What Will Trump 2.0 Mean for Employee Benefits?—One Place to Look for Clues: Project 2025
Even as high-priority issues such as diversity, equity, and inclusion (DEI), immigration, and Ukraine take center stage in the first months of the new presidential administration, many employers are wondering what the next four years might mean for employee benefits.
Quick Hits
The Heritage Foundation’s Project 2025 provides clues for potential employee benefits changes under the second Trump administration.
Project 2025 calls for reversing federal rules that added gender identity, sexual orientation, and pregnancy as protected classes covered under the nondiscrimination provisions of the Affordable Care Act.
Project 2025 also proposes eliminating the dispute resolution process under the No Surprises Act in favor of a “truth-in-advertising approach.”
Plan sponsors may find clues in Project 2025, the far-reaching report produced by Washington, D.C., think tank Heritage Foundation as a blueprint for a second Trump administration and actually written in part by a number officials in the first Trump administration and public advocates for the 2024 Trump presidential campaign. (The president distanced himself from Project 2025 during the campaign, although several contributors are serving in the new administration.)
Specifically, three chapters of the 900-plus page report may offer insight for plan sponsors: one covering the U.S. Department of Health and Human Services (HHS), one covering the U.S. Department of the Treasury (Treasury), and one covering the U.S. Department of Labor (DOL) and related agencies.
Below, we dust off our copies of the report—originally released in 2023—and recap a few notable Project 2025 employee benefits policy recommendations (and the specific page numbers in the report):
ACA Section 1557: Reverse federal rules that added gender identity, sexual orientation, and pregnancy as protected classes covered under the nondiscrimination provisions of Section 1557 of the Affordable Care Act (ACA). These provisions have a limited impact on employee benefit plans, and in 2020, the Trump administration issued regulations that removed provisions detailing specific forms of discrimination, including gender dysphoria treatment, health insurance participation, and benefit plan design. (Page 475)
No Surprises Act: Encourage the U.S. Congress to revisit the 2021 legislation, including addressing the “deeply flawed system for resolving payment disputes between insurers and providers.” Project 2025 advocates eliminating the dispute resolution process in favor of a “truth-in-advertising approach.” (Page 469)
State restrictions on “anti-life” benefits: Encourage Congress and the DOL to “clarify” that the Employee Retirement Income Security Act (ERISA) would not preempt state attempts to prevent employer-sponsored health benefit plans from offering plan coverage for abortion, surrogacy, or other “anti-life” health care benefits (Page 585)
Individual Retirement Accounts (IRAs): Increase the IRA contribution limit to equal the amounts that can be contributed under 401(k) or 403(b) plans with respect to married couples. (Page 588)
Independent contractor benefits: Project 2025 encourages Congress to provide “a safe harbor” from employer-employee status when an employer permits independent contractors to participate in employer-provided benefits. Traditionally, only common law employees can participate in employer-sponsored retirement programs. (Page 591)
ESG investing: Encourage the DOL to prohibit ERISA retirement plans from investing plan assets based on any factor other than investor risks and returns, specifically environmental, social, and governance (ESG) factors. In addition, Project 2025 encourages the DOL to consider taking “enforcement and/or regulatory action to subject investment in China to greater scrutiny under ERISA” based on a perceived lack of compliance with American accounting standards and state control of Chinese companies. (Page 606)
Multiemployer plans: Project 2025 advocates greater scrutiny and reporting requirements for multiemployer plans, which are jointly administered by unions and employers. Among the specific recommendations is that the Pension Benefit Guaranty Corporation (PBGC), which insures defined benefit pension plans, require more detailed and timely reporting from plans. (Page 609)
ESOPs: Project 2025 recommends the DOL issue regulations that encourage greater participation in employee stock ownership plans (ESOPs). (Page 610)
Cap benefits deductibility: Project 2025 recommends limiting the amounts that employers can deduct for certain benefit costs to $12,000 or less per year per full-time equivalent employee. Retirement plan contributions would not count against that limit, and only “a percentage” of contributions to health savings accounts (HSAs) would count toward such limitation. (Page 697)
Deductibility for dependent coverage: Limit the ability of employers to deduct the value of health insurance and other benefits provided to employee dependents who are 23 or older. (Page 697)
Universal Savings Accounts (USAs): Establish accounts for taxpayers to contribute up to $15,000 of post-tax wages into USAs, similar to Roth IRAs. Investment gains would be nontaxable, portable, and withdrawable at any time for any purpose without penalty. (Page 696)
Practical Implications of Immigration Enforcement Activity on Retirement Plans
The second Trump administration is intensely focused on enforcement of U.S. immigration laws. Understandably, employers are concerned about immigration visits and Form I-9 compliance, and human resource professionals are bracing for potential workforce disruptions and increased scrutiny of hiring procedures. Retirement plan administrators should also consider the consequences of undocumented workers participating in company retirement plans.
How an Undocumented Worker Becomes a 401(k) Plan Participant
In spite of an employer’s Form I-9 process, employees can provide incorrect, misleading, or false documentation as evidence that they are legally allowed to work in the U.S. If the employer does not have adequate systems in place to verify the documentation provided, then such employee can, nevertheless, become a participant in the employer’s 401(k) plan in accordance with the plan’s eligibility terms. For example, an employer may automatically enroll new employees in its 401(k) plan at three percent of compensation. The employer may also provide a matching or nonelective contribution on a payroll-by-payroll basis. Under this scenario, an unauthorized worker could relatively quickly begin accruing an account balance as a participant under the 401(k) plan. The same result could occur for undocumented workers under the eligibility terms of most retirement plans.
Plan Language Regarding “Employee” and ERISA
Most retirement plans define “employee,” “eligible employee,” or “participant” without reference to immigration status. For example, a common definition of “employee” could be similar to –
Employee means an individual who is reported on the payroll records of the Employer as a common-law employee.
