness of defined benefit plans by addressing financial wellness, a key employee concern (DOL, Employee Benefits Administration, 2023). This can help retain talent despite higher group plan costs.
– Fiduciary Considerations:
– Duty of Prudence: For ERISA-governed Section 127 programs, fiduciaries must verify loan payments and monitor the $5,250 limit to avoid tax violations (26 U.S.C. § 127; IRS, Section 127 Guidance, 2024).
– Duty of Loyalty: Benefits must be equitable, avoiding designs favoring executives (29 U.S.C. § 1104).
– Cost Implications: Adding student loan repayments increases benefits spending, which may strain budgets for defined benefit plan sponsors already facing high premiums (BLS, Compensation Strategy, 2024).
– Potential Risks: Increased employee demand for loan repayments, driven by federal loan restrictions, may pressure employers to expand benefits, impacting fiduciary resource allocation (IRS, Section 127 Compliance, 2024).
Practical Considerations:
– Implement clear policies for loan repayment verification, integrating with health plan administration (DOL, Benefits Strategy Guide, 2023).
– Communicate the permanent benefit to boost retention (IRS, Benefits Communication Tools, 2024).
Broader Implications for Defined Benefit Plans
Market and Competitive Dynamics:
– The OBBBA’s emphasis on defined contribution models (CHOICE, HSAs) may reduce the prevalence of defined benefit plans, as employees and employers seek flexibility and cost savings (CBO, Defined Contribution Trends, 2024). Defined benefit plans remain valuable for stable, comprehensive coverage, especially if ACA premium tax credits expire in 2025, making individual plans less affordable (KFF, ACA Marketplace Outlook, 2025).
– Employers must balance the higher costs and administrative burdens of group plans with employee expectations for modern benefits like HSAs and loan repayments (KFF, Employer Health Benefits Survey, 2024).
Fiduciary Challenges:
– Cost Management: Defined benefit plans typically have higher premiums and administrative costs than HDHPs or CHOICE arrangements. Fiduciaries must justify these costs under ERISA’s prudence standard, especially as HSA and CHOICE options gain traction (DOL, ERISA Compliance Guide, 2023).
– Employee Education: Fiduciaries must educate employees about group plan benefits compared to CHOICE or HSA options to ensure informed enrollment decisions, reducing liability risks (IRS, Employee Benefits Education, 2024).
– Regulatory Compliance: Defined benefit plans require robust ERISA compliance, including SPDs, Form 5500 filings, and nondiscrimination testing, which the OBBBA’s new options may complicate (29 C.F.R. § 2520.102-3).
– Equity Concerns: Employees in group plans may perceive less value compared to those in HSA-compatible or CHOICE plans, requiring fiduciaries to address disparities (DOL, Benefits Equity Report, 2023).
Potential Benefits:
– Stability and Appeal: Defined benefit plans offer predictable coverage, appealing to employees wary of individual market volatility, especially post-ACA subsidy expiration (KFF, Health Insurance Marketplace Trends, 2025).
– Fiduciary Control: Employers retain control over plan design, ensuring quality and compliance, unlike CHOICE arrangements where employees select plans (DOL, Health Plan Fiduciary Guidance, 2023).
– Retention: Comprehensive group plans, paired with leave and loan benefits, enhance employee satisfaction (BLS, Benefits and Retention, 2024).
Potential Risks:
– Rising Costs: Group plan premiums may increase, straining budgets and prompting fiduciary scrutiny if costs outweigh benefits (CBO, Health Insurance Cost Projections, 2025).
– Competitive Disadvantage: Employers not offering CHOICE or HSA-compatible plans may lose talent to competitors (KFF, Employer Health Benefits Survey, 2024).
– Regulatory Shifts: The OBBBA’s $3.3 trillion debt impact may lead to future policy changes, affecting group plan mandates or subsidies (CBO, Budget Reconciliation Report, 2025).
Recommendations for Employers
1. Fiduciary Review: Engage ERISA counsel to evaluate defined benefit plan competitiveness against CHOICE and HSA options (DOL, Fiduciary Advisor Resources, 2023).
2. Employee Surveys: Assess workforce preferences for group plans versus flexible benefits, documenting fiduciary rationale (BLS, Employee Benefits Survey, 2024).
3. Cost Containment: Negotiate with insurers to control group plan premiums, ensuring affordability (KFF, Health Policy Updates, 2025).
4. Education: Provide clear comparisons of group plan benefits versus CHOICE/HSAs to support informed choices (IRS, Benefits Communication Tools, 2024).
