The stated goal of the proposal is to simplify the public company reporting framework and “better calibrate” disclosure obligations with a company’s size and maturity. The proposal, together with the SEC’s recently proposed optional semi-annual interim reporting and reforms to the securities offering process and other forthcoming initiatives, is framed as a foundational step toward recalibrating the regulatory landscape for public companies.

Key Aspects of the Proposed Amendments

• The public float threshold for becoming a LAF would increase from $700 million to $2 billion, nearly tripling an unchanged threshold since it was first implemented in 2005. A company would not transition into or out of LAF status unless the $2 billion threshold was met, or not met, for two consecutive years, which is intended to prevent companies from oscillating between categories due to temporary market fluctuations. The public float would be calculated using the average stock price over the last 10 trading days of the second quarter, rather than on a single measurement date as currently required, providing a more stable assessment during periods of market volatility. Companies currently classified as AFs or LAFs with public floats below $2 billion should begin assessing how the proposal would affect their filer status and compliance obligations, as the transition could occur relatively quickly once final rules take effect.
• No company would be categorized as an LAF for at least 60 months following its IPO, regardless of its public float. This “IPO on-ramp” is intended to avoid a rapid escalation of reporting and internal control obligations for newly public companies with quickly appreciating valuations. Under current rules, a company can become a LAF after only 12 months of reporting, so this expanded seasoning period would provide all newly public companies meaningful breathing room to develop their compliance infrastructure before becoming subject to the most comprehensive disclosure requirements.
• All issuers not qualifying as LAFs under the revised standard would be classified as NAFs. NAFs would benefit from nearly all of the scaled disclosure and other accommodations currently afforded to SRCs and EGCs. Some practical differences between NAF and LAF reporting obligations are outlined below:
  • Financial Statements and MD&A. NAFs would be required to provide only two years of audited financial statements (rather than three for LAFs) and two years of Management’s Discussion and Analysis (rather than three for LAFs), with the ability to prepare their financial statements in accordance with Article 8 of Regulation S-X, which provides reduced presentation and note disclosure requirements. This scaled financial reporting framework is expected to lower both auditing and preparation costs for newly eligible filers.
  • Executive Compensation Disclosure. NAFs would benefit from significantly scaled executive compensation disclosure. NAFs would not be required to provide  Compensation Discussion and Analysis (CD&A), a compensation committee report, pay ratio disclosure, or pay-versus-performance disclosure. NAFs would be required to disclose compensation for only three named executive officers (compared to five for LAFs) and would need to provide only two years of summary compensation table information (compared to three for LAFs). LAFs, by contrast, would continue to be subject to the full executive compensation disclosure regime. This reduction is designed to decrease both direct compliance costs and the indirect costs associated with sharing potentially competitively sensitive information about executive retention and compensation strategies.
  • Shareholder Advisory Votes. NAFs would be exempt from the requirements to hold say-on-pay and say-when-on-pay (frequency of say-on-pay) advisory votes, as well as the requirement to conduct golden parachute compensation advisory votes, and provide related disclosure in connection with mergers and acquisitions. These exemptions, which are currently available only to EGCs, would be extended to all NAFs.
  • Risk Factors and Market Risk. NAFs would not be required to include risk factor disclosure in their Forms 10-K and 10-Q or provide quantitative and qualitative disclosures about market risk under Item 305 of Regulation S-K. LAFs would continue to be subject to these disclosure requirements.
  • Compensation Committee and Related Governance. NAFs would not be required to provide compensation committee interlocks and insider participation disclosure, or a compensation committee report, and would be permitted to forgo first-year audit committee financial expert disclosure. These exemptions are expected to reduce both the direct costs of preparing the associated disclosures and the indirect compliance burden of maintaining the governance processes and outside adviser assessments that support them.
• NAFs would be exempt from the requirement to obtain an auditor’s attestation on ICFR under Section 404(b) of the Sarbanes-Oxley Act. The SEC estimates that approximately 1,596 registrants (26.7% of all registrants), representing roughly 60% of all registrants currently subject to this requirement, would be newly exempt. The SEC noted that academic studies and industry data suggest that the costs of Section 404(b) compliance can be substantial, particularly for smaller filers, with estimates of annual compliance costs ranging from approximately $100,000 to $759,000 or more depending on registrant size. Management’s own ICFR assessment obligations and related disclosures would remain in place.
• The proposal would also create a subcategory of “small non-accelerated filers” (SNFs) with total assets of $35 million or less (measured as of the end of their two most recent second fiscal quarters). These issuers would be afforded additional time to file their periodic reports: the deadline for SNFs to file Form 10-K would be extended by 30 days, for a total of 120 days after fiscal year-end, and the deadline to file Form 10-Q would be extended by five days, for a total of 50 days after fiscal quarter-end. Filing deadlines for LAFs and other NAFs would remain unchanged. This accommodation is targeted at the registrants most likely to face resource constraints, as SEC data indicates that 39.7% of registrants at or below the $35 million total asset threshold, failed to meet the initial Form 10-K deadline in 2024, compared to only 11% of larger NAFs. The SEC has stated that the creation of the SNF category is intended to ease the burdens of public company reporting for the smallest issuers and thereby encourage these companies to go and stay public.

