Benefits Monthly Minute
The June Monthly Minute highlights the DOL’s recent technical release addressing the ERISA status of Trump Accounts, a federal court’s application of COBRA’s gross misconduct exception, and the new PBM and vendor transparency rules that health plan sponsors need to understand in order to avoid prohibited transactions.
ERISA’s Long Arm Can’t Touch Trump Accounts
In Technical Release 2026-02, the Department of Labor responded to requests for clarification as to ERISA coverage of Trump Accounts. The release summarily addresses numerous reasons why these new savings vehicles are not considered ERISA pension plans. For example, Trump accounts, generally provide benefits (tax-advantaged savings) for dependents of employees - not to employees themselves. Furthermore, employer contributions to Trump accounts during the growth period also do not give rise to ERISA-covered plan status where participation is completely voluntary for employees, and the employer does not: (1) impose additional conditions on utilization of Trump account funds; (2) make or influence investment decisions with respect to funds contributed to a Trump account; (3) represent that the Trump accounts or Trump account contribution program are an employee benefit plan established or maintained by the employer; or (4) receive any payment or compensation in connection with a Trump account.
KMK Comment: This Technical Release is a welcomed confirmation that employer contributions to Trump accounts will not generally result in ERISA coverage where they occur only during the growth period. However, employers should note that for periods beyond an account beneficiary’s growth period, employer involvement with a Trump account should be limited in accordance with the IRA payroll safe harbor conditions in 29 CFR 2510.3-2(d) which provides, in relevant part, that a “pension plan” shall not include an IRA if four conditions are met: (1) there are no employer contributions; (2) employee participation is voluntary; (3) the employer does not endorse the program; and (4) the employer receives no consideration in connection with the program, other than reasonable compensation for administrative services actually rendered in connection with payroll deductions.
Navigating COBRA’s "Gross Misconduct" Exception
In a recent federal district court ruling out of Missouri, Green v. Clement Auto Group, LLC, the court tackled an ambiguous area of COBRA: the "gross misconduct" exception. In the case, plaintiff was terminated from his position at a car dealership after his employer discovered he was logging remote hours while on intermittent medical leave for cancer treatments. Characterizing his extensive falsification of timecards as "time theft," Clement Auto Group terminated his employment for gross misconduct and denied his right to COBRA. Plaintiff sued, bringing claims for interference and retaliation under the FMLA, as well as a failure to provide COBRA coverage.
Under COBRA, employers are generally required to offer continuation coverage following a termination of employment. However, the law provides an exception where termination is due to "gross misconduct." Unfortunately, neither the statute nor its implementing regulations define “gross misconduct” and there is a dearth of clear legal precedent addressing its contours. In this ruling, the judge sided with the employer in holding intentional time theft and deliberate falsification of payroll records rose to the level of gross misconduct, consequently, Clement Auto Group was justified in denying COBRA.
KMK Comment: The "gross misconduct" exception remains a remarkably high bar to clear. In the Green case, the employer had irrefutable evidence comparing the employee's remote clock-ins against his approved medical leave. The practical message to employers is to ensure that written employee communications clearly outline FMLA rights, timekeeping procedures, and address the consequences of time theft, and also to keep precise records of employee leave and remote hours. Improperly denying COBRA coverage can invite steep statutory penalties, excise taxes, and expensive litigation; therefore, if a decision is made to deny COBRA, it must be done cautiously and preceded by thorough, objective investigations and undisputable documentation. In all cases, be sure to consult with ERISA counsel to confirm that an employee's actions meet the legal threshold for gross misconduct before denying COBRA continuation rights.
Sorting Through the New Vendor and PBM Fee Disclosure Mandates
The Consolidated Appropriations Act of 2026 (CAA 2026) brought significant updates to ERISA 408(b)(2) and also introduced a new transparency provision with ERISA 726. Navigating these changes is essential to maintaining compliance and avoiding penalties. Below is a brief summary of what plan fiduciaries need be aware of currently and in the future.
- Expanded ERISA 408(b)(2) Fee Disclosure Rules: These rules sweep in a multitude of group health plan service providers—and explicitly target pharmacy benefit managers (PBMs), third-party administrators (TPAs), and stop-loss carriers. Although the immediate disclosure obligations do not mandate retroactive changes to mid-term contracts, some new requirements are triggered in connection with new contracts, extensions, or renewals.
- Key point: Before entering into, renewing, or extending a service agreement, the covered service provider must disclose all direct and indirect compensation, along with other types of compensation, they expect to receive. Proceeding with a renewal or new contract without these detailed disclosures likely constitutes a prohibited transaction under ERISA.
- New ERISA Section 726 & Rebate Pass-Through (generally effective on and after August 2028).
- 100% Rebate Pass-Through: To maintain a "reasonable" contract under ERISA, PBMs must pass through 100% of all rebates, fees, and alternative discounts received from drug manufacturers to the plan.
- Prescription Drug Reporting: PBMs must provide detailed drug spending reports to plan sponsors twice a year and plans must provide participants with an annual notice explaining these PBM reporting requirements and supply summary data upon request.
KMK Comment: While plan sponsors are not required to alter ongoing, mid-term agreements today, new disclosure requirements need to be built into current renewals, extensions and new vendor agreements. The new rules also include specific procedures that allow plans to avoid prohibited transaction penalties in cases where vendors are noncompliant despite requests from plan fiduciaries for the required information. It important for plan sponsors to familiarize themselves with these new mandates to ensure receipt of comprehensive disclosures and steer clear of prohibited transactions. The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these new disclosure and compliance requirements.
Lisa Wintersheimer Michel
513.579.6462
lmichel@kmklaw.com
John F. Meisenhelder
513.579.6914
jmeisenhelder@kmklaw.com
Antoinette L. Schindel
513.579.6473
aschindel@kmklaw.com
Kelly E. MacDonald
513.579.6409
kmacdonald@kmklaw.com
Rachel M. Pappenfus
513.579.6492
rpappenfus@kmklaw.com
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