While it may seem counter-intuitive, undocumented workers are indeed protected under the Fair Labor Standards Act (FLSA), which is enforced by the Department of Labor (DOL). Interestingly, the DOL also enforces the Employee Retirement Income Security Act (ERISA), which does not address the immigration status of employees. In other words, an individual is a covered (protected) employee under ERISA whether documented or not. So employers should proceed with the understanding that a plan participant – without regard to immigration status – is entitled to the benefits earned under a retirement plan.
It is important to distinguish undocumented workers from the “nonresident aliens” exclusion from eligibility that is contained in many retirement plans. Nonresident aliens without United States source income are often expressly excluded from retirement plan participation. According to the Internal Revenue Service, an alien is any individual who is not a U.S. citizen or U.S. national. A nonresident alien is an alien who has not passed the green card test or the substantial presence test. Because undocumented workers have U.S. source income, that exclusion under the retirement plan does not address issues that may come up related to undocumented workers.
With the assistance of counsel, employers may consider whether it is feasible to amend the plan to expressly exclude undocumented workers – i.e., employees who do not provide documentation that they are legally allowed to work in the U.S. Care should be taken in order to make sure such amendment can be properly administered without triggering any unintended consequences. Moreover, the amendment should not inadvertently violate applicable employment discrimination laws.
Distributions to Deported and Terminated Undocumented Workers
If an undocumented participant is deported or is absent from work for an extended period without notice, then the employer may terminate their employment. In such cases, like any other participant, an undocumented participant is entitled to receive distributions of vested benefits under a retirement plan upon termination of employment. The issue becomes how to process the distribution when the employer’s Form I-9 records include an incorrect or false individual tax identification number (ITIN) or Social Security number (SSN). Employers – plan recordkeepers, in particular – require a correct ITIN or SSN in order to properly report a retirement plan distribution on Form 1099-R. Obtaining this information from an undocumented participant may be challenging because they may be in custody, living in a different location, or intentionally avoiding contact. In these circumstances, the employer should designate them as “missing or lost participants” and take actions consistent with the DOL’s best practices for handling such participants (see our previous articles related to missing participants in retirement plans here and here).
Keep in mind that the employer should consider the DOL guidance whether the distribution is a small balance cashout, an automatic rollover to an IRA, or a series of installment payments. After the employer has exhausted its responsibilities under the DOL guidance, it may be able to transfer certain small distributions ($1,000 or less) to state unclaimed property funds as described under the recent Field Assistance Bulletin 2025-01.
Distributions to Those Seeking to Help Deported Family Members
Employees affected by immigration enforcement efforts may be interested in accessing their retirement accounts to provide financial assistance to deported friends and family. If the employer sponsors a 401(k) plan, then the plan may allow loans or penalty-free in-service distributions (if the participant has reached age 59½).
In addition, as permitted under SECURE 2.0, a 401(k) plan may be amended to allow employees to take penalty-free distributions up to $1,000 (or smaller amounts that leave at least $1,000 of vested benefits in the account afterward) if they certify the amount is for a personal or family emergency. Such emergency distributions must be repaid to the plan within three years of receipt in order to remain penalty-free.
Action Steps
Assess Risks. Based on workforce demographics, proximity to immigration enforcement activity, and other related factors, consider the likelihood that immigration enforcement agencies will select the employer for an on-site review or worker deportation. If so, consider whether to amend the 401(k) plan to permit emergency distributions for those wishing to provide financial assistance to deported family members.
Audit. Human resource, payroll, and benefits professionals should collaborate to determine whether undocumented workers are currently eligible for retirement plan benefits (or any other employee benefits offered by the employer). Consider whether it may be appropriate to engage a background screening service to verify Form I-9 employee authorization documentation.
Review DOL Missing Participant Best Practices. Review and document the procedures and processes used to locate missing participants, including those who may be at risk for deportation.
Consult Plan Recordkeeper. Contact the recordkeeper to inquire what procedures it has in place to process distributions and Forms 1099-R when there is an incorrect ITIN or SSN (or none at all).
Seek Legal Counsel. Ask legal counsel whether it is feasible to amend the retirement plan to expressly exclude undocumented workers.
Nevada Bill Would Bestow Personal Jurisdiction On Business Entities Who Simply Register
Earlier this month, Nevada Assemblymember Erica Roth introduced a bill, A.B. 158, to authorize Nevada courts to exercise general personal jurisdiction over entities on the sole basis that the entity:
is organized, registered or qualified to do business pursuant to the laws of this State;
expressly consents to the jurisdiction; or
has sufficient contact with Nevada such that the exercise of general personal jurisdiction does not offend traditional notions of fair play and substantial justice.
The following entities would be covered by the statute: corporations, miscellaneous organizations described in chapter 81 of NRS, limited-liability companies, limited-liability partnerships, limited partnerships, limited-liability limited partnerships, business trusts or municipal corporations created and existing under the laws of this State, any other state, territory or foreign government or the Government of the United States
The last basis is generally consistent with traditional constitutional jurisprudence. See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) quoting Milliken v. Meyer, 311 U. S. 457, 463 (1940). California has codified this principle in Section 410.10 of the Code of Civil Procedure (“A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.”).
The penultimate basis is consistent with and might even be categorized as a subset of the last. How is fair play and substantial justice offended if an entity has consented?
The first basis hearkens to the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Ry. Co., 600 US 122 (2023). In the case, the Supreme Court in a 5-4 decision held that a Pennsylvania statute did not offend the Due Process clause of the United States Constitution. The Pennsylvania statute provided that a company’s registration as a foreign corporation” is deemed “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over” the corporation. 42 Pa. Cons. Stat. § 5301(a)(2)(i).
If A.B. 158 becomes law, the doors of Nevada’s courts will be thrown open to lawsuits against foreign entities that have registered to do business suits. These lawsuits may be brought even when the plaintiff, the defendant and the dispute occurred outside of Nevada. The case may be a boon to Nevada’s lawyers (Assemblymember Roth is a lawyer), but may have the unintended consequence of discouraging business in Nevada or encouraging creative business structures.
