Canada Releases Final State of PFAS Report and Proposed Risk Management Approach
On March 5, 2025, Environment and Climate Change Canada (ECCC) announced the availability of its final State of Per- and Polyfluoroalkyl Substances (PFAS) Report (State of PFAS Report) and proposed risk management approach for PFAS, excluding fluoropolymers. The State of PFAS Report concludes that the class of PFAS, excluding fluoropolymers, is harmful to human health and the environment. To address these risks, on March 8, 2025, Canada published a proposed order that would add the class of PFAS, excluding fluoropolymers, to Part 2 of Schedule 1 to the Canadian Environmental Protection Act, 1999 (CEPA). ECCC states in its March 5, 2025, press release that it will prioritize the protection of health and the environment while considering factors such as the availability of alternatives. Phase 1, starting in 2025, will address PFAS in firefighting foams to protect better firefighters and the environment. Phase 2 will focus on limiting exposure to PFAS in products that are not needed for the protection of human health, safety, or the environment. ECCC notes that this will include products like cosmetics, food packaging materials, and textiles. ECCC states that it will publish a final decision on the proposed addition of 131 individual PFAS to the National Pollutant Release Inventory (NPRI) with reporting to take place by June 2026 for PFAS releases that occurred during the 2025 calendar year. ECCC states that these data will improve its understanding of how PFAS are used in Canada, help it evaluate possible industrial PFAS contamination, and support efforts to reduce environmental and human exposure to harmful substances. Comments on the proposed risk management approach and the proposed order to add the class of PFAS, excluding fluoropolymers, to CEPA Schedule 1 Part 2 are due May 7, 2025.
State of PFAS Report
The State of PFAS Report provides a qualitative assessment of the fate, sources, occurrence, and potential impacts of PFAS on the environment and human health to inform decision-making on PFAS in Canada. The term PFAS refers to the Organisation for Economic Co-operation and Development’s definition, which is: “fluorinated substances that contain at least one fully fluorinated methyl or methylene carbon atom (without any H/Cl/Br/I atom attached to it), that is, with a few noted exceptions, any chemical with at least a perfluorinated methyl group (–CF3) or a perfluorinated methylene group (–CF2–) is a PFAS.” The class of PFAS is comprised of substances meeting this definition. ECCC states that the definition captures substances with a wide range of structures and properties, from discrete chemicals, such as perfluorocarboxylic acids, perfluorosulfonic acids, and fluorotelomer alcohols, to side-chain fluorinated polymers, perfluoropolyethers, and fluoropolymers. According to ECCC, some PFAS on the market also possess structural attributes other than perfluoroalkyl chains (for example, inclusion of ether linkages or chlorine atoms in the fluorinated hydrocarbon chains).
The State of PFAS Report notes that there is evidence to suggest that fluoropolymers may have significantly different exposure and hazard profiles when compared with other PFAS in the class. ECCC defines fluoropolymers as “polymers made by polymerization or copolymerization of olefinic monomers (at least 1 of which contains fluorine bonded to 1 or both of the olefinic carbon atoms) to form a carbon-only polymer backbone with fluorine atoms directly bonded to it.” According to ECCC, given information suggesting their differences from the other PFAS in the class, additional work on fluoropolymers is warranted. ECCC does not address PFAS meeting the definition of fluoropolymers within the State of PFAS Report. ECCC plans to consider them in a separate assessment.
According to the State of PFAS Report, the following is known on the basis of current information:
The broad use of PFAS, their transport in the environment, and their ubiquitous presence have resulted in continuous environmental and human exposure to multiple PFAS, a finding that is supported by both environmental monitoring and human biomonitoring studies, including higher exposures in certain human subpopulations;
Given that PFAS are extremely persistent and have a broad range of uses leading to continued releases to the environment, the amount of PFAS in the environment is expected to increase;
Exposure to well-studied PFAS can affect multiple systems and organs in both humans and wildlife. Recent information demonstrates that effects on human health occur at lower levels than indicated by previous studies;
Some well-studied PFAS have demonstrated the potential to bioaccumulate and biomagnify in food webs to an extent that can cause adverse effects in biota, even at low environmental concentrations; and
Potential for cumulative exposure and effects are important considerations as most humans and wildlife exposures occur to unknown mixtures of PFAS.
On the basis of what is known about well-studied PFAS and the potential for other PFAS to behave similarly, and on the expectation that combined exposures to multiple PFAS increase the likelihood of detrimental impacts, ECCC states that it concludes that the class of PFAS, excluding fluoropolymers, meets the criteria under CEPA Section 64(a) as these substances are entering or may enter the environment in a quantity or concentration or under conditions that have or may have immediate or long-term harmful effects on the environment or its biological diversity. ECCC concludes that the class of PFAS, excluding fluoropolymers, does not meet the criteria under CEPA Section 64(b), however, as these substances are not entering the environment in a quantity or concentration or under conditions that constitute or may constitute a danger to the environment on which life depends.
According to the State of PFAS Report, on the basis of what is known about well-studied PFAS and the potential for other PFAS to behave similarly, and on the expectation that combined exposures to multiple PFAS increase the likelihood of detrimental impacts, ECCC concludes that the class of PFAS, excluding fluoropolymers, meets the criteria under CEPA Section 64(c) as these substances are entering or may enter the environment in a quantity or concentration or under conditions that constitute or may constitute a danger in Canada to human life or health.
ECCC therefore concludes that the class of PFAS, excluding fluoropolymers, meets one or more of the criteria set out in CEPA Section 64.
According to the State of PFAS Report, well-studied PFAS meet the persistence criteria set out in the Persistence and Bioaccumulation Regulations of CEPA. Based on available information and structural similarities, ECCC expects that other substances within the class of PFAS are also highly persistent or transform to persistent PFAS. ECCC states that it therefore determines that the class of PFAS meets the persistence criteria as set out in the Persistence and Bioaccumulation Regulations of CEPA. ECCC notes that given that fluoropolymers have been excluded from this assessment, they are also excluded from this determination with regard to the Persistence and Bioaccumulation Regulations of CEPA.
ECCC states that there is a high concern identified for the biomagnification (BMF) and trophic magnification (TMF) potential of well-studied PFAS in air-breathing organisms; the numeric criteria for bioaccumulation, outlined in the Persistence and Bioaccumulation Regulations, however, are based on bioaccumulation data for freshwater aquatic species that do not account for biomagnification potential. Therefore, application of the criteria would not reflect the concern for dietary-based biomagnification, the primary route of food web exposure identified for well-studied PFAS. As a result, according to ECCC, the bioaccumulation potential of PFAS cannot reasonably be determined according to the regulatory criteria set out in the Persistence and Bioaccumulation Regulations of CEPA.
Proposed Risk Management Approach
ECCC concludes that the class of PFAS, excluding fluoropolymers, meet the criteria under CEPA Sections 64(a) and (c), as these substances are entering or may enter the environment in a quantity or concentration or under conditions that have or may have immediate or long-term harmful effects on the environment or its biological diversity, and that constitute or may constitute a danger in Canada to human life or health.
For the purpose of CEPA Section 77(6)(c)(i), ECCC proposes the following new risk management actions through a phased prohibition under CEPA:
Phase 1: Prohibition of the use of PFAS, excluding fluoropolymers, not currently regulated in firefighting foams, due to high potential for environmental and human exposure.
Phase 2: Prohibition of the uses of PFAS, excluding fluoropolymers, not needed for the protection of health, safety, or the environment, which includes consumer applications. ECCC states that prioritization of uses for prohibition is based on, and will take into account, costs and benefits, availability of suitable alternatives, and other socio-economic considerations. Proposed uses to be regulated in Phase 2 include:
Cosmetics;
Natural health products and non-prescription drugs;
Food packaging materials, food additives, and non-industrial food contact products such as paper plates, bowls, and cups;
Paint and coating, adhesive and sealant, and other building materials available to consumers;
Consumer mixtures such as cleaning products, waxes, and polishes;
Textile uses (including in personal protective equipment (PPE) such as firefighting turnout gear); and
Ski waxes.
Phase 3: Prohibition of the uses of PFAS, excluding fluoropolymers, requiring further evaluation of the role of PFAS for which currently there may not be feasible alternatives and taking into consideration socio-economic factors, including:
Fluorinated gas applications;
Prescription drugs (human and veterinary);
Medical devices;
Industrial food contact materials;
Industrial sectors such as mining and petroleum; and
Transport and military applications.
ECCC states that at each phase of risk management it will consider exemptions, when necessary, with attention to feasible alternatives and socio-economic factors. To inform ECCC’s risk management decision-making, information on the following topics should be provided by May 7, 2025):
Availability of alternatives to PFAS, or lack thereof, in products and applications in which they are currently used;
Estimated timeframe to transition to alternatives to PFAS, including any challenges;
Socio-economic impacts of replacing PFAS, including costs and feasibility of elimination or replacement; and
Quantities and concentrations of PFAS (including Chemical Abstracts Service Registry Number® (CAS RN®), units of measurement, and applications) in products manufactured in, imported into, and sold in Canada (if not already provided through the July 27, 2024, Section 71 notice).
