The compliance calendar never stops for public sector HR professionals. But 2026 is a particularly dense year. A sweeping new federal law has reshaped healthcare account rules. ACA thresholds have shifted again. Pay transparency requirements have expanded into new states. And the One Big Beautiful Bill Act introduced the largest HSA changes in more than two decades, all while state-level requirements for leave, wages, and AI in hiring are simultaneously going into effect.
For state, local, and education employers, this regulatory environment carries an additional layer of complexity. Unlike corporate HR teams that can update policies and push changes quickly, government agencies operate within procurement constraints, collective bargaining obligations, and budget cycles that make mid-year corrections difficult and costly. The time to get ahead of 2026 compliance is now, not after the first audit finding.
This article walks through the most consequential compliance developments for SLED employers in 2026, explains what makes them different in a public sector context, and identifies the administrative infrastructure changes your agency should be making today.
Section 1: The One Big Beautiful Bill Act and What It Means for Your Benefits Program
Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) is the most significant piece of federal benefits legislation in years. The IRS issued Notice 2026-05 in early 2026 providing formal guidance on the new rules, which are now in effect for plan years beginning January 1, 2026. Here is what public sector HR teams need to understand.
HSA Contribution Limits Have Increased
The 2026 HSA contribution limits are $4,400 for self-only coverage (up $100 from 2025) and $8,750 for family coverage, according to isolved’s 2026 federal compliance summary. HDHP minimum deductibles also increased to $1,700 for self-only and $3,400 for family coverage. Agencies offering HSA-qualified HDHPs must update plan documents, Summary Plan Descriptions, and salary reduction agreements for payroll deductions before the next enrollment period.
Bronze and Catastrophic ACA Plans Are Now HSA-Compatible
Effective January 1, 2026, all Bronze and Catastrophic ACA Marketplace plans are automatically classified as qualifying HDHPs for HSA purposes under the OBBBA. HSA Bank’s guidance on the new legislation notes this provision primarily affects employees who purchase individual Marketplace coverage, not employer-sponsored group plans. However, agencies should expect questions during open enrollment from employees who have enrolled in Marketplace plans separately and want to understand their new HSA eligibility. Update your benefits communication materials to address this directly.
Telehealth Safe Harbor Is Now Permanent
The pre-deductible telehealth coverage safe harbor for HSA-eligible HDHPs, which had lapsed and been temporarily reinstated multiple times since the pandemic, is now permanent under the OBBBA, retroactively effective for plan years beginning after December 31, 2024. According to EBC Insights, employers can offer first-dollar telehealth coverage through their HDHPs without jeopardizing employees’ HSA eligibility. Agencies that scaled back telehealth benefits due to the previous eligibility uncertainty should review whether restoring those benefits makes sense for their workforce and budget.
Direct Primary Care Arrangements Are Now HSA-Compatible
Beginning January 1, 2026, employees enrolled in Direct Primary Care (DPC) arrangements, in which individuals pay a fixed monthly fee to a primary care provider for covered services, can now contribute to an HSA and use HSA funds to pay DPC fees, provided the monthly fee does not exceed $150 per individual or $300 per family. The Risk Strategies OBBBA overview notes that DPC fees paid by employers must be reported on employees’ W-2 forms, and plan materials should be updated to reflect that DPC fees are now HSA-eligible expenses. For agencies with employees in areas where DPC arrangements are prevalent, this is a timely compliance item to communicate during open enrollment.
Dependent Care FSA Limits Have Increased
For the first time in nearly 40 years, the Dependent Care FSA contribution limit increases from $5,000 to $7,500 for joint filers (and from $2,500 to $3,750 for those married filing separately) for tax years beginning January 1, 2026, as noted by EBC Insights. For government agencies offering DCFSA benefits, adopting this increase is optional, but those that choose to do so must update their cafeteria plan documents and notify employees before the start of the plan year. Payroll systems must also be updated to reflect the new contribution limits for employees who elect to maximize their DCFSA.
| The OBBBA changes are not self-executing for employers. Each provision requires corresponding updates to plan documents, Summary Plan Descriptions, payroll deduction agreements, carrier communications, and employee-facing materials. For government employers, those updates must happen within procurement and plan amendment timelines that are often longer than in the private sector. |
Section 2: ACA Compliance Updates for 2026
The Affordability Threshold Has Changed
The ACA affordability threshold increases to 9.96% of an employee’s household income for plan years beginning in 2026, per isolved’s federal compliance update. This means that for a government agency to offer health coverage that meets the ACA’s affordability standard, an employee’s required contribution for self-only coverage cannot exceed 9.96% of the applicable safe harbor measure (W-2 wages, rate of pay, or federal poverty line). Agencies using the W-2 safe harbor should verify that their lowest-cost plan option still meets this threshold given any salary changes that occurred in 2025.
ACA Reporting Obligations Remain in Full Effect
Government agencies with 50 or more full-time equivalent employees remain Applicable Large Employers subject to ACA employer mandate reporting. Mandatory electronic filing of Forms 1094-C and 1095-C applies to most government employers. Agencies that have not yet moved to electronic ACA reporting should do so before year-end. Benefits administration platforms with integrated ACA reporting modules can significantly reduce the administrative burden of this process and minimize the risk of late or incorrect filings.
Section 3: Pay Transparency Laws Expanding in 2026
Pay transparency requirements are no longer a West Coast phenomenon. According to Jackson Lewis’s 2026 pay transparency compliance guide, by 2027 at least a dozen states plus multiple cities will require public or applicant-specific disclosure of pay ranges. Several new laws went into effect in 2025 and early 2026, and more are on the horizon.