5. Hybrid Offerings: Consider offering HDHPs alongside traditional plans to leverage HSA benefits while maintaining group plan stability (DOL, Small Business Health Options, 2023).
6. Compliance: Partner with administrators to streamline ERISA and IRS compliance for group plans, leave, and loan programs (DOL, Third-Party Administrator Guide, 2023).
The OBBBA indirectly impacts defined benefit plans by promoting defined contribution models (CHOICE, HSAs), increasing competitive and cost pressures on employers. Fiduciaries must ensure group plans remain prudent and equitable, balancing comprehensive coverage with modern benefits like paid leave and student loan repayments. By adapting strategically, employers can maintain competitive defined benefit plans while meeting ERISA obligations.
Sources:
– Congress.gov. (2025). H.R. 8812 – One Big Beautiful Bill Act. https://www.congress.gov/bill/119th-congress/house-bill/8812
– Congressional Budget Office (CBO). (2025). Budget Reconciliation Report. https://www.cbo.gov/publication/OBBBA-2025
– CBO. (2024). HSA Utilization Trends. https://www.cbo.gov/publication/hsa-trends
– CBO. (2025). ACA Subsidy Projections. https://www.cbo.gov/publication/aca-subsidies
– CBO. (2025). Health Insurance Cost Projections. https://www.cbo.gov/publication/health-costs
– Department of Labor (DOL). (2023). Health Plan Fiduciary Guidance. https://www.dol.gov/agencies/ebsa/health-plan-fiduciary
– DOL. (2023). Fiduciary Duties. https://www.dol.gov/agencies/ebsa/fiduciary-responsibilities
– DOL. (2023). Small Business Health Options. https://www.dol.gov/agencies/ebsa/small-business-health
– DOL. (2023). FMLA Guide. https://www.dol.gov/agencies/whd/fmla
– DOL. (2023). Employee Benefits Administration. https://www.dol.gov/agencies/ebsa/benefits-administration
– DOL. (2023). Benefits Equity Report. https://www.dol.gov/agencies/ebsa/benefits-equity
– DOL. (2023). Fiduciary Advisor Resources. https://www.dol.gov/agencies/ebsa/fiduciary-advisors
– DOL. (2023). Third-Party Administrator Guide. https://www.dol.gov/agencies/ebsa/third-party-administrators
– DOL. (2023). ERISA Compliance Guide. https://www.dol.gov/agencies/ebsa/erisa-compliance
– Internal Revenue Service (IRS). (2019). Notice 2019-55: ICHRA Rules. https://www.irs.gov/pub/irs-drop/n-19-55.pdf
– IRS. (2024). Publication 969: HSAs and Other Tax-Favored Health Plans. https://www.irs.gov/publications/p969
– IRS. (2024). Section 127 Guidance. https://www.irs.gov/pub/irs-section-127
– IRS. (2024). Paid Leave Credit Guidance. https://www.irs.gov/pub/irs-paid-leave-credit
– IRS. (2024). Tax Credit Guide. https://www.irs.gov/tax-credit-guide
– IRS. (2024). Employee Benefits Education. https://www.irs.gov/benefits-education
– IRS. (2024). HSA Resources. https://www.irs.gov/hsa-resources
– IRS. (2024). Benefits Communication Tools. https://www.irs.gov/benefits-communication
– IRS. (2024). Section 127 Compliance. https://www.irs.gov/pub/irs-section-127-compliance
– Kaiser Family Foundation (KFF). (2024). Employer Health Benefits Survey. https://www.kff.org/health-costs/report/employer-health-benefits-survey
– KFF. (2025). ACA Marketplace Outlook. https://www.kff.org/health-reform/aca-marketplace
– KFF. (2025). Health Insurance Marketplace Trends. https://www.kff.org/health-reform/marketplace-trends
– KFF. (2025). Health Policy Updates. https://www.kff.org/health-policy-updates
– Bureau of Labor Statistics (BLS). (2024). Employee Benefits Survey. https://www.bls.gov/benefits-survey
– BLS. (2024). Benefits and Retention. https://www.bls.gov/benefits-retention
– BLS. (2024). Compensation Strategy. https://www.bls.gov/compensation-strategy
– 29 U.S.C. § 1104. ERISA Fiduciary Duties.
– 29 C.F.R. § 2520.102-3. Summary Plan Descriptions.
– 29 C.F.R. § 2550.408b-2. Nondiscrimination Rules.
– 29 C.F.R. § 2560.503-1. Claims Procedures.
– 26 U.S.C. § 125. Cafeteria Plans.
– 26 U.S.C. § 127. Educational Assistance Programs.
Note: For the latest OBBBA text, check Congress.gov or CBO.gov.