Commentary
Canada’s release of the State of PFAS Report, proposed risk management approach, and proposed order to add PFAS, excluding fluoropolymers, to Part 2 of CEPA Schedule 1 follows soon after the January 29, 2025, deadline for mandatory reporting for 312 PFAS. In its July 27, 2024, Canada Gazette notice, Canada stated that it required information for the purpose of assessing whether the 312 PFAS listed in the notice “are toxic or are capable of becoming toxic, or for the purpose of assessing whether to control, or the manner in which to control the listed substances.” The March 8, 2025, proposed order acknowledges that “[t]he annual quantity of PFAS used in Canada is unknown, as the information required to estimate this parameter (for example type and concentrations of PFAS in products available to consumers and in commercial and industrial applications) was not identified at the time of this analysis.” Canada states that it anticipates that the mandatory survey will “provide insight on annual quantities of PFAS used in Canada,” but it may be more likely that the survey will highlight the complexity of the supply chain and the difficulty in obtaining information from suppliers.
Stakeholders should carefully review the proposed risk management approach. Canada requests information on the availability of PFAS alternatives, the estimated timeframe to transition to alternatives, the costs and feasibility of elimination or replacement, and the quantities and concentrations of PFAS in products manufactured in, imported into, and sold in Canada (if not already reported through the mandatory survey). It is unlikely many entities will volunteer such specific information on PFAS in their products and companies that were not subject to the mandatory survey may not know. Yet without evidence on the critical use of PFAS in products and the lack of alternatives, Canada may begin prohibiting uses.
Most agree that ultimately the proposal will succeed, and PFAS will be deemed CEPA toxic and listed on Part 2 of CEPA Schedule 1. Given the PFAS risk evaluations of many other authoritative bodies, it is more likely than not that ECCC’s scientific determination is defensible. That the proposal seeks to exempt fluoropolymers is noteworthy, however, and stakeholders may wish to support the exemption.
EPA Provides Update on Status of TSCA Risk Management Rule for TCE
On March 24, 2025, the U.S. Environmental Protection Agency (EPA) provided an update on the effective date of the Toxic Substances Control Act (TSCA) final risk management rule for trichloroethylene (TCE). As reported in our January 13, 2025, memorandum, on December 17, 2024, EPA issued a final rule prohibiting all uses of TCE, most of which would be prohibited within one year, including TCE manufacture and processing for most commercial and all consumer products. As reported in our January 30, 2025, blog item, EPA delayed the January 16, 2025, effective date to March 21, 2025. EPA notes in its March 24, 2025, announcement that it received multiple petitions for review of the final rule. On January 13, 2025, the Fifth Circuit Court of Appeals granted a motion to stay temporarily the rule’s effective date. The petitions were then consolidated by the Judicial Panel for Multidistrict Litigation and transferred to the Third Circuit Court of Appeals. The Third Circuit issued a January 16, 2025, order leaving the temporary stay of the effective date in place pending briefing on whether the temporary stay of the effective date should remain in effect. EPA notes that because of the court decisions, the TCE rule never went into effect and is therefore also covered by the terms of President Trump’s “Regulatory Freeze Pending Review” memorandum. EPA states that it expects to publish soon a Federal Register notice further postponing the effective date of all the requirements associated with TSCA Section 6(g) exemptions in the final TCE rule for 90 days until June 20, 2025, pending judicial review.
Additionally, EPA asked the court for more time to determine next steps and to extend the deadline to respond to the stay for another 60 days. EPA awaits the court’s response and will provide more information as it becomes available.
The Year Ahead 2025: California PAGA Amendments + Other Legislative Highlights
The Golden State had lost some of its luster among California employers due to its Private Attorneys General Act (PAGA), with some calling it “one of the least just and fair laws that employers are dealing with today in California.” Yet two recent PAGA amendments may help restore the state’s business shine in 2025 and beyond.
Takeaways
PAGA amendments have some positive aspects for employers.
2025 will hopefully bring more clarity on how the trial courts will handle the revisions to PAGA.
California employers should review policies, be aware of requirements for posting if undertaking a voluntary audit and be cautious with mandatory meetings given recent legislative changes.
PAGA Amendments
Senate Bill 92
Effective immediately except for certain cure provisions that took effect 11.01.24.
Applies to civil actions filed on or after 06.19.24.
Expands the right to cure Labor Code violations for businesses with fewer than one hundred employees and offers businesses with more than one hundred employees the ability to seek an early resolution of Labor Code claims pending in court.
Assembly Bill 2288
Effective immediately.
Applies to civil actions brought on or after 06.19.24.
Focuses on revisions to penalties, including penalty caps for good faith compliance; reduced penalties for wage statement violations, derivative violations, cured violations and isolated violations; relief for employers with weekly pay periods; limited aggravated penalties; increased employee share of penalties; and injunctive relief.
Revised Definition of “Aggrieved Employee”
Plaintiffs must have personally suffered each of the violations and suffered the violations during the period prescribed by the statute of limitations.
The revised definition provides exceptions for individuals represented by a nonprofit legal aid organization that has acted as PAGA counsel for at least five years prior to 01.01.25.
PAGA in Practice
Trial court judges are still figuring out how new amendments work.
The results have varied.
Plaintiff’s bar not slowing down: 3,827 PAGA notices filed after the amendments took effect.
Other California Legislative Highlights
AB 2499
Amends the provisions for time off related to jury duty, court appearances and victim-related activities.
SB 399
Enacts the California Worker Freedom from Employer Intimidation Act to curtail employers’ ability to require employees to attend employer-sponsored meetings that convey the employer’s opinions on religious or political matters.
SB 1137
Clarifies that the California Fair Employment and Housing Act, Unruh Civil Rights Act and the provisions of the Education Code prohibit discrimination not just on the basis of individual protected traits, but also on the basis of the intersectionality of two or more protected traits.
AB 3234
Requires employers to make certain disclosures if they voluntarily audit their operations for the involvement of child labor.
Healthcare Preview for the Week of: March 24, 2025 [PODCAST]
Congress Returns for Three Weeks
Lawmakers are back in Washington, DC, after a week-long recess. Both chambers will be in town for three weeks before a two-week Easter recess in mid-April. With the government funded through the end of this fiscal year, focus will be on advancing reconciliation and confirming Trump appointees.
The bulk of work this week will happen behind the scenes. House Speaker Mike Johnson (R-LA) and Senate Majority Leader John Thune (R-SD) will meet on Tuesday to discuss aligning their budget resolutions. The House and Senate each passed differing resolutions earlier this year, and now they must pass a unified budget resolution through both chambers of Congress in order to move the reconciliation process forward. The House version included an extension of Trump-era tax cuts and a minimum of $1.5 trillion in spending cuts, including at least $880 billion from House Energy and Commerce Committee jurisdiction. Given the committee’s jurisdiction, many of those savings would come from Medicaid. The Senate’s “skinny” budget resolution focused on energy and immigration policy, with the goal of completing an additional reconciliation package later this year that would include tax cut extensions. Republicans aim to pass their aligned budget resolution before the Easter recess, in order to complete reconciliation as expeditiously as possible.
The Congressional Budget Office is also expected to release its debt limit prediction this week, which will include the “X date” when the United States is predicted to reach the debt limit. That date is expected to fall as early as this summer, and it will influence reconciliation. The House budget resolution included raising the debt limit, but if the reconciliation timeline slips, lawmakers may have to address the debt limit through separate legislation, which would likely need bipartisan support to pass.
The Senate Finance Committee is scheduled to vote Tuesday on the nomination of Mehmet Oz, MD, to serve as administrator of the Centers for Medicare & Medicaid Services (CMS). He is expected to advance out of committee. He will join other healthcare nominees – including Martin Makary, MD, nominated for US Food and Drug Administration commissioner, and Jay Bhattacharya, MD, PhD, nominated for director of the National Institutes of Health – who await full Senate confirmation. Their floor votes could happen as early as next week and are likely to be advanced before the Easter recess.
Today’s Podcast
In this week’s Healthcare Preview, Debbie Curtis and Rodney Whitlock join Maddie News to discuss what’s brewing on Capitol Hill, including budget reconciliation, the debt limit, and pending agency leadership nominations.
CMS’s ACA Marketplace Integrity and Affordability Proposed Rule – What it may mean for Health Plans
Earlier this month, the Centers for Medicare & Medicaid Services (CMS) released its 2025 Marketplace Integrity and Affordability Proposed Rule (Proposed Rule), proposing a number of enrollment and eligibility policies impacting both Federal and State Exchanges. While CMS frames these policies as necessary to combat fraud and abuse, the impact will be a reduction in enrollment in the ACA Marketplace – with the Proposed Rule estimating that between 750,000 and 2 million fewer individuals enroll in health insurance plans on the Exchanges in 2026.
The effective date of most of these provisions also coincides with the expiration of the enhanced premium subsidies, which the Biden administration extended through December 31, 2025 through the Inflation Reduction Act (IRA). These enhanced subsidiaries increased the amount of financial assistance individuals received and expanded eligibility for assistance. On December 5, 2024, the Congressional Budget Office wrote a letter to Congress indicating that the failure to extend these subsidies would result in 2.2 million individuals losing coverage in 2026 and an increase in premiums by 4.3%.