IRS Issues Proposed Regulations on Secure 2.0 Catch-Up Provisions
The IRS issued Proposed Regulations last month which provide helpful clarity for employers on how to implement and comply with two new SECURE 2.0 provisions relating to catch-up contributions. “Catch-up contributions” are permitted additional salary deferrals to 401(k), 403(b) and governmental 457(b) plans by participants age 50 and older in excess of the standard deferral limit. Prior to the SECURE 2.0 Act, catch-up contributions could be made on a traditional (pre-tax) or—if permitted by the plan—Roth (after-tax) basis, and the same annually indexed limit ($7,500 for 2025) applied to all catch-up eligible individuals.
Under the SECURE 2.0 Act:
Roth Catch-up Requirement. High earners (those with previous year FICA earnings exceeding $145,000, as indexed for inflation) may only make catch-up contributions on a Roth basis, while lower earners may choose to make either traditional or Roth contributions; and
Super Catch-Ups. Participants—both high and low earners—who attain ages 60 to 63 in a taxable year are eligible for an increased catch-up contribution limit equal to the greater of: (i) $10,000; or (ii) 150% of the regular catch-up amount for the year ($11,250 for 2025).
Super Catch-Up Limit for Participants Ages 60 to 63
Whether the super catch-up provision is mandatory change has been the subject of much debate. The proposed regulations clarify that this is an optional design plan feature. However, pursuant to the universal availability requirement that applies to catch-up contributions, if any plan maintained by an employer offers the super catch-ups, all plans maintained by that employer must offer super catch-ups. While not entirely clear from the proposed regulations, this requirement likely applies on a controlled group basis.
High Earners May Only Make Roth Catch-Up Contributions
Much of the focus in the Roth catch-up space has focused on the application of the wage threshold for determining who is subject to the rule. Consistent with Notice 2023-62 (see our previous alert here), the proposed regulations confirm that only FICA wages count toward the threshold. Therefore, individuals who do not receive any FICA wages (such as a K-1 partners and certain governmental employees) are not subject to the Roth requirement, regardless of their earnings. In addition, wages from different employers will not be aggregated for purposes of this threshold, even if those employers are in the same controlled group.
The proposed regulations also clarify that the wage threshold is not prorated for the first year of employment. A new hire’s first year wages must exceed the full FICA wage threshold for the participant to be subject to the mandatory Roth catch-up requirement the following year.
From an administrative standpoint, a plan may provide that high earners are deemed to have designated any catch-up election as a Roth election (a “deemed election”)—whether the plan uses separate catch-up elections or a spillover design—so long as such participants are provided an opportunity to make a new election that differs from the deemed election, such as electing to suspend catch-up contributions altogether. This clarification will be very helpful to employers.
One key issue has been whether plans that fail ADP testing can recharacterize certain excess deferrals as catch-up contributions (which is a common strategy to improve testing results) if the deferrals were originally made on a traditional basis and need to be recharacterized as Roth catch-ups (which generally wouldn’t occur until testing is conducted after the close of the plan year). The proposed regulations confirm that this is permissible and offer two correction methods:
If certain timing requirements are met, the adjustment can be made on Form W-2 and the converted amounts can be included in the participant’s income for the year of deferral.
Alternatively, the converted amounts can be treated as in-plan Roth conversions taxable in the year of conversion (presumably this method requires the plan to include an in-plan Roth conversion feature.)
If a plan does not offer a Roth contribution feature, it is not required to add that feature to its plan design to comply with the proposed regulations. Instead, it could permit lower earners to make catch-up contributions on a pre-tax basis, while high earners would be precluded from making any catch-up contributions at all. Given that higher earners are overwhelmingly the population that takes advantage of catch-up contributions, it seems likely that the practical effect of this rule will be to push more plans to implement Roth contributions.
Effective Date
The proposed regulations related to these new catch-up features generally apply to contributions in taxable years beginning after the date which is 6 months after the publication of final regulations. However, special delayed effective dates apply to collectively bargained plans. In addition, a plan is permitted to apply the rules in the proposed regulations applicable to Roth catch-up contributions for any tax year beginning after 2023, and the rules applicable to the increased super catch-up limit to any year beginning after 2024.
Recommended Actions
When deciding whether and how these features should be incorporated into a plan, plan sponsors should consider the practical implementation and administrative factors, such as coordination with payroll providers and recordkeepers.
Religious Texts, Copyrights, and Estate Law: A Case of Strange Bedfellows
The US Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a case involving a deceased religious leader who owned the copyrights to works reflecting his teachings. The Court found that the copyrighted works were not works for hire under copyright law, that the leader therefore had the right to license his copyrights, and that the subsequent owner of the copyrights (not a statutory heir) also had the right to terminate licenses. Aquarian Foundation, Inc. v. Bruce Kimberley Lowndes, Case No. 22-35704 (9th Cir. Feb. 3, 2025) (Hawkins, McKeown, de Alba, JJ.)
Aquarian Foundation is a nonprofit religious organization founded by Keith Milton Rhinehart. During his time as the leader of Aquarian, Rhinehart copyrighted his spiritual teachings. An Aquarian member, Bruce Lowndes, claimed that he obtained a license from Rhinehart in 1985. Upon Rinehart’s death in 1999, he left his estate, including interests in copyrights, to Aquarian. In 2014, Aquarian discovered that Lowndes was uploading Rhinehart’s teachings online and sent Lowndes takedown requests pursuant to the Digital Millennium Copyright Act (DMCA). In 2021, Aquarian sent Lowndes a letter terminating Lowndes’ license and sued Lowndes for copyright infringement, trademark infringement, and false designation of origin.
After a bench trial, the district court concluded that Rhinehart’s works were not works for hire under either the 1909 or the 1976 Copyright Act, so Rhinehart had the authority to grant Lowndes an unrestricted license. The district court also found that Aquarian did not have the authority to terminate the license as a nonstatutory heir and should have given Lowndes two years notice. The district court denied attorneys’ fees. Both parties appealed the district court’s ruling on ownership and attorneys’ fees, and Aquarian appealed the ruling on its lack of authority to terminate the license.
