Open enrollment 2026: A practical guide for a year of policy change

For middle market organizations, open enrollment is never simple, and the 2026 plan year introduces a higher level of complexity than in previous years. The federal tax law enacted in July 2025 changed how employers report tips and overtime, made the employer student loan repayment exclusion and the paid family and medical leave credit permanent and reshaped parts of the retirement landscape. Healthcare costs are on track to rise above 5% for a third consecutive year, with projected increases of 7% to 9% expected in 2026. Pay transparency requirements continue to expand across states. At the same time, employees who are accustomed to personalized digital experiences in other aspects of their lives increasingly expect the same from their benefits.

Together, these changes make this year's open enrollment a greater test of an organization's total rewards strategy. While the landscape is evolving, the fundamentals of a successful enrollment process remain the same. Organizations that navigate open enrollment effectively start planning early, involve the right stakeholders, test the experience from an employee's perspective and communicate with purpose.

OBBBA and SECURE 2.0: What's changing for 2026

Two major pieces of legislation, the One Big Beautiful Bill Act (OBBBA) and SECURE 2.0, are driving significant changes to payroll, benefits and retirement plans this year. Here's what employers need to know before open enrollment and the first payroll cycle of 2026.

• OBBBA: No tax on tips and overtime: OBBBA created an individual tax deduction for qualifying tip and overtime income, retroactive to Jan. 1, 2025. Employer withholding requirements remain unchanged, but reporting requirements continue to evolve. IRS has indicated that the 2025 Form W-2 will not be modified, while the draft 2026 Form W-2 includes new reporting codes. Additional IRS guidance, likely delivered in a supplemental statement for 2025, is expected to outline the information employers must provide so employees can claim the deduction.
  
  In the meantime, employers can notify affected employees about the deduction while payroll teams identify eligible employees, validate qualifying wage amounts and verify payroll data ahead of final IRS guidance.
• OBBBA: Employer student loan assistance: Since 2018, section 127 educational assistance programs have allowed employers to pay or reimburse up to $5,250 annually toward an employee's qualifying student loan principal or interest on a tax-free basis. OBBBA made this provision permanent and, beginning in 2027, indexes the annual limit for inflation. Employers with section 127 programs should review plan documents and internal policies to determine whether contribution limits or administrative processes need to be updated as the annual cap increases.
• OBBBA: Paid family and medical leave credit: Congress made the federal paid family and medical leave credit permanent and expanded the eligibility requirements. Certain insurance premium costs may now qualify for the credit even when no employee takes leave during the year. Employers that previously determined they were ineligible should reassess their eligibility and credit, because the qualification requirements and available tax benefits have changed.
• SECURE 2.0: Roth catch-up contributions for high earners: Starting Jan. 1, 2026, catch-up contributions for participants whose prior-year Federal Insurance Contributions Act (FICA) wages exceeded $145,000 must be treated as Roth contributions. Final regulations issued in mid-September provide a good-faith compliance period through 2026, with full compliance expected by the end of 2027. Retirement plans can automatically treat eligible catch-up contributions as Roth contributions or eliminate catch-up contributions, although the latter approach is uncommon. Partners and other self-employed individuals without FICA wages are excluded from the requirement regardless of total compensation, and controlled-group aggregation is permitted but not required.
  
  This requirement affects payroll deduction codes, retirement plan configuration, vendor file feeds and employee communications. Employers should validate systems and employee elections before the first payroll cycle of 2026 to help reduce the need for corrections later in the year.
• SECURE 2.0: Long-term part-time employee eligibility: Beginning in 2025, long-term part-time employees who complete at least 500 hours of service during two consecutive 12-month periods must be allowed to make elective 401(k) deferrals. The original SECURE Act required three consecutive years of service; SECURE 2.0 reduced the requirement to two years. Employers can continue to exclude these employees from employer contributions and from certain nondiscrimination testing, subject to plan provisions. Organizations should confirm that timekeeping and payroll systems accurately capture hours worked to support eligibility determinations.
• SECURE 2.0: Annual paper benefit statements: Starting Jan. 1, 2026, defined contribution plans must deliver at least one paper benefit statement each year unless the participant has affirmatively elected electronic delivery. The recordkeeper typically manages the mailing process, but accurate employee mailing addresses in the human capital management (HCM) system are essential. Open enrollment provides an opportunity to encourage employees to review and update their contact information.

The tax treatment of a benefit should not be the primary factor when deciding whether to offer it. However, employers should understand its tax treatment to help avoid unexpected costs, penalties, interest and compliance issues. 