This article outlines the major provisions of the Proposed Rule, followed by a discussion of their potential impact on plans participating in the ACA Marketplace.
Key Provisions of the Proposed Rule
Income Verification Policies. In its Proposed Rule, CMS proposes several changes to the income verification process for applicants to apply through the Exchanges. Although CMS stated that these policies are necessary to combat fraud, CMS provided limited examples and evidence of fraud. Such policies include:
Removing the exception allowing Exchanges to rely on an applicant’s self-attestation of projected income, if the Internal Revenue Service (IRS) does not have tax return data to verify household income and family size. Exchanges would need to verify individuals’ enrollment, requiring enrollees to provide additional documentation.
Requiring additional income verification in instances where an applicant’s self-reported projected household income is between 100% and 400% of the Federal poverty level (FPL) but federal tax or other data shows that an applicant’s prior year’s income was below 100%. Individuals would have to prove that their income for the upcoming year is between 100% to 400% of the FPL or be unable to enroll in a plan on an Exchange. This change intends to attempt to identify individuals who may “overinflate” their income to be eligible for coverage. Currently, no income verification is required if the applicant projects a higher income than in their tax return.
Eliminating an automatic 60-day extension (in addition to the general 90-day deadline) when documentation is needed to verify household income in instances of income inconsistency.
Allowing Insurers to Deny Coverage for Past Due Premiums. CMS proposes to repeal a provision which currently prohibits insurers from requiring enrollees to pay past-due premium amounts in order to receive coverage under a new insurance policy or contract term. CMS consequently proposes, subject to state law, to allow insurers to add an enrollee’s past-due premium amount to the initial premium amount the enrollee must pay to effectuate coverage under a new policy or contract term and allow insurers to deny coverage to individuals if the total of past-due premiums and the initial premium amount are not paid in full. The stated purpose of this policy is (i) to curtail individuals from taking advantage of guaranteed coverage and seeking coverage when they need health care services, and (ii) to strengthen the risk pool and lower gross premiums.
Revision of Premium Payment Thresholds. CMS proposes to remove flexibilities that currently allow insurers to implement a fixed dollar and/or gross percentage-based premium payment threshold. Under current rules, insurers may consider enrollees to have fully paid their premiums if (i) under the fixed-dollar premium payment threshold, the enrollee has paid a total premium amount such that the unpaid remainder is $10 or less (adjusted for inflation), or (ii) under the gross percentage-based premium payment threshold, the enrollee has paid a total premium amount sufficient to achieve 98% or greater of the total gross monthly premium of the policy before the application of the advance premium tax credit (APTC). Under the Proposed Rule, insurers would only be allowed to implement a net premium percentage-based payment method where enrollees can meet the threshold by paying a total premium amount sufficient to achieve 95% or greater of the total net monthly premium amount owed.
Ineligibility for APTCs after one Year of Failing to Reconcile. CMS proposes to revise the “failure to file and reconcile process” by reinstating a 2015 policy that requires Exchanges to determine whether an individual is ineligible for the APTC if he or she did not file a Federal income tax return and reconcile their APTC amount in any given year. Currently, individuals will be deemed ineligible for failure to file and reconcile for a two-year span.
Changes to Open and Special Enrollment Periods. Under the Proposed Rule, CMS also seeks to shorten the Open Enrollment Period (OEP) and make several changes to Special Enrollment Periods (SEPs), including:
Shortening the OEP for all individual market Exchanges and off-Exchange individual health insurance (that are non-grandfathered) from November 1st to January 15th to November 1st to December 15th.
Removing the “low-income SEP” from both the Federal and State Exchanges. Currently, individuals whose projected household income is at or below 150% of the FPL have a SEP under the Federal and most State-based Exchanges whereby they can enroll or change plans on a monthly basis. CMS is proposing to remove this SEP. The stated purpose of this action is to reduce adverse selection (i.e., reduce the number of enrollees who sign up for health insurance only when they need coverage).
Requiring pre-enrollment verifications for applicants seeking coverage through a SEP. Currently, the Exchanges allow applicants to self-attest that, due to a change of circumstance, they qualify for a SEP (e.g., loss of employer coverage, marriage). The Proposed Rule would change the ability to self-attest and require applicants to submit documentation to the Exchanges.
Requiring Active Re-Enrollment. CMS also seeks to eliminate automatic re-enrollment for fully subsidized enrollees by proposing to require that enrollees whose premium payment amount would be $0 after application of the APTC, would be required to pay a $5 monthly premium until they update their Exchange application with an eligibility redetermination confirming their eligibility for the APTC.
Repeal of Bronze to Silver Plan Cross-Walking. CMS proposes to repeal regulations that currently allow Exchanges to move enrollees eligible for cost sharing reduction, which covers the cost of out-of-pocket healthcare costs and deductibles, from a bronze Qualified Health Plan (QHP) to a silver QHP for an upcoming plan year if a silver QHP is available (i) in the same product, (ii) with the same provider network, and (iii) with a lower or equivalent net premium post APTC-application.
Ineligibility of DACA Recipients. CMS proposes to remove Deferred Action for Childhood Arrivals (DACA) recipients from the definition of “lawfully present,” which in effect renders DACA recipients ineligible for enrollment in a QHP through the Exchange.
Prohibition of Coverage of Gender Affirming Care. CMS proposes to prohibit health insurance plans subject to the ACA’s essential health benefits (EHBs) from providing sex-trait modification, also commonly known as gender-affirming care, beginning Plan Year 2026. EHBs are ACA required minimum coverage categories that plans subject to the ACA must cover; EHBs are state or region specific and are determined based upon comparison to an EHB-benchmark plan that all other plans must mirror. This prohibition would in effect restrict all non-grandfathered insurance plans in the individual and small group markets, on- and off- Exchange, from covering sex-trait modification services.
Updates to the Premium Adjustment Methodology. CMS further seeks to update the premium adjustment methodology, which is used to set several different coverage parameters, including maximum out-of-pocket cost-sharing (MOOP), premiums, and tax credits. By way of background, the current premium adjustment methodology took a more stable approach given the uncertainty of premiums during the end of the COVID-19 Public Health Emergency. Under the Proposed Rule, beginning in 2026, CMS is proposing using an adjusted private individual and group market health insurance premium measure. Such a change will likely cause an increase of MOOP and an increase in premiums.
Updating De Minimis Thresholds. Plans on the Exchange are considered bronze, silver, gold, and platinum based on their actuarial value – whereby bronze plans must cover 60% of an average enrollee’s costs, silver plans cover 70%, gold plans cover 80%, and platinum plans cover 90%. Insurers may offer a specific plan if it is within a “de minis range” of this target value – for example, insurers may offer bronze plans so long as the actuarial value is within +5% and -2% of 60%. Similarly, insurers can offer a silver, gold, and platinum plan, if its value is within +2/-2 percentage points. CMS proposes to change the de minimis ranges to +2/-4 percentage points for all individual and small group market plans subject to the actuarial value, except expanded bronze plans. Further, CMS seeks to include a de minims range of +1/-1 percentage points for income-based silver cost-share reduction plan variations (which was previously −0/+1 percentage points). In the Proposed Rule, CMS estimates that this proposal would decrease premiums by one percent; however, it is likely to reduce the APTCs available.
Evidentiary Standard for Terminating Agents and Brokers. The Proposed Rule seeks to revise the standard for the Department of Health and Human Services (HHS) to terminate for-cause agents, brokers, and web-brokers from the Federally-facilitated Exchange by adding a “preponderance of the evidence” standard of proof regarding issues of fact. HHS may terminate its agreements with agents, brokers, and web-brokers for-cause for instances of non-compliance, fraud, and abusive conduct. Currently, regulations do not indicate an evidentiary standard HHS must apply; instead, the regulation states that HHS may terminate “in HHS’s determination.” CMS states that this change would “improve transparency in the process of holding agents, brokers, and web-brokers accountable for compliance.”
Potential Impacts to Plans
This Proposed Rule will have a direct impact on enrollment in the Exchanges. By adding measures that will increase premiums, reduce APTCs, and increase the administrative burden of applying and verifying enrollment, CMS will in effect discourage enrollment and decrease the number of individuals eligible for enrollment. Further, the changing rules may specifically discourage younger and/or healthier individuals from enrolling. This decrease in enrollment, coupled with the expected decrease in enrollment due to the expiration of the enhanced subsidies, could threaten the stability of the ACA Marketplace in the long run.
The Headless PAGA Saga Continues
On February 26, 2025, in Parra Rodriguez v. Packers Sanitation, Inc., the California Court of Appeal (Fourth Appellate District) issued the latest published decision addressing the practice of filing so-called “headless” Private Attorneys General Act (PAGA) claims. In such cases, the plaintiff seeks civil penalties for all allegedly aggrieved employees except themself. In the wake of Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022), this tactic has become increasingly common among plaintiffs seeking to circumvent contractual obligations to submit “individual” PAGA claims to arbitration.