The Ninth Circuit, finding no clear error, affirmed the district court’s holding that Rhinehart’s works were not works for hire under either the 1909 or the 1976 Copyright Act. Under the 1909 Act’s “instance and expense” test, the Court found that “the creation and maintenance of the works was Rhinehart’s purview, and not the church’s domain.” Under the 1976 Act, which applies agency law, the Court similarly found that Rhinehart’s creation of the works was outside the scope of his employment as Aquarian’s president and secretary. Therefore, under either act, Rhinehart’s works were not works for hire, making Rhinehart the copyright owner. The Ninth Circuit affirmed the district court’s finding that as owner, Rhinehart had authority to grant the license to Lowndes. The Court also found that Lowndes’ license to “use copyrighted materials ‘without restriction’” referenced “a coming World Wide Network,” so Lowndes did not breach the license by posting the works online.
The Ninth Circuit also affirmed that the testamentary transfer of copyrights to Aquarian was permitted by both the 1909 and 1976 Copyright Acts: “Both the 1909 and 1976 Copyright Acts allow for the transfer of a copyright by will. 17 U.S.C. § 42 (repealed) (providing that copyrights ‘may be bequeathed by will’); 17 U.S.C. § 201(d)(1) (providing that that they ‘may be bequeathed by will or pass as personal property by the applicable laws of intestate succession’).”
The Ninth Circuit reversed in part and remanded for further proceedings the issue of whether Lowndes’ license was properly terminated. The Ninth Circuit found that the district court erred in applying 17 U.S.C. § 203 to Aquarian, a nonstatutory heir. Section 203 allows authors or statutory heirs to “terminate a license agreement of unspecified duration thirty-five years from the date of execution, subject to certain ‘Conditions of Termination.’” The Ninth Circuit found that the district court misconstrued § 203 as preempting nonstatutory heir beneficiaries from terminating licenses. Because the Copyright Act is silent on the termination rights of a nonstatutory heir, the Ninth Circuit referred to Washington and Colorado contract law. Both states permit at-will termination of contracts of unspecified duration. Therefore, the Court found that Aquarian properly terminated Lowndes’ license in May 2021. The Ninth Circuit affirmed the district court’s determination that no copyright infringement occurred prior to the termination but reversed and remanded for findings on whether Lowndes infringed the copyrights after May 2021.
Finally, the Ninth Circuit found that the district court did not abuse its discretion in denying admission of impeachment evidence: a recorded phone call to impeach Lowndes. The Ninth Circuit noted the district court did not even credit Lowndes’ testimony making impeachment “superfluous.” The Ninth Circuit also determined that the district court did not abuse its discretion in denying attorneys’ fees, explaining that the Lanham Act provides a district court discretion to award attorneys’ fees in exceptional cases. The Court found that Lowndes provided no evidence that Aquarian was unreasonable in pursuing its trademark claims.
Cafeteria Plan, Meet 401(k) Plan
Viewpoints
The IRS’s recent ruling offers increased flexibility for employers in structuring 401(k) contributions within cafeteria plans, benefiting both employers and employees.
More Employee Benefit Choices: Employers can now make discretionary contributions more ways, including combining some 401(k) and welfare benefit choices.
Opportunities for Competitive Benefits: The ruling enables employers to design more tailored, competitive benefits packages, enhancing employee satisfaction and retention.
The IRS has surprised employers with a new interpretation of how 401(k) contributions can be made in connection with a cafeteria plan. Many employers offer cafeteria plans, allowing employees to choose from various health and welfare benefits or taxable compensation. Historically, the IRS’s “contingent benefit rule” has prevented employers from offering a similar choice to employees regarding 401(k) plan contributions, because the rule prohibited other benefits from being contingent on 401(k) plan benefit elections. However, the IRS’s new ruling now allows an employer to make a discretionary contribution that employees may allocate to different plans, including a 401(k) plan, without the contribution being included in the employee’s taxable income.
What Did the Proposed Plan Look Like?
An employer asked the IRS for its ruling on several proposed plan amendments, which would change the discretionary contributions to the 401(k) plan without changing the safe harbor non-elective contribution. Specifically:
The proposed amendment to the 401(k) plan allowed eligible employees to choose where to receive an annual, irrevocable employer contribution — in the employer’s 401(k) plan, the employer’s Health Reimbursement Account (HRA), the employer’s Educational Assistance Program (EAP) or the employee’s Health Savings Account (HSA). If no employee election was made during open enrollment, the contribution would be made to the 401(k) plan. Employees could not receive the contribution as cash or a taxable benefit.
An amendment to the EAP proposed allowing student loan payments to be made directly from the EAP to the lender if the employee allocated the employer contribution to the EAP.
The proposed amendment also allowed employees to allocate the employer contribution to the EAP or as an employee’s HSA contribution but prohibited receiving other benefits from the EAP or making pre-tax payroll contributions to the HSA, until after March 15 of the following year. This timing would prevent contributions greater than the limits set under the Code.
How Did the IRS Respond?
The IRS provided several helpful rulings on the changes proposed by the employer. Specifically, the IRS ruled that:
The proposed 401(k) plan amendment would not cause the plan to violate the contingent benefit rule (described above).
The employer’s contribution would not be considered an employee pre-tax contribution, which would be subject to the lower elective deferral limit, rather than the much larger annual additions limit.
The allocation of the employer contribution to the HSA would be excludable from the employees’ taxable income.
The EAP amendment would not affect the treatment of tuition or loan payments made under the EAP as excludable from the employee’s taxable income.
The employee’s ability to allocate the contribution between different programs would not prevent the EAP from qualifying as an EAP under section 127 of the federal tax code.
IRS “private letter rulings,” like this one, are technically directed only at the requesting employer and cannot officially be followed as precedent. However, because they often guide practitioners on the IRS’s perspective on issues, this ruling increases flexibility for employers designing competitive benefits packages.