Comment Period and Next Steps 

The public comment period on the proposing release will remain open until July 20, 2026. Interested parties may submit comments through the SEC’s public comment portal.

These proposals should be understood as part of a broader regulatory package being proposed by the SEC, alongside the contemporaneously proposed reforms to the registered offering framework and the recently proposed semiannual reporting option, that collectively seek to reduce the cost of being a public company. Companies should not evaluate any one of these proposals in isolation, rather, the aggregate effect of expanded shelf access, reduced reporting frequency, and simplified filer categories could meaningfully alter the IPO calculus for companies currently weighing the decision to go public. Conversely, the combined reduction in disclosure frequency and expansion of offering flexibility may prompt investor advocacy groups and institutional investors to push back during the comment period on investor protection grounds.

We will continue to monitor developments related to this rulemaking and will provide updates as appropriate.

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Key Aspects of the Proposed Amendments

Expansion of Form S-3 Eligibility

One of the most impactful elements of the proposal for small- and mid-cap companies is the expansion of Form S-3 eligibility. Currently, an issuer must have either $75 million in public float or satisfy one of several alternative transaction-specific requirements to use Form S-3 for primary offerings without a limit on the amount offered. The proposed amendments would eliminate all Form S-3 transaction requirements, including the $75 million public float threshold, as well as the requirement that issuers be reporting companies under the Securities Exchange Act of 1934 (Exchange Act) for at least 12 months. Form S-3 would continue to require that issuers be current and timely in their Exchange Act reporting and would prohibit blank check companies, shell companies, penny stock issuers, and other “ineligible issuers” as defined in Rule 405 from using Form S-3.

To illustrate the practical consequences, a recently listed company with a $30 million market cap that is current in its Exchange Act filings would have the same shelf registration access as a company with a multi-billion-dollar float. The ability to register securities on a shelf registration statement and take them down in response to favorable market windows, without pre-effective SEC staff review and without preparing a full standalone prospectus each time, would meaningfully reduce both cost and execution risk for capital raising. 

New Issuer Categories — Enhanced Registration and Communication Benefits

The proposal would retire the familiar “well-known seasoned issuer” (WKSI) concept for domestic issuers and replace it with two new categories that decouple offering flexibility from issuer size. Currently, WKSI status requires either $700 million in public float or $1 billion in registered non-convertible debt issuances, thresholds that the SEC acknowledges have become misaligned with modern market conditions and that arbitrarily exclude well-followed companies from the most efficient capital raising tools. The proposal introduces a tiered framework that would extend enhanced registration and communication benefits to three groups: all Form S-3 eligible issuers, Eligible Listed Issuers, and Seasoned Eligible Listed Issuers.

The two new issuer categories are:

• Eligible Listed Issuer (ELI): An issuer that meets the proposed Form S-3 registrant requirements and has at least one class of common equity listed on a national securities exchange.
• Seasoned Eligible Listed Issuer (SELI): An ELI that has been subject to Exchange Act reporting requirements for at least 12 calendar months.

The proposal would extend enhanced registration and communication benefits to these categories in a tiered structure:

• Benefits Available to All Form S-3 Eligible Issuers. Broker-dealers participating in a distribution would be able to rely on Rule 139 to publish issuer-specific research reports about any Form S-3 eligible issuer without such reports being deemed an offer. Form S-3 eligible issuers also would be able to omit the identities of selling security holders from resale registration statements (Rule 430B(b)) and use free writing prospectuses (FWPs) without Section 10 prospectus delivery requirements (Rule 433).
• Additional Benefits for ELIs. ELIs would gain access to nearly all current WKSI benefits under the Securities Act, including:
  • The ability to make certain offers before filing a registration statement without violating Section 5(c) of the Securities Act (Rule 163)
  • The ability to make pre-filing communications more than 30 days before filing a registration statement in connection with Form S-8 offerings (Rule 163A)
  • The ability to use free writing prospectuses after filing in connection with Form S-8 offerings (Rule 164)
  • The ability to register additional classes of securities or securities of majority-owned subsidiaries via automatic post-effective amendments (Rule 413)
  • The ability to omit, among other things, a plan of distribution and securities description from a base prospectus (Rule 430B(a))
  • And “pay-as-you-go” registration fees (Rules 456(b)/457(r)) 

As a practical matter, ELI status would allow a newly listed company to immediately begin marketing a shelf offering through FWPs and roadshows without gun-jumping concerns, a meaningful advantage that today requires $700 million in public float.

• Additional Benefits for SELIs. Only SELIs would qualify for automatic shelf registration, the ability to file a shelf registration statement that becomes immediately effective without SEC staff review (Rule 462).