The Parra Rodriguez decision added some fuel to the headless PAGA debate by upholding a Superior Court order denying a motion to compel a headless PAGA claim to arbitration, concluding that because only an individual PAGA claim can be compelled to arbitration, there is nothing to arbitrate when no individual PAGA claim is pled.
In doing so, Parra Rodriguez created a split of authority with Leeper v. Shipt, Inc., decided December 30, 2024, by the Second Appellate District. In Leeper, the court held that a PAGA claim cannot be headless, because “the unambiguous language in section 2699, subdivision (a), [states that] any PAGA action necessarily includes both an individual PAGA claim and a representative PAGA claim” (emphasis added). Under the reasoning of Leeper, where a defendant moves to compel arbitration of a headless PAGA claim, the individual PAGA claim is implicitly pled, and may be compelled to arbitration.
While a split unquestionably exists between Parra Rodriguez and Leeper regarding what courts should do when a defendant moves to compel arbitration of a headless PAGA claim, practitioners and courts should not overread these decisions as differing on whether it is procedurally proper to plead a headless PAGA claim in the first place. By concluding that a PAGA claim necessarily includes an individual component, Leeper clearly answers this question in the negative. By contrast, Parra Rodriguez expressly avoided that question, leaving open the possibility that a complaint pleading a headless PAGA claim “fails to comply” with PAGA’s pleading requirements, exposing it to “an appropriate pleading challenge.”
Nor does Balderas v. Fresh Start Harvesting, Inc., 101 Cal. App. 5th 533 (2024) contradict Leeper. In Balderas, the Second Appellate District held that a plaintiff had standing to pursue a representative PAGA action on behalf of other employees despite not filing an individual action seeking PAGA relief for herself. But the issue of standing merely concerns who may pursue a claim, not whether the statute permits a claim to be pled in headless fashion.
Parra Rodriguez may very well incentivize plaintiffs to continue the practice of pleading headless PAGA claims. Its disagreement with Leeper on how to handle motions to compel arbitration in this context injects new uncertainty into this issue and increases the likelihood that the California Supreme Court will take up the issue. But for the moment, the only published appellate authority coming to a holding regarding whether a plaintiff may properly plead a headless PAGA claim is Leeper, which holds that a plaintiff may not.
We will continue to monitor developments in this space and provide updates.
Regulations on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China – Foreign-Owned Intellectual Property Can Be Seized

On March 23, 2025, the State Council of the People’s Republic of China promulgated the Regulations on the Implementation of the Anti-Foreign Sanctions Law of the People’s Republic of China (实施〈中华人民共和国反外国制裁法〉的规定). Article 7 of the Regulations specifically allows for the seizure of intellectual property of those that “directly or indirectly participate in the drafting, decision-making, or implementation of the discriminatory restrictive measures in Article 3 of Anti-Foreign Sanctions Law.” Paragraph 2, Article 3 of the Law reads, “Where foreign nations violate international law and basic norms of international relations to contain or suppress our nation under any kind of pretext or based on the laws of those nations to employ discriminatory restrictive measures against our nation’s citizens or interfere with our nation’s internal affairs, our nation has the right to employ corresponding countermeasures.”
Article 7 of the Regulations reads:
The seizure, detention, and freezing referred to in Paragraph 2 of Article 6 of the Anti-Foreign Sanctions Law shall be implemented by the public security, finance, natural resources, transportation, customs, market supervision, financial management, intellectual property and other relevant departments of the State Council in accordance with their duties and powers.
Other types of property in Article 6, Paragraph 2 of the Anti-Foreign Sanctions Act include cash, bills, bank deposits, securities, fund shares, equity, intellectual property rights, accounts receivable and other property and property rights.
Relevant Articles of Law follow:
Article 3: The People’s Republic of China opposes hegemony and power politics and opposes any country’s interference in China’s internal affairs by any means and under any pretext.
Where foreign nations violate international law and basic norms of international relations to contain or suppress our nation under any kind of pretext or based on the laws of those nations to employ discriminatory restrictive measures against our nation’s citizens or interfere with our nation’s internal affairs, our nation has the right to employ corresponding countermeasures.
Article 4: The relevant departments of the State Council may decide to enter persons or organizations that directly or indirectly participate in the drafting, decision-making, or implementation of the discriminatory restrictive measures provided for in article 3 of this Law in a countermeasure list.
Article 5: In addition to the individuals and organizations listed on the countermeasure list in accordance with Article 4 of this Law, the relevant departments of the State Council may also decide to employ countermeasures against the following individuals and organizations:
(1) The spouses and immediate relatives of individuals listed on the countermeasure list;
(2) Senior managers or actual controllers of organizations included in the countermeasures list;
(3) Organizations in which individuals included in the countermeasure list serve as senior management;
(4) Organizations in which persons included in the countermeasure list are the actual controllers or participate in establishment and operations;
Article 6: In accordance with their respective duties and division of labor, the relevant departments of the State Council may decide to employ one or more of the following measures against the individuals and organizations provided for in Articles 4 and 5 of this Law, based on the actual situation:
(1) Not issuing visas, denying entry, canceling visas, or deportation;
(2) Sealing, seizing, or freezing movable property, real estate, and all other types of property within the [mainland] territory of our country;
(3) Prohibiting or restricting relevant transactions, cooperation, and other activities with organizations and individuals within the [mainland] territory of our country;
(4) Other necessary measures.
The full text of the Regulations is available here (Chinese only). A translation of the Anti-Foreign Sanctions Law is available from NPC Observer here.
FinCEN Issues Interim CTA Rule, U.S. Entities and Individuals Exempted From Reporting
Highlights
The Financial Crimes Enforcement Network (FinCEN) issued an interim final rule that changes requirements for reporting beneficial ownership information (BOI) under the Corporate Transparency Act
The rule narrows existing reporting requirements and requires only entities previously defined as “foreign reporting companies” to report BOI
FinCEN defines new exemptions from reporting for domestic entities and U.S. persons
The Financial Crimes Enforcement Network (FinCEN) recently issued a press release concerning the issuance of a new interim final rule that removes requirements for U.S. companies and persons to report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act (CTA).
Consistent with the U.S. Department of the Treasury’s March 2, 2025, announcement, FinCEN is adopting the interim final rule to narrow BOI reporting requirements under the CTA to apply only to entities previously defined as “foreign reporting companies.”
In the new interim final rule, FinCEN revises the definition of “reporting company” to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. state or tribal jurisdiction by filing a document with a secretary of state or similar office (such entities, previously defined as “foreign reporting companies”).
Additionally, FinCEN adds a new exemption available to entities formed in the U.S., previously defined as “domestic reporting companies.” Such entities are exempt from BOI reporting and do not have to report BOI to FinCEN, or update or correct BOI previously reported to FinCEN.
Thus, through the interim final rule, entities created in the United States – along with their beneficial owners – are exempted from requirements to report BOI to FinCEN.
Two Changes for Foreign Reporting Companies
With limited exceptions, the interim final rule does not change existing requirements for foreign reporting companies. However, the new interim rule does make two significant modifications to such requirements:
The interim rule extends the deadline to file initial BOI reports, and to update or correct previously filed BOI reports, to 30 calendar days from the date of its publication to give foreign reporting companies additional time to comply.
The interim final rule exempts foreign reporting companies from having to report the BOI of any U.S. persons who are beneficial owners of the foreign reporting company and exempts U.S. persons from having to provide such information to any foreign reporting company of which they are a beneficial owner.
Foreign entities that meet the new definition of a “reporting company” and do not qualify for an available exemption must report their BOI to FinCEN in compliance with these new deadlines.
Under the new interim rule, a reporting company is any entity that is:
a corporation, limited liability company, or other entity
formed under the law of a foreign country
registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of that state or Indian tribe
Reporting companies that registered to do business in the United States before the date of publication of the interim final rule must file BOI reports no later than 30 calendar days from the date of the new interim rule’s publication in the Federal Register. Reporting companies that register to do business in the United States on or after the date of publication of the interim final rule have 30 calendar days to file an initial BOI report after receiving notice their registration is effective.
FinCEN is accepting comments on this interim final rule until 60 days after it is published in the Federal Register and notes that it will assess the exemptions included in the subsequent final rule, as appropriate, in light of those comments. It intends to issue a final rule this year.
DEA Telemedicine Rules Further Delayed Until (Nearly) 2026
Those waiting anxiously for the rules expanding the prescribing of buprenorphine via telemedicine and the controlled substance prescribing for patients at the Department of Veterans Affairs to officially go into effect will now have to wait until New Year’s Eve—December 31, 2025.
Practitioners will, however, be allowed to continue prescribing via telemedicine without first having an in-person visit with the patient, owing to COVID-19 Telemedicine Flexibilities for Prescription of Controlled Medications, in effect through the same end-of-year date.
A seven-page document released by the Department of Justice’s Drug Enforcement Administration (DOJ, DEA) and Department of Health and Human Services (HHS)—scheduled to be published in the Federal Register on March 24—further delays the effective dates of the “Expansion of Buprenorphine Treatment via Telemedicine Encounter” Final Rule and the “Continuity of Care for Veterans Affairs Patients” Final Rule, both dated January 17, 2025 .
