One Big Beautiful Bill Act, Part 2: Leveraging “Trump Accounts” for Financial Wellness, Benefit Plan Design, and Health Savings Plan Specifics

Stephanie Vasconcellos:

Welcome back to our Employment and Benefits Unpacked series, where we dive into the many employment, benefits, and mobility issues facing employers around the world. Each episode is hosted by a different Mayer Brown lawyer from our Global Employment and Benefits Group, and we hope to offer fresh perspectives and insights for employers, HR professionals, and in-house counsel. I'm Stephanie Vasconcellos, a partner in our Chicago office.

And I'm delighted to be joined again today by my colleagues, Ryan Liebl and Hillary August, both partners in our Chicago office. Hillary and Ryan, thanks for joining me again. Today is part of our One Big Beautiful Bill Act discussion.

And today we'll be talking about some of the changes for health and welfare plans, including those affecting high deductible health plans. And we'll also be talking about the new Trump accounts, which is an entirely new creation of the act. Hillary, do you want to take it away?

Hillary August:

Sure. So Trump accounts were, I think, one of the most talked-about provisions of the One Big Beautiful Bill Act, much like the No Tax on Tip and No Tax on Overtime provisions that I talked about on the last episode. So for Trump accounts, and they actually are called Trump accounts in the statute, there's not a fancier name for them. The way that Trump accounts work is that they are essentially starter individual retirement accounts or IRAs for children who are under 18.

They are subject to different rules than for regular IRAs until someone is over 18. And then when someone turns 18, then the account is generally subject to the same rules as traditional IRAs. Trump accounts can be funded in a variety of methods. So as part of a new temporary pilot program, the federal government will be funding Trump accounts with a seed contribution for certain children.

Employers can also fund Trump accounts, which is where the employee benefits aspect comes into this. A beneficiary's parents, other persons like other relatives, or the beneficiary, so the child, him or herself, could fund the Trump account. And then states, political subdivisions, Indian tribal governments, and nonprofit entities can also fund Trump accounts. And these accounts can start to be funded on July 4th of 2026. So one year after the One Big Beautiful Bill Act was signed. What are Trump accounts not? These are not education accounts like 529s. These are IRAs. These also are not Roth IRAs. These are traditional IRAs. They can be converted to a Roth IRA when the beneficiary attains age 18, but then, in the course of the conversion, all the earnings will end up being taxed. So the main difference that a Trump account provides from a regular IRA is the ability for a child to save in one of these savings accounts before the child begins working. Because a child under 18 or parent on behalf of a child can contribute to a traditional or Roth IRA of the child, but only if the child has his own taxable income. So if there's a child who is working, a child actor, something like that, who's making taxable income, then they can open an IRA. But otherwise, they're not eligible to fund an IRA. That rule hasn't changed. Trump accounts, in contrast, allow a child, more likely his or her parents or other relatives, to get an early start on saving for the child's retirement in an IRA, without being subject to the requirement that the child have taxable compensation. And other types of tax preferred savings vehicles continue to be available for children. But those other accounts like 529s and covered out accounts are education savings accounts and are not designed for retirement, whereas Trump accounts really are. There are limitations to Trump accounts. So, for example, the investment options are limited in a Trump account, as I'll discuss. Only one Trump account is allowed per child, whereas someone could have multiple IRAs. And then, as I mentioned, once someone does turn 18, it does look like the Trump account will be treated like any other traditional IRA. So who can have a Trump account?

A Trump account has to be established for an eligible individual, which is someone who has not attained age 18 yet before the end of the calendar year in which an election to contribute is made. So it's not entirely clear, but it does appear that a Trump account can be established at any time before someone turns 18, which would mean that someone who was born long before the One Big Beautiful Bill Act was passed would be able to fund a Trump account, but that person will not get the government's seed money. Someone also has to have a Social Security number, and they also have to be someone for whom either the Treasury Secretary makes an election, that that individual meets these age and Social Security requirements, and that no prior election for a Trump account has been made, or someone else has to make an election to establish a Trump account for the individual where the Secretary has not already made an election with respect to that individual. And we understand that the reason that there are these stringent rules on the Treasury Secretary making an election is really just to ensure that people can only have one Trump account. That's really the intent.

Stephanie Vasconcellos:

Is this something where you see employers are very interested in, you know, helping fund Trump accounts or assist employees with preparing, you know, adopting Trump accounts? Or is this something where it's too new to know whether employers are going to want to get into this space?

Hillary August:

I think it's too new right now, and there are a lot of open questions. So the annual contribution to a Trump account is $5,000. And we think that an employer can contribute up to $2,500 of that per year. It's a little bit unclear whether the $2,500 limit is an annual limit or a lifetime limit, but we think it's an annual limit, and it will be indexed.