Modernization of Form S-1

For issuers that continue to use Form S-1, whether by choice or because they do not yet meet Form S-3 eligibility, the proposed amendments would significantly reduce the burden of maintaining an effective registration statement by expanding incorporation by reference:

• Backward Incorporation. Currently, an issuer can only incorporate by reference its previously filed Exchange Act reports into a Form S-1 if it has filed an annual report on Form 10-K for its most recently completed fiscal year. The proposal would remove this requirement, which is particularly relevant for companies in registration during their first fiscal year. For example, an issuer conducting an IPO that has not yet filed an annual report on Form 10-K would be able to incorporate “Form 10 Information” from its previously filed registration statement.
• Forward Incorporation. Currently, only smaller reporting companies (SRCs) can forward incorporate on Form S-1, meaning that non-SRC issuers must file post-effective amendments to update their registration statements with new periodic reports. The proposal would extend forward incorporation to all issuers meeting the incorporation by reference requirements, effectively giving Form S-1 some of the “evergreen” characteristics traditionally associated with Form S-3, reducing the need for costly and time-consuming post-effective amendments.

At-the-Market (ATM) Offerings

Because ATM offerings currently require Form S-3 eligibility, the proposed expansion of Form S-3 access would open ATM programs to a much broader group of issuers. However, the proposal would codify limits on the markets in which ATM offerings may be conducted.

The proposed amendments would define “trading market” for purposes of Rule 415(a)(4) to mean securities listed on a national securities exchange or traded in a market designated by the SEC based on specified criteria. Currently, the SEC believes the OTCQX Best Market and OTCQB Venture Market tiers of OTC Link alternative trading system would qualify as trading markets for ATM purposes. The proposed framework would give the SEC flexibility to recognize additional markets or withdraw recognition if market eligibility criteria change. 

Preemption of State Blue Sky Requirements for All Registered Offerings

The proposal would fully preempt state securities law registration and qualification requirements for all registered offerings. Currently, preemption under Section 18 of the Securities Act applies only to listed securities; offerings of unlisted securities remain subject to state registration and, in some states, merit review.

By defining “qualified purchaser” to include any person to whom securities are offered in a registered offering, the SEC would eliminate state-level registration and qualification requirements for unlisted securities offerings. This particularly benefits non-traded business development companies (BDCs), real estate investment trusts (REITs), and interval funds conducting continuous offerings. 

However, states would retain authority under Section 18(c) of the Securities Act to require notice filings and collect filing fees for offerings of unlisted securities and may suspend the offer or sale of such securities for failure to submit the required notice and fees. This authority to require notice filings does not extend to securities listed on a national securities exchange or securities of the same issuer that are equal or senior in seniority to such listed securities. States would also retain anti-fraud enforcement jurisdiction.

Business Development Companies (BDCs) and Closed-End Funds

The proposal extends parallel benefits to BDCs and registered closed-end funds on Form N-2, removing seasoning and public float requirements for short-form shelf registration. Exchange-listed BDCs and closed-end funds qualifying as ELIs or SELIs would gain the same enhanced registration and communication benefits as operating companies. Non-traded BDCs would also benefit from blue sky preemption.

Insurance Product Advertising

The proposal would amend Rule 482 to permit insurance companies to use the advertising safe harbor for registered index-linked annuities (RILAs) and market value adjustment annuities, addressing a gap in the framework. RILA advertisements would not be permitted to include performance data.

Modernization of Delaying Amendments

The proposal would flip the default for registration statement effectiveness under Rule 473 of the Securities Act. Currently, a registration statement becomes effective 20 days after filing unless the issuer includes a “delaying amendment” legend. Under the proposal, effectiveness would be automatically delayed unless the issuer affirmatively elects immediate effectiveness.

Practical Considerations for Companies and Their Advisors

These proposals have different implications depending on a company’s current status and capital markets strategy. Below, we highlight key considerations that companies and their counsel should be evaluating now, even before final rules are adopted.

• Revisiting Capital Markets Strategy. Companies with public floats below $75 million or less than 12 months of Exchange Act reporting should begin discussions with their investment bankers and legal counsel about how expanded Form S-3 eligibility could change their approach to equity financing. Companies with existing at-the-market (ATM) programs capped at one-third of their public float in any 12-month period under the current “baby shelf” rules should evaluate whether to expand those programs if the cap is eliminated.
• ATM Programs and OTC-Traded Issuers. ATM offerings would only be permitted for securities listed on a national securities exchange or traded on markets that meet the proposed “trading market” criteria, such as the OTCQX and OTCQB. Companies traded on lower OTC tiers would gain shelf registration access but would not be able to conduct ATM offerings, a distinction that could influence listing decisions.
• Interaction with Semiannual Reporting. Companies should evaluate these proposals in tandem with the SEC’s recently proposed semiannual reporting option. A company that both elects semiannual reporting and uses forward incorporation on a shelf registration statement would have less frequent updates to the information available to investors in its prospectus. While this could reduce costs, it may also cause underwriters to demand more extensive “bring-down” diligence in connection with shelf takedowns and could lead to wider offering discounts if investors perceive heightened information asymmetry. Companies contemplating both proposals should consider whether the cost savings from less frequent reporting are offset by potentially higher capital-raising costs.
• Risk for Unlisted WKSIs. Existing domestic WKSIs that are not exchange-listed could lose the enhanced registration and communication benefits they currently enjoy because the new ELI/SELI framework requires an exchange listing. These issuers, which include certain large privately held companies that have issued significant registered debt, should evaluate whether the proposal includes any transition relief and consider submitting comments requesting appropriate grandfathering provisions.
• Due Diligence Implications. The expansion of shelf registration to a larger universe of smaller issuers will require market participants, particularly underwriters, to consider whether their due diligence practices are adequate for accelerated offerings by companies with potentially thinner analyst coverage, lower institutional ownership, and shorter public reporting histories. While the SEC notes that existing Securities Act Sections 11 and 12(a)(2) liability frameworks remain intact, the compressed timelines of shelf offerings may require underwriters to develop more robust continuous diligence programs for newly eligible issuers.
• State Blue Sky Compliance. For issuers of unlisted securities, the proposed preemption would eliminate multi-state registration and qualification requirements. However, states would retain authority to require notice filings and collect fees for offerings of unlisted securities.