As we alerted you in February, these same two rules, collectively referred to as the “Buprenorphine and VA Telemedicine Prescribing Rules,” were originally scheduled to become final on February 18, 2025 but were delayed until March 21, 2025.
The first delay stemmed from the January 20, 2025, Presidential Memorandum titled “Regulatory Freeze Pending Review” (the “Freeze Memo”) that empowered federal departments and agencies to “consider postponing” the dates of rules published but not yet in effect.
After reviewing the 32 comments that the first delay generated, the DOJ now “wishes to further postpone the effective dates for the purpose of further reviewing any questions of fact, law, and policy that the rules may raise,” despite the fact that 13 of the 32 commenters wished to finalize the effective date of the two rules as soon as possible.
The Rules
The Buprenorphine and VA Telemedicine Prescribing Rules amended previous regulations to expand the circumstances under which:
practitioners registered by DEA are authorized to prescribe schedule III-V controlled substances approved by the FDA for treatment of opioid use disorder via a telemedicine encounter; and
VA practitioners acting within the scope of their VA employment are authorized to prescribe schedule II-IV controlled substances via telemedicine to a VA patient with whom they have not conducted an in-person medical evaluation, if another VA practitioner has, at any time, previously conducted an in-person medical evaluation of the VA patient, subject to conditions.
The EBG team continues to monitor any changes to the Buprenorphine and VA Telemedicine Prescribing Rules.
Additional Author: David Shillcutt
Benefits Basics – When an Employee Dies: A Resource Guide for HR & Benefits Professionals
As a member of your company’s human resources or employee benefits department, one of the most difficult calls you may receive is from a colleague or an employee’s family member notifying you of the death of an employee. This situation demands you to be at your best – you will be called upon to usher your company’s workforce through the loss of a colleague and to help your HR department and grieving family members navigate many benefits and compensation issues that must be dealt with related to the deceased employee. This guide provides a high-level reference resource, in a plan-by-plan format, on how to approach each type of compensation or benefit arrangement when an employee dies, and offers up some practical tips on employee benefits issues that may come up as you manage your company’s compensation and benefit administration for a deceased employee.
The information given in this guide is general in nature and is not intended to address every benefit or tax issue that may come up when dealing with the death of an employee or other nuances that may arise when considering the deceased employee (or their specific family and probate situation) or the specifics of your company’s benefit plans. In addition, any tax or other rules described in this guide are current as of the date of this guide, and do not infer that the rules described are the only rules (tax or otherwise) that may apply and are subject to change. As a result, we always recommend that you engage your in-house or external legal counsel or other tax or employee benefits advisors when working through compensation and benefits issues related to the death of an employee.
An Overview of Relevant Law
Before we dive into discussing issues for administering your company’s compensation and benefit plans, it is important to have a high-level understanding of the probate process because, as we explain below, what happens in probate can affect who is entitled to certain death benefits. In addition, it helps to understand how the Employee Retirement Income Security Act (ERISA), a federal law governing most retirement and welfare benefit plans, interacts with state laws when death benefits are involved.
Overview of Probate
“Probate”is the legal process through which a court appoints an executor (in some states, called a personal representative) to administer the deceased employee’s estate, and validates a will (if there is one) or decides who inherits the deceased’s estate if there is no will. If the deceased had a will, that document would normally name one or more individuals to serve as the executor of the estate. If the employee dies without a will, then state law provides a list of people who are eligible to fill the role.
A court will ultimately appoint one or more individuals to serve as executor for the deceased employee’s estate, by issuing “Letters of Administration”, “Domiciliary Letters” or simply “Letters”, which give the executor authority to act. (Other terms might also apply to the form of the document used for this appointment.)
However, there are two times when probate may not be needed to determine who has the right to a deceased employee’s outstanding compensation or benefits:
Beneficiary Designations. If the deceased employee has arranged for their assets to pass directly to one or more beneficiaries without going through the probate process, then these items are not counted as part of the probate estate. In the employee benefits context, this would occur when an employee has made beneficiary designations related to a benefit. Thus, if your company’s compensation or benefit plan has a beneficiary designation process that was utilized by the employee, then waiting for the probate process is generally not needed in order to distribute death benefits. This is why it’s important for employer compensation and benefit plans to permit (and encourage the use of) beneficiary designations—it helps employees (especially executives) in their estate planning process and may allow the employee’s accrued benefits to pass directly to their beneficiaries without the hassle and delay of probate.
Small Estate Affidavit. If the value of the deceased employee’s estate is below the dollar threshold set by state law, then the employee’s heirs may be able to use a “small estate affidavit.” This allows heirs to receive the employee’s assets without having to go through probate at all (or permits an expedited probate). In other words, if you receive a small estate affidavit, any payments owed to the deceased’s estate instead are paid directly to the heir(s) listed in the affidavit.
Interaction of ERISA and State Laws
ERISA Section 514(a) explicitly preempts state laws that “relate to” an employee benefit plan that is subject to ERISA, with limited exceptions for certain insurance, banking, and securities laws. Courts have interpreted this preemption language to mean that any state law that refers directly to an employee benefit plan, or that bears indirectly on an employee benefit plan, is not enforceable against an ERISA-governed employee benefit plan. For example, if an ERISA benefit plan says that a death benefit should be paid to a spouse, but state law says that the death benefit under a benefit plan should be paid to the estate, then the terms of the plan will control instead of the state law. The U.S. Supreme Court confirmed this approach in their 2001 opinion in Egelhoff v. Egelhoff (ERISA preempts a state law that revokes beneficiary designations upon divorce). Similarly, in their 2009 opinion in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, the U.S. Supreme Court held that a plan may rely solely on its plan documents to determine the proper beneficiary for a death benefit, and can ignore extraneous documents that contradict the terms of the plan (such as a divorce decree).
What does this mean for you when administering benefit plans?
Where an ERISA plan is involved, you need only look at the terms of the plan (including any beneficiary designations, if applicable under that plan) to determine who is owed payments or benefits following an employee’s death.
But, for non-ERISA plans, the result is less clear. In that case, you would have to look to relevant state law to determine the extent to which you can honor any beneficiary designation. For example, many states provide that upon divorce, any beneficiary designation naming the ex-spouse as the beneficiary is automatically void, unless the divorce decree provides otherwise. For ERISA plans, you ignore that rule because ERISA preempts that state law and would implement the most recent beneficiary designation. For non-ERISA plans, however, if the deceased employee had named his spouse as the beneficiary, and then they divorced, you should generally void that beneficiary designation if required under state law.
A QUICK NOTE ON ERISA VS. NON-ERISA PLANS
Determining whether a benefit plan is covered by ERISA can be complicated. While your company’s most common broad-based retirement and welfare benefit plans, such as 401(k) plans, pension plans, and medical, dental, vision or other welfare benefits, will most likely be governed by ERISA, there are many nuances in the rules that exempt certain benefit plans depending on how the plan is structured. This issue commonly comes up with certain disability or severance benefits or policies. Bonus programs, deferred compensation plans or other voluntary benefits or payroll practices are usually not subject to the ERISA preemption rules. However, due to the complexity of these rules, if you are unsure whether a benefit program is an ERISA or non-ERISA plan, consult with your benefit plan advisors when deciding whether to allow beneficiary designations.
Practical Steps to Take When an Employee Dies
Who You Should Involve
If you receive the initial call about an employee’s death from a family member, it’s imperative that you promptly contact the following individuals within your organization: the head of HR for the employee’s business unit (who should, in turn, contact the deceased’s manager and co-workers), the payroll department, the equity administration team (if any), the compensation team (if any), and all relevant members of the employee benefits team. You may also need to tell your financial or accounting department if the deceased employee has significant amounts of unvested compensation that will vest or need to be paid due to their death. Each individual will play an important part in the weeks (and sometime months or years) to come.
After you’ve surveyed the plans and arrangements in which the deceased participated, you should also contact the relevant plan vendors or third-party administrators, if there is one, who may need to take certain actions to account for the death of the participant.
While not a topic of this guide, work with your HR team (and the deceased’s family) to determine the appropriate format and contents of any messaging to your broader workforce, and possibly even customers or other suppliers, about the employee’s death.
NOTE ON COMMUNICATIONS ABOUT BENEFITS
When an employee dies, there are a significant number of people outside the company’s HR department who will need to be involved in communications related to the deceased’s compensation and benefits or who may inquire about benefits with the HR team, including the executor, family members and other potential beneficiaries. Therefore, remember to be mindful about who is actually entitled to receive communications or information about each type of benefit, depending on the terms of the plan, who is the designated beneficiary, or who is the person authorized to represent the deceased’s estate. And, ensure that you get any necessary documentation identifying who the company or the plan is authorized to speak with on a matter related to the deceased’s benefits before providing detailed benefit information. Consider designating a single point person on the company’s HR team to handle communications related to the deceased’s benefits to maintain consistency throughout the process.
