Benefits Monthly Minute
The September Monthly Minute highlights new guidance addressing ESOP stock valuations and mental health parity NQTL enforcement, and a recent employer win in tobacco surcharge litigation.
ESOP Stock Valuation Legislation on the Horizon
Stock valuation has long been an issue of uncertainty for ESOP fiduciaries and created fertile ground for litigation. New bipartisan legislation – the Retire through Ownership Act – may help to clear the air. This new legislation (currently awaiting the President’s signature), amends the definition of “adequate consideration” under ERISA 3(18), a provision that anchors how ESOPs value closely held employer stock. Under the new law, ESOP fiduciaries may rely in good faith on a valuation from an independent valuation expert or business appraiser, as long as the expert/appraiser applies the principles and methodologies of IRS Revenue Ruling 59-60 (as modified). This would provide a clear safe harbor to give fiduciaries better footing when determining fair market value of non-publicly traded stock. Importantly, the Act does not expand the DOL’s regulatory authority over what constitutes “adequate consideration” and also preserves fiduciaries’ existing duties under ERISA 404.
KMK Comment: This legislation is poised to provide plan fiduciaries with much-needed direction when determining ESOP stock valuation and may also serve as a strong foundation for defending stock valuations. Plan fiduciaries should review the new legislation with plan counsel and assess whether changes to stock valuation processes should be considered.
DOL Sharpens Mental Health Parity Focus
In the recent Field Assistance Bulletin 2026-03, the DOL announced a streamlined approach to enforcing the nonquantitative treatment limitation (NQTL) requirements under the Mental Health Parity and Addiction Equity Act (MHPAEA). Following the May 2025 nonenforcement policy which paused enforcement of the 2024 Final Rule's new provisions, the DOL has now identified three priority enforcement areas:
- separate limitations, including exclusions, of treatments for covered mental health/substance use disorder (MH/SUD) conditions;
- medical necessity standards and utilization review processes, including prior authorization, concurrent and retrospective review; and
- network adequacy standards, particularly provider reimbursement and network admission practices.
The DOL also released a companion enforcement guidance tool alongside the FAB identifying specific compliance "red flags." Examples include blanket exclusions of services like applied behavioral analysis (ABA) therapy for autism or medications for addiction treatment where similar services are covered for (medical/surgical) M/S conditions; imposing prior authorization on all or most MH/SUD benefits but few M/S benefits; and applying more burdensome credentialing or reimbursement processes to MH/SUD providers than to M/S counterparts. Interestingly, the guidance also emphasizes that plan fiduciaries should proactively question their third-party administrators and service providers about mental health parity compliance practices and request plan-specific comparative analyses.
KMK Comment: Despite the seemingly limited focus, the DOL has reserved authority to investigate other NQTL issues as they arise, particularly in response to participant complaints. Also, although enforcement of certain 2024 Final Rule provisions is on hold, the statutory obligations under the MHPAEA and the CAA of 2021 remain intact. Plan sponsors should work with service providers and legal counsel to use the DOL's enforcement guidance tool as a device to self-audit— reviewing both plan documents and day-to-day operations for MH/SUD and M/S disparities. Proactive compliance efforts now, and documenting these efforts, will put plans in a better position to respond to regulatory and participant inquiries.
Michigan Court Hands Employer a Win in Tobacco Surcharge Case
In Trout v. Meijer, Inc., a Michigan federal court granted employer's motion to dismiss all claims challenging the design and use of a tobacco surcharge program. Under Meijer's wellness program, employees pay an additional $20 in premiums unless they certify as tobacco-free; tobacco users must complete a cessation program to avoid the surcharge. The plaintiff alleged that Meijer failed to satisfy the regulatory notice requirements that apply to health contingent wellness programs, and further that Meijer breached its ERISA fiduciary duties by using surcharge collections to offset its own plan contributions.
Notably, the court found that the DOL regulation requiring disclosure that a personal physician's recommendation would be accommodated was unreasonable as applied to Meijer's plan, because a tobacco cessation program is essentially a form of counseling — not a medical treatment — and the regulations themselves recognize cessation programs as programs that do not implicate health-status-based standards. On the fiduciary duty claims, the court reaffirmed that ERISA requires fiduciaries to deliver the specific benefits promised in plan documents — not to maximize plan assets at every opportunity.
KMK Comment: While this decision is certainly a favorable development for employers’ tobacco surcharge programs, the court's reasoning was closely tied to the specific design of Meijer's plan. Employers should carefully review their own plan documents, wellness program notices, and surcharge practices, and should continue to monitor similar litigation, as tobacco surcharge challenges remain an active area of ERISA class action filings.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
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.