Key trends influencing total rewards strategies

Beyond regulatory changes, broader workplace trends continue to influence employee expectations and benefit utilization. While these trends are not new, they are becoming increasingly more important as employers evaluate and refine their total rewards strategies.

Important considerations include:

Why early planning matters for open enrollment

Every open enrollment season reinforces the same lesson: Start planning earlier than expected. Experience shows that organizational decision makers should allow roughly twice as much time as their initial estimate.

As a general guideline, begin preparations 10 to 14 weeks before your vendor's open enrollment file deadline. Working backward from that deadline helps establish the right sequence of activities. If you're changing carriers, allow an additional three to four weeks for testing. New carrier feed implementations within many HCM platforms can take eight to 10 months when vendor queues are full, and Q4 backlogs of 16 to 18 weeks are common.

For existing carrier feeds, review integrations early, identify required field updates, understand carrier blackout periods and submit change requests as soon as possible. Allow sufficient time for multiple rounds of testing and audit employee elections before files are transmitted.

None of this is glamorous. However, early planning may help reduce manual workarounds, minimize errors and support a smoother payroll and benefits experience during open enrollment and the first payroll cycle of the new plan year.

Build the bench: Bring HR, payroll and HRIS to the same table

Organizations that consistently execute successful open enrollments share one common practice: They do not treat benefits design and HCM configuration as separate workstreams. A plan design that works well on paper can be costly to administer or difficult to implement effectively within the existing system.

Involve human resources information system (HRIS) stakeholders early when developing the organization's total rewards strategy rather than after key decisions have been made.

The same principle applies to payroll. Roth catch-up contributions are a good example. While human resources and finance establish the policy, implementation typically requires coordination across payroll deduction setup, payroll calculations, recordkeeper file feeds and the employee election experience. A breakdown at any stage can create compliance issues and a poor employee experience.

In addition, when implementing wellness reimbursement arrangements, supplemental benefits administered through new vendors, or any program that relies on systems outside the primary HCM platform, organizations should involve the teams responsible for integrations early in the process. Many file feed issues stem from inconsistent data fields or system configurations across integrated platforms rather than carrier-related errors.

Execute an effective open enrollment

Strong planning provides a strong foundation when paired with disciplined execution. Rigorous testing and intentional communication are two practices that consistently distinguish a smooth open enrollment from one that creates unnecessary rework. Key steps include:

Test from the employee’s perspective

Most HCM platforms provide a test environment for open enrollment, allowing organizations to validate configurations without affecting live data. Before launch:

• Test all plan options, coverage tiers, deduction groups and eligibility classes.
• Validate plan configurations, employee workflows and system messaging.
• Address configuration issues before employees begin enrolling.

Thorough testing may help reduce errors, support requests and administrative rework.

Communicate with intent

Open enrollment provides an opportunity to reinforce the value of the organization's benefits program. Use it to:

• Explain required benefit elections and key deadlines.
• Highlight available programs, including student loan repayment assistance, paid family leave and financial wellness resources.
• Clarify OBBBA tip and overtime deductions and the tax reporting information employees will receive.

Start communications early and update prior-year materials to reduce last-minute effort and maintain consistent messaging.

Open enrollment readiness checklist

A successful open enrollment depends on preparation across multiple functions. The checklist below highlights key activities to complete before enrollment begins.

Key steps include:

• Plan documents and rates: Confirm plan documents, benefit rates and payroll deductions are current. Verify reimbursement and contribution limits.
• Eligibility rules: Verify SECURE 2.0 long-term part-time employee eligibility tracking and any classification-based exclusions.
• Roth catch-up readiness: Identify employees subject to the requirement, validate system configuration and prepare employee communications.
• Carrier feeds and vendor integrations: Confirm vendor deadlines, blackout periods and implementation timelines. Audit employee elections before transmitting files.
• Guarantee issue rules and election dependencies: Confirm configurations align with current plan documents.
• Active vs. passive enrollment: Determine the appropriate enrollment approach and configure the system accordingly.
• Total rewards statements: Use statements to communicate the full value of employer-sponsored benefits.
• Testing: Test all plan options, coverage tiers, rate bands and deduction groups. Validate employee workflows and address configuration issues before launch.
• Employee communications: Draft communications early, incorporate updates related to OBBBA and SECURE 2.0 and remind employees to review and update their home addresses.
• Reporting: Confirm required post-enrollment reports are available and validate report accuracy.
• Year-end activities: Complete all required plan-year transition activities and system configurations after open enrollment to support the new plan year.