The Information You Need
There are three documents you should get from the executor or deceased’s family or beneficiaries before taking any steps relating to compensation and benefits:
A copy of the death certificate. Not only will this prove the employee’s death, but will provide some important information, such as whether the employee was married, and will be required documentation for processing certain benefits.
Either a copy of the “Letters of Administration”, or simply “Letters”, which is issued by a probate court and names the executor(s) or a copy of a properly completed “small estate affidavit.” This document will let you know who you are authorized to deal with regarding any compensation or benefits for which there is no beneficiary designation on file.
A Form W-9 from the executor regarding the estate or from each heir listed in a small estate affidavit, as well as from any family member or beneficiary entitled to benefits or payments (as described below). The information on the Form W-9 will give your payroll department and your benefit plan administrators the information they need to make sure payments are properly reported to the IRS and state taxing authorities.
You will also need to figure out which benefit plans or programs the employee was enrolled in or otherwise had an accrued benefit under, and whether the employee had any individual agreements in effect with the company (such as equity awards, employment agreements, employee loans, etc.) and make sure you have copies of all of those documents and, if applicable, any beneficiary designations made by the employee. This information may come from internal HR records or from third-party benefit plan administrators or vendors. You also need to determine whether or not the plan in question is governed by ERISA, because as discussed above under “An Overview of Relevant Law”, and as explained below, for non-ERISA plans you may have to review state law to determine who is owed the payment or benefit.
Cash and Equity Arrangements
Overview
When an employee dies, you will need to consider the impact on a variety of compensation amounts or equity benefits. First, you should survey all of the cash and equity compensation that is or may be due with respect to the deceased. Almost certainly, a final paycheck will be due. Also consider:
Does the deceased have any outstanding paychecks that were issued, but not yet cashed as of the date of death?
Does the deceased have accrued vacation or other PTO that may need to be paid based on applicable state law and the company’s PTO policies?
Does the deceased have business expenses that were incurred or submitted to the company, but have not yet been reimbursed?
Does any annual or long-term cash bonus plan provide for a payout upon death, and if so, when? (Bonus plans sometimes will pay out automatically at target upon death, or may provide for payout to occur at the end of the performance period based on the level of achievement of actual performance, and either on a pro-rated basis or in full.)
Are there commissions payable?
Is there an employment agreement that provides for payments upon death?
Does the deceased have equity awards, such as stock options or restricted stock units?
Is there an amount held in an employee stock purchase plan account for the deceased that was waiting to be used to buy employer stock?
On the flip side, does the deceased owe any money to the company, such as under a personal loan? And if so, do the terms of the loan permit the company to offset the loan amount from other compensation?
Second, after identifying the agreements, policies and arrangements under which cash or equity compensation may be due, determine whether the agreement, policy or arrangement is subject to ERISA. If you are unsure, consult with your legal or other benefits advisors on this point.
If it is subject to ERISA, then follow the death benefit payment provisions of the plan, if any. Because ERISA preempts state law, you are permitted to pay according to the terms of the plan, including the beneficiary designation on file for a plan that permits beneficiary designations.
If it is not subject to ERISA, then you need to check whether the program permitted a beneficiary designation (and if so, is a beneficiary designation on file) or whether the terms of the program provided for a default beneficiary, such as a spouse. If so, you need to check relevant state laws to make sure the beneficiary designation or the default provision can be honored. As discussed under “Interaction of ERISA and State Laws”, above, some state laws may override the beneficiary designation or program terms and require you to make payment as required by law, and not as described in your documents.
If the program is silent about beneficiaries, then check whether the state in which the employee worked has a wage payment law that would dictate to whom the compensation items listed above should be paid. If there is no law on point, then the executor of the employee’s estate or the heirs listed in a small estate affidavit, whichever is applicable, are entitled to the payments or equity.
Manner of Payment and Taxation
Any compensation paid to the executor of an estate should be made payable to “[Name of Executor], Executor, Estate of [Name of Employee]” or simply to “Estate of [Name of Employee]” or a similar variation of this. Any compensation paid to the deceased’s heirs under a small estate affidavit should be divided among the named heirs and paid directly to each of them.
For wages paid to the estate, heirs, or beneficiaries during the year when the employee dies, you must withhold FICA (both Social Security and Medicare taxes) and FUTA (federal unemployment taxes) on the payment and report the amount only as wages on the deceased employee’s Form W-2, Box 3 (social security wages) and Box 5 (Medicare wages) issued for the year of death. The FICA and FUTA taxes withheld are reported in Boxes 4 and 6, respectively. But, you do not report the payments in box 1 of Form W-2, and you do not withhold regular federal income taxes. If you make the payments after the year of death, then those payments are not reported on a Form W-2, and you would withhold no taxes.
Whether the payment is made in the year of death or after, you also report the payments made to the estate, heirs, or beneficiaries on a Form 1099-MISC in box 3. In general, no federal income tax withholding is required, although backup withholding rules may apply to these payments if the recipient fails to provide you with the taxpayer ID number or Social Security number for processing payments.
You should always work closely with your payroll department and related tax teams to determine the appropriate tax withholding and reporting for any payments related to a deceased employee’s compensation or equity arrangements.
Special Issues for Equity Awards
Vesting and Transfer of Equity Awards. For all types of equity awards, you will need to determine what happens to unvested awards upon the employee’s death, e.g., is the award forfeited, does vesting accelerate, or does vesting continue after death? How to treat any equity awards after the employee’s death will either be discussed in the equity plan document or in the award agreement issued to the employee at the time of grant. Sometimes, an employment agreement might also describe what happens to equity awards upon death.
If the employee has outstanding stock options, you also need to determine the post-death exercise period for those options. Again, this information should be available in the equity plan document, individual award agreement or possibly in an employment agreement. Inform the deceased’s beneficiary, estate, or heirs, as applicable, of how long they have to exercise the award after the deceased’s death under the terms of the plan or the award agreement and provide them information on how to exercise such awards. In addition, notify the third party administer for your equity plan (if any), of the deceased’s death and specify any actions they need to take regarding such employee’s awards.
Tax Treatment of Equity Awards. Similar to other types of compensation as discussed above, there is no required income tax withholding for any equity award transactions that occur after the deceased’s death. Rather, any compensation income recognized for this transaction should be reported on a Form 1099-MISC issued to the employee’s beneficiary, estate, or heirs.
FICA and FUTA tax implications for equity awards upon an employee’s death are more complicated:
FICA and FUTA tax withholding applies (and should be reported on the employee’s final Form W-2) for any awards that were (1) vested before the deceased’s death (not awards that vest because of the deceased’s death), and (2) were exercised/settled before the end of the calendar year of the deceased’s death.
FICA and FUTA tax withholding does not apply, however, for (1) any awards (or any part of an award) for which vesting is accelerated upon the deceased’s death, no matter when exercised/settled, and (2) awards exercised or settled after the calendar year in which the deceased’s death occurs.
Employee Benefit Plans
Qualified Retirement Plans
401(k) and Other Types of Defined Contribution Retirement Plans. 401(k) plans are the most common employer-provided retirement benefit offered to employees. If an employee dies with an account balance in a 401(k) plan, the first issue is to determine if the deceased employee was vested in his plan benefit at the time of death, and if not, whether the plan provides for full vesting upon death while employed (which is almost always the case). Also check the plan terms to see if any employer contribution (matching, profit sharing, or other non-elective contribution) is due to the employee for the year of death. While some plans may require that an employee normally be employed on December 31 or have completed 1,000 hours of service during the year to receive an employer contribution, those requirements are often waived if the employee dies while employed. You will need to review the 401(k) plan document and the summary plan description to determine what rules should apply to the employee’s 401(k) plan account. You should always also work with the plan’s recordkeeper to review the deceased’s account information to determine that the proper vesting calculations are applied to the account.
If there is a vested account, and if the participant is married at the time of death, then the laws governing defined contribution retirement plans require that the participant’s spouse automatically be the beneficiary of the account, unless that spouse has waived his or her right to be the beneficiary. A spouse waives their right to be the beneficiary if the participant has properly completed a beneficiary designation form naming another person(s) as the beneficiary, the spouse has signed that form, and the spouse’s signature is witnessed by a notary public or plan representative. In such a case, the vested account belongs to the named beneficiary, not the spouse.
If the participant is unmarried and there is no beneficiary designation on file, then the plan’s terms will dictate who is treated as the beneficiary. Plans often list family members in a certain order, such as children, then parents, then brothers and sisters, and so on. Ultimately, a plan will almost always indicate that the last beneficiary, if there are no others, will be the employee’s estate.
Once you have determined who is the proper recipient of the plan account balance, notify the individual (or the executor, if it’s the estate) that they have the right to the benefit and give them a copy of the plan’s summary plan description, so they understand when and how they may apply for benefits to commence.
In general, 401(k) plans let a beneficiary keep the 401(k) account in the plan, roll the account over (including directly to avoid withholding) to another qualified employer plan or an individual retirement account (IRA), or receive a distribution as a lump sum. Some defined contribution plans also offer distributions as installment payments or an annuity. A spouse beneficiary has the same rollover options that the employee would have had – i.e., take a distribution or roll over the distribution to an IRA or an employer qualified plan in which the spouse participates. A non-spousal beneficiary can also elect a rollover, but only to an IRA. See below for a “Warning” about how payments made to an estate are not eligible for rollover.