Court Reversed a Judgment Based on a No-Contest Clause Because After Nonsuiting The Will Contest Pleading, The Trial Court Did Not Have Jurisdiction Over The Defensive Allegations Concerning The Clause
In In re In the Estate of Wegenhoft, an applicant filed an application to probate a will, which contained a no-contest clause. No. 14-23-00350-CV, 2024 Tex. App. LEXIS 5352 (Tex. App.—Houston [14th Dist.] July 30, 2024, no pet. history). Contestants filed their opposition to the will, asserting that the will was executed under undue influence, but they nonsuited their claims on the eve of trial. The trial court permitted the applicant’s claims concerning suitability and enforcement of the no-contest clause to proceed to trial and ultimately rendered judgment in favor of the applicant after a jury trial. The contestants filed an appeal challenging the trial court’s subject matter jurisdiction to enter judgment against them when they nonsuited their contest prior to trial.
The court of appeals reversed the trial court’s judgment, holding that it did not have jurisdiction after the nonsuit:
Texas Rule of Civil Procedure 162 provides that a plaintiff may take a nonsuit at any time before introducing all of his evidence other than rebuttal evidence… However, rule 162 expressly limits the right to nonsuit an entire cause when the defendant has a claim for affirmative relief pending. A claim for affirmative relief is one “on which the claimant could recover compensation or relief even if the plaintiff abandons his cause of action.” Therefore, while a nonsuit has the effect of terminating a case from the moment the motion is filed, it does not affect the right of an adverse party to be heard on a pending claim for affirmative relief…
As a brief recap, Curtis and Cynthia opposed the admission of the 2013 Will and filed a counterapplication to probate the 1989 Will. Carl filed a motion alleging that his siblings violated the no-contest clause and requested a finding that they were unsuitable to serve as executors. He also re-asserted these claims in an amended answer to his siblings’ counterapplication. Before the case proceeded to trial, Curtis and Cynthia filed their notice of nonsuit, thereby abandoning their will contest and counterapplication. Accordingly, the only live pleading remaining was Carl’s application to probate the 2013 Will.
We cannot agree that Carl’s claims asserted in his motion or amended answer survived the nonsuit because his claims did not constitute an independent claim for affirmative relief. Put another way, the nonsuit rendered Carl’s claims moot because his claims were dependent on his siblings’ will contest and counterapplication. Without the contest or counterapplication, Carl could not possibly seek to enforce his claims… Contrary to Gibbons, Carl’s application only requested probate of the 2013 Will and that he be appointed as executor. Carl has not cited (and research has not revealed) any Texas case in which a court retained jurisdiction after a nonsuit over claims asserted in an answer when the claims did not seek affirmative relief. Accordingly, Carl’s claims were extinguished by the nonsuit because he did not have a pending claim for affirmative relief.
Id.
Court Holds That Party Waived Appeal by Not Timely Appealing an Order Admitting a Will to Probate
In In re Est. of Wheatfall, a trial court entered an order admitting a will to probate and denying a will contestant’s claims. No. 01-22-00920-CV, 2024 Tex. App. LEXIS 5503 (Tex. App.—Houston [1st Dist.] August 1, 2024, no pet. history). The contestant had alleged additional objections to the will that was not expressly overruled by the trial court’s order. After additional motions in the trial court, the contestant then filed an appeal of the order three months later.
The court of appeals discussed the finality of probate orders:
[A]ppeals from probate courts involve an exception to the final-judgment rule because multiple final judgments may be rendered on discrete issues before an entire probate proceeding is concluded. Two categories of probate court orders are considered final for purposes of appeal even when they do not dispose of all pending parties and claims. First, if a statute expressly declares that the particular phase of the probate proceedings is final and appealable, that statute controls. Second, in the absence of a statute, the order is final if it disposes of all parties and all issues in “the phase of the proceeding for which it was brought.”
Id. The court of appeals held that the order was an appealable order as it disposed of all parties and all issues for that phase:
In asserting that the September 5, 2019 filing was a will contest that initiated a new phase of the proceeding, Wheatfall relies on Texas Estates Code section 55.001, which provides that any “person interested in an estate may, at any time before the court decides an issue in a [probate] proceeding, file written opposition regarding the issue.” We find pertinent to the proceeding Texas Estates Code section 256.101, which provides:
(a) If, after an application for the probate of a decedent’s will or the appointment of a personal representative for the decedent’s estate has been filed but before the application is heard, an application is filed for the probate of a will of the same decedent that has not previously been presented for probate, the court shall: (1) hear both applications together; and (2) determine: (A) if both applications are for the probate of a will, which will should be admitted to probate, if either, or whether the decedent died intestate; or (B) if only one application is for the probate of a will, whether the will should be admitted to probate or whether the decedent died intestate.
This provision requires that a challenge to the validity of one or more wills be adjudicated in a single proceeding. Here, the record shows that the trial court consolidated Wheatfall’s application for letters of administration, in which Wheatfall alleged that the decedent died intestate, with DeBose’s application to admit the 2009 will to probate. Once joined in the same proceeding, these competing applications established a contest about the validity of the 2009 will. Thus, although Wheatfall’s September 5, 2019 filing may be a “written opposition,” it was not a new “contest.” A will contest is a direct attack on the order admitting a will to probate. Wheatfall filed his opposition before the trial court signed its order admitting the 2009 will to probate.
Wheatfall also asserts that the September 16, 2019 order admitting the 2009 will to probate was not final because in stating that it was not ruling on any objections to the probate of the will asserted after September 4, 2019, the trial court left the September 5, 2019 filing unadjudicated. We disagree… In finding that the 2009 will was valid, the trial court also impliedly rejected any claim of undue influence. Further, the trial court rejected Wheatfall’s claim that the decedent died without a valid will by denying his application for letters of administration, his application for determination of heirship, and his motion for appointment of an attorney ad litem. The language of the trial court’s September 16, 2019 order admitting the 2009 will to probate thus shows that the trial court disposed of Wheatfall’s contest to the validity of the 2009 will, including the issues he raised in his September 5, 2019 filing. Because the September 16, 2019 order admitting the 2009 will to probate disposed of all parties and all issues in “the phase of the proceeding for which it was brought” we conclude that it was a final, appealable judgment.
Id. Because the notice of appeal was filed after the thirty-day deadline, the notice of appeal was untimely and the court of appeals held that it lacked jurisdiction.
