REG-118484-25, May 11, 2026

The Department of the Treasury, the Internal Revenue Service (IRS), the Department of Labor, and the Department of Health and Human Services recently issued proposed regulations to amend 26 CFR Part 54, as well as corresponding regulations under ERISA and the Public Health Service (PHS) Act. The primary objective of these proposed rules is to establish specific fertility benefits as a new classification of "limited excepted benefits". By classifying these benefits as excepted benefits, they become "generally exempt from the market requirements" found in Chapter 100 of the Internal Revenue Code, Part 7 of ERISA, and Title XXVII of the PHS Act.

The rationale for this regulatory action is deeply rooted in demographic trends and recent executive policy directives. The preamble explicitly highlights a demographic shift, noting that the United States is currently experiencing a declining fertility rate where the "general fertility rate declined by 14 percent" between 2014 and 2024, remaining "below replacement level for over a decade". The total fertility rate has dropped to 1.6 births per woman in 2023, which is below the 2.1 replacement level necessary for a population to sustain itself.

Furthermore, the regulations are a direct response to Executive Order 14216, "Expanding Access to In Vitro Fertilization," which established that "as a Nation, our public policy must make it easier for loving and longing mothers and fathers to have children". The Executive Order seeks to ensure reliable access to in vitro fertilization (IVF) by "easing unnecessary statutory or regulatory burdens to make IVF treatment drastically more affordable". Separately, the regulations align with Executive Order 14192, "Unleashing Prosperity Through Deregulation," which prioritizes efforts to "alleviate unnecessary regulatory burdens placed on the American people".

Historically, most employer-sponsored major medical health plans have not covered fertility treatments, and where employers do offer such coverage, "many have claims for such benefits administered under a separate contract from their major medical coverage". The Departments recognize that "coverage for the diagnosis, mitigation, or treatment of infertility or infertility-related reproductive health conditions" is lacking and hope that creating this new limited excepted benefit will "reduce the regulatory burden for employers seeking to offer fertility benefits to their employees".

Key Tax Provisions Impacting Group Health Plans

The statutory authority for these regulations derives from Internal Revenue Code Section 9832(c)(2)(C), which permits the Departments to recognize "such other similar, limited benefits as are specified in regulations" as excepted benefits. The proposed regulations formally incorporate this by amending 26 CFR 54.9831-1 to add a new subsection, Prop. Treas. Reg. § 54.9831-1(c)(3)(ix), identifying excepted fertility benefits.

To qualify under this new classification, the fertility benefit must either be provided under a separate policy of insurance or "otherwise not an integral part of the plan," and must satisfy strict criteria regarding the scope of benefits, dollar limitations, and notice requirements.

Scope of Covered Benefits Under the Exemption

To ensure the benefit remains targeted and limited, Prop. Treas. Reg. § 54.9831-1(c)(3)(ix)(A) outlines strict parameters on what treatments and services qualify. The regulation explicitly states that "Coverage is 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, which may include medically appropriate items or services targeted to address such conditions".

This definition allows for significant flexibility in plan design, allowing employers to cover services ranging from fertility counseling and basic laboratory tests to more advanced assisted reproductive technology (ART) procedures like IVF, provided that "substantially all of the fertility benefits are still at the direction of a medical professional authorized to practice under applicable law".

Lifetime Dollar Amount Limitations

To comply with the statutory requirement that the benefit must be a "limited benefit" similar to dental or vision excepted benefits, the proposed rules implement a strict financial ceiling. Prop. Treas. Reg. § 54.9831-1(c)(3)(ix)(B) mandates that "The total lifetime benefit per participant, together with their beneficiaries (if such beneficiaries are eligible for the fertility benefit), does not exceed $120,000".

The Departments selected the $120,000 threshold because the total cost of IVF, which often requires multiple cycles to achieve a successful pregnancy, can easily exceed $40,000 to $60,000. To prevent the erosion of this benefit's value over time, the regulation provides that for "any plan year beginning after December 31, 2027, the maximum lifetime dollar amount in the preceding sentence shall be increased by medical inflation". The inflation adjustment will be tied to the overall medical care component of the Consumer Price Index for All Urban Consumers (CPI-U). If a plan pays out the maximum $120,000 (plus any applicable medical inflation) for a participant, "the excepted fertility benefits would be exhausted and no further coverage or additional benefits could be provided by the plan or issuer" under the excepted benefit framework.

Separation from the Integral Group Health Plan

For self-funded arrangements (which cannot rely on a separate policy of insurance to establish themselves as excepted benefits), the proposed regulations require that the fertility benefit must not be an integral part of the primary medical plan.

Under Prop. Treas. Reg. § 54.9831-1(c)(3)(ix)(C), "fertility benefits are not an integral part of a group health plan if other group health plan coverage that is not limited to excepted benefits and that is not an HRA or other account-based group health plan is made available by the same plan sponsor for the plan year to participants that are offered the fertility benefit". Crucially, the regulations state that "participants (and beneficiaries, if eligible for the fertility benefit) enrolling in the fertility benefit may decline coverage for the other group health plan coverage". This design ensures that employees can independently access the excepted fertility benefit even if they receive major medical coverage elsewhere, such as through a spouse's employer.

Participant Notice Requirements

Tax professionals advising plan sponsors must ensure strict compliance with the disclosure rules. Under Prop. Treas. Reg. § 54.9831-1(c)(3)(ix)(D), plans or issuers must provide a specific written notice to eligible participants and beneficiaries.

The notice must be "written in a manner calculated to be understood by the average plan participant and must also include a description of the coverage, including a summary of benefits and limitations of the coverage (including the lifetime dollar amount limit established by the plan or issuer that complies with the lifetime dollar amount limit described in paragraph (c)(3)(ix)(B) of this section)". Additionally, the notice must disclose "how to identify and utilize a network provider, if applicable, and how to submit a claim for reimbursement, including whether the benefit utilizes the same claims procedure as for the sponsor’s other group health plans".

Regarding timing, Prop. Treas. Reg. § 54.9831-1(c)(3)(ix)(D)(2) requires that "The plan or issuer must provide the notice no later than the first date on which the participant or beneficiary is eligible to enroll in coverage, and annually thereafter, as well as upon request of the participant or beneficiary".

Proposed Effective Date and Pre-Finalization Reliance

As currently drafted, the introductory text of Prop. Treas. Reg. § 54.9831-1(c)(3)(ix) states that these provisions apply "For plan years beginning on or after January 1, 2027".

Regarding the critical question of whether taxpayers and plan sponsors can rely on these proposed regulations prior to their finalization, neither the proposed text of 26 CFR 54.9831-1 nor the accompanying preamble contain any explicit safe harbor or authority permitting early reliance. However, the Departments acknowledge the urgency of the issue and state that they "solicit comment on whether these proposed rules, if finalized, should instead be applicable upon the effective date of the final rules in order to grant group health plan sponsors and health insurance issuers flexibility to offer this new category of limited excepted benefits immediately, if desired". Consequently, tax practitioners must advise clients that until final regulations are published or interim reliance guidance is formally issued by the IRS and Treasury, utilizing this exemption to shield standalone fertility benefits from the Chapter 100 market requirements carries significant compliance risk.

Prepared with assistance from NotebookLM.