Under Internal Revenue Code rules governing minimum required distributions, if the beneficiary does not begin to receive distributions over a period not to exceed their life expectancy by December 31 of the year after the participant’s death (or for a spouse beneficiary, by December 31 of the year in which the participant would have attained their minimum required distribution age), then the entire account generally must be paid to the beneficiary by December 31 of the year containing the 10th anniversary of the participant’s death. Different rules apply if there is no beneficiary, such as if the payment is owed to the estate; in that case, distribution must be completed within 5 calendar years after the year of the employee’s death. It is important to note that while a plan may not pay benefits later than these dates, the terms of the plan may require that the payments be made earlier, and there are other nuances under the minimum required distribution rules that may apply depending on the facts of the particular employee and beneficiary. You should check the terms of the plan and consult with your plan recordkeeper to determine when benefits must be paid to a beneficiary or to the employee’s estate.
Pension Plans. While pension plans are becoming less common as each year goes by, many employers still maintain them, even though the benefits under the plan have almost all been frozen at this point. The following discussion assumes that the employee has not commenced their pension benefit at the time of death; if they did, then whether any death benefit is payable depends on the form of payment selected by the employee at the time benefits commenced (e.g., a joint & survivor annuity, term certain annuity, etc.). Since most pension plans do not permit employees to begin their pension benefits while employed (in no small part because the law generally does not allow it), the rest of this section assumes that the employee had not started to receive their pension benefits at the time of death.
The first issue to consider is whether the deceased employee was vested in their plan benefit at the time of death, and if not, whether the plan provides for full vesting upon death. If the deceased has a vested benefit under the plan, then the law requires that the pension plan pay a death benefit to the participant’s spouse. This type of spousal death benefit is known as a “qualified preretirement survivor annuity” or “QPSA”. There are two circumstances when a QPSA may not be payable, even if the participant is married at the time of death: (i) often, a plan will require that the participant and spouse be married for the one-year period preceding death for the spouse to be entitled to the benefit, and (ii) although rare, a plan may have allowed the participant to waive the QPSA to avoid having a deduction applied to their benefit to “pay for” the QPSA protection. You will need to review the plan documents and coordinate with the plan’s recordkeeper to determine what result will apply in the circumstance and if a QPSA benefit is due to a spouse.
While in the typical pension plan situation, no death benefits are payable if the deceased is unmarried (or was not married for at least one year), that is not always the case. Some pension plans that describe their benefits as a hypothetical account balance or as a lump sum—such as cash balance or pension equity plans—may provide for the full lump sum benefit under the plan to be paid to the surviving spouse, to the beneficiary designated by the participant, or if none, then to the estate. If the participant named a beneficiary and was married at the time of death, then the beneficiary designation is void if the spouse had not consented to the beneficiary designation as mentioned under “401(k) and Other Types of Defined Contribution Plans”, above. If the beneficiary designation is void, then typically the spouse would have the right to any death benefit.
Payment to the spouse, beneficiary or estate will be made at the time, and in the form, described in the plan document. Once you have determined who is the proper recipient of the death benefit, notify the individual (or the executor, if it’s the estate) that they have the right to the benefit and give them a copy of the plan’s summary plan description, so they understand when and how they may apply for benefits to commence.
A WARNING ABOUT PLAN PAYMENTS TO ESTATES (INCLUDING SMALL ESTATE AFFIDAVITS)
Any distributions paid to the executor of an estate should be made payable to “[Name of Executor], as Executor of Estate of [Name of Employee]” or simply to “Estate of [Name of Employee]” (or a similar variation). Note that your plan recordkeeper may have alternate ways of designating the recipient when an estate is involved. Any distributions paid to the deceased’s heirs under a small estate affidavit should be divided among the named heirs and paid directly to each of them. While the IRS rules normally allow beneficiaries to elect to rollover a qualified plan death benefit to an IRA (to avoid withholding taxes on the distribution), neither an estate nor the heirs listed in a small estate affidavit can elect a rollover distribution. Therefore, you will need to work with your plan recordkeeper to ensure that if death benefits are paid directly to individuals via a small estate affidavit, then those benefits are not permitted to be rolled over into an IRA.
Welfare Plans
Life Insurance. As noted above, you will need a copy of the death certificate. Obviously, this is critical for administration of any life insurance benefit. The life insurance carrier (or third-party administrator, if self-funded) should be notified of the employee’s death and provided a copy of the death certificate. Check whether there is a beneficiary designation on file for the life insurance benefit and share the designation with the life insurance carrier to the extent the carrier does not already have this information. Also, consider confirming that the life insurance carrier properly processes the claim and pays the life insurance benefit to the beneficiary without issue. If the life insurance carrier denies a claim, you may be surprised by a lawsuit filed by an alleged beneficiary against the plan and the company claiming that the life insurance benefit was improperly denied or that the benefit was paid to the wrong individual. Although it may be the insurance carrier’s duty to pay any life insurance benefit, an employer can be roped into this type of litigation as the sponsor of the ERISA plan and potential liability could exist, for example, if the sponsor was found to have violated its fiduciary duties related to participant communications or enrollment issues regarding the life insurance benefit.
In addition, if the company sponsors optional dependent life insurance benefits, check to see if dependent life insurance was elected by the deceased employee and work with the dependent and carrier to explore whether the dependent wants to convert (or “port”) the policy into an individual policy.
Traditional Group Health Plans. For your traditional group health plans, such as medical, dental, and vision, you will want to tell the insurance carriers and/or third-party administrators about the employee’s death and determine when coverage will terminate for any enrolled dependents (e.g., on the date of death, on the last day of the month in which death occurred, or on the last day of the pay period in which death occurred).
If the company is subject to federal COBRA rules (generally, employers with at least 20 employees are subject to COBRA), you must notify the COBRA administrator of the employee’s death within 30 days from the date of death, and then the COBRA administrator has 14 days to send out the COBRA election packet to enrolled dependents. If you administer COBRA internally, then you have a total of 44 days to send out the COBRA election packet. Recall that the maximum COBRA coverage period is up to 36 months (instead of the standard 18 months) when the employee’s death is the qualifying event triggering the right for a dependent to enroll in COBRA coverage.
Because an employer may charge up to 102% of the full premium amount (both the employer and employee portions) for any individual who enrolls in COBRA coverage, the surviving spouse and dependents might wish to consider whether they have other, more reasonably priced, coverage available to them. For example, a dependent might be eligible for group health coverage through their own employer at a cheaper rate. The dependent should have a right to enroll in their own employer’s health plan, within 30 days of losing your plan’s coverage, under a HIPAA special enrollment right, but this special right to enroll mid-plan year is generally waived if COBRA is elected. Dependents might also consider enrollment in an individual health insurance policy offered through the government marketplace. In addition, you will need to review any employment agreements with the deceased employee to confirm if the company has agreed to pay for all or any part of an eligible dependent’s COBRA premiums in the event of the employee’s death.
If you are a small employer not subject to the federal COBRA rules, there still may be similar requirements under a state “mini COBRA” law of which you should be aware. You should not assume that the insurance carrier will administer your insurance policy’s mini COBRA provisions; often, insurance policies impose certain administrative obligations on the employer, such as notice obligations related to mini COBRA requirements.
DON’T FORGET ABOUT HIPAA RULES
When dealing with group health plans, don’t forget about HIPAA. The HIPAA privacy requirements still apply to protected health information (PHI) relating to a deceased individual for a period of 50 years. As a result, if you are dealing with the decedent’s PHI stemming from a group health plan, you should determine if HIPAA permits a disclosure without an authorization. For example, a plan sponsor can generally disclose individualized health plan information without an authorization for plan administration functions. If authorization is required, you must obtain an executed authorization from the personal representative of the decedent (generally, the executor). The personal representative can exercise all of the HIPAA rights of the decedent on behalf of the decedent.
Flexible Spending Accounts (FSAs). If the decedent was participating in a health FSA or dependent care FSA at the time of death, you should promptly determine when participation in the FSA ends according to the terms of the plan document. Often the plan document indicates that participation ends as of the date of death. However, the executor should still be allowed to file claims for reimbursements for qualifying expenses incurred during the plan year until the date of death. Recall that most FSA plans have a time limit for filing claims, known as a claims “run-out period”. The executor should be informed of the run-out period and provided enough time to submit claims on behalf of the decedent before the run-out period ends. Amounts not used to reimburse eligible expenses will be forfeited under the “use it-or-lose it” rule that applies to FSAs (unless COBRA is elected, as discussed below).
For a health FSA, COBRA coverage must be offered to eligible dependents under certain circumstances. Most health FSAs qualify for a limited COBRA obligation, which lets an employer only offer COBRA coverage to the decedent’s dependents when the decedent’s account is underspent (meaning that more money has been contributed to the FSA as of the date of death than has been reimbursed), and typically only for the rest of the plan year. Electing COBRA would allow the dependents to be reimbursed for their own medical expenses incurred after the participant’s death through the end of the plan year.