2025 Compliance Guide for Employers in Mexico
Several Mexican employment-related laws will be implemented or amended in 2025, including the approval of the Chair Law (Ley Silla), the recognition of app-based couriers as employees and its derived obligations, the increase in the minimum wage, and the unit of measure used to calculate monetary amounts owed to the government in case of noncompliance.
Quick Hits
The minimum wage for 2025 is MXN $419.88 for the Free Zone of the Northern Border and MXN $278.80 for the rest of the country.
The unit of measure for 2025 is MXN $113.14 daily, MXN $3,439.46 monthly, and MXN $41,273.52 annually.
The Chair Law (Ley Silla) and legislation classifying app-based couriers as employees introduce new obligations for employers and will become enforceable in June 2025.
Obligations to Consider in 2025 for Compliance
Minimum Wage. On December 4, 2024, the National Commission on Minimum Wages (Comisión Nacional de los Salarios Mínimos or CONASAMI) approved a 12 percent increase to the minimum wage which entered into force on January 1, 2025.
Increase to Mexico’s Unit of Measure. On January 10, 2025, the National Institute of Statistics and Geography published in the Official Gazette of the Federation (Diario Oficial de la Federación) the daily, monthly, and annual updated values for the Unit of Measurement and Update (UMA). The UMA is the basis for calculating fines or other state and federal government duties. The new values will be effective on February 1, 2025, and will be as follows:
Daily = MXN $113.14 (approximately USD $5.65)
Monthly = MXN $3,439.46 (approximately USD $171.97)
Annual = MXN $$41,273.52 (approximately USD $2,063.67)
Risk premium update. Every February, employers must file with Mexico’s Social Security Institute (Instituto Mexicano del Seguro Social (IMSS)) an annual report recording all occupational diseases or work-related disability certificates issued to their employees. The report is used to calculate whether the risk premium should be updated (either by increasing or decreasing it).
IMSS electronic mailbox. The IMSS is giving more relevance to its digital mailbox to notify employers of any matter related to employees, payment of quotas, obligations, fines, etc. Although it is not mandatory to activate this portal, employers may want to have it enabled by February 1, 2025.
Profit-sharing payments (PTU). No later than March 31, 2025, all companies must file their annual tax returns. Employees are entitled to receive a prorated portion of the 10 percent of the employer’s fiscal year taxable income and the deadline to pay the portion is May 31, 2025.
Noncompliance with the requirements for PTU payments and/or formalities could result in fines for employers.
Federal and local elections. On Sunday, June 1, 2025, federal elections to select ministers, magistrates, and federal judges will take place, and the states of Durango and Veracruz will additionally elect different municipal positions. Hence, June 1, 2025, pursuant to the Federal Labor Law, will be a mandatory holiday.
Chair Law. On December 19, 2024, Mexico’s “Ley Silla” (Chair Law) was published in the Official Gazette of the Federation. This bill’s main obligations consist of: (i) having enough seats with a backrest for employees’ use, and (ii) avoiding prohibiting employees from taking seated breaks when the nature of the work allows it.
Employers have a 180-day period, as of the publication date, to comply with all the obligations stated in the legislation. Hence, dispositions will become fully enforceable by June 17, 2025.
Classification of app-based couriers as employees. On December 24, 2024, legislation classifying certain app-based couriers as employees was published in the Official Gazette of the Federation. According to the bill, depending on certain characteristics, couriers can be considered employees, and this recognition can lead to several obligations for applicable employers after a 180-day period from the date of publication. Hence, dispositions will become fully enforceable by June 22, 2025.
María José Bladinieres contributed to this article
The Department of Labor (DOL) Adopts Self-Correction for Common Retirement Plan Fiduciary Breaches
For the first time since the DOL adopted its Voluntary Fiduciary Correction Program (VFC Program) in 2002, retirement plan sponsors will be able to utilize self–correction as an efficient means to correct their most frequent compliance failures – late transmittals of participant retirement plan contributions and retirement plan loan repayments.
The DOL finalized an update to its VFC Program adding the Self-Correction Component (SCC) for these fiduciary failures and, additionally, finalized an amendment to an existing prohibited transaction exemption (PTE) that provides excise tax relief for transactions that have been self-corrected.
The SCC feature and excise tax relief become effective on March 17, 2025.
The VFC Program –Section 409 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), provides that retirement plan fiduciaries who breach the responsibilities, obligations or duties imposed on them may be personally liable for any plan losses resulting from such breach, and may be required to restore any profits to the plan that may have been made through the use of the plan’s assets.
The VFC Program aims to encourage plan sponsors to voluntarily correct breaches of certain fiduciary obligations under ERISA in return for relief from civil enforcement actions and, in some cases, penalties for breaches. To participate, plan sponsors must fully correct errors in accordance with procedures specified in the VFC Program and file an application with the DOL. The application submission requires a description of the breach and the corrective action taken, documentary proof of the corrective action and other specified information.
The VFC Program application process can be quite onerous and, in some cases, is akin to a DOL audit. As a result, some plan sponsors have been reluctant to use it and, instead, have corrected fiduciary breaches on their own.
Self-Correction Component –The new SCC option permits plan sponsors to correct eligible transactions without filing a VFC Program application. Moreover, when a plan sponsor utilizes the SCC, the updated VFC Program waives the existing requirement that plan sponsors notify plan participants and other interested persons of prohibited transactions, as well as the steps taken to correct them.
The SCC option, however, does require the self-corrector to electronically submit a SCC Notice using the new online DOL VFC Program web tool that includes the following information:
Self-corrector’s name and address;
Plan name;
Plan sponsor’s Employment Identification Number;
Principal amount;
Amount of lost earnings and the date paid to the plan;
Loss date; and
Number of participants affected by the correction.
After filing this notice, the plan sponsor will receive an email acknowledgment from DOL, but will not receive the “no action” letter that typically is received upon DOL’s approval of VFC Program application. The plan administrator is required to retain a “penalties of perjury” certification, and other documentation related to the correction. The “penalty of perjury” certificate must state that the plan is not under investigation and acknowledge receipt and review of the SCC notice. A plan fiduciary is required to sign and date the “penalties of perjury” certificate.