What Is Already in Effect
As of 2026, sixteen states and Washington D.C. have enacted pay transparency laws, covering more than half the U.S. workforce. Massachusetts requirements took effect October 29, 2025, requiring employers with 25 or more employees to disclose pay ranges in job postings. Vermont’s law, effective July 1, 2025, applies to employers with just five or more employees, the lowest threshold of any state. Illinois requirements for employers with 15 or more employees have been in effect since January 1, 2025.
Why This Matters Specifically for Public Sector Employers
Pay transparency laws are primarily framed around private employer obligations, and many contain carve-outs for positions with pay set by collective bargaining agreements. However, public agencies must understand which positions those exemptions actually cover, and which do not. For non-represented positions, compliance requirements apply in full. For represented positions, the interplay between transparency requirements and bargaining obligations must be analyzed carefully, particularly when pay ranges are set through bargaining and may not be publicly disclosed by the agency.
There is a broader strategic consideration as well. Regardless of whether a specific transparency law applies to your agency in your state, the labor market is increasingly transparent. Candidates comparing public sector positions against private sector alternatives can often find salary ranges for those private employers. Agencies that proactively publish competitive pay ranges, including full total compensation values that account for pension benefits and healthcare contributions, are better positioned to attract talent than those that rely on opacity.
How Benefits Administration Systems Support Pay Transparency Compliance
Accurate, real-time compensation data is the foundation of pay transparency compliance. Agencies that have siloed payroll, benefits, and HR data across disconnected systems cannot easily produce the compensation summaries, pay range analyses, or total rewards statements that transparency compliance and competitive recruitment both demand. A benefits administration platform that integrates with government payroll systems and surfaces compensation data in a unified view gives HR teams the information they need to build compliant, compelling total compensation narratives for both job postings and employee communications.
Section 4: State Leave Law Expansions
Paid leave requirements continue to expand. According to ADP’s 2026 HR compliance trends guide, 17 states and Washington D.C. now require paid sick leave, while 13 states and D.C. have passed paid family leave laws. Delaware, Maine, and Minnesota began paying family leave benefits in 2026, with Maryland following in 2028. Each state has its own accrual formulas, caps, carryover rules, and interaction with existing leave policies.
For multi-jurisdiction government employers, including states with operations across county lines or school districts that employ staff under different local ordinances, tracking the precise requirements for each jurisdiction is a significant compliance burden. This is an area where automated leave tracking integrated with your benefits and payroll platform can meaningfully reduce risk and administrative effort.
Section 5: GASB Reporting Obligations for Pension and OPEB Benefits
While not a 2026 change per se, GASB reporting obligations for pension and Other Post-Employment Benefits (OPEB) remain a constant compliance obligation for public sector employers that many private-sector HR compliance guides do not address at all. The National Association of State Retirement Administrators’ GASB resources page notes that GASB Statements 67, 68, 74, and 75 govern how government employers measure, report, and disclose pension and OPEB liabilities. For agencies managing active and retiree benefits on the same platform, accurate data on enrollment, eligibility, and contribution rates is essential to producing defensible GASB disclosures.
One of the persistent challenges for SLED employers is that their benefits administration data and their financial reporting systems often do not speak to each other directly. HR teams manually export enrollment data to finance teams, who then reconcile it for actuarial and GASB purposes. Benefits administration platforms that maintain clean, auditable enrollment records and generate GASB-compatible reports reduce the friction in this process and decrease the risk of disclosure errors.
Your 2026 Compliance Action Plan
Given the density of changes in 2026, here is a prioritized framework for public sector HR and benefits teams:
- Immediate: Update HSA plan documents, Summary Plan Descriptions, and payroll deduction agreements to reflect the OBBBA changes, including new contribution limits, DPC compatibility, and permanent telehealth safe harbor. Communicate these changes to employees clearly during the next enrollment communication cycle.
- Q2 2026: Verify ACA affordability for all employer-sponsored plans using the new 9.96% threshold. Confirm electronic filing setup for Forms 1094-C and 1095-C. Identify any employees whose contribution levels may now exceed the affordability threshold given 2025 salary changes.
- Ongoing: Audit your state leave law compliance posture for every jurisdiction where your agency employs staff. Map accrual policies, caps, and interaction rules. Update employee handbooks where required.
- Talent strategy: Evaluate pay transparency positioning for your agency, including whether proactively publishing pay ranges, even where not legally required, improves your competitiveness in the current labor market.
- Data infrastructure: Assess whether your current benefits administration and payroll systems can produce the data you need for ACA reporting, GASB disclosures, and pay transparency compliance in a timely, accurate, and auditable way. If manual reconciliation is required for any of these, that is the compliance risk to address first.
| For public sector employers, compliance is not just a legal obligation. It is an operational commitment that requires accurate data, integrated systems, and enough lead time to work through procurement and plan amendment processes before deadlines arrive. Building that infrastructure is a multi-year investment, and 2026 is a good year to start. |
The Bottom Line
2026 is a year of meaningful regulatory change for every employer. For public sector HR teams, the stakes are higher because the margin for error is smaller. Fixed budgets, collective bargaining timelines, and audit exposure mean that compliance gaps in benefits administration are not just administrative inconveniences. They are financial risks and workforce trust issues.
Bentek has built a benefits administration platform designed from the ground up for the compliance requirements, data structures, and operational constraints of state, local, and education employers. If you are looking at your 2026 compliance calendar and wondering whether your current systems and processes can keep pace, we would be glad to walk you through what a purpose-built approach looks like.