The employer will be able to contribute up to $2,500 per year on behalf of each employee. And again, we think the way this works is that if an employee has multiple children, the employer can contribute in the aggregate $2,500. So if an employee has five kids, the employer could put $500 into each child's Trump account.

Stephanie Vasconcellos:

We thought the poor administration was complicated with the deductions, but trying to figure out how many children the employee has and where it's going seems really complicated and maybe an area an employer doesn't want to get into.

Hillary August:

Yeah.

It really might be an area the employer doesn't want to get into because there are also a lot of open questions in here. So, for example, could the employee himself defer into a Trump account on a pre-tax basis? We don't know. The statute does not specifically contemplate any employee pre-tax salary deferrals. What we do know is the statute incorporates a rule that applies to dependent care assistance plans. So, dependent-care FSAs essentially. And that rule from that dependent care statute references pre-tax salary deferrals. So does that mean that the intention was for employees to be able to make salary deferrals on a pre-tax basis? We don't know. And there are, again, a lot of other open questions like the statute provides that to the extent that an employer is contributing to Trump accounts, there needs to be a quote unquote separate written plan. So is that an ERISA plan? We don't know. There are a lot of questions about this. We think hopefully we'll be getting Treasury guidance on Trump accounts, but unclear whether Treasury, as opposed to the Department of Labor, would weigh in on whether these are ERISA plans or not. ERISA generally applies to a program that is established or maintained by an employer to provide retirement income to employees, but here the new accounts are treated as IRAs.

So employers might have questions about whether this does create an ERISA plan. And also this isn't providing retirement benefits to the employees. It's providing retirement benefits to the employees' children. And we also don't know whether from the DOL perspective this would constitute an ERISA plan. DOL's previous guidance hasn't really addressed ERISA's application to programs involving contributions to IRAs or employees’ dependence. Whether this could avoid being subject to ERISA is unclear, but that would certainly—

Stephanie Vasconcellos:

Well, of course, they didn't have lot of time to make guidance anyways, but now with the government shutdown running 40 days, I mean, we've got a real issue with a backlog of guidance here.

Hillary August:

Mm-hmm, yeah, there is a lot of guidance that we're waiting on. We hope, I know that the Treasury is working on some of that guidance and there are still some people who are working despite the furlough, but there is a lot that needs to be answered. We also know that a Trump account contribution program established by an employer has to meet certain non-discrimination requirements that generally apply to these dependent care assistance programs. So that means that the benefits can't discriminate in favor of highly compensated employees. And eligibility rules also can't discriminate in favor of highly compensated employees. Employees have to be provided certain notice of the program. Employees have to be provided with a statement by January 31st of any contributions that were made under the program the following year.

And the average benefits for non-highly compensated employees have to be at least 55% of the average benefits provided to highly compensated employees. And then on top of that, if this is an ERISA plan, there's all the additional ERISA reporting that would need to happen. Summary plan descriptions would need to be distributed to employees, query whether there would need to be a Form 5500 filed with the Department of Labor, depending on how many people are participating in this plan, whether if it is qualified as a retirement plan, does it have to be? Does the employer have to set aside money for it? There are a lot of open questions about this. So yeah.

Ryan Liebl:

Can I ask one more, Hillary, question, just an open question, I think, is it limited to a parental relationship? And the reason I ask that is in the situation if the law permits, say, grandparents or aunts and uncles or others to contribute to Trump accounts of children that are not their legal dependents, it seems to me too employers will get hit with questions then too, if in theory, because if they provide the benefit.

Hillary August:

Mm-hmm.

Ryan Liebl:

If grandparents come in and say, yes, I want the benefit for my grandchildren too. And the employer says, no, we've limited it to parental dependents, you know, because often employees have to list their dependents for other benefits purposes with their employer. It depends, right? But for health insurance, other reasons. So employers may have a record of the employees’ claimed dependents, but I don't know if it's broader and what complications that could lead to too, because honestly, it seems to me likely if they're eligible grandparents’ or older relatives’ disposable income. Maybe I want to set these up and something, I would love even accounts for my grandkid. And I don't quite know it or if you have thought.

Hillary August:

I think the statute does cover this. Says that the statute says that the gross income of an employee wouldn't include amounts that are paid by the employer as a contribution to the Trump account of the employee himself or of any dependent of such employee. So I would presume that the use of the word dependent means that this doesn't necessarily have to be a parental relationship.

So lots of open questions on Trump accounts. And then again, it's not just employers who could fund these Trump accounts. It's parents, it's grandparents, it's other not-for-profits. And there are lots of other rules that apply to those. And there are additional rules that apply with regard to the seed contribution, the $1,000 that the federal government is going to put in for children who are born within a certain.