Comment Period and Next Steps

The public comment period on the proposing release will remain open until July 27, 2026. Interested parties may submit comments through the SEC’s public comment portal. 

These proposals should be understood as part of a broader regulatory package being proposed by the SEC, alongside the contemporaneously proposed filer status simplification and the recently proposed semiannual reporting option, that collectively seek to reduce the cost of being a public company. Companies should not evaluate any one of these proposals in isolation; rather, the aggregate effect of expanded shelf access, reduced reporting frequency, and simplified filer categories could meaningfully alter the IPO calculus for companies currently weighing the decision to go public. Conversely, the combined reduction in disclosure frequency and expansion of offering flexibility may prompt investor advocacy groups and institutional investors to push back during the comment period on investor protection grounds.

We will continue to monitor developments related to this rulemaking and will provide updates as appropriate.

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New York State’s legislature is poised to approve a new annual tax on second homes in New York City valued at over $5 million, with the tax expected to take effect on July 1, 2026, and generate approximately $500 million in annual revenue.

Why This Matters

New York’s pied-à-terre tax represents a meaningful shift in how jurisdictions are targeting wealth tied to real property. Unlike income-based tax measures, which high net worth individuals can often mitigate through residency changes, this levy attaches to the real property itself. The tax applies to residential properties worth more than $5 million where the owner’s primary residence is outside New York City and the property is not leased to a full-time tenant. City estimates suggest roughly 10,000 properties will be affected.

The pied-à-terre tax comes at a time when New York City is facing a potential budget crisis. The city previously considered an across-the-board rate increase to the city’s property tax. However, these hikes were not included in the draft budget released by Mayor Mamdani on May 12, 2026.

This development is part of a broader pattern we are tracking in this series: states and localities are increasingly reaching for targeted tax measures aimed at high-value real property and affluent taxpayers when broader tax increases prove politically difficult.

Who This Impacts

The pied-Ă -terre tax is designed to reach nonresident owners of high-value New York City residential real property, including out-of-state and international investors and ultra-high-net-worth families holding property through personal ownership, fiduciaries, and family offices maintaining residential property for beneficiaries or principals. Advisors to multigenerational families with legacy real property holdings in New York City should take particular note, as the tax may alter the long-term economics of retaining these properties.

What to Watch

Several open questions remain. The legislation is scheduled for a vote in the New York State Senate and Assembly in the last week of May, but implementation details — including assessment mechanics, valuation procedures, and the treatment of properties held through trusts, LLCs, or other entities — have not been fully articulated. Whether entity-owned properties will be subject to look-through rules, and how beneficial ownership will be determined, are critical threshold questions. If New York follows the same framework articulated in California’s proposed Billionaire Tax, we anticipate that look-through rules will apply.

Practitioners should also watch for potential constitutional challenges and for whether the revenue projections hold once owners begin restructuring or disposing of covered properties. The broader fiscal context matters as well: New York State’s proposed additional tax on all-cash transactions on real property above $1 million and New York City’s proposed income surtax on millionaires did not survive negotiations, but they illustrate the range of measures under active consideration in New York and may resurface in the future.

Our Perspective

For clients with significant New York City real property, this is a moment to take stock. The pied-à-terre tax is not merely a revenue measure — it signals that absentee ownership of high-value residential property will be treated as a taxable privilege, not just a market position.

From a planning standpoint, affected owners should evaluate their current ownership structures to determine whether entity arrangements, trust holdings, or co-ownership may alter exposure or inadvertently increase it if look-through rules apply. Residency and domicile documentation will take on heightened importance, particularly for families who split time between New York City and other jurisdictions and who may want to establish that a property qualifies as a primary residence.

For multigenerational families, the tax adds a recurring annual cost to the calculus of retaining legacy real property in New York City and may accelerate conversations about whether to hold, gift, or sell. Estate and gift planning strategies, including the timing of intergenerational transfers and the use of trusts, should be revisited in light of both this new levy and the broader trend of targeted taxes on concentrated property holdings.

We are monitoring developments as the legislation moves to final passage and as implementation guidance emerges.