In order to be eligible for self-correction:
The lost earnings resulting from the delinquent contributions cannot exceed US$1,000;
Delinquent payments, including lost earnings, must be remitted to the plan within 180 days of the date payments are withheld from participants’ paychecks or received by the employer;
Neither the plan nor the self-corrector may be under investigation; and
Penalties, late fees and other charges related to the delinquent contributions must be paid.
Excise tax relief –In conjunction with the VFC Program update, the DOL amended PTE 2002-51 to expand excise tax relief to prohibited transactions eligible for self-correction under the updated VFC Program. The amendment provides relief from the 15 percent excise tax that DOL otherwise imposed when participant contributions and loan repayments are not timely remitted to a 401(k) plan. Relief is available if the plan receives an acknowledgment of self-correction from DOL and complies with other requirements of the VFC Program. Instead of paying the excise tax, the plan sponsor must contribute the amount equal to the excise tax to the self-corrected plan.
Excise tax relief will be available regardless of whether the plan has utilized the VFC Program or PTE 2002-51 in the past. Prior to this amendment, PTE 2002-51 generally was not available to plans that had utilized the VFC Program or the PTE for a similar type of transaction within the previous three years.
Additional Items to Note
The VFC Program update clarifies the existing transactions eligible for correction, expands the scope of certain transactions currently eligible for correction and simplifies certain administrative and procedural requirements for VFC Program participation and corrections. Notably, correction through the VFC Program does not relieve plans from reporting late participant contributions on Form 5500 or 5500-SF. Neither the update to the VFC Program nor the PTE amendment changes this reporting requirement.
4 Lease Auction Tips for Landlords
During a retail bankruptcy, commercial landlords often face challenges when their tenants try to maximize the value of the bankrupt estate by holding lease auctions. Despite lease provisions that may restrict or prohibit a lease sale, courts have generally allowed retail debtors to conduct such sales. This is because lease clauses that attempt to limit or prohibit a lease sale are often disregarded as “ipso facto” clauses, which are unenforceable in bankruptcy.
Smart landlords have shifted their focus from trying to prohibit lease sales to influencing how these sales are conducted and what information the landlord may request for “adequate assurance” of future performance by the potential new tenant.
Here are four tips for the next time your lease is part of a lease auction.
Know What to Request as Adequate Assurance
Adequate assurance refers to a guarantee or proof provided to a landlord in a potential new lease demonstrating the ability to continue fulfilling future contractual obligations of the lease. Basically, it helps convince the landlord that this new tenant will meet the lease commitments.
At a minimum, landlords should request information from the exact proposed assignee of the lease, including:
The exact name of the entity which is going to be designated as the proposed assignee;
The proposed assignee’s and any guarantor’s tax returns and audited financial statements (or un-audited, if audited financials are not available) and any supplemental schedules for the last calendar or fiscal years;
If there was a guarantor on the original lease, then identify a guarantor on this lease;
The number of other retail stores the proposed assignee operates and all trade names that the proposed assignee uses;
A statement setting forth the proposed assignee’s intended use of the premises;
The proposed assignee’s business plans, including sales and cash flow projections; and
Any financial projections, calculations, and/or financial pro-formas prepared in contemplation of purchasing the
Demand Payment of Cure Costs
As a function of any assignment, a landlord should demand that they be brought current with all liabilities, payments, and other covenants. Sometimes an assignee may request a waiver of cure costs. This is a business decision for the landlord. However, the landlord should not feel like it can’t say no. Sometimes, a request to waive these costs is just another attempt to sweeten a deal. Meaning the potential tenant may still assume the lease even if you say no.
Consider Bidding on Your Own Lease
Sometimes, a landlord may want to control the space for its own financial reasons. For instance, potential new tenant, whom the landlord really wants in the center, may approach the landlord to lease the space. Or, the landlord may be looking to sell the center. In both instances, having control of the space is essential. However, the Bankruptcy Code provides a debtor the right to continue the lease unless it is rejected or sold. The debtor has up to 210 days to assume or reject the lease. So waiting the debtor out may not be a viable option. As such, it may be advantageous for a landlord to buy back its own lease to ensure certainty.
If this is the case, it’s important to assert your rights to credit bid, when the Debtor files the initial motion to sell leases. Your credit bid may allow you to assert all prepetition claims, as well as avoid placing a deposit, as is common with new bidders. Further, you may want to attend the auction but not bid. Generally, if a landlord asserts this right during the bidding procedures motion process, the debtor will allow them to attend. But again, it needs to be asserted before the order is entered. Also, if the lease is not listed to be sold in the initial motion, nothing stops a landlord from reaching out to the debtor to make an offer to buy back the lease.
Review Your Lease for Restrictions
Lease assignments during bankruptcy can be contentious. Landlords may object to the assignment of leases to new tenants, but these objections are often overruled unless the landlord can demonstrate that the new tenant would disrupt the tenant mix and balance of the shopping center. For instance, is there a lease restriction that would violate another lease? If so, you want to argue that point now.
Commercial landlords may have to navigate the complexities of bankruptcy law, which often favors the debtor’s ability to assign leases. However, landlords can still seek to impose reasonable restrictions on the conduct of auctions and assert their lease rights.
If you are a landlord or trade creditor in a retail bankruptcy, it is vital to know your rights now. Stark & Stark’s Shopping Center and Retail Development Group can help. Our bankruptcy attorneys regularly represent landlords throughout the country, including the Eastern District of Missouri, District of New Jersey, Southern District of New York, District of Delaware, District of Minnesota and the Western and Eastern Districts of Pennsylvania regarding a variety of issues. Most recently, our Group has represented landlords and trade creditors in the Party City, Big Lots, Tijuana Flats, Rite Aid, Blink Fitness, Express, JOANN’s and Sports Authority chapter 11 bankruptcy cases.