Stephanie Vasconcellos:

Yeah, well, and some of that conversation leads right into the couple of changes that I wanted to talk about. The first was the increase in the contribution limit for dependent care assistance flexible spending accounts. As employers probably know, that limit has been $5,000 annually for some time, $2,500 for married individuals filing separately.

That limit is going to be increased to $7,500 annually or $3,750 for married individuals filing separately for taxable years beginning after December 31st, 2025. However, as employers are probably familiar, this dependent care assistance plans are subject to the same average benefits test, the 55% test that Hillary was talking about, which essentially requires that the average benefit elected by non-highly compensated employees is at least 55% of the average benefit elected by highly compensated employees. The test includes all eligible employees, even those who do not elect to participate in the dependent care assistance plan. So employers often run into issues with their dependent care assistance plans because they see that they're more heavily utilized by highly compensated employees than non-highly compensated employees.

If the test is failed, there's not an issue for non-highly compensated employees, but the contributions made by highly compensated employees need to be included in their gross income, either in parts or in whole, depending on how much the test was failed. So I think the question for employers will be, how is your company doing on its decap testing now with the $5,000 limit, and how would that be expected to change if the plan increased the limit to $7,500 annually?

For some, they'll say this is a great benefit and others might say it's not worth increasing it because we're just going to run into problems for our highly comped employees. Sorry, Hillary, go ahead.

Hillary August:

What are you seeing your clients doing? Are clients anxious to implement this, at least to benefit their non-highly compensated employees?

Stephanie Vasconcellos:

I think it depends on the client population. Where the employer is already having an issue with their testing, they're not implementing the new limit. Just because there's this concern with putting it out there and then highly compensated employees, essentially the benefit has to be later taken back. That's a real communications issue. And for many of them, it already is a communications issue and they have to work through it each year as they find out whether the plan has an issue on the test or not.

But I think we'll get a good set of data after the first year and maybe employers will start to figure out ways to improve election and adoption of decaps by not highly compensated employees.

The other big changes that I wanted to go through today before we sign off for our next section are the changes for high deductible health plans.And I kind of assume that people who are listening to a benefits podcast are familiar with high deductible health plans. They're one of the primary types of employer-sponsored health plans that are offered along with PPOs and HMOs. There are several requirements for a plan to be considered a high deductible health plan.

First of all, there's a minimum deductible, which is actually not that high in the scheme of health plans. For 2025, it's $1,650 for self-only coverage and $3,300 for family coverage. There is a maximum out-of-pocket requirement of $8,300 for self-only coverage and $16,600 for family coverage. And then the really critical point if someone wants to be in a high deductible plan and also would like to have the ability to contribute on a tax-favorite basis to a health savings account, which is a very beneficial thing, is that the high deductible health plan can't provide services pre-deductible other than certain preventive care. This is an area where we saw some changes under the One Big Beautiful Bill Act with respect to what might be considered a preventive care and what might be considered a qualifying high deductible health plan. If you're familiar with health savings accounts, these are accounts that allow individuals to save on a pre-tax basis for medical expenses. They're very tax-favored. Unlike many of the other things we've talked about today, there are no income limits. It's an above the line deduction. The contribution limit is fairly high. It's $4,300 for self-coverage and $8,550 for family coverage for 2025. There's a catch-up contribution for people 55 and older. And unlike a flexible spending account, it is not use it or lose it, which is a great benefit to employees. They can add money and it can keep growing over a lifetime. And it is not tied to your employer.

It's an individual savings count just like any other checking savings count you might have. So you can keep it as you transition from employer to employer. So the goal is to ensure that you have this high deductible health plan, you don't have any disqualifying coverage, and you can maintain your ability to contribute to a health savings account. The big changes under the One Big Beautiful Bill Act were first, qualifying high deductible health plans that allowed people to have health savings accounts were previously somewhat limited. They've now been expanded so it can include bronze plans and catastrophic plans that are available through the exchange. Those previously were not covered. Secondly, and this is one of the bigger ones for our plan sponsor and employer clients, is that now a high deductible health plan can provide telehealth and other remote care services on a pre-deductible basis and individuals are still eligible to contribute to a health savings account. This is something that happened originally during COVID. There was a big concern when COVID hit that people were going to stop being able to get their preventive care services because they weren't able to go in person and someone with a PPO might go ahead and get telehealth care, but someone with a high deductible health plan couldn't do that pre-deductible absent some guidance from the federal government. The federal government actually came out very promptly with guidance and said for a limited period of time, telehealth can be provided on a pre-deductible basis under a high deductible health plan. And we saw a few extensions of that. Those ran through the end of 2024.