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Gordon Peterson established The Peterson Family Stewardship Fund at WaterStone in 2005 to support evangelical Christian charitable purposes. For nearly two decades, WaterStone reportedly honored the donor’s grant recommendations to the donor’s satisfaction. Following the deaths of the original donor and his wife, their son, Philip, became the sole successor advisor. In 2024, however, the relationship broke down. Philip alleges that WaterStone revoked his online access, suspended his advisory privileges, refused to process grant recommendations in a timely manner (including a $1 million recommendation to a previous grantee), and directed him to cease all contact with the organization.

The complaint asserts claims for breach of contract, negligent misrepresentation, and violation of the Colorado Consumer Protection Act, among other causes of action. In response, WaterStone has argued in a motion to dismiss that it is not contractually obligated to honor the advisor’s recommendations because the sponsorship agreement between the donor and WaterStone provides that WaterStone has ultimate control and discretion over the fund and does not obligate WaterStone to provide accountings, statements, or other disclosures requested by the advisor.

Why It Matters

The crux of this lawsuit is that the sponsorship agreement provides that WaterStone has ultimate control and discretion over the fund and that the donor has irrevocably relinquished all interests and rights in his contributions to the fund. This is typical of DAF agreements. Donors should be aware that their advisory privileges are not binding on the sponsoring organization and that, if an amicable relationship sours, a donor or future advisor may not have satisfactory recourse when the sponsoring organization declines to follow grant recommendations.

Sponsoring organizations may draw several lessons from this lawsuit as well; Peterson is not the first — and likely will not be the last — lawsuit by a disappointed successor advisor to a DAF. Sponsors should closely review, from a legal perspective, the documents governing their DAFs. Sponsoring organizations should also aim to be precise in communications and language concerning issues such as whether and when a DAF may transfer assets to another organization (the complaint alleges that a WaterStone employee said the fund could be transferred to another organization) and should be aware that any communications with donors or advisors could find their way into a future legal complaint. Sponsoring organizations should therefore work to preserve constructive communications and relationships with advisors while also recognizing that, even with the best intentions, some advisors may not be mollified and each organization must proactively protect itself.

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A significant number of employer-sponsored major medical plans do not offer fertility benefits or only cover a limited scope of infertility services. In vitro fertilization (IVF) and other infertility services are expensive, with HHS estimating a cost of $10,000-$20,000 for a single IVF cycle.ⁱ The high cost places infertility services out of reach for many Americans. The proposed rule seeks to change this by providing more flexibility for employers seeking to offer fertility benefits to their employees.

Under existing law, offering a carve-out fertility benefit plan is subject to compliance hurdles. Group health plans are generally subject to specific requirements under the Patient Protection and Affordable Care Act (ACA) and other federal laws (market reform requirements). For example, the ACA requires group health plans to provide coverage for certain preventive services. A plan providing limited coverage for a specialized benefit (like fertility benefits) is not able to meet the market reform requirements on a standalone basis.

However, certain types of health benefit plans, known as excepted benefits, are generally excluded from these market reform requirements (e.g., accident-only, hospital indemnity, and certain dental and vision coverage, etc.). The proposed rule would add fertility benefits as a type of excepted benefit that does not need to meet market reform requirements.

Under the proposed rule, for a fertility benefit plan to qualify as a limited excepted benefit, it must:

• If insured, be provided under a separate policy, certificate, or contract of insurance from major medical coverage;
• If self-insured, be offered only to employees who have been offered both traditional major medical coverage and the fertility benefit plan by the plan sponsor. The employee is not required to be enrolled in the plan sponsor’s major medical coverage to enroll in the fertility benefit plan;
• Be limited to benefits substantially all of which are for the diagnosis, mitigation, or treatment of infertility or infertility-related reproductive health conditions and substantially all of which are provided by medical professionals authorized to practice under applicable law;
• Have a total lifetime benefit of no more than $120,000 per participant (including dependents) (indexed for inflation); and
• Provide a notice containing specific information to participants that serves as a “quick reference guide” for the benefit.

If finalized, the proposed rule would provide a compliant path for employers that desire to offer fertility benefits to their employees on a carve-out basis. The comment period for the proposed rule ends on July 13, 2026. The Departments have expressly requested input on whether the rule should take immediate effect (rather than a January 1, 2027, effective date), the amount of the lifetime limit, whether the limit should instead be an annual limit, and other comments or data that may provide insight into potential fertility benefit plan design and utilization. 

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This article walks through key decisions and common issues when a buyer acquires a target company in an equity purchase and both companies sponsor 401(k) plans.

Why Timing Matters: The Successor Plan Rule and Pre-Closing 401(k) Plan Termination

A common (and most risk-averse) approach is to require the seller to terminate its 401(k) plan at least one business day before the closing date of the sale. This timing is critical because of the Internal Revenue Code “successor plan” rule. In simple terms, this rule provides that if an employer terminates a 401(k) plan but maintains another 401(k) plan simultaneously in its controlled group, participants in the terminated plan cannot receive distributions of their elective deferral accounts as part of the plan’s termination.