Health Savings Accounts (HSAs). If you sponsor a high deductible health plan (“HDHP”) and arrange (and pay for) a specific HSA custodian to set up individual accounts for your employees (which often includes allowing employee contributions via payroll deductions), consider what to do with the decedent’s individual HSA. Even though most HSAs are not subject to ERISA and an employer generally has limited responsibilities with HSAs relative to other benefit plans, it is still a good idea to raise the issue for the surviving dependents to determine the impact of the individual’s death on that account. Unlike health FSAs, the HSA funds remain the property of the HSA account holder – HSAs do not have the use it-or-lose it feature.
When an HSA account holder dies, any remaining funds are transferred to the individual named as the HSA beneficiary. If there is no such designation, the terms of the HSA custodial agreement will control. If the surviving spouse is named the beneficiary, the account will be treated as the spouse’s HSA after the employee’s death. The spouse maintains the HSA in the spouse’s own name and continues to have access to HSA funds on a pre-tax basis. If someone other than the spouse is named as the beneficiary (e.g., an adult child), then the account stops receiving the tax-deferred benefits of an HSA and the fair market value of the account becomes taxable to the beneficiary. The taxable amount will be reduced by any distributions made after death to reimburse qualifying medical expenses incurred by the account holder prior to death. Claims can be submitted up to one year after death.
Nonqualified Deferred Compensation Plans
Like pension plans and 401(k) plans, the first issue to consider is whether the deceased was vested in their entire benefit or plan account at the time of death, and if not, whether the plan provides for full vesting upon death. If any part of the account balance or benefit is unvested, it should be forfeited in accordance with the terms of the plan. Assuming there is a vested balance, you will need to see if the plan permits beneficiary elections, and if so, whether the deceased designated a beneficiary. If there is a beneficiary designation, payment should be made to this person. If there is no beneficiary designation, then payment should be made according to the plan’s rules for payments upon death. Most plans will provide for payment to be made to the deceased’s estate absent a beneficiary designation. Payment to the beneficiary or the individual’s estate should be made at the time and in the form elected by the deceased and/or as provided in the plan document.
If you have a third-party administrator for the plan, then reach out to them as soon as possible to notify them of the employee’s death and direct any actions they need to take regarding the deceased’s account or benefit under the plan (such as forfeiting balances or starting payments).
Other Unique Issues to Consider
Public Company Disclosure Requirements for Executives
No Form 8-K Requirements. Generally, the termination of an executive officer of a publicly traded company triggers the need to file a current report on Form 8-K with the Securities and Exchange Commission (“SEC”). However, the SEC has issued guidance that provides that a company does not need to issue a current report on Form 8-K to report the death of one of its executive officers.
Form 4 Reporting. The death of an executive does not trigger a Form 4 filing, nor does any transaction with respect to the company’s stock that is initiated after the executive’s death (such as the exercise of an option by the executive’s beneficiary). However, if the deceased executive initiated a transaction before their death that had not yet been reported on a Form 4 or Form 5 (for example, if the deceased sold stock the day before his or her death), then there is a duty to timely report such transactions that occurred before the executive’s death. The deceased executive’s reports can be signed and filed with the SEC by the executor of the insider’s estate or by the issuer or an employee of the issuer. No matter who signs and executes the report, the deceased executive should be named as the reporting person in Box 1 of the report, and the person executing the report on the deceased employee’s behalf should sign the report in their own name, indicating the capacity in which they are signing.
Slayer Statutes
Most, if not all, states have so-called “slayer statutes”, which are statutes that essentially prohibit killers from profiting from their crimes. If you are dealing with a situation where a deceased’s beneficiary is also his or her killer, you may struggle with what to do – pay the beneficiary according to the terms of the plan, or follow the state law? For non-ERISA plans, you can follow state law. For ERISA plans, however, it is not as clear. While there have been various cases involving the right to benefits in light of “slayer statutes”, the U.S. Court of Appeals for the Seventh Circuit became the first circuit court to decide whether ERISA preempts a slayer statute in Laborers’ Pension Fund v. Miscevic. What was their conclusion? ERISA does not preempt a state’s slayer statute and, as a result, the statute prevented the killer from being the beneficiary of the decedent’s ERISA pension benefits. Outside of the Seventh Circuit, there is still some ambiguity. In a more recent case, the U.S. Court of Appeals for the Sixth Circuit elected not to opine on the application of ERISA preemption to a Tennessee “slayer statute,” but instead relied on federal common law to conclude that an individual who murdered a decedent could not collect life insurance proceeds as the beneficiary of the decedent’s life insurance policy. Given this ambiguity, one way to handle it is to put this exception directly in the ERISA plan document, so that, when the time comes, you can follow your plan’s beneficiary rules. But, absent this language, you should consult with legal counsel, or failing all other courses, ask a judge to decide who should be the beneficiary.
New York and New Jersey Move to Prohibit Social Casino Sweepstakes Model
We recently wrote about the flurry of legal issues with the social casino sweepstakes model. Now, the New York State Senate Racing, Gaming, and Wagering Committee passed S5935, a bill that, if fully approved and enacted, would prohibit in NY “online” sweepstakes games that uses a dual-currency system of payment allowing the player to exchange the currency for any prize, award, cash or cash equivalents, or any chance to win any price, award, cash or cash equivalents, and simulates casino-style gaming. The bill also covers other entities including financial institutions, payment processors, geolocation providers, gaming content supplier, platform providers, or media affiliates who support the operation, conduct, or promotion of sweepstakes games within the state of New York.
Since our last post, New Jersey has undergone an apparent shift in legislative approach. It did have a bill (AB 5196) that would regulate social casino sweepstakes, subjecting them to the existing regulatory framework requiring licensing, oversight and taxation. But a new bill (AB 5447) would prohibit them.
On a more positive note, a recent RICO lawsuit against a social casino sweepstakes model, which also named Apple and Google, was dismissed voluntarily by the plaintiff.
California Legislature Introduces Several Employment Law Bills for 2025
California lawmakers introduced numerous bills early in the 2025 legislative session that could affect California employment law in significant ways. Although it is too soon to predict which bills, if any, will advance, the proposed bills could substantially affect California employers.
Quick Hits
California legislators have proposed bills in the 2025 legislative session that address pay transparency, automated decision systems, workplace surveillance, paid family leave, and employee training.
The legislative session in California will end on September 12, 2025.
The governor will have until October 12, 2025, to sign or veto bills passed by the state legislature.
California legislators have introduced the following employment law-related bills this session:
SB 642 would require pay scales provided in job ads to be no more than 10 percent above or below the mean pay rate within the salary or hourly wage range. The bill revises language to make clear that employers cannot pay an employee less than they pay employees of “another” sex, rather than “the opposite” sex, for substantially similar work.
AB 1018 would regulate the development and deployment of automated decision systems to make employment-related decisions, including hiring, promotion, performance evaluation, discipline, termination, and setting pay and benefits. The bill applies to machine learning, statistical modeling, data analytics, and artificial intelligence. It would require that employers allow workers to opt out of the automated decision system.
AB 1331 would place limits on workplace surveillance, including devices used for video or audio recording, electronic work pace tracking, location monitoring, electromagnetic tracking, and photoelectronic tracking. The bill would prohibit employers from using surveillance tools during off-duty hours or in private, off-duty areas, such as bathrooms, locker rooms, changing areas, breakrooms, and lactation spaces. The bill also would prohibit employers from monitoring a worker’s residence or personal vehicle.
SB 590 would expand eligibility for benefits under the state’s paid family leave program to include individuals who take time off work to care for a seriously ill designated person, meaning any individual whose association with the employee is the equivalent of a family relationship. State law already permits paid leave to care for a seriously ill child, stepchild, foster child, spouse, parent, sibling, grandparent, or grandchild.
AB 1371 would permit employees to refuse to perform a task assigned by an employer if the assigned task would violate safety standards, or if the employee has a reasonable fear that the assigned task would result in injury or illness to the employee or others. The bill would prohibit employers from disciplining or retaliating against an employee for refusing to perform the assigned task.
AB 1234 would revise the process for the state labor commissioner to investigate and hear wage theft complaints. The bill would require the labor commissioner to set a hearing date and establish procedures for the hearing within ninety days after issuing a formal complaint. It would require the labor commissioner to issue an order, decision, or award within fifteen days of the hearing, known as a Berman hearing.
AB 1015 would authorize employers to satisfy the state’s workplace discrimination and harassment training requirements by demonstrating that the employee possesses a certificate of completion within the past two years.
SB 261 would establish a civil penalty for employers that fail to pay a court judgment awarded for nonpayment of work performed.
Next Steps
Most of these bills are in the committee review stages and have not yet passed either the California Senate or Assembly. To advance, the bills must pass both legislative bodies. The last day for the legislature to pass bills is September 12, 2025. The governor will have until October 12, 2025, to sign or veto bills passed by the legislature.
California employers may wish to stay abreast of legislative action on state bills related to pay transparency, workplace surveillance, paid family leave, automated decision systems, employee training, and other employment law topics.