Even Passive Trusts?!? Maryland Extends Mortgage Lender Licensure Requirements to Holders of Residential Mortgage Loans
The Maryland Office of Financial Regulation (OFR) issued new guidance and emergency regulations extending mortgage lender licensure requirements to include acquirers and assignees of residential mortgage loans on Maryland properties. This guidance stems from the Maryland Appellate Court’s decision in Estate of Brown v. Ward (April 2024), extending the licensing obligations—previously understood to apply to brokers, originating lenders and servicers—to all parties who acquire or are assigned Maryland mortgage loans. The OFR explicitly states those parties include “mortgage trusts, including passive trusts,” unless expressly exempted.
The new guidance took effect immediately when released on January 10, 2025, but the OFR has indicated that enforcement actions will be suspended until April 10, 2025, allowing time for acquirers and assignees (and, yes, even passive trusts) to apply for the necessary licenses “without undue burden.”
Formal Guidance and Emergency Regulations
While the OFR had not previously interpreted Maryland’s Mortgage Lender Law to apply to assignees of mortgage loans, this new guidance, and the emergency regulations introduced to implement this guidance, “clarify” that licensing requirements now extend to assignees and mortgage trusts (yes, that’s right, even passive trusts). As background, the OFR indicates this clarification recognizes the reasoning in Estate of Brown, where the Court determined that an assignee of a HELOC subject to the open-end credit grantor (OPEC) provisions required a mortgage lender license based on (1) the inclusion of assignees in the definition of credit grantor under the OPEC scheme and (2) the common law principle “that an assignee inherits the rights and obligations of the original lender, including the duty to be licensed under Maryland law.”
The OFR’s guidance, however, goes further than the Estate of Brown decision. The OFR extends the Estate of Brown rationale to require a license under either the Maryland Mortgage Lender Law or the Installment Loan Law for any entity acquiring or assigned any mortgage loan.
Additionally, the emergency regulations make minor adjustments to accommodate the licensing of passive trusts:
Principal Officer Requirements: The regulations clarify that for passive trusts, the principal officer (who must have at least three years of experience in the mortgage business) can be the trustee, or if the trustee is an entity, an individual deemed a principal officer of the trustee under the criteria of the existing regulation.
Net Worth Requirements for Passive Trusts: Passive trusts can meet the net worth requirement by providing evidence that they hold or will hold sufficient assets to satisfy the requirement within 90 days of licensure, if the trust’s only assets are mortgage loans that it has not yet acquired.
Estate of Brown v. Ward
In Estate of Brown, the Court ruled that a consumer could use a defense against foreclosure because the assignee of the related HELOC was not licensed under the Maryland Credit Grantor provisions. The Court determined that the assignee—despite not originating the loan—was still required to be licensed to take advantage of the streamlined foreclosure process available to licensed entities.
The Court’s reasoning relied heavily on the statutory definition of “credit grantor” under Maryland law, which was amended to make a “correction” in 1990 to, among other things, include assignees in this definition. The court interpreted this to mean that the licensure requirement – which applies to a credit grantor that “makes” a loan – applies to assignees, in line with the principle that an assignee generally takes on the same rights and obligations as the assignor. This interpretation relied on the Court’s decision in Nationstar Mortgage LLC v. Kemp (2021), which concluded that assignees were subject to statutory usury and fee provisions applicable to “licensees” because assignees inherit the same responsibilities under the law as the original lender. The Estate of Brown decision extended this rationale to hold that because assignees succeed to the same rights and obligations as the assignor there was no indication that the legislature intended to exclude assignees from the licensure provisions.
Next Steps for Acquirers or Assignees of Maryland Mortgage Loans
For those involved in transactions involving Maryland mortgage loans (we’re looking at you sponsors securitizing Maryland mortgage loans), your immediate first step should be to carefully review your activities to determine whether licensure is required and if any exemptions apply. The importance of this first step was emphasized through the OFR’s January 31 bulletin which confirmed that “neither the [Estate of Brown] decision, nor OFR Guidance, overrides the[] statutory exemptions and exclusions” included in the licensure schemes (one of which exists for GSEs and trusts created by GSEs).
Key steps to consider include:
Identify the acquirer or assignee of the loan: Is it a statutory trust, limited liability company or corporation that is a separate legal entity or a common law trust that is not?
Check for applicable exemptions: While no express exemption for trusts is provided, ask if any other exemptions could apply to the trust in your structure.
Determine how the loan is being assigned: In the case of a trust, is the acquisition or assignment structured to transfer title to loan to the trust itself or to a trustee on behalf of a trust?
Assess how title is being recorded: In the case of a trust, is title being recorded in the name of the trust or in the name of the trustee (which is the more typical approach)?
Working through these steps will help determine if the acquirer or assignee is within the scope of the OFR’s guidance and emergency regulations and/or whether an exemption may apply.
With less than 50 business days between now and when the OFR may pursue enforcement actions on April 10, 2025, those who currently hold or may in the future acquire or be assigned Maryland mortgage loans and those who sponsor mortgage trusts or other entities to do so should strongly consider preparing for licensure. That may mean the following:
Register for the Nationwide Multistate Licensing System (NMLS): Maryland license applications must be submitted through the Nationwide Multistate Licensing System (NMLS), and an NMLS account is required.
Determine the “principal officer” to be identified on the license application: A principal officer with at least three years of mortgage lending experience must be designated.
Engage in discussions with your trustees if you have a mortgage trust and determine the “principal officer” may be the trustee or a principal officer of the trustee: Coordination with the trustees of mortgage trust (yes, including passive trusts) will be critical to navigating the licensure requirements and related application, especially if you determine that the principal officer will be an employee of the trustee.
Ensure compliance with net worth requirements: Passive trusts must be able to satisfy the statutory net worth requirement by providing evident of the assets that will be held within 90 days of licensure.
While we are actively participating in the preparation of a legislative proposal intended to further clarify Maryland’s mortgage lender licensure laws in a way that does not unduly impair the secondary trading and the securitization of Maryland mortgage loans, the legislative process can be unpredictable. Start now, rather than passively waiting for April 10, 2025 to arrive. As always, Hunton stands ready to help you navigate these and other regulatory challenges.