In an equity acquisition where the buyer already sponsors its own 401(k) plan, this means the buyer’s 401(k) plan will be treated as a “successor” plan if the target’s 401(k) plan is terminated after closing. The consequence is significant, as participants could be stuck with account balances in a terminated plan that cannot be distributed, creating an administrative headache for the buyer and frustration for employees.

By terminating the target’s 401(k) plan before closing (and before the buyer and target become members of the same ERISA-controlled group), these successor plan rules should be avoided. However, this pre-closing termination strategy requires careful coordination:

• The target company (as plan sponsor) must adopt board resolutions at least one day before closing to terminate the plan, stop contributions, and begin the wind-down process.
• Participants must be fully vested in all employer contributions upon termination as required by law.
• The purchase agreement should include a covenant or closing deliverable requiring the seller to adopt the necessary termination resolutions effective no later than one day before closing.

Importantly, terminating the target’s plan pre-closing does not relieve the buyer of its obligation to ensure the plan is timely and properly wound down post-closing.

• The wind-down requires active fiduciary supervision and can take up to a year or more, as all assets must be distributed to participants. Upon termination, participants may elect to roll over their account balances into the buyer’s 401(k) plan or an IRA, or receive their benefits in cash as a taxable distribution.
• The terminated plan must be properly amended to bring the plan document up to date with any required amendments through the date of termination. After all distributions are complete, a “final” Form 5500 must be timely filed with the DOL.
• The buyer should confirm that eligible target employees can enroll in the buyer’s plan at or shortly after closing, that the buyer’s plan can accept rollovers of account balances from the seller’s plan (including any timing constraints), and whether the buyer’s plan can accept rollovers of outstanding participant loans to avoid triggering adverse tax consequences to the seller’s employees. These issues may require plan amendments or administrative changes.
• The buyer will also need to coordinate between recordkeepers of both plans if the buyer’s plan will accept rollovers (including loans) from the target’s plan.

Buyer’s Post-Closing Options If the Plan Is Not Terminated Before Closing

If the target’s 401(k) plan is not terminated before closing, the buyer’s post-closing options are generally limited to three alternatives: continue the target’s plan (usually temporarily under a special Internal Revenue Code transition rule), freeze the target’s plan, or merge the target’s plan into the buyer’s plan. Often, buyers use more than one of these alternatives as part of overall strategy for HR and benefits integration.

• Continue the Target’s 401(k) Plan. An employer maintaining two 401(k) plans in its controlled group must ensure each plan satisfies coverage requirements under Internal Revenue Code rules, which are designed to prevent plans from disproportionately favoring highly compensated employees. Meeting these requirements on an aggregated testing basis for the controlled group can be difficult or impossible. However, the transition rule under Internal Revenue Code Section 410(b)(6) gives buyers a grace period from closing through the end of the first plan year beginning after the sale, provided neither plan significantly changes its coverage rules. This gives buyers approximately 12-24 months to continue the target’s plan, depending on closing timing. This approach allows buyers time to evaluate the target’s plan, compare its terms to the buyer’s plan, and make thoughtful decisions about the long-term benefits strategy for the combined workforce.
• Freeze the Target’s 401(k) Plan. A less common alternative is for the buyer to freeze the target’s plan at or after closing. This typically involves amending the plan to stop new contributions and close the plan to new participants. This results in additional ongoing administrative costs while the frozen plan remains outstanding, and a frozen plan still carries ongoing fiduciary and administrative obligations, including filing Form 5500 reports, distributing participant notices, facilitating ordinary course distributions, and monitoring plan investments and service providers. This approach is sometimes used as a bridge strategy when the target’s employees start participating in the buyer’s plan but a plan merger cannot be completed simultaneously, or where surrender charges or market adjustments applicable to the plan’s investment contracts would be detrimental to plan participants.
• Merge the Target’s 401(k) Plan into the Buyer’s 401(k) Plan. This alternative, typically used with one or both of the other approaches, involves merging the target’s plan (and all related assets) directly into the buyer’s plan. This consolidates plan administration, reduces costs, and brings all employees under one plan. However, a merger risks “tainting” the buyer’s plan’s tax-qualified status if there are outstanding compliance issues under the target’s plan. Detailed substantive due diligence of the target’s 401(k) plan during the sale transaction is critical for determining any issues that may arise with this approach. The buyer and its plan administrators will need to review both plans to identify differences in eligibility, vesting schedules, contribution formulas, distribution options, and loan provisions. This review is critical to preserve any “protected benefits” (as required under Internal Revenue Code rules) and to inform plan design decisions for administrative simplicity going forward. In addition, various administrative actions and participant notices may be required to complete a plan merger, creating additional administrative burdens and costs.

A Few Practical Issues and Potential Complications for Buyers to Consider

Here are a few issues for buyers to consider early in the transaction process that may affect which approach to take with the target’s 401(k) plan.