The One Big Beautiful Bill Act now retroactively extends this coverage for telehealth and other remote care services on a pre-deductible basis, and it makes it permanent. So we no longer have to wait for the federal government to determine whether telehealth services can be provided pre-deductible. There are a lot of questions about what is included in telehealth and other remote care services. And I think, you know, as with some of the things that Hillary's been talking about, we really will need guidance from the federal agencies, and I think that's been stalled a little bit because of the shutdown and the furlough. But questions like, you know, what constitutes telehealth? Is it just the visit? What if there are prescription drugs that are prescribed during the telehealth visit? What if the prescriber or the physician that you're seeing sends you a monitor or some device that you have to use in advance so they can track symptoms?

What are other remote care services, if not telehealth? What about follow-up care? I think we'll see a lot of these questions really dug into and answered because there are some base level understandings that I think we all have about what might be included in telehealth and other remote care services. But following on from that are a lot of extra questions that nobody has answered to yet. And when it was just interim guidance or interim...interim permission for telehealth services. Nobody was answering those. Nobody was doing the best they could to interpret them. Now that it's permanent, I think we'll see formal guidance.

Hillary August:

What do you think you're going to see with your clients right now or in the next year or so before we get guidance? Think people are just going to be continuing with the status quo, doing the best they can like they were during the COVID era?

Stephanie Vasconcellos:

Yeah, I think that's right. And I think you see the major third-party administrators at least adopting some sort of internal telehealth policy about what's covered and what's not covered. I mean, the thing is that it's not mandatory to provide the telehealth and other remote care services. It's just that they can be provided on a pre-deductible basis. So that does give plans and plan sponsors some flexibility to determine what should be covered pre-deductible.

Think one of the other big changes is that HSA-eligible individuals will now be able to enroll in what the One Big Beautiful Bill Act is calling direct primary care arrangements. And I think of these kind of as concierge medicine. So these are arrangements where you might pay a monthly premium and you get access to your doctor's office and you can go for whatever visits you want.

Previously, this would have been an issue. If you had a high deductible health plan, they would look at a concierge medicine or a direct primary care arrangement as something that provided disqualifying coverage so that someone who maintained that sort of arrangement would not be eligible to contribute to a health savings account. Now, if the arrangement falls within certain parameters, someone who has this direct primary care arrangement can still contribute to a health savings account on a tax-favorite basis.

Again, there are a lot of questions here. First, it's pretty limited. The monthly premiums have to be $150 a month or less for individual coverage, $300 a month or less for family coverage. So that's not a lot if you've seen some of these concierge medicine arrangements. They have to be direct primary care services that consists solely of primary care services provided by primary care practitioners and the sole compensation for the care is that fixed periodic fee of $150 or $300 a month. It doesn't explain entirely what primary care is, but it does say that primary care is not any services requiring general anesthesia, any prescription drugs other than vaccines, and any lab services that aren't typically administered in an ambulatory primary care setting. So I think one of the areas where we'll see a lot of questions for employers is what about the direct primary care arrangements or the concierge arrangements that include more than that? You'll see arrangements that include nutrition services, well-being services, coaching arrangements, lifestyle, fitness, things that don't necessarily fall in these primary care service buckets. Can you combine those? Could you take them and separate out the medical care and say that's $150 or $300 a month?

But then this other service has to go with it and it costs $1,000 a month or something like that. I think we'll see a lot of questions both from the providers who are providing those services and then the individuals who are enrolling in them about how exactly that can work.

Hillary August:

What about with regard to on-site clinics? I know that's something that some of our clients like to provide to their employees is to have some sort of on-site wellness clinic. How would this arrangement affect receiving benefits there?

Stephanie Vasconcellos:

Mm-hmm.

Yeah.

I don't think we know the answer to that yet. The on-site clinics or the direct primary care service arrangements cannot be provided as part of the high deductible health plan arrangement, or at least that's what it appears. It appears it has to be some separate standalone arrangement. So it may be possible that that could apply to an on-site clinic that's standalone. I think we're going to need to see regulations to know whether that works.

All right, well, unless you have other questions, Hillary and Ryan, thanks so much for joining me today. We'll have one more session about the One Big Beautiful Bill Act, where we're gonna focus on Ryan's area of expertise, executive compensation, and all of the changes happening in that area. For our viewers and listeners, there are more episodes to come, not just on the One Big Beautiful Bill Act, there's more. Please check out our Employment and Benefits Unpacked page on the Mayer Brown website or on your preferred streaming platform.

If you'd like to discuss any of the issues we have covered today, please get in touch. And until next time, thank you for joining us.