• Outstanding Participant 401(k) Plan Loans
  Participant loans can create headaches in plan transitions. If the target’s plan is terminated, outstanding loans not repaid upon plan termination are generally treated as a “deemed distribution,” which is taxable to the participant (including potential early distribution penalties for participants under age 59½). A buyer’s plan may be able to accept rollovers of outstanding loans from the target’s 401(k) plan if the employee also rolls over his or her full account balance into the buyer’s plan. However, the buyer will need to confirm this is possible under the buyer’s plan and with its administrator, as the process typically requires significant data coordination between the buyer and the target’s 401(k) plan recordkeepers. A buyer should involve its recordkeeper early to understand the feasibility, requirements, and timeline for transferring loans.
• Recordkeeper Requirements
  Third-party administrators for both plans may impose their own requirements as a condition of administering a plan termination, merger, freeze, or asset transfer, which can create administrative hurdles. For example, a recordkeeper may insist on receiving specific board resolutions, officer certifications, or documentation that is consistent with the recordkeeper’s forms. These requirements are commonly driven by the recordkeeper’s internal policies and contractual terms, not necessarily general legal requirements, but they can delay the process if the buyer or target is unprepared. For example, although a timely and properly adopted board resolution terminating the target’s plan should establish the plan’s effective termination date for legal purposes, recordkeepers may try to require other documentation or notices to implement the termination process. Early engagement with both the buyer’s and the target’s plan administrators is important to eliminate speed bumps.
• Plan Investment Options with Unique Potential Costs or Timing Considerations
  Some 401(k) plans, particularly smaller plans, use investment options such as group annuity contracts or stable value funds that may carry surrender charges or market value adjustments. In that circumstance, if the buyer terminates the target’s plan and liquidates these investments on a compressed timeline, participants may face significant financial penalties on their plan investments. Surrender charges can reduce participant account balances, and market value adjustments can result in participants receiving less than the book value of their accounts.
  Buyers should review the target’s investment lineup during due diligence to identify products with these features and determine the proper path for addressing additional fees or costs.

Conclusion

When a buyer with an existing 401(k) plan acquires a company that sponsors a 401(k) plan, it adds meaningful complexity to the transaction that demands early attention and careful planning. Thorough due diligence on the target’s plan is essential. Buyers who engage their employee benefits counsel, advisors, and third-party administrators early are far better positioned to navigate these issues efficiently and avoid surprises that can create unintended consequences, frustrate and delay HR integration efforts, or create unnecessary administrative costs.

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Washington’s Millionaires Tax

Washington’s Millionaires Tax is set to take effect on January 1, 2028. If the tax, which is currently being challenged in court as unconstitutional, is deemed constitutional, it will impose a 9.9% income tax on individuals with annual Washington adjusted gross income of $1 million or more.

In addition to the constitutional challenge to the Millionaires Tax, opponents to the tax filed a writ of mandamus with the Washington Supreme Court asking the court to direct the Washington Secretary of State to put the tax to a vote in November 2026. On May 4, 2026, the Supreme Court denied the petitioners’ request, determining that the Millionaires Tax falls within the Washington Constitution’s referendum exception for laws “necessary for the … support of the state government” because it “generates revenue for existing state institutions.” Accordingly, the Millionaires Tax is still set to go into effect on January 1, 2028, unless the tax is found to be unconstitutional through the ongoing challenge.

New York State’s Second Home Tax and Tax on Homes Bought in Cash

As we addressed in our April 29, 2026 blog post, New York Gov. Kathy Hochul is still pursuing a property tax surcharge, known as the “pied-à-terre tax,” on second homes in New York City worth over $5 million. New York State is also considering imposing a tax on New York City homes purchased in cash for $1 million or more. According to , the tax is expected to raise $160 million. The details of both taxes are still under negotiation.

New York City’s Property Tax Hike

New York City residents received some welcome news when, on May 12, 2026, Mayor Zohran Mamdani released the city’s $124.7 billion fiscal year 2027 budget, which did not include the 9.5% property tax hike that the mayor proposed in February 2026.

Our Perspective

The developments in Washington and New York fit into a broader pattern that we have recently seen: states and localities continue to explore targeted tax measures that focus on high-value property and affluent taxpayers when broader tax increases prove politically difficult and unpopular.

For clients with significant New York City real estate exposure, now is a good time to review how those holdings fit into their overall tax, residency, and estate planning picture. Even if New York’s proposals change or do not advance, this broader trend of targeted taxes is one to watch closely.

The post Wealth Tax Watch: Washington’s Millionaires Tax Will Not Go to the Voters, and Updates to New York’s Taxes on Real Estate appeared first on Â鶹´«Ă˝.

A consistent theme across the summit was that the NMTC industry has entered a new phase. With permanent authorization now in place, the conversation has shifted from preserving the program’s existence to improving how it operates, where it reaches, and how it can continue to evolve in response to market and policy priorities.

Here are the key themes we heard across the summit.

1. Permanence has changed the conversation, but not the need for advocacy

The most significant backdrop to this year’s discussions was the NMTC Program’s permanent authorization. For years, much of the industry’s advocacy was centered on securing permanence. That objective has now been achieved through the passage of the “One Big Beautiful Bill” last summer, and stakeholders are increasingly focused on what permanence should mean in practical terms.

Across sessions, we heard a common refrain: permanence is not the end of the work. Instead, the industry’s attention is now shifting toward protecting the credit, enhancing its effectiveness, and positioning it for long-term growth. Participants emphasized the importance of continued engagement with Treasury and the CDFI Fund, including staffing, administration, and implementation, to ensure the program remains stable and responsive.

In other words, the policy goal is no longer simply to preserve the NMTC Program. It is now to preserve it and improve it.

2. Predictability in the allocation process remains a major issue

Although permanence gives the market a stronger long-term foundation, many summit participants observed that the allocation process still lacks the kind of predictability that would allow for more efficient planning and execution.

We heard significant discussion about the market’s desire for a more regular and transparent allocation schedule. Even with the program now permanent, sponsors and borrowers still face timing challenges when they cannot reliably predict when an application round will open, how long the application period will last, or when awards will be announced. That uncertainty can be particularly difficult for projects with immediate financing needs.

This issue is also tied to market participation. Several attendees noted that a more predictable process could encourage broader participation by investors, CDEs and project sponsors alike. By contrast, when transaction timing remains uncertain, CDEs often prioritize execution speed, and that can make it more difficult to bring in new direct investors or pursue more complicated transactions.

At the summit, views varied as to when the next application round may be released. Estimates ranged from June to late summer or early fall, and there was similarly wide variation in expectations regarding the length of the application window.

3. The market continues to wrestle with how to serve smaller, rural, and tribal projects

Another major theme we heard was the continuing challenge of directing NMTC subsidy to smaller projects and to communities that may be harder to serve under current market structures, particularly rural communities and Native communities that are being prioritized by the current administration.

Many participants acknowledged that these projects are often among the most impactful from a community development perspective, but they can also be the most difficult to finance using NMTCs. Transaction costs, structuring complexity, limited local capacity, and timing constraints all make these deals harder to bring to closing. By contrast, larger transactions are often more efficient and easier to execute.

At the same time, the summit reflected a strong view that the NMTC market should continue working to reach these communities more effectively. In rural development discussions in particular, many participants emphasized that community impact should not be evaluated solely through traditional job metrics. In many communities, projects such as health care facilities, utilities and broadband projects, childcare centers, convenience stores, and other essential service businesses may provide substantial local benefit even if they do not fit a traditional large-scale economic development model or generate headline job numbers. At the same time, in our conversations with project sponsors and consultants, we also heard a more practical market reality: many CDEs continue to focus on projects with strong, easy-to-quantify job creation metrics, in part because those transactions can present clearer narratives and more readily measurable outcomes for CDFI Fund purposes. We also heard calls for structural improvements that could make the program more accessible in these settings, including additional administrative resources, greater standardization in transaction documents, and more tailored geographic eligibility rules for rural areas where census tract-wide metrics may not fully capture localized need.

4. CDEs are balancing flexibility with the realities of the application and scoring process

The NMTC Program has long been valued for its flexibility, and summit participants repeatedly noted that flexibility remains one of the program’s key strengths. At the same time, we heard recurring discussion about a practical tension within the allocation process: CDEs may be encouraged to respond to evolving community needs and policy priorities, but they are still evaluated in part based on demonstrated experience and track record.

That dynamic can make innovation difficult. CDEs may see opportunities in newer or emerging asset classes, or in policy areas receiving increased attention, but may be reluctant to move too far beyond their existing focus areas if doing so could affect future competitiveness in the application process. As several participants framed it, the challenge is to diversify and evolve without losing strategic clarity or undermining the consistency of a CDE’s platform.

This tension was particularly relevant in discussions involving for-sale housing and other uses that may be receiving increased policy attention. While some market participants are exploring those areas, there was broad recognition that not every CDE is positioned to pivot quickly, and the application framework may not always reward that kind of transition in the near term.

5. Certain sectors continue to attract significant interest, particularly in rural markets

Across sessions and side conversations, several project types consistently emerged as areas of continued market focus.

Rural manufacturing remains a significant priority, as do health care projects, including federally qualified health centers and critical access hospitals. Infrastructure, utilities, broadband, water, electric projects, and other essential community facilities were also frequently identified as strong candidates for NMTC financing, especially in underserved rural markets.

A related practical takeaway from the rural-focused discussions was that transaction readiness matters. Because CDEs remain focused on efficient deployment and timely closings, project sponsors and their counsel may benefit from beginning diligence and organizational work streams early so that projects are well positioned when financing opportunities arise.

Looking ahead

The central message we took away from this year’s summit is that the NMTC market is now operating in a post-permanence environment, but one that still presents meaningful practical and policy questions.

The themes we heard in Miami were less about whether the program will continue and more about how it can function more effectively: with a more predictable allocation timeline, stronger administrative support, better access for smaller and rural projects, and continued flexibility to meet changing community needs.

For CDEs, investors, and project sponsors alike, that shift presents both opportunities and challenges. The Â鶹´«Ă˝ NMTC Team will continue monitoring developments in the NMTC market, including allocation timing, policy changes, and transaction trends affecting community development financing.

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